UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
x
|
REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
☐ | ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended | Commission File Number |
CI Financial Corp.
(Exact name of Registrant as specified in its charter)
Ontario | 6199, 6282 | Not Applicable | ||
(Province or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
2 Queen Street East
Twentieth Floor
Toronto, Ontario, Canada
M5C 3G7
(416) 364-1145
(Address and telephone number of Registrant’s principal executive offices)
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
(302) 738-6680
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
Copies to:
Stephen F. Arcano, Esq. June S. Dipchand, Esq. Ryan J. Dzierniejko, Esq. Skadden, Arps, Slate, Meagher & Flom LLP One Manhattan West New York, New York 10001 (212) 735-3000 |
John Wilkin, Esq. Brendan D.G. Reay, Esq. Blake, Cassels & Graydon LLP 199 Bay Street Suite 4000, Commerce Court West Toronto, Ontario M5L 1A9 Canada (416) 863-2400 |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Shares | CIXX | New York Stock Exchange |
Securities
registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this Form:
☐ Annual information form | ☐ Audited annual financial statements |
Indicate the number of outstanding shares of each of the Registrant’s classes of capital or common stock as of the close of the period covered by this annual report:
N/A
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ¨ No x
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Yes ¨ No ¨
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
Emerging growth company. ¨
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
¨
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Registration Statement on Form 40-F and the exhibits attached hereto (this “Registration Statement”) are forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are subject to risks, uncertainties and contingencies that could cause actual results to differ materially from those expressed or implied. Investors are cautioned not to put undue reliance on forward-looking statements. Applicable risks and uncertainties include, but are not limited to, those identified under the heading “Risk Management” in each of the Registrant’s Management’s Discussion & Analysis for the year ended December 31, 2019 and the Registrant’s Management’s Discussion & Analysis for the period ended June 30, 2020 (the "Q2 MD&A"), attached hereto as Exhibits 99.6 and 99.16, respectively, and incorporated herein by reference, and in other filings that the Registrant has made and may make with applicable securities authorities in the future. Additionally, the safe harbor provided in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), applies to forward-looking information provided pursuant to “Off-Balance Sheet Arrangements” and “Tabular Disclosure of Contractual Obligations” in this Registration Statement. Please also see page 3 of the Q2 MD&A, which is incorporated herein by reference. Except as required by applicable law, the Registrant does not intend, and undertakes no obligation, to update any forward-looking statements to reflect, in particular, new information or future events, or otherwise.
DOCUMENTS FILED AS PART OF THIS REGISTRATION STATEMENT
The documents filed as Exhibits 99.1 through 99.62 contain all information material to an investment decision that the Registrant, since January 1, 2019: (i) made or was required to make public pursuant to the laws of any Canadian jurisdiction; (ii) filed or was required to file with the Toronto Stock Exchange (the “TSX”) and which was made public by the TSX; or (iii) distributed or was required to distribute to its security holders. The Registrant has filed the consent of Ernst & Young LLP as Exhibit 99.63.
DESCRIPTION OF COMMON SHARES
The required disclosure containing a description of the securities to be registered is included under the headings “Description of Capital Structure—Common Shares," and "Dividends" in the Registrant's Annual Information Form, dated March 1 2020, attached hereto as Exhibit 99.4.
DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES
The Registrant is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this report in accordance with Canadian disclosure requirements, which are different from those of the United States. The Registrant prepares its consolidated financial statements, which are filed with this report on Form 40-F in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and the audit is subject to Canadian auditing and auditor independence standards.
CURRENCY
Unless otherwise indicated, all dollar amounts in this Registration Statement are in Canadian dollars. The exchange rate of Canadian dollars into United States dollars, on December 31, 2019, based upon the daily average closing rate as quoted by the Bank of Canada, was U.S.$1.00 = Cdn$1.3269. The exchange rate of Canadian dollars into United States dollars, on November 3, 2020, based upon the daily average closing rate as quoted by the Bank of Canada, was US$1.00 = Cdn$1.3145.
TAX MATTERS
Purchasing, holding, or disposing of securities of the Registrant may have tax consequences under the laws of the United States and Canada that are not described in this Registration Statement.
OFF-BALANCE SHEET ARRANGEMENTS
The Registrant does not have any “off-balance sheet arrangements” (as that term is defined in paragraph 11(ii) of General Instruction B to Form 40-F) that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
1
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following is a summary of the Registrant’s contractual obligations as of December 31, 2019:
Payments due by period (Cdn$ in millions) | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Long-Term Debt Obligations | 1,610.0 | 450.0 | 235.0 | 675.0 | 250.0 | |||||||||||||||
Capital (Finance) Lease Obligations | 82.2 | 13.8 | 26.3 | 25.3 | 16.8 | |||||||||||||||
Operating Lease Obligations | 0.1 | 0.1 | – | – | – | |||||||||||||||
Purchase Obligations | 242.2 | 242.2 | – | – | – | |||||||||||||||
Dividends Payable | 79.8 | 79.8 | – | – | – | |||||||||||||||
Other Current-Term Liabilities Reflected on the Registrant’s Balance Sheet | 368.3 | 368.3 | – | – | – | |||||||||||||||
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet | 7.5 | 2.5 | 5.0 | – | – | |||||||||||||||
Total | 2,390.1 | 1,156.7 | 266.3 | 700.3 | 266.8 |
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
A. Undertaking
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
B. Consent to Service of Process
A Form F-X signed by the Registrant and its agent for service of process is being filed with the Commission together with this Registration Statement.
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EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized.
Date: November 4, 2020 | CI FINANCIAL CORP. | ||
By: | /s/ Kurt MacAlpine | ||
Name: | Kurt MacAlpine | ||
Title: | Chief Executive Officer and Director |
Exhibit 99.1
CI FINANCIAL CORP.
ANNUAL INFORMATION FORM
March 1, 2019
CI FINANCIAL CORP.
ANNUAL INFORMATION FORM
March 1, 2019
TABLE OF CONTENTS
CI FINANCIAL CORP. | (i) |
Explanatory notes | 1 |
Forward-looking information | 1 |
CORPORATE STRUCTURE | 2 |
Name, Address and Formation | 2 |
Intercorporate Relationships | 2 |
Corporate Chart | 3 |
GENERAL DEVELOPMENT OF THE BUSINESS | 3 |
Three Year History | 3 |
Recent Developments | 3 |
DESCRIPTION OF THE BUSINESS | 4 |
General | 4 |
Asset Management Segment | 5 |
Asset Administration Segment | 10 |
Employees | 12 |
RISK MANAGEMENT | 12 |
DESCRIPTION OF CAPITAL STRUCTURE | 13 |
Common Shares | 13 |
Preference Shares | 13 |
Debentures | 13 |
Ratings | 15 |
DIvidends | 16 |
Current Dividend Policy | 16 |
Historical Dividend Record | 16 |
MARKET FOR SECURITIES | 17 |
Trading Price and Volume | 17 |
DIRECTORS AND OFFICERS | 18 |
EXECUTIVE OFFICERS | 23 |
Corporate Cease Trade Orders or Bankruptcies | 24 |
Penalties and Sanctions | 24 |
LEGAL PROCEEDINGS and regulatory actions | 25 |
Legal Proceedings | 25 |
Regulatory Actions | 25 |
TRANSFER AGENT AND REGISTRAR | 25 |
MATERIAL CONTRACTS | 25 |
INTERESTS OF EXPERTS | 26 |
( i )
Audit and risk Committee Information | 26 |
Audit and Risk Committee’s Charter | 26 |
Composition of the Audit and Risk Committee | 26 |
Relevant Education and Experience | 26 |
Pre-Approval Policies and Procedures | 27 |
ADDITIONAL INFORMATION | 28 |
General | 28 |
APPENDIX “A” | A-1 |
( ii )
Explanatory notes
Unless otherwise stated, the information in this annual information form is presented as of December 31, 2018 and all references to the Corporation’s fiscal year are to the year ended December 31, 2018.
In this annual information form, unless the context otherwise requires, all references to the Corporation are to CI Financial Corp. and, as applicable, its predecessors, CI Financial Income Fund and CI Financial Inc. and references to CI or the CI Group are to the Corporation and its predecessors together with the entities and subsidiaries controlled by it and its predecessors.
Forward-looking information
This annual information form contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI and its products and services, including its business operations, strategy and financial performance and condition. When used in this annual information form, such statements use such words as “may”, “will”, “expect”, “believe”, and other similar terms. These statements are not historical facts but instead represent management’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond management control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described under “Risk Management” or discussed in other materials filed by the Corporation with applicable securities regulatory authorities from time to time, including Management’s Discussion and Analysis of the Corporation’s interim and annual financial statements. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. The reader is cautioned against undue reliance on these forward-looking statements. For a more complete discussion of the risk factors that may impact actual results, please refer to the “Risk Management” section of the Management’s Discussion and Analysis accompanying the Corporation’s annual financial statements.
Except as otherwise stated, these statements are made as of the date of this document and, except as required by applicable law, management and the board of directors of the Corporation (the “Board of Directors” or “Board”) undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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CORPORATE STRUCTURE
Name, Address and Formation
The Corporation is the successor to CI Financial Income Fund (the “Fund”), following the completion of the conversion of the Fund from an income trust to a corporate structure by way of a court-approved plan of arrangement under the Business Corporations Act (Ontario) (the “OBCA”) on January 1, 2009 (the “Conversion”). The Fund had been created effective June 30, 2006 when CI Financial Inc. converted to an income trust. The Conversion effectively reversed this income trust conversion.
The Corporation was incorporated under the OBCA on November 12, 2008 and did not carry on any active business prior to the Conversion, other than executing the arrangement agreement pursuant to which the Conversion was implemented.
On April 20, 2017, at the Annual and Special Meeting of Shareholders, shareholders confirmed the adoption of By-Law No. 2 of the Corporation, previously approved by the Board on February 16, 2017, amending the Corporation’s By-Law No. 1 to increase the quorum requirement for meetings of Shareholders to two persons present in person or by proxy holding or representing not less than 25% of the outstanding Shares of the Corporation entitled to vote at the meeting;
The registered and head office of the Corporation is 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7.
Intercorporate Relationships
The principal business of the Corporation is carried on through its subsidiaries, CI Investments Inc. (“CI Investments”), First Asset Investment Management Inc. (“First Asset”), Marret Asset Management Inc. (“Marret”), Assante Wealth Management (Canada) Ltd. (“AWM”), CI Private Counsel LP (“CIPC”), Grant Samuel Funds Management Pty Limited (“GSFM”), BBS Securities Inc. (“BBS”), and WealthBar Financial Services Inc. (“WealthBar”).
The table below shows the principal entities controlled by the Corporation as at December 31, 2018, including (i) the percentage of votes attaching to all voting securities of the entity beneficially owned, controlled or directed by the Corporation, and (ii) the jurisdiction of incorporation or formation:
Entity |
Jurisdiction |
Ownership % |
CI Investments Inc. | Ontario | 100% |
Assante Wealth Management (Canada) Ltd. | Canada | 100% |
Corporate Chart
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GENERAL DEVELOPMENT OF THE BUSINESS
Three Year History
The Corporation is one of Canada’s largest independent and diversified wealth management companies. Over the last three years, CI has continued to evolve within the rapidly changing investment industry, while focusing on growing its business, expanding its capability and becoming a leading global wealth management firm based in Canada. CI continues to make significant investments in key areas of the business to drive growth, and broaden revenue opportunities while controlling expenditures. Over the past three years, assets under management increased 12% from $111.1 billion to $124.4 billion at December 31, 2018 and assets under administration at CI’s subsidiary AWM increased 21% to $38.5 billion.
CI’s success over the past three years is due in large part to the scale and diversity of its product line-up, the strength of its portfolio management teams, its close relationships with distribution partners, both affiliated and independent, and strategic acquisitions. As the industry has become increasingly competitive, CI has responded by committing resources to those areas that are critical to our growth. CI has recruited top-ranked portfolio management talent to ensure that it can offer a comprehensive range of investment approaches and expertise in specific areas giving our clients a wide choice of styles, products and advice all within the CI brand. AWM and CIPC continue to invest in wealth planning and advisor recruitment.
Recent Developments
Acquisition of WealthBar
On January 23, 2019, the Corporation completed its acquisition a 75% stake in WealthBar, a leading Canadian online wealth management and financial planning platform. WealthBar has developed a best-in-class digital advice platform with industry-leading tools and services and a superior client experience. WealthBar builds on the Corporation’s investment in its comprehensive digital strategy and continued innovation across the CI Group.
Retirement of President
On December 10, 2018, the Corporation announced that Sheila Murray, President of the Corporation, would be retiring effective March 31, 2019. She will remain a member of the board of directors of the Corporation following her retirement. In addition to his current role as Chief Executive Officer, Peter Anderson will be appointed President of the Corporation effective upon Ms. Murray’s departure.
Acquisition of BBS
On November 1, 2017, the Corporation acquired 100% of the shares of BBS Securities Inc. and associated entities (the “BBS Acquisition”), including Pario Technology Corp., a financial technology company and top-ranked online brokerage (operating under the brand name Virtual Brokers). BBS provides a wide range of services to retail and institutional investors using a proprietary system that is one of the most technologically advanced and efficient brokerage platforms in the Canadian market.
Acquisition of Sentry
On October 2, 2017 the Corporation directly and indirectly acquired 100% of the shares of Sentry Investments Inc. (“Sentry”) and Sentry Investments Corp. (the “Sentry Acquisition”). This acquisition was considered a significant acquisition for the purposes of securities law and, accordingly, CI filed a Business Acquisition Report on December 6, 2017, through SEDAR. Sentry offers a diverse range of investment products and solutions through financial advisors and investment dealers, as well as portfolio management services to a variety of institutional clients. At closing, Sentry managed a lineup of over 45 mutual fund mandates and other investment solutions with approximately $19 billion in assets (as of October 2, 2017). CI has maintained Sentry as a standalone brand within the CI Investments lineup of portfolio managers and funds.
Industry Recognition
CI Investments continued to receive industry recognition for performance. From 2016-18, CI Investments received 89 FundGrade A+ Awards and 18 Lipper Fund Awards.
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DESCRIPTION OF THE BUSINESS
General
CI is an independent Canadian company offering global asset management and wealth management advisory services. CI is well diversified with a strong presence in both the Canadian asset management and advisory businesses. CI is also diversified internationally through its subsidiary GSFM, an investment fund manager operating in Australia and New Zealand.
Within the Canadian asset management industry, CI’s strengths include a wide selection of portfolio management teams that operate independently of one another and offer distinct investment approaches. This multi-manager model is a key factor distinguishing CI within the Canadian marketplace. CI also offers a comprehensive product lineup diversified by portfolio manager, asset class, geographic region, investment approach, and by platform, including various classes of mutual funds, segregated funds and exchange-traded funds. CI distributes its products to Canadian investors through multiple channels, including the institutional investment market and through retail dealers and advisors across Canada. Through the acquisition of a 75% stake in WealthBar, CI also offers investors access to a best-in class digital advice platform.
Within asset administration, CI offers a strong value proposition. AWM and CIPC focus on providing clients with an integrated approach to wealth planning that includes financial planning, wealth management, estate and succession planning and insurance services in addition to investment management.
CI’s asset management operations are conducted through its subsidiaries CI Investments, First Asset Marret, CIPC, and, in Australia, through GSFM. Asset administration is conducted through its subsidiary AWM.
The asset management segment provides the majority of CI’s income and derives its revenues principally from the fees earned on the management of several families of mutual, segregated, pooled, exchange-traded, and closed-end funds, and discretionary accounts. The asset administration segment derives its revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients and capital market activities.
CI Investments is an investment fund management company engaged in the business of sponsoring, managing, distributing and administering investment funds in Canada. These products are distributed primarily through brokers, independent financial planners and insurance advisors, including AWM and CIPC financial advisors. CI Investments is also a portfolio manager and exempt market dealer.
AWM’s subsidiaries include financial services distribution companies engaged in the business of providing financial planning, investment advice, wealth management, estate and succession planning and insurance services.
As at December 31, 2018, CI, through its subsidiaries, managed over 200 core mutual/pooled funds and over 45 exchange-traded funds, closed-end investment funds or limited partnerships which are sold under various fund family names, including Black Creek Funds, Cambridge Funds, CI Funds, CI LifeCycle Portfolios, First Asset Funds, Grant Samuel Funds, Harbour Funds, Marret Funds, Portfolio Series, Portfolio Select Series, Sentry Funds, Signature Funds, Synergy Funds, Assante Private Client Managed Portfolios, Stonegate Private Client Managed Portfolios, Evolution Private Managed Portfolios, and United Funds. All the CI funds, with the exception of the Grant Samuel Funds, are collectively hereafter referred to as the “Managed Funds”. For more information about GSFM and the Grant Samuel Funds, please refer to the “International Operations” section of this annual information form. CI Investments also manages or administers segregated funds, and acts as portfolio sub-advisor to other institutions.
As at December 31, 2018, CI Investments had $124.4 billion assets under management.
As at December 31, 2018, AWM, through its subsidiaries Assante Capital Management Ltd., Assante Financial Management Ltd. and Assante Estate and Insurance Services Inc., administered approximately $38.5 billion in mutual funds, stocks, bonds, GIC’s, insurance products and other investments for its clients.
CI Investments is committed to responsible investing. It is a signatory to the United Nations-supported Principles for Responsible Investment, as well as an Associate Member of the Responsible Investment Association, Canada’s membership association for responsible investment. CI Investments has a formal Responsible Investment Policy that addresses the integration of environmental, social and governance factors into its decision-making process when making investments for the Managed Funds.
CI’s financial results are driven primarily by the level of its assets under management, which are in turn driven by the returns earned by its funds and the net sales of the funds. As at December 31, 2018, the CI Group managed and advised on approximately $166.4 billion on behalf of more than 1.3 million investors.
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Asset Management Segment
Summary
The Asset Management segment is comprised of CI Investments, Marret, and First Asset (collectively, “Fund Managers”), CIPC and GSFM. The Managed Funds are offered primarily through investment dealers, mutual fund dealers, and insurance advisors, including AWM financial advisors, in all jurisdictions in Canada. GSFM offers investment products to investors in Australia and New Zealand. Financial information regarding the Asset Management segment is provided in the Corporation’s annual financial statements for the fiscal year ended December 31, 2018 and related Management’s Discussion and Analysis, which are available on SEDAR at www.sedar.com.
Products and Services
Managed Funds
As at December 31, 2018, the Fund Managers managed over 250 Managed Funds. The Managed Funds are sold or available for sale in all provinces and territories of Canada. CI Investments also administers segregated funds and manages underlying funds of segregated funds.
The CI Group offers Canadian investors a wide range of Canadian investment products through a network of investment dealers, mutual fund dealers, and insurance agents, which include AWM financial advisors. The vast majority of the Managed Funds are managed by five separate groups of in-house portfolio managers who are all employees of CI Investments. Certain other Managed Funds are managed by Marret, First Asset, or third-party investment advisory firms. All of the portfolio managers are supported by a team of marketing, administrative and technical specialists. The diversity of the Managed Funds allows CI to take advantage of the expected continued growth in the Canadian investment fund industry.
Management of the Managed Funds
The Fund Managers are promoters and managers of each of their respective Managed Funds. Each Fund Manager provides all of the management services required by the Managed Funds managed by it, including managing or arranging for the management of investment portfolios, marketing, keeping of securityholder records and accounts, reporting to securityholders and processing transactions relating to the purchase, transfer and redemption of securities of such Managed Funds.
The Fund Managers have each entered into management agreements with each of their respective Managed Funds. For the management and administrative services provided to each Managed Fund, the relevant Fund Manager is generally paid a fee based on the average daily net asset value of each of such Managed Fund. The net asset value of a Managed Fund depends primarily on the market value of its portfolio investments. The management fees paid to the Fund Managers are comparable to other management fees charged in the Canadian investment fund industry.
In general, with the exception of certain exchange traded funds managed by First Asset, the Managed Funds are responsible for their own administrative and operating expenses including, without limitation, audit and legal fees, registry and transfer agency fees, custodian fees, portfolio and investment costs, expenses relating to communication with securityholders, all costs imposed by statute or regulation, and applicable Goods and Services Tax and Harmonized Sales Tax, where applicable. CI Investments has agreed to bear all of the operating expenses of the open-end mutual funds managed by CI Investments (other than certain taxes, borrowing costs, new governmental fees and forward contract costs) in return for fixed annual administration fees.
Portfolio Managers
The Fund Managers currently use in-house and third-party investment managers to provide investment advice regarding the investment portfolios of the Managed Funds. Pursuant to investment advisor agreements between the Fund Managers and certain investment management firms, the Fund Managers have retained third-party investment management firms to provide advice regarding the investment portfolios of certain Managed Funds. In general, the Fund Managers pay third-party investment management firms an annual fee equal to a percentage of the net asset value of the Managed Funds. Generally, these rates are reduced as the net asset value exceeds certain specified levels.
Distribution and Marketing of the Managed Funds
Like other asset management companies not affiliated with financial institutions, the Fund Managers rely on investment dealers and mutual fund dealers for the sale of securities of the Managed Funds. CI also has relationships with life insurance agents who are licensed to sell mutual funds and who sell individual variable annuity contracts and variable annuity policies (segregated funds) administered by CI.
The management of CI believes that the following are important factors of the asset management segment: diversity of products offered by the CI Group; experience and acknowledged success of the investment managers of the Managed Funds; service levels provided to the dealer and the investor; and performance of the Managed Funds. CI Investments focuses on service and assistance to dealers and agents who are selling the Managed Funds, including providing materials to communicate the important features of the Managed Funds to investors and providing access to the investment managers.
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With the exception of exchange traded funds managed by First Asset, the Fund Managers generally pay trailer fees to assist dealers in providing ongoing service to clients. These fees are payable to dealers in respect of their sales representatives who have client assets in qualifying Managed Funds throughout a calendar month. Payment is made either monthly or quarterly and is equal to a percentage of the total client assets of such sales representatives throughout the month.
CI Investments will also assist dealers and their representatives in marketing the Managed Funds. This marketing assistance is subject to regulatory requirements and may be discontinued or modified at any time.
Sales Charges Relating to the Distribution of the Managed Funds
For certain Managed Funds, investors may choose to purchase securities under the deferred sales charge method or under the initial sales commission method.
In general, if the investor purchases under the deferred sales charge method, no initial commission is paid, the entire investment is invested in securities and, upon redemption within seven years of purchase, a redemption fee will be deducted from the proceeds of redemption. On redemption, the redemption fee is calculated as a percentage of the net asset value at the time of the issue of the securities, which percentage decreases, for the standard deferred sales charge option, over a seven-year period from 5.5% in the first year to nil at the end of the period, and for the low-load sales charge option, over a three-year period from 3.0% in the first year to nil at the end of the period. The redemption fee will be deferred in respect of redemptions of securities of a Managed Fund up to a maximum established by the Fund Managers from time to time.
In general, if the investor purchases securities of the Managed Funds under the initial sales commission method, a sales commission is paid at the time of purchase and no commission is charged at the time of redemption. For purchases of securities of the Managed Funds under the initial sales commission method, the commission is negotiable between the dealer and the investor, with the maximum generally ranging from 1% to 5%. No fees or charges are otherwise deducted by the Managed Funds on redemption except for applicable short-term trading fees and in the case of a registered plan or on a transfer to other Managed Funds.
Specialized Skill and Knowledge
The Fund Managers have highly skilled and experienced employees necessary to meet the challenges of the evolving asset management industry. CI has the expertise to continue to meet the investment needs of its clients, develop new products, increase market share penetration through targeting of knowledgeable, successful investment dealers, mutual fund dealers and life insurance agents and other alternative distribution channels, and enhance investor awareness. CI’s objective is to continue to offer a wide range of investment products that are managed by a diversified group of investment advisors and build on its strength in both international and domestic equity, income and balanced fund products. CI Investments’ experienced sales and marketing teams have been instrumental in enabling CI Investments to achieve market share growth through the investment dealer and mutual fund dealer network and life insurance agents.
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To handle future growth, CI will continue, as appropriate, to upgrade its advanced information systems and increase internal training and development, all with the objective of ensuring that it provides accurate and timely service to registered dealers and agents selling the Fund Managers’ products and to investors. As a result of these investments and other efficiencies, CI believes that the Fund Managers will not have to increase their personnel in the same proportion as the growth in assets of the Managed Funds under their management.
Competitive Conditions
The Canadian mutual fund industry has grown from $3.6 billion to $1.4 trillion of mutual fund assets during the period from December 1980 to December 2018 (according to The Investment Funds Institute of Canada (“IFIC”).
The long-term growth in the mutual fund industry is attributable to many factors, including a decline in inflation, lower interest rates, increased marketing of mutual funds and demographic trends. Government policies, at both the federal and provincial levels, also are contributing significantly to this growth by encouraging Canadians to save for retirement by increasing contribution limits for registered plans.
The growth in the mutual fund industry has resulted in increased competition. Over time, the market has developed into distinct segments: mutual fund groups owned by chartered banks and insurance companies; and the independent mutual fund groups. According to data from IFIC, as at December 31, 2018, mutual fund companies owned by chartered banks and insurance companies have significantly increased their market share over the past decade. Several foreign-owned mutual fund groups also operate in Canada and the presence of well-capitalized foreign mutual fund groups in the Canadian fund industry has also increased competition.
More recently, the industry has been affected by the rapid growth of exchange-traded funds (“ETFs”) and the entrance of automated investment platforms or “robo-advisors.” Assets held in Canadian-listed ETFs have increased from $89.6 billion in December 2015 to $156.8 billion as of December 31, 2018, according to the Canadian ETF Association. In addition, there were 33 firms sponsoring ETFs in Canada, an increase from 28 a year earlier, according to the Association. Sponsors include a number of Canadian banks and investment firms, as well as foreign-owned asset managers. While ETFs can be the vehicle for a variety of investment mandates, they generally have significantly lower management fees overall when compared to mutual funds. CI entered the ETF market in 2015 with the purchase of First Asset.
Automated investment platforms are online platforms that typically offer low-cost investment portfolios that are automatically rebalanced. They generally reduce costs by investing in ETFs and by minimizing the range of wealth management services they offer. These platforms are relatively new to the Canadian market. CI acquired a 75% stake in WealthBar, a leading Canadian participant in this space.
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A discussion on competitive conditions affecting CI also appears under the heading “Risk Management – Competition” in the Management’s Discussion and Analysis for the year ended December 31, 2018, available on SEDAR at www.sedar.com.
There has been significant consolidation among Canadian mutual fund management companies, driven by a desire to achieve economies of scale in marketing, distribution and administration. The consequences of this consolidation include:
(a) | a decline in the number of mutual fund and institutional asset management companies listed on the Toronto Stock Exchange (“TSX”); |
(b) | a segmentation of the industry into two distinct parts: mutual fund management groups owned in whole or in part by chartered banks, insurance companies, or other large domestic and foreign groups, and independent mutual fund management companies; and |
(c) | an increasing concentration of the larger industry participants in terms of mutual fund assets under management. As at December 31, 2017, the 10 largest Canadian mutual fund management companies controlled approximately 75% of the total industry mutual fund assets under management, according to IFIC. |
The mutual fund industry is facing public and regulatory pressure to improve the transparency of fees paid by investors. Effective July 15, 2016, the Client Relationship Model Phase 2 (“CRM2”) amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations came into force. The CRM2 amendments introduced new requirements for dealers for client statements, charges and compensation disclosure, and performance reporting.
The following table sets forth the aggregate net asset value for the Canadian mutual fund industry and CI Investments’ aggregate relative position in the Canadian mutual fund industry.
Mutual Fund Assets
As at December 31, 2018 (in billions of dollars except percentages) |
||||
Total Canadian mutual fund industry(1) | $ | 1,423.1 | ||
CI Investments’ total assets under management | $ | 124.4 | ||
CI Investments’ total assets under management as an aggregate % of total industry | 8.7 | % |
Notes:
(1) | Source: IFIC and CI Financial. |
In Canada, the investment management industry, and in particular the mutual fund segment, is a highly-regulated industry. Applicable securities legislation imposes restrictions on, among other things, incentives that may be offered to dealers and the forms of advertising which may be used by mutual fund managers, and also imposes disclosure and reporting requirements on the Managed Funds. A discussion of regulatory and legal risks affecting CI appears under the heading “Risk Management – Regulatory and Legal Risk” in the Management’s Discussion and Analysis for the year ended December 31, 2018, available on SEDAR at www.sedar.com.
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New Products
In 2018, CI Investments launched its first liquid alternative mutual funds. These funds provide retail investors access to alternative investment strategies – often used by hedge funds – that have typically only been available to institutional and accredited investors. They incorporate certain hedge-fund investment strategies such as short-selling, leverage and derivatives, but still provide daily liquidity.
In 2018, CI Investments also launched CI Private Pools, a platform of 17 focused mandates designed to meet the needs of affluent and high net worth investors. The pools represent differentiated mandates that draw on CI Investment’s broad lineup of portfolio management teams and their deep experience and specialized expertise. As a result, these mandates offer exposure to strategies that are not easily replicated by individual investors.
In the year ended December 31, 2018, CI Investments introduced the following new funds: Global Equity Allocation Pool, International Equity Alpha Pool, US Equity Alpha Pool, Cambridge Canadian Long-Term Bond Pool, Signature Systematic Yield Pool, CI Canadian Equity Private Pool, CI Global Concentrated Equity Private Pool, CI Global Equity Alpha Private Pool, CI Global Equity Momentum Private Pool, CI Global Smaller Companies Private Pool, CI International Equity Alpha Private Pool, CI International Equity Growth Private Pool, CI International Equity Value Private Pool, CI North American Small/Mid Cap Equity Private Pool, CI U.S. Equity Private Pool, CI Global Asset Allocation Private Pool, CI Global Balanced Yield Private Pool, CI Canadian Fixed Income Private Pool, CI Global Enhanced Government Bond Private Pool, CI Global High Yield Credit Private Pool, CI Global Investment Grade Credit Private Pool, CI Global Unconstrained Bond Private Pool, Lawrence Park Alternative Investment Grade Credit Fund, Marret Alternative Absolute Return Bond Fund, Munro Alternative Global Growth Fund, Canadian Equity Alpha Pool, International Equity Value Currency Hedged Pool, and US Equity Value Currency Hedged Pool.
In the year ended December 31, 2018, First Asset introduced the following new exchange-traded funds: First Asset Health Care Giants Covered Call ETF, and First Asset Enhanced Government Bond ETF.
International Operations
CI acquired GSFM on November 15, 2016. GSFM offers investment products to investors in Australia and New Zealand in partnership with investment managers in Australia and around the world, further adding to the suite of products offered by CI. GSFM specializes in marketing investment products managed by Australian and global managers to Australian and New Zealand investors. GSFM enters into exclusive relationship agreements with fund managers and provides marketing, distribution and client relations services for investment funds and mandates in Australia and New Zealand in exchange for fees. GSFM currently manages six funds, distributes six others, and had A$5.9 billion in assets under management at December 31, 2018.
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Intangible Properties
CI Investments owns a number of registered and unregistered trade-marks such as CI Investments, CI Funds, CI Preferred Pricing, Synergy Funds, Harbour Funds, Signature Funds, United Pools, Optima Strategy, and Cambridge. These trade-marks are important elements in differentiating the Managed Funds from CI Investments’ competitors and marketing the Managed Funds to clients and advisors.
Asset Administration Segment
Summary
The Asset Administration segment, carried on by AWM and its subsidiaries, along with CIPC, offers clients in Canada a wide range of products and services, which encompass a multidisciplinary approach to financial planning, investment advice, wealth management, estate and succession planning and insurance services. Financial information regarding the Asset Administration segment is provided in the Corporation’s annual financial statements for the fiscal year ended December 31, 2018 and related Management’s Discussion and Analysis, which are available on SEDAR at www.sedar.com. Results of CIPC are not included as part of the Asset Administration segment for financial reporting purposes.
Products and Services
The principal businesses of AWM, its subsidiaries, and CIPC is the provision of products and services tailored to meet the specific objectives and the financial planning and financial management needs of their clients. These products and services are developed and/or distributed through AWM, its subsidiaries, and CIPC which include a securities dealer, a mutual fund dealer and insurance agents.
AWM’s affiliates provide a wide range of products and services, including portfolio management, investment advisory services, distribution of securities (including mutual funds), insurance products and wealth management, including financial, philanthropic, tax and estate planning services.
AWM’s unique distribution strategy and operating platform distinguish it in its sector. Its distribution network provides AWM direct access to experienced advisors with an established and growing base of clients. Through these advisors, many of those clients are electing to delegate responsibility for portfolio management, manager selection and monitoring, and wealth management to AWM’s core group of investment and wealth management professionals.
AWM’s operating platform is designed to allow the advisor to work with a team of professionals to provide best-in-class advice and one-stop solutions for many of the increasingly complicated and sophisticated needs of its clients.
AWM’s products and services are built on a foundation of some combination of portfolio management, investment advice, distribution of securities, insurance products, banking products and financial, tax, succession, wealth and estate planning. The principal markets for AWM’s products and services are affluent and high net-worth individuals residing in Canada.
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CIPC provides discretionary investment counsel services to high net worth and ultra high net worth clients. These investment and wealth planning services may be accessed by AWM advisors on behalf of their clients, or directly through Stonegate Private Counsel.
Specialized Skill and Knowledge
AWM and CIPC have highly-skilled and experienced advisors and employees necessary to meet the challenges of the evolving investment advisory industry. AWM and CIPC believe they have the expertise to continue to meet the specific objectives and the financial planning and financial management needs of their clients, to increase market share penetration through targeting mass affluent and affluent segments of the Canadian investor landscape, and to enhance investor understanding of the elements necessary to provide financial well-being. AWM and CIPC’s objectives are to continue to offer a complete suite of wealth management services to their clients to assist them in achieving their financial goals.
To handle future growth, AWM and CIPC will continue, as appropriate, to upgrade their advanced information systems and increase training and development for their advisors and employees, as well as continuing to enhance their compliance infrastructure to promote stronger governance, all with the objective of ensuring that they provide accurate and timely service to their advisors and clients.
Competitive Conditions
The financial services industry is very competitive with many institutions and companies such as banks, trust companies, insurance companies, portfolio managers, security brokerage companies and mutual fund dealers all competing for the business of affluent clients. In addition, foreign-based mutual fund companies and banks have also established operations in Canada. The financial services industry in Canada has also moved toward offering comprehensive fee-based investment management services for clients.
AWM experienced another year of positive net sales, particularly in the nigh net-worth segment. AWM has had success in building brand awareness and increased recruiting activities. AWM believes that it is well-positioned in terms of its competitors in the marketplace. While there is a large number of organizations providing financial advisory and financial management services or manufacturing investment products, very few of them are similar to AWM in providing financial product manufacturing integrated with the delivery of a full menu of products and services (including proprietary products) through their own distribution network. The operation of a unified financial advisory business in Canada is designed to provide synergies and economies of scale for AWM’s wealth management programs and financial advisor network. A discussion of competitive conditions affecting AWM also appears under the heading “Risk Management – Competition” in the Management’s Discussion and Analysis for the year ended December 31, 2018, available on SEDAR at www.sedar.com.
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Intangible Properties
AWM, through CI Investments, owns certain registered and unregistered trade-marks such as Assante and Assante Wealth Management. These trade-marks are important elements in differentiating AWM’s services from those offered by its competitors.
Cycles
Generally, revenues are consistent throughout the year, with a slight increase in the first quarter due to increased investment activity during the Canadian RRSP season.
Employees
As at December 31, 2018, 1,799 people were employed by the CI Group.
RISK MANAGEMENT
There is risk inherent in the conduct of a wealth management business. Some factors which introduce or exacerbate risk are within the control of management and others are, by their nature, outside of CI’s direct control but must still be managed. Effective risk management is a key component to achieving CI’s business objectives and protecting CI and client assets. It is an on-going process involving the Board of Directors, the Chief Risk Officer, and CI’s Risk Management Committee, comprised of senior executives representing CI’s business units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board of Directors.
Monitoring, evaluating and managing risk is a shared responsibility at CI. The Risk Management Committee and Risk Management Team work together to manage risk and ensure that business strategies and activities are consistent with CI’s risk appetite. Regular reports are provided to the Audit and Risk Committee of CI’s Board.
As noted above, the Risk Management Committee is comprised of senior executives from each core business unit and operating area at CI. CI has developed an enterprise wide approach to monitoring, evaluating and managing risk. The members of the Risk Management Committee identify and evaluate specific and material risks, applying both a quantitative and a qualitative analysis and then assess the likelihood of occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize or avoid negative consequences and these risk mitigation processes are implemented and monitored with each business unit to bring risks to an acceptable risk level.
A discussion of the risks affecting CI appears under the heading “Risk Management” in the Management’s Discussion and Analysis for the year ended December 31, 2018 and is incorporated by reference and available on SEDAR at www.sedar.com.
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DESCRIPTION OF CAPITAL STRUCTURE
The following is a brief summary of the Corporation’s authorized share capital and its outstanding debt securities. The authorized share capital is established in the Corporation’s articles of incorporation, as amended. This summary may not be complete and is subject to, and qualified in its entirety by reference to, CI’s articles of incorporation, as amended, and to the CI Financial Trust Indenture (as defined below) pursuant to which the Debentures are created and outstanding.
The Corporation’s authorized share capital consists of an unlimited number of common shares and an unlimited number of preference shares, issuable in series. As at March 1, 2019 there were 242,441,342 common shares issued and outstanding. No preference shares have been issued by the Corporation.
Common Shares
Holders of common shares are entitled to one vote per share at meetings of shareholders of the Corporation, to receive dividends if, as and when declared by the Board (subject to the rights of shares, if any, having priority over the common shares) and to receive pro rata the remaining property and assets of the Corporation upon its dissolution or winding up, subject to the rights of shares, if any, having priority over the common shares.
Preference Shares
Each series of preference shares shall consist of such number of shares and have such rights, privileges, restrictions and conditions as may be determined by the Board prior to the issuance thereof. Holders of preference shares, except as required by law or as provided in the rights, privileges, restrictions and conditions of a particular series, will not be entitled to vote at meetings of shareholders of the Corporation. With respect to the payment of dividends and distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the preference shares of each series shall rank on a parity with the preference shares of every other series and are entitled to preference over the common shares and any other shares ranking junior to the preference shares from time to time and may also be given such other preferences over the common shares and any other shares ranking junior to the preference shares as may be determined at the time of creation of such series.
Debentures
2023 Debentures
On July 20, 2018, the Corporation completed an offering of $325,000,000 principal amount of debentures due July 20, 2023 (“2023 Debentures”). The offering was made on an agency basis and issued under a prospectus supplement dated July 18, 2018 to the Corporation’s short form base shelf prospectus dated December 22, 2017. Interest on the 2023 Debentures is paid semi-annually in arrears on January 20 and July 20 each year, commencing January 20, 2019, at a rate of 3.520% per annum.
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2027 Debentures
On September 27, 2017, the Corporation completed an offering of $250,000,000 principal amount of debentures due September 27, 2027 (“2027 Debentures”). The offering was made on an agency basis and issued under a prospectus supplement dated September 21, 2017 to the Corporation’s short form base shelf prospectus dated December 21, 2015. Interest on the 2027 Debentures is paid semi-annually in arrears on March 27 and September 27 each year, commencing on March 27, 2018, at a rate of 3.904% per annum.
2021 Debentures
On November 25, 2016, the Corporation completed an offering of $200,000,000 principal amount of debentures due November 25, 2021 (“2021 Debentures”). The offering was made on an agency basis and issued under a prospectus supplement dated November 22, 2016 to the Corporation’s short form base shelf prospectus dated December 21, 2015. Interest on the 2021 Debentures is paid semi-annually in arrears on May 25 and November 25 each year, commencing May 25, 2017, at a rate of 2.775% per annum.
2020 Debentures
On December 7, 2015, the Corporation completed an offering of $450,000,000 principal amount of debentures due December 7, 2020 (“2020 Debentures”, and together with the 2023 Debentures, 2027 Debentures, and 2021 Debentures, the “Debentures”). The offering was made on an agency basis and issued under a prospectus supplement dated December 2, 2015 to the Corporation’s short form base shelf prospectus dated January 6, 2014. Interest on the 2020 Debentures is paid semi-annually in arrears on December 7 and June 7 in each year, commencing June 7, 2016, at a rate of 2.645% per annum.
The Debentures were created and issued pursuant to the provisions of a trust indenture, as amended and supplemented from time to time, dated December 16, 2009 between the Corporation and Computershare Trust Company of Canada (the “CI Financial Trust Indenture”), providing for the creation and issuance of up to $2,000,000,000 aggregate principal amount of debt securities.
The Corporation may elect to redeem the Debentures prior to their stated maturity dates, provided certain notice is given and applicable premium to principal amounts are paid. For more information about the Corporation’s early redemption rights, please refer to the applicable supplemental indenture to the CI Financial Trust Indenture, available on SEDAR at www.sedar.com. The Debentures are not redeemable at the election of the holders thereof.
If a Change of Control Triggering Event occurs, the Corporation will be required to make an offer to repurchase the Debentures at a price payable in cash equal to 101% of the outstanding principal amount of the applicable Debenture together with accrued and unpaid interest, to the date of purchase. A “Change of Control Triggering Event” occurs if there is both a Change of Control of the Corporation and a Rating Event. A “Change of Control” occurs if there is a sale of all or substantially all of the assets of the Corporation or the acquisition of beneficial ownership of more than 50% of the votes attaching to the shares of the Corporation that ordinarily have voting power for the election of directors of the Corporation. A “Rating Event” occurs for a particular Debenture if, following a Change of Control or announcement of a Change of Control, the rating of the particular Debenture is lowered to below investment grade rating (below BBB- for Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., (“S&P”) and BBB (low) for DBRS Limited (“DBRS”)) by each of the rating agencies who rate the particular Debenture, if there are two or less than two such agencies, and by two out of three of the agencies, if the particular Debenture is rated by three agencies.
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Reference is made to the CI Financial Trust Indenture for a full description of the terms of the Debentures. The CI Financial Trust Indenture, amendments, and supplements are available on SEDAR at www.sedar.com.
Ratings
The Debentures are rated BBB (high) with a “Negative” trend by DBRS. The “BBB (high)” rating assigned to the Debentures represents the fourth highest of the ten rating categories available from DBRS for long-term debt. Under the DBRS system, debt securities rated BBB (high) are of adequate credit quality and the capacity for the payment of financial obligations is considered acceptable. While this is a favourable rating, entities in the BBB (high) category are considered to be more vulnerable to future events than higher-rated companies. A reference to “high” or “low” reflects the relative strength within the rating category, while the absence of either a “high” or “low” designation indicates the rating is placed in the middle category. According to DBRS, the “Negative” trend helps give investors an understanding of DBRS’s opinion regarding the outlook for the rating.
The Corporation has received a corporate credit rating from S&P of BBB+ with a “Stable” outlook. In addition, the Debentures are rated BBB+ by S&P. The “BBB+” rating is the fourth highest of the ten major rating categories for long-term debt and indicates S&P’s view that the Corporation’s capacity to meet its financial commitment on the obligations is adequate, however, adverse economic conditions or changing circumstances are more likely to weaken the Corporation’s capacity to meet its financial commitments than obligations in higher rated categories. S&P uses “+” or “-” designations to indicate the relative standing of securities within a particular ratings category. According to S&P, the “Stable” rating outlook means that the rating is not likely to change in the immediate term (which S&P defines as typically six months to two years).
The Corporation paid customary rating fees to DBRS and S&P in connection with the ratings. Other than in the ordinary course of customary ratings fees as aforesaid, in the past two years, the Corporation did not make any payments to either DBRS or S&P in respect of any other services provided by either DBRS or S&P to the Corporation.
Credit ratings are intended to provide investors with an independent assessment of the credit quality of an issue or issuer of securities and do not speak to the suitability of particular securities for any particular investor. A security rating is therefore not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating agency.
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DIvidends
Current Dividend Policy
The Corporation currently pays a quarterly cash dividend. At its August 2018 meeting, the Board declared dividends of $0.18 per share to be paid quarterly, to shareholders of record on the last day of each quarter each quarter, until December 31, 2019, inclusive. Dividends are paid at the discretion of the Board and the dividend rate will be reviewed from time to time by the Board after giving consideration to CI’s cash flow, financial position, net earnings, sales outlook and other relevant factors.
Historical Dividend Record
2018
During 2018 the Corporation declared dividends to shareholders as follows:
Record Date | Payment Date |
Dividend per Common Share ($) |
||||
January 31, 2018 | February 15, 2018 | 0.1175 | ||||
February 28, 2018 | March 15, 2018 | 0.1175 | ||||
March 31, 2018 | April 13, 2018 | 0.1175 | ||||
April 30, 2018 | May 15, 2018 | 0.1175 | ||||
May 31, 2018 | June 15, 2018 | 0.1175 | ||||
June 30, 2018 | July 13, 2018 | 0.1175 | ||||
July 31, 2018 | August 15, 2018 | 0.1175 | ||||
September 30, 2018 | October 15, 2018 | 0.18 | ||||
December 31, 2018 | January 15, 2019 | 0.18 | ||||
Total | 1.825 |
2017
During 2017 the Corporation declared dividends to shareholders as follows:
Record Date | Payment Date |
Dividend per Common Share ($) |
||||
January 31, 2017 | February 15, 2017 | 0.115 | ||||
February 28, 2017 | March 15, 2017 | 0.115 | ||||
March 31, 2017 | April 13, 2017 | 0.115 | ||||
April 30, 2017 | May 15, 2017 | 0.115 | ||||
May 31, 2017 | June 15, 2017 | 0.1175 | ||||
June 30, 2017 | July 14, 2017 | 0.1175 | ||||
July 31, 2017 | August 15, 2017 | 0.1175 | ||||
August 31, 2017 | September 15, 2017 | 0.1175 | ||||
September 30, 2017 | October 13, 2017 | 0.1175 | ||||
October 31, 2017 | November 15, 2017 | 0.1175 | ||||
November 30, 2017 | December 15, 2017 | 0.1175 | ||||
December 31, 2017 | January 15, 2018 | 0.1175 | ||||
Total | 1.40 |
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2016
During 2016 the Corporation declared dividends to shareholders as follows:
Record Date | Payment Date |
Dividend per Common Share ($) |
||||
January 31, 2016 | February 12, 2016 | 0.110 | ||||
February 29, 2016 | March 15, 2016 | 0.110 | ||||
March 31, 2016 | April 15, 2016 | 0.110 | ||||
April 30, 2016 | May 13, 2016 | 0.110 | ||||
May 31, 2016 | June 15, 2016 | 0.115 | ||||
June 30, 2016 | July 15, 2016 | 0.115 | ||||
July 31, 2016 | August 15, 2016 | 0.115 | ||||
August 31, 2016 | September 15, 2016 | 0.115 | ||||
September 30, 2016 | October 14, 2016 | 0.115 | ||||
October 31, 2016 | November 15, 2016 | 0.115 | ||||
November 30, 2016 | December 15, 2016 | 0.115 | ||||
December 31, 2016 | January 13, 2017 | 0.115 | ||||
Total | 1.36 |
MARKET FOR SECURITIES
Trading Price and Volume
The common shares are listed and posted for trading on the TSX under the trading symbol “CIX”. The price ranges and volume traded of the common shares on the TSX for each month for the fiscal year ended December 31, 2018 are set out below.
Price ($)
|
||||||||||||
Month | High | Low | Trading Volume | |||||||||
January | $ | 30.23 | $ | 28.96 | 8,222,540 | |||||||
February | $ | 29.56 | $ | 27.36 | 11,572,601 | |||||||
March | $ | 28.95 | $ | 27.02 | 13,885,130 | |||||||
April | $ | 27.71 | $ | 26.57 | 8,914,216 | |||||||
May | $ | 27.04 | $ | 24.07 | 15,226,324 | |||||||
June | $ | 25.31 | $ | 23.36 | 15,432,302 | |||||||
July | $ | 24.38 | $ | 22.28 | 11,429,025 | |||||||
August | $ | 23.49 | $ | 20.80 | 21,873,330 | |||||||
September | $ | 21.05 | $ | 19.95 | 15,126,833 | |||||||
October | $ | 20.68 | $ | 18.38 | 20,138,782 | |||||||
November | $ | 20.48 | $ | 18.90 | 17,573,397 | |||||||
December | $ | 20.28 | $ | 16.47 | 18,973,234 |
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DIRECTORS AND OFFICERS
The following table sets out important information regarding each of the Directors at March 1, 2019.
Peter W. Anderson Toronto, Ontario Canada Director Since 2016 Not Independent Age: 61 Areas of Expertise: Financial Services; Mutual Funds; CEO Experience; Strategic Leadership; Wealth Management; Risk Management
2018 votes in favour: 98.20% |
Mr. Anderson was appointed Chief Executive Officer of CI Financial in 2016. He has over 30 years’ experience in senior management positions in the Canadian investment industry. Mr. Anderson first joined CI in 1997 as Executive Vice-President and head of Sales and Marketing after working at ScotiaMcLeod Inc., where he held positions that included Managing Director and Branch Manager.
In 1999, Mr. Anderson became President of CI Investments, a position he held until 2006. From 2003-2010, he was Chief Executive Officer of CI Investments. From 2010-2012, Mr. Anderson was head of CI Institutional Asset Management and Chief Investment Officer, a role in which he focused on development of CI’s portfolio management teams. He was also a member of the Board of Directors from 2010-2011.
Prior to his appointment as Chief Executive Officer in 2016, Mr. Anderson was Interim Chief Executive Officer of Aston Hill Financial Inc. from August 2015 to February 2016 and a director of the company from 2014-2016. He holds a business degree from the University of New Brunswick.
|
CI Shares/Restricted Share Units owned or controlled
631,369
|
|
($ value based on closing price of CI shares on March 1, 2019)
$11,888,678
|
|
Other Public Board Directorships
Our Chief Executive Officer may not sit on the board of directors of an outside public company.
|
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William T. Holland Toronto, Ontario Canada Director Since 1994 Not Independent Age: 60 Areas of Expertise: Financial Services; Mutual Funds; CEO Experience; Strategic Leadership; Wealth Management
2018 votes in favour: 87.89% |
Mr. Holland is the Chairman of the Corporation. He has been employed by the Corporation or its predecessors since 1989 holding increasingly senior positions. Prior to September 2010 he had been the Chief Executive Officer of the Corporation, a position he held for more than 10 years.
|
CI Shares/Deferred Share Units/Restricted Share Units owned or controlled
8,149,489
|
|
($ value based on closing price of CI shares on March 1, 2019)
$153,454,878
|
|
Other Public Board Directorships
Mr. Holland is a director of NEXJ Systems Inc., a public company which provides enterprise client relationship management solutions for the financial services, insurance and healthcare industries and Infor Acquisition Corp., a public special purpose acquisition corporation organized for the purpose of effecting an acquisition of one or more business assets. He is also on the board of directors of Real Matters Inc.
|
1 Ms. Chang-Addorisio has 100% beneficial interest and control in respect of 541,000 shares, and 50% beneficial interest and 47% voting rights in respect of 9,746,240 Shares owned by G. Raymond Chang Ltd.
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David P. Miller Toronto, Ontario Canada Director Since 2013 Independent Age: 69 Areas of Expertise: Business Administration; Legal/Governance Matters; Risk Management
2018 votes in favour: 98.38% |
Until December 2018, Mr. Miller was the Chief Legal and Corporate Affairs Officer and Secretary of Rogers Communications Inc. He had been with Rogers for over 25 years in increasingly senior roles, and has extensive experience in acquisitions and public and private financing. Mr. Miller holds a BCL and LLB from McGill University.
|
CI Shares/Deferred Share Units owned or controlled
14,928
|
|
($ value based on closing price of CI shares on March 1, 2019)
$281,094
|
|
Board Committees
Governance, Human Resources, and Compensation (Chair)
|
Stephen T. Moore Toronto, Ontario Canada Director Since 2007 Independent Age: 65 Areas of Expertise: Accounting and Finance; Financial Services; Wealth Management
2018 votes in favour: 98.66% |
Mr. Moore is the Managing Director of Newhaven Asset Management Inc., a wealth management company. Prior to January 2006, Mr. Moore held a number of senior positions in the financial services industry focused in the areas of investment research, institutional sales, corporate finance and private equity. Mr. Moore was a member of the Board of Governors of CI Investments Inc. until July 2007 which has responsibility for addressing any actual or perceived conflicts of interest that may arise in connection with management of the mutual funds managed by CI Investments Inc. Mr. Moore holds a B.A. in Economics and a Masters of Business Administration from Queen’s University. |
CI Shares owned or controlled
19,671
|
|
($ value based on closing price of CI shares on March 1, 2019)
$370,405
|
|
Board Committees
Governance, Human Resources, and Compensation; Audit and Risk
|
|
Other Public Board Directorships
Mr. Moore is a director of Pivot Technology Solutions Inc. and Prodigy Ventures Inc. |
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Tom P. Muir FCPA, FCA, FCBV Toronto, Ontario Canada Director Since 2011 Independent Age: 63 Areas of Expertise: Business Administration; Accounting and Finance; Financial Services; Legal/Governance Matters
2018 votes in favour: 98.51% |
Mr. Muir was Co-Managing Director of Muir Detlefsen & Associates Limited from 2007 through 2017. His prior positions include Executive Vice-President and Chief Financial Officer of Maple Leaf Foods Inc. and Co-Head of the Investment Banking Group and Member of the Executive Committee at RBC Dominion Securities Inc. Mr. Muir is a Fellow, Chartered Professional Accountant and a Fellow, Chartered Business Valuator. Mr. Muir has a BComm from the University of Toronto.
|
CI Shares owned or controlled
20,392
|
|
($ value based on closing price of CI shares on March 1, 2019)
$383,981
|
|
Board Committees
Audit and Risk (Chair)
|
|
Other Public Board Directorships
Mr. Muir is a director of Solium Capital Inc., a public company that provides cloud-enabled services for global equity administration. He has been a member of the board of directors of a number of other public companies in the past. |
Sheila A. Murray Toronto, Ontario Canada Director Since 2018 Not Independent Age: 63 Areas of Expertise: Financial Services; Regulatory Affairs; Legal / Governance Matters; Strategic Leadership; Risk Management; Human Resources / Compensation;
2018 votes in favour: 96.81% |
Ms. Murray first joined the Corporation in 2008 as Executive Vice-President, General Counsel and Secretary, and has been President of the Corporation since 2016. Ms. Murray holds a B.Comm and LLB from Queen’s University. |
CI Shares/Restricted Share Units Owned or Controlled
197,802
|
|
($ value based on closing price of CI shares on March 1, 2019)
$3,724,611.66
|
|
Other Public Board Directorships
Ms. Murray is a director of Teck Resources Limited.
|
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Paul J. Perrow Toronto, Ontario Canada Director Since 2018 Independent Age: 55 Areas of Expertise:
Financial Services;
2018 votes in favour: 99.74% |
Mr. Perrow has over 25 years of valuable experience in the asset management industry. Mr. Perrow was Senior Vice President, Director of Sales and Marketing with CI Investments Inc. until December 1996. He has held a number of other senior industry positions including Managing Partner of Red Sky Capital, Co-Head and Managing Director of Merrill Lynch Investment Managers Canada, Co-Founder and President of Fairway Capital and President and CEO of BluMont Capital. |
CI Shares Owned or Controlled
385,000
|
|
($ value based on closing price of CI shares on March 1, 2019)
$7,249,550
|
|
Board Committees
Governance, Human Resources, and Compensation
|
The term of office of each director will expire at the termination of the next annual meeting of holders of the common shares or until his successor is elected or appointed.
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EXECUTIVE OFFICERS
The following chart sets out information concerning the executive officers of the Corporation.
Name | Position | Principal Occupation within the Preceding Five Years |
William T. Holland
Toronto, Ontario, Canada |
Chairman of the Board, CI Financial Corp. | Prior to May 2017, Executive Chairman of the Board since January 2016. Prior to January 2016, Chairman of the Board since May 2012. |
Peter W. Anderson
Toronto, Ontario, Canada |
Chief Executive Officer, CI Financial Corp. | Prior to February 2016, Interim Chief Executive Officer of Aston Hill Financial Inc. since August 2015. |
Sheila A. Murray
Toronto, Ontario, Canada |
President, CI Financial Corp. | Prior to June 2018, President and General Counsel since August 2016. Prior to August 2016, President, General Counsel and Secretary since February 2016. Prior to February 2016, Executive Vice-President, General Counsel and Secretary since February 2009. |
Douglas J. Jamieson
Toronto, Ontario, Canada |
Executive Vice-President and Chief Financial Officer, CI Financial Corp. | Prior to June 2013, Senior Vice-President since December 2008. |
Steven J. Donald
Oakville, Ontario, Canada |
Executive Vice-President, CI Financial Corp.
Chief Risk Officer, CI Financial Corp.
|
Prior to September 2017, President, AWM since November 2009. |
Rohit D. Mehta
Toronto, Ontario, Canada |
Executive Vice-President, CI Financial Corp. | President, First Asset since May 2017*. Prior to May 2017 Vice-President, First Asset since October 2009. |
Darie P. Urbanky
Toronto, Ontario, Canada |
Executive Vice-President and Chief Operating Officer, CI Financial Corp. | Executive Vice-President and Chief Operating Officer, CI Investments, since September 2018*. Prior to September 2018, Executive Vice-President and Chief Technology Officer since February 2018. Prior to February 2018, Senior Vice-President and Chief Technology Officer, CI Investments since July 2016. Prior to July 2016, Vice-President, CI Investments since October 2010. |
Edward
Kelterborn
Toronto, Ontario, Canada |
Chief Legal Officer, CI Financial Corp. | Director, Senior Vice-President and General Counsel, CI Investments, since February 2019*, Senior Vice-President and General Counsel, CI Investments since March 2017. Prior to March 2017, General Counsel, CI Investments since September 2016. Prior to September 2016, Senior Vice-President, Legal & Operations, First Asset since July 2012. |
*Continues to hold this position.
On December 11, 2018, the Corporation announced Ms. Murray would be retiring from her role as President, effective March 31, 2019. Mr. Anderson will be appointed President of the Corporation effective upon Ms. Murray’s departure.
As at March 1, 2019, the directors and executive officers of the Corporation as a group beneficially owned, directly or indirectly, or exercised control or direction over approximately 19,981,749 common shares, restricted share units, and deferred share units (representing approximately 8.24% of the outstanding common shares).
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Corporate Cease Trade Orders or Bankruptcies
To the knowledge of the Corporation, except as set forth below, none of the directors or executive officers of the Corporation (a) are, as at the date hereof, or have been, within the 10 years before the date of this annual information form, a director, chief executive officer or chief financial officer of any company that, (i) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation that was in effect for a period of more than 30 consecutive days (an “Order”) that was issued while the person was acting in the capacity as director, chief executive officer or chief financial officer; or (ii) was subject to an Order that was issued after the person ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer, (b) are, as at the date of this annual information form, or have been within 10 years before the date of this annual information form, a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, or (c) have, within the 10 years before the date of this annual information form, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that person.
Mr. Moore was, prior to January 26, 2010, a trustee of Impax Energy Services Income Trust (the “Trust”). On December 14, 2009, the Trust filed for creditor protection in order to facilitate an orderly sale and wind-up of operations. On January 26, 2010, all of the trustees and directors of the Trust resigned following the sale of substantially all of the assets of the Trust. Upon the resignations of the trustees and directors, trading in the units of the Trust was suspended for failure to maintain a minimum number of directors as required under the rules of the TSX Venture Exchange.
Penalties and Sanctions
To the knowledge of CI, none of the directors or executive officers of CI nor any personal holding company owned or controlled by any of them (i) has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or (ii) has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
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LEGAL PROCEEDINGS and regulatory actions
Legal Proceedings
CI Investments is a party to two class action proceedings brought by investors in CI mutual funds, in each case asking for unspecified damages resulting from CI Investments’ alleged failure to implement measures to fully protect the funds’ investors against costs of frequent trading activity. These proceedings were instituted in 2004 in the provinces of Ontario, currently led by representative plaintiff Manon Sim, and Quebec, currently led by representative plaintiff Claude Ravary. The Quebec class action was authorized on September 17, 2010. On December 12, 2013, the Supreme Court of Canada denied an appeal by CI Investments in the Ontario class action. The decision is not a finding of liability against CI Investments, but simply allows the Ontario class action against CI Investments and one other mutual fund company to proceed. CI Investments intends to vigorously defend itself in the both class actions on the basis that, among other things, the affected investors in its funds were fully compensated by CI Investments through a compensation program that was established in 2004 in a settlement agreement with the Ontario Securities Commission (“OSC”).
Regulatory Actions
In June 2018, Virtual Brokers entered into a settlement agreement with Staff of the Investment Industry Regulatory Organization of Canada. The agreement was in respect of a promotion where Virtual Brokers solicited clients to acquire shares in an initial public offering for free when they opened a Virtual Brokers account, contrary to the terms of their registration. Virtual Brokers paid a fine in the amount of $65,000 and costs of $3,000 to settle the proceeding.
From time to time, in the ordinary course of business, CI is assessed fees or fines by securities regulatory authorities in relation to administrative matters, including late filings or reporting, which may be considered penalties or sanctions pursuant to Canadian securities regulations but which are not, individually or in the aggregate, material to CI. In 2018, CI paid administrative filing fees relating to late filings to the OSC in the aggregate amount of $22,700. Various other legal proceedings are pending that challenge certain of our practices or actions. We consider that the aggregate liability resulting from these other proceedings will not be material to our financial position or results of operations.
TRANSFER AGENT AND REGISTRAR
Computershare Investor Services Inc. acts as Transfer Agent and Registrar for the common shares and maintains registers of transfers of the common shares in Toronto, Montreal and Vancouver.
MATERIAL CONTRACTS
The following contracts can reasonably be regarded as material to CI:
(a) | The CI Financial Trust Indenture together with the Fourth Supplement Indenture dated December 7, 2015, pursuant to which the 2020 Debentures have been issued, the Fifth Supplemental Indenture dated November 25, 2016, pursuant to which the 2021 Debentures have been issued, the Sixth Supplement Indenture dated September 27, 2017, pursuant to which the 2027 Debentures have been issued, and the Seventh Supplemental Indenture dated July 20, 2018, pursuant to which the 2023 Debentures have been issued. |
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(b) | The revolving credit facility between CI and the Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and National Bank of Canada which was amended and restated on October 3, 2018, which provides for a $700 million credit facility with a revolving period that extends to December 11, 2021. |
INTERESTS OF EXPERTS
Ernst & Young LLP, Chartered Accountants, the external auditors of the Corporation, reported on the fiscal 2018 audited financial statements of the Corporation which were filed by the Corporation with securities regulators pursuant to National Instrument 51-102 – Continuous Disclosure Obligations. Ernst & Young LLP is independent with respect to the Corporation in accordance with the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario.
Audit and risk Committee Information
Audit and Risk Committee’s Charter
The Audit and Risk Committee has adopted a written charter that sets out its mandate and responsibilities. A copy of the charter is attached hereto as Appendix “A”.
Composition of the Audit and Risk Committee
The Audit and Risk Committee is comprised of three Directors, each of whom is independent and financially literate (as such terms are defined under National Instrument 52-110 – Audit Committees): Tom Muir P. (Chairman), Brigette Chang-Addorisio, and Stephen T. Moore.
Relevant Education and Experience
The following summarizes the education and experience of each Audit and Risk Committee member that is relevant to the performance of his responsibilities as an Audit and Risk Committee member.
Tom P. Muir, 63, was Co-Managing Director of Muir Detlefsen & Associates Limited, an investment company, from 2007 through 2017. His prior positions include Executive Vice-President and Chief Financial Officer of Maple Leaf Foods Inc. and Co-Head of the Investment Banking Group at RBC Dominion Securities Inc. He has served on the Board of Directors of numerous public and private companies. Mr. Muir is a Fellow, Chartered Professional Accountant and Fellow, Chartered Business Valuator. Mr. Muir has a BComm from the University of Toronto.
Brigette Chang-Addorisio, 42, is Treasurer of G. Raymond Chang Ltd., a privately held investment holding company. From 1999 until 2003 she worked in Ernst & Young’s Audit and Business Advisory group. Ms. Chang-Addorisio holds a B. Comm from Queen’s University and a B. Edu from the University of Toronto. Ms. Chang-Addorisio is President of the Raymond Chang Foundation, a charitable foundation established by the late G. Raymond Chang, one of the Corporation’s founders. She also serves as a director for two private companies.
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Stephen T. Moore, 65, is the Managing Director of Newhaven Asset Management Inc., a wealth management company. Prior to January 2006, Mr. Moore held a number of senior positions in the financial services industry focused in the areas of investment research, institutional sales, corporate finance and private equity. Mr. Moore was a member of the Board of Governors of CI Investments until July 2007 which has responsibility for addressing any actual or perceived conflicts of interest that may arise in connection with the management of the mutual funds managed by CI Investments Inc. Mr. Moore holds a B.A. in Economics and a Masters of Business Administration from Queen’s University.
Pre-Approval Policies and Procedures
The following policies and procedures have been adopted by the Audit and Risk Committee for the engagement of CI’s external auditors for non-audit services.
On proposed non-audit services, the timing of which is not urgent, management is required to submit a request for pre-approval of same at the next quarterly Audit and Risk Committee meeting.
For all other proposed non-audit services, the Committee has delegated to its Chairman the responsibility and authority to review and, in his discretion, approve the proposed non-audit services under the following procedures. Designated finance personnel are required to submit to the Chairman of the committee, in writing, a request for pre-approval of the particular non-audit service, such request to disclose all necessary details of the proposed non-audit services such as the scope of work, the estimated time for completion, and the estimated fees for such services. Except in extenuating circumstances, requests shall be made to the Chairman prior to the engagement of the auditors for the particular service. Upon receipt of the request, the Chairman of the committee shall promptly either accept the request or decline the request with brief reasons, in either case in writing and after taking into account the impact of the services on the auditors’ independence. Management must present any requested pre-approvals to the committee at its next quarterly meeting. CI shall retain all correspondence pertaining to the requests in its records.
External Auditors’ Service Fee
The aggregate amounts paid or accrued by CI with respect to fees, excluding expenses, payable to the external auditors for audit, audit-related, tax and other services for the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
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Type of Service |
Fiscal year ended
December 31, 2018 ($) |
Fiscal year ended
December 31, 2017 ($) |
||||||
Audit Fees | 1,316,000 | 1,266,000 | ||||||
Audit-Related Fees(1) | 255,000 | 295,000 | ||||||
Tax Fees(2) | 45,000 | 70,000 | ||||||
All Other Fees(3) | 25,000 | 25,000 | ||||||
Canadian Public Accountability Board Fee | 24,340 | 24,340 | ||||||
Total | 1,665,340 | 1,680,340 |
Notes:
(1) The services comprising these fees were quarterly reviews, translation, and acquisition analysis.
(2) The services comprising these fees were tax returns and other tax advice.
(3) The services comprising these fees were access to research and interpretation of regulations and standards.
ADDITIONAL INFORMATION
General
Additional information relating to CI may be found on SEDAR at www.sedar.com.
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of CI common shares, and securities authorized for issuance under equity compensation plans, is contained in the Management Information Circular for the Annual Meeting of Shareholders held on June 18, 2018. Additional financial information is provided in CI’s financial statements and management’s discussion and analysis for its most recently completed fiscal year.
APPENDIX “A”
CI FINANCIAL CORP.
AUDIT AND RISK COMMITTEE CHARTER
As of February 8, 2019
1. | Purpose and Scope |
The Audit and Risk Committee (the “Committee” or the “Audit Committee”) of CI Financial Corp. (the “Company”) is a committee of the Board of Directors (the “Board”). The Committee shall oversee the accounting and financial reporting practices of the Company and the audits of the Company’s financial statements, as well as exercise the responsibilities and duties set out in this Charter.
2. | Membership |
Number of Members
The Committee shall be appointed by the Board and shall be comprised of at least three members of the Board. The Lead Director of the Board shall be an ex officio member of the Audit Committee.
Independence of Members
Each member of the Committee must be independent. “Independent” shall have the meaning, as the context requires, given to it in National Instrument 52-110 – Audit Committees (the “Instrument”), as may be amended from time to time.
Chair
At the time of the annual appointment of the members of the Audit Committee, the Board shall appoint a Chair of the Audit Committee. The Chair shall be a member of the Audit Committee, preside over all Audit Committee meetings, coordinate the Audit Committee’s compliance with this Charter, work with management to develop the Audit Committee’s annual work-plan, provide reports of the Audit Committee to the Board and fulfill all other responsibilities as enumerated in the Company’s Committee Chair Position Description.
Financial Literacy of Members
At the time of his or her appointment to the Committee, each member of the Committee shall have, or shall acquire within a reasonable time following appointment to the Committee, the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements, or shall otherwise meet the financial literacy requirements of the Instrument.
Term of Members
The members of the Committee shall be appointed annually by the Board. Each member of the Committee shall serve at the pleasure of the Board until the member resigns, is removed, or ceases to be a member of the Board. If the Chair is not elected by the Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership.
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3. | Meetings |
Number of Meetings
The Committee shall meet at least quarterly and otherwise may meet as many times per year as necessary to carry out its responsibilities.
Quorum
No business may be transacted by the Committee at a meeting unless a quorum of the Committee is present. A majority of members of the Committee shall constitute a quorum.
Calling of Meetings
The Chair, any member of the Audit Committee, the external auditors, the Chairman of the Board, the Chief Executive Officer, President or the Chief Financial Officer may call a meeting of the Audit Committee by notifying the Company’s Corporate Secretary who will notify the members of the Audit Committee. The Chair shall chair all Audit Committee meetings that he or she attends, and in the absence of the Chair, the members of the Audit Committee present may appoint a chair from their number for a meeting.
Minutes; Reporting to the Board
The Committee shall maintain minutes or other records of meetings and activities of the Committee in sufficient detail to convey the substance of all discussions held. Upon approval of the minutes by the Committee, the minutes shall be available to the other members of the Board. However, the Chair shall report orally to the Board on any matter in his or her view requiring the immediate attention of the Board.
Attendance of Non-Members
The external auditors are entitled to attend and be heard at each meeting of the Audit Committee. Other Board members are also entitled to attend meetings of the Audit Committee, with notice to the Chair. In addition, the Committee may invite to a meeting any officers or employees of the Company, legal counsel, advisors and other persons whose attendance it considers necessary or desirable in order to carry out its responsibilities. At least once per year, the Committee shall meet with the internal auditor and management in separate sessions to discuss any matters that the Committee or such individuals consider appropriate.
Meetings without Management
The Committee shall hold meetings, or portions of meetings, at which management is not present.
The Committee shall meet at least quarterly with the auditors without the presence of management.
Access to Management
The Committee shall have unrestricted access to the Company’s management and employees and the books and records of the Company.
Consultation
The Audit Committee shall have the authority to retain external legal counsel, consultants or other advisors to assist it in fulfilling its responsibilities and to set and pay the respective compensation for these advisors without consulting or obtaining the approval of the Board or any Company officer. The Company shall provide appropriate funding, as determined by the Committee, for the services of these advisors. The Committee shall also be permitted to communicate directly with the internal audit staff of the Company and entities controlled by the Company (together, the “Company Group”) (if any) and the auditors.
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4. | Duties and Responsibilities |
The Committee shall have the functions and responsibilities set out below as well as any other functions that are specifically delegated to the Committee by the Board and that the Board is authorized to delegate by applicable laws and regulations. In addition to these functions and responsibilities, the Committee shall perform the duties required of an audit committee by (i) any exchange upon which securities of the Company are traded, or (ii) any governmental or regulatory body exercising authority over the Company, in each case, as are in effect from time to time (collectively, the “Applicable Requirements”) including the functions and responsibilities set out in the Instrument.
Financial Executives
The Committee shall review and discuss with management and the Board the appointment and/or removal of the Chief Financial Officer and Chief Internal Auditor and recommend qualified candidates to the Board, as appropriate.
Financial Reports
(a) | General |
Management is responsible for the preparation, presentation and integrity of the Company’s financial statements and financial disclosures and for the appropriateness of the accounting principles and the reporting policies used by the Company. The auditors are responsible for auditing the Company’s annual consolidated financial statements and for reviewing the Company’s unaudited interim financial statements. The Audit Committee is responsible for overseeing the Company’s financial statements and financial disclosures.
(b) | Review of Annual Financial Reports |
Prior to public release, the Audit Committee shall review the annual consolidated audited financial statements of the Company, the auditors’ report thereon and the related management’s discussion and analysis of the Company’s financial condition and results of operation (“MD&A”). At the Committee meeting at which the Company’s annual statements are to be reviewed, the Committee shall meet, in person, with representatives of the auditors and with the Company management to obtain information regarding the annual statements and the results of the audit including, but not limited to information concerning:
1. | the Company’s disclosure controls and procedures and the Company’s internal control over financial reporting; |
2. | accounting policies, judgments and estimates used by management; |
3. | areas of audit emphasis; |
4. | applicable regulatory compliance; and |
5. | independence of auditors. |
After completing its review, if advisable, the Audit Committee shall approve, and recommend for Board approval, the annual financial statements and the related MD&A.
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(c) | Review of Interim Financial Reports |
The Audit Committee shall review the interim consolidated financial statements of the Company, the auditors’ review report thereon and the related MD&A. After completing its review, if advisable, the Audit Committee shall approve and recommend for Board approval the interim financial statements and the related MD&A. The review by the Committee shall be completed prior to the issuance of a press release respecting the interim financial results. The Committee shall meet, in person, with representatives of the auditors and with the Company management to obtain information regarding the interim statements and to discuss the results of their preparation and review. At each meeting, the Committee will request that the auditors communicate to the Committee their findings based on the interim procedures performed by the auditors. In addition, the Committee will request that the auditors communicate any findings which would modify or change the report provided by the auditors to the Committee in connection with the Company’s last annual statements.
(d) | Review Considerations |
In addition to the procedures referred to above, when conducting its review of the annual financial statements or the interim financial statements, the Audit Committee may:
(i) | receive a report from internal legal counsel, as requested, regarding any litigation claim or other contingency that could have a material effect on the financial statements; |
(ii) | review the status of accounting policies followed and critical accounting and other significant estimates and judgements underlying the financial statements as presented by management; |
(iii) | review any material effects of regulatory accounting initiatives or off-balance sheet structures on the financial statements as presented by management, including requirements relating to complex or unusual transactions, significant changes to accounting principles and alternative treatments under International Financial Reporting Standards; |
(iv) | review any material changes in accounting policies and any significant changes or developments in accounting practices, independence standards and reporting practices and their impact on the financial statements as presented by management; |
(v) | review with management and the auditors any significant financial reporting issues discussed during the fiscal period and the method of resolution; |
(vi) | receive and review a report from management or internal audit on the effectiveness of financial disclosure procedures and internal controls over financial reporting; |
(vii) | review any problems experienced by the auditors in performing the annual audit or quarterly procedures, including any restrictions imposed by management or significant accounting issues on which there was a disagreement with management; |
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(viii) | obtain an explanation from management of all significant variances between comparative reporting periods; |
(ix) | review the post-audit or management letter, containing the recommendations of the auditors, and management’s response and subsequent follow up to matters raised by the auditors; |
(x) | review “whistleblowing” complaints received by Lead Director; |
(xi) | review any other matters, related to the financial statements, that are brought forward by the auditors or management or which are required to be communicated to the Audit Committee under accounting policies, auditing standards or Applicable Requirements; and |
(xii) | review interim and annual chief executive officer and chief financial officer certifications on financial statements and controls required by the Instrument. |
(e) | Approval of Other Financial Disclosures |
Prior to public release, the Audit Committee shall review and, if advisable, approve and recommend for Board approval financial disclosure in a prospectus or other securities offering document of the Company, press releases disclosing, or based upon, financial results of the Company and any other material financial disclosure, publicly disseminated, other than press releases regarding monthly sales.
Other
The Audit Committee or the Chair shall be available to review with management and the auditors any material accounting and financial issues affecting the Company not dealt with in annual and quarterly reviews.
Managing the Relationship with the Auditors
(a) Appointment and Compensation
The Audit Committee shall select and recommend to the Board for shareholder approval the appointment of the auditors. The Audit Committee shall have ultimate authority to approve all audit engagement terms and fees, including the auditors’ audit plan.
(b) Resolution of Disagreements
The Audit Committee shall resolve any disagreements between management of the Company and the auditors as to financial reporting matters brought to its attention.
(c) Discussions with Auditors
At least annually, the Audit Committee shall discuss with the auditors such matters as are required by applicable auditing standards to be discussed by the auditors with the Audit Committee. The Committee shall ensure that the Company requires and instructs the auditors to report directly to the Committee.
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(d) Audit Plan
At least annually, and prior to the commencement of each audit, the Audit Committee shall review a summary of the auditors’ annual audit plan. The Audit Committee shall consider and review with the auditors any material changes to the scope of the plan.
(e) Quarterly Review Report
The Audit Committee shall review a report prepared by the auditors in respect of each of the interim financial statements of the Company.
(f) | Independence of Auditors |
At least annually, and before the auditors issue their report on the annual financial statements, the Audit Committee shall obtain from the auditors a formal written statement describing all relationships between the auditors and the Company; discuss with the auditors any disclosed relationships or services that may affect the objectivity and independence of the auditors; and obtain written confirmation from the auditors that they are objective and independent within the meaning of the applicable Rules of Professional Conduct/Code of Ethics adopted by the provincial institute or order of chartered accountants to which the auditors belong and other Applicable Requirements.
(g) | Evaluation and Rotation of Lead Partner |
At least annually, the Audit Committee shall review the qualifications and performance of the lead partner(s) of the auditors and discuss, if necessary any abridgment or acceleration of the current policy of rotating lead partners of the external auditors.
(h) | Requirement for Pre-Approval of Non-Audit Services |
The Audit Committee shall approve in advance any retainer of the auditors to perform any non-audit service to the Company that it deems advisable in accordance with Applicable Requirements and Board approved policies and procedures. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee. The decisions of any member of the Audit Committee to whom this authority has been delegated must be presented to the full Audit Committee at its next scheduled Audit Committee meeting.
(i) | Approval of Hiring Policies |
The Audit Committee shall review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Company and the mutual funds managed by the Company or its affiliates.
(j) | Communication with Internal Auditor |
The internal auditor shall report regularly to the Committee. The Committee shall review with the internal auditor any problem or difficulty the internal auditor may have encountered including, without limitation, any restrictions on the scope of activities or access to required information, and any significant reports to management prepared by the internal auditing department and management’s responses thereto.
The Committee shall review and approve on an annual basis the mandate and annual internal audit plan of the internal audit department and discuss with management the internal audit budget and staffing. The Committee shall direct management to make changes it deems advisable in respect of the internal audit function.
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The Committee shall review the appointment, performance and replacement of the senior internal auditing executive and the activities, reporting responsibilities and qualifications of the persons responsible for the internal audit function.
Internal Controls
(a) | General |
The Audit Committee shall review the Company’s disclosure controls and procedures and internal controls over financial reporting.
(b) | Establishment, Review and Approval |
The Audit Committee shall oversee management’s design, implementation and maintenance of appropriate systems of internal controls in accordance with Applicable Requirements, including internal controls over financial reporting and disclosure controls and procedures, and review, evaluate and approve these procedures. At least annually, the Audit Committee shall consider and review with management and the auditors:
(i) | the effectiveness of, or weaknesses or deficiencies in: the design or operation of the Company’s internal controls (including computerized information system controls and security); the overall control environment for managing business risks; accounting, financial and disclosure controls (including, without limitation, controls over financial reporting), non-financial controls; and legal and regulatory controls and the impact of any identified weaknesses in internal controls on management’s conclusions; |
(ii) | any significant changes in internal controls over financial reporting that are disclosed, or considered for disclosure, including those in the Company’s periodic regulatory filings; |
(iii) | the Company’s fraud prevention and detection procedure, including deficiencies in internal controls that may impact the integrity of financial information, or may expose the Company to other significant internal or external fraud losses and the extent of those losses and any disciplinary action in respect of fraud taken against management or other employees who have a significant role in financial reporting; and |
(iv) | any related significant issues and recommendations of the auditors together with management’s responses thereto, including the timetable for implementation of recommendations to correct weaknesses in internal controls over financial reporting and disclosure controls and procedures. |
Audit Committee Whistleblower Procedures
The Audit Committee shall establish procedures for (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. The details of such whistleblower procedures will be described in the Company’s Code of Business Conduct and Ethics and available on the employee website.
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Audit Committee Disclosure
The Audit Committee shall approve any audit committee disclosures required by Applicable Requirements to be included in the Company’s disclosure documents.
Enterprise Risk Management Oversight
The Committee shall meet regularly with the Company’s Chief Executive Officer and President and shall review periodically with management the Company’s systems to monitor and manage major business risks and legal and ethical compliance programs. The Committee shall receive regular reports on compliance systems and procedures and reports on the Company’s risk management policies and procedures.
The Committee shall meet regularly with the Company’s Chief Risk Officer and other key risk personnel and shall review an Annual Risk Report from the Chief Risk Officer.
The Committee shall review reports from the Company’s Chief Technology Officer and shall review, at least annually, the Company’s cybersecurity program and the approach of management to cyber-related risks.
The Committee shall review and recommend to the Board for approval the risk related disclosure in the Company’s annual information form, financial statements and related management’s discussion and analysis.
Compliance with Legal and Regulatory Requirements
The Committee shall review reports from the Company’s Corporate Secretary, Chief Legal Officer and other management members on: legal or compliance matters that may have a material impact on the Company; the effectiveness of the Company’s compliance policies; and any material communications received from regulators. The Committee shall review management’s evaluation of and representations relating to compliance with applicable law and management’s plans to remediate any deficiencies identified.
Delegation
The Audit Committee may, to the extent permissible by Applicable Requirements, designate a sub-committee to review any matter within this Charter as the Audit Committee deems appropriate.
5. | Charter Review |
The Committee shall review and update this Charter annually and present it to the Board for approval.
6. | No Rights Created |
This Charter is a statement of broad policies and is intended as a component of the governance framework within which the Committee assists the Board in directing the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and listing requirements, as well as in the context of the Company’s Articles and By-laws, it is not intended to establish any legally binding obligations.
Exhibit 99.2
CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 2018
Q4 Financial Report | 1 | December 31, 2018 |
Independent Auditors’ Report
TO THE SHAREHOLDERS OF CI FINANCIAL CORP.
Opinion
We have audited the consolidated financial statements of CI Financial Corp. and its subsidiaries (the Company), which comprise the consolidated statements of financial position as at December 31, 2018 and 2017, and January 1, 2017, and the consolidated statements of income and comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the years ended December 31, 2018 and 2017, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2018 and 2017, and January 1, 2017, and its consolidated financial performance and its consolidated cash flows for the years ended December 31, 2018 and 2017 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
• | Management’s Discussion & Analysis. |
• | The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report. |
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
Q4 Financial Report | 2 | December 31, 2018 |
Independent Auditors’ Report
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Q4 Financial Report | 3 | December 31, 2018 |
Independent Auditors’ Report
• | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
• | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. |
• | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
• | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. |
• | Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
• | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Gary Chin.
Toronto, Canada | |
February 7, 2019 |
|
Q4 Financial Report | 4 | December 31, 2018 |
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at | As at | As at | ||||||||||
December 31, 2018 | December 31, 2017 | January 1, 2017 | ||||||||||
[in thousands of Canadian dollars] | $ | $ | $ | |||||||||
ASSETS | ||||||||||||
Current | ||||||||||||
Cash and cash equivalents | 137,160 | 124,582 | 117,899 | |||||||||
Client and trust funds on deposit | 365,520 | 327,733 | 185,424 | |||||||||
Investments [note 12] | 168,122 | 200,910 | 85,013 | |||||||||
Accounts receivable and prepaid expenses | 156,798 | 236,356 | 148,218 | |||||||||
Income taxes receivable | 8,891 | — | — | |||||||||
Total current assets | 836,491 | 889,581 | 536,554 | |||||||||
Capital assets, net [note 4] | 44,985 | 43,241 | 34,741 | |||||||||
Intangibles [note 5] | 3,370,341 | 3,375,840 | 2,407,966 | |||||||||
Other assets [notes 6 and 8] | 40,399 | 36,592 | 206,735 | |||||||||
Total assets | 4,292,216 | 4,345,254 | 3,185,996 | |||||||||
LIABILITIES AND EQUITY | ||||||||||||
Current | ||||||||||||
Accounts payable and accrued liabilities | 253,518 | 299,004 | 222,742 | |||||||||
Current portion of provision for other liabilities [note 8] | 14,591 | 61,210 | 37,246 | |||||||||
Dividends payable [note 10] | 175,290 | 64,598 | 61,015 | |||||||||
Client and trust funds payable | 370,756 | 375,647 | 183,148 | |||||||||
Income taxes payable | — | 1,124 | 8,586 | |||||||||
Current portion of long-term debt [note 7] | — | 222,000 | — | |||||||||
Total current liabilities | 814,155 | 1,023,583 | 512,737 | |||||||||
Deferred lease inducement | 11,320 | 12,214 | 11,770 | |||||||||
Dividends payable long-term [note 10] | 43,822 | — | — | |||||||||
Long-term debt [note 7] | 1,503,733 | 896,119 | 758,658 | |||||||||
Provision for other liabilities [note 8] | 20,177 | 37,385 | 48,063 | |||||||||
Deferred income taxes [notes 2 and 11] | 466,083 | 470,393 | 309,548 | |||||||||
Total liabilities | 2,859,290 | 2,439,694 | 1,640,776 | |||||||||
Equity | ||||||||||||
Share capital [note 9(a)] | 2,125,130 | 2,360,257 | 1,885,066 | |||||||||
Contributed surplus | 25,270 | 22,058 | 18,062 | |||||||||
Deficit [note 2] | (720,600 | ) | (493,534 | ) | (369,689 | ) | ||||||
Accumulated other comprehensive income [note 2] | 277 | 14,301 | 9,148 | |||||||||
Total equity attributable to the shareholders of the Company | 1,430,077 | 1,903,082 | 1,542,587 | |||||||||
Non-controlling interests | 2,849 | 2,478 | 2,633 | |||||||||
Total equity | 1,432,926 | 1,905,560 | 1,545,220 | |||||||||
Total liabilities and equity | 4,292,216 | 4,345,254 | 3,185,996 | |||||||||
(see accompanying notes) |
On behalf of the Board of Directors: |
|
|
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William T. Holland
Director |
Tom P. Muir
Director |
Q4 Financial Report | 5 | December 31, 2018 |
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
For the years ended December 31
2018 | 2017 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 2,004,151 | 1,897,061 | ||||||
Administration fees | 197,591 | 174,009 | ||||||
Redemption fees | 14,851 | 15,276 | ||||||
Realized and unrealized (loss) gain on investments [note 2] | (8,115 | ) | 1,365 | |||||
Other income [note 6] | 27,887 | 23,585 | ||||||
2,236,365 | 2,111,296 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 18] | 522,518 | 459,103 | ||||||
Trailer fees | 631,243 | 587,408 | ||||||
Investment dealer fees | 155,871 | 142,698 | ||||||
Deferred sales commissions [note 2] | 22,113 | 31,295 | ||||||
Amortization of intangibles | 9,645 | 6,424 | ||||||
Interest [note 7] | 43,054 | 24,926 | ||||||
Other [note 6] | 8,621 | 51,707 | ||||||
1,393,065 | 1,303,561 | |||||||
Income before income taxes | 843,300 | 807,735 | ||||||
Provision for (recovery of) income taxes [notes 2 and 11] | ||||||||
Current | 229,009 | 262,001 | ||||||
Deferred | (3,556 | ) | (3,205 | ) | ||||
225,453 | 258,796 | |||||||
Net income for the year | 617,847 | 548,939 | ||||||
Net income (loss) attributable to non-controlling interests | 371 | (155 | ) | |||||
Net income attributable to shareholders [note 2] | 617,476 | 549,094 | ||||||
Other comprehensive income, net of tax [note 2] | ||||||||
Unrealized gain on available-for-sale financial assets, net of income taxes of nil [2017 - $843] | — | 5,515 | ||||||
Reversal of gains to net income on available-for-sale financial assets, net of income taxes of nil [2017 - $(56)] | — | (407 | ) | |||||
Exchange differences on translation of foreign operations | 808 | 45 | ||||||
Total other comprehensive income, net of tax | 808 | 5,153 | ||||||
Comprehensive income for the year | 618,655 | 554,092 | ||||||
Comprehensive income (loss) attributable to non-controlling interests | 371 | (155 | ) | |||||
Comprehensive income attributable to shareholders [note 2] | 618,284 | 554,247 | ||||||
Basic earnings per share attributable to shareholders [note 9(e)] | $ | 2.38 | $ | 2.08 | ||||
Diluted earnings per share attributable to shareholders [note 9(e)] | $ | 2.38 | $ | 2.08 | ||||
(see accompanying notes) |
Q4 Financial Report | 6 | December 31, 2018 |
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
For the years ended December 31
Share
capital
[note 9(a)] |
Contributed surplus |
Deficit [note 2] |
Accumulated other comprehensive income [note 2] |
Total shareholders’ equity |
Non-controlling interests |
Total equity |
||||||||||||||||||||||
[in thousands of Canadian dollars] | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Balance, January 1, 2018 | 2,360,257 | 22,058 | (478,702 | ) | (531 | ) | 1,903,082 | 2,478 | 1,905,560 | |||||||||||||||||||
Comprehensive income | — | — | 617,476 | 808 | 618,284 | 371 | 618,655 | |||||||||||||||||||||
Dividends declared [note 10] | — | — | (449,919 | ) | — | (449,919 | ) | — | (449,919 | ) | ||||||||||||||||||
Shares repurchased, net of tax | (243,180 | ) | — | (409,455 | ) | — | (652,635 | ) | — | (652,635 | ) | |||||||||||||||||
Issuance [notes 8 and 9] | 534 | — | — | — | 534 | — | 534 | |||||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 7,519 | (7,113 | ) | — | — | 406 | — | 406 | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 10,325 | — | — | 10,325 | — | 10,325 | |||||||||||||||||||||
Change during the year | (235,127 | ) | 3,212 | (241,898 | ) | 808 | (473,005 | ) | 371 | (472,634 | ) | |||||||||||||||||
Balance, December 31, 2018 | 2,125,130 | 25,270 | (720,600 | ) | 277 | 1,430,077 | 2,849 | 1,432,926 | ||||||||||||||||||||
Balance, January 1, 2017 | 1,885,066 | 18,062 | (369,689 | ) | 9,148 | 1,542,587 | 2,633 | 1,545,220 | ||||||||||||||||||||
Comprehensive income | — | — | 549,094 | 5,153 | 554,247 | (155 | ) | 554,092 | ||||||||||||||||||||
Dividends declared [note 10] | — | — | (371,578 | ) | — | (371,578 | ) | — | (371,578 | ) | ||||||||||||||||||
Shares repurchased, net of tax | (108,249 | ) | — | (301,361 | ) | — | (409,610 | ) | — | (409,610 | ) | |||||||||||||||||
Business combination [note 3] | 576,996 | — | — | — | 576,996 | — | 576,996 | |||||||||||||||||||||
Issuance [notes 8 and 9] | 2,190 | — | — | — | 2,190 | — | 2,190 | |||||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 4,254 | (4,254 | ) | — | — | — | — | — | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 8,250 | — | — | 8,250 | — | 8,250 | |||||||||||||||||||||
Change during the year | 475,191 | 3,996 | (123,845 | ) | 5,153 | 360,495 | (155 | ) | 360,340 | |||||||||||||||||||
Balance, December 31, 2017 | 2,360,257 | 22,058 | (493,534 | ) | 14,301 | 1,903,082 | 2,478 | 1,905,560 |
(see accompanying notes)
Q4 Financial Report | 7 | December 31, 2018 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
2018 | 2017 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
OPERATING ACTIVITIES (*) | ||||||||
Net income for the year | 617,847 | 548,939 | ||||||
Add (deduct) items not involving cash | ||||||||
Realized and unrealized loss (gain) on investments | 8,115 | (1,365 | ) | |||||
Fair value adjustment to put option and contingent consideration | (1,144 | ) | 5,600 | |||||
Equity-based compensation | 13,728 | 10,228 | ||||||
Amortization of intangibles | 9,645 | 6,424 | ||||||
Amortization and depreciation of other | 10,912 | 8,110 | ||||||
Deferred income taxes | (3,556 | ) | (3,205 | ) | ||||
Cash provided by operating activities before net change in operating assets and liabilities | 655,547 | 574,731 | ||||||
Net change in operating assets and liabilities | (47,336 | ) | 6,377 | |||||
Cash provided by operating activities | 608,211 | 581,108 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (17,768 | ) | (38,343 | ) | ||||
Proceeds on sale of investments | 21,960 | 19,676 | ||||||
Additions to capital assets | (11,709 | ) | (9,229 | ) | ||||
Decrease (increase) in other assets | (2,824 | ) | 125,917 | |||||
Additions to intangibles | (4,359 | ) | (10,697 | ) | ||||
Cash paid to settle put option and contingent liability [note 8] | (13,694 | ) | (11,808 | ) | ||||
Interest in joint operation | — | (609 | ) | |||||
Acquisition of subsidiary, net of cash acquired [note 3] | — | (226,710 | ) | |||||
Cash used in investing activities | (28,394 | ) | (151,803 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Increase (decrease) in amounts drawn on credit facility | (222,000 | ) | 110,000 | |||||
Issuance of debentures | 606,667 | 248,820 | ||||||
Repurchase of share capital | (656,907 | ) | (413,243 | ) | ||||
Issuance of share capital | 406 | — | ||||||
Share issue expense paid | — | (204 | ) | |||||
Dividends paid to shareholders | (295,405 | ) | (367,995 | ) | ||||
Cash used in financing activities | (567,239 | ) | (422,622 | ) | ||||
Net increase in cash and cash equivalents during the year | 12,578 | 6,683 | ||||||
Cash and cash equivalents, beginning of year | 124,582 | 117,899 | ||||||
Cash and cash equivalents, end of year | 137,160 | 124,582 | ||||||
(*) Included in operating activities are the following: | ||||||||
Interest paid | 38,289 | 22,015 | ||||||
Income taxes paid | 240,519 | 206,642 |
(see accompanying notes)
Q4 Financial Report | 8 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
CI Financial Corp. [“CI”] is a publicly listed company (TSX: CIX) incorporated under the laws of the Province of Ontario and has its registered office and principal place of business located at 2 Queen Street East, Toronto, Ontario.
CI’s primary business is the management and distribution of a broad range of financial products and services, including mutual funds, segregated funds, exchange-traded funds, financial planning, insurance, investment advice, wealth management and estate and succession planning.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These consolidated financial statements of CI have been prepared in accordance with International Financial Reporting Standards [“IFRS”] as issued by the International Accounting Standards Board [“IASB”].
These consolidated financial statements were authorized for issuance by the Board of Directors of CI on February 7, 2019.
BASIS OF PRESENTATION
The consolidated financial statements of CI have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The consolidated financial statements have been prepared on a going concern basis. CI’s presentation currency is the Canadian dollar, which is CI’s functional currency.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of CI and all its subsidiaries on a consolidated basis after elimination of intercompany transactions and balances. Subsidiaries are entities over which CI has control, when CI has the power, directly or indirectly, to govern the financial and operating policies of an entity, is exposed to variable returns from its activities, and is able to use its power to affect such variable returns to which it is exposed.
CI’s principal subsidiaries are as follows:
• | CI Investments Inc. [“CI Investments”], Assante Wealth Management (Canada) Ltd. [“AWM”], First Asset Capital Corp. [“First Asset”], BBS Securities Inc. [“BBS”] and their respective subsidiaries. Effective, June 1, 2018, Sentry Investments Corp. amalgamated with CI Investments. |
• | CI holds a controlling 65% interest in Marret Asset Management Inc. [“Marret”]. A non-controlling interest is recorded in the consolidated statements of income and comprehensive income to reflect the non-controlling interest’s share of the income and comprehensive income, and a non-controlling interest is recorded within equity in the consolidated statements of financial position to reflect the non-controlling interest’s share of the net assets of Marret. |
Q4 Financial Report | 9 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
• | CI holds a controlling 83% interest in Grant Samuel Funds Management [“GSFM”] and granted a put option to shareholders for the remaining 17% minority interest. CI considers the non-controlling interest in GSFM to have already been acquired and consolidates 100% of the income and comprehensive income in the consolidated statements of income and comprehensive income. GSFM has an interest in a joint arrangement classified as a joint operation. The consolidated financial statements include GSFM’s recognition of its share of the joint operation’s assets, liabilities, income and comprehensive income. |
Hereinafter, CI and its subsidiaries are referred to as CI.
CI manages a range of mutual funds, segregated funds, structured products and other funds that meet the definition of structured entities under IFRS. CI earns fees for providing management and administrative services to these investment funds. Fees are calculated on assets under management in these funds, which totalled $124.4 billion as at December 31, 2018 [2017 – $143.0 billion]. CI does not consolidate these investment funds because the form of fees and ownership interest are not significant enough to meet the definition of control under IFRS. CI provides no guarantees against the risk of financial loss to the investors of these investment funds.
REVENUE RECOGNITION
Revenue is recognized when control of the goods or services are transferred to CI at an amount that reflects the consideration to which CI expects to be entitled in exchange for those goods or services. Revenue is measured at the fair value of the consideration received or receivable. In addition to these general principles, CI applies the following specific revenue recognition policies:
Management fees are based upon the net asset value of the funds managed by CI and are recognized on an accrual basis.
Administration fees and other income are recognized as services are provided under contractual arrangements. Administration fees include commission revenue, which is recorded on a trade date basis and advisory fees, which are recorded when the services related to the underlying engagements are completed.
Redemption fees payable by security holders of deferred sales charge mutual funds, the sales commission of which was financed by CI, are recognized as revenue on the trade date of the redemption of the applicable mutual fund securities.
Q4 Financial Report | 10 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
FINANCIAL INSTRUMENTS
Classification and measurement of financial assets
CI classifies its financial assets as fair value through profit or loss [“FVPL”] and amortized cost. CI had no financial assets classified as fair value through other comprehensive income [“FVOCI”] during the year ended December 31, 2018.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and CI’s business model for managing them. With the exception of trade receivables, that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, Revenue from Contracts with Customers [“IFRS 15”], all financial assets are initially measured at fair value adjusted for transaction costs.
Financial assets classified as FVPL are carried at fair value in the consolidated statements of financial position and any gains or losses are recorded in net income in the period in which they arise. Financial assets classified as FVPL include cash and cash equivalents, investments and other assets.
Financial assets are classified at amortized cost using the effective interest method if they meet the following conditions and are not designated as FVPL:
• | they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows |
• | the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding |
Financial assets classified at amortized cost include client and trust funds on deposit, accounts receivable and other assets.
Cash and cash equivalents
Cash and cash equivalents include cash on deposit, highly liquid investments and interest-bearing deposits with original maturities of 90 days or less.
Client and trust funds
Client and trust funds on deposit include amounts representing cash held in trust with Canadian financial institutions for clients in respect of self-administered Registered Retirement Savings Plans and Registered Retirement Income Funds, and amounts received from clients for which the settlement date on the purchase of securities has not occurred or accounts in which the clients maintain a cash balance. Client and trust funds on deposit also include amounts for client transactions that are entered into on either a cash or margin basis and recorded on the trade date of the transaction. Amounts are due from clients on the settlement date of the transaction for cash accounts. For margin accounts, CI extends credit to a client for the purchase of securities, collateralized by the financial instruments in the client’s account. Amounts loaned are limited by margin regulations of the Investment Industry Regulatory Organization of Canada [“IIROC”] and other regulatory authorities, and are subject to CI’s credit review and daily monitoring procedures. The corresponding liabilities related to the above accounts and transactions are included in client and trust funds payable.
Q4 Financial Report | 11 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Investments
Investments include BBS’s securities owned, at market, principally for the purpose of selling or repurchasing in the near term. Securities owned, at market, are classified as FVPL and are initially recognized on the consolidated statements of financial position at fair value with transaction costs expensed as incurred. Subsequent realized and unrealized gains and losses are included in administration fees income in the consolidated statements of income and comprehensive income in the period in which they arise. Securities transactions are recorded on a trade date basis. Market value is based on quoted prices where an active market exists. For securities in non-active markets, market value is based on valuation techniques and management’s best estimate of fair value.
Also included in investments are marketable securities that consist of CI’s seed capital investments in CI mutual funds and strategic investments. Investments in marketable securities are measured at fair value and recognized on the trade date. Mutual fund securities are valued using the net asset value per unit of each fund. Realized and unrealized gains and losses are recognized using average cost and recorded in net income. Distributions from mutual fund securities are recorded as other income. Distributions that are reinvested increase the cost base of the mutual fund investments.
Impairment of financial assets
CI recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the loss allowance for the financial asset is measured at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the loss allowance is measured for the financial asset at an amount equal to 12 months of expected credit losses. For trade receivables, CI applies the simplified approach to providing for expected credit losses, which allows for the use of a lifetime expected credit loss provision. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and is related to an event occurring after the impairment was recognized.
Q4 Financial Report | 12 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Classification and measurement of financial liabilities
CI classifies its financial liabilities as FVPL and amortized cost. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the financial liability is classified at FVPL. Subsequently, financial liabilities are measured at amortized cost using the effective interest method except for derivatives and financial liabilities designated at FVPL, which are carried subsequently at fair value with gains or losses recognized in net income. Financial liabilities classified at FVPL include derivative financial instruments included in long-term debt and a contingent consideration payable included in provision for other liabilities. All other financial liabilities are measured at amortized cost.
Derivative financial instruments and hedge accounting
CI may use derivative financial instruments such as interest rate swaps and forward foreign exchange contracts to manage its interest rate and foreign currency risk related to long-term debt. Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value. The accounting for subsequent changes depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged and the type of hedge relationship designated.
To qualify for hedge accounting, the hedging relationship must meet all of the following requirements:
Ÿ | there is an economic relationship between the hedged item and the hedging instrument | |
Ÿ | the effect of credit risk does not dominate the value changes that result from that economic relationship | |
Ÿ | the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. |
CI entered into an interest rate swap designated as a fair value hedge to manage the effect of changes in interest rates relating to its fixed-rate debentures. The swap involves exchanging interest payments without exchanging the notional amount on which the payments are based. The exchange of payments is recorded as an adjustment to interest expense on the hedged item. Changes in the fair value of the swap are recorded in the consolidated statements of income and comprehensive income in other expenses, together with any changes in the fair value of the hedged liability attributable to the hedged risk as an offset.
Q4 Financial Report | 13 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
FAIR VALUE MEASUREMENT
CI uses valuation techniques to determine the fair value of financial instruments where active market quotes are not available. This involves developing estimates and assumptions consistent with how market participants would price the instrument. CI maximizes the use of observable data when developing estimates and assumptions, but this is not always available. In that case management uses the best information available.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Ÿ | Level 1 | – | valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities |
Ÿ | Level 2 | – | valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by correlation or other means |
Ÿ | Level 3 | – | valuation techniques with significant unobservable market inputs |
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, CI determines whether transfers have occurred between levels in the hierarchy by reassessing the categorization at the end of each reporting period.
COLLATERALIZED SECURITIES TRANSACTIONS
CI engages in securities lending and borrowing to facilitate the securities settlement process and to maximize revenue by acting as an agent for such transactions. These transactions are typically short-term in nature, with interest being received on the cash delivered. These transactions are collateralized by either cash, letters of credit or other collateral and are subject to daily margin calls for any deficiency between the market value of the security given and the amount of collateral received. CI manages its credit exposure by establishing and monitoring aggregate limits by counterparty for these transactions. CI’s securities lending and borrowing transactions are recorded in accounts receivable and prepaid expenses and accounts payable and accrued liabilities.
CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation. These assets are depreciated over their estimated useful lives as follows:
Computer hardware Straight-line over three years
Office equipment Straight-line over five years
Leasehold improvements Straight-line over the term of the lease
Q4 Financial Report | 14 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
BUSINESS COMBINATIONS
The acquisition method of accounting is used to account for the acquisition of subsidiaries by CI, whereby the purchase consideration is allocated to the identifiable assets and liabilities on the basis of fair value at the date of acquisition. Provisional fair values allocated at a reporting date are finalized as soon as the relevant information is available, within a period not to exceed 12 months from the acquisition date, with retroactive restatement of the impact of adjustments to those provisional fair values effective as at the acquisition date.
CI elects on a transaction-by-transaction basis whether to measure any non-controlling interest at fair value, or at the proportionate share of the recognized amount of the identifiable net assets of the acquired subsidiary, at the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred and equity interests issued by CI. Consideration also includes the fair value of any put option or contingent consideration. Subsequent to the acquisition, the put option and contingent consideration that is based on an earnings measurement and classified as a liability is measured at fair value with any resulting gain or loss recognized in net income. Acquisition-related costs are expensed as incurred.
INTANGIBLES
Fund contracts
Fund administration contracts and fund management contracts [collectively, “fund contracts”] are recorded net of any write-down for impairment. CI evaluates the carrying amounts of indefinite life fund contracts at least annually for potential impairment by comparing the recoverable amount with their carrying amounts. CI will evaluate the carrying amount of fund contracts if events or changes in circumstances indicate a potential impairment. Any impairment would be written off to income.
Fund administration contracts are amortized on a straight-line basis over a period of up to 25 years. Fund management contracts with a finite life are amortized on a straight-line basis over a period of up to 20 years. The amortization period depends on the contractual terms of such agreements and management’s best estimate of their useful lives. Fund management contracts with an indefinite life are not amortized.
Goodwill
Goodwill is recorded as the excess of purchase price over identifiable assets acquired. Following initial recognition, goodwill is stated at cost less any accumulated impairment losses. Goodwill is evaluated for impairment at least annually and any impairment is recognized immediately in income and not subsequently reversed. Goodwill is allocated to the appropriate cash-generating unit for the purpose of impairment testing.
Q4 Financial Report | 15 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Other intangibles
Other intangibles include the costs of trademarks and computer software, capitalized where it is probable that future economic benefits that are attributable to the assets will flow to CI and the cost of the assets can be measured reliably. Computer software is recorded initially at cost and amortized over its expected useful life of two to ten years on a straight-line basis. Trademarks have an indefinite life and are not amortized.
EQUITY-BASED COMPENSATION
CI uses the fair value method to account for equity-settled employee incentive share options and restricted share units [“RSUs”] The value of the equity-based compensation, as at the date of grant, is recognized over the applicable vesting period as compensation expense with a corresponding increase in contributed surplus. When options are exercised, the proceeds received, together with the amount in contributed surplus, are credited to share capital. Upon vesting of the RSUs, the amount accumulated in contributed surplus for the RSUs is reclassified to share capital.
CI has a deferred share unit plan for directors. The value of the compensation at the date of grant is recognized immediately as compensation with a corresponding increase in accounts payable and accrued liabilities. At each consolidated statement of financial position date, the liability is revalued with an offset to compensation expense.
The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service condition at the vesting date.
DEFERRED LEASE INDUCEMENTS
Lease inducements are deferred and amortized on a straight-line basis over the term of the lease.
INCOME TAXES
Current income tax liabilities are measured at the amount expected to be paid to tax authorities, net of recoveries based on the tax rates and tax laws enacted or substantively enacted as at the consolidated statement of financial position dates.
The liability method of tax allocation is used in accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between the carrying amount and tax basis of assets and liabilities and measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Deferred tax liabilities are generally recognized for all taxable temporary differences.
Q4 Financial Report | 16 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Deferred tax liabilities are recognized for taxable temporary differences arising in investments in subsidiaries and joint ventures except where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognized on temporary differences that arise from the initial recognition of goodwill, which is not deductible for tax purposes. Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination.
PROVISION FOR OTHER LIABILITIES
A provision for other liabilities is recognized if, as a result of a past event, CI has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. In the event that the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects a current market assessment of the time value of money and the risks specific to the liability.
FOREIGN CURRENCY
(i) Foreign currency transactions
Transactions that are denominated in a currency other than the functional currency of the entity are translated as follows: Monetary assets and liabilities are translated into Canadian dollars using the exchange rates in effect as at the consolidated statement of financial position dates. Non-monetary assets and liabilities are translated into Canadian dollars using historical exchange rates. Revenue and expenses are translated at average rates prevailing during the period. Other foreign currency transactions are translated into Canadian dollars using the exchange rate in effect on the transaction date. Translation exchange gains and losses are included in other income in the period in which they occur.
(ii) Foreign currency operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at the exchange rate in effect as at the consolidated statement of financial position dates. Revenue and expenses are translated at average rates prevailing during the period. Translation exchange gains and losses are recognized as other comprehensive income and reclassified to net income when the gain or loss on disposal of the foreign subsidiary is recognized. The consolidated statements of cash flows are translated at average exchange rates during the period, whereas cash and cash equivalents are translated at the spot exchange rate in effect as at the consolidated statement of financial position dates.
Q4 Financial Report | 17 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
In the process of applying CI’s accounting policies, management has made significant judgments involving estimates and assumptions, which are summarized as follows:
(i) Impairment of intangible assets
Finite life intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indefinite life intangible assets, including goodwill, are tested for impairment annually or more frequently if changes in circumstances indicate that the carrying amount may be impaired. The values associated with intangibles involve estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives. These estimates require significant judgment regarding market growth rates, fund flow assumptions, expected margins and costs that could affect CI’s future results if the current estimates of future performance and fair values change. These determinations also affect the amount of amortization expense on intangible assets with finite lives recognized in future periods.
(ii) Deferred tax assets
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profits will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.
(iii) Provision for other liabilities
Due to the nature of provisions, a considerable part of their determination is based on estimates and judgments, including assumptions concerning the future. The actual outcome of these uncertain factors may be materially different from the estimates, causing differences with the estimated provisions. Further details are provided in Note 8.
(iv) Share-based payments
The cost of employee services received (compensation expense) in exchange for awards of equity instruments recognized is estimated using a Black-Scholes option pricing model which requires the use of assumptions. Further details regarding the assumptions used in the option pricing model are provided in Note 9[b].
(v) Business combinations
Business combinations require management to exercise judgment in measuring the fair value of the assets acquired and liabilities, put option and contingent consideration liabilities incurred or assumed.
Q4 Financial Report | 18 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
2. | NEW ACCOUNTING STANDARDS |
[A] IFRS 15
Effective January 1, 2018, CI retrospectively adopted IFRS 15. IFRS 15 replaces prior guidance, including IAS 18, Revenue. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new guidance includes a five-step recognition and measurement approach, requirements for accounting of contract costs, and enhanced quantitative and qualitative disclosure requirements. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
Prior to the adoption of IFRS 15, commissions paid on sales of deferred sales charge mutual funds were capitalized and amortized over the redemption period. CI has determined that these costs are within the scope of IFRS 15 and do not qualify as an incremental cost of acquiring its fund contracts. Accordingly, CI now recognizes the related sales commissions as an expense at the date incurred. The retrospective application of IFRS 15 resulted in the derecognition of previously recognized deferred sales commissions and the related deferred tax liability on CI’s consolidated statements of financial position of $153,644 as at January 1, 2018 ($202,811 as at January 1, 2017). CI will recognize sales commissions as an expense at the date incurred rather than deferring and recognizing over the redemption period. CI has assessed and determined that there are no other significant impacts resulting from the application of IFRS 15 on its consolidated financial statements.
[B] IFRS 9
Effective January 1, 2018, CI retrospectively adopted IFRS 9, Financial Instruments [“IFRS 9”], replacing IAS 39, Financial Instruments [“IAS 39”]. IFRS 9 provides a new approach for the classification of financial assets, which shall be based on the cash flow characteristics of the asset and the business model of the portfolio in which the asset is held.
Under IFRS 9, financial assets are classified as either FVPL, FVOCI or amortized cost and financial liabilities are categorized as either FVPL or amortized cost. For financial liabilities designated as FVPL, IFRS 9 requires the presentation of the effects of changes in the liability’s credit risk in other comprehensive income instead of net income. The application of IFRS 9 resulted in the reclassification of investments of $117,830 to FVPL as at January 1, 2018, which were previously classified as available-for-sale under IAS 39 as at December 31, 2017. CI recognized a decrease in opening deficit of $14,832 with a corresponding decrease in the opening accumulated other comprehensive income as at January 1, 2018. The classification of all other assets and liabilities are consistent with previous classification under IAS 39 with the exception that assets previously classified as loans and receivables and other liabilities under IAS 39 are now classified as amortized cost under IFRS 9.
Q4 Financial Report | 19 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Upon adoption of IFRS 9 on January 1, 2018, CI also applied amendments to IFRS 7, Financial Instruments: Disclosures, and elected not to restate comparative information. Prior year comparative information has been presented in accordance with its previous accounting policy.
[C] APPLICATION IMPACT OF IFRS 9 AND IFRS 15 ON FINANCIAL STATEMENTS:
The following table shows the impact of the application of IFRS 9 and IFRS 15 to deficit and accumulated other comprehensive income balances on the consolidated statements of financial position:
January 1, 2018 | December 31, 2017 | January 1, 2017 | ||||||||||
$ | $ | $ | ||||||||||
Deficit prior to application of IFRS 9 and IFRS 15 | (339,890 | ) | (339,890 | ) | (166,878 | ) | ||||||
Deferred sales commissions | (205,478 | ) | (205,478 | ) | (272,699 | ) | ||||||
Deferred income taxes | 51,834 | 51,834 | 69,888 | |||||||||
Accumulated other comprehensive income | 14,832 | — | — | |||||||||
Total adjustment to deficit | (138,812 | ) | (153,644 | ) | (202,811 | ) | ||||||
Deficit subsequent to application of IFRS 9 and IFRS 15 | (478,702 | ) | (493,534 | ) | (369,689 | ) | ||||||
Accumulated other comprehensive income prior to application of IFRS 9 | 14,301 | 14,301 | 9,148 | |||||||||
Accumulated other comprehensive income | (14,832 | ) | — | — | ||||||||
Accumulated other comprehensive income subsequent to application of IFRS 9 | (531 | ) | 14,301 | 9,148 |
The comparative consolidated statements of income and comprehensive income were not restated for the application of IFRS 9. The following table shows the impact of the application of IFRS 15 to the consolidated statements of income and comprehensive income:
Q4 Financial Report | 20 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Year ended
December 31, 2017 |
||||
$ | ||||
Net income attributable to shareholders prior to application of IFRS 15 | 499,927 | |||
Amortization of deferred sales commissions | 98,515 | |||
Deferred sales commissions paid | (31,295 | ) | ||
Deferred income taxes | (18,053 | ) | ||
Differences in net income | 49,167 | |||
Net income attributable to shareholders subsequent to application of IFRS 15 | 549,094 | |||
Comprehensive income attributable to shareholders prior to application of IFRS 15 | 505,080 | |||
Differences in net income | 49,167 | |||
Comprehensive income attributable to shareholders subsequent to application of IFRS 15 | 554,247 |
The following table shows the impact of the application of IFRS 15 to the consolidated statements of cash flows:
Year ended
December 31, 2017 |
||||
$ | ||||
Cash provided by operating activities prior to application of IFRS 15 | 612,403 | |||
Deferred sales commissions paid | (31,295 | ) | ||
Cash provided by operating activities subsequent to application of IFRS 15 | 581,108 | |||
Cash used in investing activities prior to application of IFRS 15 | (183,098 | ) | ||
Deferred sales commissions paid | 31,295 | |||
Cash used in investing activities subsequent to application of IFRS 15 | (151,803 | ) |
3. BUSINESS ACQUISITION
Sentry Investments Corp.
On October 2, 2017, CI completed the acquisition of all outstanding shares of Sentry Investments Corp. and Sentry Investments Inc. [collectively, “Sentry”], a Canadian asset management company, for total consideration of $807,607, in cash of $257,607 and CI common shares of $550,000. The acquisition was accounted for using the acquisition method of accounting and the results of operations have been consolidated from the date of the transaction.
Q4 Financial Report | 21 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Details of the net assets acquired as at October 2, 2017, at fair value, are as follows:
$ | ||||
Cash and cash equivalents | 23,897 | |||
Accounts receivable and prepaid expenses | 33,256 | |||
Investments | 34,251 | |||
Capital assets | 5,962 | |||
Management contracts | 616,750 | |||
Income taxes receivable | 8,936 | |||
Accounts payable and accrued liabilities | (62,544 | ) | ||
Deferred lease inducements | (1,858 | ) | ||
Deferred income taxes | (161,943 | ) | ||
Fair value of identifiable net assets | 496,707 | |||
Goodwill on acquisition | 310,900 | |||
Total acquired cost | 807,607 |
The acquired fund management contracts with a fair value of $616,750 include $612,750 that have an indefinite life and $4,000 with a finite life. The goodwill on acquisition is not deductible for income taxes. Goodwill of $310,900 relates to the asset management segment.
Details of the consideration as at the date of acquisition are as follows:
$ | ||||
Cash consideration, including amounts payable | 257,607 | |||
Share consideration | 550,000 | |||
Total consideration | 807,607 |
Cash inflow on acquisition is as follows:
$ | ||||
Net cash acquired (included in cash flows from investing activities) | 23,897 | |||
Transaction costs (included in cash flows from financing activities) | (158 | ) | ||
Net cash inflow on acquisition | 23,739 |
Q4 Financial Report | 22 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
BBS Securities Inc.
On November 1, 2017, CI completed the acquisition of all outstanding shares and debt obligations of BBS Securities Inc., and associated entities, including Pario Technology Corp. and Virtual Brokers Wealth Management Inc. [collectively, “BBS”], a financial technology company for $38,369, in cash of $11,169 and CI common shares of $27,200. The acquisition was accounted for using the acquisition method of accounting and the results of operations have been consolidated from the date of the transaction.
Details of the net assets acquired as at November 1, 2017, at fair value, are as follows:
$ | ||||
Cash and cash equivalents | 5,589 | |||
Accounts receivable and prepaid expenses | 18,861 | |||
Client and trust funds on deposit | 112,091 | |||
Investments | 50,805 | |||
Capital assets | 778 | |||
Fund administration contracts | 6,900 | |||
Intangible - technology | 9,100 | |||
Other assets | 356 | |||
Accounts payable and accrued liabilities | (15,200 | ) | ||
Client and trust funds payable | (164,690 | ) | ||
Deferred lease inducement | (99 | ) | ||
Deferred income taxes | (4,135 | ) | ||
Fair value of identifiable net assets | 20,356 | |||
Goodwill on acquisition | 18,013 | |||
Total acquired cost | 38,369 |
The acquired fund administration contracts with a fair value of $6,900 have a finite life. The technology acquired has a fair value of $9,100 and an estimated useful life of 10 years. The goodwill on acquisition is not deductible for income taxes. Goodwill of $18,013 relates to the asset administration segment.
Q4 Financial Report | 23 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Details of the consideration as at the date of acquisition is as follows:
$ | ||||
Cash consideration, including amounts payable | 11,169 | |||
Share consideration | 27,200 | |||
Total consideration | 38,369 | |||
Cash inflow on acquisition is as follows:
$ | ||||
Net cash acquired (included in cash flows from investing activities) | 5,589 | |||
Transaction costs (included in cash flows from financing activities) | (46 | ) | ||
Net cash inflow on acquisition | 5,543 |
WealthBar Financial Services Inc.
On December 14, 2018, CI reached an agreement to acquire 75% of all the outstanding shares of WealthBar Financial Services Inc. [“WealthBar”], a leading Canadian online wealth management and financial planning platform, for all cash consideration. The transaction closed on January 23, 2019. The business combination of WealthBar using the acquisition method of accounting is in progress. The estimated fair values of the assets acquired and liabilities assumed will be disclosed in the interim consolidated financial statements as at March 31, 2019 with final figures expected within 12 months of the acquisition date.
Q4 Financial Report | 24 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
4. CAPITAL ASSETS
Capital assets consist of the following:
Computer hardware
|
Office equipment
|
Leasehold improvements
|
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Cost | ||||||||||||||||
Balance, December 31, 2016 | 9,288 | 12,703 | 63,030 | 85,021 | ||||||||||||
Additions | 3,190 | 1,127 | 4,912 | 9,229 | ||||||||||||
Acquired | 4,314 | 2,192 | 6,510 | 13,016 | ||||||||||||
Retired | (608 | ) | — | — | (608 | ) | ||||||||||
Balance, December 31, 2017 | 16,184 | 16,022 | 74,452 | 106,658 | ||||||||||||
Additions | 3,662 | 1,938 | 6,109 | 11,709 | ||||||||||||
Retired | (2,257 | ) | — | (7 | ) | (2,264 | ) | |||||||||
Balance, December 31, 2018 | 17,589 | 17,960 | 80,554 | 116,103 | ||||||||||||
Accumulated depreciation | ||||||||||||||||
Balance, December 31, 2016 | 5,770 | 10,757 | 33,753 | 50,280 | ||||||||||||
Depreciation | 2,522 | 813 | 4,134 | 7,469 | ||||||||||||
Acquired | 3,208 | 1,554 | 1,514 | 6,276 | ||||||||||||
Retired | (608 | ) | — | — | (608 | ) | ||||||||||
Balance, December 31, 2017 | 10,892 | 13,124 | 39,401 | 63,417 | ||||||||||||
Depreciation | 3,466 | 1,199 | 5,300 | 9,965 | ||||||||||||
Retired | (2,257 | ) | — | (7 | ) | (2,264 | ) | |||||||||
Balance, December 31, 2018 | 12,101 | 14,323 | 44,694 | 71,118 | ||||||||||||
Carrying amounts | ||||||||||||||||
At December 31, 2016 | 3,518 | 1,946 | 29,277 | 34,741 | ||||||||||||
At December 31, 2017 | 5,292 | 2,898 | 35,051 | 43,241 | ||||||||||||
At December 31, 2018 | 5,488 | 3,637 | 35,860 | 44,985 |
Q4 Financial Report | 25 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
5. INTANGIBLES
Goodwill |
Fund
administration contracts |
Fund
management contracts finite life |
Fund
management contracts indefinite life |
Other
intangibles |
Total | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Cost | ||||||||||||||||||||||||
Balance, December 31, 2016 | 1,190,464 | 37,600 | 46,157 | 1,167,207 | 31,283 | 2,472,711 | ||||||||||||||||||
Acquired | 330,576 | 6,900 | 4,000 | 612,750 | — | 954,226 | ||||||||||||||||||
Translation | 278 | — | — | — | — | 278 | ||||||||||||||||||
Additions | — | — | — | — | 19,797 | 19,797 | ||||||||||||||||||
Retired | — | — | — | — | 677 | 677 | ||||||||||||||||||
Balance, December 31, 2017 | 1,521,318 | 44,500 | 50,157 | 1,779,957 | 51,757 | 3,447,689 | ||||||||||||||||||
Acquired | 283 | — | — | — | — | 283 | ||||||||||||||||||
Translation | (496 | ) | — | — | — | — | (496 | ) | ||||||||||||||||
Additions | — | — | — | — | 4,359 | 4,359 | ||||||||||||||||||
Balance, December 31, 2018 | 1,521,105 | 44,500 | 50,157 | 1,779,957 | 56,116 | 3,451,835 | ||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||
Balance, December 31, 2016 | — | 19,576 | 25,610 | — | 19,559 | 64,745 | ||||||||||||||||||
Amortization | — | 1,648 | 1,731 | — | 3,048 | 6,427 | ||||||||||||||||||
Retired | — | — | — | — | 677 | 677 | ||||||||||||||||||
Balance, December 31, 2017 | — | 21,224 | 27,341 | — | 23,284 | 71,849 | ||||||||||||||||||
Amortization | — | 2,030 | 2,033 | — | 5,582 | 9,645 | ||||||||||||||||||
Balance, December 31, 2018 | — | 23,254 | 29,374 | — | 28,866 | 81,494 | ||||||||||||||||||
Carrying amounts | ||||||||||||||||||||||||
At December 31, 2016 | 1,190,464 | 18,024 | 20,547 | 1,167,207 | 11,724 | 2,407,966 | ||||||||||||||||||
At December 31, 2017 | 1,521,318 | 23,276 | 22,816 | 1,779,957 | 28,473 | 3,375,840 | ||||||||||||||||||
At December 31, 2018 | 1,521,105 | 21,246 | 20,783 | 1,779,957 | 27,250 | 3,370,341 | ||||||||||||||||||
Remaining term | N/A | 9.9 – 10.8 yrs | 7.9 – 14.9 yrs | N/A | 0.1 – 8.8 yrs |
CI has two cash-generating units [“CGUs”] for the purpose of assessing the carrying amount of the allocated goodwill being the asset management and asset administration operating segments as described in Note 16. Goodwill of $1,310,510 is allocated to the asset management segment and $210,595 is allocated to the asset administration segment as at December 31, 2018 [2017 - $1,311,006 and $210,312, respectively]. Within the asset management segment, CI has three CGUs, being CI Investments, First Asset and GSFM of which each has indefinite life fund management contracts of $1,611,832, $87,300 and $80,825, respectively, as at December 31, 2018 and 2017.
The recoverable amounts for goodwill and indefinite life fund management contracts have been determined based on value in use calculations, using 10 year forecasts and a terminal value for the period thereafter. CI uses a 10 year period to reflect the expected growth strategies for the various contracts acquired in addition to the fact that it may take several years to fully integrate operations and benefit from synergies. The key assumptions used in the forecast calculation include assumptions on market appreciation, net sales of funds and operating margins. Market appreciation rates are determined using historical inflation-adjusted index returns adjusted for CI’s average management fee. Net sales are determined based on the historical 3 year average as well as management’s forecasts for future sales. Inputs to the operating margin include estimates for management and trailer fees using current average fee rates and historical rates for selling, general and administrative costs that are applied to forecasted average assets under management over the 10 year period. The terminal value has been calculated assuming a long-term growth rate of 2% per annum in perpetuity based on a long-term real GDP growth rate as at December 31, 2018 and 2017. A discount rate of 8.3% - 12.5% per annum has been applied to the recoverable amount calculation as at December 31, 2018 [2017 - 8.11%].
Q4 Financial Report | 26 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
The calculation of the recoverable amount exceeds the carrying amount of goodwill and indefinite life fund management contracts as at December 31, 2018 and 2017.
6. OTHER ASSETS, INCOME AND EXPENSE
Other assets as at December 31, 2018 consist mainly of long-term investments, long-term accounts receivable, loans granted under CI’s employee share purchase plan and loans extended to investment advisors under CI’s hiring and incentive program.
CI has an employee share purchase loan program for key employees. These loans are renewable yearly and bear interest at prescribed rates. As at December 31, 2018, the carrying amount of employee share purchase loans is $5,188 [2017 – $5,238] and is included in other assets. These loans become due immediately upon termination of employment or sale of the shares that are held as collateral. As at December 31, 2018, the shares held as collateral have a market value of approximately $5,865 [2017 – $10,104].
CI has a hiring and retention incentive program whereby loans are extended to current investment advisors. These loans are initially recorded at their fair value, may bear interest at prescribed rates and are contractually forgiven on a straight-line basis over the applicable contractual period, which varies in length from three to seven years. CI utilizes the effective interest method to amortize the forgiven amount. The forgiven amount is included in selling, general and administrative expenses. As at December 31, 2018, loans to investment advisors of $16,039 [2017 – $10,711] are included in other assets. These loans become due on demand upon early termination or breach in the terms of the agreements.
Other income consists mainly of fees received for the administration of third-party mutual funds, custody fees, investment income, foreign exchange gains (losses), interest income and the revenue earned by Marret. Other income also includes the fair value adjustment to the put option and contingent consideration discussed in Note 8. Other expenses consist mainly of the expenses incurred by Marret, amortization of debenture transaction costs and provisions as discussed in Note 8.
Q4 Financial Report | 27 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
7. LONG-TERM DEBT
Long-term debt consists of the following:
2018 | 2017 | |||||||
$ | $ | |||||||
Credit facility | ||||||||
Prime rate loan | 24,500 | — | ||||||
Bankers’ acceptances | — | 222,000 | ||||||
LIBOR loan (USD $193,000) | 259,000 | — | ||||||
283,500 | 222,000 | |||||||
Debentures | ||||||||
$450 million, 2.645% due December 7, 2020 | 449,032 | 448,568 | ||||||
$200 million, 2.775% due November 25, 2021 | 199,278 | 199,050 | ||||||
$325 million, 3.520% due July 20, 2023 | 323,297 | — | ||||||
$250 million, 3.904% due September 27, 2027 | 248,626 | 248,501 | ||||||
1,220,233 | 896,119 | |||||||
Long-term debt | 1,503,733 | 1,118,119 | ||||||
Current portion of long-term debt | — | 222,000 |
CREDIT FACILITY
On October 3, 2018, CI’s revolving credit facility was amended to include three Canadian chartered banks. CI may borrow up to $700,000 under the facility in Canadian dollars through prime rate loans, which bear interest at the greater of the bank’s prime rate and the Canadian Deposit Offering Rate plus 1.00%, or bankers’ acceptances, which bear interest at bankers’ acceptance rates plus 0.90%. Amounts may also be borrowed in U.S. dollars through base rate loans, which bear interest at the greater of the bank’s reference rate for loans made by it in Canada in U.S. funds and the federal funds effective rate plus 1.00%, or LIBOR loans, which bear interest at LIBOR plus 0.90%.
CI may also borrow under this facility in the form of letters of credit, which bear a fee of 0.90% on any undrawn portion. As at December 31, 2018 and 2017, CI had not accessed the facility by way of letters of credit.
Loans are made by the banks under a three-year revolving credit facility, with the outstanding principal balance due upon maturity on December 11, 2021.
The credit facility contains a number of financial covenants that require CI to meet certain financial ratios and financial condition tests. CI is within its financial covenants with respect to its credit facility, which require that the funded debt to annualized EBITDA ratio remain below 3:1 and that CI’s assets under management not fall below $85 billion, calculated based on a rolling 30-day average. There can be no assurance that future borrowings or equity financing will be available to CI or available on acceptable terms.
Q4 Financial Report | 28 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
On December 24, 2018, CI entered into a forward exchange contract with a Canadian chartered bank to pay Canadian dollars $259,690 and receive U.S. dollars $193,666 maturing on January 28, 2019. CI has not applied hedge accounting to the forward foreign exchange contract, as the fair value changes are offset in net income with the foreign exchange revaluation of the U.S. denominated debt.
DEBENTURES
On July 20, 2018, CI completed an offering pursuant to which it issued $325,000 principal amount of debentures due July 20, 2023 at par [the “2023 Debentures”]. Interest on the 2023 Debentures is paid semi-annually in arrears at a rate of 3.520%. Interest attributable to the 2023 Debentures was $5,143 for the year ended December 31, 2018 [2017 – nil].
The $250,000 principal amount of debentures issued at par on September 27, 2017 and due September 27, 2027 [the “2027 Debentures”] pay semi-annual interest in arrears at a rate of 3.904% per annum. Interest attributable to the 2027 Debentures was $9,760 for the year ended December 31, 2018 [2017 – 2,547].
The $200,000 principal amount of debentures issued at par on November 25, 2016 and due November 25, 2021 [the “2021 Debentures”] pay semi-annual interest in arrears at a rate of 2.775% per annum. On February 2, 2017, CI entered into an interest rate swap agreement with a Canadian chartered bank to swap the semi-annual fixed rate payments on the 2021 Debentures for floating rate payments. Based on the terms of the agreement, CI pays a rate equivalent to the three-month Canadian bankers’ acceptance rate plus a spread of 138.4 basis points. The rates are reset quarterly and paid semi-annually to match the fixed payment obligations of the 2021 Debentures. The swap agreement terminates on the maturity date of the 2021 Debentures unless terminated by CI at an earlier date. As at December 31, 2018, the fair value of the interest rate swap agreement was an unrealized loss of $4,959 [2017 - $6,130] and is included in long-term debt in the consolidated statements of financial position. CI has not experienced any hedge ineffectiveness, as the terms of the interest rate swap match the terms of the debenture. Interest attributable to the 2021 Debentures was $6,402 for the year ended December 31, 2018 [2017 – $4,967].
The $450,000 principal amount of debentures issued at par on December 7, 2015 and due December 7, 2020 [the “2020 Debentures”] pay semi-annual interest in arrears at a rate of 2.645% per annum. Interest attributable to the 2020 Debentures was $11,903 for the year ended December 31, 2018 [2017 – $12,112].
Q4 Financial Report | 29 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Issuance costs and the issuance discount are amortized over the term of the debentures using the effective interest method. The amortization expense related to the discount and transaction costs for CI’s issued debentures for the year ended December 31, 2018 was $947 [2017 –$642], which is included in other expenses.
CI may, at its option, redeem the 2020 Debentures, the 2021 Debentures, the 2023 Debentures and the 2027 Debentures in whole or in part, from time to time, on not less than 30 nor more than 60 days’ prior notice to the registered holder, at a redemption price which is equal to the greater of par or the Government of Canada yield, plus 42.5, 44.0, 36.0 and 44.5 basis points, respectively. CI considers this embedded prepayment option to be closely related to the debentures and, as such, does not account for it separately as a derivative.
In the event that both a change of control occurs and the rating of the debentures is lowered to below investment grade by two out of three rating agencies as defined as below BBB- by Standard & Poor’s, BBB (low) by DBRS Limited and Baa3 by Moody’s Investor Service, Inc., CI will be required to make an offer to repurchase all or, at the option of each holder, any part of each holder’s debentures at a purchase price payable in cash equivalent to 101% of the outstanding principal amount of the debentures, together with accrued and unpaid interest, to the date of purchase.
8. PROVISION FOR OTHER LIABILITIES AND CONTINGENCIES
CI is a party to a number of claims, proceedings and investigations, including legal, regulatory and tax, in the ordinary course of its business. Due to the inherent uncertainty involved in these matters, it is difficult to predict the final outcome or the amount and timing of any outflow related to such matters. Based on current information and consultations with advisors, CI does not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on its financial position or on its ability to continue normal business operations.
CI has made provisions based on current information and the probable resolution of such contingent consideration, claims, proceedings and investigations as well as for amounts payable in connection with business acquisitions and severance. The movement in amounts provided for contingent liabilities and related expenses during the years ended December 31, are as follows:
Q4 Financial Report | 30 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
2018 | 2017 | |||||||
$ | $ | |||||||
Provision for other liabilities, beginning of year | 98,595 | 85,309 | ||||||
Additions | 3,151 | 73,244 | ||||||
Amounts used | (54,838 | ) | (52,913 | ) | ||||
Amounts reversed | (12,140 | ) | (7,045 | ) | ||||
Provision for other liabilities, end of year | 34,768 | 98,595 | ||||||
Current portion of provision for other liabilities | 14,591 | 61,210 |
Provision for other liabilities primarily include the following:
LITIGATION
CI is a defendant to certain lawsuits of which two are class action lawsuits related to events and transactions that gave rise to a settlement agreement with the Ontario Securities Commission [“OSC”] in 2004. Although CI continues to believe that this settlement fully compensated investors affected by frequent trading activity, a provision has been made based on the probable resolution of these claims and related expenses.
CI maintains insurance policies that may provide coverage against certain claims. Amounts receivable under these policies are not accrued for unless the realization of income is virtually certain. During the years ended December 31, 2018 and 2017, no insurance proceeds were received, related to the settlement of legal claims.
TAXATION
CI is subject to various uncertainties concerning the interpretation and application of Canadian tax laws. If tax authorities disagree with CI’s application of such tax laws, CI’s profitability and cash flows could be adversely affected. CI Investments is considered a large case file by the Canada Revenue Agency [“CRA”], and as such, is subject to audit each year. There is a significant lag between the end of a fiscal year and when such audits are completed. Therefore, at any given time, several years may be open for audit and/or adjustment.
During 2017, CI recorded a current income tax expense of $45,000 as a provision for the settlement of outstanding notices of reassessment received for the years 2006 to 2008 [“NORs”]. During the year ended December 31, 2018, CI reversed $1,466 related to this provision for the NORs. During 2018, the CRA returned $8,392 [2017 - $120,756] from deposits placed with the CRA in 2015. As at December 31, 2018, included in accounts receivable and prepaid expenses is nil [2017 - $7,130]. Included in provision for other liabilities as at December 31, 2018, is a legal provision of nil related to this matter [2017 - $27].
Q4 Financial Report | 31 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
PUT OPTION AND CONTINGENT CONSIDERATION
Included in provision for other liabilities as at December 31, 2018, is a provision for the fair value of the put option granted to minority interest shareholders for the acquisition of GSFM of $11,438, including foreign exchange translation adjustments [2017 - $16,742]. During 2018, GSFM shareholders exercised their put to CI and a total of 30,000 shares were purchased for an equivalent Canadian cash value of $2,565. In addition, during 2018, the put option liability was reduced by $1,167 representing dividends paid by GSFM to non-controlling shareholders. The fair value was reduced $1,144 during 2018 to reflect lower forecasted earnings estimates with an offset to other income.
During 2018, CI made payments of $11,663, in cash - $11,129 and shares - $534, related to contingent consideration that was payable for the First Asset acquisition [2017 - payments of $13,997, in cash - $11,808 and shares - $2,189]. As at December 31, 2018, all contingent consideration related to this acquisition has been paid [2017 - provision for other liabilities of $11,603].
RESTRUCTURING
During the year ended December 31, 2017, CI recorded provisions of $39,000, primarily for restructuring, integration and legal costs related to the acquisition of Sentry and BBS. As at December 31, 2018, a provision of $5,756 remains [2017 - $29,776].
REMEDIATION
In 2015, CI Investments discovered an administrative error and recorded a provision of $10,750, net of recoveries for the cost to remediate. As at December 31, 2018, a net recovery of $3,550 remains [2017 - $480].
Q4 Financial Report | 32 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
9. SHARE CAPITAL
A summary of the changes to CI’s share capital for the years ended December 31 is as follows:
[A] AUTHORIZED AND ISSUED
Number of shares | Stated value | |||||||
[in thousands] | $ | |||||||
Authorized | ||||||||
An unlimited number of common shares of CI | ||||||||
Issued | ||||||||
Common shares, balance, December 31, 2016 | 265,302 | 1,885,066 | ||||||
Issuance for acquisition of subsidiary, net of issuance costs | 21,276 | 579,186 | ||||||
Issuance of share capital on exercise of share options | 96 | 1,835 | ||||||
Issuance of share capital on vesting of restricted share units | 120 | 2,419 | ||||||
Share repurchases, net of tax | (14,910 | ) | (108,249 | ) | ||||
Common shares, balance, December 31, 2017 | 271,884 | 2,360,257 | ||||||
Issuance for acquisition of subsidiary, net of issuance costs | 17 | 534 | ||||||
Issuance of share capital on exercise of share options | 58 | 1,700 | ||||||
Issuance of share capital on vesting of restricted share units | 283 | 5,819 | ||||||
Share repurchases, net of tax | (28,521 | ) | (243,180 | ) | ||||
Common shares, balance, December 31, 2018 | 243,721 | 2,125,130 |
During the year ended December 31, 2018, 27,951 thousand shares [2017 – 14,410 thousand shares] were repurchased under a normal course issuer bid at an average cost of $22.93 per share for total consideration of $640,787 [2017 – $27.73 per share for total consideration of $399,625]. Deficit was increased by $398,278 during the year ended December 31, 2018 [2017 – $290,714] for the cost of the shares repurchased in excess of their stated value.
During the year ended December 31, 2018, 570 thousand shares [2017 – 500 thousand shares] were repurchased for CI’s restricted share unit plan at an average cost of $28.28 per share for total consideration of $16,120 [$11,848 after tax] [2017 – $27.24 per share for total consideration of $13,618 [$9,985 net of tax]]. Deficit was increased by $11,177 during the year ended December 31, 2018 [2017 – 10,647] for the cost of the shares repurchased in excess of their stated value.
[B] EMPLOYEE INCENTIVE SHARE OPTION PLAN
CI has an employee incentive share option plan [the “Share Option Plan”], as amended and restated, for the executives and key employees of CI.
Q4 Financial Report | 33 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
During the year, CI granted 78 thousand options [2017 - 599 thousand options] to employees. The fair value method of accounting is used for the valuation of the 2018 and 2017 share option grants. Compensation expense is recognized over the two and three-year vesting period, assuming an estimated average forfeiture rate of 0.0% for the year [2017 - 0.0%], with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well as any consideration paid by the option holder are credited to share capital. The fair value of the 2018 and 2017 option grants was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:
Year of grant | 2018 | 2017 | 2017 | |||||||||
# of options granted [in thousands] | 78 | 304 | 295 | |||||||||
Vesting terms | 1/3 at end of each year | 1/3 at end of each year | 1/2 at end of each year | |||||||||
Dividend yield | 5.044% - 5.085 | % | 5.238% - 5.337 | % | 5.238% - 5.268 | % | ||||||
Expected volatility (*) | 16 | % | 16 | % | 16 | % | ||||||
Risk-free interest rate | 2.285% - 2.363 | % | 1.189% - 1.293 | % | 1.189% - 1.229 | % | ||||||
Expected life [years] | 2.9 - 3.7 | 2.7 - 3.6 | 2.7 - 3.0 | |||||||||
Forfeiture rate | 0 | % | 0 | % | 0 | % | ||||||
Fair value per stock option | $2.23 - $2.45 | $1.88 - $2.04 | $1.88 - $1.94 | |||||||||
Exercise price | $28.67 | $27.44 | $27.44 |
(*) Based on historical volatility of CI’s share price.
The maximum number of shares that may be issued under the Share Option Plan is 14,000 thousand shares. As at December 31, 2018, there are 6,958 thousand shares [2017 – 8,073 thousand shares] reserved for issuance on exercise of share options. These options vest over periods of up to five years, may be exercised at prices ranging from $27.44 to $35.88 per share and expire at dates up to 2023.
Q4 Financial Report | 34 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
A summary of the changes in the Share Option Plan is as follows:
Number of options |
Weighted average
exercise price |
|||||||
[in thousands] | $ | |||||||
Options outstanding, December 31, 2016 | 8,640 | 31.44 | ||||||
Options exercisable, December 31, 2016 | 3,721 | 31.46 | ||||||
Options granted | 599 | 27.44 | ||||||
Options exercised (*) | (875 | ) | 25.07 | |||||
Options cancelled | (291 | ) | 31.30 | |||||
Options outstanding, December 31, 2017 | 8,073 | 31.84 | ||||||
Options exercisable, December 31, 2017 | 5,014 | 33.03 | ||||||
Options granted | 78 | 28.67 | ||||||
Options exercised (*) | (609 | ) | 27.42 | |||||
Options cancelled | (584 | ) | 31.98 | |||||
Options outstanding, December 31, 2018 | 6,958 | 32.18 | ||||||
Options exercisable, December 31, 2018 | 5,789 | 32.97 |
(*) Weighted-average share price of options exercised was $29.54 during the year ended December 31, 2018 [2017 - $28.54]
The equity-based compensation expense under the Share Option Plan for the year ended December 31, 2018 of $975 [2017 – $2,815] has been included in selling, general and administrative expenses.
Options outstanding and exercisable as at December 31, 2018 are as follows:
Exercise price |
Number of options outstanding |
Weighted average remaining contractual life | Number of options exercisable | |||||||||
$ | [in thousands] | [years] | [in thousands] | |||||||||
27.44 | 534 | 3.2 | 191 | |||||||||
28.63 | 2,143 | 2.1 | 1,395 | |||||||||
28.67 | 78 | 4.2 | — | |||||||||
33.96 | 2,293 | 1.1 | 2,293 | |||||||||
34.52 | 229 | 0.4 | 229 | |||||||||
35.60 | 1,461 | 0.1 | 1,461 | |||||||||
35.88 | 220 | 1.3 | 220 | |||||||||
27.44 to 35.88 | 6,958 | 1.4 | 5,789 |
Q4 Financial Report | 35 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
[C] RESTRICTED SHARE UNITS
CI has an employee restricted share unit plan [the “RSU Plan”] for senior executives and other key employees. Compensation expense is recognized and recorded as contributed surplus based upon the market value of the restricted share units [“RSUs”] at the grant date. Forfeitures of RSUs reduce compensation expense to the extent contributed surplus was previously recorded for such awards. On vesting of RSUs, share capital is credited for the amounts initially recorded as contributed surplus to reflect the issuance of share capital.
During the year ended December 31, 2018, CI granted 579 thousand RSUs [2017 - 514 thousand RSUs], including 38 thousand RSUs granted, to reflect dividends declared on the common shares [2017 - 21 thousand]. Also during the year ended December 31, 2018, 284 thousand RSUs were exercised, and 24 thousand RSUs were forfeited [2017 - 120 thousand RSUs exercised, and 1 thousand RSUs forfeited]. During the year ended December 31, 2018, CI credited contributed surplus for $12,753, related to compensation expense recognized for the RSUs [2017 - $7,413]. As at December 31, 2018, 664 thousand RSUs are outstanding [2017 - 393 thousand RSUs].
CI uses a Trust to hold CI’s common shares, to fulfill obligations to employees arising from the RSU Plan. The common shares held by the Trust are not considered to be outstanding for the purposes of basic and diluted earnings per share calculations.
[D] DEFERRED SHARE UNITS
The deferred share unit plan [the “DSU Plan”] was established in March 2017, whereby directors may elect to receive all or a portion of their quarterly compensation in either cash or deferred share units [“DSUs”]. The DSUs fully vest on the grant date and an expense is recorded based upon the market value of the DSUs at the grant date with an offset included in accounts payable and accrued liabilities. At the end of each period, the change in the fair value of the DSUs is recorded as an expense with an offset recorded to the liability. DSUs can only be redeemed for cash once the holder ceases to be a director of CI.
During the year ended December 31, 2018, 2 thousand DSUs were granted, and 12 thousand DSUs were exercised, [2017 - 13 thousand DSUs, and nil exercised]. An expense recovery of $(217) was recorded during the year ended December 31, 2018, [2017 - $740]. As at December 31, 2018, included in accounts payable and accrued liabilities, is an accrual of $269 for amounts to be paid under the DSU Plan [2017 - $740].
Q4 Financial Report | 36 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
[E] BASIC AND DILUTED EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share for the years ended December 31:
[in thousands] | 2018 | 2017 | ||||||
Numerator: | ||||||||
Net income attributable to shareholders of the Company basic and diluted | $ | 617,476 | $ | 549,094 | ||||
Denominator: | ||||||||
Weighted average number of common shares - basic | 259,253 | 264,435 | ||||||
Weighted average effect of dilutive stock options and RSU awards (*) | 329 | 157 | ||||||
Weighted average number of common shares - diluted | 259,582 | 264,592 | ||||||
Net earnings per common share attributable to shareholders | ||||||||
Basic | $ | 2.38 | $ | 2.08 | ||||
Diluted | $ | 2.38 | $ | 2.08 |
(*) The determination of the weighted average number of common shares - diluted excludes 6,958 thousand shares related to stock options that were anti-dilutive for the year ended December 31, 2018 [2017 - 7,651 thousand shares].
[F] MAXIMUM SHARE DILUTION
The following table presents the maximum number of shares that would be outstanding if all the outstanding options were exercised and if all RSU awards vested as at January 31, 2019:
[in thousands] | ||||
Shares outstanding at January 31, 2019 | 242,363 | |||
RSU awards | 668 | |||
Options to purchase shares | 6,928 | |||
249,959 |
Q4 Financial Report | 37 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
10. DIVIDENDS
The following dividends were paid by CI during the year ended December 31, 2018:
Cash dividend per share |
Total dividend amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2017 | January 15, 2018 | 0.1175 | 31,957 | |||||||
January 31, 2018 | February 15, 2018 | 0.1175 | 31,736 | |||||||
February 28, 2018 | March 15, 2018 | 0.1175 | 31,706 | |||||||
March 31, 2018 | April 13, 2018 | 0.1175 | 31,344 | |||||||
April 30, 2018 | May 15, 2018 | 0.1175 | 31,170 | |||||||
May 31, 2018 | June 15, 2018 | 0.1175 | 30,996 | |||||||
June 30, 2018 | July 13, 2018 | 0.1175 | 30,616 | |||||||
July 31, 2018 | August 15, 2018 | 0.1175 | 30,513 | |||||||
September 30, 2018 | October 15, 2018 | 0.1800 | 45,534 | |||||||
Paid during the year ended December 31, 2018 | 295,572 |
The following dividends were declared but not paid during the year ended December 31, 2018:
Cash dividend per share |
Total dividend amount |
|||||||||||
Record date | Payment date | $ | $ | |||||||||
December 31, 2018 | January 15, 2019 | 0.18 | 43,824 | |||||||||
March 31, 2019 | April 15, 2019 | 0.18 | 43,822 | |||||||||
June 30, 2019 | July 15, 2019 | 0.18 | 43,822 | |||||||||
September 30, 2019 | October 15, 2019 | 0.18 | 43,822 | |||||||||
December 31, 2019 | January 15, 2020 | 0.18 | 43,822 | |||||||||
Declared and accrued as at December 31, 2018 | 219,112 |
Q4 Financial Report | 38 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
The following dividends were paid by CI during the year ended December 31, 2017:
Cash dividend per share |
Total dividend amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2016 | January 13, 2017 | 0.115 | 30,587 | |||||||
January 31, 2017 | February 15, 2017 | 0.115 | 30,504 | |||||||
February 28, 2017 | March 15, 2017 | 0.115 | 30,428 | |||||||
March 31, 2017 | April 13, 2017 | 0.115 | 30,223 | |||||||
April 30, 2017 | May 15, 2017 | 0.115 | 30,081 | |||||||
May 31, 2017 | June 15, 2017 | 0.1175 | 30,666 | |||||||
June 30, 2017 | July 14, 2017 | 0.1175 | 30,499 | |||||||
July 31, 2017 | August 15, 2017 | 0.1175 | 30,266 | |||||||
August 31, 2017 | September 15, 2017 | 0.1175 | 30,220 | |||||||
September 30, 2017 | October 13, 2017 | 0.1175 | 30,035 | |||||||
October 31, 2017 | November 15, 2017 | 0.1175 | 32,280 | |||||||
November 30, 2017 | December 15, 2017 | 0.1175 | 32,206 | |||||||
Paid during the year ended December 31, 2017 | 367,995 |
The following dividends were declared but not paid during the
year ended December 31, 2017:
Cash dividend per share |
Total dividend amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2017 | January 15, 2018 | 0.1175 | 32,299 | |||||||
January 31, 2018 | February 15, 2018 | 0.1175 | 32,299 | |||||||
Declared and accrued as at December 31, 2017 | 64,598 |
Q4 Financial Report | 39 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
11. INCOME TAXES
The following are the major components of income tax expense for the years ended December 31:
2018 | 2017 | |||||||
$ | $ | |||||||
Consolidated Statements of Income | ||||||||
Current income tax expense | ||||||||
Based on taxable income of the current year | 229,138 | 218,423 | ||||||
Adjustments in respect of prior years | (129 | ) | 43,578 | |||||
229,009 | 262,001 | |||||||
Deferred income tax expense | ||||||||
Origination and reversal of temporary differences (net) | (3,556 | ) | (3,267 | ) | ||||
Other | — | 62 | ||||||
(3,556 | ) | (3,205 | ) | |||||
Income tax expense reported in the consolidated statements of income | 225,453 | 258,796 | ||||||
Consolidated Statements of Comprehensive Income | ||||||||
Deferred income taxes | ||||||||
Unrealized gain on available-for-sale financial assets | — | 843 | ||||||
Reversal of gains to net income on available-for-sale financial assets | — | (56 | ) | |||||
Income tax expense reported in the consolidated statements of comprehensive income | — | 787 |
The following is a reconciliation between CI’s statutory and effective income tax rates for the years ended December 31:
2018 | 2017 | |||||||
$ | $ | |||||||
Combined Canadian federal and provincial income tax rate | 26.5 | 26.5 | ||||||
Increase in income taxes resulting from | ||||||||
Recovery of prior years’ provisions for settled tax items | — | 5.5 | ||||||
Other, net | 0.2 | — | ||||||
Income tax expense reported in the consolidated statements of income and comprehensive income | 26.7 | 32.0 |
Q4 Financial Report | 40 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of CI’s deferred income tax liabilities and assets are as follows at December 31, 2018:
Dec. 31, 2017 |
Recognized
in net income |
Recognized
in
other comprehensive income |
Recognized
in equity and FX |
Dec. 31, 2018 | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Deferred income tax liabilities | |||||||||||||||
Fund contracts | 488,482 | (4,706 | ) | — | — | 483,776 | |||||||||
Other | 1,413 | (1,386 | ) | — | — | 27 | |||||||||
Total deferred income tax liabilities | 489,895 | (6,092 | ) | — | — | 483,803 | |||||||||
Deferred income tax assets | |||||||||||||||
Equity-based compensation | 8,762 | 2,834 | — | 869 | 12,465 | ||||||||||
Non-capital loss carryforwards | 3,202 | (1,758 | ) | — | — | 1,444 | |||||||||
Provision for other liabilities | 5,099 | (2,189 | ) | — | — | 2,910 | |||||||||
Other | 2,439 | (1,423 | ) | 102 | (217 | ) | 901 | ||||||||
Total deferred income tax assets | 19,502 | (2,536 | ) | 102 | 652 | 17,720 | |||||||||
Net deferred income tax liabilities | 470,393 | (3,556 | ) | (102 | ) | (652 | ) | 466,083 |
Significant components of CI’s deferred income tax liabilities and assets are as follows at December 31, 2017:
Dec. 31, 2016 |
Opening
retained earnings adjustments |
Recognized
in net income |
Recognized
in
other comprehensive income |
Business
acquisition [note 3] |
Recognized
in equity and FX |
Dec. 31, 2017 | |||||||||||||||
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||
Deferred income tax liabilities | |||||||||||||||||||||
Fund contracts | 322,603 | — | 1,109 | — | 164,770 | — | 488,482 | ||||||||||||||
Deferred sales commissions | 69,888 | (69,888 | ) | — | — | — | — | — | |||||||||||||
Other | — | — | — | — | 1,413 | — | 1,413 | ||||||||||||||
Total deferred income tax liabilities | 392,491 | (69,888 | ) | 1,109 | — | 166,183 | — | 489,895 | |||||||||||||
Deferred income tax assets | |||||||||||||||||||||
Equity-based compensation | 5,582 | — | 1,525 | — | — | 1,655 | 8,762 | ||||||||||||||
Non-capital loss carryforwards | 2,197 | — | 1,005 | — | — | — | 3,202 | ||||||||||||||
Provision for other liabilities | 5,316 | — | (217 | ) | — | — | — | 5,099 | |||||||||||||
Other | 210 | — | 2,001 | (787 | ) | 3 | 1,012 | 2,439 | |||||||||||||
Total deferred income tax assets | 13,305 | — | 4,314 | (787 | ) | 3 | 2,667 | 19,502 | |||||||||||||
Net deferred income tax liabilities | 379,186 | (69,888 | ) | (3,205 | ) | 787 | 166,180 | (2,667 | ) | 470,393 |
Q4 Financial Report | 41 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
12. | FINANCIAL INSTRUMENTS |
The carrying amounts of the financial instruments are presented in the table below and are classified according to the following categories:
IFRS 9 | IAS 39 | |||||||
December 31, 2018 | December 31, 2017 | |||||||
$ | $ | |||||||
Financial assets | Financial assets | |||||||
Fair value through profit or loss | Fair value through profit or loss | |||||||
Cash and cash equivalents | 137,160 | Cash and cash equivalents | 124,582 | |||||
Investments [note 2] | 168,122 | Investments [note 2] | 83,080 | |||||
Other assets | 9,507 | Other assets | 6,657 | |||||
Amortized cost | Loans and receivables | |||||||
Client and trust funds on deposit | 365,520 | Client and trust funds on deposit | 327,733 | |||||
Accounts receivable | 137,979 | Accounts receivable | 219,941 | |||||
Other assets | 23,006 | Other assets | 22,891 | |||||
Available-for-sale | ||||||||
Investments [note 2] | 117,830 | |||||||
Total financial assets | 841,294 | Total financial assets | 902,714 | |||||
Financial liabilities | Financial liabilities | |||||||
Fair value through profit or loss | Fair value through profit or loss | |||||||
Provisions for other liabilities | 11,438 | Provisions for other liabilities | 28,345 | |||||
Amortized cost | Other financial liabilities | |||||||
Accounts payable and accrued liabilities | 222,233 | Accounts payable and accrued liabilities | 282,490 | |||||
Provisions for other liabilities | 23,330 | Provisions for other liabilities | 70,250 | |||||
Dividends payable | 219,112 | Dividends payable | 64,598 | |||||
Client and trust funds payable | 370,756 | Client and trust funds payable | 375,647 | |||||
Long-term debt | 1,503,733 | Long-term debt | 1,118,119 | |||||
Total financial liabilities | 2,350,602 | Total financial liabilities | 1,939,449 |
CI’s investments as at December 31, 2018 and 2017 include CI’s marketable securities which are comprised of seed capital investments in CI’s mutual funds and strategic investments. Mutual fund securities are valued using the net asset value per unit of each fund, which represents the underlying net assets at fair values determined using closing market prices. CI’s mutual fund securities that are valued daily are classified as level 1 in the fair value hierarchy. Mutual fund securities and strategic investments that are valued less frequently are classified as level 2 in the fair value hierarchy. CI’s investments as at December 31, 2018, also include securities owned, at market, consisting of money market, equity securities and bonds. Money market and equity securities are valued based on quoted prices and are classified as level 1 in the fair value hierarchy. Bonds are valued using a market comparison technique to fair value these instruments using observable broker quotes and are classified as level 2 in the fair value hierarchy. There have been no transfers between level 1 and level 2 during the year.
Q4 Financial Report | 42 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Investments consist of the following as at December 31, 2018:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 132,953 | 56,603 | 72,697 | 3,653 | ||||||||||||
Securities owned, at market | 35,169 | 35,169 | — | — | ||||||||||||
Total investments | 168,122 | 91,772 | 72,697 | 3,653 |
Investments consist of the following as at December 31, 2017:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 145,262 | 66,687 | 75,361 | 3,214 | ||||||||||||
Securities owned, at market | 55,648 | 55,268 | 380 | — | ||||||||||||
Total investments | 200,910 | 121,955 | 75,741 | 3,214 |
Included in other assets are long-term private equity strategic investments of $9,507 [2017 - $6,657] valued using level 3 inputs.
Included in provision for other liabilities, as at December 31, 2018 is contingent consideration of nil [2017 - $11,603] and put option payable on non-controlling interest of $11,438 [2017 - $16,742] carried at fair value and classified as level 3 in the fair value hierarchy. Long-term debt as at December 31, 2018 includes debentures with a fair value of $1,208,715 [2017 - $906,418], as determined by quoted market prices, which have been classified as level 2 in the fair value hierarchy.
13. | RISK MANAGEMENT |
Risk management is an integrated process with independent oversight. Management has developed an enterprise-wide approach to risk management that involves executives in each core business unit and operating area of CI. Using a quantitative and qualitative analysis, risk factors are assessed and procedures are implemented to mitigate the various events that could impact CI’s financial position and results of operations.
Q4 Financial Report | 43 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
CI’s financial instruments bear the following financial risks:
[A] MARKET RISK
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates, foreign exchange rates, and equity prices. The corporate finance group reviews the exposure to interest rate risk, foreign exchange risk and price risk by identifying, monitoring and reporting potential market risks to the Chief Financial Officer. A description of each component of market risk is described below:
• Interest rate risk is the risk of loss due to the volatility of interest rates.
• Foreign exchange risk is the risk of loss due to volatility of foreign exchange rates.
• Price risk is the risk of loss due to changes in prices and volatility of financial instruments.
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in the performance and may adversely affect CI’s assets under management and financial results.
(i) Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. Fluctuations in interest rates have a direct impact on the interest payments CI makes on its long-term debt. Debt outstanding on CI’s credit facility of $283,500 [2017 – $222,000] is borrowed at a floating interest rate. In 2017, CI entered into an interest rate swap agreement with a Canadian chartered bank to swap the semi-annual fixed rate payments on the 2021 Debentures $200,000 principal amount for floating rate payments.
Based on the amount borrowed under the credit facility and the 2021 Debentures as at December 31, 2018, each 0.50% increase or decrease in interest rates would result in annual interest expense increasing or decreasing by $2,418 [2017 – $2,110], respectively.
(ii) Foreign exchange risk
CI is exposed to foreign exchange risk primarily from its investment in foreign subsidiaries operating in the United States and Australia and from CI’s investments denominated in U.S. dollars.
Q4 Financial Report | 44 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
The following table provides the impact on net income and other comprehensive income [“OCI”] of a 10% change in the value of foreign currencies with respect to CI’s net financial assets as at December 31, 2018:
The following table provides the impact on net income and OCI of a 10% change in the value of foreign currencies with respect to CI’s net financial assets as at December 31, 2017:
10% strengthening of
foreign exchange rate on net income |
10% strengthening of
foreign exchange rate on OCI |
10% weakening of
foreign exchange rate on net income |
10% weakening of
foreign exchange rate on OCI |
|||||||||||||
United States dollar | 5,210 | 3,817 | (5,210 | ) | (3,817 | ) | ||||||||||
Australian dollar | (1,357 | ) | 667 | 1,357 | (667 | ) |
[iii] Price risk
CI incurs price risk through its investments of $168,122 [2017 – $200,910]. Based on the carrying amount of these assets, an increase or decrease in prices by 10% would result in estimated gains or losses of $16,812 [2017 - $20,091], respectively.
[B] LIQUIDITY RISK
Liquidity risk arises from the possibility that CI will encounter difficulties in meeting its financial obligations as they fall due. CI manages its liquidity risk through a combination of cash received from operations as well as borrowings under its revolving credit facility. Liquidity is monitored through a daily cash management process that includes the projection of cash flows to ensure CI meets its funding obligations.
CI’s liabilities have contractual maturities, excluding interest payments, as follows:
Total | 2019 | 2020 | 2021 | 2022 | 2023 | 2027 | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Accounts payable and accrued liabilities | 222,233 | 222,233 | — | — | — | — | — | |||||||||||||||||||||
Dividends payable | 219,112 | 175,290 | 43,822 | — | — | — | — | |||||||||||||||||||||
Client and trust funds payable | 370,756 | 370,756 | — | — | — | — | — | |||||||||||||||||||||
Long-term debt | 1,508,500 | — | 450,000 | 483,500 | — | 325,000 | 250,000 | |||||||||||||||||||||
Put option and contingent consideration | 11,438 | 3,365 | 2,691 | 2,691 | 2,691 | — | — | |||||||||||||||||||||
Total | 2,332,039 | 771,644 | 496,513 | 486,191 | 2,691 | 325,000 | 250,000 |
Q4 Financial Report | 45 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
[C] CREDIT RISK
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed to the risk that third parties that owe it money, securities or other assets will not perform their obligations. Expected credit losses associated with CI’s financial assets are insignificant.
As at December 31, 2018, financial assets of $536,012 [2017 – $577,222], represented by client and trust funds on deposit of $365,520 [2017 – $327,733], accounts receivable of $137,979 [2017 – $219,941] and other assets of $32,513[2017 – $29,548], were exposed to credit risk. CI does not have a significant exposure to any individual counterparty. Credit risk is mitigated by regularly monitoring the credit performance of each individual counterparty and holding collateral, where appropriate.
Client and trust funds on deposit consist mainly of cash deposits or unsettled trade receivables. CI may also extend amounts to clients on a margin basis for security purchases. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory requirements and by CI’s internal credit policy. Credit risk is managed by dealing with counterparties CI believes to be creditworthy and by actively monitoring credit and margin exposure and the financial health of the counterparties.
CI’s accounts receivable consist primarily of management fees receivable, amounts due to CI from the government agencies with respect to input tax credits and other short-term receivables due within 90 days.
Securities lending and borrowing agreements consist of the following as at December 31, 2018:
Cash | Securities | |||||||
$ | $ | |||||||
Loaned or delivered as collateral | 4,898 | 5,535 | ||||||
Borrowed or received as collateral | 11,618 | 11,506 |
Securities lending and borrowing agreements consist of the following as at December 31, 2017:
Cash | Securities | |||||||
$ | $ | |||||||
Loaned or delivered as collateral | 11,676 | 21,488 | ||||||
Borrowed or received as collateral | 10,996 | 20,076 |
Q4 Financial Report | 46 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
CI uses securities lending and borrowing to facilitate the securities settlement process. These transactions are typically short-term in nature, fully collateralized by either cash or securities and subject to daily margin calls for any deficiency between the market value of the security given and the amount of collateral received. CI manages its credit exposure by establishing and monitoring aggregate limits by counterparty for these transactions. Cash loaned or delivered as collateral is included in accounts receivable and cash borrowed or received as collateral is included in accounts payable and accrued liabilities.
Other assets consist mainly of long-term investments, long-term accounts receivable, loans granted under CI’s employee share purchase plan and loans extended to investment advisors under CI’s hiring and incentive program. Employee loans are collateralized by CI shares and become due immediately upon termination of the employee or upon the sale of the shares held as collateral. Commissions may be used to offset loan amounts made to investment advisors in the event of default. Credit risk associated with other assets is limited given the nature of the relationship with the counterparties.
14. | CAPITAL MANAGEMENT |
CI’s objectives in managing capital are to maintain a capital structure that allows CI to meet its growth strategies and build long-term shareholder value, while satisfying its financial obligations and meeting its long-term debt covenants. CI’s capital is comprised of shareholders’ equity and long-term debt (including the current portion of long-term debt).
CI and its subsidiaries are subject to minimum regulatory capital requirements whereby sufficient cash and other liquid assets must be on hand to maintain capital requirements rather than using them in connection with its business. As at December 31, 2018, cash and cash equivalents of $20,226 [2017 - $12,124] was required to be on hand for regulatory capital maintenance. Failure to maintain required regulatory capital by CI may result in fines, suspension or revocation of registration by the relevant securities regulator. CI from time to time provides loans to its subsidiaries for operating purposes and may choose to subordinate these loans in favour of general creditors. The repayment of subordinated loans is subject to regulatory approval. As at December 31, 2018 and 2017, CI met its capital requirements.
CI’s capital consists of the following:
As at | As at | |||||||
December 31, 2018 | December 31, 2017 | |||||||
$ | $ | |||||||
Shareholders’ equity | 1,430,077 | 1,903,082 | ||||||
Long-term debt | 1,503,733 | 1,118,119 | ||||||
Total capital | 2,933,810 | 3,021,201 |
Q4 Financial Report | 47 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
15. | COMMITMENTS |
LEASE COMMITMENTS
CI has entered into leases relating to the rental of office premises and computer equipment. CI has the option to renew certain leases. The approximate future minimum annual rental payments under such leases are as follows:
$ | |||||
2019 | 14,053 | ||||
2020 | 12,911 | ||||
2021 | 12,324 | ||||
2022 | 11,790 | ||||
2023 | 11,729 | ||||
2024 and thereafter | 27,243 |
ADVISOR SERVICES AGREEMENTS
CI is a party to certain advisor services agreements, which provide that the advisor has the option to require CI to purchase a practice that cannot otherwise be transitioned to a qualified buyer. The purchase price would be in accordance with a pre-determined formula contained in the advisor services agreements.
INDEMNITIES
CI has agreed to indemnify its directors and officers, and certain of its employees in accordance with its by-laws. CI maintains insurance policies that may provide coverage against certain claims.
16. | SEGMENTED INFORMATION |
CI has two reportable segments: asset management and asset administration. These segments reflect CI’s internal financial reporting and performance measurement.
The asset management segment includes the operating results and financial position of CI Investments, CI Private Counsel LP, First Asset, GSFM and Marret, which derive their revenues principally from the fees earned on the management of several families of mutual funds, segregated funds and exchange traded funds.
The asset administration segment includes the operating results and financial position of BBS and AWM and its subsidiaries, including Assante Capital Management Ltd. and Assante Financial Management Ltd. These companies derive their revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients.
Q4 Financial Report | 48 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Segmented information as at and for the year ended December 31, 2018 is as follows:
Asset management |
Asset administration |
Intersegment
eliminations |
Total | |||||||||
$ | $ | $ | $ | |||||||||
Management fees | 2,004,151 | — | — | 2,004,151 | ||||||||
Administration fees | — | 372,357 | (174,766 | ) | 197,591 | |||||||
Other income | 2,308 | 32,315 | — | 34,623 | ||||||||
Total revenue | 2,006,459 | 404,672 | (174,766 | ) | 2,236,365 | |||||||
Selling, general and administrative | 424,594 | 97,924 | — | 522,518 | ||||||||
Trailer fees | 662,829 | — | (31,586 | ) | 631,243 | |||||||
Investment dealer fees | — | 298,024 | (142,153 | ) | 155,871 | |||||||
Deferred sales commissions | 23,140 | — | (1,027 | ) | 22,113 | |||||||
Amortization of intangibles | 5,850 | 3,795 | — | 9,645 | ||||||||
Other expenses | 8,333 | 288 | — | 8,621 | ||||||||
Total expenses | 1,124,746 | 400,031 | (174,766 | ) | 1,350,011 | |||||||
Income before income taxes and non-segmented items | 881,713 | 4,641 | — | 886,354 | ||||||||
Interest expense | (43,054 | ) | ||||||||||
Provision for income taxes | (225,453 | ) | ||||||||||
Net income for the year | 617,847 | |||||||||||
Identifiable assets | 432,264 | 558,890 | — | 991,154 | ||||||||
Indefinite life intangibles | ||||||||||||
Goodwill | 1,310,510 | 210,595 | — | 1,521,105 | ||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||
Total assets | 3,522,731 | 769,485 | — | 4,292,216 |
Q4 Financial Report | 49 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
Segmented information as at and for the year ended December 31, 2017 is as follows:
Asset management |
Asset administration |
Intersegment
eliminations |
Total | |||||||||
$ | $ | $ | $ | |||||||||
Management fees | 1,897,061 | — | — | 1,897,061 | ||||||||
Administration fees | — | 341,940 | (167,931 | ) | 174,009 | |||||||
Other income | 14,533 | 25,693 | — | 40,226 | ||||||||
Total revenue | 1,911,594 | 367,633 | (167,931 | ) | 2,111,296 | |||||||
Selling, general and administrative | 380,012 | 79,091 | — | 459,103 | ||||||||
Trailer fees | 616,761 | — | (29,353 | ) | 587,408 | |||||||
Investment dealer fees | — | 279,948 | (137,250 | ) | 142,698 | |||||||
Deferred sales commissions | 32,623 | — | (1,328 | ) | 31,295 | |||||||
Amortization of intangibles | 3,744 | 2,680 | — | 6,424 | ||||||||
Other expenses | 52,050 | (343 | ) | — | 51,707 | |||||||
Total expenses | 1,085,190 | 361,376 | (167,931 | ) | 1,278,635 | |||||||
Income before income taxes and non-segmented items | 826,404 | 6,257 | — | 832,661 | ||||||||
Interest expense | (24,926 | ) | ||||||||||
Provision for income taxes | (258,796 | ) | ||||||||||
Net income for the year | 548,939 | |||||||||||
Identifiable assets | 511,436 | 532,543 | — | 1,043,979 | ||||||||
Indefinite life intangibles | ||||||||||||
Goodwill | 1,311,006 | 210,312 | — | 1,521,318 | ||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||
Total assets | 3,602,399 | 742,855 | — | 4,345,254 |
Q4 Financial Report | 50 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
17. | COMPENSATION OF KEY MANAGEMENT |
The remuneration of directors and other key management personnel of CI during the years ended December 31, is as follows:
2018 | 2017 | |||||
$ | $ | |||||
Salaries | 6,453 | 6,438 | ||||
Equity-based compensation | 2,847 | 4,493 | ||||
Total | 9,300 | 10,931 |
18. | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
Included in selling, general and administrative expenses [“SG&A”] are salaries and benefits of $279,728 for the year ended December 31, 2018 [2017 - $242,006]. Also included in SG&A is depreciation of capital assets of $9,954 for the year ended December 31, 2018 [2017 - $7,463]. Other SG&A of $232,836 for the year ended December 31, 2018, primarily includes marketing, lease and information technology expenses as well as professional and regulatory fees [2017 - $209,634].
19. | FUTURE ACCOUNTING POLICY CHANGES |
The following standards have been issued, but are not yet effective on the date of issuance of CI’s consolidated financial statements.
IFRIC 23:
On June 7, 2017, the IFRS Interpretations Committee issued IFRIC 23, Uncertainty over Income Tax Treatments [“IFRIC 23”], which is mandatory for annual periods on or after January 1, 2019. IFRIC 23 clarifies the accounting treatment used to reflect uncertainty in the recognition and measurement of income taxes. CI expects the impact of the application of this standard to be insignificant.
IFRS 16:
IFRS 16, Leases [“IFRS 16”] was issued in January 2016 and will replace the previous lease standard, IAS 17, Leases, and related Interpretations. The new standard requires lessees to recognize assets and liabilities for most leases. IRFS 16 is effective for annual periods beginning on or after January 1, 2019.
CI has substantially completed a detailed impact assessment of IFRS 16 and plans to use the modified retrospective approach. Under this approach, CI will recognize the lease liability based on the remaining lease payments discounted using CI’s incremental borrowing rate as at January 1, 2019. CI will also recognize the right-of-use asset as at the date of initial application, as if IFRS 16 had always been applied since the commencement date of the lease, discounted using CI’s incremental rate of borrowing as at January 1, 2019. Comparative figures will not be restated, and instead the cumulative effect of initial application will be recorded as an adjustment to the opening deficit as at January 1, 2019.
In addition, CI plans to elect to apply the following practical expedients as follows:
• | Apply a single discount rate to a portfolio of leases with reasonably similar characteristics |
• | Not recognize leases whose term ends within 12 months of initial application |
• | Exclude initial direct costs from the measurement of the right-of-use assets as at the date of initial application |
• | Not recognize leases of low value |
Q4 Financial Report | 51 | December 31, 2018 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017 • [in thousands of dollars, except per share amounts]
CI estimates the right-of-use asset (including prepaids and net of deferred tax) to be in the range of $46,000 - $50,000, and the corresponding liability (net of deferred tax) to be in the range of $58,000 - $62,000, with the difference to be an adjustment to opening deficit. The right-of-use asset will be further reduced by approximately $13,000 due to the reclassification of leasehold inducements from its current presentation as a liability in the consolidated statements of financial position. Net income before tax is not expected to be materially impacted.
The adoption of IFRS 16, will require an increase in the maintenance of liquid assets for regulatory purposes approximately equivalent to the current lease liability in the range of $8,000-$12,000.
20. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform to the consolidated financial statement presentation in the current year.
This Report contains forward-looking statements with respect to CI, including its business operations and strategy and financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things, general economic and market factors, including interest rates, business competition, changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time. |
Q4 Financial Report | 52 | December 31, 2018 |
Exhibit 99.3
MANAGEMENT’S DISCUSSION & ANALYSIS | December 31, 2018
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This Management’s Discussion and Analysis (“MD&A”) dated February 8, 2019 presents an analysis of the financial position of CI Financial Corp. and its subsidiaries (“CI”) as at December 31, 2018, compared with December 31, 2017, and the results of operations for the quarter and year ended December 31, 2018, compared with the quarter and year ended December 31, 2017 and the quarter ended September 30, 2018.
CI’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Amounts are expressed in Canadian dollars. The principal subsidiaries referenced herein include CI Investments Inc. (“CI Investments”) and Assante Wealth Management (Canada) Ltd. (“AWM” or “Assante”). The Asset Management segment of the business includes the operating results and financial position of CI Investments and its subsidiaries, including CI Private Counsel LP (“CIPC”), as well as the operating results and financial position of First Asset Investment Management Inc. (“First Asset”) and Grant Samuel Funds Management Pty Limited (“GSFM”). The Asset Administration segment includes the operating results and financial position of AWM and its subsidiaries, including Assante Capital Management Ltd. (“ACM”) and Assante Financial Management Ltd. (“AFM”), as well as the operating results and financial position of BBS Securities Inc. (“BBS”).
This MD&A contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp. (“CI”) and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time. The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward-looking statement after the date on which it is made, whether to reflect new information, future events or otherwise.
Q4 Financial Report | 2 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This MD&A includes several non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full year results from period to period. Descriptions of these non-IFRS measures and reconciliations to the nearest IFRS measure, where necessary, are provided in the “Non-IFRS Measures” section of this MD&A. Note that figures in tables may not add due to rounding.
TABLE 1: SELECTED ANNUAL INFORMATION
Fiscal Years Ending December 31 | ||||||||||||
[millions, except per share amounts] | 2018 | 2017 | 2016 | |||||||||
Management fees | $ | 2,004.2 | $ | 1,897.1 | $ | 1,748.7 | ||||||
Total revenue | $ | 2,236.4 | $ | 2,111.3 | $ | 1,948.3 | ||||||
Selling, general & administrative | $ | 522.5 | $ | 459.1 | $ | 396.8 | ||||||
Total expenses | $ | 1,393.1 | $ | 1,303.6 | $ | 1,179.6 | ||||||
Income before income taxes | $ | 843.3 | $ | 807.7 | $ | 768.7 | ||||||
Income taxes | $ | 225.5 | $ | 258.8 | $ | 208.1 | ||||||
Non-controlling interest | $ | 0.4 | $ | -0.2 | $ | -0.2 | ||||||
Net income available to shareholders | $ | 617.5 | $ | 549.1 | $ | 560.8 | ||||||
Adjusted net income1 | $ | 617.5 | $ | 628.4 | $ | 590.0 | ||||||
Free cash flow1 | $ | 655.5 | $ | 648.4 | $ | 604.7 | ||||||
Basic earnings per share | $ | 2.38 | $ | 2.08 | $ | 2.07 | ||||||
Diluted earnings per share | $ | 2.38 | $ | 2.08 | $ | 2.07 | ||||||
Adjusted earnings per share1 | $ | 2.38 | $ | 2.38 | $ | 2.18 | ||||||
Adjusted EBITDA1 | $ | 906.2 | $ | 891.8 | $ | 835.0 | ||||||
Total assets | $ | 4,292.2 | $ | 4,345.3 | $ | 3,186.0 | ||||||
Gross debt | $ | 1,503.7 | $ | 1,118.1 | $ | 758.7 | ||||||
Net debt1 | $ | 1,255.3 | $ | 860.9 | $ | 572.9 | ||||||
Average shares outstanding | 259.3 | 264.4 | 271.1 | |||||||||
Shares outstanding | 243.7 | 271.9 | 265.3 | |||||||||
Share price | $ | 17.28 | $ | 29.77 | $ | 28.87 | ||||||
Market capitalization | $ | 4,212 | $ | 8,094 | $ | 7,659 |
1Adjusted net income, adjusted earnings per share, free cash flow, adjusted EBITDA and net debt are not standardized earnings measures prescribed by IFRS. Descriptions of these non-IFRS measures, as well as others, and reconciliations to IFRS, where necessary, are provided in the "Non-IFRS Measures" section of this MD&A.
Q4 Financial Report | 3 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 2: SUMMARY OF QUARTERLY RESULTS
[millions of dollars, except per share amounts] | 2018 | 2017 | ||||||||||||||||||||||||||||||
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||||||||||||||
Management fees | 474.2 | 509.9 | 506.3 | 513.7 | 532.1 | 452.9 | 462.6 | 449.5 | ||||||||||||||||||||||||
Administration fees | 51.8 | 50.2 | 47.5 | 48.1 | 45.8 | 42.0 | 41.6 | 44.6 | ||||||||||||||||||||||||
Other revenues | 3.2 | 8.9 | 10.8 | 11.7 | 16.5 | 9.3 | 6.1 | 8.5 | ||||||||||||||||||||||||
Total revenues | 529.2 | 569.0 | 564.6 | 573.5 | 594.4 | 504.1 | 510.3 | 502.6 | ||||||||||||||||||||||||
Selling, general & administrative | 126.2 | 131.4 | 129.7 | 135.2 | 130.8 | 108.7 | 111.6 | 108.0 | ||||||||||||||||||||||||
Trailer fees | 149.1 | 160.6 | 159.6 | 162.0 | 167.8 | 139.3 | 142.3 | 138.0 | ||||||||||||||||||||||||
Investment dealer fees | 40.5 | 40.1 | 37.6 | 37.7 | 37.3 | 34.5 | 34.2 | 36.7 | ||||||||||||||||||||||||
Deferred sales commissions paid | 3.9 | 4.1 | 5.6 | 8.5 | 7.3 | 6.5 | 7.1 | 10.3 | ||||||||||||||||||||||||
Interest expense | 12.4 | 11.6 | 9.9 | 9.3 | 8.6 | 5.7 | 5.3 | 5.4 | ||||||||||||||||||||||||
Other expenses | 5.9 | 3.5 | 4.2 | 4.6 | 49.2 | 1.7 | 3.5 | 3.7 | ||||||||||||||||||||||||
Total expenses | 337.8 | 351.2 | 346.7 | 357.4 | 401.0 | 296.5 | 304.0 | 302.1 | ||||||||||||||||||||||||
Income before income taxes | 191.3 | 217.8 | 218.0 | 216.2 | 193.4 | 207.6 | 206.3 | 200.5 | ||||||||||||||||||||||||
Income taxes | 51.0 | 59.5 | 58.0 | 57.0 | 53.9 | 54.0 | 96.8 | 54.1 | ||||||||||||||||||||||||
Non-controlling interest | — | 0.1 | 0.1 | 0.1 | 0.1 | — | (0.2 | ) | (0.1 | ) | ||||||||||||||||||||||
Net income attributable to shareholders | 140.3 | 158.2 | 159.9 | 159.0 | 139.4 | 153.6 | 109.6 | 146.5 | ||||||||||||||||||||||||
Earnings per share | 0.57 | 0.62 | 0.61 | 0.59 | 0.51 | 0.60 | 0.42 | 0.55 | ||||||||||||||||||||||||
Diluted earnings per share | 0.57 | 0.62 | 0.60 | 0.59 | 0.51 | 0.60 | 0.42 | 0.55 | ||||||||||||||||||||||||
Dividends paid per share | 0.1800 | 0.2350 | 0.3525 | 0.3525 | 0.3525 | 0.3525 | 0.3475 | 0.3450 |
Q4 Financial Report | 4 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
BUSINESS OVERVIEW
CI is a diversified wealth management firm and through CI Investments, one of Canada’s largest independent investment fund companies. The principal business of CI is the management, marketing, distribution and administration of investment products for Canadian investors. CI also has asset management operations in Australia through its subsidiary GSFM. CI’s products are distributed primarily through brokers, independent financial planners and insurance advisors, including ACM and AFM financial advisors. CI operates through two business segments, Asset Management and Asset Administration. The Asset Management segment provides the majority of CI’s income and derives its revenue principally from the fees earned on the management of investment funds and other fee-earning investment products. The Asset Administration segment derives its revenue principally from fees and commissions from ongoing service and on the sale of investment funds and other financial products.
BUSINESS STRATEGY
CI provides wealth and investment management services and earns fee revenue on its assets under management (“AUM”) and assets under administration (“AUA”). Management believes that client goals and asset growth can be achieved by focusing on the following factors: quality and diversity of products offered by CI; experience and depth of investment managers; service levels provided to dealers and investors; and the skill and knowledge of its employees.
CI offers investors a wide range of Canadian and global investment products through a network of investment dealers, mutual fund dealers, and insurance agents, which include advisors with AWM. Acquisitions of fund management companies and years of product innovation and development have allowed CI to offer investors a broad selection of investment products.
CI uses in-house teams and external investment managers to provide portfolio management services. These investment managers typically have long careers in the industry as well as extensive track records with CI. This lineup of investment managers provides a wide selection of styles and areas of expertise for CI’s funds.
CI’s management is focused on continuing to build a global diversified wealth management company based in Canada. With ongoing expansion in terms of scale, expertise and reach, CI will be able to explore new markets and introduce new capabilities that will help drive the organization’s future growth. At the same time, CI continues to view the Canadian business, relationships and channels as critical parts of the organization’s DNA. In summary, CI’s strategy is based on three major themes:
• | Maintain and grow our leading position in Canada; |
• | Achieve greater scale by growing assets in Canada and abroad; |
• | Increase access to distribution in Canada and abroad. |
Q4 Financial Report | 5 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
An important factor underlying these themes is the continued development of our digital capabilities. The acquisition of BBS in 2017 added advanced trading technology and online services to the firm, and has assisted in CI’s digital transformation. CI acquired WealthBar in January 2019, a leading Canadian online wealth management and financial planning platform. CI’s goal is to not only expand avenues of distribution, but to provide clients with improved products and services, allowing them to do business with the firm when, where and how they want.
KEY PERFORMANCE DRIVERS
The key performance indicator for the Asset Management segment is the level of AUM, and for the Asset Administration segment, the level of AUA. Assets Under Advisement includes both AUA (assets under administration) and assets held by clients of advisors with Stonegate Private Counsel. Total assets are comprised of AUM and Assets Under Advisement. CI’s AUM and AUA are primarily driven by fund performance as well as the gross sales and redemptions of its investment products. As most of CI’s revenues and expenses are based on daily asset levels throughout the year, average assets for a particular period are critical to the analysis of CI’s financial results. While some expenses, such as trailer fees, vary directly with the level of AUM, a portion of CI’s expenses do not. In particular, the amount of deferred sales commissions paid depends on the amount of deferred load fund sales. Over the long term, CI manages the level of its discretionary spend to be consistent with or below the growth in its revenue, though in any given period, CI may choose to make investments in people or technology that benefit the long-term growth of the company.
CI uses several performance indicators to assess its results. These indicators are described throughout the results of operations and the discussion of the two operating segments and include the following measures prescribed by IFRS: net income and earnings per share; and measures not prescribed by IFRS: adjusted net income, adjusted earnings per share, operating cash flow, free cash flow, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, dealer gross margin, net debt, asset management margin, and SG&A efficiency margin. Descriptions of these non-IFRS measures and reconciliations to IFRS are provided below.
Q4 Financial Report | 6 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NON-IFRS MEASURES
CI reports certain financial information using non-IFRS measures as CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full-year results from period to period.
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
CI defines adjusted net income as net income, net of non-controlling interest, and net of other provisions and adjustments. CI uses adjusted net income and adjusted earnings per share to compare underlying profitability for different periods.
TABLE 3: ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
[millions of dollars, except per share amounts] |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Sep. 30, 2018 |
Quarter
ended Dec. 31, 2017 |
Year
ended
Dec. 31, 2018 |
Year
ended
Dec. 31, 2017 |
|||||||||||||||
Net Income | 140.4 | 158.3 | 139.5 | 617.8 | 548.9 | |||||||||||||||
Add: | ||||||||||||||||||||
Provisions for compensation, legal and tax costs | — | — | 28.7 | — | 73.7 | |||||||||||||||
Fair value adjustment to contingent consideration | — | — | 5.6 | — | 5.6 | |||||||||||||||
Less: | ||||||||||||||||||||
Non-controlling interest | — | 0.1 | 0.1 | 0.4 | (0.2 | ) | ||||||||||||||
Adjusted net income | 140.3 | 158.2 | 173.7 | 617.5 | 628.4 | |||||||||||||||
Adjusted earnings per share | 0.57 | 0.62 | 0.63 | 2.38 | 2.38 |
OPERATING CASH FLOW AND FREE CASH FLOW
CI measures its operating cash flow before the change in operating assets and liabilities, and the actual cash amount paid for interest and income taxes, as these items often distort the cash flow generated during the period. Operating assets and liabilities are affected by seasonality, interest is primarily paid semi-annually, and tax installments paid may differ materially from the cash tax accrual.
Q4 Financial Report | 7 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Free cash flow is calculated as operating cash flow adjusted for provisions. CI uses this measure, among others, when determining how to deploy capital.
TABLE 4: OPERATING CASH FLOW AND FREE CASH FLOW
[millions of dollars] |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Sep. 30, 2018 |
Quarter
ended Dec. 31, 2017 |
Year
ended
Dec. 31, 2018 |
Year
ended
Dec. 31, 2017 |
|||||||||||||||
Cash provided by operating activities | 178.3 | 174.0 | 143.0 | 608.2 | 581.1 | |||||||||||||||
Add: | ||||||||||||||||||||
Income taxes paid | 57.7 | 58.2 | 51.6 | 240.5 | 206.6 | |||||||||||||||
Interest paid | 12.4 | 7.1 | 12.7 | 38.3 | 22.0 | |||||||||||||||
Less: | ||||||||||||||||||||
Net change in non-cash working capital | 91.8 | 70.1 | 55.4 | 231.5 | 235.0 | |||||||||||||||
Operating cash flow | 156.5 | 169.2 | 151.9 | 655.5 | 574.7 | |||||||||||||||
Add: | ||||||||||||||||||||
Provisions for compensation, legal and tax costs | — | — | 28.7 | — | 73.7 | |||||||||||||||
Free cash flow | 156.5 | 169.2 | 180.6 | 655.5 | 648.4 |
EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
CI uses EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA, which it defines as EBITDA, net of non-controlling interest and other provisions and adjustments, to assess its underlying profitability prior to the impact of its financing structure, income taxes and the amortization of intangibles and other items. This permits comparisons of companies within the industry, normalizing for different financing methods and levels of taxation. Adjusted EBITDA is a measure of operating performance, a facilitator for valuation and a proxy for cash flow. Adjusted EBITDA margin expresses adjusted EBITDA as a percentage of total revenue.
Q4 Financial Report | 8 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 5: EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
[millions of dollars, except per share amounts] |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Sep. 30, 2018 |
Quarter
ended Dec. 31, 2017 |
Year
ended
Dec. 31, 2018 |
Year
ended
Dec. 31, 2017 |
|||||||||||||||
Net Income | 140.4 | 158.3 | 139.5 | 617.8 | 548.9 | |||||||||||||||
Add: | ||||||||||||||||||||
Interest Expense | 12.4 | 11.6 | 8.6 | 43.1 | 24.9 | |||||||||||||||
Provision for income taxes | 51.0 | 59.5 | 53.9 | 225.5 | 258.8 | |||||||||||||||
Amortization of intangibles and other | 5.4 | 5.2 | 4.7 | 20.6 | 14.5 | |||||||||||||||
EBITDA | 209.1 | 234.6 | 206.7 | 906.9 | 847.2 | |||||||||||||||
EBITDA per share | 0.85 | 0.91 | 0.75 | 3.50 | 3.20 | |||||||||||||||
Add: | ||||||||||||||||||||
Provisions for compensation, legal and tax costs | — | — | 39.0 | — | 39.0 | |||||||||||||||
Fair value adjustment to contingent consideration | — | — | 5.6 | — | 5.6 | |||||||||||||||
Less: | ||||||||||||||||||||
Non-controlling interest | 0.1 | 0.2 | 0.2 | 0.7 | — | |||||||||||||||
Adjusted EBITDA | 209.0 | 234.4 | 251.0 | 906.2 | 891.8 | |||||||||||||||
Adjusted EBITDA per share | 0.85 | 0.91 | 0.92 | 3.50 | 3.37 | |||||||||||||||
Total revenue | 529.2 | 569.0 | 594.4 | 2,236.4 | 2,111.3 | |||||||||||||||
Adjusted EBITDA Margin | 39.5 | % | 41.2 | % | 42.2 | % | 40.5 | % | 42.2 | % |
NET DEBT
CI calculates net debt as long-term debt (including the current portion) less cash and marketable securities, net of cash required for regulatory purposes and non-controlling interests. Net debt is a measure of leverage and CI uses this measure to assess its financial flexibility.
TABLE 6: NET DEBT
As at | As at | |||||||
[millions of dollars] | Dec. 31, 2018 | Dec. 31, 2017 | ||||||
Current portion of long-term debt | — | 222.0 | ||||||
Long-term debt | 1,503.7 | 896.1 | ||||||
1,503.7 | 1,118.1 | |||||||
Less: | ||||||||
Cash and short-term investments | 137.2 | 124.6 | ||||||
Marketable securities, excluding BBS’ securities owned, at market | 133.0 | 145.3 | ||||||
Add: | ||||||||
Regulatory capital and non-controlling interests | 21.7 | 12.6 | ||||||
Net Debt | 1,255.3 | 860.9 |
Q4 Financial Report | 9 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
DEALER GROSS MARGIN
CI monitors its operating profitability on the revenues earned within its Asset Administration segment by measuring its dealer gross margin, which is calculated as administration fee revenue less investment dealer fees, divided by administration fee revenue (all figures before inter-segment eliminations). CI uses this measure to assess the profitability of the Asset Administration segment before SG&A expenses.
TABLE 7: DEALER GROSS MARGIN
[millions of dollars] |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Sep. 30, 2018 |
Quarter
ended Dec. 31, 2017 |
Year
ended
Dec. 31, 2018 |
Year
ended
Dec. 31, 2017 |
|||||||||||||||
Administration fees | 94.2 | 94.8 | 89.5 | 372.4 | 341.9 | |||||||||||||||
Less: | ||||||||||||||||||||
Investment dealer fees | 75.4 | 76.4 | 72.4 | 298.0 | 279.9 | |||||||||||||||
18.7 | 18.4 | 17.1 | 74.3 | 62.0 | ||||||||||||||||
Dealer gross margin | 19.9 | % | 19.4 | % | 19.1 | % | 20.0 | % | 18.1 | % |
ASSET MANAGEMENT MARGIN
CI assesses the overall performance of the asset management segment using a trailing 12-month asset management margin, where deferred sales commissions, trailer fees, and SG&A expenses are deducted from management fees and measured as a percentage of management fees (all figures are before inter-segment eliminations). This removes distortion caused by other revenues and expenses, eliminates the financing impact of back-end load funds, and eliminates revenue mix variances because it is measured as a percentage of management fees and not average AUM. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
TABLE 8: ASSET MANAGEMENT MARGIN
[millions of dollars - trailing 12 months] |
Quarter
ended
Dec. 31, 2018 |
Quarter
ended
Sep. 30, 2018 |
Quarter
ended
Jun. 30, 2018 |
Quarter
ended
Mar. 31, 2018 |
Quarter
ended
Dec. 31, 2017 |
|||||||||||||||
Management fees | 2,004.2 | 2,062.0 | 2,005.0 | 1,961.3 | 1,897.1 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 23.1 | 26.7 | 29.2 | 30.8 | 32.6 | |||||||||||||||
Trailer fees | 662.8 | 682.5 | 660.1 | 642.0 | 616.8 | |||||||||||||||
Net management fees | 1,318.2 | 1,352.8 | 1,315.6 | 1,288.5 | 1,247.7 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 424.6 | 433.1 | 415.3 | 402.4 | 380.0 | |||||||||||||||
893.6 | 919.7 | 900.3 | 886.1 | 867.7 | ||||||||||||||||
Asset management margin | 44.6 | % | 44.6 | % | 44.9 | % | 45.2 | % | 45.7 | % |
Q4 Financial Report | 10 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
SG&A EFFICIENCY MARGIN
CI uses a trailing 12-month SG&A efficiency margin to assess its costs relative to management fees earned, net of deferred sales commissions and trailer fees, which are not directly controllable by CI. These expenses are determined by the type, class and load of funds in which CI’s clients invest. SG&A expenses are subtracted from these net management fees and the remainder is measured as a percentage of net management fees. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
TABLE 9: SG&A EFFICIENCY MARGIN
[millions of dollars - trailing 12 months] |
Quarter
ended
Dec. 31, 2018 |
Quarter
ended
Sep. 30, 2018 |
Quarter
ended
Jun. 30, 2018 |
Quarter
ended
Mar. 31, 2018 |
Quarter
ended
Dec. 31, 2017 |
|||||||||||||||
Management fees | 2,004.2 | 2,062.0 | 2,005.0 | 1,961.3 | 1,897.1 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 23.1 | 26.7 | 29.2 | 30.8 | 32.6 | |||||||||||||||
Trailer fees | 662.8 | 682.5 | 660.1 | 642.0 | 616.8 | |||||||||||||||
Net management fees | 1,318.2 | 1,352.8 | 1,315.6 | 1,288.5 | 1,247.7 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 424.6 | 433.1 | 415.3 | 402.4 | 380.0 | |||||||||||||||
893.6 | 919.7 | 900.3 | 886.1 | 867.7 | ||||||||||||||||
SG&A efficiency margin | 67.8 | % | 68.0 | % | 68.4 | % | 68.8 | % | 69.5 | % |
Q4 Financial Report | 11 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
ASSETS AND SALES
CI is one of Canada’s largest independent investment fund companies with assets under management of $124.4 billion and assets under advisement of $41.8 billion at December 31, 2018, as shown in Table 10. Assets under advisement are comprised of AUA and assets held by clients of advisors with Stonegate Private Counsel. Assets under management decreased 13% year over year, mainly due to challenging market conditions and net redemptions of funds. The 2% decrease in assets under advisement from last year was due to market declines, partially offset by net sales and advisor recruitment. Total assets, which include mutual, segregated and hedge funds, separately managed accounts, structured products, exchange-traded funds, pooled funds and assets under advisement, were $166.2 billion at December 31, 2018, down $19.6 billion from $185.7 billion at December 31, 2017.
TABLE 10: TOTAL ASSETS
As at | As at | |||||||||||
[billions of dollars] | December 31, 2018 | December 31, 2017 | % change | |||||||||
Assets under management | 124.4 | 143.0 | (13 | ) | ||||||||
Assets under advisement1 | 41.8 | 42.7 | (2 | ) | ||||||||
Total assets | 166.2 | 185.7 | (11 | ) |
1Includes $25.2 billion and $25.8 billion of assets managed by CI and held by clients of advisors with Assante and Stonegate in 2018 and 2017, respectively.
After a year of strong performance for capital markets in 2017, investors experienced a bumpier ride in 2018. Downward volatility resurfaced in the first quarter, and though markets moved generally higher through the summer months, a sharp sell-off in the fourth quarter meant that most asset classes registered negative returns for the year. For Canadian investors in foreign markets, losses were mitigated somewhat by the weakness of the Canadian dollar, which declined against most large global currencies, including 8% relative to the U.S. dollar for the year.
U.S. equities posted some of the best results among global assets in 2018, with the S&P 500 Index reaching an all-time high and setting a record for the longest bull market on record in the third quarter. After the fourth quarter sell-off, however, the index finished the year with a loss of 4.4% (a gain of almost 4% in Canadian dollar terms). Canada’s S&P/TSX Composite Index, meanwhile, was weighed down by themes that included plunging energy prices as well as weakness in materials and financial services. The Canadian benchmark finished the year with a loss of 8.9%. The MSCI World Index, a broad measure of developed market equities, fell 8.2% in U.S. dollars (-0.2% in Canadian dollars).
Q4 Financial Report | 12 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
The change in AUM during each of the past five quarters is detailed in Table 11 and a breakdown of CI’s sales is provided in Table 12.
TABLE 11: CHANGE IN ASSETS UNDER MANAGEMENT
[billions of dollars] |
Quarter ended
Dec. 31, 2018 |
Quarter ended
Sep. 30, 2018 |
Quarter ended
Jun. 30, 2018 |
Quarter ended
Mar. 31, 2018 |
Quarter ended
Dec. 31, 2017 |
|||||||||||||||
Assets under management, beginning | 136.526 | 138.182 | 139.223 | 143.028 | 121.725 | |||||||||||||||
Gross sales | 3.023 | 3.015 | 3.209 | 5.187 | 4.251 | |||||||||||||||
Redemptions | 5.742 | 5.433 | 6.028 | 6.515 | 5.657 | |||||||||||||||
Net sales | (2.719 | ) | (2.418 | ) | (2.819 | ) | (1.328 | ) | (1.406 | ) | ||||||||||
Acquisitions (divestitures) | — | — | (1.025 | ) | — | 19.019 | ||||||||||||||
Fund performance | (9.447 | ) | 0.762 | 2.803 | (2.477 | ) | 3.690 | |||||||||||||
Assets under management, ending | 124.360 | 136.526 | 138.182 | 139.223 | 143.028 | |||||||||||||||
Average assets under management | 129.316 | 138.322 | 139.487 | 141.870 | 142.469 |
CI’s Canadian business, excluding products closed to new investors, had $2.6 billion in gross sales and $2.7 billion in net redemptions for the quarter ended December 31, 2018. CI’s international business had $260 million in net sales in the fourth quarter, up $466 million from the same quarter last year. CI’s closed business, comprised primarily of segregated fund contracts that are no longer available for sale, had $259 million in net redemptions for the quarter.
TABLE 12: SALES BREAKDOWN
Quarter ended December 31, 2018 | Year ended December 31, 2018 | |||||||||||||||||||||||
[millions of dollars] | Gross Sales | Redemptions | Net Sales | Gross Sales | Redemptions | Net Sales | ||||||||||||||||||
Canadian Business | ||||||||||||||||||||||||
Retail | 2,160 | 4,491 | (2,331 | ) | 10,536 | 18,767 | (8,231 | ) | ||||||||||||||||
Institutional | 414 | 802 | (389 | ) | 2,576 | 3,263 | (687 | ) | ||||||||||||||||
2,574 | 5,294 | (2,720 | ) | 13,112 | 22,029 | (8,918 | ) | |||||||||||||||||
International Business | ||||||||||||||||||||||||
Retail | 225 | 76 | 150 | 525 | 298 | 227 | ||||||||||||||||||
Institutional | 209 | 99 | 110 | 729 | 249 | 480 | ||||||||||||||||||
434 | 175 | 260 | 1,254 | 547 | 707 | |||||||||||||||||||
Closed Business | 15 | 274 | (259 | ) | 69 | 1,142 | (1,074 | ) | ||||||||||||||||
Total | 3,023 | 5,742 | (2,719 | ) | 14,434 | 23,719 | (9,285 | ) |
Q4 Financial Report | 13 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RESULTS OF OPERATIONS
Year Ended December 31, 2018
For the year ended December 31, 2018, CI reported net income attributable to shareholders of $617.5 million ($2.38 per share) versus $549.1 million ($2.08 per share) for the year ended December 31, 2017. The year ended December 31, 2017 included two provisions: a $45 million income tax provision for the settlement of outstanding notices of reassessment relating to the interest rate charged on subordinated notes within CI's income trust structure for the years 2006 to 2008; and a $39.0 million ($28.7 million after tax) provision for compensation, legal, and tax costs primarily related to the acquisitions of Sentry and BBS. Last year also included a $5.6 million fair value adjustment to contingent consideration related to First Asset.
For 2017, net income attributable to shareholders, excluding the provisions and fair value adjustment detailed above, was $628.4 million ($2.38 per share). The $10.9 million decrease in adjusted net income was primarily due to SG&A expenses increasing 13.8%, relative to a 5.6% increase in management fees, each of which is described in further detail below.
CI’s total revenue was $2,236.4 million in 2018, an increase of 5.9% when compared to total revenue of $2,111.3 million in 2017. The change from last year was primarily due to the increase in management fees as a result of the 8.7% increase in average AUM. Management fees increased at a lower rate relative to average AUM due to fee reductions on certain products and changes to CI’s mix of business. CI’s acquisition of Sentry in October 2017 drove the positive change in AUM, partially offset by net redemptions of funds.
SG&A expenses for the year ended 2018 were $522.5 million, compared to $459.1 million for the year ended 2017. SG&A increased year over year primarily due to the inclusion of Sentry and BBS for a full year. As an annualized percentage of average AUM, SG&A expenses were 0.381%, up from 0.364% last year. The increase in basis points was a result of strategic investments in CI’s business.
In 2018, CI paid $22.1 million in deferred sales commissions, compared with $31.3 million in 2017. Consistent with the Canadian mutual fund industry, CI’s sales into deferred load funds has been steadily decreasing over the past decade.
Interest expense of $43.1 million was recorded for the year ended December 31, 2018 compared with $24.9 million for the year ended December 31, 2017. The change in interest expense reflects the changes in average debt levels and interest rates, as discussed under the Liquidity and Capital Resources section.
Q4 Financial Report | 14 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI recorded $225.5 million in income tax expense in 2018, for an effective tax rate of 26.7%, compared to $258.8 million in 2017. The effective tax rate for 2017 was higher than normal due to $45 million in current income tax expenses recorded in the second quarter related to the settlement of outstanding notices of reassessment received for the years 2006 to 2008.
CI’s effective tax rate may differ from its statutory tax rate, which is currently 26.5%, as a result of some expenses being non-deductible or partially deductible, or some revenue items not being fully taxable.
Quarter Ended December 31, 2018
For the quarter ended December 31, 2018, CI reported net income attributable to shareholders of $140.3 million ($0.57 per share) versus $139.4 million ($0.51 per share) for the quarter ended December 31, 2017 and $158.2 million ($0.62 per share) for the quarter ended September 30, 2018. As mentioned earlier, the fourth quarter of 2017 included a $39.0 million ($28.7 million after tax) provision for compensation, legal and tax costs primarily related to the acquisitions of Sentry and BBS. The quarter also included a $5.6 million fair value adjustment to contingent consideration related to First Asset.
For the quarter ended December 31, 2017, net income attributable to shareholders, excluding the provisions and fair value adjustment detailed above, was $173.7 million ($0.63 per share). The decrease from the prior year was mainly due to lower management fees resulting from lower average AUM.
CI’s total revenue was $529.2 million in the fourth quarter of 2018, a decrease of 11.0% when compared to total revenue of $594.4 million in the same period in 2017. On a consecutive quarter basis, total revenue decreased 7.0% from $569.0 million in the third quarter of 2018. The decrease from both periods was primarily due to lower average AUM.
SG&A expenses for the fourth quarter of 2018 were $126.2 million, compared to $130.8 million in the same quarter of 2017 and $131.4 million in the prior quarter. SG&A decreased from both periods due to lower variable expenses as well as cost containment measures implemented by management. As an annualized percentage of average AUM, SG&A expenses were 0.387%, up from 0.364% for the fourth quarter of last year and up from 0.377% for the prior quarter.
In the fourth quarter of 2018, CI paid $3.9 million in deferred sales commissions, compared with $7.3 million in the same quarter of 2017 and $4.1 million in the prior quarter. Consistent with the Canadian mutual fund industry, CI’s sales into deferred load funds has been steadily decreasing over the past decade.
Q4 Financial Report | 15 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Interest expense of $12.4 million was recorded for the quarter ended December 31, 2018 compared with $8.6 million for the quarter ended December 31, 2017 and $11.6 million for the quarter ended September 30, 2018. The change in interest expense reflects the changes in average debt levels and interest rates, as discussed under the Liquidity and Capital Resources section.
For the fourth quarter of 2018, CI recorded $51.0 million in income tax expense for an effective tax rate of 26.6% compared to $53.9 million, or 27.8%, in the fourth quarter of 2017, and $59.5 million, or 27.3%, in the prior quarter.
ASSET MANAGEMENT SEGMENT
The Asset Management segment is CI’s principal business segment and its operating results are presented in Table 13.
TABLE 13: RESULTS OF OPERATIONS - ASSET MANAGEMENT SEGMENT
[millions of dollars] |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Sep. 30, 2018 |
Quarter
ended Dec. 31, 2017 |
Year
ended
Dec. 31, 2018 |
Year
ended
Dec. 31, 2017 |
|||||||||||||||
Management fees | 474.2 | 509.9 | 532.1 | 2,004.2 | 1,897.1 | |||||||||||||||
Other revenue | (5.0 | ) | 0.9 | 9.6 | 2.3 | 14.5 | ||||||||||||||
Total revenue | 469.2 | 510.9 | 541.6 | 2,006.5 | 1,911.6 | |||||||||||||||
Selling, general and administrative | 101.0 | 107.5 | 109.6 | 424.6 | 380.0 | |||||||||||||||
Trailer fees | 156.3 | 168.7 | 176.0 | 662.8 | 616.8 | |||||||||||||||
Deferred sales commissions paid | 4.1 | 4.3 | 7.7 | 23.1 | 32.6 | |||||||||||||||
Amortization of intangibles | 1.6 | 1.5 | 1.4 | 5.9 | 3.7 | |||||||||||||||
Other expenses | 3.3 | 1.0 | 46.7 | 8.3 | 52.0 | |||||||||||||||
Total expenses | 266.3 | 282.9 | 341.3 | 1,124.7 | 1,085.2 | |||||||||||||||
Non-controlling interest | 0.1 | 0.2 | 0.2 | 0.5 | (0.2 | ) | ||||||||||||||
Income before taxes and non-segmented items | 202.8 | 227.8 | 200.1 | 881.2 | 826.6 |
Q4 Financial Report | 16 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Year Ended December 31, 2018
Revenues
Revenues from management fees were $2,004.2 million for the year ended December 31, 2018, a change of 5.6% from $1,897.1 million for the year ended December 31, 2017. The change in management fees from last year was mainly due to the inclusion of Sentry for a full year, offset by net redemptions of funds. Net management fees (management fees less trailer fees and deferred sales commissions) as a percentage of average AUM were 0.961%, down from 0.988% for 2017.
For the year ended December 31, 2018, other revenue was $2.3 million versus $14.5 million for the year ended December 31, 2017. The decrease was primarily a result of mark-to-market losses on CI’s marketable securities and lower distributions on investments in the fourth quarter.
Expenses
SG&A expenses for the Asset Management segment were $424.6 million for the year ended December 31, 2018, compared with $380.0 million for the year ended December 31, 2017. As a percentage of average AUM, SG&A expenses were 0.309% for 2018, up from 0.301% for 2017. The increase as a percentage of average AUM from the prior year was primarily a result of CI reinvesting in its business along with the acquisition of Sentry. Another measure that CI uses to assess its costs is the SG&A efficiency margin, as discussed in the “Non-IFRS Measures” section and as set out in Table 9. CI’s SG&A efficiency margin was 67.8% for 2018, compared with 69.5% for 2017.
Trailer fees were $662.8 million for the year ended December 31, 2018, up 7.5% from $616.8 million for the year ended December 31, 2017. Net of inter-segment amounts, this expense was $631.2 million for 2018 versus $587.4 million for 2017. The increase from last year was due to the inclusion of Sentry for a full year.
In 2018, before inter-segment eliminations, CI paid $23.1 million in deferred sales commissions, compared with $32.6 million in 2017. CI’s sales into deferred load funds has been steadily decreasing over the past decade, consistent with the investment fund industry as a whole.
Other expenses for the year ended December 31, 2018 were $8.3 million, compared to $52.0 million last year. In 2017, the primary component of other expenses were the provisions for compensation, legal and tax costs discussed earlier.
For 2018, the asset management margin was 44.6% versus 45.7% for 2017. The decrease in margin was a function of management fees increasing at a lower rate relative to the increase in SG&A. The calculations and definitions of asset management margin can be found in the “Non-IFRS Measures” section and in the trailing 12-month calculations in Table 8.
Q4 Financial Report | 17 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Income before taxes and non-segmented items for CI’s principal segment was $881.2 million for the year ended December 31, 2018, up from $826.6 million for the year ended December 31, 2017.
Quarter Ended December 31, 2018
Revenues
Revenues from management fees were $474.2 million for the quarter ended December 31, 2018, a decrease of 10.9% from $532.1 million for the quarter ended December 31, 2017 and a decrease of 7.0% from $509.9 million for the quarter ended September 30, 2018. The decrease in management fees from the fourth quarter of last year was mainly due to the 9.2% decrease in average AUM. Net management fees (management fees less trailer fees and deferred sales commissions) as a percentage of average AUM were 0.963%, down from 0.970% for the fourth quarter last year and from 0.966% for the prior quarter.
For the quarter ended December 31, 2018, other revenue was $(5.0) million versus $9.6 million for the quarter ended December 31, 2017 and $0.9 million for the quarter ended September 30, 2018. The decrease was primarily a result of lower redemption fee revenue, mark-to-market losses on marketable securities, and lower distributions on investments.
Expenses
SG&A expenses for the Asset Management segment were $101.0 million for the quarter ended December 31, 2018, compared with $109.6 million for the fourth quarter in 2017 and $107.5 million for the prior quarter. SG&A decreased from both periods due to lower variable expenses as well as cost containment measures implemented by management. As a percentage of average AUM, SG&A expenses were 0.310% for the quarter ended December 31, 2018, up from 0.305% for the quarter ended December 31, 2017, and up slightly from 0.308% in the quarter ended September 30, 2018. Another measure that CI uses to assess its costs is the SG&A efficiency margin, as discussed in the “Non-IFRS Measures” section and as set out in Table 9. CI’s current quarter SG&A efficiency margin was 67.8%, down from 68.6% in the fourth quarter of last year and down slightly from 68.1% in the prior quarter.
Trailer fees were $156.3 million for the quarter ended December 31, 2018, down 11.2% from $176.0 million for the quarter ended December 31, 2017 and down 7.4% from $168.7 million for the prior quarter. Net of inter-segment amounts, this expense was $149.1 million for the quarter ended December 31, 2018 versus $167.8 million for the fourth quarter of 2017 and $160.6 million for the third quarter of 2018. The decrease from both periods was primarily due to the changes in average AUM.
Q4 Financial Report | 18 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
In the fourth quarter of 2018, before inter-segment eliminations, CI paid $4.1 million in deferred sales commissions, compared with $7.7 million in the same quarter of 2017 and $4.3 million in the prior quarter. CI’s sales into deferred load funds has been steadily decreasing over the past decade.
Other expenses for the quarter ended December 31, 2018 were $3.3 million, compared to $46.7 million in the same quarter of last year and $1.0 million in the previous quarter. Other expenses for the fourth quarter of last year included the provisions for compensation, legal and tax costs discussed earlier as well as the $5.6 million fair value adjustment to contingent consideration payments related to First Asset.
The asset management margin for the fourth quarter of 2018 was 44.9% compared to 44.9% in the fourth quarter of 2017 and 45.0% in the prior quarter. The calculations and definitions of asset management margin can be found in the “Non-IFRS Measures” section.
Income before taxes and non-segmented items for CI’s principal segment was $202.8 million for the quarter ended December 31, 2018, up 1.3% from $200.1 million in the same period in 2017 and down 11.0% from $227.8 million in the previous quarter. For the fourth quarter of 2017, income before taxes and non-segmented items, excluding the provisions and fair value adjustment to contingent consideration discussed earlier, was $244.7 million.
ASSET ADMINISTRATION SEGMENT
The Asset Administration segment operating results are presented in Table 14.
TABLE 14: RESULTS OF OPERATIONS - ASSET ADMINISTRATION SEGMENT
[millions of dollars] |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Sep. 30, 2018 |
Quarter
ended Dec. 31, 2017 |
Year
ended
Dec. 31, 2018 |
Year
ended
Dec. 31, 2017 |
|||||||||||||||
Administration fees | 94.2 | 94.8 | 89.5 | 372.4 | 341.9 | |||||||||||||||
Other revenue | 8.3 | 8.0 | 6.9 | 32.3 | 25.7 | |||||||||||||||
Total revenue | 102.4 | 102.8 | 96.4 | 404.7 | 367.6 | |||||||||||||||
Selling, general and administrative | 25.1 | 23.9 | 21.2 | 97.9 | 79.1 | |||||||||||||||
Investment dealer fees | 75.4 | 76.4 | 72.4 | 298.0 | 279.9 | |||||||||||||||
Amortization of intangibles | 1.0 | 1.0 | 0.9 | 3.8 | 2.7 | |||||||||||||||
Other expenses | 0.1 | 0.1 | 0.2 | 0.3 | (0.3 | ) | ||||||||||||||
Total expenses | 101.6 | 101.4 | 94.7 | 400.0 | 361.4 | |||||||||||||||
Income before taxes and non-segmented items | 0.8 | 1.4 | 1.7 | 4.6 | 6.3 |
Q4 Financial Report | 19 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Year Ended December 31, 2018
Revenues
Administration fees were $372.4 million for the year ended December 31, 2018, an increase of 8.9% from $341.9 million for the year ended December 31, 2017. The change in administration fees from last year related to the change in assets under administration at Assante as well as the inclusion of BBS for a full year. Net of inter-segment amounts, administration fee revenue was $197.6 million for the 12 months ended December 31, 2018, up from $174.0 million for the 12 months ended December 31, 2017.
Other revenue earned by the Asset Administration segment is mainly comprised of non-advisor-related activities. For 2018, other revenue was $32.3 million, up from $25.7 million for 2017.
Expenses
Investment dealer fees were $298.0 million for the year ended December 31, 2018 compared to $279.9 million for the year ended December 31, 2017. Net of inter-segment amounts, investment dealer fees were $155.9 million, up from $142.7 million last year. Investment dealer fees generally fluctuate with Assante’s administration fee revenue.
As discussed in the “Non-IFRS Measures” section of this MD&A and as set out in Table 7, dealer gross margin was $74.3 million or 20.0% of administration fee revenue for the 12 months ended December 31, 2018 compared to $62.0 million or 18.1% for the 12 months ended December 31, 2017. The increase in dealer gross margin as a percentage of administration fee revenue was mainly due to the inclusion of BBS for a full year, which earns administration fees but does not pay investment dealer fees.
SG&A expenses for the segment were $97.9 million for 2018 compared to $79.1 million for 2017. The increase in SG&A expenses from last year was due to the inclusion of BBS for full year, as well as an increase in Assante’s discretionary spend.
The Asset Administration segment had income before taxes and non-segmented items of $4.6 million for the year ended December 31, 2018, compared to $6.3 million for the year ended December 31, 2017.
Quarter Ended December 31, 2018
Revenues
Administration fees were $94.2 million for the quarter ended December 31, 2018, an increase of 5.3% from $89.5 million for the same period a year ago and a decrease of 0.6% from $94.8 million for the prior quarter. The change in administration fees from the same quarter last year related to the change in assets under administration at Assante as well as the inclusion of BBS for a full quarter. Net of inter-segment amounts, administration fee revenue was $51.8 million for the quarter ended December 31, 2018, up from $45.8 million for the quarter ended December 31, 2017 and up from $50.2 million in the previous quarter.
Q4 Financial Report | 20 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
For the quarter ended December 31, 2018, other revenue was $8.3 million, up from $6.9 million in the same quarter of 2017 and up from $8.0 million in the third quarter of 2018.
Expenses
Investment dealer fees were $75.4 million for the quarter ended December 31, 2018 compared to $72.4 million for the fourth quarter of 2017 and $76.4 million for the quarter ended September 30, 2018. Net of inter-segment amounts, investment dealer fees were $40.5 million, up from $37.3 million for the same quarter last year and up from $40.1 million for the quarter ended September 30, 2018.
As discussed in the “Non-IFRS Measures” section of this MD&A and as set out in Table 7, dealer gross margin was $18.7 million or 19.9% of administration fee revenue for the quarter ended December 31, 2018 compared to $17.1 million or 19.1% for the fourth quarter of 2017 and $18.4 million or 19.4% for the previous quarter. The increase in dealer gross margin as a percentage of administration fee revenue from the fourth quarter of 2017 was mainly due to the inclusion of BBS for a full quarter.
SG&A expenses for the segment were $25.1 million for the quarter ended December 31, 2018 compared to $21.2 million in the fourth quarter of 2017 and $23.9 million in the third quarter of 2018. The increase in SG&A expenses from the same period last year was due to the addition of BBS for a full quarter as well as an increase in Assante’s discretionary spend.
The Asset Administration segment had income before taxes and non-segmented items of $0.8 million for the quarter ended December 31, 2018, compared to $1.7 million for the fourth quarter of 2017 and $1.4 million for the prior quarter.
LIQUIDITY AND CAPITAL RESOURCES
CI generated $655.5 million of free cash flow in 2018, compared to $648.4 million for 2017. Reconciliations of free cash flow to cash provided by operating activities are provided in the “Non-IFRS Measures” section and set out in Table 4.
CI primarily uses cash flow to fund capital expenditures, fund acquisitions, pay down debt, pay dividends on its shares, and repurchase shares through its normal course issuer bid. At current levels of cash flow and anticipated dividend payout rates, CI produces sufficient cash to meet its obligations and support planned business operations for at least the next 12 months.
Q4 Financial Report | 21 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI’s cash flows may fluctuate, primarily in the first quarter, as a result of the balance of cash income taxes and incentive compensation being paid at the end of February.
TABLE 15: SUMMARY OF CASH FLOWS
[millions of dollars] |
Year
ended
Dec. 31, 2018 |
Year ended
Dec. 31, 2017 |
||||||
Free cash flow | 655.5 | 648.4 | ||||||
Less: | ||||||||
Investments in marketable securities, net of marketable securities sold | (4.2 | ) | 18.7 | |||||
Capital expenditures | 11.7 | 9.2 | ||||||
Share repurchases, net of shares issued | 656.5 | 413.2 | ||||||
Dividends paid | 295.4 | 368.0 | ||||||
Debt repaid / (drawn) | (384.7 | ) | (358.8 | ) | ||||
Working capital and other items | 68.2 | 191.4 | ||||||
642.9 | 641.7 | |||||||
Net change in cash | 12.6 | 6.7 | ||||||
Cash at January 1 | 124.6 | 117.9 | ||||||
Cash at December 31 | 137.2 | 124.6 |
During 2018, CI invested $17.8 million in marketable securities and received proceeds of $22.0 million from the disposition of marketable securities. Excluding BBS’ securities owned, at market, the fair value of CI’s investments as of December 31, 2018 was $133.0 million. This was comprised of seed capital investments in CI funds and strategic investments.
During the year ended December 31, 2018, CI invested $11.7 million in capital assets, up from $9.2 million in the year ended December 31, 2017. These investments related primarily to technology and leasehold improvements.
During 2018, CI paid dividends of $295.4 million and repurchased 28.5 million shares under its normal course issuer bid at a total cost of $656.9 million, or $23.03 per share. CI’s current dividend rate is $0.18/share per calendar quarter.
The statement of financial position for CI at December 31, 2018 reflected total assets of $4.292 billion, a decrease of $53.0 million million from $4.345 billion at December 31, 2017. This change was primarily due to a decrease in marketable securities, as well as accounts receivable and prepaid expenses, partially offset by an increase in cash and client and trust funds on deposit.
CI’s cash and cash equivalents increased by $12.6 million in 2018 to $137.2 million as of December 31, 2018. Accounts receivable and prepaid expenses decreased by $79.6 million to $156.8 million as of December 31, 2018. Capital assets increased by $1.7 million during the year ended December 31, 2018 as a result of $11.7 million in capital additions less $10.0 million in amortization.
Q4 Financial Report | 22 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Total liabilities increased by $419.6 million during the year to $2.859 billion at December 31, 2018. This change was mainly attributable to a $385.6 million increase in debt, as well as an increase in dividends payable, as CI declared dividends through to the end of 2019. In total, CI had $1,225.0 million in outstanding debentures at December 31, 2018 with a weighted average interest rate of 3.16% and a carrying value of $1,220.2 million.
As of December 31, 2018, CI had drawn $283.5 million against its $700 million credit facility. Principal repayments on any drawn amounts are only required at the maturity of the facility. At the beginning of the fourth quarter, CI amended its credit facility agreement, which has a new maturity date of December 11, 2021.
Net debt, as discussed in the “Non-IFRS Measures” section and as set out in Table 6, was $1,255 million at December 31, 2018, up from $861 million at December 31, 2017. This increase was primarily due to CI returning more cash to shareholders in the form of share repurchases and dividends, relative to the amount of free cash flow that was generated for the period. The average gross debt level for the year ended December 31, 2018 was $1,415 million, compared to $966 million for last year.
At December 31, 2018, CI was in a positive working capital position. This, in addition to the availability of its credit facility, reflects the ability of CI to meet its cash flow requirements.
CI’s ratios of debt to adjusted EBITDA and net debt to adjusted EBITDA were 1.8 to 1 and 1.5 to 1, respectively. CI was within its financial covenants with respect to its credit facility, which required that the debt to EBITDA ratio remain below 3.0 to 1, and assets under management not fall below $85 billion, based on a rolling 30-day average.
Shareholders’ equity was $1.430 billion at December 31, 2018, a decrease of $473.0 million from December 31, 2017.
Q4 Financial Report | 23 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RISK MANAGEMENT
CI is exposed to a number of risks that are inherent in the wealth management business. Some factors which introduce or exacerbate risk are within the control of management and others are, by their nature, outside of CI’s direct control but must still be managed. Effective risk management is a key component to achieving CI’s business objectives and protecting company and client assets. It is an ongoing process involving the Board of Directors and the company’s Risk Management Committee, comprised of senior executives representing CI’s business units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board of Directors.
The Risk Management Committee monitors, evaluates and manages risk, and ensures that business strategies and activities are consistent with CI’s risk appetite. Regular reports are provided to the Audit and Risk Committee of CI’s Board.
As noted above, the Risk Management Committee is comprised of senior executives from each core business unit and operating area at CI. CI has developed an enterprise-wide approach to monitoring, evaluating and managing risk. The members of the Risk Management Committee identify and evaluate specific and material risks, applying both a quantitative and a qualitative analysis and then assess the likelihood of occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize or avoid negative consequences and these risk mitigation processes are implemented and monitored with each business unit.
The risks described below are not the only risks facing CI. The risks set out below are risks and uncertainties that the Risk Management Committee currently believe could materially affect CI’s future financial performance. The reader should carefully consider the risks described below, and the other information contained in this MD&A, including under the heading “Forward- Looking Statements” before making an investment decision.
MARKET RISK
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates, foreign exchange rates, and equity and commodity prices. A description of each component of market risk is described below:
– | Interest rate risk is the risk of gain or loss due to the volatility of interest rates. |
– | Foreign exchange rate risk is the risk of gain or loss due to volatility of foreign exchange rates. |
– | Equity risk is the risk of gain or loss due to the changes in prices and volatility of individual equity instruments and equity indexes. |
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in the performance of CI’s investment funds and may adversely affect CI’s assets under management, management fees and revenues, which would reduce cash flow to CI and ultimately impact CI’s ability to meet its financial obligations.
Q4 Financial Report | 24 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
MARKET RISK FOR THE ASSET MANAGEMENT SEGMENT
At December 31, 2018, approximately 27% of CI’s assets under management were held in fixed-income securities, which are exposed to interest rate risk. An increase in interest rates causes market prices of fixed-income securities to fall, while a decrease in interest rates causes market prices to rise. CI estimates that a 50 basis point change in interest rates would cause a change of about $6 million in annual pre-tax earnings in the Asset Management segment.
At December 31, 2018, about 50% of CI’s assets under management were based in Canadian currency. While CI’s concentration in Canadian currency assets reduces its exposure to foreign exchange risk, approximately 27% of CI’s assets under management were based in U.S. currency. Any change in the value of the Canadian dollar relative to U.S. currency will cause fluctuations in CI’s assets under management. CI estimates that a 10% change in Canadian/U.S. exchange rates would cause a change of about $26 million in the Asset Management segment’s annual pre-tax earnings.
About 59% of CI’s assets under management were held in equity securities at December 31, 2018, which are subject to equity risk. Equity risk is classified into two categories: general equity risk and issuer-specific risk. CI employs internal and external fund managers to take advantage of these individuals’ expertise in particular market niches, sectors and products and to reduce issuer- specific risk through diversification. CI estimates that a 10% change in the prices of equity indexes would cause a change of about $61 million in annual pre-tax earnings.
CI has a control environment that ensures market risks are reviewed regularly. CI’s compliance group reviews and monitors CI’s fund and portfolio investments for compliance with investment policies and regulations. CI also reviews investment processes, portfolio positioning and attribution of results of its investment teams on a regular basis.
MARKET RISK FOR THE ASSET ADMINISTRATION SEGMENT
CI’s operating results are not materially exposed to market risk impacting the asset administration segment given that this segment usually generates less than 1% of the total income before non-segmented items (this segment reported a gain of $0.8 million before income taxes and non-segmented items for the quarter ended December 31, 2018). Investment advisors regularly review their client portfolios to assess market risk and consult with clients to make appropriate changes to mitigate it. The effect of a 10% change in any one component of market risk (comprised of interest rate risk, foreign exchange risk and equity risk) would have resulted in a change of approximately $4 million to the Asset Administration segment’s annual pre-tax earnings.
Q4 Financial Report | 25 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
POLITICAL AND MARKET RISK
CI’s performance is directly affected by financial markets and political conditions, including any political change and uncertainty in the United States and globally. These changes may cause significant volatility and decline in the global economy or specific international, regional and domestic financial markets which are beyond the control of CI. There can be no assurance that financial market performance will be favourable in the future. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in performance, which could negatively impact CI’s business and impede the growth of CI’s assets under management and revenue.
STRATEGIC RISK
Strategic risks are risks that directly impact the overall direction of CI and the ability of CI to successfully identify growth opportunities and implement proposed solutions. The key strategic risk is the risk that management fails to anticipate, and respond to, changes in the business environment, including demographic, regulatory and competitive changes. CI’s performance is directly affected by the financial market and business conditions, including the legislation and policies of the governments and regulatory authorities having jurisdiction over CI’s operations. These are beyond the control of CI; however, an important part of the risk management process is the ongoing review and assessment of industry and economic trends and changes. Strategies are then designed to effectively respond to any anticipated changes, including identifying acquisition opportunities, developing new business lines, introducing new products, and implementing cost control strategies.
Part of CI’s strategy includes strategic acquisitions and investments in growth opportunities. Strategic acquisitions may benefit CI through increasing fee earning assets, broadening CI’s distribution relationships, enhancing CI’s business capabilities and capturing cost synergies. CI embarks on a thorough due diligence process prior to any acquisition; however, there can be no assurances that the anticipated benefits of any acquisition will be achieved. The success of an acquisition is contingent upon many factors, including retaining key employees, securing assets acquired, obtaining legal and regulatory approvals, integrating operations and vendor relationships, and having favourable economic conditions.
Q4 Financial Report | 26 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
REPUTATION RISK
Reputation risk is the potential negative impact of a deterioration of CI’s image or lower public confidence in the CI brand, its senior management or its products and services. Operational errors, poor performance, regulatory investigation or sanctions, litigation or employee misconduct could result in reputational harm to CI. Through its Codes of Conduct, governance practices, risk management programs, policies, procedures and training, CI attempts to prevent and detect any activities by CI officers, directors, and employees that would harm CI’s reputation. While all employees, directors and officers are expected to protect the reputation of CI, there can be no assurances that unauthorized or unsuccessful activities may result in damage to CI’s reputation, which could adversely affect CI’s business and profitability.
COMPETITION RISK
CI operates in a highly competitive environment, with competition based on a variety of factors, including the range of products offered, brand recognition, investment performance, business reputation, financing strength, management and sales relationships, quality of service, level of fees charged and level of commissions and other compensation paid. CI competes with a large number of mutual fund companies and other providers of investment products, investment management firms, broker-dealers, banks, insurance companies and other financial institutions. Some of these competitors have, and potential future competitors may have, greater technical, financial, marketing, distribution or other resources than CI. The trend toward greater consolidation within the investment management industry has increased the strength of a number of CI’s competitors. CI’s competitors seek to expand market share by offering different products and services and more competitive pricing than those offered by CI. While CI continues to develop and market new products and services and remains competitive with respect to fees, there can be no assurance that CI will maintain its current standing or market share or investment performance relative to its competitors, which may adversely affect the business, financial condition or operating results of CI.
In addition, there are uncertainties involved in the introduction of new products and services, including technical requirements, operational controls and procedures, compliance with regulatory requirements and shifting market preferences. The development and introduction of new products and services may require ongoing support and investment. A failure to manage the risks involved in the implementation of new products and services may lead to operational lapses, increased capital requirements, and competitive alternatives, which could adversely affect CI’s standing, market share or investment performance relative to its competitors and negatively impact the business, financial condition or operating results of CI.
DISTRIBUTION RISK
CI distributes its investment products through a number of distribution channels, including brokers, independent financial planners and insurance advisors. CI’s access to these distribution channels is impacted by the strength of the relationship with certain business partners and the level of competition faced from the financial institutions that own those channels. While CI continues to develop and enhance existing relationships, there can be no assurance that CI will, in the future, enjoy the level of access that it has in the past, which would adversely affect its sales of investment products.
REGULATORY AND LEGAL RISK
CI’s business is dependent upon compliance with and continued registration under securities laws in all jurisdictions in which CI and its subsidiaries carry on business. Laws and regulations applied at the national and provincial level generally grant governmental agencies and self-regulatory bodies broad administrative discretion over the activities of CI, including the power to limit or restrict business activities as well as impose additional disclosure requirements on CI products and services. Possible sanctions include the revocation or imposition of conditions on licenses to operate certain businesses, the suspension or expulsion from a particular market or jurisdiction of any of CI’s business segments or its key personnel or financial advisors, and the imposition of fines and censures. It is also possible that the laws and regulations governing a subsidiary’s operations or particular investment products or services could be amended or interpreted in a manner that is adverse to CI. To the extent that existing or future regulations affecting the sale or offering of CI’s product or services or CI’s investment strategies cause or contribute to reduced sales of CI’s products or lower margins or impair the investment performance of CI’s products, CI’s aggregate assets under management and its revenues may be adversely affected. In addition, the ongoing change in the securities regulatory environment governing CI’s business may require additional human resources and operations which will increase costs.
Given the nature of CI’s business, CI may from time to time be subject to claims or complaints from investors or others in the normal course of business. The legal risks facing CI, its directors, officers, employees or agents in this respect include potential liability for violations of corporate laws, securities laws, stock exchange rules and misuse of investors’ funds. Some violations of corporate laws, securities laws or stock exchange rules could result in civil liability, fines, sanctions, or expulsion from a self- regulatory organization or the suspension or revocation of CI’s right to carry on an existing business. CI may incur significant costs in connection with such potential liabilities.
Q4 Financial Report | 27 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
INFORMATION TECHNOLOGY RISK
CI uses information technology and the internet to streamline business operations and to improve the client and advisor experience. However, with the use of information technology and the internet, email messaging and other online capabilities, CI is exposed to information security risk that could potentially have an adverse impact on its business. CI is dependent on its information security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that it transmits through its information technology systems. Any information technology event, such as a hacker attack or virus, or internal issue, such as the failure to implement sufficient controls, could result in unauthorized access to sensitive or confidential information, theft, operational disruption, regulatory actions, legal liability or reputational harm. CI actively monitors this risk and continues to develop controls to protect against cyber threats that are becoming more sophisticated and pervasive. In addition, CI has and will continue to implement safeguards to control access to sensitive information, through password protection, encryption of confidential information and other means. Notwithstanding these measures, CI cannot fully mitigate the risk associated with information technology security. If mobile electronic devices, such as laptops or smart phones, are stolen, lost or left unattended, such devices may become exposed to hacking or other unauthorized use. As well, CI is dependent on the efficiency and effectiveness of the technology it uses and keeping pace with a continuously evolving information technology landscape. Malfunctioning of any of the technologies used by CI and being slow to keep pace could disrupt the company’s success and negatively impact CI’s financial position and reputation.
CI’s business is dependent on the physical integrity of its infrastructure, including its office space, storage centers and other facilities. CI has taken precautions to protect the physical security of its infrastructure, and the sensitive information contained therein, through passkey protection, limited after-hours access and clean desk policies. However, a breach of the physical integrity of CI infrastructure may leave sensitive information vulnerable to unauthorized access and use, increasing a possible security risk, which could negatively impact CI’s business and reputation.
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequate or failed internal processes or systems. The operational risk that CI is exposed to may arise from, technology failures, business disruption, theft and fraud, failure of key third parties, employee errors, processing and execution errors, and inaccurate or incomplete client information. Operational risk may result in a financial loss but can also lead to regulatory sanctions and harm to CI’s reputation. Operational risk driven by people and processes are mitigated through human resources policies and practices, and a strong internal control environment. Operational risks driven by systems and services are managed through controls over technology development and change management as well as enhanced procedures for oversight of third-party service providers. While CI continuously monitors its operational risks, there can be no assurances that CI’s internal control procedures can mitigate all operational risks.
Q4 Financial Report | 28 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TAXATION RISK
CI is subject to various uncertainties concerning the interpretation and application of Canadian tax laws. CI Investments is considered a large case file by the Canada Revenue Agency and, as such, is subject to audit each year. There is a significant lag between the end of a fiscal year and when such audits are completed. Therefore, at any given time, several years may be open for audit and/or adjustments. While CI regularly assesses the likely outcome of these audits in order to determine the appropriateness of its tax provision, there can be no assurance that CI will accurately predict the outcomes of these audits. If tax authorities disagree with CI’s application of such tax laws, CI’s profitability and cash flows could be adversely affected.
REDEMPTION RISK
CI earns revenue primarily from management fees earned for advising and managing investment fund assets. The level of these assets is dependent on (i) sales; (ii) redemptions; and (iii) investment performance. Sales and redemptions may fluctuate depending on market and economic conditions, investment preference, or other factors.
Significant redemptions could adversely affect investor fund returns by impacting market values and increasing transaction costs or taxable distributions. Continued large redemptions could negatively impact the prospects and operating results of CI.
KEY PERSONNEL RISK
The success of CI is dependent to a significant degree upon the contributions of senior management. The loss of any of these individuals, or an inability to attract, retain and motivate sufficient numbers of qualified senior management personnel, could adversely affect CI’s business. The retention of these key managers and the identification and development of the next generation of managers is an area of focus for CI. CI has not purchased any “key man” insurance with respect to any of its directors, officers or key employees and has no current plans to do so.
The success of CI is also dependent upon, among other things, the skills and expertise of its human resources, including the management and investment personnel with specialized skills related to, among other things, marketing, risk management, credit, information technology, accounting, administrative operations and legal affairs. These highly skilled and often highly specialized individuals play an important role in developing, implementing, operating, managing and distributing CI’s products and services. Accordingly, the recruitment and retention of skilled personnel, continuous training and transfer of knowledge are key activities that are essential to CI’s performance. CI has taken, and will continue to take, steps to encourage our key employees to remain employed at CI, including the implementation of long-service awards, employee engagement strategies and enhanced transparency measures with respect to compensation. In addition, the focus on asset growth and the reliance on investment performance to sell financial products has increased the demand for experienced and high- performing portfolio managers. Compensation packages for these managers may increase at a rate well in excess of inflation and well above the rates of increase observed in other industries and the rest of the labour market. The loss of these individuals or an inability to attract, retain and motivate a sufficient number of qualified personnel could result in a loss of clients and a decline in sales and adversely affect CI’s business.
Q4 Financial Report | 29 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
The market for financial advisors is extremely competitive and is increasingly characterized by frequent movement by financial advisors among different firms. Individual financial advisors of AWM have regular direct contact with clients, which can lead to a strong and personal client relationship based on the client’s trust in the individual financial advisor. The loss of a significant number of financial advisors could lead to the loss of client accounts which could have a material adverse effect on the results of operations and prospects of AWM and, in turn, CI. Although AWM uses or has used a combination of competitive compensation structures and equity with vesting provisions as a means of seeking to retain financial advisors, there can be no assurance that financial advisors will remain with AWM.
INSURANCE RISK
CI maintains various types of insurance which include financial institution bonds, errors and omissions insurance, directors’, trustees’ and officers’ liability insurance, agents’ insurance and general commercial liability insurance. Management evaluates the adequacy of CI’s insurance coverage on an ongoing basis. However, there can be no assurance that a claim or claims will not exceed the limits of available insurance coverage, that any insurer will remain solvent or willing to continue providing insurance coverage with sufficient limits or at a reasonable cost or that any insurer will not dispute coverage of certain claims due to ambiguities in the relevant policies. A judgment against CI in excess of available coverage could have a material adverse effect on CI both in terms of damages awarded and the impact on the reputation of CI.
CAPITAL RISK
Certain subsidiaries of CI are subject to minimum regulatory capital requirements. This may require CI to keep sufficient cash and other liquid assets on hand to maintain capital requirements rather than using them in connection with its business. Failure to maintain required regulatory capital by CI may subject it to fines, suspension or revocation of registration by the relevant securities regulator. A significant operating loss by a registrant subsidiary or an unusually large charge against regulatory capital could adversely affect the ability of CI to expand or even maintain its present level of business, which could have a material adverse effect on CI’s business, results of operations, financial condition and prospects.
Q4 Financial Report | 30 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CREDIT RISK
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed to the risk that third parties that owe it money, securities or other assets will not perform their obligations. These parties include trading counterparties, customers, clearing agents, exchanges, clearing houses and other financial intermediaries, as well as issuers whose securities are held by CI. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. CI does not have significant exposure to any individual counterparty. Credit risk is mitigated by regularly monitoring the credit performance of individual counterparties and holding collateral where appropriate.
One of the primary sources of credit risk arises when CI extends credit to clients to purchase securities by way of margin lending. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory requirements and by CI’s internal credit policy.
LIQUIDITY RISK
Liquidity risk is the risk that CI may not be able to generate sufficient funds and within the time required in order to meet its obligations as they come due. While CI currently has access to financing, unfavourable market conditions may affect the ability of CI to obtain loans or make other arrangements on terms acceptable to CI.
SHARE CAPITAL
As at December 31, 2018, CI had 243,721,650 shares outstanding.
Employee Incentive Share Option Plan: At December 31, 2018, 7.0 million options to purchase shares were outstanding, of which 5.8 million options were exercisable at prices ranging from $27.44 to $35.88.
Restricted Share Unit (“RSU”) Plan: 663,773 RSUs were outstanding as at December 31, 2018.
Deferred Share Unit (“DSU”) Plan: 15,563 DSUs were outstanding as at December 31, 2018.
Additional details about the above Plans can be found in Note 9 to the Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
The table that follows summarizes CI’s contractual obligations at December 31, 2018.
Q4 Financial Report | 31 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
PAYMENTS DUE BY YEAR | ||||||||||||||||||||||||||||
[millions of dollars] | Total |
1 year or less |
2 | 3 | 4 | 5 |
More than 5 years |
|||||||||||||||||||||
Long-term debt | 1,508.5 | — | 450.0 | 483.5 | — | 325.0 | 250.0 | |||||||||||||||||||||
Operating leases | 90.0 | 14.1 | 12.9 | 12.3 | 11.8 | 11.7 | 27.2 | |||||||||||||||||||||
Total | 1,598.5 | 14.1 | 462.9 | 495.8 | 11.8 | 336.7 | 277.2 |
SIGNIFICANT ACCOUNTING ESTIMATES
The December 31, 2018 Consolidated Financial Statements have been prepared in accordance with IFRS. For a discussion of all significant accounting policies, refer to Note 1 of the Notes to Consolidated Financial Statements. Note 3 provides a discussion regarding the methodology used for business acquisitions. Note 5 provides a discussion regarding the recoverable amount of CI’s goodwill and intangible assets compared to its carrying value.
NEW ACCOUNTING POLICIES
Effective, January 1, 2018, CI retrospectively adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments. Note 2 of the December 31, 2018 Notes to Consolidated Financial Statements provides a discussion regarding the new accounting standards and the impact the adoption had on the Consolidated Financial Statements.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with management, are responsible for the design of CI’s disclosure controls and procedures as defined in National Instrument 52-109 (NI 52-109). Management evaluated, with participation of the CEO and CFO, the effectiveness of the disclosure controls and procedures as at December 31, 2018. Based on this evaluation, the CEO and CFO have concluded that they are reasonably assured these disclosure controls and procedures were effective as at December 31, 2018 and that material information relating to CI was made known to them within the time periods specified under applicable securities legislation.
Q4 Financial Report | 32 | December 31, 2018 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Management, under the supervision of the CEO and CFO, is responsible for the design and maintenance of adequate internal controls over financial reporting as defined in NI 52-109 for the purposes of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However, due to its inherent limitations, internal controls over financial reporting can only provide reasonable, not absolute, assurance that the financial statements are free of misstatements. The COSO framework was used to assist management, along with the CEO and CFO, in the evaluation of these internal control systems. Management, under the direction of the CEO and CFO, concluded that the internal controls over financial reporting were effective as at December 31, 2018. Management used various tools to evaluate internal controls over financial reporting which included interaction with key control systems, review of policy and procedure documentation, observation or reperformance of control procedures to evaluate the effectiveness of controls and concluded that these controls are effective. For the quarter ended December 31, 2018, there have been no changes to the internal controls that have materially affected, or are reasonably likely to affect, internal controls over financial reporting
Additional information relating to CI, including the most recent audited annual financial statements, management information circular and annual information form, is available on SEDAR at www.sedar.com and on CI’s website at www.cifinancial.com. Information contained in or otherwise accessible through the websites mentioned in this MD&A does not form part of, and is not incorporated by reference into, this MD&A.
Q4 Financial Report | 33 | December 31, 2018 |
Exhibit 99.4
CI FINANCIAL CORP.
ANNUAL INFORMATION FORM
March 1, 2020
CI FINANCIAL CORP.
ANNUAL INFORMATION FORM
March 1, 2020
TABLE OF CONTENTS
CI FINANCIAL CORP. | (i) |
Explanatory notes | 1 |
Forward-looking information | 1 |
CORPORATE STRUCTURE | 1 |
Name, Address and Formation | 1 |
Intercorporate Relationships | 2 |
Corporate Chart | 2 |
GENERAL DEVELOPMENT OF THE BUSINESS | 3 |
Three Year History | 3 |
Recent Developments | 3 |
DESCRIPTION OF THE BUSINESS | 5 |
General | 5 |
Asset Management Segment | 6 |
Asset Administration Segment | 12 |
Employees | 14 |
RISK MANAGEMENT | 14 |
DESCRIPTION OF CAPITAL STRUCTURE | 14 |
Common Shares | 15 |
Preference Shares | 15 |
Debentures | 15 |
Ratings | 17 |
DIvidends | 18 |
Current Dividend Policy | 18 |
Historical Dividend Record | 18 |
MARKET FOR SECURITIES | 19 |
Trading Price and Volume | 19 |
DIRECTORS AND OFFICERS | 20 |
EXECUTIVE OFFICERS | 25 |
Corporate Cease Trade Orders or Bankruptcies | 26 |
Penalties and Sanctions | 26 |
LEGAL PROCEEDINGS and regulatory actions | 26 |
Legal Proceedings | 26 |
Regulatory Actions | 27 |
TRANSFER AGENT AND REGISTRAR | 27 |
MATERIAL CONTRACTS | 27 |
INTERESTS OF EXPERTS | 28 |
( i )
Audit and risk Committee Information | 28 |
Audit and Risk Committee’s Charter | 28 |
Composition of the Audit and Risk Committee | 28 |
Relevant Education and Experience | 28 |
Pre-Approval Policies and Procedures | 29 |
ADDITIONAL INFORMATION | 30 |
General | 30 |
APPENDIX “A” |
A-1 |
( ii )
- A-1 -
Explanatory notes
Unless otherwise stated, the information in this annual information form is presented as of December 31, 2019 and all references to the Corporation’s fiscal year are to the year ended December 31, 2019.
In this annual information form, unless the context otherwise requires, all references to the Corporation are to CI Financial Corp. and, as applicable, its predecessors, CI Financial Income Fund and CI Financial Inc. and references to CI or the CI Group are to the Corporation and its predecessors together with the entities and subsidiaries controlled by it and its predecessors.
Forward-looking information
This annual information form contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI and its products and services, including its business operations, strategy and financial performance and condition. When used in this annual information form, such statements use such words as “may”, “will”, “expect”, “believe”, and other similar terms. These statements are not historical facts but instead represent management’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond management control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described under “Risk Management” or discussed in other materials filed by the Corporation with applicable securities regulatory authorities from time to time, including Management’s Discussion and Analysis of the Corporation’s interim and annual financial statements. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. The reader is cautioned against undue reliance on these forward-looking statements. For a more complete discussion of the risk factors that may impact actual results, please refer to the “Risk Management” section of the Management’s Discussion and Analysis accompanying the Corporation’s annual financial statements.
Except as otherwise stated, these statements are made as of the date of this document and, except as required by applicable law, management and the board of directors of the Corporation (the “Board of Directors” or “Board”) undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
CORPORATE STRUCTURE
Name, Address and Formation
The Corporation is the successor to CI Financial Income Fund (the “Fund”), following the completion of the conversion of the Fund from an income trust to a corporate structure by way of a court-approved plan of arrangement under the Business Corporations Act (Ontario) (the “OBCA”) on January 1, 2009 (the “Conversion”). The Fund had been created effective June 30, 2006 when CI Financial Inc. converted to an income trust. The Conversion effectively reversed this income trust conversion.
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The Corporation was incorporated under the OBCA on November 12, 2008 and did not carry on any active business prior to the Conversion, other than executing the arrangement agreement pursuant to which the Conversion was implemented.
On April 20, 2017, at the Annual and Special Meeting of Shareholders, shareholders confirmed the adoption of By-Law No. 2 of the Corporation, previously approved by the Board on February 16, 2017, amending the Corporation’s By-Law No. 1 to increase the quorum requirement for meetings of Shareholders to two persons present in person or by proxy holding or representing not less than 25% of the outstanding Shares of the Corporation entitled to vote at the meeting;
The registered and head office of the Corporation is 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7.
Intercorporate Relationships
The principal business of the Corporation is carried on through its subsidiaries, CI Investments Inc. (“CI Investments”) and Assante Wealth Management (Canada) Ltd. (“AWM”). The Corporation also operates through certain other subsidiaries including, but not limited to, CI Private Counsel LP (“CIPC”), GSFM Pty Limited (“GSFM”), Marret Asset Management Inc. (“Marret”), BBS Securities Inc. (“BBS”), and WealthBar Financial Services Inc. (“WealthBar”).
The table below shows the principal entities controlled by the Corporation as at December 31, 2019, including (i) the percentage of votes attaching to all voting securities of the entity beneficially owned, controlled or directed by the Corporation, and (ii) the jurisdiction of incorporation or formation:
Entity | Jurisdiction | Ownership % | ||
CI Investments Inc. | Ontario | 100% | ||
Assante Wealth Management (Canada) Ltd. | Canada | 100% |
Corporate Chart
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GENERAL DEVELOPMENT OF THE BUSINESS
Three Year History
The Corporation is one of Canada’s largest independent and diversified wealth management companies. Over the last three years, CI has continued to evolve within the rapidly changing investment industry, while focusing on growing its business, expanding its capability and becoming a leading global wealth management firm based in Canada. CI continues to make significant investments in key areas of the business to drive growth and broaden revenue opportunities while controlling expenditures. Over the past three years, assets under management increased 12% from $117.9 billion to $132.41 billion at December 31, 2019 and assets under administration at CI’s subsidiary AWM increased 28% to $45.1 billion.
CI’s scale and diversity of its product line-up, the strength of its portfolio management teams, its close relationships with distribution partners, both affiliated and independent, and strategic acquisitions have contributed to its success. As the industry has become increasingly competitive, CI has responded by committing resources to those areas that are critical to our growth. CI has recruited top-ranked portfolio management talent so that it can offer a comprehensive range of investment approaches and expertise in specific areas, giving our clients a wide choice of styles, products and advice all within the CI brand. AWM and CIPC continue to invest in wealth planning and advisor recruitment.
Recent Developments
CEO and President Succession
On April 16, 2019, the Corporation announced Mr. Peter Anderson had made the decision to retire from his role as Chief Executive Officer and President no later than June 30, 2020. On June 24, 2019, it was announced that, effective that day, Darie Urbanky would succeed Mr. Anderson in the role of President of the Corporation. Subsequently, on August 6, 2019, the Corporation announced that Mr. Kurt MacAlpine would succeed Mr. Anderson in the role of Chief Executive Officer, effective September 1, 2019.
Mr. MacAlpine has valuable experience and insight into the North American and global wealth and asset management sectors, having served as Executive Vice-President and Head of Global Distribution for WisdomTree Asset Management and as Leader of the North American Asset Management Practice at McKinsey & Company.
With the support of the board of directors, Mr. MacAlpine outlined his strategic priorities for CI: Modernize CI’s asset management business, Expand CI’s wealth management platform and Globalize the Company. Mr. MacAlpine also named the four key elements that would serve as CI’s strategic foundation, namely: People, Technology, Speed and Financial Strength.
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Retirement of President
On December 10, 2018, the Corporation announced that Sheila Murray, President of the Corporation, would be retiring effective March 31, 2019. She remains a member of the board of directors of the Corporation following her retirement.
Acquisitions of U.S. RIAs
On November 26, 2019, CI announced its entrance into the U.S. Registered Investment Advisor (“RIA”) market by agreeing to acquire a majority share in Surevest Wealth Management. Surevest provides a wide range of fee-only financial planning and investment management services through offices in Phoenix and Los Angeles. It specializes in servicing high-net-worth individuals through a concierge approach to wealth management. Subsequently, on December 23, 2019, CI announced that it had also agreed to acquire another majority stake in a U.S. RIA, One Capital Management, based in Westlake Village, California. One Capital has well-developed expertise in advanced wealth planning, including specializations in family office services and a division focused on the needs of professional athletes and entertainers. One Capital has developed cross-border servicing capability that CI will make available to the 300,000 Canadian families that have their primary financial relationship with CI’s wealth management companies.
Acquisition of WisdomTree
On February 19, 2020, the Corporation announced it had completed the acquisition of all of the issued and outstanding shares of WisdomTree Asset Management Canada, Inc. (“WisdomTree Canada”), the investment fund manager of WisdomTree’s Canadian exchange-traded funds. As a result of the transaction, CI added 14 Toronto Stock Exchange-listed exchange-traded funds with $972 million in assets (as of February 29, 2020) to its current ETF family. The WisdomTree Canada ETFs were rebranded CI WisdomTree ETFs and WisdomTree will continue as the index provider for the WisdomTree Canada ETFs that currently track WisdomTree’s proprietary indexes.
Acquisition of WealthBar
On January 23, 2019, the Corporation completed its acquisition of a 75% stake in WealthBar, a leading Canadian online wealth management and financial planning platform. WealthBar has a digital advice platform with industry-leading tools and services. WealthBar builds on the Corporation’s investment in its comprehensive digital strategy and continued innovation across the CI Group.
Acquisition of BBS
On November 1, 2017, the Corporation acquired 100% of the shares of BBS Securities Inc. and associated entities (the “BBS Acquisition”), including Pario Technology Corp., a financial technology company and top-ranked online brokerage (operating under the brand name Virtual Brokers). BBS provides a wide range of services to retail and institutional investors using a proprietary system that is one of the most technologically advanced and efficient brokerage platforms in the Canadian market.
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Acquisition of Sentry
On October 2, 2017 the Corporation directly and indirectly acquired 100% of the shares of Sentry Investments Inc. (“Sentry”) and Sentry Investments Corp. (the “Sentry Acquisition”). This acquisition was considered a significant acquisition for the purposes of securities law and, accordingly, CI filed a Business Acquisition Report on December 6, 2017, through SEDAR. CI Investments amalgamated with Sentry on June 1, 2018 and continues under the same brand to offer a diverse range of investment products and solutions through financial advisors and investment dealers, as well as portfolio management services to a variety of institutional clients.
Industry Recognition
CI Investments continued to receive industry recognition for performance. From 2017-19, CI Investments received 88 FundGrade A+ Awards and 19 Lipper Fund Awards.
DESCRIPTION OF THE BUSINESS
General
CI is an independent Canadian company offering global asset management and wealth management advisory services. CI is well diversified with a strong presence in the Canadian asset and wealth management industry. CI is also diversified internationally through its subsidiary GSFM, an investment fund manager operating in Australia and New Zealand, as well as its majority stake in U.S. RIAs Surevest Wealth Management and One Capital Management.
Within the Canadian asset management industry, CI’s strengths include a wide selection of portfolio management teams that operate independently of one another and offer distinct investment approaches. This multi-manager model is a key factor distinguishing CI within the Canadian marketplace. CI also offers a comprehensive product lineup diversified by portfolio manager, asset class, geographic region, investment approach, and by platform, including various classes of mutual funds, segregated funds, private pools, liquid alternatives, and exchange-traded funds. CI distributes its products to Canadian investors through multiple channels, including the institutional investment market and through retail dealers and advisors across Canada. Through the acquisition of a 75% stake in WealthBar, CI also offers investors access to a digital advice platform
Within asset administration, AWM and CIPC focus on providing clients with an integrated approach to wealth planning that includes financial planning, wealth management, estate and succession planning and insurance services in addition to investment management.
CI’s asset management operations are conducted through its subsidiaries CI Investments, Marret, CIPC, and, in Australia, through GSFM. Asset administration is conducted through its subsidiary AWM.
The asset management segment provides the majority of CI’s income and derives its revenues principally from the fees earned on the management of several families of mutual, segregated, pooled, exchange-traded, and closed-end funds, and discretionary accounts. The asset administration segment derives its revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients and capital market activities.
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CI Investments is an investment fund management company engaged in the business of sponsoring, managing, distributing and administering investment funds in Canada. These products are distributed primarily through brokers, independent financial planners and insurance advisors, including AWM and CIPC financial advisors. CI Investments is also a portfolio manager and exempt market dealer.
AWM’s subsidiaries include financial services distribution companies engaged in the business of providing financial planning, investment advice, wealth management, estate and succession planning and insurance services.
As at December 31, 2019, CI, through its subsidiaries, managed over 200 core mutual/pooled funds and over 45 exchange-traded funds, closed-end investment funds or limited partnerships which are sold under various fund family names, including Black Creek Funds, Cambridge Funds, CI Funds, CI LifeCycle Portfolios, CI First Asset Funds, GSFM Funds, Marret Funds, Portfolio Series, Portfolio Select Series, Sentry Funds, Signature Funds, Synergy Funds, Assante Private Client Managed Portfolios, Stonegate Private Client Managed Portfolios, Evolution Private Managed Portfolios, and United Funds. All the CI funds, with the exception of the GSFM Funds, are collectively hereafter referred to as the “Managed Funds”. For more information about GSFM and its funds, please refer to the “International Operations” section of this annual information form. CI Investments also manages or administers segregated funds, and acts as portfolio sub-advisor to other institutions.
As at December 31, 2019, CI Investments had $132.1 billion of assets under management.
As at December 31, 2019, AWM, through its subsidiaries Assante Capital Management Ltd., Assante Financial Management Ltd. and Assante Estate and Insurance Services Inc., administered approximately $45.1 billion in mutual funds, stocks, bonds, GIC’s, insurance products and other investments for its clients.
CI Investments is committed to responsible investing. It is a signatory to the United Nations-supported Principles for Responsible Investment, as well as an Associate Member of the Responsible Investment Association, Canada’s membership association for responsible investment. CI Investments has a formal Responsible Investment Policy that addresses the integration of environmental, social and governance factors into its decision-making process when making investments for the Managed Funds.
CI’s financial results are driven primarily by the level of its assets under management, which are in turn driven by the returns earned by its funds and the net sales of the funds. As at December 31, 2019, the CI Group managed and advised on approximately $181.9 billion on behalf of more than one million investors.
Asset Management Segment
Summary
The Asset Management segment is comprised of CI Investments and Marret (collectively, “Fund Managers”), CIPC and GSFM. The Managed Funds are offered primarily through investment dealers, mutual fund dealers, and insurance advisors, including AWM financial advisors, in all jurisdictions in Canada. GSFM offers investment products to investors in Australia and New Zealand. Financial information regarding the Asset Management segment is provided in the Corporation’s annual financial statements for the fiscal year ended December 31, 2019 and its related Management’s Discussion and Analysis, which are available on SEDAR at www.sedar.com.
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Products and Services
Managed Funds
As at December 31, 2019, the Fund Managers managed over 250 Managed Funds. The Managed Funds are sold or available for sale in all provinces and territories of Canada. CI Investments also administers segregated funds and manages underlying funds of segregated funds.
The CI Group offers Canadian investors a wide range of Canadian investment products through a network of investment dealers, mutual fund dealers, and insurance agents, which include AWM financial advisors. The majority of the Managed Funds are managed by five separate groups of in-house portfolio managers who are all employees of CI Investments. Certain other Managed Funds are managed by Marret, or third-party investment advisory firms. All of the portfolio managers are supported by a team of marketing, administrative and technical specialists. The diversity of the Managed Funds allows CI to take advantage of the expected continued growth in the Canadian investment fund industry.
Management of the Managed Funds
The Fund Managers are promoters and managers of each of their respective Managed Funds. Each Fund Manager provides all of the management services required by the Managed Funds managed by it, including managing or arranging for the management of investment portfolios, marketing, keeping of securityholder records and accounts, reporting to securityholders and processing transactions relating to the purchase, transfer and redemption of securities of such Managed Funds.
The Fund Managers have each entered into management agreements with each of their respective Managed Funds. For the management and administrative services provided to each Managed Fund, the relevant Fund Manager is generally paid a fee based on the average daily net asset value of each of such Managed Fund. The net asset value of a Managed Fund depends primarily on the market value of its portfolio investments. The management fees paid to the Fund Managers are comparable to other management fees charged in the Canadian investment fund industry.
In general, with the exception of certain ETFs, the Managed Funds are responsible for their own administrative and operating expenses including, without limitation, audit and legal fees, registry and transfer agency fees, custodian fees, portfolio and investment costs, expenses relating to communication with securityholders, all costs imposed by statute or regulation, and applicable Goods and Services Tax and Harmonized Sales Tax, where applicable. CI Investments has agreed to bear all of the operating expenses of the open-end mutual funds managed by CI Investments (other than certain taxes, borrowing costs, new governmental fees and forward contract costs) in return for fixed annual administration fees.
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Portfolio Managers
The Fund Managers currently use in-house and third-party investment managers to provide investment advice regarding the investment portfolios of the Managed Funds. Pursuant to investment advisor agreements between the Fund Managers and certain investment management firms, the Fund Managers have retained third-party investment management firms to provide advice regarding the investment portfolios of certain Managed Funds. In general, the Fund Managers pay third-party investment management firms an annual fee equal to a percentage of the net asset value of the Managed Funds. Generally, these rates are reduced as the net asset value exceeds certain specified levels.
Distribution and Marketing of the Managed Funds
Like other asset management companies not affiliated with financial institutions, the Fund Managers rely on investment dealers and mutual fund dealers for the sale of securities of the Managed Funds. CI also has relationships with life insurance agents who are licensed to sell mutual funds and who sell individual variable annuity contracts and variable annuity policies (segregated funds) administered by CI.
The management of CI believes that the following are important factors of the asset management segment: diversity of products offered by the CI Group; experience of the investment managers of the Managed Funds; service levels provided to the dealer and the investor; and performance of the Managed Funds. CI Investments focuses on service and assistance to dealers and agents who are selling the Managed Funds, including providing materials to communicate the important features of the Managed Funds to investors and providing access to the investment managers.
With the exception of ETFs, the Fund Managers generally pay trailer fees to assist dealers in providing ongoing service to clients. These fees are payable to dealers in respect of their sales representatives who have client assets in qualifying Managed Funds throughout a calendar month. Payment is made either monthly or quarterly and is equal to a percentage of the total client assets of such sales representatives throughout the month.
CI Investments will also assist dealers and their representatives in marketing the Managed Funds. This marketing assistance is subject to regulatory requirements and may be discontinued or modified at any time.
Sales Charges Relating to the Distribution of the Managed Funds
For certain Managed Funds, investors may choose to purchase securities under the deferred sales charge method or under the initial sales commission method.
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In general, if the investor purchases under the deferred sales charge method, no initial commission is paid, the entire investment is invested in securities and, upon redemption within seven years of purchase, a redemption fee will be deducted from the proceeds of redemption. On redemption, the redemption fee is calculated as a percentage of the net asset value at the time of the issue of the securities, which percentage decreases, for the standard deferred sales charge option, over a seven-year period from 5.5% in the first year to nil at the end of the period, and for the low-load sales charge option, over a three-year period from 3.0% in the first year to nil at the end of the period. The redemption fee will be deferred in respect of redemptions of securities of a Managed Fund up to a maximum established by the Fund Managers from time to time.
In general, if the investor purchases securities of the Managed Funds under the initial sales commission method, a sales commission is paid at the time of purchase and no commission is charged at the time of redemption. For purchases of securities of the Managed Funds under the initial sales commission method, the commission is negotiable between the dealer and the investor, with the maximum generally ranging from 1% to 5%. No fees or charges are otherwise deducted by the Managed Funds on redemption except for applicable short-term trading fees and in the case of a registered plan or on a transfer to other Managed Funds.
Specialized Skill and Knowledge
The Fund Managers have highly skilled and experienced employees necessary to meet the challenges of the evolving asset management industry. CI believes it has the expertise to meet the investment needs of its clients, develop new products, increase market share penetration through targeting of knowledgeable, successful investment dealers, mutual fund dealers and life insurance agents and other alternative distribution channels, and enhance investor awareness. CI continues to offer a wide range of investment products that are managed by a diversified group of investment advisors and build on its strength in both international and domestic equity, income, balanced fund products and other investment solutions.
Competitive Conditions
The Canadian mutual fund industry has grown from $3.6 billion to $1.6 trillion of mutual fund assets during the period from December 1980 to December 2019 (according to The Investment Funds Institute of Canada (“IFIC”)).
The long-term growth in the mutual fund industry is attributable to many factors, including a decline in inflation, lower interest rates, increased marketing of mutual funds and demographic trends. Government policies, at both the federal and provincial levels, also are contributing significantly to this growth by encouraging Canadians to save for retirement by increasing contribution limits for registered plans.
The growth in the mutual fund industry has resulted in increased competition. Over time, the market has developed into distinct segments: mutual fund groups owned by chartered banks and insurance companies; and the independent mutual fund groups. According to industry data, mutual fund companies owned by chartered banks and insurance companies have significantly increased their market share over the past decade. Several foreign-owned mutual fund groups also operate in Canada and the presence of well-capitalized foreign mutual fund groups in the Canadian fund industry has also increased competition.
More recently, the industry has been affected by the rapid growth of exchange-traded funds (“ETFs”) and the entrance of automated investment platforms or “robo-advisors.” Assets held in Canadian-listed ETFs have increased from $89.5 billion in December 2015 to $204.8 billion as of December 31, 2019, according to the Canadian ETF Association. In addition, during 2019, seven new ETF sponsors debuted in Canada, according to the Association. Sponsors include a number of Canadian banks and investment firms, as well as foreign-owned asset managers. While ETFs can be the vehicle for a variety of investment mandates, they generally have significantly lower management fees overall when compared to mutual funds. CI entered the ETF market in 2015 with the purchase of First Asset Investment Management Inc., and has continued to grow this business, integrating First Asset with CI Investments in 2019 to rebrand as CI First Asset.
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Automated investment platforms are online platforms that typically offer low-cost investment portfolios that are automatically rebalanced. They generally reduce costs by investing in ETFs and by minimizing the range of wealth management services they offer. These platforms are relatively new to the Canadian market. CI acquired a 75% stake in WealthBar, a leading Canadian participant in this space.
A discussion on competitive conditions affecting CI also appears under the heading “Risk Management – Competition” in the Management’s Discussion and Analysis for the year ended December 31, 2019, available on SEDAR at www.sedar.com.
There has been significant consolidation among Canadian mutual fund management companies, driven by a desire to achieve economies of scale in marketing, distribution and administration. The consequences of this consolidation include:
(a) | a decline in the number of mutual fund and institutional asset management companies listed on the Toronto Stock Exchange (“TSX”); |
(b) | a segmentation of the industry into two distinct parts: mutual fund management groups owned in whole or in part by chartered banks, insurance companies, or other large domestic and foreign groups, and independent mutual fund management companies; and |
(c) | an increasing concentration of the larger industry participants in terms of mutual fund assets under management. |
Mutual Fund and ETF Assets
As at December 31, 2019 (in billions of dollars except percentages) |
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Total Canadian mutual fund and ETF industry(1) | $ | 1,836.4 | ||
CI Investments’ total Canadian mutual fund and ETF assets under management | $ | 120.5 | ||
% of total industry | 6.6 | % |
Notes:
(1) | Source: Investor Economics and CI Financial. |
The mutual fund industry continues to face ongoing regulatory changes. On October 3, 2019, the Canadian Securities Administrators announced amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to enhance the client-registrant relationship (“Client Focused Reforms”). The intent of the Client Focused Reforms is to better align the interests of registrants with the interests of their clients, improve outcomes for clients, and make clearer to clients the nature and the terms of their relationship with registrants. Implementation of the Client Focused Reforms will occur throughout 2020 and 2021.
On December 19, 2019 the CSA announced they would be moving forward with banning two types of embedded commissions in some mutual fund purchases: i) upfront sales commissions by investment fund organizations to dealers; and ii) trailing commissions to execution only dealers. The CSA has noted these rule changes will be published in 2020 but will not be harmonized across each provincial and territorial regulator.
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In Canada, the investment management industry, and in particular the mutual fund segment, is a highly- regulated industry. Applicable securities legislation imposes restrictions on, among other things, incentives that may be offered to dealers and the forms of advertising which may be used by mutual fund managers, and also imposes disclosure and reporting requirements on the Managed Funds. A discussion of regulatory and legal risks affecting CI appears under the heading “Risk Management – Regulatory and Legal Risk” in the Management’s Discussion and Analysis for the year ended December 31, 2019, available on SEDAR at www.sedar.com.
New Products
In the year ended December 31, 2019, CI Investments launched CI Mosaic ETF Portfolios, actively managed mutual funds of ETFs that bring together the value-added potential of professionally managed investment exposure with the cost-effective characteristics of ETFs. Other product launches included CI First Asset High Interest Savings ETF, CI First Asset Global Asset Allocation ETF, CI First Asset MSCI World ESG Impact ETF, Munro Global Growth Equity Fund, CI Canadian Dividend Private Pool, CI Global Equity Core Private Pool, CI High Interest Savings Fund, and CI MSCI World ESG Impact Fund.
In January 2020, CI Investments launched ETF versions of its liquid alternative mutual funds, making these mandates available to a wider range of investors, who can now choose the investment structure they prefer.
International Operations
CI acquired GSFM on November 15, 2016. GSFM offers investment products to investors in Australia and New Zealand in partnership with investment managers in Australia and around the world, further adding to the suite of products offered by CI. GSFM specializes in marketing investment products managed by Australian and global managers to Australian and New Zealand investors. GSFM enters into exclusive relationship agreements with fund managers and provides marketing, distribution and client relations services for investment funds and mandates in Australia and New Zealand in exchange for fees. GSFM currently manages six funds, distributes six others, and had A$6.9 billion in assets under management at December 31, 2019.
Intangible Properties
CI Investments owns a number of registered and unregistered trade-marks including CI Investments, CI Funds, CI Preferred Pricing, Synergy Funds, Signature Funds, United Pools, Optima Strategy, and Cambridge. These trade-marks are important elements in differentiating the Managed Funds from CI Investments’ competitors and marketing the Managed Funds to clients and advisors.
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Asset Administration Segment
Summary
The Asset Administration segment, carried out by AWM and its subsidiaries, along with CIPC, offers clients in Canada a wide range of products and services, encompassing a multidisciplinary approach to investment advice, wealth management, financial, tax, estate, succession and philanthropic planning, and insurance services. Financial information regarding the Asset Administration segment is provided in the Corporation’s annual financial statements for the fiscal year ended December 31, 2019 and related Management’s Discussion and Analysis, which are available on SEDAR at www.sedar.com. Results of CIPC are not included as part of the Asset Administration segment for financial reporting purposes.
Products and Services
The principal businesses of AWM, its subsidiaries, and CIPC is the provision of products and services tailored to meet the specific objectives and the wealth management needs of their clients. These products and services are developed and/or distributed through AWM, its subsidiaries, and CIPC, which include a securities dealer (Assante Capital Management Ltd.), a mutual fund dealer (Assante Financial Management Ltd.) and insurance agents (Assante Estate and Insurance Services Inc.).
AWM’s affiliates provide a wide range of products and services consisting of portfolio management, investment advisory services, the distribution of securities (including mutual funds), insurance products, banking products, and wealth management services, including financial, tax, estate, succession and philanthropic planning. The principal markets for AWM’s products and services are affluent and high-net-worth individuals residing in Canada.
AWM’s unique distribution strategy and operating platform are distinguished in its sector. Its distribution network provides AWM direct access to experienced advisors with an established and growing base of clients. Through these advisors, many clients elect to delegate the responsibility for portfolio management, manager selection and monitoring, and wealth planning to AWM’s in-house team of investment and wealth management professionals. CIPC’s operating platform is designed to allow the advisor to work with this team of professionals to provide holistic advice and one-stop solutions for the increasingly complex and sophisticated needs of their clients.
CIPC provides discretionary investment counsel services to high-net-worth and ultra-high-net-worth clients. These investment and wealth planning services may be accessed by AWM advisors on behalf of their clients, or directly through Stonegate Private Counsel LP.
Specialized Skill and Knowledge
AWM and CIPC have highly skilled and experienced advisors, branch staff and wealth planning professionals to meet the challenges of the evolving investment advisory industry. AWM and CIPC believe they have the expertise to continue to meet the specific objectives and wealth management needs of their clients, to increase market share penetration through targeting mass affluent and affluent segments of the Canadian investor landscape, and to enhance investor understanding of the elements necessary to provide financial well-being. AWM and CIPC’s objectives are to continue to offer a complete suite of wealth management services to their clients to assist them in achieving their financial goals.
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To handle future growth, AWM and CIPC expects to continue, as appropriate, to upgrade their advanced information systems and increase training and development for their advisors and employees, as well as continue to enhance their compliance infrastructure to promote stronger governance, all with the objective of ensuring that they provide accurate and timely service to their advisors and clients.
Competitive Conditions
The financial services industry is very competitive with many institutions and companies such as banks, trust companies, insurance companies, portfolio managers, security brokerage companies and mutual fund dealers, all competing for the business of affluent investors. In addition, foreign-based mutual fund companies and banks have established operations in Canada. The financial services industry in Canada has also moved towards offering comprehensive fee-based investment management services for clients, increasing the need to enhance investor understanding and deliver transparent reporting of the advisory services being provided.
AWM experienced another year of positive net sales, particularly in the high-net-worth segment. The organization has had success in building brand awareness and increasing recruiting activities. AWM believes that it is well-positioned in terms of its competitors in the marketplace. While there are many organizations providing financial advisory and financial management services or manufacturing investment products, very few of them are similar to AWM in providing financial product manufacturing integrated with the delivery of a comprehensive offering of products and services (including proprietary products) through its own distribution network. The operation of a unified financial advisory business in Canada is designed to provide a collaborative approach and economies of scale for AWM’s wealth management programs and financial advisor network. A discussion of competitive conditions affecting AWM also appears under the heading “Risk Management – Competition” in the Management’s Discussion and Analysis for the year ended December 31, 2019, available on SEDAR at www.sedar.com.
Intangible Properties
AWM, through CI Investments, owns certain registered and unregistered trade-marks such as Assante and Assante Wealth Management. These trade-marks are important elements in differentiating AWM’s services from those offered by its competitors.
International Operations
On November 26, 2019, CI announced that it had signed an agreement to purchase a majority stake in Surevest Wealth Management, a Phoenix-based RIA. On December 23, CI announced that it had signed another agreement with a U.S RIA, agreeing to purchase a majority stake in One Capital Management LLC, based in Westlake Village, California.
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Cycles
Generally, revenues are consistent throughout the year, with a slight increase in the first quarter due to increased investment activity during the Canadian RRSP season.
Employees
As at December 31, 2019, 1,793 people were employed by the CI Group.
RISK MANAGEMENT
There is risk inherent in the conduct of a wealth management business. Some factors which introduce or exacerbate risk are within the control of management and others are, by their nature, outside of CI’s direct control but must still be managed. Effective risk management is a key component to achieving CI’s business objectives and protecting CI and client assets. It is an on-going process involving the Board of Directors, the Chief Risk Officer, and CI’s Risk Management Committee, comprised of senior executives representing CI’s business units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board of Directors.
Monitoring, evaluating and managing risk is a shared responsibility at CI. The Risk Management Committee works to manage risk and ensure that business strategies and activities are consistent with CI’s risk appetite. Regular reports are provided to the Audit and Risk Committee of CI’s Board.
As noted above, the Risk Management Committee is comprised of senior executives from each core business unit and operating area at CI. CI has developed an enterprise wide approach to monitoring, evaluating and managing risk. The members of the Risk Management Committee identify and evaluate specific and material risks, applying both a quantitative and a qualitative analysis and then assess the likelihood of occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize or avoid negative consequences and these risk mitigation processes are implemented and monitored with each business unit to bring risks to an acceptable risk level.
A discussion of the risks affecting CI appears under the heading “Risk Management” in the Management’s Discussion and Analysis for the year ended December 31, 2019 and is incorporated by reference and available on SEDAR at www.sedar.com.
DESCRIPTION OF CAPITAL STRUCTURE
The following is a brief summary of the Corporation’s authorized share capital and its outstanding debt securities. The authorized share capital is established in the Corporation’s articles of incorporation, as amended. This summary may not be complete and is subject to, and qualified in its entirety by reference to, CI’s articles of incorporation, as amended, and to the applicable trust indenture pursuant to which the Debentures are created and outstanding.
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The Corporation’s authorized share capital consists of an unlimited number of common shares and an unlimited number of preference shares, issuable in series. As at March 1, 2020 there were 220,009,337 common shares issued and outstanding. No preference shares have been issued by the Corporation.
Common Shares
Holders of common shares are entitled to one vote per share at meetings of shareholders of the Corporation, to receive dividends if, as and when declared by the Board (subject to the rights of shares, if any, having priority over the common shares) and to receive pro rata the remaining property and assets of the Corporation upon its dissolution or winding up, subject to the rights of shares, if any, having priority over the common shares.
Preference Shares
Each series of preference shares shall consist of such number of shares and have such rights, privileges, restrictions and conditions as may be determined by the Board prior to the issuance thereof. Holders of preference shares, except as required by law or as provided in the rights, privileges, restrictions and conditions of a particular series, will not be entitled to vote at meetings of shareholders of the Corporation. With respect to the payment of dividends and distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the preference shares of each series shall rank on a parity with the preference shares of every other series and are entitled to preference over the common shares and any other shares ranking junior to the preference shares from time to time and may also be given such other preferences over the common shares and any other shares ranking junior to the preference shares as may be determined at the time of creation of such series.
Debentures
2024 Debentures
On July 22, 2019, the Corporation completed an offering of $350,000,000 principal amount of debentures due July 22, 2024 (“2024 Debentures”). The offering was made on an agency basis and issued under a prospectus supplement dated July 18, 2019 to the Corporation’s short form base shelf prospectus dated December 22, 2017. Interest on the 2024 Debentures is paid semi-annually in arrears on January 22 and July 22 each year, commencing on January 22, 2020 at a rate of 3.215% per annum.
2023 Debentures
On July 20, 2018, the Corporation completed an offering of $325,000,000 principal amount of debentures due July 20, 2023 (“2023 Debentures”). The offering was made on an agency basis and issued under a prospectus supplement dated July 18, 2018 to the Corporation’s short form base shelf prospectus dated December 22, 2017. Interest on the 2023 Debentures is paid semi-annually in arrears on January 20 and July 20 each year, commencing January 20, 2019, at a rate of 3.520% per annum.
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2027 Debentures
On September 27, 2017, the Corporation completed an offering of $250,000,000 principal amount of debentures due September 27, 2027 (“2027 Debentures”). The offering was made on an agency basis and issued under a prospectus supplement dated September 21, 2017 to the Corporation’s short form base shelf prospectus dated December 21, 2015. Interest on the 2027 Debentures is paid semi-annually in arrears on March 27 and September 27 each year, commencing on March 27, 2018, at a rate of 3.904% per annum.
2021 Debentures
On November 25, 2016, the Corporation completed an offering of $200,000,000 principal amount of debentures due November 25, 2021 (“2021 Debentures”). The offering was made on an agency basis and issued under a prospectus supplement dated November 22, 2016 to the Corporation’s short form base shelf prospectus dated December 21, 2015. Interest on the 2021 Debentures is paid semi-annually in arrears on May 25 and November 25 each year, commencing May 25, 2017, at a rate of 2.775% per annum.
2020 Debentures
On December 7, 2015, the Corporation completed an offering of $450,000,000 principal amount of debentures due December 7, 2020 (“2020 Debentures”, and together with the 2023 Debentures, 2027 Debentures, and 2021 Debentures, the “Debentures”). The offering was made on an agency basis and issued under a prospectus supplement dated December 2, 2015 to the Corporation’s short form base shelf prospectus dated January 6, 2014. Interest on the 2020 Debentures is paid semi-annually in arrears on December 7 and June 7 in each year, commencing June 7, 2016, at a rate of 2.645% per annum.
The Debentures were created and issued pursuant to the provisions of a trust indenture, as amended and supplemented from time to time, dated December 16, 2009 between the Corporation and Computershare Trust Company of Canada, providing for the creation and issuance of up to $2,000,000,000 aggregate principal amount of debt securities.
The 2024 Debentures were created and issued pursuant to the provisions of a trust indenture, as amended and supplemented from time to time, dated July 22, 2019 between the Corporation and Computershare Trust Company of Canada, providing for the issuance of an unlimited aggregate principal amount of debt securities.
The Corporation may elect to redeem the Debentures prior to their stated maturity dates, provided certain notice is given and applicable premium to principal amounts are paid. For more information about the Corporation’s early redemption rights, please refer to the applicable supplemental indenture to the applicable trust indenture, available on SEDAR at www.sedar.com. The Debentures are not redeemable at the election of the holders thereof.
If a Change of Control Triggering Event (defined below) occurs, the Corporation will be required to make an offer to repurchase the Debentures at a price payable in cash equal to 101% of the outstanding principal amount of the applicable Debenture together with accrued and unpaid interest, to the date of purchase. A “Change of Control Triggering Event” occurs if there is both a Change of Control of the Corporation and a Rating Event. A “Change of Control” occurs if there is a sale of all or substantially all of the assets of the Corporation or the acquisition of beneficial ownership of more than 50% of the votes attaching to the shares of the Corporation that ordinarily have voting power for the election of directors of the Corporation. A “Rating Event” occurs for a particular Debenture if, following a Change of Control or announcement of a Change of Control, the rating of the particular Debenture is lowered to below investment grade rating (below BBB- for Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., (“S&P”) and BBB (low) for DBRS Limited (“DBRS”)) by each of the rating agencies who rate the particular Debenture, if there are two or less than two such agencies, and by two out of three of the agencies, if the particular Debenture is rated by three agencies.
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Reference is made to the applicable trust indenture for a full description of the terms of the particular Debentures. The trust indentures, amendments, and supplements are available on SEDAR at www.sedar.com.
Ratings
The Debentures are rated BBB (high) with a “Negative” trend by DBRS. The “BBB (high)” rating assigned to the Debentures represents the fourth highest of the ten rating categories available from DBRS for long-term debt. Under the DBRS system, debt securities rated BBB (high) are of adequate credit quality and the capacity for the payment of financial obligations is considered acceptable. While this is a favourable rating, entities in the BBB (high) category are considered to be more vulnerable to future events than higher-rated companies. A reference to “high” or “low” reflects the relative strength within the rating category, while the absence of either a “high” or “low” designation indicates the rating is placed in the middle category. According to DBRS, the “Negative” trend helps give investors an understanding of DBRS’s opinion regarding the outlook for the rating.
The Corporation has received a corporate credit rating from S&P of BBB+ with a “Negative” outlook. In addition, the Debentures are rated BBB+ by S&P. The “BBB+” rating is the fourth highest of the ten major rating categories for long-term debt and indicates S&P’s view that the Corporation’s capacity to meet its financial commitment on the obligations is adequate, however, adverse economic conditions or changing circumstances are more likely to weaken the Corporation’s capacity to meet its financial commitments than obligations in higher rated categories. S&P uses “+” or “-” designations to indicate the relative standing of securities within a particular ratings category. A rating trend or outlook, expressed as positive, stable, negative or developing, provides S&P’s opinion regarding the outlook for the rating in question over the medium term.
The Corporation paid customary rating fees to DBRS and S&P in connection with the ratings. Other than in the ordinary course of customary ratings fees as aforesaid, in the past two years, the Corporation did not make any payments to either DBRS or S&P in respect of any other services provided by either DBRS or S&P to the Corporation.
Credit ratings are intended to provide investors with an independent assessment of the credit quality of an issue or issuer of securities and do not speak to the suitability of particular securities for any particular investor. A security rating is therefore not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating agency.
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DIvidends
Current Dividend Policy
The Corporation currently pays a quarterly cash dividend. The Board has declared dividends of $0.18 per share to be paid to shareholders of record on each of March 31, 2020 and June 30, 2020. Dividends are paid at the discretion of the Board and the dividend rate will be reviewed from time to time by the Board after giving consideration to CI’s cash flow, financial position, net earnings, sales outlook and other relevant factors.
Historical Dividend Record
2019
During 2019 the Corporation declared dividends to shareholders as follows:
Record Date | Payment Date |
Dividend per Common Share ($) |
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March 31, 2019 | April 15, 2019 | 0.18 | ||||
June 30, 2019 | July 15, 2019 | 0.18 | ||||
September 30, 2019 | October 15, 2019 | 0.18 | ||||
December 31, 2019 | January 15, 2020 | 0.18 | ||||
Total | 0.72 |
2018
During 2018 the Corporation declared dividends to shareholders as follows:
Record Date | Payment Date |
Dividend
per Common Share ($) |
||||
January 31, 2018 | February 15, 2018 | 0.1175 | ||||
February 28, 2018 | March 15, 2018 | 0.1175 | ||||
March 31, 2018 | April 13, 2018 | 0.1175 | ||||
April 30, 2018 | May 15, 2018 | 0.1175 | ||||
May 31, 2018 | June 15, 2018 | 0.1175 | ||||
June 30, 2018 | July 13, 2018 | 0.1175 | ||||
July 31, 2018 | August 15, 2018 | 0.1175 | ||||
September 30, 2018 | October 15, 2018 | 0.18 | ||||
December 31, 2018 | January 15, 2019 | 0.18 | ||||
Total | 1.825 |
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2017
During 2017 the Corporation declared dividends to shareholders as follows:
Record Date | Payment Date |
Dividend
per Common Share ($) |
||||
January 31, 2017 | February 15, 2017 | 0.115 | ||||
February 28, 2017 | March 15, 2017 | 0.115 | ||||
March 31, 2017 | April 13, 2017 | 0.115 | ||||
April 30, 2017 | May 15, 2017 | 0.115 | ||||
May 31, 2017 | June 15, 2017 | 0.1175 | ||||
June 30, 2017 | July 14, 2017 | 0.1175 | ||||
July 31, 2017 | August 15, 2017 | 0.1175 | ||||
August 31, 2017 | September 15, 2017 | 0.1175 | ||||
September 30, 2017 | October 13, 2017 | 0.1175 | ||||
October 31, 2017 | November 15, 2017 | 0.1175 | ||||
November 30, 2017 | December 15, 2017 | 0.1175 | ||||
December 31, 2017 | January 15, 2018 | 0.1175 | ||||
Total | 1.40 |
MARKET FOR SECURITIES
Trading Price and Volume
The common shares are listed and posted for trading on the TSX under the trading symbol “CIX”. The price ranges and volume traded of the common shares on the TSX for each month for the fiscal year ended December 31, 2019 are set out below.
Price ($) |
||||||||||||
Month | High | Low | Trading Volume | |||||||||
January | 18.58 | 16.92 | 12,163,785 | |||||||||
February | 19.44 | 17.225 | 12,167,154 | |||||||||
March | 19.25 | 17.71 | 20,290,165 | |||||||||
April | 19.72 | 17.96 | 12,344,173 | |||||||||
May | 20.97 | 18.99 | 13,209,345 | |||||||||
June | 21.57 | 20.18 | 11,850,023 | |||||||||
July | 21.97 | 20.35 | 9,733,879 | |||||||||
August | 20.63 | 18.00 | 12,201,289 | |||||||||
September | 19.655 | 18.58 | 11,161,083 | |||||||||
October | 19.47 | 18.26 | 8,269,556 | |||||||||
November | 21.225 | 18.98 | 9,901,394 | |||||||||
December | 22.24 | 20.34 | 12,961,040 |
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DIRECTORS AND OFFICERS
The following table sets out important information regarding each of the Directors at March 1, 2020.
- 21 -
William T. Holland Toronto, Ontario Canada Director Since 1994 Not Independent Age: 61 Areas of Expertise: Financial Services; Mutual Funds; CEO Experience; Strategic Leadership; Wealth Management
2019 votes in favour: 97.51% |
Mr. Holland is Chairman of the Board of the Corporation.
He joined CI in 1989 and worked in progressively senior roles before being appointed Chief Executive Officer in 1999, a position he held for more than 10 years. Under his leadership, CI significantly expanded its product lineup, diversified its distribution and made a number of acquisitions that contributed strongly to the company’s growth and presence in the Canadian wealth management industry.
|
CI Shares/Deferred Share Units/Restricted Share Units owned or controlled
7,915,827
|
|
($ value based on closing price of CI shares on March 1, 2020)
$176,443,784
|
|
Other Public Board Directorships
Mr. Holland is a director of Real Matters Inc., a technology company that provides services for the mortgage lending and insurance industries.
|
1 Ms. Chang-Addorisio has 100% beneficial interest and control in respect of 471,257 shares, and 50% beneficial interest and 47% voting rights in respect of 9,746,240 Shares owned by G. Raymond Chang Ltd.
- 22 -
Kurt MacAlpine Chicago, Illinois, USA Director Since September 2019 Not Independent Age: 38 Areas of Expertise:
Financial Services; Mutual Funds;
ETFs;
Wealth Management
2019 votes in favour: (N/A) |
Mr. MacAlpine was appointed Chief Executive Officer and Director of the Corporation in September 2019. He has extensive experience in the global asset and wealth management industry, having previously served as Executive Vice-President and Head of Global Distribution for WisdomTree Asset Management and as a Partner and Leader of the North American Asset Management Practice at McKinsey & Company.
At WisdomTree, a global asset manager and exchange-traded fund sponsor based in New York, Mr. MacAlpine was responsible for all client-facing functions globally, including distribution, marketing, data intelligence and strategy, business development, and client solutions. He also oversaw the majority of the firm’s international businesses. He was a member of the company’s global executive management committee and sat on the boards of several of its international entities.
Prior to joining WisdomTree in July 2015, Mr. MacAlpine was a Partner at McKinsey, a global management consulting firm, based in its New York office. In his role as a Partner, he managed global consulting teams working with some of the largest asset and wealth managers in the world on topics related to strategy, distribution, marketing, international expansion, mergers and acquisitions, and product development.
Mr. MacAlpine holds a Bachelor of Commerce degree from Saint Mary’s University and an MBA from Queen’s University.
|
CI Shares/Deferred Share Units/Restricted Share Units owned or controlled
203,136
|
|
($ value based on closing price of CI shares on March 1, 2020)
$4,527,901
|
- 23 -
David P. Miller Toronto, Ontario Canada Director Since 2013 Independent Age: 70 Areas of Expertise: Business Administration; Legal/Governance Matters; Risk Management
2019 votes in favour: 84.07% |
Until December 2018, Mr. Miller was the Chief Legal and Corporate Affairs Officer and Secretary of Rogers Communications Inc. He had been with Rogers for over 25 years in increasingly senior roles, and has extensive experience in acquisitions and public and private financing. Mr. Miller holds a BCL and LLB from McGill University.
|
CI Shares/Deferred Share Units owned or controlled
14,928
|
|
($ value based on closing price of CI shares on March 1, 2020)
$332,745
|
|
Board Committees
Governance, Human Resources, and Compensation (Chair)
|
- 24 -
Paul J. Perrow Toronto, Ontario Canada Director Since 2018 Independent Age: 56 Areas of Expertise:
Financial Services;
2019 votes in favour: 99.24%
|
Mr. Perrow has over 25 years of valuable experience in the asset management industry. Mr. Perrow was Senior Vice President, Director of Sales and Marketing with CI Investments Inc. until December 1996. He has held a number of other senior industry positions including Managing Partner of Red Sky Capital, Co-Head and Managing Director of Merrill Lynch Investment Managers Canada, Co-Founder and President of Fairway Capital and President and CEO of BluMont Capital. |
CI Shares Owned or Controlled
385,000
|
|
($ value based on closing price of CI shares on March 1, 2020)
$8,581,650
|
|
Board Committees
Audit and Risk Governance, Human Resources, and Compensation
|
- 25 -
The term of office of each director will expire at the termination of the next annual meeting of holders of the common shares or until his successor is elected or appointed.
EXECUTIVE OFFICERS
The following chart sets out information concerning the executive officers of the Corporation.
Name | Position |
Principal Occupation within the Preceding
Five Years |
William T. Holland
Toronto, Ontario, Canada |
Chairman of the Board, CI Financial Corp. | Prior to May 2017, Executive Chairman of the Board since January 2016. Prior to January 2016, Chairman of the Board since May 2012. |
Kurt MacAlpine
Chicago, Illinois, USA |
Chief Executive Officer, CI Financial Corp. | Prior to September 2019, Executive Vice-President and Chief Distribution Officer, Wisdomtree Investments Inc., since July 2015 |
Rohit D. Mehta
Toronto, Ontario, Canada |
Executive Vice-President, CI Financial Corp. | President, First Asset since May 2017. Prior to May 2017 Vice-President, First Asset since October 2009. |
Douglas J. Jamieson
Toronto, Ontario, Canada |
Executive Vice-President and Chief Financial Officer, CI Financial Corp. | Prior to June 2013, Senior Vice-President since December 2008. |
Darie P. Urbanky
Toronto, Ontario, Canada |
President and Chief Operating Officer, CI Financial Corp. | Prior to June 2019, Executive Vice-President and Chief Operating Officer, since September 2018. Prior to September 2018, Executive Vice-President since February 2018. Chief Operating Officer, CI Investments, since September 2018*. Prior to September 2018, Executive Vice-President and Chief Technology Officer since February 2018. Prior to February 2018, Senior Vice-President and Chief Technology Officer, CI Investments since July 2016. Prior to July 2016, Vice-President, CI Investments since October 2010. |
Edward
Kelterborn
Toronto, Ontario, Canada |
Chief Legal Officer, CI Financial Corp. | Director, Senior Vice-President and General Counsel, CI Investments, since February 2019*, Senior Vice-President and General Counsel, CI Investments since March 2017. Prior to March 2017, General Counsel, CI Investments since September 2016. Prior to September 2016, Senior Vice-President, Legal & Operations, First Asset since July 2012. |
Lorraine Blair
Georgetown, Ontario, Canada |
Executive Vice-President and Chief Talent Officer | Prior to May 2019, Senior Vice-President, Human Resources, CI Investments since December 2010. |
*Continues to hold this position.
As at March 1, 2019, the directors and executive officers of the Corporation as a group beneficially owned, directly or indirectly, or exercised control or direction over approximately 19,073,354 common shares, restricted share units, and deferred share units (representing approximately 8.6% of the outstanding common shares).
- 26 -
Corporate Cease Trade Orders or Bankruptcies
To the knowledge of the Corporation, none of the directors or executive officers of the Corporation (a) are, as at the date hereof, or have been, within the 10 years before the date of this annual information form, a director, chief executive officer or chief financial officer of any company that, (i) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation that was in effect for a period of more than 30 consecutive days (an “Order”) that was issued while the person was acting in the capacity as director, chief executive officer or chief financial officer; or (ii) was subject to an Order that was issued after the person ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer, (b) are, as at the date of this annual information form, or have been within 10 years before the date of this annual information form, a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, or (c) have, within the 10 years before the date of this annual information form, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that person.
Penalties and Sanctions
To the knowledge of CI, none of the directors or executive officers of CI nor any personal holding company owned or controlled by any of them (i) has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or (ii) has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
LEGAL PROCEEDINGS and regulatory actions
Legal Proceedings
CI Investments is a party to two class action proceedings brought by investors in CI Investments’ mutual funds, in each case asking for unspecified damages resulting from CI Investments’ alleged failure to implement measures to fully protect the funds’ investors against costs of frequent trading activity. These proceedings were instituted in 2004 in the provinces of Ontario, currently led by representative plaintiff Manon Sim, and Quebec, currently led by representative plaintiff Claude Ravary. The Quebec class action was authorized on September 17, 2010. On December 12, 2013, the Supreme Court of Canada denied an appeal by CI Investments in the Ontario class action. The decision is not a finding of liability against CI Investments, but simply allows the Ontario class action against CI Investments and one other mutual fund company to proceed. CI Investments intends to vigorously defend itself in the both class actions on the basis that, among other things, the affected investors in its funds were fully compensated by CI Investments through a compensation program that was established in 2004 in a settlement agreement with the Ontario Securities Commission (“OSC”).
- 27 -
Regulatory Actions
From time to time, in the ordinary course of business, CI is assessed fees or fines by securities regulatory authorities in relation to administrative matters, including late filings or reporting, which may be considered penalties or sanctions pursuant to Canadian securities regulations but which are not, individually or in the aggregate, material to CI. In 2019, CI paid administrative filing fees relating to late filings to the OSC in the aggregate amount of $35,500. Various other legal proceedings are pending that challenge certain of our practices or actions. We consider that the aggregate liability resulting from these other proceedings will not be material to our financial position or results of operations.
TRANSFER AGENT AND REGISTRAR
Computershare Investor Services Inc. acts as Transfer Agent and Registrar for the common shares and maintains registers of transfers of the common shares in Toronto, Montreal and Vancouver.
MATERIAL CONTRACTS
The following contracts can reasonably be regarded as material to CI:
(a) | The trust indenture between CI Financial Corp. and Computershare Trust Company of Canada, dated December 16, 2009, together with the Fourth Supplement Indenture dated December 7, 2015, pursuant to which the 2020 Debentures have been issued, the Fifth Supplemental Indenture dated November 25, 2016, pursuant to which the 2021 Debentures have been issued, the Sixth Supplement Indenture dated September 27, 2017, pursuant to which the 2027 Debentures have been issued, and the Seventh Supplemental Indenture dated July 20, 2018, pursuant to which the 2023 Debentures have been issued. |
(b) | The trust indenture between CI Financial Corp. and Computershare Trust Company of Canada, dated July 22, 2019, together with the First Supplemental Indenture dated July 22, 2019, pursuant to which the 2024 Debentures have been issued. |
(c) | The revolving credit facility between CI and the Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and National Bank of Canada which was amended and restated on October 3, 2018, which provides for a $700 million credit facility with a revolving period that extends to December 11, 2021. |
- 28 -
INTERESTS OF EXPERTS
Ernst & Young LLP, Chartered Accountants, the external auditors of the Corporation, reported on the fiscal 2019 audited financial statements of the Corporation which were filed by the Corporation with securities regulators pursuant to National Instrument 51-102 – Continuous Disclosure Obligations. Ernst & Young LLP is independent with respect to the Corporation in accordance with the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario.
Audit and risk Committee Information
Audit and Risk Committee’s Charter
The Audit and Risk Committee has adopted a written charter that sets out its mandate and responsibilities. A copy of the charter is attached hereto as Appendix “A”.
Composition of the Audit and Risk Committee
The Audit and Risk Committee is comprised of four Directors, each of whom is independent and financially literate (as such terms are defined under National Instrument 52-110 – Audit Committees): William (Bill) Butt (Chair), Brigette Chang-Addorisio, Tom Muir, and Paul Perrow.
Relevant Education and Experience
The following summarizes the education and experience of each Audit and Risk Committee member that is relevant to the performance of his responsibilities as an Audit and Risk Committee member.
William (Bill) Butt, 57, Chair of the Audit and Risk Committee. Mr. Butt spent many years with BMO Financial Group, most recently as Global Head of Investment and Corporate Banking, a role in which he was responsible for BMO’s business with major corporations worldwide encompassing equity and debt financing, corporate lending, mergers and acquisition advisory services, merchant banking, trade finance and global treasury management. Bill sat on BMO's Management Committee and BMO Capital Markets' Executive Operating and Management Committees. Bill serves on the board of directors of OMERS pension fund company and was Chair of its Audit and Actuarial Committee from 2015-2019 and is currently Chair of its Investment Committee. He holds a Bachelor of Commerce from the University of Windsor, an MBA from the Ivey Business School, and the ICD.D designation from the Institute of Corporate Directors.
Brigette Chang-Addorisio, 43, is Treasurer of G. Raymond Chang Ltd., a privately held investment holding company. From 1999 until 2003 she worked in Ernst & Young’s Audit and Business Advisory group. Ms. Chang-Addorisio holds a B. Comm from Queen’s University and a B. Edu from the University of Toronto. Ms. Chang-Addorisio is President of the Raymond Chang Foundation, a charitable foundation established by the late G. Raymond Chang, one of the Corporation’s founders. She also serves as a director for two private companies.
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Tom P. Muir, 64, was Co-Managing Director of Muir Detlefsen & Associates Limited, an investment company, from 2007 through 2017. His prior positions include Executive Vice-President and Chief Financial Officer of Maple Leaf Foods Inc. and Co-Head of the Investment Banking Group at RBC Dominion Securities Inc. He has served on the Board of Directors of numerous public and private companies. Mr. Muir is a Fellow, Chartered Professional Accountant and Fellow, Chartered Business Valuator. Mr. Muir has a BComm from the University of Toronto.
Paul Perrow, 56, has over 25 years of valuable experience in the asset management industry. He has held a number of senior industry positions including Managing Partner of Red Sky Capital, Co-Head and Managing Director of Merrill Lynch Investment Managers Canada, Co-Founder and President of Fairway Capital and President, CEO of BluMont Capital, and CEO of Integrated Asset Management Corp. In his role as a Governor on the Board of Governors of CI Mutual Funds Inc., he was responsible for analyzing and evaluating financial statements of numerous mutual funds. He also acts as Chair of the investment committee of Holland Bloorview Hospital.
Pre-Approval Policies and Procedures
The following policies and procedures have been adopted by the Audit and Risk Committee for the engagement of CI’s external auditors for non-audit services.
On proposed non-audit services, the timing of which is not urgent, management is required to submit a request for pre-approval of same at the next quarterly Audit and Risk Committee meeting.
For all other proposed non-audit services, the Audit and Risk Committee has delegated to its Chairman the responsibility and authority to review and, in his discretion, approve the proposed non-audit services under the following procedures. Designated finance personnel are required to submit to the Chairman of the Audit and Risk Committee, in writing, a request for pre-approval of the particular non-audit service, such request to disclose all necessary details of the proposed non-audit services such as the scope of work, the estimated time for completion, and the estimated fees for such services. Except in extenuating circumstances, requests shall be made to the Chairman prior to the engagement of the auditors for the particular service. Upon receipt of the request, the Chairman of the Audit and Risk Committee shall promptly either accept the request or decline the request with brief reasons, in either case in writing and after taking into account the impact of the services on the auditors’ independence. Management must present any requested pre-approvals to the Audit and Risk Committee at its next quarterly meeting. CI shall retain all correspondence pertaining to the requests in its records.
External Auditors’ Service Fee
The aggregate amounts paid or accrued by CI with respect to fees, excluding expenses, payable to the external auditors for audit, audit-related, tax and other services for the fiscal years ended December 31, 2019 and December 31, 2018 were as follows:
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Type of Service |
Fiscal year ended
December 31, 2019 ($) |
Fiscal year ended
December 31, 2018 ($) |
||||||
Audit Fees | 1,037,750 | 1,316,000 | ||||||
Audit-Related Fees(1) | 423,250 | 255,000 | ||||||
Tax Fees(2) | 45,000 | 45,000 | ||||||
All Other Fees(3) | 100,000 | 25,000 | ||||||
Canadian Public Accountability Board Fee | 20,000 | 24,340 | ||||||
Total | 1,626,000 | 1,665,340 |
Notes:
(1) The services comprising these fees were quarterly reviews, translation, and acquisition analysis.
(2) The services comprising these fees were tax returns and other tax advice.
(3) The services comprising these fees were access to research and interpretation of regulations and standards.
ADDITIONAL INFORMATION
General
Additional information relating to CI may be found on SEDAR at www.sedar.com.
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of CI common shares, and securities authorized for issuance under equity compensation plans, is contained in the Management Information Circular for the Annual Meeting of Shareholders held on June 24, 2019. Additional financial information is provided in CI’s financial statements and management’s discussion and analysis for its most recently completed fiscal year.
- A-1 -
APPENDIX “A”
CI FINANCIAL CORP.
AUDIT AND RISK COMMITTEE CHARTER
As of February 13, 2020
1. | Purpose and Scope |
The Audit and Risk Committee (the “Committee” or the “Audit Committee”) of CI Financial Corp. (the “Company”) is a committee of the Board of Directors (the “Board”). The Committee shall oversee the accounting and financial reporting practices of the Company and the audits of the Company’s financial statements, as well as exercise the responsibilities and duties set out in this Charter.
2. | Membership |
Number of Members
The Committee shall be appointed by the Board and shall be comprised of at least three members of the Board. The Lead Director of the Board shall be an ex officio member of the Audit Committee, unless otherwise appointed to be member of the Committee.
Independence of Members
Each member of the Committee must be independent. “Independent” shall have the meaning, as the context requires, given to it in National Instrument 52-110 – Audit Committees (the “Instrument”), as may be amended from time to time.
Chair
At the time of the annual appointment of the members of the Audit Committee, the Board shall appoint a Chair of the Audit Committee. The Chair shall be a member of the Audit Committee, preside over all Audit Committee meetings, coordinate the Audit Committee’s compliance with this Charter, work with management to develop the Audit Committee’s annual work-plan, provide reports of the Audit Committee to the Board and fulfill all other responsibilities as enumerated in the Company’s Committee Chair Position Description.
Financial Literacy of Members
At the time of his or her appointment to the Committee, each member of the Committee shall have, or shall acquire within a reasonable time following appointment to the Committee, the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements, or shall otherwise meet the financial literacy requirements of the Instrument.
Term of Members
The members of the Committee shall be appointed annually by the Board. Each member of the Committee shall serve at the pleasure of the Board until the member resigns, is removed, or ceases to be a member of the Board. If the Chair is not elected by the Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership. The term of the Chair of the Committee shall be up to four years.
- A-2 -
3. | Meetings |
Number of Meetings
The Committee shall meet at least quarterly and otherwise may meet as many times per year as necessary to carry out its responsibilities.
Quorum
No business may be transacted by the Committee at a meeting unless a quorum of the Committee is present. A majority of members of the Committee shall constitute a quorum.
Calling of Meetings
The Chair, any member of the Audit Committee, the external auditors, the Chairman of the Board, the Chief Executive Officer, President or the Chief Financial Officer may call a meeting of the Audit Committee by notifying the Company’s Corporate Secretary who will notify the members of the Audit Committee. The Chair shall chair all Audit Committee meetings that he or she attends, and in the absence of the Chair, the members of the Audit Committee present may appoint a chair from their number for a meeting.
Minutes; Reporting to the Board
The Committee shall maintain minutes or other records of meetings and activities of the Committee in sufficient detail to convey the substance of all discussions held. Upon approval of the minutes by the Committee, the minutes shall be available to the other members of the Board. However, the Chair shall report orally to the Board on any matter in his or her view requiring the immediate attention of the Board.
Attendance of Non-Members
The external auditors are entitled to attend and be heard at each meeting of the Audit Committee. Other Board members are also entitled to attend meetings of the Audit Committee, with notice to the Chair. In addition, the Committee may invite to a meeting any officers or employees of the Company, legal counsel, advisors and other persons whose attendance it considers necessary or desirable in order to carry out its responsibilities. At least once per year, the Committee shall meet with the internal auditor and management in separate sessions to discuss any matters that the Committee or such individuals consider appropriate.
Meetings without Management
The Committee shall hold meetings, or portions of meetings, at which management is not present.
The Committee shall meet at least quarterly with the auditors without the presence of management.
Access to Management
The Committee shall have unrestricted access to the Company’s management and employees and the books and records of the Company.
- A-3 -
Consultation
The Audit Committee shall have the authority to retain external legal counsel, consultants or other advisors to assist it in fulfilling its responsibilities and to set and pay the respective compensation for these advisors without consulting or obtaining the approval of the Board or any Company officer. The Company shall provide appropriate funding, as determined by the Committee, for the services of these advisors. The Committee shall also be permitted to communicate directly with the internal audit staff of the Company and entities controlled by the Company (together, the “Company Group”) (if any) and the auditors.
4. | Duties and Responsibilities |
The Committee shall have the functions and responsibilities set out below as well as any other functions that are specifically delegated to the Committee by the Board and that the Board is authorized to delegate by applicable laws and regulations. In addition to these functions and responsibilities, the Committee shall perform the duties required of an audit committee by (i) any exchange upon which securities of the Company are traded, or (ii) any governmental or regulatory body exercising authority over the Company, in each case, as are in effect from time to time (collectively, the “Applicable Requirements”) including the functions and responsibilities set out in the Instrument.
Financial Executives
The Committee shall review and discuss with management and the Board the appointment and/or removal of the Chief Financial Officer and Chief Internal Auditor and recommend qualified candidates to the Board, as appropriate.
Financial Reports
(a) | General |
Management is responsible for the preparation, presentation and integrity of the Company’s financial statements and financial disclosures and for the appropriateness of the accounting principles and the reporting policies used by the Company. The auditors are responsible for auditing the Company’s annual consolidated financial statements and for reviewing the Company’s unaudited interim financial statements. The Audit Committee is responsible for overseeing the Company’s financial statements and financial disclosures.
(b) | Review of Annual Financial Reports |
Prior to public release, the Audit Committee shall review the annual consolidated audited financial statements of the Company, the auditors’ report thereon and the related management’s discussion and analysis of the Company’s financial condition and results of operation (“MD&A”). At the Committee meeting at which the Company’s annual statements are to be reviewed, the Committee shall meet, in person, with representatives of the auditors and with the Company management to obtain information regarding the annual statements and the results of the audit including, but not limited to information concerning:
1. | the Company’s disclosure controls and procedures and the Company’s internal control over financial reporting; |
2. | accounting policies, judgments and estimates used by management; |
3. | areas of audit emphasis; |
4. | applicable regulatory compliance; and |
5. | independence of auditors. |
- A-4 -
After completing its review, if advisable, the Audit Committee shall approve, and recommend for Board approval, the annual financial statements and the related MD&A.
(c) | Review of Interim Financial Reports |
The Audit Committee shall review the interim consolidated financial statements of the Company, the auditors’ review report thereon and the related MD&A. After completing its review, if advisable, the Audit Committee shall approve and recommend for Board approval the interim financial statements and the related MD&A. The review by the Committee shall be completed prior to the issuance of a press release respecting the interim financial results. The Committee shall meet, in person, with representatives of the auditors and with the Company management to obtain information regarding the interim statements and to discuss the results of their preparation and review. At each meeting, the Committee will request that the auditors communicate to the Committee their findings based on the interim procedures performed by the auditors. In addition, the Committee will request that the auditors communicate any findings which would modify or change the report provided by the auditors to the Committee in connection with the Company’s last annual statements.
(d) | Review Considerations |
In addition to the procedures referred to above, when conducting its review of the annual financial statements or the interim financial statements, the Audit Committee may:
(i) | receive a report from internal legal counsel, as requested, regarding any litigation claim or other contingency that could have a material effect on the financial statements; |
(ii) | review the status of accounting policies followed and critical accounting and other significant estimates and judgements underlying the financial statements as presented by management; |
(iii) | review any material effects of regulatory accounting initiatives or off-balance sheet structures on the financial statements as presented by management, including requirements relating to complex or unusual transactions, significant changes to accounting principles and alternative treatments under International Financial Reporting Standards; |
(iv) | review any material changes in accounting policies and any significant changes or developments in accounting practices, independence standards and reporting practices and their impact on the financial statements as presented by management; |
(v) | review with management and the auditors any significant financial reporting issues discussed during the fiscal period and the method of resolution; |
(vi) | receive and review a report from management or internal audit on the effectiveness of financial disclosure procedures and internal controls over financial reporting; |
(vii) | review any problems experienced by the auditors in performing the annual audit or quarterly procedures, including any restrictions imposed by management or significant accounting issues on which there was a disagreement with management; |
(viii) | obtain an explanation from management of all significant variances between comparative reporting periods; |
- A-5 -
(ix) | review the post-audit or management letter, containing the recommendations of the auditors, and management’s response and subsequent follow up to matters raised by the auditors; |
(x) | review “whistleblowing” complaints received by Lead Director; |
(xi) | review any other matters, related to the financial statements, that are brought forward by the auditors or management or which are required to be communicated to the Audit Committee under accounting policies, auditing standards or Applicable Requirements; and |
(xii) | review interim and annual chief executive officer and chief financial officer certifications on financial statements and controls required by the Instrument. |
(e) | Approval of Other Financial Disclosures |
Prior to public release, the Audit Committee shall review and, if advisable, approve and recommend for Board approval financial disclosure in a prospectus or other securities offering document of the Company, press releases disclosing, or based upon, financial results of the Company and any other material financial disclosure, publicly disseminated, other than press releases regarding monthly sales.
Other
The Audit Committee or the Chair shall be available to review with management and the auditors any material accounting and financial issues affecting the Company not dealt with in annual and quarterly reviews.
Managing the Relationship with the Auditors
(a) Appointment and Compensation
The Audit Committee shall select and recommend to the Board for shareholder approval the appointment of the auditors. The Audit Committee shall have ultimate authority to approve all audit engagement terms and fees, including the auditors’ audit plan.
(b) Resolution of Disagreements
The Audit Committee shall resolve any disagreements between management of the Company and the auditors as to financial reporting matters brought to its attention.
(c) Discussions with Auditors
At least annually, the Audit Committee shall discuss with the auditors such matters as are required by applicable auditing standards to be discussed by the auditors with the Audit Committee. The Committee shall ensure that the Company requires and instructs the auditors to report directly to the Committee.
(d) Audit Plan
At least annually, and prior to the commencement of each audit, the Audit Committee shall review a summary of the auditors’ annual audit plan. The Audit Committee shall consider and review with the auditors any material changes to the scope of the plan.
- A-6 -
(e) Quarterly Review Report
The Audit Committee shall review a report prepared by the auditors in respect of each of the interim financial statements of the Company.
(f) | Independence of Auditors |
At least annually, and before the auditors issue their report on the annual financial statements, the Audit Committee shall obtain from the auditors a formal written statement describing all relationships between the auditors and the Company; discuss with the auditors any disclosed relationships or services that may affect the objectivity and independence of the auditors; and obtain written confirmation from the auditors that they are objective and independent within the meaning of the applicable Rules of Professional Conduct/Code of Ethics adopted by the provincial institute or order of chartered accountants to which the auditors belong and other Applicable Requirements.
(g) | Evaluation and Rotation of Lead Partner |
At least annually, the Audit Committee shall review the qualifications and performance of the lead partner(s) of the auditors and discuss, if necessary any abridgment or acceleration of the current policy of rotating lead partners of the external auditors.
(h) | Requirement for Pre-Approval of Non-Audit Services |
The Audit Committee shall approve in advance any retainer of the auditors to perform any non-audit service to the Company that it deems advisable in accordance with Applicable Requirements and Board approved policies and procedures. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee. The decisions of any member of the Audit Committee to whom this authority has been delegated must be presented to the full Audit Committee at its next scheduled Audit Committee meeting.
The Audit Committee shall satisfy the pre-approval requirement in the foregoing paragraph (h) if:
i) | the aggregate amount of all the non-audit services that were not pre-approved is reasonably expected to constitute no more than five per cent of the total amount of fees paid by the Company and its subsidiary entities to the Company’s external auditor during the fiscal year in which the services are provided; |
ii) | the Company or the relevant subsidiary of the Company, as the case may be, did not recognize the services as non-audit services at the time of the engagement; |
iii) | the services are promptly brought to the attention of the Audit Committee and approved by the Audit Committee or by one or more of its members to whom authority to grant such approvals has been delegated by the Audit Committee, prior to the completion of the audit. |
(i) | Approval of Hiring Policies |
The Audit Committee shall review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Company and the mutual funds managed by the Company or its affiliates.
- A-7 -
(j) | Communication with Internal Auditor |
The internal auditor shall report regularly to the Committee. The Committee shall review with the internal auditor any problem or difficulty the internal auditor may have encountered including, without limitation, any restrictions on the scope of activities or access to required information, and any significant reports to management prepared by the internal auditing department and management’s responses thereto.
The Committee shall review and approve on an annual basis the mandate and annual internal audit plan of the internal audit department and discuss with management the internal audit budget and staffing. The Committee shall direct management to make changes it deems advisable in respect of the internal audit function.
The Committee shall review the appointment, performance and replacement of the senior internal auditing executive and the activities, reporting responsibilities and qualifications of the persons responsible for the internal audit function.
Internal Controls
(a) | General |
The Audit Committee shall review the Company’s disclosure controls and procedures and internal controls over financial reporting.
(b) | Establishment, Review and Approval |
The Audit Committee shall oversee management’s design, implementation and maintenance of appropriate systems of internal controls in accordance with Applicable Requirements, including internal controls over financial reporting and disclosure controls and procedures, and review, evaluate and approve these procedures. At least annually, the Audit Committee shall consider and review with management and the auditors:
(i) | the effectiveness of, or weaknesses or deficiencies in: the design or operation of the Company’s internal controls (including computerized information system controls and security); the overall control environment for managing business risks; accounting, financial and disclosure controls (including, without limitation, controls over financial reporting), non-financial controls; and legal and regulatory controls and the impact of any identified weaknesses in internal controls on management’s conclusions; |
(ii) | any significant changes in internal controls over financial reporting that are disclosed, or considered for disclosure, including those in the Company’s periodic regulatory filings; |
(iii) | the Company’s fraud prevention and detection procedure, including deficiencies in internal controls that may impact the integrity of financial information, or may expose the Company to other significant internal or external fraud losses and the extent of those losses and any disciplinary action in respect of fraud taken against management or other employees who have a significant role in financial reporting; and |
(iv) | any related significant issues and recommendations of the auditors together with management’s responses thereto, including the timetable for implementation of recommendations to correct weaknesses in internal controls over financial reporting and disclosure controls and procedures. |
- A-8 -
Audit Committee Whistleblower Procedures
The Audit Committee shall establish procedures for (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. The details of such whistleblower procedures will be described in the Company’s Code of Business Conduct and Ethics and available on the employee website.
Audit Committee Disclosure
The Audit Committee shall approve any audit committee disclosures required by Applicable Requirements to be included in the Company’s disclosure documents.
Enterprise Risk Management Oversight
The Committee shall meet regularly with the Company’s Chief Executive Officer and President and shall review periodically with management the Company’s systems to monitor and manage major business risks and legal and ethical compliance programs. The Committee shall receive regular reports on compliance systems and procedures and reports on the Company’s risk management policies and procedures.
The Committee shall meet regularly with the Company’s Chief Risk Officer and other key risk personnel and shall review an Annual Risk Report from the Chief Risk Officer.
The Committee shall review reports from the Company’s Chief Technology Officer and shall review, at least annually, the Company’s cybersecurity program and the approach of management to cyber-related risks.
The Committee shall review and recommend to the Board for approval the risk related disclosure in the Company’s annual information form, financial statements and related management’s discussion and analysis.
Compliance with Legal and Regulatory Requirements
The Committee shall review reports from the Company’s Corporate Secretary, Chief Legal Officer and other management members on: legal or compliance matters that may have a material impact on the Company; the effectiveness of the Company’s compliance policies; and any material communications received from regulators. The Committee shall review management’s evaluation of and representations relating to compliance with applicable law and management’s plans to remediate any deficiencies identified.
Delegation
The Audit Committee may, to the extent permissible by Applicable Requirements, designate a sub-committee to review any matter within this Charter as the Audit Committee deems appropriate.
5. | Charter Review |
The Committee shall review and update this Charter annually and present it to the Board for approval.
- A-9 -
6. | No Rights Created |
This Charter is a statement of broad policies and is intended as a component of the governance framework within which the Committee assists the Board in directing the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and listing requirements, as well as in the context of the Company’s Articles and By-laws, it is not intended to establish any legally binding obligations.
Exhibit 99.5
CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 2019
Q4 Financial Report | 1 | December 31, 2019 |
Independent Auditors’ Report
TO THE SHAREHOLDERS OF CI FINANCIAL CORP.
Opinion
We have audited the consolidated financial statements of CI Financial Corp. and its subsidiaries (the Company), which comprise the consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated statements of income and comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the years ended December 31, 2019 and 2018, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years ended December 31, 2019 and 2018 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
• | Management’s Discussion & Analysis. |
• | The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report. |
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Q4 Financial Report | 2 | December 31, 2019 |
Independent Auditors’ Report
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
• | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. |
• | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
Q4 Financial Report | 3 | December 31, 2019 |
• | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. |
• | Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
• | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Gary Chin.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 13, 2020
Q4 Financial Report | 4 | December 31, 2019 |
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at | As at | |||||
December 31, 2019 | December 31, 2018 | |||||
[in thousands of Canadian dollars] | $ | $ | ||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalents | 118,360 | 137,160 | ||||
Client and trust funds on deposit | 364,964 | 365,520 | ||||
Investments [note 12] | 138,412 | 168,122 | ||||
Accounts receivable and prepaid expenses | 170,156 | 156,798 | ||||
Income taxes receivable | 25,841 | 8,891 | ||||
Total current assets | 817,733 | 836,491 | ||||
Capital assets, net [note 4] | 45,954 | 44,985 | ||||
Right-of-use assets [note 2] | 44,882 | — | ||||
Intangibles [notes 3 and 5] | 3,388,482 | 3,370,341 | ||||
Other assets [notes 2 and 8] | 70,755 | 40,399 | ||||
Total assets | 4,367,806 | 4,292,216 | ||||
LIABILITIES AND EQUITY | ||||||
Current | ||||||
Accounts payable and accrued liabilities [note 2] | 245,267 | 253,518 | ||||
Current portion of provision for other liabilities [note 8] | 14,643 | 14,591 | ||||
Dividends payable [note 10] | 79,845 | 175,290 | ||||
Client and trust funds payable | 368,348 | 370,756 | ||||
Current portion of long-term debt [note 7] | 449,509 | — | ||||
Current portion of lease liabilities [note 2] | 11,348 | — | ||||
Total current liabilities | 1,168,960 | 814,155 | ||||
Deferred lease inducement [note 2] | — | 11,320 | ||||
Long-term dividends payable [note 10] | — | 43,822 | ||||
Long-term debt [note 7] | 1,154,985 | 1,503,733 | ||||
Provision for other liabilities [note 8] | 18,493 | 20,177 | ||||
Deferred income taxes [notes 2 and 11] | 464,841 | 466,083 | ||||
Lease liabilities [note 2] | 61,171 | — | ||||
Total liabilities | 2,868,450 | 2,859,290 | ||||
Equity | ||||||
Share capital [note 9(a)] | 1,944,311 | 2,125,130 | ||||
Contributed surplus | 23,435 | 25,270 | ||||
Deficit [note 2] | (474,013 | ) | (720,600 | ) | ||
Accumulated other comprehensive income | 255 | 277 | ||||
Total equity attributable to the shareholders of the Company | 1,493,988 | 1,430,077 | ||||
Non-controlling interests [note 3] | 5,368 | 2,849 | ||||
Total equity | 1,499,356 | 1,432,926 | ||||
Total liabilities and equity | 4,367,806 | 4,292,216 | ||||
(see accompanying notes) |
On behalf of the Board of Directors: |
|
|
|||
William T. Holland
Director |
Tom P. Muir
Director |
Q4 Financial Report | 5 | December 31, 2019 |
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
For the years ended December 31
2019 | 2018 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 1,857,918 | 2,004,151 | ||||||
Administration fees | 220,444 | 197,591 | ||||||
Redemption fees | 11,060 | 14,851 | ||||||
Realized and unrealized gain (loss) on investments | 10,788 | (8,115 | ) | |||||
Other income [note 6] | 19,017 | 27,887 | ||||||
2,119,227 | 2,236,365 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 18] | 489,272 | 512,564 | ||||||
Trailer fees | 584,879 | 631,243 | ||||||
Investment dealer fees | 173,350 | 155,871 | ||||||
Deferred sales commissions | 12,814 | 22,113 | ||||||
Amortization and depreciation [notes 2 and 19] | 32,891 | 20,546 | ||||||
Interest and lease finance [notes 2 and 7] | 55,422 | 43,054 | ||||||
Other [notes 6 and 8] | 43,794 | 7,674 | ||||||
1,392,422 | 1,393,065 | |||||||
Income before income taxes | 726,805 | 843,300 | ||||||
Provision for income taxes [notes 2 and 11] | ||||||||
Current | 188,831 | 229,009 | ||||||
Deferred | 450 | (3,556 | ) | |||||
189,281 | 225,453 | |||||||
Net income for the year | 537,524 | 617,847 | ||||||
Net income (loss) attributable to non-controlling interests | (872 | ) | 371 | |||||
Net income attributable to shareholders | 538,396 | 617,476 | ||||||
Other comprehensive income (loss), net of tax | ||||||||
Exchange differences on translation of foreign operations | (22 | ) | 808 | |||||
Total other comprehensive income (loss), net of tax | (22 | ) | 808 | |||||
Comprehensive income for the year | 537,502 | 618,655 | ||||||
Comprehensive income (loss) attributable to non-controlling interests | (872 | ) | 371 | |||||
Comprehensive income attributable to shareholders | 538,374 | 618,284 | ||||||
Basic earnings per share attributable to shareholders [note 9(e)] | $ | 2.30 | $ | 2.38 | ||||
Diluted earnings per share attributable to shareholders [note 9(e)] | $ | 2.29 | $ | 2.38 | ||||
(see accompanying notes) |
Q4 Financial Report | 6 | December 31, 2019 |
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
For the years ended December 31
Share
capital
[note 9(a)] |
Contributed
surplus |
Deficit
[note 2] |
Accumulated
other comprehensive income |
Total
shareholders’ equity |
Non-
controlling interests |
Total
equity |
|||||||||||||||
[in thousands of Canadian dollars] | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
Balance, January 1, 2019 | 2,125,130 | 25,270 | (730,663 | ) | 277 | 1,420,014 | 2,849 | 1,422,863 | |||||||||||||
Comprehensive income | — | — | 538,396 | (22 | ) | 538,374 | (872 | ) | 537,502 | ||||||||||||
Dividends declared [note 10] | — | — | (31,483 | ) | — | (31,483 | ) | (875 | ) | (32,358 | ) | ||||||||||
Shares repurchased, net of tax | (193,570 | ) | — | (250,263 | ) | — | (443,833 | ) | — | (443,833 | ) | ||||||||||
Business combination [note 3] | — | — | — | — | — | 4,266 | 4,266 | ||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 12,751 | (12,751 | ) | — | — | — | — | — | |||||||||||||
Compensation expense for equity-based plans, net of tax | — | 10,916 | — | — | 10,916 | — | 10,916 | ||||||||||||||
Change during the year | (180,819 | ) | (1,835 | ) | 256,650 | (22 | ) | 73,974 | 2,519 | 76,493 | |||||||||||
Balance, December 31, 2019 | 1,944,311 | 23,435 | (474,013 | ) | 255 | 1,493,988 | 5,368 | 1,499,356 | |||||||||||||
Balance, January 1, 2018 | 2,360,257 | 22,058 | (478,702 | ) | (531 | ) | 1,903,082 | 2,478 | 1,905,560 | ||||||||||||
Comprehensive income | — | — | 617,476 | 808 | 618,284 | 371 | 618,655 | ||||||||||||||
Dividends declared [note 10] | — | — | (449,919 | ) | — | (449,919 | ) | — | (449,919 | ) | |||||||||||
Shares repurchased, net of tax | (243,180 | ) | — | (409,455 | ) | — | (652,635 | ) | — | (652,635 | ) | ||||||||||
Issuance [notes 8 and 9] | 534 | — | — | — | 534 | — | 534 | ||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 7,519 | (7,113 | ) | — | — | 406 | — | 406 | |||||||||||||
Compensation expense for equity-based plans, net of tax | — | 10,325 | — | — | 10,325 | — | 10,325 | ||||||||||||||
Change during the year | (235,127 | ) | 3,212 | (241,898 | ) | 808 | (473,005 | ) | 371 | (472,634 | ) | ||||||||||
Balance, December 31, 2018 | 2,125,130 | 25,270 | (720,600 | ) | 277 | 1,430,077 | 2,849 | 1,432,926 |
(see accompanying notes)
Q4 Financial Report | 7 | December 31, 2019 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
2019 | 2018 | |||||
[in thousands of Canadian dollars] | $ | $ | ||||
OPERATING ACTIVITIES (*) | ||||||
Net income for the period | 537,524 | 617,847 | ||||
Add (deduct) items not involving cash | ||||||
Realized and unrealized (gain) loss on investments | (10,788 | ) | 8,115 | |||
Fair value adjustment to put option and contingent consideration | — | (1,144 | ) | |||
Equity-based compensation | 14,701 | 13,728 | ||||
Amortization and depreciation | 32,891 | 20,557 | ||||
Deferred income taxes | 450 | (3,556 | ) | |||
Impairment loss on intangibles [note 8] | 6,442 | — | ||||
Cash provided by operating activities before net change in operating assets and liabilities | 581,220 | 655,547 | ||||
Net change in operating assets and liabilities | (23,211 | ) | (47,336 | ) | ||
Cash provided by operating activities | 558,009 | 608,211 | ||||
INVESTING ACTIVITIES | ||||||
Purchase of investments | (11,503 | ) | (17,768 | ) | ||
Proceeds on sale of investments | 36,741 | 21,960 | ||||
Additions to capital assets | (12,351 | ) | (11,709 | ) | ||
Increase in other assets | (26,032 | ) | (2,824 | ) | ||
Additions to intangibles | (4,425 | ) | (4,359 | ) | ||
Cash paid to settle put option and contingent liability [note 8] | (2,667 | ) | (13,694 | ) | ||
Acquisition of subsidiary, net of cash acquired [note 3] | (26,077 | ) | — | |||
Cash used in investing activities | (46,314 | ) | (28,394 | ) | ||
FINANCING ACTIVITIES | ||||||
Repayment of long-term debt | (591,500 | ) | (222,000 | ) | ||
Issuance of long-term debt | 690,959 | 606,667 | ||||
Repurchase of share capital | (447,293 | ) | (656,907 | ) | ||
Issuance of share capital | — | 406 | ||||
Payment of lease liabilities | (11,036 | ) | — | |||
Dividends paid to shareholders [note 10] | (170,750 | ) | (295,405 | ) | ||
Dividends paid to non-controlling interests | (875 | ) | — | |||
Cash used in financing activities | (530,495 | ) | (567,239 | ) | ||
Net increase (decrease) in cash and cash equivalents during the year | (18,800 | ) | 12,578 | |||
Cash and cash equivalents, beginning of year | 137,160 | 124,582 | ||||
Cash and cash equivalents, end of year | 118,360 | 137,160 | ||||
(*) Included in operating activities are the following: | ||||||
Interest paid | 49,548 | 38,289 | ||||
Income taxes paid | 205,592 | 240,519 |
(see accompanying notes)
Q4 Financial Report | 8 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI Financial Corp. [“CI”] is a publicly listed company (TSX: CIX) incorporated under the laws of the Province of Ontario and has its registered office and principal place of business located at 2 Queen Street East, Toronto, Ontario.
CI’s primary business is the management and distribution of a broad range of financial products and services, including mutual funds, segregated funds, exchange-traded funds, financial planning, insurance, investment advice, wealth management and estate and succession planning.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These consolidated financial statements of CI have been prepared in accordance with International Financial Reporting Standards [“IFRS”] as issued by the International Accounting Standards Board [“IASB”].
These consolidated financial statements were authorized for issuance by the Board of Directors of CI on February 13, 2020.
BASIS OF PRESENTATION
The consolidated financial statements of CI have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The consolidated financial statements have been prepared on a going concern basis. CI’s presentation currency is the Canadian dollar, which is CI’s functional currency.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of CI and all its subsidiaries on a consolidated basis after elimination of intercompany transactions and balances. Subsidiaries are entities over which CI has control, when CI has the power, directly or indirectly, to govern the financial and operating policies of an entity, is exposed to variable returns from its activities, and is able to use its power to affect such variable returns to which it is exposed.
CI’s principal subsidiaries are as follows:
• | CI Investments Inc. [“CI Investments”], Assante Wealth Management (Canada) Ltd. [“AWM”], BBS Securities Inc. [“BBS”] and their respective subsidiaries. Effective, July 1, 2019, First Asset Capital Corp. amalgamated with CI Investments. |
• | CI holds a controlling 65% interest in Marret Asset Management Inc. [“Marret”]. A non-controlling interest is recorded in the consolidated statements of income and comprehensive income to reflect the non-controlling interest’s share of the income and comprehensive income, and a non-controlling interest is recorded within equity in the consolidated statements of financial position to reflect the non-controlling interest’s share of the net assets of Marret. |
• | CI holds a controlling 86% interest in GSFM Pty Limited [“GSFM”] with put and call options over the remaining 14% minority interest. CI considers the non-controlling interest in GSFM to have already been acquired and consolidates 100% of the income and comprehensive income in the consolidated statements of income and comprehensive income. GSFM has an interest in a joint arrangement classified as a joint operation. The consolidated financial statements include GSFM’s recognition of its share of the joint operation’s assets, liabilities, income and comprehensive income. |
Hereinafter, CI and its subsidiaries are referred to as CI.
Q4 Financial Report | 9 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI manages a range of mutual funds, segregated funds, structured products and other funds that meet the definition of structured entities under IFRS. CI earns fees for providing management and administrative services to these investment funds. Fees are calculated on assets under management in these funds, which totalled $132.1 billion as at December 31, 2019 [2018 – $124.4 billion]. CI does not consolidate these investment funds because the form of fees and ownership interest are not significant enough to meet the definition of control under IFRS. CI provides no guarantees against the risk of financial loss to the investors of these investment funds.
REVENUE RECOGNITION
Revenue is recognized when control of the goods or services are transferred to CI at an amount that reflects the consideration to which CI expects to be entitled in exchange for those goods or services. Revenue is measured at the fair value of the consideration received or receivable. In addition to these general principles, CI applies the following specific revenue recognition policies:
Management fees are based upon the net asset value of the funds managed by CI and are recognized on an accrual basis.
Administration fees and other income are recognized as services are provided under contractual arrangements. Administration fees include commission revenue, which is recorded on a trade date basis and advisory fees, which are recorded when the services related to the underlying engagements are completed.
Redemption fees payable by security holders of deferred sales charge mutual funds, the sales commission of which was financed by CI, are recognized as revenue on the trade date of the redemption of the applicable mutual fund securities.
FINANCIAL INSTRUMENTS
Classification and measurement of financial assets
CI classifies its financial assets as fair value through profit or loss [“FVPL”] and amortized cost. CI had no financial assets classified as fair value through other comprehensive income [“FVOCI”] during the year ended December 31, 2019.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and CI’s business model for managing them. With the exception of trade receivables, that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, Revenue from Contracts with Customers [“IFRS 15”], all financial assets are initially measured at fair value adjusted for transaction costs.
Financial assets classified as FVPL are carried at fair value in the consolidated statements of financial position and any gains or losses are recorded in net income in the period in which they arise. Financial assets classified as FVPL include cash and cash equivalents, investments and other assets.
Q4 Financial Report | 10 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Financial assets are classified at amortized cost using the effective interest method if they meet the following conditions and are not designated as FVPL:
• | they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows |
• | the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding |
Financial assets classified at amortized cost include client and trust funds on deposit, accounts receivable and other assets.
Cash and cash equivalents
Cash and cash equivalents include cash on deposit, highly liquid investments and interest-bearing deposits with original maturities of 90 days or less.
Client and trust funds
Client and trust funds on deposit include amounts representing cash held in trust with Canadian financial institutions for clients in respect of self-administered Registered Retirement Savings Plans and Registered Retirement Income Funds, and amounts received from clients for which the settlement date on the purchase of securities has not occurred or accounts in which the clients maintain a cash balance. Client and trust funds on deposit also include amounts for client transactions that are entered into on either a cash or margin basis and recorded on the trade date of the transaction. Amounts are due from clients on the settlement date of the transaction for cash accounts. For margin accounts, CI extends credit to a client for the purchase of securities, collateralized by the financial instruments in the client’s account. Amounts loaned are limited by margin regulations of the Investment Industry Regulatory Organization of Canada [“IIROC”] and other regulatory authorities, and are subject to CI’s credit review and daily monitoring procedures. The corresponding liabilities related to the above accounts and transactions are included in client and trust funds payable.
Investments
Investments include BBS’s securities owned, at market, principally for the purpose of selling or repurchasing in the near term. Securities owned, at market, are classified as FVPL and are initially recognized on the consolidated statements of financial position at fair value with transaction costs expensed as incurred. Subsequent realized and unrealized gains and losses are included in administration fees income in the consolidated statements of income and comprehensive income in the period in which they arise. Securities transactions are recorded on a trade date basis. Market value is based on quoted prices where an active market exists. For securities in non-active markets, market value is based on valuation techniques and management’s best estimate of fair value.
Also included in investments are marketable securities that consist of CI’s seed capital investments in CI mutual funds and strategic investments. Investments in marketable securities are measured at fair value and recognized on the trade date. Mutual fund securities are valued using the net asset value per unit of each fund. Realized and unrealized gains and losses are recognized using average cost and recorded in net income. Distributions from mutual fund securities are recorded as other income. Distributions that are reinvested increase the cost base of the mutual fund investments.
Q4 Financial Report | 11 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Impairment of financial assets
CI recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the loss allowance for the financial asset is measured at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the loss allowance is measured for the financial asset at an amount equal to 12 months of expected credit losses. For trade receivables, CI applies the simplified approach to providing for expected credit losses, which allows for the use of a lifetime expected credit loss provision. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and is related to an event occurring after the impairment was recognized.
Classification and measurement of financial liabilities
CI classifies its financial liabilities as FVPL and amortized cost. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the financial liability is classified at FVPL. Subsequently, financial liabilities are measured at amortized cost using the effective interest method except for derivatives and financial liabilities designated at FVPL, which are carried subsequently at fair value with gains or losses recognized in net income. Financial liabilities classified at FVPL include derivative financial instruments included in long-term debt and a contingent consideration payable included in provision for other liabilities. All other financial liabilities are measured at amortized cost.
Derivative financial instruments and hedge accounting
CI may use derivative financial instruments such as interest rate swaps and forward foreign exchange contracts to manage its interest rate and foreign currency risk related to long-term debt. Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value. The accounting for subsequent changes depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged and the type of hedge relationship designated.
To qualify for hedge accounting, the hedging relationship must meet all of the following requirements:
• | there is an economic relationship between the hedged item and the hedging instrument |
• | the effect of credit risk does not dominate the value changes that result from that economic relationship |
• | the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item |
CI entered into an interest rate swap designated as a fair value hedge to manage the effect of changes in interest rates relating to its fixed-rate debentures. The swap involves exchanging interest payments without exchanging the notional amount on which the payments are based. The exchange of payments is recorded as an adjustment to interest expense on the hedged item. Changes in the fair value of the swap are recorded in the consolidated statements of income and comprehensive income in other expenses, together with any changes in the fair value of the hedged liability attributable to the hedged risk as an offset.
Q4 Financial Report | 12 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
FAIR VALUE MEASUREMENT
CI uses valuation techniques to determine the fair value of financial instruments where active market quotes are not available. This involves developing estimates and assumptions consistent with how market participants would price the instrument. CI maximizes the use of observable data when developing estimates and assumptions, but this is not always available. In that case management uses the best information available.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1– valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities
• Level 2– valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by correlation or other means
• Level 3 – valuation techniques with significant unobservable market inputs
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, CI determines whether transfers have occurred between levels in the hierarchy by reassessing the categorization at the end of each reporting period.
COLLATERALIZED SECURITIES TRANSACTIONS
CI engages in securities lending and borrowing to facilitate the securities settlement process and to maximize revenue by acting as an agent for such transactions. These transactions are typically short-term in nature, with interest being received on the cash delivered. These transactions are collateralized by either cash, letters of credit or other collateral and are subject to daily margin calls for any deficiency between the market value of the security given and the amount of collateral received. CI manages its credit exposure by establishing and monitoring aggregate limits by counterparty for these transactions. CI’s securities lending and borrowing transactions are recorded in accounts receivable and prepaid expenses and accounts payable and accrued liabilities.
CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation. These assets are depreciated over their estimated useful lives as follows:
Computer hardware | Straight-line over three years |
Office equipment | Straight-line over five years |
Leasehold improvements | Straight-line over the term of the lease |
Q4 Financial Report | 13 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
LEASES
CI assesses at inception whether a contract contains a lease that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. All leases are accounted for by recognizing a right-of-use asset and a lease liability except for leases of low value assets and leases with a duration of 12 months or less.
Right-of-use assets
CI recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of their estimated useful life and the lease term.
Lease liabilities
At the commencement date of the lease, CI recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include in substance fixed payments less any lease incentives receivable, variable payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by CI and payments of penalties for terminating a lease, if the lease term reflects CI exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, CI uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and lease of low-value assets
CI applies the short-term lease recognition exemption to its short-term leases of equipment and property leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). CI also applies the lease of low-value assets recognition exemption to leases of equipment that are considered of low value (i.e. below $5,000). Lease payments on short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis over the lease term.
Q4 Financial Report | 14 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Sub-leases
CI enters into lease agreements as an intermediate lessor with respect to some of its leased properties. When CI is an intermediate lessor, the head lease and the sub-lease are accounted for as two separate contracts. The sub-lease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease.
Amounts due from lessees under finance leases are recognized as other assets at the amount of CI’s net investment in the leases. Finance lease income is recognized over the lease term using the effective interest rate. Payments received reduce the net investment in the lease.
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.
BUSINESS COMBINATIONS
The acquisition method of accounting is used to account for the acquisition of subsidiaries by CI, whereby the purchase consideration is allocated to the identifiable assets and liabilities on the basis of fair value at the date of acquisition. Provisional fair values allocated at a reporting date are finalized as soon as the relevant information is available, within a period not to exceed 12 months from the acquisition date, with retroactive restatement of the impact of adjustments to those provisional fair values effective as at the acquisition date.
CI elects on a transaction-by-transaction basis whether to measure any non-controlling interest at fair value, or at the proportionate share of the recognized amount of the identifiable net assets of the acquired subsidiary, at the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred and equity interests issued by CI. Consideration also includes the fair value of any put option or contingent consideration. Subsequent to the acquisition, the put option and contingent consideration that is based on an earnings measurement and classified as a liability is measured at fair value with any resulting gain or loss recognized in net income. Acquisition-related costs are expensed as incurred.
INTANGIBLES
Fund contracts
Fund administration contracts and fund management contracts [collectively, “fund contracts”] are recorded net of any write-down for impairment. CI evaluates the carrying amounts of indefinite life fund contracts at least annually for potential impairment by comparing the recoverable amount with their carrying amounts. CI will evaluate the carrying amount of fund contracts if events or changes in circumstances indicate a potential impairment. Any impairment would be written off to income.
Fund administration contracts are amortized on a straight-line basis over a period of up to 25 years. Fund management contracts with a finite life are amortized on a straight-line basis over a period of up to 20 years. The amortization period depends on the contractual terms of such agreements and management’s best estimate of their useful lives. Fund management contracts with an indefinite life are not amortized.
Q4 Financial Report | 15 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Goodwill
Goodwill is recorded as the excess of purchase price over identifiable assets acquired. Following initial recognition, goodwill is stated at cost less any accumulated impairment losses. Goodwill is evaluated for impairment at least annually and any impairment is recognized immediately in income and not subsequently reversed. Goodwill is allocated to the appropriate cash-generating unit for the purpose of impairment testing.
Other intangibles
Other intangibles include the costs of trademarks and computer software, capitalized where it is probable that future economic benefits that are attributable to the assets will flow to CI and the cost of the assets can be measured reliably. Computer software is recorded initially at cost and amortized over its expected useful life of two to ten years on a straight-line basis. Trademarks have an indefinite life and are not amortized.
EQUITY-BASED COMPENSATION
CI uses the fair value method to account for equity-settled employee incentive share options and restricted share units [“RSUs”] The value of the equity-based compensation, as at the date of grant, is recognized over the applicable vesting period as compensation expense with a corresponding increase in contributed surplus. When options are exercised, the proceeds received, together with the amount in contributed surplus, are credited to share capital. Upon vesting of the RSUs, the amount accumulated in contributed surplus for the RSUs is reclassified to share capital.
CI has a deferred share unit plan for directors. The value of the compensation at the date of grant is recognized immediately as compensation with a corresponding increase in accounts payable and accrued liabilities. At each consolidated statement of financial position date, the liability is revalued with an offset to compensation expense.
The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service condition at the vesting date.
INCOME TAXES
Current income tax liabilities are measured at the amount expected to be paid to tax authorities, net of recoveries based on the tax rates and tax laws enacted or substantively enacted as at the consolidated statements of financial position dates.
The liability method of tax allocation is used in accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between the carrying amount and tax basis of assets and liabilities and measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Deferred tax liabilities are generally recognized for all taxable temporary differences.
Q4 Financial Report | 16 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Deferred tax liabilities are recognized for taxable temporary differences arising in investments in subsidiaries and joint ventures except where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognized on temporary differences that arise from the initial recognition of goodwill, which is not deductible for tax purposes. Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination.
PROVISION FOR OTHER LIABILITIES
A provision for other liabilities is recognized if, as a result of a past event, CI has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. In the event that the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects a current market assessment of the time value of money and the risks specific to the liability.
FOREIGN CURRENCY
(i) Foreign currency transactions
Transactions that are denominated in a currency other than the functional currency of the entity are translated as follows: Monetary assets and liabilities are translated into Canadian dollars using the exchange rates in effect as at the consolidated statements of financial position dates. Non-monetary assets and liabilities are translated into Canadian dollars using historical exchange rates. Revenue and expenses are translated at average rates prevailing during the period. Other foreign currency transactions are translated into Canadian dollars using the exchange rate in effect on the transaction date. Translation exchange gains and losses are included in other income in the period in which they occur.
(ii) Foreign currency operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at the exchange rate in effect as at the consolidated statements of financial position dates. Revenue and expenses are translated at average rates prevailing during the period. Translation exchange gains and losses are recognized as other comprehensive income and reclassified to net income when the gain or loss on disposal of the foreign subsidiary is recognized. The consolidated statements of cash flows are translated at average exchange rates during the period, whereas cash and cash equivalents are translated at the spot exchange rate in effect as at the consolidated statements of financial position dates.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
In the process of applying CI’s accounting policies, management has made significant judgments involving estimates and assumptions, which are summarized as follows:
(i) Impairment of intangible assets
Finite life intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indefinite life intangible assets, including goodwill, are tested for impairment annually or more frequently if changes in circumstances indicate that the carrying amount may be impaired. The values associated with intangibles involve estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives. These estimates require significant judgment regarding market growth rates, fund flow assumptions, expected margins and costs that could affect CI’s future results if the current estimates of future performance and fair values change. These determinations also affect the amount of amortization expense on intangible assets with finite lives recognized in future periods.
Q4 Financial Report | 17 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
(ii) Deferred tax assets
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profits will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.
(iii) Provision for other liabilities
Due to the nature of provisions, a considerable part of their determination is based on estimates and judgments, including assumptions concerning the future. The actual outcome of these uncertain factors may be materially different from the estimates, causing differences with the estimated provisions. Further details are provided in Note 8.
(iv) Share-based payments
The cost of employee services received (compensation expense) in exchange for awards of equity instruments recognized is estimated using a Black-Scholes option pricing model which requires the use of assumptions. Further details regarding the assumptions used in the option pricing model are provided in Note 9[b].
(v) Business combinations
Business combinations require management to exercise judgment in measuring the fair value of the assets acquired and liabilities, put option and contingent consideration liabilities incurred or assumed.
(vi) Leases
CI determines the lease term as the non-cancellable term of the lease, together with any period covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
CI has the option, under some of its leases to lease the assets for additional terms. CI applies judgment in evaluation whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, CI reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew.
Q4 Financial Report | 18 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
2. NEW ACCOUNTING STANDARDS
[A] IFRS 16
IFRS 16, Leases [“IFRS 16”], replaces the previous lease standard, IAS 17, Leases [“IAS 17”], and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.
Effective January 1, 2019, CI adopted IFRS 16 using the modified retrospective approach. Under this approach, CI recognized the lease liability based on the remaining lease payments discounted using CI’s incremental borrowing rate as at January 1, 2019. CI also recognized the right-of-use asset as at the date of initial application, as if IFRS 16 had always been applied since the commencement date of the lease, discounted using CI’s incremental rate of borrowing as at January 1, 2019. Comparative figures were not restated for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening consolidated statements of financial position on January 1, 2019.
The adoption of IFRS 16 resulted in CI reporting higher interest and depreciation expenses and lower selling, general and administrative expenses as of the effective date. Non-IFRS measures such as earnings before interest, taxes, depreciation and amortization are positively impacted as a result.
Upon adoption of IFRS 16, CI recognized lease liabilities in relation to leases previously classified as operating leases under the principles of IAS 17. CI elected to apply the following practical expedients:
• apply a single discount rate to a portfolio of leases with reasonably similar characteristics
• not recognize leases whose term ends within 12 months of initial application
• exclude initial direct costs from the measurement of the right-of-use assets as at the date of initial application
• not recognize leases of low value
• the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease
On transition to IFRS 16, CI assessed the classification of its sub-leased properties with reference to the right-of-use asset and concluded that its sub-leased properties previously classified as operating leases under IAS 17 should be accounted for as finance leases under IFRS 16.
Q4 Financial Report | 19 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
The following summarizes the impact of adopting IFRS 16 as at January 1, 2019:
January 1, 2019 | |||
$ | |||
Assets | |||
Right-of-use assets | 52,381 | ||
Other assets | 2,396 | ||
Total assets | 54,777 | ||
Liabilities | |||
Accounts payable and other liabilities | (1,805 | ) | |
Current portion of lease liabilities | 10,872 | ||
Non-current lease liabilities | 70,758 | ||
Deferred lease inducement | (11,320 | ) | |
Deferred tax liability | (3,665 | ) | |
Total liabilities | 64,840 | ||
Deficit | (10,063 | ) |
The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as at December 31, 2018 as follows:
$ | |||
Operating lease commitments as at December 31, 2018 | 90,050 | ||
Less: | |||
Lease commitments related to short-term leases | (168 | ) | |
Add: | |||
Payments in optional extension periods considered reasonably certain to be exercised | 4,507 | ||
Gross lease liability as at January 1, 2019 | 94,389 | ||
Weighted average incremental borrowing rate as at January 1, 2019 | 4.2 | % | |
Present value of lease liability recognized as at January 1, 2019 | 81,630 | ||
Current lease liabilities | 10,872 | ||
Non-current lease liabilities | 70,758 |
Q4 Financial Report | 20 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
The following shows the carrying amounts of CI’s right-of-use assets and lease liabilities and the movements during the year ended December 31, 2019:
Right-of-use assets | ||||||||||||||||
Property leases | Equipment leases | Total | Lease liabilities | |||||||||||||
$ | $ | $ | $ | |||||||||||||
As at January 1, 2019 | 50,240 | 2,141 | 52,381 | 81,630 | ||||||||||||
Additions | 1,291 | — | 1,291 | 1,934 | ||||||||||||
Depreciation expense | (7,812 | ) | (970 | ) | (8,782 | ) | — | |||||||||
Interest expense | — | — | — | 3,207 | ||||||||||||
Payments | — | — | — | (14,243 | ) | |||||||||||
Translation | (8 | ) | — | (8 | ) | (9 | ) | |||||||||
As at December 31, 2019 | 43,711 | 1,171 | 44,882 | 72,519 |
CI recognized rent expense from short-term leases of $886, leases of low-value assets of $155 and variable lease payments of $12,869 during the year ended December 31, 2019.
Included in other income is finance income of $109 received from sub-leasing right-of-use assets.
[B] IFRIC 23
Effective January 1, 2019, CI adopted IFRIC Interpretation 23, Uncertainty over Income Tax Treatments [“IFRIC 23”], which clarifies the accounting treatment used to reflect uncertainty in the recognition and measurement of income taxes. IFRIC 23 specifically addresses the following:
• whether an entity considers uncertain tax treatments separately
• the assumptions an entity makes about the examination of tax treatments by taxation authorities
• how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
• how an entity considers changes in facts and circumstances
CI has considered the impact of IFRIC 23 on the recognition and measurement of uncertainties over income tax treatments across the jurisdictions in which it operates. CI has determined that there is no cumulative effect to opening deficit, or other appropriate components of equity upon adoption.
Q4 Financial Report | 21 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
3. BUSINESS ACQUISITION
WealthBar Financial Services Inc.
On January 23, 2019, CI acquired 75% of the outstanding shares and debt obligations of WealthBar Financial Services Inc., [“WealthBar”] a leading Canadian online wealth management and financial planning platform, for all cash consideration of $23,653. The acquisition was accounted for using the acquisition method of accounting and the results of operations have been consolidated from the date of the transaction.
Details of the net assets acquired as at January 23, 2019, at fair value, are as follows:
$ | |||
Cash and cash equivalents | 81 | ||
Accounts receivable and prepaid expenses | 416 | ||
Income taxes receivable | 226 | ||
Capital assets | 113 | ||
Right-of-use asset | 248 | ||
Fund administration contracts | 4,000 | ||
Intangible - technology | 15,000 | ||
Accounts payable and accrued liabilities | (401 | ) | |
Lease liability | (262 | ) | |
Deferred income taxes | (2,356 | ) | |
Fair value of identifiable net assets | 17,065 | ||
Non-controlling interest (25% of identifiable net assets) | (4,266 | ) | |
Goodwill on acquisition | 10,854 | ||
Total acquired cost | 23,653 |
The acquired fund administration contracts with a fair value of $4,000 have a finite life of 10 years. The technology acquired has a fair value of $15,000 and an estimated useful life of 10 years. The goodwill on acquisition is not deductible for income taxes. Goodwill of $10,854 relates to the asset administration segment.
Snap Projections Inc.
On October 16, 2019, WealthBar acquired 100% of the outstanding shares of Snap Projections Inc. The acquisition was accounted for using the acquisition method of accounting. The estimated fair values of the assets acquired and liabilities assumed and the results of operations have been consolidated from the date of the transaction.
Surevest Wealth Management
On January 24, 2020, CI acquired a majority stake in Surevest Wealth Management, a Phoenix-based registered investment advisory firm. The estimated fair values of the assets acquired and liabilities assumed will be included in the interim consolidated financial statements as at March 31, 2020.
Q4 Financial Report | 22 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
WisdomTree
On November 7, 2019, CI reached an agreement to acquire 100% of the outstanding shares of WisdomTree Asset Management Canada, Inc. [“WisdomTree”], the investment fund manager of WisdomTree’s Canadian exchange-traded funds. The details of the acquisition are being finalized and is expected to close on February 18, 2020.
One Capital Management LLC
On December 23, 2019, CI reached an agreement to acquire a majority stake in One Capital Management, LLC. The details of the acquisition are being finalized and is expected to close in March, 2020.
Q4 Financial Report | 23 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
4. CAPITAL ASSETS
Capital assets consist of the following:
Computer hardware |
Office equipment |
Leasehold improvements |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Cost | ||||||||||||||||
Balance, December 31, 2017 | 16,184 | 16,022 | 74,452 | 106,658 | ||||||||||||
Additions | 3,662 | 1,938 | 6,109 | 11,709 | ||||||||||||
Retired | (2,257 | ) | — | (7 | ) | (2,264 | ) | |||||||||
Balance, December 31, 2018 | 17,589 | 17,960 | 80,554 | 116,103 | ||||||||||||
Additions | 3,151 | 2,337 | 6,863 | 12,351 | ||||||||||||
Acquired | 141 | 51 | 28 | 220 | ||||||||||||
Retired | (1,678 | ) | (6 | ) | — | (1,684 | ) | |||||||||
Balance, December 31, 2019 | 19,203 | 20,342 | 87,445 | 126,990 | ||||||||||||
Accumulated depreciation | ||||||||||||||||
Balance, December 31, 2017 | 10,892 | 13,124 | 39,401 | 63,417 | ||||||||||||
Depreciation | 3,466 | 1,199 | 5,300 | 9,965 | ||||||||||||
Retired | (2,257 | ) | — | (7 | ) | (2,264 | ) | |||||||||
Balance, December 31, 2018 | 12,101 | 14,323 | 44,694 | 71,118 | ||||||||||||
Depreciation | 3,927 | 1,405 | 6,159 | 11,491 | ||||||||||||
Acquired | 66 | 21 | 20 | 107 | ||||||||||||
Retired | (1,674 | ) | (6 | ) | — | (1,680 | ) | |||||||||
Balance, December 31, 2019 | 14,420 | 15,743 | 50,873 | 81,036 | ||||||||||||
Carrying amounts | ||||||||||||||||
At December 31, 2017 | 5,292 | 2,898 | 35,051 | 43,241 | ||||||||||||
At December 31, 2018 | 5,488 | 3,637 | 35,860 | 44,985 | ||||||||||||
At December 31, 2019 | 4,783 | 4,599 | 36,572 | 45,954 |
Q4 Financial Report | 24 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
5. INTANGIBLES
Goodwill |
Fund
administration contracts |
Fund
management contracts finite life |
Fund
management contracts indefinite life |
Other
intangibles |
Total | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Cost | ||||||||||||||||||||||||
Balance, December 31, 2017 | 1,521,318 | 44,500 | 50,157 | 1,779,957 | 51,757 | 3,447,689 | ||||||||||||||||||
Acquired | 283 | — | — | — | — | 283 | ||||||||||||||||||
Translation | (496 | ) | — | — | — | — | (496 | ) | ||||||||||||||||
Additions | — | — | — | — | 4,359 | 4,359 | ||||||||||||||||||
Balance, December 31, 2018 | 1,521,105 | 44,500 | 50,157 | 1,779,957 | 56,116 | 3,451,835 | ||||||||||||||||||
Acquired | 11,670 | 5,000 | — | — | 16,300 | 32,970 | ||||||||||||||||||
Translation | (1,502 | ) | — | — | — | — | (1,502 | ) | ||||||||||||||||
Additions | — | — | — | — | 4,425 | 4,425 | ||||||||||||||||||
Retired | — | — | — | — | (12,664 | ) | (12,664 | ) | ||||||||||||||||
Balance, December 31, 2019 | 1,531,273 | 49,500 | 50,157 | 1,779,957 | 64,177 | 3,475,064 | ||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||
Balance, December 31, 2017 | — | 21,224 | 27,341 | — | 23,284 | 71,849 | ||||||||||||||||||
Amortization | — | 2,030 | 2,033 | — | 5,582 | 9,645 | ||||||||||||||||||
Balance, December 31, 2018 | — | 23,254 | 29,374 | — | 28,866 | 81,494 | ||||||||||||||||||
Acquired | — | — | — | — | (1,826 | ) | (1,826 | ) | ||||||||||||||||
Amortization | — | 2,467 | 2,022 | — | 6,823 | 11,312 | ||||||||||||||||||
Retired | — | — | — | — | (4,398 | ) | (4,398 | ) | ||||||||||||||||
Balance, December 31, 2019 | — | 25,721 | 31,396 | — | 29,465 | 86,582 | ||||||||||||||||||
Carrying amounts | ||||||||||||||||||||||||
At December 31, 2017 | 1,521,318 | 23,276 | 22,816 | 1,779,957 | 28,473 | 3,375,840 | ||||||||||||||||||
At December 31, 2018 | 1,521,105 | 21,246 | 20,783 | 1,779,957 | 27,250 | 3,370,341 | ||||||||||||||||||
At December 31, 2019 | 1,531,273 | 23,779 | 18,761 | 1,779,957 | 34,712 | 3,388,482 | ||||||||||||||||||
Remaining term | N/A | 8.9 – 9.9 yrs | 7.3 – 13.9 yrs | N/A | 0.3 – 9.8 yrs |
CI has two groups of cash-generating units [“CGUs”] for the purpose of assessing the carrying amount of the allocated goodwill being the asset management and asset administration operating segments as described in Note 16. Goodwill of $1,309,008 is allocated to the asset management segment and $222,265 is allocated to the asset administration segment as at December 31, 2019 [2018 – $1,310,510 and $210,595, respectively]. Within the asset management segment, CI has indefinite life fund management contracts of $1,779,957 as at December 31, 2019 and 2018.
The recoverable amounts of the CGUs are based on a fair value less cost to sell calculation. The fair value was determined using the discounted cash flow method, based on estimated future cash flows over a 10-year period with a terminal value for the period thereafter. CI uses a 10-year period to reflect the expected growth strategies for the various contracts acquired in addition to the fact that it may take several years to fully integrate operations and benefit from synergies. The key assumptions used in the forecast calculation include assumptions on market appreciation, net sales of funds and operating margins. Market appreciation rates are determined using historical inflation-adjusted index returns adjusted for CI’s average management fee. Net sales are determined based on the historical 3-year average as well as management’s forecasts for future sales. Inputs to the operating margin include estimates for management and trailer fees using current average fee rates and historical rates for selling, general and administrative costs that are applied to forecast average assets under management over the 10-year period. The terminal value has been calculated assuming a long-term growth rate of 2% per annum in perpetuity based on a long-term real GDP growth rate as at December 31, 2019 and 2018. A discount rate of 11.38% – 13.88% per annum has been applied to the recoverable amount calculation as at December 31, 2019 [2018 – 8.3% – 12.5%].
The calculation of the recoverable amount exceeds the carrying amount of goodwill and indefinite life fund management contracts as at December 31, 2019 and 2018.
Q4 Financial Report | 25 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
6. OTHER ASSETS, INCOME AND EXPENSE
Other assets as at December 31, 2019 consist mainly of long-term investments, long-term accounts receivable, loans granted under CI’s employee share purchase plan and loans extended to investment advisors under CI’s hiring and incentive program.
CI has an employee share purchase loan program for key employees. These loans are renewable yearly and bear interest at prescribed rates. As at December 31, 2019, the carrying amount of employee share purchase loans is $3,933 [2018 – $5,188] and is included in other assets. These loans become due immediately upon termination of employment or sale of the shares that are held as collateral. As at December 31, 2019, the shares held as collateral have a market value of approximately $4,763 [2018 – $5,865].
CI has a hiring and retention incentive program whereby loans are extended to current investment advisors. These loans are initially recorded at their fair value, may bear interest at prescribed rates and are contractually forgiven on a straight-line basis over the applicable contractual period, which varies in length from three to seven years. CI utilizes the effective interest method to amortize the forgiven amount. The forgiven amount is included in selling, general and administrative expenses. As at December 31, 2019, loans to investment advisors of $19,135 [2018 – $16,039] are included in other assets. These loans become due on demand upon early termination or breach in the terms of the agreements.
Other income consists mainly of fees received for the administration of third-party mutual funds, custody fees, investment income, foreign exchange gains (losses), interest income and the revenue earned by Marret. Other income in the year ended December 31, 2018, also includes the fair value adjustment to the put option discussed in Note 8. Other expenses consist mainly of the provisions as discussed in Note 8 as well as expenses incurred by Marret.
7. LONG-TERM DEBT
Long-term debt consists of the following:
2019 | 2018 | ||||
$ | $ | ||||
Credit facility | |||||
Prime rate loan | — | 24,500 | |||
Bankers’ acceptances | 35,000 | — | |||
LIBOR loan (USD $193,000) | — | 259,000 | |||
35,000 | 283,500 |
Debenture principal amount | Interest rate | Issued date | Maturity date | |||||||||||||
$450 million | 2.645 | % | December 7, 2015 | December 7, 2020 | 449,509 | 449,032 | ||||||||||
$200 million | 2.775 | % | November 25, 2016 | November 25, 2021 | 199,512 | 199,278 | ||||||||||
$325 million | 3.520 | % | July 20, 2018 | July 20, 2023 | 323,616 | 323,297 | ||||||||||
$350 million | 3.215 | % | July 22, 2019 | July 22, 2024 | 348,101 | — | ||||||||||
$250 million | 3.904 | % | September 27, 2017 | September 27, 2027 | 248,756 | 248,626 | ||||||||||
1,569,494 | 1,220,233 | |||||||||||||||
Long-term debt | 1,604,494 | 1,503,733 | ||||||||||||||
Current portion of long-term debt | 449,509 | — |
Q4 Financial Report | 26 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CREDIT FACILITY
CI has a $700,000 revolving credit facility with three Canadian chartered banks. Loans are made by the banks under a three-year revolving credit facility, with the outstanding principal balance due upon maturity on December 11, 2021. Amounts may be borrowed in Canadian dollars through prime rate loans, which bear interest at the greater of the bank’s prime rate and the Canadian Deposit Offering Rate plus 1.00%, or bankers’ acceptances, which bear interest at bankers’ acceptance rates plus 0.90%. Amounts may also be borrowed in U.S. dollars through base rate loans, which bear interest at the greater of the bank’s reference rate for loans made by it in Canada in U.S. funds and the federal funds effective rate plus 1.00%, or LIBOR loans, which bear interest at LIBOR plus 0.90%.
CI may also borrow under this facility in the form of letters of credit, which bear a fee of 0.90% on any undrawn portion. As at December 31, 2019 and 2018, CI had not accessed the facility by way of letters of credit.
The credit facility contains a number of financial covenants that require CI to meet certain financial ratios and financial condition tests. CI is within its financial covenants with respect to its credit facility, which require that the funded debt to annualized EBITDA ratio remain below 3:1 and that CI’s assets under management not fall below $85 billion, calculated based on a rolling 30-day average. There can be no assurance that future borrowings or equity financing will be available to CI or available on acceptable terms.
On January 28, 2019, the forward exchange contract entered into on December 24, 2018 with a Canadian chartered bank to pay Canadian dollars $259,690 and receive U.S. dollars $193,666 matured. Hedge accounting was not applied to the forward foreign exchange contract, as the fair value changes are offset in net income with the foreign exchange revaluation of the U.S. denominated debt.
DEBENTURES
On July 22, 2019, CI completed an offering pursuant to which it issued $350,000 principal amount of debentures due July 22, 2024 at par [the “2024 Debentures”]. Interest on the 2024 Debentures is paid semi-annually in arrears at a rate of 3.215%. The proceeds, net of transaction costs, were used to repay outstanding indebtedness under the credit facility.
On February 2, 2017, CI entered into an interest rate swap agreement with a Canadian chartered bank to swap the semi-annual fixed rate payments on the 2021 Debentures for floating rate payments. Based on the terms of the agreement, CI pays a rate equivalent to the three-month Canadian bankers’ acceptance rate plus a spread of 138.4 basis points. The rates are reset quarterly and paid semi-annually to match the fixed payment obligations of the 2021 Debentures. The swap agreement terminates on the maturity date of the 2021 Debentures unless terminated by CI at an earlier date. As at December 31, 2019, the fair value of the interest rate swap agreement was an unrealized loss of $2,388 [2018 – $4,959] and is included in long-term debt in the consolidated statements of financial position. CI has not experienced any hedge ineffectiveness, as the terms of the interest rate swap match the terms of the debenture.
Q4 Financial Report | 27 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Interest paid on the debentures is paid semi-annually. During the years ended December 31, 2019 and 2018, interest paid is as follows:
2019 | 2018 | |||||||||||||||
Interest rate | Issued date | Maturity date | $ | $ | ||||||||||||
Debenture interest paid | ||||||||||||||||
$450 million | 2.645 | % | December 7, 2015 | December 7, 2020 | 11,903 | 11,903 | ||||||||||
$200 million | 2.775 | % | November 25, 2016 | November 25, 2021 | 6,841 | 6,402 | ||||||||||
$325 million | 3.520 | % | July 20, 2018 | July 20, 2023 | 11,440 | 5,143 | ||||||||||
$350 million | 3.215 | % | July 22, 2019 | July 22, 2024 | 4,861 | — | ||||||||||
$250 million | 3.904 | % | September 27, 2017 | September 27, 2027 | 9,760 | 9,760 | ||||||||||
44,805 | 33,208 |
Issuance costs and the issuance discount are amortized over the term of the debentures using the effective interest method. The amortization expense related to the discount and transaction costs for CI’s issued debentures for the year ended December 31, 2019 was $1,302 [2018 – $947], which is included in other expenses. CI may, at its option, redeem the 2020 Debentures, the 2021 Debentures, the 2023 Debentures, the 2024 Debentures and the 2027 Debentures in whole or in part, from time to time, on not less than 30 nor more than 60 days’ prior notice to the registered holder, at a redemption price which is equal to the greater of par or the Government of Canada yield, plus 42.5, 44.0, 36.0, 44.5 and 44.5 basis points, respectively. CI considers this embedded prepayment option to be closely related to the debentures and, as such, does not account for it separately as a derivative.
In the event that both a change of control occurs and the rating of the debentures is lowered to below investment grade by two out of three rating agencies as defined as below BBB- by Standard & Poor’s, BBB (low) by DBRS Limited and Baa3 by Moody’s Investor Service, Inc., CI will be required to make an offer to repurchase all or, at the option of each holder, any part of each holder’s debentures at a purchase price payable in cash equivalent to 101% of the outstanding principal amount of the debentures, together with accrued and unpaid interest, to the date of purchase.
Q4 Financial Report | 28 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
8. PROVISION FOR OTHER LIABILITIES AND CONTINGENCIES
CI is a party to a number of claims, proceedings and investigations, including legal, regulatory and tax, in the ordinary course of its business. Due to the inherent uncertainty involved in these matters, it is difficult to predict the final outcome or the amount and timing of any outflow related to such matters. Based on current information and consultations with advisors, CI does not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on its financial position or on its ability to continue normal business operations.
CI has made provisions based on current information and the probable resolution of such contingent consideration, claims, proceedings and investigations as well as for amounts payable in connection with business acquisitions and severance. The movement in amounts provided for contingent liabilities and related expenses during the years ended December 31, are as follows:
2019 | 2018 | |||||||
$ | $ | |||||||
Provision for other liabilities, beginning of year | 34,768 | 98,595 | ||||||
Additions | 35,214 | 3,151 | ||||||
Amounts used | (36,504 | ) | (54,838 | ) | ||||
Amounts reversed | (342 | ) | (12,140 | ) | ||||
Provision for other liabilities, end of year | 33,136 | 34,768 | ||||||
Current portion of provision for other liabilities | 14,643 | 14,591 |
Provision for other liabilities primarily include the following:
LITIGATION
CI is a defendant to certain lawsuits of which two are class action lawsuits related to events and transactions that gave rise to a settlement agreement with the Ontario Securities Commission [“OSC”] in 2004. Although CI continues to believe that this settlement fully compensated investors affected by frequent trading activity, a provision has been made based on the probable resolution of these claims and related expenses.
CI maintains insurance policies that may provide coverage against certain claims. Amounts receivable under these policies are not accrued for unless the realization of income is virtually certain. During the years ended December 31, 2019 and 2018, no insurance proceeds were received, related to the settlement of legal claims.
Q4 Financial Report | 29 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
PUT OPTION AND CONTINGENT CONSIDERATION
Included in provision for other liabilities as at December 31, 2019, is a provision for the fair value of the put option granted to minority interest shareholders for the acquisition of GSFM of $7,573, including foreign exchange translation adjustments [2018 – $11,438]. During 2019, GSFM shareholders exercised their put to CI and a total of 50 thousand shares were purchased for an equivalent Canadian cash value of $2,667 [2018 - 30 thousand shares for Canadian cash value of $2,565]. In addition, during 2019, the put option liability was reduced by $569 [2018 – $1,167] representing dividends paid by GSFM to non-controlling shareholders. The fair value was reduced $1,144 during 2018 to reflect lower forecasted earnings estimates with an offset to other income. No adjustments to fair value were made during 2019.
During 2018, CI made payments of $11,663, in cash - $11,129 and shares - $534, related to contingent consideration that was payable for the First Asset acquisition. As at December 31, 2018, all contingent consideration related to this acquisition has been paid.
RESTRUCTURING
During the year ended December 31, 2019, CI recorded a provision for restructuring of $35,000 related to severance and the write-down of software intangibles that were retired. As at December 31, 2019, a provision of $6,485 remains.
In 2017, CI recorded provisions of $39,000, primarily for restructuring, integration and legal costs related to the acquisition of Sentry and BBS. As at December 31, 2019, a provision of $2,400 remains [2018 – $5,756].
REMEDIATION
In 2015, CI discovered an administrative error and recorded a provision of $10,750, net of recoveries for the cost to remediate. As at December 31, 2019, a net recovery of $3,793 remains [2018 – $3,550].
Q4 Financial Report | 30 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
9. SHARE CAPITAL
A summary of the changes to CI’s share capital for the years ended December 31 is as follows:
[A] AUTHORIZED AND ISSUED
Number of shares | Stated value | |||||||
[in thousands] | $ | |||||||
Authorized | ||||||||
An unlimited number of common shares of CI | ||||||||
Issued | ||||||||
Common shares, balance, December 31, 2017 | 271,884 | 2,360,257 | ||||||
Issuance for acquisition of subsidiary | 17 | 534 | ||||||
Issuance of share capital on exercise of share options | 58 | 1,700 | ||||||
Issuance of share capital on vesting of restricted share units | 283 | 5,819 | ||||||
Share repurchases, net of tax | (28,521 | ) | (243,180 | ) | ||||
Common shares, balance, December 31, 2018 | 243,721 | 2,125,130 | ||||||
Issuance of share capital on vesting of restricted share units | 711 | 12,751 | ||||||
Share repurchases, net of tax | (22,640 | ) | (193,570 | ) | ||||
Common shares, balance, December 31, 2019 | 221,792 | 1,944,311 |
During the year ended December 31, 2019, 21,950 thousand shares [2018 – 27,951 thousand shares] were repurchased under a normal course issuer bid at an average cost of $19.78 per share for total consideration of $434,236 [2018 – $22.93 per share for total consideration of $640,787]. Deficit was increased by $243,211 during the year ended December 31, 2019 [2018 – $398,279] for the cost of the shares repurchased in excess of their stated value.
During the year ended December 31, 2019, 690 thousand shares [2018 – 570 thousand shares] were repurchased for CI’s restricted share unit plan at an average cost of $18.92 per share for total consideration of $13,057 [$9,597 after tax] [2018 – $28.28 per share for total consideration of $16,120 [$11,848 net of tax]]. Deficit was increased by $7,052 during the year ended December 31, 2019 [2018 – 11,177] for the cost of the shares repurchased in excess of their stated value.
[B] EMPLOYEE INCENTIVE SHARE OPTION PLAN
CI has an employee incentive share option plan [the “Share Option Plan”], as amended and restated, for the executives and key employees of CI.
Q4 Financial Report | 31 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
During the year, CI granted 743 thousand options [2018 - 78 thousand options] to employees. The fair value method of accounting is used for the valuation of the 2019 and 2018 share option grants. Compensation expense is recognized over the vesting period, assuming an estimated average forfeiture rate of 12.7% for the year [2018 - 0.0%], with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well as any consideration paid by the option holder are credited to share capital. The fair value of the 2019 and 2018 option grants was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:
Year of grant | 2019 | 2019 | 2018 | |||||||||
# of options granted [in thousands] | 213 | 530 | 78 | |||||||||
Vesting terms | At end of year 5 | 1/3 at end of years 3, 4 and 5 | 1/3 at end of years 1, 2 and 3 | |||||||||
Dividend yield | 3.792 | % | 3.792 | % | 5.044% - 5.085 | % | ||||||
Expected volatility (*) | 17 | % | 17 | % | 16 | % | ||||||
Risk-free interest rate | 2.238 | % | 2.182% - 2.238 | % | 2.285% - 2.363 | % | ||||||
Expected life [years] | 6.8 | 5.2 - 6.8 | 2.9 - 3.7 | |||||||||
Forfeiture rate | 0 | % | 13 | % | 0 | % | ||||||
Fair value per stock option | $2.48 | $2.23 - $2.48 | $2.23 - $2.45 | |||||||||
Exercise price | $18.99 | $18.99 | $28.67 | |||||||||
(*) Based on historical volatility of CI’s share price |
The maximum number of shares that may be issued under the Share Option Plan is 14,000 thousand shares. As at December 31, 2019, there are 5,584 thousand shares [2018 – 6,958 thousand shares] reserved for issuance on exercise of share options. These options vest over periods of up to five years, may be exercised at prices ranging from $18.99 to $35.88 per share and expire at dates up to 2029.
A summary of the changes in the Share Option Plan is as follows:
Number of options |
Weighted average
exercise price |
|||||||
[in thousands] | $ | |||||||
Options outstanding, December 31, 2017 | 8,073 | 31.84 | ||||||
Options exercisable, December 31, 2017 | 5,014 | 33.03 | ||||||
Options granted | 78 | 28.67 | ||||||
Options exercised (*) | (609 | ) | 27.42 | |||||
Options cancelled | (584 | ) | 31.98 | |||||
Options outstanding, December 31, 2018 | 6,958 | 32.18 | ||||||
Options exercisable, December 31, 2018 | 5,789 | 32.97 | ||||||
Options granted | 743 | 18.99 | ||||||
Options cancelled | (2,117 | ) | 34.28 | |||||
Options outstanding, December 31, 2019 | 5,584 | 29.63 | ||||||
Options exercisable, December 31, 2019 | 4,758 | 31.26 |
(*) Weighted-average share price of options exercised was nil during the year ended December 31, 2019 [2018 - $29.54]
The equity-based compensation expense under the Share Option Plan for the year ended December 31, 2019 of $513 [2018 – $975] has been included in selling, general and administrative expenses.
Q4 Financial Report | 32 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Options outstanding and exercisable as at December 31, 2019 are as follows:
Exercise price |
Number of options outstanding |
Weighted average
remaining
contractual life |
Number of options
exercisable |
||||||||||
$ | [in thousands] | [years] | [in thousands] | ||||||||||
18.99 | 704 | 9.2 | — | ||||||||||
27.44 | 477 | 2.2 | 389 | ||||||||||
28.63 | 2,001 | 1.1 | 2,001 | ||||||||||
28.67 | 51 | 3.2 | 17 | ||||||||||
33.96 | 2,131 | 0.1 | 2,131 | ||||||||||
35.88 | 220 | 0.3 | 220 | ||||||||||
18.99 to 35.88 | 5,584 | 1.8 | 4,758 | ||||||||||
[C] RESTRICTED SHARE UNITS
CI has an employee restricted share unit plan [the “RSU Plan”] for senior executives and other key employees. Compensation expense is recognized and recorded as contributed surplus based upon the market value of the restricted share units [“RSUs”] at the grant date. Forfeitures of RSUs reduce compensation expense to the extent contributed surplus was previously recorded for such awards. On vesting of RSUs, share capital is credited for the amounts initially recorded as contributed surplus to reflect the issuance of share capital.
During the year ended December 31, 2019, CI granted 736 thousand RSUs [2018 - 579 thousand RSUs], including 39 thousand RSUs granted, to reflect dividends declared on the common shares [2018 - 38 thousand RSUs]. Also during the year ended December 31, 2019, 711 thousand RSUs were exercised, and 32 thousand RSUs were forfeited [2018 - 284 thousand RSUs exercised, and 24 thousand RSUs forfeited]. During the year ended December 31, 2019, CI credited contributed surplus for $14,188, related to compensation expense recognized for the RSUs [2018 - $12,753]. As at December 31, 2019, 657 thousand RSUs are outstanding [2018 - 664 thousand RSUs].
CI uses a Trust to hold CI’s common shares, to fulfill obligations to employees arising from the RSU Plan. The common shares held by the Trust are not considered to be outstanding for the purposes of basic and diluted earnings per share calculations.
[D] DEFERRED SHARE UNITS
The deferred share unit plan [the “DSU Plan”] was established in March 2017, whereby directors may elect to receive all or a portion of their quarterly compensation in either cash or deferred share units [“DSUs”]. The DSUs fully vest on the grant date and an expense is recorded based upon the market value of the DSUs at the grant date with an offset included in accounts payable and accrued liabilities. At the end of each period, the change in the fair value of the DSUs is recorded as an expense with an offset recorded to the liability. DSUs can only be redeemed for cash once the holder ceases to be a director of CI.
During the year ended December 31, 2019, 6 thousand DSUs were granted, and nil DSUs were exercised, [2018 - 2 thousand DSUs, and 12 thousand exercised]. An expense of $195 was recorded during the year ended December 31, 2019, [2018 - $(217)]. As at December 31, 2019, included in accounts payable and accrued liabilities, is an accrual of $464 for amounts to be paid under the DSU Plan [2018 - $269].
Q4 Financial Report | 33 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
[E] BASIC AND DILUTED EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share for the years ended December 31:
[F] MAXIMUM SHARE DILUTION
The following table presents the maximum number of shares that would be outstanding if all the outstanding options were exercised and if all RSU awards vested as at January 31, 2020:
[in thousands] | ||||
Shares outstanding at January 31, 2020 | 220,239 | |||
RSU awards | 577 | |||
Options to purchase shares | 5,495 | |||
226,311 |
Q4 Financial Report | 34 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
10. DIVIDENDS
The following dividends were paid by CI during the year ended December 31, 2019:
Record date | Payment date |
Cash
dividend
|
Total
dividend
|
|||||||
December 31, 2018 | January 15, 2019 | 0.18 | 43,899 | |||||||
March 31, 2019 | April 15, 2019 | 0.18 | 43,285 | |||||||
June 30, 2019 | July 15, 2019 | 0.18 | 42,461 | |||||||
September 30, 2019 | October 15, 2019 | 0.18 | 41,105 | |||||||
Paid during the year ended December 31, 2019 | 170,750 |
The following dividends were declared but not paid as at December 31, 2019:
Record date | Payment date |
Cash
dividend
|
Total
dividend
amount $ |
|||||||
December 31, 2019 | January 15, 2020 | 0.18 | 39,923 | |||||||
March 31, 2020 | April 15, 2020 | 0.18 | 39,922 | |||||||
Declared and accrued as at December 31, 2019 | 79,845 |
The following dividends were paid by CI during the year ended December 31, 2018:
Record date | Payment date |
Cash
dividend
|
Total
dividend
amount $ |
|||||||
December 31, 2017 | January 15, 2018 | 0.1175 | 31,957 | |||||||
January 31, 2018 | February 15, 2018 | 0.1175 | 31,736 | |||||||
February 28, 2018 | March 15, 2018 | 0.1175 | 31,706 | |||||||
March 31, 2018 | April 13, 2018 | 0.1175 | 31,344 | |||||||
April 30, 2018 | May 15, 2018 | 0.1175 | 31,170 | |||||||
May 31, 2018 | June 15, 2018 | 0.1175 | 30,996 | |||||||
June 30, 2018 | July 13, 2018 | 0.1175 | 30,616 | |||||||
July 31, 2018 | August 15, 2018 | 0.1175 | 30,513 | |||||||
September 30, 2018 | October 15, 2018 | 0.1800 | 45,534 | |||||||
Paid during the year ended December 31, 2018 | 295,572 |
Q4 Financial Report | 35 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
The following dividends were declared but not paid as at December 31, 2018:
Record date | Payment date |
Cash
dividend
|
Total
dividend
amount $ |
|||||||
December 31, 2018 | January 15, 2019 | 0.18 | 43,824 | |||||||
March 31, 2019 | April 15, 2019 | 0.18 | 43,822 | |||||||
June 30, 2019 | July 15, 2019 | 0.18 | 43,822 | |||||||
September 30, 2019 | October 15, 2019 | 0.18 | 43,822 | |||||||
December 31, 2019 | January 15, 2020 | 0.18 | 43,822 | |||||||
Declared and accrued as at December 31, 2018 | 219,112 |
11. INCOME TAXES
The following are the major components of income tax expense for the years ended December 31:
2019 | 2018 | |||||
$ | $ | |||||
Consolidated Statements of Income | ||||||
Current income tax expense | ||||||
Based on taxable income of the current year | 189,438 | 229,138 | ||||
Adjustments in respect of prior years | (607 | ) | (129 | ) | ||
188,831 | 229,009 | |||||
Deferred income tax expense | ||||||
Origination and reversal of temporary differences (net) | 450 | (3,556 | ) | |||
450 | (3,556 | ) | ||||
Income tax expense reported in the consolidated statements of income | 189,281 | 225,453 |
The following is a reconciliation between CI’s statutory and effective income tax rates for the years ended December 31:
2019
% |
2018
% |
|||||
Combined Canadian federal and provincial income tax rate | 26.5 | 26.5 | ||||
Increase in income taxes resulting from | ||||||
Recovery of prior years’ provisions for settled tax items | (0.6 | ) | — | |||
Other, net | 0.1 | 0.2 | ||||
Income tax expense reported in the consolidated statements of income and comprehensive income | 26.0 | 26.7 |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of CI’s deferred income tax liabilities and assets are as follows at December 31, 2019:
Q4 Financial Report | 36 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
December 31, 2018 |
Opening
retained earnings adjustments [note 2] |
Recognized
in net income |
Business
acquisition [note 3] |
Recognized
in equity and FX |
December 31, 2019 | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Deferred income tax liabilities | ||||||||||||||||||
Fund contracts | 483,776 | — | (2,425 | ) | 1,345 | — | 482,696 | |||||||||||
Right-of-use assets | — | 17,267 | (5,401 | ) | — | — | 11,866 | |||||||||||
Other | 27 | 635 | 6,392 | 4,404 | — | 11,458 | ||||||||||||
Total deferred income tax liabilities | 483,803 | 17,902 | (1,434 | ) | 5,749 | — | 506,020 | |||||||||||
Deferred income tax assets | ||||||||||||||||||
Equity-based compensation | 12,465 | — | 785 | — | (300 | ) | 12,950 | |||||||||||
Non-capital loss carryforwards | 1,444 | — | 912 | 2,760 | — | 5,116 | ||||||||||||
Provision for other liabilities | 2,910 | — | (220 | ) | — | — | 2,690 | |||||||||||
Lease liabilities | — | 21,567 | (2,404 | ) | — | — | 19,163 | |||||||||||
Other | 901 | — | (957 | ) | — | 1,316 | 1,260 | |||||||||||
Total deferred income tax assets | 17,720 | 21,567 | (1,884 | ) | 2,760 | 1,016 | 41,179 | |||||||||||
Net deferred income tax liabilities | 466,083 | (3,665 | ) | 450 | 2,989 | (1,016 | ) | 464,841 |
Significant components of CI’s deferred income tax liabilities and assets are as follows at December 31, 2018:
December 31, 2017 |
Recognized in
net income |
Recognized in
other comprehensive income |
Recognized in
equity and FX |
December 31, 2018 | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Deferred income tax liabilities | |||||||||||||||
Fund contracts | 488,482 | (4,706 | ) | — | — | 483,776 | |||||||||
Other | 1,413 | (1,386 | ) | — | — | 27 | |||||||||
Total deferred income tax liabilities | 489,895 | (6,092 | ) | — | — | 483,803 | |||||||||
Deferred income tax assets | |||||||||||||||
Equity-based compensation | 8,762 | 2,834 | — | 869 | 12,465 | ||||||||||
Non-capital loss carryforwards | 3,202 | (1,758 | ) | — | — | 1,444 | |||||||||
Provision for other liabilities | 5,099 | (2,189 | ) | — | — | 2,910 | |||||||||
Other | 2,439 | (1,423 | ) | 102 | (217 | ) | 901 | ||||||||
Total deferred income tax assets | 19,502 | (2,536 | ) | 102 | 652 | 17,720 | |||||||||
Net deferred income tax liabilities | 470,393 | (3,556 | ) | (102 | ) | (652 | ) | 466,083 |
Q4 Financial Report | 37 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
12. | FINANCIAL INSTRUMENTS |
The carrying amounts of the financial instruments are presented in the table below and are classified according to the following categories:
December 31, 2019 | December 31, 2018 | |||||
$ | $ | |||||
Financial assets | ||||||
Fair value through profit or loss | ||||||
Cash and cash equivalents | 118,360 | 137,160 | ||||
Investments | 138,412 | 168,122 | ||||
Other assets | 26,856 | 9,507 | ||||
Amortized cost | ||||||
Client and trust funds on deposit | 364,964 | 365,520 | ||||
Accounts receivable | 159,760 | 137,979 | ||||
Other assets | 39,564 | 23,006 | ||||
Total financial assets | 847,916 | 841,294 | ||||
Financial liabilities | ||||||
Fair value through profit or loss | ||||||
Provisions for other liabilities | 8,650 | 11,438 | ||||
Amortized cost | ||||||
Accounts payable and accrued liabilities | 242,176 | 222,233 | ||||
Provision for other liabilities | 24,486 | 23,330 | ||||
Dividends payable | 79,845 | 219,112 | ||||
Client and trust funds payable | 368,348 | 370,756 | ||||
Long-term debt | 1,604,494 | 1,503,733 | ||||
Total financial liabilities | 2,327,999 | 2,350,602 |
CI’s investments as at December 31, 2019 and 2018 include CI’s marketable securities which are comprised of seed capital investments in CI’s mutual funds and strategic investments. Mutual fund securities are valued using the net asset value per unit of each fund, which represents the underlying net assets at fair values determined using closing market prices. CI’s mutual fund securities that are valued daily are classified as level 1 in the fair value hierarchy. Mutual fund securities and strategic investments that are valued less frequently are classified as level 2 in the fair value hierarchy. CI’s investments as at December 31, 2019, also include securities owned, at market, consisting of money market, equity securities and bonds. Money market and equity securities are valued based on quoted prices and are classified as level 1 in the fair value hierarchy. Bonds are valued using a market comparison technique to fair value these instruments using observable broker quotes and are classified as level 2 in the fair value hierarchy. There have been no transfers between level 1 and level 2 during the year.
Q4 Financial Report | 38 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Investments consist of the following as at December 31, 2019:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 118,243 | 40,588 | 74,003 | 3,653 | ||||||||||||
Securities owned, at market | 20,169 | 20,169 | — | — | ||||||||||||
Total investments | 138,412 | 60,757 | 74,003 | 3,653 |
Investments consist of the following as at December 31, 2018:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 132,953 | 56,603 | 72,697 | 3,653 | ||||||||||||
Securities owned, at market | 35,169 | 35,169 | — | — | ||||||||||||
Total investments | 168,122 | 91,772 | 72,697 | 3,653 |
Included in other assets are long-term private equity strategic investments of $26,856 [2018 - $9,507] valued using level 3 inputs.
Included in provision for other liabilities, as at December 31, 2019 is put option payable on non-controlling interest of $7,573 [2018 - $11,438] carried at fair value and classified as level 3 in the fair value hierarchy. Long-term debt as at December 31, 2019 includes debentures with a fair value of $1,586,136 [2018 - $1,208,715], as determined by quoted market prices, which have been classified as level 2 in the fair value hierarchy.
13. | RISK MANAGEMENT |
Risk management is an integrated process with independent oversight. Management has developed an enterprise-wide approach to risk management that involves executives in each core business unit and operating area of CI. Using a quantitative and qualitative analysis, risk factors are assessed and procedures are implemented to mitigate the various events that could impact CI’s financial position and results of operations.
CI’s financial instruments bear the following financial risks:
[A] MARKET RISK
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates, foreign exchange rates, and equity prices. The corporate finance group reviews the exposure to interest rate risk, foreign exchange risk and price risk by identifying, monitoring and reporting potential market risks to the Chief Financial Officer. A description of each component of market risk is described below:
• Interest rate risk is the risk of loss due to the volatility of interest rates.
• Foreign exchange risk is the risk of loss due to volatility of foreign exchange rates.
• Price risk is the risk of loss due to changes in prices and volatility of financial instruments.
Q4 Financial Report | 39 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in the performance and may adversely affect CI’s assets under management and financial results.
(i) Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. Fluctuations in interest rates have a direct impact on the interest payments CI makes on its long-term debt. Debt outstanding on CI’s credit facility of $35,000 [2018 – $283,500] is borrowed at a floating interest rate. In 2017, CI entered into an interest rate swap agreement with a Canadian chartered bank to swap the semi-annual fixed rate payments on the 2021 Debentures $200,000 principal amount for floating rate payments.
Based on the amount borrowed under the credit facility and the 2021 Debentures as at December 31, 2019, each 0.50% increase or decrease in interest rates would result in annual interest expense increasing or decreasing by $1,175 [2018 – $2,418], respectively.
(ii) Foreign exchange risk
CI is exposed to foreign exchange risk primarily from its investment in foreign subsidiaries operating in the United States, Australia and Hong Kong and from CI’s investments denominated in U.S. dollars.
The following table provides the impact on net income and other comprehensive income [“OCI”] of a 10% change in the value of foreign currencies with respect to CI’s net financial assets as at December 31, 2019:
10%
strengthening of
foreign exchange rate on net income |
10%
strengthening of
foreign exchange rate on OCI |
10%
weakening of
foreign exchange rate on net income |
10%
weakening of
foreign exchange rate on OCI |
|||||||||||||
United States dollar | 12,489 | — | (12,489 | ) | — | |||||||||||
Australian dollar | 645 | (313 | ) | (645 | ) | 313 | ||||||||||
Hong Kong dollar | 106 | — | (106 | ) | — |
The following table provides the impact on net income and OCI of a 10% change in the value of foreign currencies with respect to CI’s net financial assets as at December 31, 2018:
10%
strengthening of
foreign exchange rate on net income |
10%
strengthening of
foreign exchange rate on OCI |
10%
weakening of
foreign exchange rate on net income |
10%
weakening of
foreign exchange rate on OCI |
|||||||||||||
United States dollar | 10,213 | — | (10,213 | ) | — | |||||||||||
Australian dollar | 485 | (584 | ) | (485 | ) | 584 | ||||||||||
Hong Kong dollar | 104 | — | (104 | ) | — |
[iii] Price risk
CI incurs price risk through its investments of $138,412 [2018 – $168,122]. Based on the carrying amount of these assets, an increase or decrease in prices by 10% would result in estimated gains or losses of $13,841 [2018 - $16,812], respectively.
Q4 Financial Report | 40 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
[B] LIQUIDITY RISK
Liquidity risk arises from the possibility that CI will encounter difficulties in meeting its financial obligations as they fall due. CI manages its liquidity risk through a combination of cash received from operations as well as borrowings under its revolving credit facility. Liquidity is monitored through a daily cash management process that includes the projection of cash flows to ensure CI meets its funding obligations.
CI’s liabilities have contractual maturities, excluding interest payments, as follows:
Total | 2020 | 2021 | 2022 | 2023 | 2024 | 2027 | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Accounts payable and accrued liabilities | 242,176 | 242,176 | — | — | — | — | — | |||||||||||||||||||||
Dividends payable | 79,845 | 79,845 | — | — | — | — | — | |||||||||||||||||||||
Client and trust funds payable | 368,348 | 368,348 | — | — | — | — | — | |||||||||||||||||||||
Long-term debt | 1,610,000 | 450,000 | 235,000 | — | 325,000 | 350,000 | 250,000 | |||||||||||||||||||||
Put option | 7,573 | 2,525 | 2,524 | 2,524 | — | — | — | |||||||||||||||||||||
Total | 2,307,942 | 1,142,894 | 237,524 | 2,524 | 325,000 | 350,000 | 250,000 |
[C] CREDIT RISK
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed to the risk that third parties that owe it money, securities or other assets will not perform their obligations. Expected credit losses associated with CI’s financial assets are insignificant.
As at December 31, 2019, financial assets of $591,144 [2018 – $536,012], represented by client and trust funds on deposit of $364,964 [2018 – $365,520], accounts receivable of $159,760 [2018 – $137,979] and other assets of $66,420 [2018 – $32,513], were exposed to credit risk. CI does not have a significant exposure to any individual counterparty. Credit risk is mitigated by regularly monitoring the credit performance of each individual counterparty and holding collateral, where appropriate.
Client and trust funds on deposit consist mainly of cash deposits or unsettled trade receivables. CI may also extend amounts to clients on a margin basis for security purchases. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory requirements and by CI’s internal credit policy. Credit risk is managed by dealing with counterparties CI believes to be creditworthy and by actively monitoring credit and margin exposure and the financial health of the counterparties.
CI’s accounts receivable consist primarily of management fees receivable, amounts due to CI from the government agencies with respect to input tax credits and other short-term receivables due within 90 days.
Q4 Financial Report | 41 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Securities lending and borrowing agreements consist of the following as at December 31, 2019:
Cash | Securities | |||||||
$ | $ | |||||||
Loaned or delivered as collateral | 10,958 | 11,176 | ||||||
Borrowed or received as collateral | 13,051 | 13,657 |
Securities lending and borrowing agreements consist of the following as at December 31, 2018:
Cash | Securities | |||||||
$ | $ | |||||||
Loaned or delivered as collateral | 4,898 | 5,535 | ||||||
Borrowed or received as collateral | 11,618 | 11,506 |
CI uses securities lending and borrowing to facilitate the securities settlement process. These transactions are typically short-term in nature, fully collateralized by either cash or securities and subject to daily margin calls for any deficiency between the market value of the security given and the amount of collateral received. CI manages its credit exposure by establishing and monitoring aggregate limits by counterparty for these transactions. Cash loaned or delivered as collateral is included in accounts receivable and cash borrowed or received as collateral is included in accounts payable and accrued liabilities.
Other assets consist mainly of long-term investments, long-term accounts receivable, loans granted under CI’s employee share purchase plan and loans extended to investment advisors under CI’s hiring and incentive program. Employee loans are collateralized by CI shares and become due immediately upon termination of the employee or upon the sale of the shares held as collateral. Commissions may be used to offset loan amounts made to investment advisors in the event of default. Credit risk associated with other assets is limited given the nature of the relationship with the counterparties.
14. | CAPITAL MANAGEMENT |
CI’s objectives in managing capital are to maintain a capital structure that allows CI to meet its growth strategies and build long-term shareholder value, while satisfying its financial obligations and meeting its long-term debt covenants. CI’s capital comprise shareholders’ equity and long-term debt (including the current portion of long-term debt).
CI and its subsidiaries are subject to minimum regulatory capital requirements whereby sufficient cash and other liquid assets must be on hand to maintain capital requirements rather than using them in connection with its business. As at December 31, 2019, cash and cash equivalents of $12,810 [2018 - $20,226] were required to be on hand for regulatory capital maintenance. Failure to maintain required regulatory capital by CI may result in fines, suspension or revocation of registration by the relevant securities regulator. CI from time to time provides loans to its subsidiaries for operating purposes and may choose to subordinate these loans in favour of general creditors. The repayment of subordinated loans is subject to regulatory approval. As at December 31, 2019 and December 31, 2018, CI met its capital requirements.
Q4 Financial Report | 42 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI’s capital consists of the following:
As at | As at | |||||
December 31, 2019 | December 31, 2018 | |||||
$ | $ | |||||
Shareholders’ equity | 1,493,988 | 1,430,077 | ||||
Long-term debt | 1,604,494 | 1,503,733 | ||||
Total capital | 3,098,482 | 2,933,810 |
15. COMMITMENTS
LEASE COMMITMENTS
CI has entered into leases relating to the rental of office premises and computer equipment. CI has the option to renew certain leases. The approximate future minimum annual rental payments under such leases are as follows:
$ | |||
2020 | 13,939 | ||
2021 | 13,461 | ||
2022 | 12,808 | ||
2023 | 12,692 | ||
2024 | 12,647 | ||
2025 and thereafter | 16,780 |
ADVISOR SERVICES AGREEMENTS
CI is a party to certain advisor services agreements, which provide that the advisor has the option to require CI to purchase a practice that cannot otherwise be transitioned to a qualified buyer. The purchase price would be in accordance with a pre-determined formula contained in the advisor services agreements.
INDEMNITIES
CI has agreed to indemnify its directors and officers, and certain of its employees in accordance with its by-laws. CI maintains insurance policies that may provide coverage against certain claims.
Q4 Financial Report | 43 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
16. SEGMENTED INFORMATION
CI has two reportable segments: asset management and asset administration. These segments reflect CI’s internal financial reporting and performance measurement.
The asset management segment includes the operating results and financial position of CI Investments, CI Private Counsel LP, GSFM and Marret, which derive their revenues principally from the fees earned on the management of several families of mutual funds, segregated funds and exchange traded funds.
The asset administration segment includes the operating results and financial position of WealthBar, BBS and AWM and its subsidiaries, including Assante Capital Management Ltd. and Assante Financial Management Ltd. These companies derive their revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients.
Segmented information as at and for the year ended December 31, 2019 is as follows:
Asset management |
Asset administration |
Intersegment eliminations | Total | |||||||||
$ | $ | $ | $ | |||||||||
Management fees | 1,857,918 | — | — | 1,857,918 | ||||||||
Administration fees | — | 397,396 | (176,952 | ) | 220,444 | |||||||
Other income | 5,738 | 35,127 | — | 40,865 | ||||||||
Total revenue | 1,863,656 | 432,523 | (176,952 | ) | 2,119,227 | |||||||
Selling, general and administrative | 387,534 | 101,738 | — | 489,272 | ||||||||
Trailer fees | 615,786 | — | (30,907 | ) | 584,879 | |||||||
Investment dealer fees | — | 318,683 | (145,333 | ) | 173,350 | |||||||
Deferred sales commissions | 13,526 | — | (712 | ) | 12,814 | |||||||
Amortization and depreciation | 22,350 | 10,541 | — | 32,891 | ||||||||
Other expenses | 38,714 | 5,080 | — | 43,794 | ||||||||
Total expenses | 1,077,910 | 436,042 | (176,952 | ) | 1,337,000 | |||||||
Income before income taxes and non-segmented items | 785,746 | (3,519 | ) | — | 782,227 | |||||||
Interest and lease finance | (55,422 | ) | ||||||||||
Provision for income taxes | (189,281 | ) | ||||||||||
Net income for the year | 537,524 | |||||||||||
Identifiable assets | 473,075 | 583,501 | — | 1,056,576 | ||||||||
Indefinite life intangibles | ||||||||||||
Goodwill | 1,309,008 | 222,265 | — | 1,531,273 | ||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||
Total assets | 3,562,040 | 805,766 | — | 4,367,806 |
Q4 Financial Report | 44 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Segmented information as at and for the year ended December 31, 2018 is as follows:
Asset management $ |
Asset administration $ |
Intersegment eliminations $ |
Total $ |
|||||||||
Management fees | 2,004,151 | — | — | 2,004,151 | ||||||||
Administration fees | — | 372,357 | (174,766 | ) | 197,591 | |||||||
Other income | 2,308 | 32,315 | — | 34,623 | ||||||||
Total revenue | 2,006,459 | 404,672 | (174,766 | ) | 2,236,365 | |||||||
Selling, general and administrative | 414,742 | 97,822 | — | 512,564 | ||||||||
Trailer fees | 662,829 | — | (31,586 | ) | 631,243 | |||||||
Investment dealer fees | — | 298,024 | (142,153 | ) | 155,871 | |||||||
Deferred sales commissions | 23,140 | — | (1,027 | ) | 22,113 | |||||||
Amortization and depreciation | 16,649 | 3,897 | — | 20,546 | ||||||||
Other expenses | 7,386 | 288 | — | 7,674 | ||||||||
Total expenses | 1,124,746 | 400,031 | (174,766 | ) | 1,350,011 | |||||||
Income before income taxes and non-segmented items | 881,713 | 4,641 | — | 886,354 | ||||||||
Interest | (43,054 | ) | ||||||||||
Provision for income taxes | (225,453 | ) | ||||||||||
Net income for the year | 617,847 | |||||||||||
Identifiable assets | 432,264 | 558,890 | — | 991,154 | ||||||||
Indefinite life intangibles | ||||||||||||
Goodwill | 1,310,510 | 210,595 | — | 1,521,105 | ||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||
Total assets | 3,522,731 | 769,485 | — | 4,292,216 |
Q4 Financial Report | 45 | December 31, 2019 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
17. COMPENSATION OF KEY MANAGEMENT
The remuneration of directors and other key management personnel of CI during the years ended December 31, is as follows:
2019 | 2018 | |||||
$ | $ | |||||
Salaries | 6,976 | 6,453 | ||||
Equity-based compensation | 1,827 | 2,847 | ||||
Total | 8,803 | 9,300 |
18. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Included in selling, general and administrative expenses [“SG&A”] are salaries and benefits of $265,908 for the year ended December 31, 2019 [2018 - $279,728]. Other SG&A of $223,364 for the year ended December 31, 2019, primarily includes marketing and information technology expenses as well as professional and regulatory fees [2018 - $232,836].
19. AMORTIZATION AND DEPRECIATION
The following table provides details of amortization and depreciation:
2019 | 2018 | |||||
$ | $ | |||||
Depreciation of capital assets | 11,491 | 9,954 | ||||
Depreciation of right-of-use assets | 8,786 | — | ||||
Amortization of intangibles | 11,312 | 9,645 | ||||
Amortization of debenture transaction costs | 1,302 | 947 | ||||
Total amortization and depreciation | 32,891 | 20,546 |
20. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the consolidated financial statement presentation in the current year.
This Report contains forward-looking statements with respect to CI, including its business operations and strategy and financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things, general economic and market factors, including interest rates, business competition, changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time. |
Q4 Financial Report | 46 | December 31, 2019 |
Exhibit 99.6
MANAGEMENT’S DISCUSSION & ANALYSIS | December 31, 2019
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This Management’s Discussion and Analysis (“MD&A”) dated February 13, 2020 presents an analysis of the financial position of CI Financial Corp. and its subsidiaries (“CI”) as at December 31, 2019, compared with December 31, 2018, and the results of operations for the quarter and year ended December 31, 2019, compared with the quarter and year ended December 31, 2018 and the quarter ended September 30, 2019.
CI’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Amounts are expressed in Canadian dollars. The principal subsidiaries referenced herein include CI Investments Inc. (“CI Investments”) and Assante Wealth Management (Canada) Ltd. (“AWM” or “Assante”). The Asset Management segment of the business includes the operating results and financial position of CI Investments and its subsidiaries, including CI Private Counsel LP (“CIPC”), as well as the operating results and financial position of GSFM Pty Limited (“GSFM”). First Asset Investment Management Inc., formerly a subsidiary of CI Investments, was amalgamated on July 1, 2019. The Asset Administration segment includes the operating results and financial position of AWM and its subsidiaries, including Assante Capital Management Ltd. (“ACM”) and Assante Financial Management Ltd. (“AFM”), as well as the operating results and financial position of BBS Securities Inc. (“BBS”) and WealthBar Financial Services Inc. (“WealthBar”).
Q4 Financial Report | 2 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This MD&A contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp. (“CI”) and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time. The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward-looking statement after the date on which it is made, whether to reflect new information, future events or otherwise.
This MD&A includes several non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full year results from period to period. Descriptions of these non-IFRS measures and reconciliations to the nearest IFRS measure, where necessary, are provided in the “Non-IFRS Measures” section of this MD&A. Note that figures in tables may not add due to rounding.
Q4 Financial Report | 3 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 1: SELECTED ANNUAL INFORMATION
Fiscal Years Ending December 31 | ||||||||||||
[millions, except per share amounts] | 2019 | 2018 | 2017 | |||||||||
Management fees | $ | 1,857.9 | $ | 2,004.2 | $ | 1,897.1 | ||||||
Total revenue | $ | 2,119.2 | $ | 2,236.4 | $ | 2,111.3 | ||||||
Selling, general & administrative | $ | 489.3 | $ | 512.6 | $ | 451.6 | ||||||
Total expenses | $ | 1,392.4 | $ | 1,393.1 | $ | 1,303.6 | ||||||
Income before income taxes | $ | 726.8 | $ | 843.3 | $ | 807.7 | ||||||
Income taxes | $ | 189.3 | $ | 225.5 | $ | 258.8 | ||||||
Non-controlling interest | $ | -0.9 | $ | 0.4 | $ | -0.2 | ||||||
Net income available to shareholders | $ | 538.4 | $ | 617.5 | $ | 549.1 | ||||||
Adjusted net income1 | $ | 565.0 | $ | 617.5 | $ | 628.4 | ||||||
Free cash flow1 | $ | 603.1 | $ | 655.5 | $ | 648.4 | ||||||
Basic earnings per share | $ | 2.30 | $ | 2.38 | $ | 2.08 | ||||||
Diluted earnings per share | $ | 2.29 | $ | 2.38 | $ | 2.08 | ||||||
Adjusted earnings per share1 | $ | 2.41 | $ | 2.38 | $ | 2.38 | ||||||
Adjusted EBITDA1 | $ | 850.5 | $ | 906.2 | $ | 891.8 | ||||||
Total assets | $ | 4,368 | $ | 4,292 | $ | 4,345 | ||||||
Gross debt | $ | 1,604 | $ | 1,504 | $ | 1,118 | ||||||
Net debt1 | $ | 1,383 | $ | 1,255 | $ | 861 | ||||||
Average shares outstanding | 234.3 | 259.3 | 264.4 | |||||||||
Shares outstanding | 221.8 | 243.7 | 271.9 | |||||||||
Share price | $ | 21.71 | $ | 17.28 | $ | 29.77 | ||||||
Market capitalization | $ | 4,815 | $ | 4,212 | $ | 8,094 |
1 Adjusted net income, adjusted earnings per share, free cash flow, adjusted EBITDA and net debt are not standardized earnings measures prescribed by IFRS. Descriptions of these non-IFRS measures, as well as others, and reconciliations to IFRS, where necessary, are provided in the "Non-IFRS Measures" section of this MD&A.
Q4 Financial Report | 4 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 2: SUMMARY OF QUARTERLY RESULTS
[millions of dollars, except per share amounts] | 2019 | 2018 | ||||||||||||||||||||||
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||||||
Management fees | 464.4 | 465.6 | 468.5 | 459.5 | 474.2 | 509.9 | 506.3 | 513.7 | ||||||||||||||||
Administration fees | 59.4 | 54.9 | 53.6 | 52.4 | 51.8 | 50.2 | 47.5 | 48.1 | ||||||||||||||||
Other revenues | 10.8 | 7.0 | 8.2 | 14.9 | 3.2 | 8.9 | 10.8 | 11.7 | ||||||||||||||||
Total revenues | 534.7 | 527.5 | 530.3 | 526.8 | 529.2 | 569.0 | 564.6 | 573.5 | ||||||||||||||||
Selling, general & administrative | 113.8 | 124.6 | 124.8 | 126.1 | 123.5 | 128.9 | 127.3 | 132.9 | ||||||||||||||||
Trailer fees | 145.7 | 146.5 | 148.1 | 144.6 | 149.1 | 160.6 | 159.6 | 162.0 | ||||||||||||||||
Investment dealer fees | 46.9 | 43.2 | 42.4 | 40.8 | 40.5 | 40.1 | 37.6 | 37.7 | ||||||||||||||||
Deferred sales commissions paid | 2.4 | 2.6 | 3.1 | 4.6 | 3.9 | 4.1 | 5.6 | 8.5 | ||||||||||||||||
Interest and lease finance | 14.2 | 13.8 | 13.7 | 13.7 | 12.4 | 11.6 | 9.9 | 9.3 | ||||||||||||||||
Amortization and depreciation | 8.2 | 8.2 | 8.3 | 8.2 | 5.4 | 5.2 | 5.1 | 4.9 | ||||||||||||||||
Other expenses | 2.3 | 2.4 | 37.4 | 1.6 | 3.1 | 0.8 | 1.6 | 2.1 | ||||||||||||||||
Total expenses | 333.6 | 341.3 | 377.9 | 339.6 | 337.8 | 351.2 | 346.7 | 357.4 | ||||||||||||||||
Income before income taxes | 201.1 | 186.2 | 152.4 | 187.2 | 191.3 | 217.8 | 218.0 | 216.2 | ||||||||||||||||
Income taxes | 53.8 | 47.4 | 40.9 | 47.2 | 51.0 | 59.5 | 58.0 | 57.0 | ||||||||||||||||
Non-controlling interest | (0.3 | ) | (0.2 | ) | (0.3 | ) | (0.1 | ) | — | 0.1 | 0.1 | 0.1 | ||||||||||||
Net income attributable to shareholders | 147.5 | 139.0 | 111.9 | 140.0 | 140.3 | 158.2 | 159.9 | 159.0 | ||||||||||||||||
Earnings per share | 0.66 | 0.60 | 0.47 | 0.58 | 0.57 | 0.62 | 0.61 | 0.59 | ||||||||||||||||
Diluted earnings per share | 0.65 | 0.60 | 0.47 | 0.58 | 0.57 | 0.62 | 0.60 | 0.59 | ||||||||||||||||
Dividends paid per share | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.2350 | 0.3525 | 0.3525 |
Q4 Financial Report | 5 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
BUSINESS OVERVIEW
CI is a diversified wealth management firm and through CI Investments, one of Canada’s largest independent investment fund companies. The principal business of CI is the management, marketing, distribution and administration of investment products for Canadian investors. CI also provides financial advice, tax, retirement, estate and wealth planning services to clients of Assante, CIPC, and WealthBar. In addition, CI has asset management operations in Australia through its subsidiary GSFM. CI’s products are distributed primarily through brokers, independent financial planners and insurance advisors, including ACM and AFM financial advisors. CI operates through two business segments, Asset Management and Asset Administration. The Asset Management segment provides the majority of CI’s income and derives its revenue principally from the fees earned on the management of investment funds and other fee-earning investment products. The Asset Administration segment derives its revenue principally from fees and commissions from ongoing service and on the sale of investment funds and other financial products.
BUSINESS STRATEGY
CI provides wealth and investment management services and earns fee revenue on its assets under management (“AUM”) and assets under administration (“AUA”). Management believes that client goals and asset growth can be achieved by focusing on the following factors: quality and diversity of products offered by CI; experience and depth of investment managers; service levels provided to dealers and investors; and the skill and knowledge of its employees.
CI offers investors a wide range of investment products through a network of investment dealers, mutual fund dealers, and insurance agents, which include advisors with AWM. Acquisitions of fund management companies and years of product innovation and development have allowed CI to offer investors a broad selection of investment products.
CI uses in-house teams and external investment managers to provide portfolio management services. These investment managers typically have long careers in the industry as well as extensive track records with CI. This lineup of investment managers provides a wide selection of styles and areas of expertise for CI’s funds.
As CI evolves to meet the challenges of a rapidly changing investment industry, it continues to make significant investments in key areas of the business to drive growth and broaden revenue opportunities, while prudently controlling expenditures.
Q4 Financial Report | 6 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
These investments are guided by three strategic priorities, announced in November 2019:
• | Modernize the asset management business | |
• | Expand the wealth management platform | |
• | Globalize the company. |
In executing its strategy, the firm is leveraging its strategic foundation comprised of People, Technology, Speed and Financial Strength. By deploying its human capital and capabilities, driving advanced technology into everything the firm does, embedding new ways of working to be faster and more nimble, and maximizing the benefits of its financial strength, CI intends to maintain and grow its leadership in the asset management and wealth management industries.
KEY PERFORMANCE DRIVERS
The key performance indicator for the Asset Management segment is the level of AUM, and for the Asset Administration segment, the level of AUA. Assets Under Advisement includes both AUA (assets under administration) and assets held by clients of advisors with Stonegate Private Counsel. Total assets are comprised of AUM and Assets Under Advisement. CI’s AUM and AUA are primarily driven by fund performance, as well as gross sales and redemptions of investment products. As most of CI’s revenues and expenses are based on daily asset levels throughout the year, average assets for a particular period are critical to the analysis of CI’s financial results. While some expenses, such as trailer fees, vary directly with the level of AUM, a portion of CI’s expenses do not, such as a portion of overhead, discretionary spend, and deferred sales commissions. Over the long term, CI manages the level of its discretionary spend to be consistent with, or below, the growth in its revenue. In any given period, CI may choose to make investments in people or technology that benefit the long-term growth of the company.
CI uses several performance indicators to assess its results. These indicators are described throughout the results of operations and the discussion of the two operating segments and include the following measures prescribed by IFRS: net income and earnings per share; and measures not prescribed by IFRS: adjusted net income, adjusted earnings per share, operating cash flow, free cash flow, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, dealer gross margin, net debt, asset management margin, and SG&A efficiency margin. Descriptions of these non-IFRS measures and reconciliations to IFRS are provided below.
Q4 Financial Report | 7 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NON-IFRS MEASURES
CI reports certain financial information using non-IFRS measures as CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full-year results from period to period.
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
CI defines adjusted net income as net income, net of non-controlling interest, and net of other provisions and adjustments. CI uses adjusted net income and adjusted earnings per share to compare underlying profitability for different periods.
TABLE 3: ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
[millions of dollars, except per share amounts] |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Dec. 31, 2018 |
Year
ended
Dec. 31, 2019 |
Year
ended
Dec. 31, 2018 |
||||||||||
Net Income | 147.3 | 138.8 | 140.4 | 537.5 | 617.8 | ||||||||||
Add: | |||||||||||||||
Restructuring provision | — | — | — | 26.6 | — | ||||||||||
Less: | |||||||||||||||
Non-controlling interest | (0.3 | ) | (0.2 | ) | — | (0.9 | ) | 0.4 | |||||||
Adjusted net income | 147.5 | 139.0 | 140.3 | 565.0 | 617.5 | ||||||||||
Adjusted earnings per share | 0.66 | 0.60 | 0.57 | 2.41 | 2.38 |
OPERATING CASH FLOW AND FREE CASH FLOW
CI measures its operating cash flow before the change in operating assets and liabilities, and the actual cash amount paid for interest and income taxes, as these items often distort the cash flow generated during the period. Operating assets and liabilities are affected by seasonality, the timing of interest payments depends on terms in specific debt instruments, and tax installments paid may differ materially from the cash tax accrual.
Free cash flow is calculated as operating cash flow adjusted for provisions. CI uses this measure, among others, when determining how to deploy capital.
Q4 Financial Report | 8 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 4: OPERATING CASH FLOW AND FREE CASH FLOW
[millions of dollars] |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Dec. 31, 2018 |
Year ended
Dec. 31, 2019 |
Year ended
Dec. 31, 2018 |
||||||||||
Cash provided by operating activities | 157.0 | 127.7 | 178.3 | 558.0 | 608.2 | ||||||||||
Add: | |||||||||||||||
Income taxes paid | 43.0 | 69.6 | 57.7 | 205.6 | 240.5 | ||||||||||
Interest paid | 10.8 | 12.4 | 12.4 | 49.5 | 38.3 | ||||||||||
Less: | |||||||||||||||
Net change in non-cash working capital | 42.5 | 65.0 | 91.8 | 231.9 | 231.5 | ||||||||||
Operating cash flow | 168.3 | 144.7 | 156.5 | 581.2 | 655.5 | ||||||||||
Add: | |||||||||||||||
Restructuring provision | — | — | — | 21.9 | — | ||||||||||
Free cash flow | 168.3 | 144.7 | 156.5 | 603.1 | 655.5 |
EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
CI uses EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA, which it defines as EBITDA, net of non-controlling interest and other provisions and adjustments, to assess its underlying profitability prior to the impact of its financing structure, income taxes and amortization and depreciation. This permits comparisons of companies within the industry, normalizing for different financing methods and levels of taxation. Adjusted EBITDA is a measure of operating performance, a facilitator for valuation and a proxy for cash flow. Adjusted EBITDA margin expresses adjusted EBITDA as a percentage of total revenue. Please note that effective January 1, 2019, CI adopted IFRS 16, an accounting standard that requires lessees to recognize assets and liabilities for leases longer than 12 months. This change impacts EBITDA by replacing lease expense with interest and depreciation, which are not included in EBITDA. This accounting change was not adopted retroactively - further information can be found in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements.
Q4 Financial Report | 9 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 5: EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
[millions of dollars, except per share amounts] |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Dec. 31, 2018 |
Year ended
Dec. 31, 2019 |
Year ended
Dec. 31, 2018 |
|||||||||||||||
Net Income | 147.3 | 138.8 | 140.4 | 537.5 | 617.8 | |||||||||||||||
Add: | ||||||||||||||||||||
Interest and lease finance | 14.2 | 13.8 | 12.4 | 55.4 | 43.1 | |||||||||||||||
Provision for income taxes | 53.8 | 47.4 | 51.0 | 189.3 | 225.5 | |||||||||||||||
Amortization and depreciation | 8.2 | 8.2 | 5.4 | 32.9 | 20.5 | |||||||||||||||
EBITDA | 223.5 | 208.2 | 209.1 | 815.1 | 906.9 | |||||||||||||||
EBITDA per share | 0.99 | 0.90 | 0.85 | 3.48 | 3.50 | |||||||||||||||
Add: | ||||||||||||||||||||
Restructuring provision | — | — | — | 35.0 | — | |||||||||||||||
Less: | ||||||||||||||||||||
Non-controlling interest | (0.2 | ) | — | 0.1 | (0.4 | ) | 0.7 | |||||||||||||
Adjusted EBITDA | 223.7 | 208.2 | 209.0 | 850.5 | 906.2 | |||||||||||||||
Adjusted EBITDA per share | 0.99 | 0.90 | 0.85 | 3.63 | 3.50 | |||||||||||||||
Total revenue | 534.7 | 527.5 | 529.2 | 2,119.2 | 2,236.4 | |||||||||||||||
Adjusted EBITDA Margin | 41.8 | % | 39.5 | % | 39.5 | % | 40.1 | % | 40.5 | % |
NET DEBT
CI calculates net debt as long-term debt (including the current portion) less cash and marketable securities, net of cash required for regulatory purposes and non-controlling interests. Net debt is a measure of leverage and CI uses this measure to assess its financial flexibility.
TABLE 6: NET DEBT
As at | As at | |||||||
[millions of dollars] | Dec. 31, 2019 | Dec. 31, 2018 | ||||||
Current portion of long-term debt | 449.5 | — | ||||||
Long-term debt | 1,155.0 | 1,503.7 | ||||||
1,604.5 | 1,503.7 | |||||||
Less: | ||||||||
Cash and short-term investments | 118.4 | 137.2 | ||||||
Marketable securities, excluding BBS’ securities owned, at market | 118.2 | 133.0 | ||||||
Add: | ||||||||
Regulatory capital and non-controlling interests | 14.7 | 21.7 | ||||||
Net Debt | 1,382.6 | 1,255.3 |
Q4 Financial Report | 10 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
DEALER GROSS MARGIN
CI monitors its operating profitability on the revenues earned within its Asset Administration segment by measuring its dealer gross margin, which is calculated as administration fee revenue less investment dealer fees, divided by administration fee revenue (all figures before inter-segment eliminations). CI uses this measure to assess the profitability of the Asset Administration segment before SG&A expenses.
TABLE 7: DEALER GROSS MARGIN
[millions of dollars] |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Dec. 31, 2018 |
Year ended
Dec. 31, 2019 |
Year ended
Dec. 31, 2018 |
|||||||||||||||
Administration fees | 104.9 | 99.8 | 94.2 | 397.4 | 372.4 | |||||||||||||||
Less: | ||||||||||||||||||||
Investment dealer fees | 84.2 | 80.1 | 75.4 | 318.7 | 298.0 | |||||||||||||||
20.7 | 19.7 | 18.7 | 78.7 | 74.3 | ||||||||||||||||
Dealer gross margin | 19.7 | % | 19.8 | % | 19.9 | % | 19.8 | % | 20.0 | % |
ASSET MANAGEMENT MARGIN
CI assesses the overall performance of the asset management segment using a trailing 12-month asset management margin, where deferred sales commissions, trailer fees, and SG&A expenses are deducted from management fees and measured as a percentage of management fees (all figures are before inter-segment eliminations). This removes distortion caused by other revenues and expenses, eliminates the financing impact of back-end load funds, and eliminates revenue mix variances because it is measured as a percentage of management fees and not average AUM. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
TABLE 8: ASSET MANAGEMENT MARGIN
[millions of dollars - trailing 12 months] |
Quarter ended
Dec. 31, 2019 |
Quarter ended
Sep. 30, 2019 |
Quarter ended
Jun. 30, 2019 |
Quarter ended
Mar. 31, 2019 |
Quarter ended
Dec. 31, 2018 |
|||||||||||||||
Management fees | 1,857.9 | 1,867.7 | 1,912.0 | 1,949.9 | 2,004.2 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 13.5 | 15.0 | 16.5 | 19.1 | 23.1 | |||||||||||||||
Trailer fees | 615.8 | 618.5 | 632.8 | 644.8 | 662.8 | |||||||||||||||
Net management fees | 1,228.6 | 1,234.3 | 1,262.8 | 1,286.0 | 1,318.2 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 387.5 | 397.3 | 403.7 | 407.3 | 414.7 | |||||||||||||||
841.1 | 836.9 | 859.1 | 878.7 | 903.4 | ||||||||||||||||
Asset management margin | 45.3 | % | 44.8 | % | 44.9 | % | 45.1 | % | 45.1 | % |
Q4 Financial Report | 11 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
SG&A EFFICIENCY MARGIN
CI uses a trailing 12-month SG&A efficiency margin to assess its costs relative to management fees earned, net of deferred sales commissions and trailer fees, which are not directly controllable by CI. SG&A expenses are subtracted from these net management fees and the remainder is measured as a percentage of net management fees. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
TABLE 9: SG&A EFFICIENCY MARGIN
[millions of dollars - trailing 12 months] |
Quarter ended
Dec. 31, 2019 |
Quarter ended
Sep. 30, 2019 |
Quarter ended
Jun. 30, 2019 |
Quarter ended
Mar. 31, 2019 |
Quarter ended
Dec. 31, 2018 |
|||||||||||||||
Management fees | 1,857.9 | 1,867.7 | 1,912.0 | 1,949.9 | 2,004.2 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 13.5 | 15.0 | 16.5 | 19.1 | 23.1 | |||||||||||||||
Trailer fees | 615.8 | 618.5 | 632.8 | 644.8 | 662.8 | |||||||||||||||
Net management fees | 1,228.6 | 1,234.3 | 1,262.8 | 1,286.0 | 1,318.2 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 387.5 | 397.3 | 403.7 | 407.3 | 414.7 | |||||||||||||||
841.1 | 836.9 | 859.1 | 878.7 | 903.4 | ||||||||||||||||
SG&A efficiency margin | 68.5 | % | 67.8 | % | 68.0 | % | 68.3 | % | 68.5 | % |
ASSETS AND SALES
CI is one of Canada’s largest independent investment fund companies with assets under management of $132.1 billion and assets under advisement of $49.8 billion at December 31, 2019, as shown in Table 10. Assets under advisement are comprised of AUA and assets held by clients of advisors with Stonegate Private Counsel. Assets under management increased 6% year over year due to fund performance, partially offset by net redemptions of funds. The 19% increase in assets under advisement from last year was due to fund performance, net sales, advisor recruitment, and the acquisition of WealthBar. Total assets, which include mutual, segregated, separately managed accounts, structured products, exchange-traded funds, pooled funds and assets under advisement, were $181.9 billion at December 31, 2019, up $15.7 billion from $166.2 billion at December 31, 2018.
TABLE 10: TOTAL ASSETS
As at | As at | |||||||||||
[billions of dollars] | December 31, 2019 | December 31, 2018 | % change | |||||||||
Assets under management | 132.1 | 124.4 | 6 | |||||||||
Assets under advisement1 | 49.8 | 41.8 | 19 | |||||||||
Total assets | 181.9 | 166.2 | 9 |
1Includes $29.4 billion and $25.2 billion of assets managed by CI and held by clients of advisors with Assante and Stonegate in 2019 and 2018, respectively.
Q4 Financial Report | 12 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Supported by low interest rates and healthy corporate fundamentals, global equity markets advanced in the fourth quarter and registered solid results for 2019, with many finishing the year close to their all-time highs. The MSCI World Index rose 6.5% in Canadian dollar terms during the last three months of 2019, bringing its gain for the year to 22.4%. And despite ongoing trade uncertainty and the developing impeachment process in the United States, the S&P 500 Index, a broad measure of the U.S. equity market, was up 6.9% for the quarter and finished 2019 with an increase of 25.2% (CAD), including dividends.
Canadian equities also advanced in 2019, with supportive business conditions and strong commodity prices boosting results for most sectors. The benchmark S&P/TSX Composite Index climbed 3.2% in the fourth quarter, capping off a 22.8% gain for the year.
The change in AUM during each of the past five quarters is detailed in Table 11 and a breakdown of CI’s sales is provided in Table 12.
TABLE 11: CHANGE IN ASSETS UNDER MANAGEMENT
[billions of dollars] |
Quarter ended
Dec. 31, 2019 |
Quarter ended
Sep. 30, 2019 |
Quarter ended
Jun. 30, 2019 |
Quarter ended
Mar. 31, 2019 |
Quarter ended
Dec. 31, 2018 |
|||||||||||||||
Assets under management, beginning | 129.998 | 130.186 | 131.309 | 124.360 | 136.526 | |||||||||||||||
Gross sales | 4.489 | 3.577 | 2.908 | 3.596 | 3.023 | |||||||||||||||
Redemptions | 6.388 | 5.116 | 5.375 | 5.860 | 5.742 | |||||||||||||||
Net sales | (1.898 | ) | (1.539 | ) | (2.467 | ) | (2.265 | ) | (2.719 | ) | ||||||||||
Acquisitions (divestitures) | — | — | (0.560 | ) | — | — | ||||||||||||||
Fund performance | 4.030 | 1.351 | 1.904 | 9.214 | (9.447 | ) | ||||||||||||||
Assets under management, ending | 132.130 | 129.998 | 130.186 | 131.309 | 124.360 | |||||||||||||||
Average assets under management | 130.920 | 129.784 | 131.133 | 128.887 | 129.316 |
CI reported $1.9 billion in overall net redemptions for the fourth quarter of 2019. CI’s Canadian retail business, excluding products closed to new investors, had $0.4 billion in net redemptions, representing an improvement of $1.0 billion over the third quarter of 2019 and an improvement of $1.9 billion over the fourth quarter of 2018. CI’s Canadian institutional business had $1.5 billion in net redemptions, a large proportion of which related to a client that brought assets in-house. CI’s international business had net sales of $0.2 billion for the fourth quarter of 2019, while CI’s closed business, comprised primarily of segregated fund contracts that are no longer available for sale, had $0.2 billion in net redemptions for the quarter.
Q4 Financial Report | 13 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 12: SALES BREAKDOWN
Quarter ended December 31, 2019 | Quarter ended December 31, 2018 | |||||||||||||||||||||||
[millions of dollars] | Gross Sales | Redemptions | Net Sales | Gross Sales | Redemptions | Net Sales | ||||||||||||||||||
Canadian Business | ||||||||||||||||||||||||
Retail | 3,830 | 4,241 | (411 | ) | 2,160 | 4,491 | (2,331 | ) | ||||||||||||||||
Institutional | 383 | 1,853 | (1,469 | ) | 414 | 802 | (389 | ) | ||||||||||||||||
4,213 | 6,093 | (1,881 | ) | 2,574 | 5,294 | (2,720 | ) | |||||||||||||||||
International Business | ||||||||||||||||||||||||
Retail | 79 | 33 | 46 | 225 | 76 | 150 | ||||||||||||||||||
Institutional | 190 | 8 | 182 | 209 | 99 | 110 | ||||||||||||||||||
269 | 41 | 228 | 434 | 175 | 260 | |||||||||||||||||||
Closed Business | 8 | 253 | (245 | ) | 15 | 274 | (259 | ) | ||||||||||||||||
Total | 4,489 | 6,388 | (1,898 | ) | 3,023 | 5,742 | (2,719 | ) |
Q4 Financial Report | 14 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RESULTS OF OPERATIONS
Year Ended December 31, 2019
For the year ended December 31, 2019, CI reported net income attributable to shareholders of $538.4 million ($2.30 per share) versus $617.5 million ($2.38 per share) for the year ended December 31, 2018. The second quarter of 2019 included a restructuring provision of $26.6 million ($35.0 million before tax) related to severances and technology write downs. Excluding the provision, CI’s net income attributable to shareholders was $565.0 million ($2.41 per share) for 2019. The year-over-year decrease in adjusted net income was primarily a result of lower management fees due to lower average AUM.
CI’s total revenue was $2,119.2 million in 2019, a decrease of 5.2% when compared to total revenue of $2,236.4 million in 2018. Similar to net income, the decrease was primarily due to a decrease in management fees, as average AUM declined 5.1%.
For the year ended December 31, 2019, SG&A expenses were $489.3 million, down 4.5% from $512.6 million for the year ended 2018. While CI has been selectively investing in high-growth opportunities and other initiatives, the decrease in SG&A from last year was partially a result of management’s efforts to contain discretionary expenses in the legacy side of its asset management business. SG&A also decreased due to a change in accounting methodology, which is detailed in Note 2 to the Notes to Consolidated Financial Statements.
As a percentage of average AUM, SG&A expenses were 0.376%, up slightly from 0.374% last year. The increase in the SG&A rate from last year was due to average AUM decreasing at a faster rate than SG&A.
During 2019, CI paid $12.8 million in deferred sales commissions, compared with $22.1 million in 2018. Consistent with the Canadian mutual fund industry, CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Interest expense of $55.4 million was recorded for the year ended December 31, 2019 compared with $43.1 million for the year ended December 31, 2018. The change in interest expense reflected the addition of lease interest expense beginning in the first quarter of 2019 (relating to the adoption of IFRS 16), as well as the changes in average debt levels and interest rates, as discussed under the Liquidity and Capital Resources section.
For 2019, CI recorded $189.3 million in income tax expense for an effective tax rate of 26.0%, compared to $225.5 million, or 26.7%, in 2018. The effective tax rate for 2019 was lower due to tax recoveries. Please note that CI’s effective tax rate may differ from its statutory tax rate, which is currently 26.5%, as a result of some expenses being nondeductible or partially deductible, or some revenue items not being fully taxable.
Q4 Financial Report | 15 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Quarter Ended December 31, 2019
For the quarter ended December 31, 2019, CI reported net income attributable to shareholders of $147.5 million ($0.66 per share) up from $140.3 million ($0.57 per share) for the quarter ended December 31, 2018 and from $139.0 million ($0.60 per share) for the quarter ended September 30, 2019. The increase from both comparable periods was due to lower SG&A costs, gains on marketable securities, and higher administration fees.
CI’s total revenue was $534.7 million in the fourth quarter of 2019, an increase of 1.0% when compared to total revenue of $529.2 million in the same period in 2018. On a consecutive quarter basis, total revenue increased 1.4%. The increase for both periods was due to higher administration fees and gains on marketable securities.
For the quarter ended December 31, 2019, SG&A expenses were $113.8 million, down 7.9% from $123.5 million in the same quarter of 2018 and down 8.7% from $124.6 million in the prior quarter. As with the annual results discussed earlier, the change in SG&A from last year was primarily a result of efforts to contain costs, as well as a change in accounting methodology.
As an annualized percentage of average AUM, SG&A expenses were 0.345%, down significantly from 0.379% for the fourth quarter of last year and from 0.381% for the prior quarter.
In the fourth quarter of 2019, CI paid $2.4 million in deferred sales commissions, compared with $3.9 million in the same quarter of 2018 and $2.6 million in the prior quarter. Consistent with the Canadian mutual fund industry, CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Interest expense of $14.2 million was recorded for the quarter ended December 31, 2019 compared with $12.4 million for the quarter ended December 31, 2018 and $13.8 million for the quarter ended September 30, 2019. The change in interest expense from the same quarter last year reflected the addition of lease interest expense beginning in the first quarter of 2019 (relating to the adoption of IFRS 16), as well as the changes in average debt levels and interest rates, as discussed earlier.
For the fourth quarter of 2019, CI recorded $53.8 million in income tax expense for an effective tax rate of 26.8% compared to $51.0 million, or 26.6%, in the fourth quarter of 2018, and $47.4 million, or 25.4%, in the prior quarter.
ASSET MANAGEMENT SEGMENT
The Asset Management segment is CI’s principal business segment and its operating results are presented in Table 13.
Q4 Financial Report | 16 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 13: RESULTS OF OPERATIONS - ASSET MANAGEMENT SEGMENT
[millions of dollars] |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Dec. 31, 2018 |
Year
ended Dec. 31, 2019 |
Year
ended Dec. 31, 2018 |
|||||||||||||||
Management fees | 464.4 | 465.6 | 474.2 | 1,857.9 | 2,004.2 | |||||||||||||||
Other revenue | 2.0 | (2.1 | ) | (5.0 | ) | 5.7 | 2.3 | |||||||||||||
Total revenue | 466.4 | 463.5 | 469.2 | 1,863.7 | 2,006.5 | |||||||||||||||
Selling, general and administrative | 88.7 | 98.6 | 98.4 | 387.5 | 414.7 | |||||||||||||||
Trailer fees | 153.7 | 154.4 | 156.3 | 615.8 | 662.8 | |||||||||||||||
Deferred sales commissions paid | 2.6 | 2.8 | 4.1 | 13.5 | 23.1 | |||||||||||||||
Amortization and depreciation | 5.6 | 5.6 | 4.5 | 22.3 | 16.6 | |||||||||||||||
Other expenses | 1.1 | 1.8 | 3.0 | 38.7 | 7.4 | |||||||||||||||
Total expenses | 251.6 | 263.1 | 266.3 | 1,077.9 | 1,124.7 | |||||||||||||||
Non-controlling interest | 0.3 | 0.2 | 0.1 | 0.7 | 0.5 | |||||||||||||||
Income before taxes and non-segmented items | 214.5 | 200.2 | 202.8 | 785.0 | 881.2 |
Year Ended December 31, 2019
Revenues
Revenues from management fees were $1,857.9 million for the year ended December 31, 2019, a decrease of 7.3% from $2,004.2 million for the year ended December 31, 2018. The decrease in management fees was mainly due to the 5.1% decrease in average AUM as well as a decline in the management fee rate. The management fee rate has been generally declining due to a change in CI’s mix of business towards newer products with lower pricing, products that do not pay trailer fees, as well as new pricing initiatives intended to keep CI’s products competitive. Net management fees (management fees less trailer fees and deferred sales commissions) as a percentage of average AUM were 0.944%, down from 0.961% for 2018.
For the twelve months ended December 31, 2019, other revenue was $5.7 million versus $2.3 million for the twelve months ended December 31, 2018. The increase in other revenue from the prior year was mainly due to unrealized gains on marketable securities.
Expenses
SG&A expenses for the Asset Management segment were $387.5 million for 2019, compared with $414.7 million for 2018. The decrease from last year was primarily due to ongoing efforts to contain SG&A in the asset management segment, as well as the adoption of IFRS 16. As a percentage of average AUM, SG&A expenses were 0.298% for the year ended December 31, 2019, down slightly from 0.302% for the year ended December 31, 2018.
Q4 Financial Report | 17 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Trailer fees were $615.8 million for the twelve months ended December 31, 2019, down from $662.8 million for the twelve months ended December 31, 2018. Net of inter-segment amounts, this expense was $584.9 million for the 2019 versus $631.2 million for 2018. The decrease related to the change in average AUM as well as the change in asset mix towards products that do not pay trailer fees.
In 2019, before inter-segment eliminations, CI paid $13.5 million in deferred sales commissions, compared with $23.1 million in 2018. CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Other expenses for the year ended December 31, 2019 were $38.7 million, compared to $7.4 million for the year ended December 31, 2018. As discussed earlier, the second quarter of 2019 included a restructuring provision, of which $32.4 million (before tax) related to the asset management segment.
The asset management margin for the 2019 was 45.3% compared to 45.1% in 2018. CI was able to hold the annual margin relatively steady through cost containment measures in response to declining fees. During periods of declining AUM and/or fee rates, CI’s management will respond by strategically reducing SG&A. Another measure that CI uses to assess its costs is the SG&A efficiency margin. This measure differs from asset management margin as it is calculated as a percentage of net management fees (management fees less trailers and deferred sales commissions), and measures CI’s profitability without regard to purchase option preferences available to clients. CI’s 2019 SG&A efficiency margin was 68.5%, unchanged from 68.5% in 2018. The calculations and definitions of asset management margin and SG&A efficiency margin can be found in the “Non-IFRS Measures” section.
Income before taxes and non-segmented items for CI’s principal segment was $785.0 million for the year ended December 31, 2019, down 10.9% from $881.2 million for the year ended December 31, 2018. Excluding the restructuring provision discussed earlier, income before taxes and non-segmented items was $817.4 million for the year ended December 31, 2019.
Quarter Ended December 31, 2019
Revenues
Revenues from management fees were $464.4 million for the quarter ended December 31, 2019, a decrease of 2.1% from $474.2 million for the quarter ended December 31, 2018 and a decrease of 0.3% from $465.6 million for the quarter ended September 30, 2019. The decrease in management fees from both quarters was due to a decline in the management fee rate. Net management fees (management fees less trailer fees and deferred sales commissions) as a percentage of average AUM were 0.934%, down from 0.963% for the fourth quarter last year and from 0.943% for the prior quarter.
Q4 Financial Report | 18 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
For the quarter ended December 31, 2019, other revenue was $2.0 million versus $(5.0) million for the quarter ended December 31, 2018 and $(2.1) million for the quarter ended September 30, 2019. The increase in other revenue from the comparable quarters was mainly due to unrealized gains on marketable securities.
Expenses
SG&A expenses for the Asset Management segment were $88.7 million for the quarter ended December 31, 2019, compared with $98.4 million for the fourth quarter in 2018 and $98.6 million for the prior quarter. The decrease from the same quarter last year was primarily due to management’s efforts to contain costs in this segment, as well as the adoption of IFRS 16. As a percentage of average AUM, SG&A expenses were 0.269% for the quarter ended December 31, 2019, down from 0.302% for the quarter ended December 31, 2018, and down from 0.301% the quarter ended September 30, 2019.
Trailer fees were $153.7 million for the quarter ended December 31, 2019, down 1.7% from $156.3 million for the quarter ended December 31, 2018 and down 0.5% from $154.4 million for the quarter ended September 30, 2019. Net of inter-segment amounts, this expense was $145.7 million for the quarter ended December 31, 2019 versus $149.1 million for the fourth quarter of 2018 and $146.5 million for the third quarter of 2019. The decrease from both comparable periods related to a change in asset mix towards products that do not pay trailer fees.
In the fourth quarter of 2019, before inter-segment eliminations, CI paid $2.6 million in deferred sales commissions, compared with $4.1 million in the same quarter of 2018 and $2.8 million in the prior quarter. CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Other expenses for the quarter ended December 31, 2019 were $1.1 million, compared to $3.0 million for the quarter ended December 31, 2018 and $1.8 million for the quarter ended September 30, 2019. The fourth quarter of last year included $1.2 million in tax-related interest and penalties.
The asset management margin for the fourth quarter of 2019 was 47.3% compared to 45.4% in the fourth quarter of 2018 and 45.1% in the prior quarter. The improvement in CI’s quarterly asset management margin was mainly due to cost containment measures in response to declining fees. On a trailing 12-month basis, CI’s asset management margin was 45.3%, relatively steady when compared with 45.1% for the same period last year. CI’s current quarter SG&A efficiency margin was 71.2%, up from 68.6% in the fourth quarter of last year and from 68.0% in the prior quarter. The calculations and definitions of asset management margin and SG&A efficiency margin can be found in the “Non-IFRS Measures” section.
Q4 Financial Report | 19 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Income before taxes and non-segmented items for CI’s principal segment was $214.5 million for the quarter ended December 31, 2019, up 5.8% from $202.8 million in the same period in 2018 and up 7.1% from $200.2 million in the previous quarter.
ASSET ADMINISTRATION SEGMENT
The Asset Administration segment operating results are presented in Table 14.
TABLE 14: RESULTS OF OPERATIONS - ASSET ADMINISTRATION SEGMENT
[millions of dollars] |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Dec. 31, 2018 |
Year
ended Dec. 31, 2019 |
Year
ended Dec. 31, 2018 |
|||||||||||||||
Administration fees | 104.9 | 99.8 | 94.2 | 397.4 | 372.4 | |||||||||||||||
Other revenue | 8.8 | 9.1 | 8.3 | 35.1 | 32.3 | |||||||||||||||
Total revenue | 113.7 | 108.9 | 102.4 | 432.5 | 404.7 | |||||||||||||||
Selling, general and administrative | 25.2 | 26.0 | 25.1 | 101.7 | 97.8 | |||||||||||||||
Investment dealer fees | 84.2 | 80.1 | 75.4 | 318.7 | 298.0 | |||||||||||||||
Amortization and depreciation | 2.7 | 2.6 | 1.0 | 10.5 | 3.9 | |||||||||||||||
Other expenses | 1.3 | 0.6 | 0.1 | 5.1 | 0.3 | |||||||||||||||
Total expenses | 113.3 | 109.2 | 101.6 | 436.0 | 400.0 | |||||||||||||||
Non-controlling interest | (0.9 | ) | (0.4 | ) | — | (2.1 | ) | — | ||||||||||||
Income before taxes and non-segmented items | 1.4 | — | 0.8 | (1.4 | ) | 4.6 |
Year Ended December 31, 2019
Revenues
Administration fees were $397.4 million for 2019, an increase of 6.7% from $372.4 million for 2018. The change in administration fees from last year related to the change in assets under administration at Assante and the addition of WealthBar in January of this year. Net of inter-segment amounts, administration fee revenue was $220.4 million for the year ended December 31, 2019, up from $197.6 million for the year ended December 31, 2018.
For the year ended December 31, 2019, other revenue was $35.1 million, up from $32.3 million for the year ended December 31, 2018. Other revenue consists mainly of non-advisor-related activities.
Q4 Financial Report | 20 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Expenses
Investment dealer fees were $318.7 million for 2019 compared to $298.0 million for 2018. Similar to administration fees, investment dealer fees generally fluctuate with assets under administration. Net of inter-segment amounts, investment dealer fees were $173.3 million, up from $155.9 million for last year.
As discussed in the “Non-IFRS Measures” section of this MD&A and as set out in Table 7, dealer gross margin was $78.7 million or 19.8% of administration fee revenue for the year ended December 31, 2019 compared to $74.3 million or 20.0% for the year ended December 31, 2018.
SG&A expenses for the segment were $101.7 million for the twelve months ended December 31, 2019 compared to $97.8 million for the twelve months ended December 31, 2018. The increases in SG&A related to strategic investments in this segment of CI’s business.
Other expenses were $5.1 million for 2019, up from $0.3 million for 2018. As discussed earlier, the second quarter of 2019 included a restructuring provision, of which $2.6 million related to the asset administration segment.
The Asset Administration segment had income before taxes and non-segmented items of $(1.4) million for the year ended December 31, 2019, compared to $4.6 million for the year ended December 31, 2018.
Quarter Ended December 31, 2019
Revenues
Administration fees were $104.9 million for the quarter ended December 31, 2019, an increase of 11.4% from $94.2 million for the same period a year ago and an increase of 5.1% from $99.8 million for the prior quarter. The change in administration fees from the fourth quarter last year related to the change in assets under administration at Assante and the addition of WealthBar in January of this year. Net of inter-segment amounts, administration fee revenue was $59.4 million for the quarter ended December 31, 2019, up from $51.8 million for the quarter ended December 31, 2018 and up from $54.9 million for the quarter ended September 30, 2019.
For the quarter ended December 31, 2019, other revenue was $8.8 million, up from $8.3 million for the quarter ended December 31, 2018 and down slightly from the prior quarter. Other revenue consists mainly of non-advisor-related activities.
Q4 Financial Report | 21 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Expenses
Investment dealer fees were $84.2 million for the quarter ended December 31, 2019 compared to $75.4 million for the fourth quarter of 2018 and $80.1 million for the quarter ended September 30, 2019. Net of inter-segment amounts, investment dealer fees were $46.9 million, up from $40.5 million for the same quarter last year and up from $43.2 million for the prior quarter.
As discussed in the “Non-IFRS Measures” section of this MD&A and as set out in Table 7, dealer gross margin was $20.7 million or 19.7% of administration fee revenue for the quarter ended December 31, 2019 compared to $18.7 million or 19.9% for the fourth quarter of 2018 and $19.7 million or 19.8% for the previous quarter.
SG&A expenses for the segment were $25.2 million for the quarter ended December 31, 2019 compared to $25.1 million in the fourth quarter of 2018 and $26.0 million in the third quarter of 2019. The year-over-year increase in SG&A related to strategic investments in this segment of CI’s business.
Other expenses were $1.3 million for the quarter ended December 31, 2019, up from $0.1 million in the same quarter of 2018 and from $0.6 million in the third quarter of 2019.
The Asset Administration segment had income before taxes and non-segmented items of $1.4 million for the quarter ended December 31, 2019, compared to $0.8 million for the fourth quarter of 2018 and $0.0 million for the prior quarter.
LIQUIDITY AND CAPITAL RESOURCES
CI generated $603.1 million of free cash flow in 2019, compared to $655.5 million for 2018. Reconciliations of free cash flow to cash provided by operating activities are provided in the “Non-IFRS Measures” section and set out in Table 4.
CI primarily uses cash flow to fund capital expenditures, fund acquisitions, pay down debt, pay dividends on its shares, and repurchase shares through its normal course issuer bid. At current levels of cash flow and anticipated dividend payout rates, CI produces sufficient cash to meet its obligations and support planned business operations for at least the next 12 months.
CI’s cash flows may fluctuate, primarily in the first quarter, as a result of the balance of cash income taxes and incentive compensation related to the prior year being paid at the end of February.
Q4 Financial Report | 22 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 15: SUMMARY OF CASH FLOWS
[millions of dollars] |
Year ended Dec.
31, 2019 |
Year ended Dec.
31, 2018 |
||||||
Free cash flow | 603.1 | 655.5 | ||||||
Less: | ||||||||
Investments in marketable securities, net of marketable securities sold | (25.2 | ) | (4.2 | ) | ||||
Capital expenditures | 12.4 | 11.7 | ||||||
Share repurchases, net of shares issued | 447.3 | 656.5 | ||||||
Dividends paid | 170.8 | 295.4 | ||||||
Debt repaid / (drawn) | (99.5 | ) | (384.7 | ) | ||||
Working capital and other items | 116.2 | 68.2 | ||||||
622.0 | 642.9 | |||||||
Net change in cash | (18.8 | ) | 12.6 | |||||
Cash at January 1 | 137.2 | 124.6 | ||||||
Cash at December 31 | 118.4 | 137.2 |
During 2019, CI invested $11.5 million in marketable securities and received proceeds of $36.7 million from the disposition of marketable securities. Excluding BBS’ securities owned, at market, the fair value of CI’s investments as of December 31, 2019 was $118.2 million. This was comprised of seed capital investments in CI funds and strategic investments.
During the year ended December 31, 2019, CI invested $12.4 million in capital assets, up from $11.7 million in the year ended December 31, 2018. These investments related primarily to leasehold improvements and technology.
During the twleve months ended December 31, 2019, CI repurchased 22.6 million shares under its normal course issuer bid at a total cost of $447.3 million, or $19.76 per share. CI had 221,792,541 shares outstanding at the end of December, which differs from CI’s TSX-listed shares outstanding, 222,438,437, due to restricted employee shares held in trust.
CI paid dividends of $170.8 million during the year. The Board of Directors declared a quarterly dividend of $0.18 per share, payable on July 15, 2020, to shareholders of record on June 30, 2020.
The statement of financial position for CI at December 31, 2019 reflected total assets of $4.368 billion, an increase of $75.6 million from $4.292 billion at December 31, 2018. This change was primarily due to the lease accounting change discussed earlier and detailed in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements, as well as the addition of WealthBar.
CI’s cash and cash equivalents decreased by $18.8 million in 2019 to $118.4 million as of December 31, 2019. Accounts receivable and prepaid expenses increased by $13.4 million to $170.2 million as of December 31, 2019. Capital assets increased by $1.0 million during the twelve months ended December 31, 2019 as a result of $12.4 million in capital additions less $11.5 million in amortization.
Q4 Financial Report | 23 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Total liabilities increased by $9.2 million during the year to $2.868 billion at December 31, 2019. The largest factors impacting liabilities were an increase in debt and lease liabilities (due to the change in lease accounting discussed earlier), offset by a decrease in dividends payable, as CI had declared six quarters of dividends in August of 2018.
At December 31, 2019, CI had $1,575.0 million in outstanding debentures with a weighted average interest rate of 3.17% and a carrying value of $1,569.5 million. During the year, CI issued $350.0 million debentures due July 22, 2024 at a 3.215% interest rate, which was primarily used to pay down its credit facility at the time. On December 31, 2019, CI had drawn $35.0 million against its $700 million credit facility. Principal repayments on any drawn amounts are only required at the maturity of the facility, which is December 11, 2021.
Net debt, as discussed in the “Non-IFRS Measures” section and as set out in Table 6, was $1,383 million at December 31, 2019, up from $1,255 million at December 31, 2018. The average gross debt level for the twelve months ended December 31, 2019 was $1,587 million, compared to $1,415 million for the same period last year.
At December 31, 2019, CI was in a positive working capital position. This, in addition to the availability of its credit facility, reflects the ability of CI to meet its cash flow requirements.
CI’s ratios of debt to adjusted EBITDA and net debt to adjusted EBITDA were 1.8 to 1 and 1.6 to 1, respectively. CI was within its financial covenants with respect to its credit facility, which required that the debt to EBITDA ratio remain below 3.0 to 1, and assets under management not fall below $85 billion, based on a rolling 30-day average.
Shareholders’ equity was $1.494 billion at December 31, 2019, an increase of $63.9 million from December 31, 2018.
Q4 Financial Report | 24 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RISK MANAGEMENT
CI is exposed to a number of risks that are inherent in the wealth management business. Some factors which introduce or exacerbate risk are within the control of management and others are, by their nature, outside of CI’s direct control but must still be managed. Effective risk management is a key component to achieving CI’s business objectives and protecting company and client assets. It is an ongoing process involving the Board of Directors and the Company’s Risk Management Committee, comprising senior executives from CI’s core business and operating units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board of Directors.
The Risk Management Committee monitors, evaluates and manages risk to provide reasonable assurance to the Board that CI’s business strategies and activities are consistent with its risk appetite. Risk updates are regularly provided to the Audit and Risk Committee of CI’s Board.
CI has developed an enterprise-wide approach to identifying, measuring, monitoring and managing risk. The members of the Risk Management Committee identify and evaluate specific and material risks, applying both a quantitative and a qualitative analysis to assess the likelihood and impact of occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize, transfer or avoid negative consequences. These risk mitigation processes are implemented and monitored with each business unit.
The risks described below are not the only risks facing CI. The risks set out below are risks and uncertainties that the Risk Management Committee currently believe could materially affect CI’s future financial performance. The reader should carefully consider the risks described below, and the other information contained in this MD&A, including under the heading “Forward-Looking Statements” before making an investment decision.
MARKET RISK
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates, foreign exchange rates, and equity and commodity prices. A description of each component of market risk is described below:
– | Interest rate risk is the risk of gain or loss due to the volatility of interest rates. |
– | Foreign exchange rate risk is the risk of gain or loss due to volatility of foreign exchange rates. |
– | Equity risk is the risk of gain or loss due to the changes in prices and volatility of individual equity instruments and equity indexes. |
Q4 Financial Report | 25 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in the performance of CI’s investment funds and may adversely affect CI’s assets under management, management fees and revenues, which would reduce cash flow to CI and ultimately impact CI’s ability to meet its financial obligations.
MARKET RISK FOR THE ASSET MANAGEMENT SEGMENT
At December 31, 2019, approximately 27% of CI’s assets under management were held in fixed-income securities, which are exposed to interest rate risk. An increase in interest rates causes market prices of fixed-income securities to fall, while a decrease in interest rates causes market prices to rise. CI’s fund managers invest in a well-diversified portfolio of securities across issuers, durations and maturities, which reduces risk. CI estimates that a 100 basis point change in interest rates across the yield curve would cause a change of approximately $30 million to $40 million in annual pre-tax earnings in the Asset Management segment.
At December 31, 2019, about 43% of CI’s assets under management were based in Canadian currency. While CI’s concentration in Canadian currency assets reduces its exposure to foreign exchange risk, approximately 42% of CI’s assets under management were based in U.S. currency. Any change in the value of the Canadian dollar relative to U.S. currency will cause fluctuations in CI’s assets under management. CI estimates that a 10% change in Canadian/U.S. exchange rates would cause a change of approximately $15 million to $30 million in the Asset Management segment’s annual pre-tax earnings.
About 68% of CI’s assets under management were held in equity securities at December 31, 2019, which are subject to equity risk. Equity risk is classified into two categories: general equity risk and issuer-specific risk. CI employs internal and external fund managers to take advantage of their expertise in particular market niches, sectors and products and to reduce issuer-specific risk through diversification. CI estimates that a 10% change in the value of equities would cause a change of approximately $40 million to $50 million in annual pre-tax earnings.
Please note that exposures and sensitivities do not account for currency hedging that portfolio managers may employ. There are risks and limitations with relying on models and it is possible that actual results may differ from those presented above.
CI has a control environment that ensures market risks are reviewed regularly. CI’s compliance group reviews and monitors CI’s fund and portfolio investments for compliance with investment policies and regulations. CI also reviews investment processes, portfolio positioning and attribution of results of its investment teams on a regular basis.
Q4 Financial Report | 26 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
MARKET RISK FOR THE ASSET ADMINISTRATION SEGMENT
CI’s operating results are not materially exposed to market risk impacting the asset administration segment given that this segment usually generates less than 1% of the total income before non-segmented items (this segment reported a gain of $1.4 million before income taxes and non-segmented items for the quarter ended December 31, 2019). Investment advisors regularly review their client portfolios to assess market risk and consult with clients to make appropriate changes to mitigate it.
POLITICAL AND MACRO-ECONOMIC RISK
CI’s performance is directly affected by the performance of the financial markets which may be influenced by various political, demographic and macro-economic conditions or events, including any political change and uncertainty in the United States and globally. These changes may cause significant volatility and decline in the global economy or specific international, regional and domestic financial markets which are beyond the control of CI. There can be no assurance that financial market performance will be favourable in the future. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in performance, which could negatively impact CI’s business and impede the growth of CI’s assets under management and revenue.
STRATEGIC RISK
Strategic risks are risks that directly impact the overall direction of CI and the ability of CI to successfully identify growth opportunities and implement proposed solutions. The key strategic risk is the risk that management fails to anticipate, and respond to, changes in the business environment, including demographic, regulatory and competitive changes. CI’s performance is directly affected by the financial market and business conditions, including the legislation and policies of the governments and regulatory authorities having jurisdiction over CI’s operations. These are beyond the control of CI; however, an important part of the risk management process is the ongoing review and assessment of industry and economic trends and changes. Strategies are then designed to effectively respond to any anticipated changes, including identifying acquisition opportunities, developing new business lines, introducing new products, and implementing cost control strategies.
Part of CI’s strategy includes strategic acquisitions and investments in growth opportunities. Strategic acquisitions may benefit CI through increasing fee earning assets, broadening CI’s distribution relationships, enhancing CI’s business capabilities and capturing cost synergies. CI embarks on a thorough due diligence process prior to any acquisition; however, there can be no assurances that the anticipated benefits of any acquisition will be achieved. The success of an acquisition is contingent upon many factors, including retaining key employees, securing assets acquired, obtaining legal and regulatory approvals, integrating operations and vendor relationships, and having favourable economic conditions.
Q4 Financial Report | 27 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
COMPETITION RISK
CI operates in a highly competitive environment, with competition based on a variety of factors, including the range of products offered, brand recognition, investment performance, business reputation, financing strength, management and sales relationships, quality of service, level of fees charged and level of commissions and other compensation paid. CI competes with a large number of mutual fund companies and other providers of investment products, investment management firms, broker-dealers, banks, insurance companies and other financial institutions. Some of these competitors have, and potential future competitors may have, greater technical, financial, marketing, distribution or other resources than CI. The trend toward greater consolidation within the investment management industry has increased the strength of a number of CI’s competitors. CI’s competitors seek to expand market share by offering different products and services and more competitive pricing than those offered by CI. While CI continues to develop and market new products and services and remains competitive with respect to fees, there can be no assurance that CI will maintain its current standing or market share or investment performance relative to its competitors, which may adversely affect the business, financial condition or operating results of CI.
In addition, there are uncertainties involved in the introduction of new products and services, including technical requirements, operational controls and procedures, compliance with regulatory requirements and shifting market preferences. The development and introduction of new products and services may require ongoing support and investment. A failure to manage the risks involved in the implementation of new products and services may lead to operational lapses, increased capital requirements, and competitive alternatives, which could adversely affect CI’s standing, market share or investment performance relative to its competitors and negatively impact the business, financial condition or operating results of CI.
DISTRIBUTION RISK
CI distributes its investment products through a number of distribution channels, including brokers, independent financial planners and insurance advisors. CI’s access to these distribution channels is impacted by the strength of the relationship with certain business partners and the level of competition faced from the financial institutions that own those channels. While CI continues to develop and enhance existing relationships, there can be no assurance that CI will, in the future, enjoy the level of access that it has in the past, which would adversely affect its sales of investment products.
Q4 Financial Report | 28 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
REDEMPTION RISK
CI earns revenue primarily from management fees earned for advising and managing investment fund assets. The level of these assets is dependent on (i) sales; (ii) redemptions; and (iii) investment performance. Sales and redemptions may fluctuate depending on market and economic conditions, investment preference, or other factors.
Significant redemptions could adversely affect investor fund returns by impacting market values and increasing transaction costs or taxable distributions, which could negatively impact the prospects and operating results of CI.
REGULATORY AND LEGAL RISK
CI’s business is dependent upon compliance with and continued registration under securities laws in all jurisdictions in which CI and its subsidiaries carry on business. Laws and regulations applied at the national and provincial level generally grant governmental agencies and self-regulatory bodies broad administrative discretion over the activities of CI, including the power to limit or restrict business activities as well as impose additional disclosure requirements on CI products and services. Possible sanctions include the revocation or imposition of conditions on licenses to operate certain businesses, the suspension or expulsion from a particular market or jurisdiction of any of CI’s business segments or its key personnel or financial advisors, and the imposition of fines and censures. It is also possible that the laws and regulations governing a subsidiary’s operations or particular investment products or services could be amended or interpreted in a manner that is adverse to CI. To the extent that existing or future regulations affecting the sale or offering of CI’s product or services or CI’s investment strategies cause or contribute to reduced sales of CI’s products or lower margins or impair the investment performance of CI’s products, CI’s aggregate assets under management and its revenues may be adversely affected. In addition, the ongoing change in the securities regulatory environment governing CI’s business may require additional human resources and operations which will increase costs.
Given the nature of CI’s business, CI may from time to time be subject to claims or complaints from investors or others in the normal course of business. The legal risks facing CI, its directors, officers, employees or agents in this respect include potential liability for violations of corporate laws, securities laws, stock exchange rules and misuse of investors’ funds. Some violations of corporate laws, securities laws or stock exchange rules could result in civil liability, fines, sanctions, or expulsion from a self- regulatory organization or the suspension or revocation of CI’s right to carry on an existing business. CI may incur significant costs in connection with such potential liabilities.
Q4 Financial Report | 29 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
INFORMATION TECHNOLOGY RISK
CI uses information technology and the internet to streamline business operations and to improve the client and advisor experience. CI has, more recently, been expanding its online footprint by automating its product and service delivery systems and acquiring digital platforms. The use of information technology and the internet, email messaging and other online capabilities, however, exposes CI to information security risk that could have an adverse impact on its business. CI is dependent on its information security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that it stores on or transmits through its information technology systems. Any information technology event, such as a cybersecurity breach or intrusion into CI’s information technology systems, or failure to implement sufficient controls, could result in unauthorized access to sensitive or confidential information, loss or theft of data, operational disruption, regulatory actions, legal liability or reputational harm.
CI actively monitors this risk and continues to develop and implement technology-enabled controls to protect against cyber threats that are becoming increasingly sophisticated and pervasive. In addition, CI has and will continue to implement safeguards to control access to sensitive information, through password protection, encryption of confidential information and other means. Notwithstanding these measures, CI cannot fully mitigate the risk associated with information technology security. CI is dependent on the efficiency and effectiveness of the technology it uses to secure its information technology environment and keeping pace with a continuously evolving information technology landscape. Malfunction of any technology used by CI or inability to keep pace with evolving cybersecurity advancements may increase CI’s exposure to cybersecurity risk.
CI’s business is also dependent on the physical integrity of its infrastructure, including its office space, storage centers and other facilities. CI has taken precautions to protect the physical security of its infrastructure, and the sensitive information contained therein, through passkey protection, limited after-hours access and clean desk policies. However, a breach of the physical integrity of CI infrastructure may leave sensitive information vulnerable to unauthorized access and use, increasing a possible security risk, which could negatively impact CI’s business and reputation.
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequate or failed internal processes or systems. The operational risk that CI is exposed to may arise from, technology failures, business disruption, theft and fraud, failure of key third parties, employee errors, processing and execution errors, and inaccurate or incomplete client information. Operational risk may result in a financial loss but can also lead to regulatory sanctions and harm to CI’s reputation. Operational risk driven by people and processes are mitigated through human resources policies and practices, and a strong internal control environment. Operational risks driven by systems and services are managed through controls over technology development and change management as well as enhanced procedures for oversight of third-party service providers. While CI continuously monitors its operational risks, there can be no assurances that CI’s internal control procedures can mitigate all operational risks.
Q4 Financial Report | 30 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
REPUTATION RISK
Reputation risk is the potential negative impact of a deterioration of CI’s image or lower public confidence in the CI brand, its senior management or its products and services. Operational errors, poor performance, regulatory investigation or sanctions, litigation or employee misconduct could result in reputational harm to CI. Through its Codes of Conduct, governance practices, risk management programs, policies, procedures and training, CI attempts to prevent and detect any activities by CI officers, directors, and employees that would harm CI’s reputation. While all employees, directors and officers are expected to protect the reputation of CI, there can be no assurances that unauthorized or unsuccessful activities may result in damage to CI’s reputation, which could adversely affect CI’s business and profitability.
KEY PERSONNEL RISK
The success of CI is dependent to a significant degree upon the contributions of senior management. The loss of any of these individuals, or an inability to attract, retain and motivate sufficient numbers of qualified senior management personnel, could adversely affect CI’s business. The retention of these key managers and the identification and development of the next generation of managers is an area of focus for CI. CI has not purchased any “key person” insurance with respect to any of its directors, officers or key employees and has no current plans to do so.
The success of CI is also dependent upon, among other things, the skills and expertise of its human resources, including the management and investment personnel with specialized skills related to, among other things, marketing, risk management, credit, information technology, accounting, administrative operations and legal affairs. These highly skilled and often highly specialized individuals play an important role in developing, implementing, operating, managing and distributing CI’s products and services. Accordingly, the recruitment and retention of skilled personnel, continuous training and transfer of knowledge are key activities that are essential to CI’s performance. CI has taken, and will continue to take, steps to encourage our key employees to remain employed at CI, including the implementation of long-service awards, employee engagement strategies and enhanced transparency measures with respect to compensation. In addition, the focus on asset growth and the reliance on investment performance to sell financial products has increased the demand for experienced and high- performing portfolio managers. Compensation packages for these managers may increase at a rate well in excess of inflation and well above the rates of increase observed in other industries and the rest of the labour market. The loss of these individuals or an inability to attract, retain and motivate a sufficient number of qualified personnel could result in a loss of clients and a decline in sales and adversely affect CI’s business.
Q4 Financial Report | 31 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
The market for financial advisors is extremely competitive and is increasingly characterized by frequent movement by financial advisors among different firms. Individual financial advisors of AWM have regular direct contact with clients, which can lead to a strong and personal client relationship based on the client’s trust in the individual financial advisor. The loss of a significant number of financial advisors could lead to the loss of client accounts which could have a material adverse effect on the results of operations and prospects of AWM and, in turn, CI. Although AWM uses or has used a combination of competitive compensation structures and equity with vesting provisions as a means of seeking to retain financial advisors, there can be no assurance that financial advisors will remain with AWM.
INSURANCE RISK
CI maintains various types of insurance which include financial institution bonds, errors and omissions insurance, directors’, trustees’ and officers’ liability insurance, agents’ insurance, general commercial liability insurance, and cyber liability insurance. Management evaluates the adequacy of CI’s insurance coverage on an ongoing basis. However, there can be no assurance that a claim or claims will not exceed the limits of available insurance coverage, that any insurer will remain solvent or willing to continue providing insurance coverage with sufficient limits or at a reasonable cost or that any insurer will not dispute coverage of certain claims due to ambiguities in the relevant policies. A judgment against CI in excess of available coverage could have a material adverse effect on CI both in terms of damages awarded and the impact on the reputation of CI.
CREDIT RISK
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed to the risk that third parties that owe it money, securities or other assets will not perform their obligations. These parties include trading counterparties, customers, clearing agents, exchanges, clearing houses and other financial intermediaries, as well as issuers whose securities are held by CI. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. CI does not have significant exposure to any individual counterparty. Credit risk is mitigated by regularly monitoring the credit performance of individual counterparties and holding collateral where appropriate.
Q4 Financial Report | 32 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
One of the primary sources of credit risk arises when CI extends credit to clients to purchase securities by way of margin lending. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory requirements and by CI’s internal credit policy.
LIQUIDITY RISK
Liquidity risk is the risk that CI may not be able to generate sufficient funds and within the time required in order to meet its obligations as they come due. While CI currently has access to financing, unfavourable market conditions may affect the ability of CI to obtain loans or make other arrangements on terms acceptable to CI.
LIQUIDITY RISK FOR THE ASSET MANAGEMENT SEGMENT
CI is also exposed to the risk of its investment funds not being able to meet their redemption obligations due to an inability to liquidate the underlying assets in a timely manner. This could be caused by insufficient liquid assets in the fund, an unexpected spike in redemptions triggered by negative market information, sentiment or contagion, adverse liquidity conditions in the financial markets, procedural issues that may delay the liquidation of securities or other factors. Inability to meet its redemption obligations may lead to legal liability, regulatory action and reputational damage. CI has robust mechanisms in place to monitor and maintain adequate liquidity in its investment fund portfolios at all times. However, CI has no control over extreme market events that may result in the sudden loss of liquidity or trigger a run on the funds.
CAPITAL RISK
Certain subsidiaries of CI are subject to minimum regulatory capital requirements. This may require CI to keep sufficient cash and other liquid assets on hand to maintain capital requirements rather than using them in connection with its business. Failure to maintain required regulatory capital by CI may subject it to fines, suspension or revocation of registration by the relevant securities regulator. A significant operating loss by a registrant subsidiary or an unusually large charge against regulatory capital could adversely affect the ability of CI to expand or even maintain its present level of business, which could have a material adverse effect on CI’s business, results of operations, financial condition and prospects.
Q4 Financial Report | 33 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TAXATION RISK
CI is subject to various uncertainties concerning the interpretation and application of Canadian tax laws. CI Investments is considered a large case file by the Canada Revenue Agency and, as such, is subject to audit each year. There is a significant lag between the end of a fiscal year and when such audits are completed. Therefore, at any given time, several years may be open for audit and/or adjustments. While CI regularly assesses the likely outcome of these audits in order to determine the appropriateness of its tax provision, there can be no assurance that CI will accurately predict the outcomes of these audits. If tax authorities disagree with CI’s application of such tax laws, CI’s profitability and cash flows could be adversely affected.
SHARE CAPITAL
As at December 31, 2019, CI had 221,792,541 shares outstanding.
Employee Incentive Share Option Plan: At December 31, 2019, 5.6 million options to purchase shares were outstanding, of which 4.8 million options were exercisable at prices ranging from $27.44 to $35.88.
Restricted Share Unit (“RSU”) Plan: 657,304 RSUs were outstanding as at December 31, 2019.
Deferred Share Unit (“DSU”) Plan: 21,366 DSUs were outstanding as at December 31, 2019.
Additional details about the above Plans can be found in Note 6 to the Interim Condensed Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
The table that follows summarizes CI’s contractual obligations at December 31, 2019.
PAYMENTS DUE BY YEAR
[millions of dollars] | Total |
1 year or
less |
2 | 3 | 4 | 5 |
More than 5
years |
|||||||||||||||||||||
Long-term debt | 1,610.0 | 450.0 | 235.0 | — | 325.0 | 350.0 | 250.0 | |||||||||||||||||||||
Leases | 82.3 | 13.9 | 13.5 | 12.8 | 12.7 | 12.6 | 16.8 | |||||||||||||||||||||
Total | 1,692.3 | 463.9 | 248.5 | 12.8 | 337.7 | 362.6 | 266.8 |
SIGNIFICANT ACCOUNTING ESTIMATES
The December 31, 2019 Consolidated Financial Statements have been prepared in accordance with IFRS. For a discussion of all significant accounting policies, refer to Note 1 of the Notes to Interim Condensed Consolidated Financial Statements. Note 3 provides a discussion regarding the methodology used for business acquisitions. Note 5 provides a discussion regarding the recoverable amount of CI’s provision for other liabilities and contingencies.
Q4 Financial Report | 34 | December 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NEW ACCOUNTING POLICIES
Effective January 1, 2019, CI adopted IFRS 16 using the modified retrospective approach. Under this approach CI recognized the lease liability based on the remaining lease payments discounted using CI’s incremental borrowing rate as at January 1, 2019. CI also recognized the right-of-use asset as at the date of initial application, as if IFRS 16 had always been applied since the commencement date of the lease, discounted using CI’s incremental rate of borrowing as at January 1, 2019. Comparative figures were not restated for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on January 1, 2019. Please refer to Note 2 of the Notes to the Consolidated Financial Statements for more information.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with management, are responsible for the design of CI’s disclosure controls and procedures as defined in National Instrument 52-109 (NI 52-109). Management evaluated, with participation of the CEO and CFO, the effectiveness of the disclosure controls and procedures as at December 31, 2019. Based on this evaluation, the CEO and CFO have concluded that they are reasonably assured these disclosure controls and procedures were effective as at December 31, 2019 and that material information relating to CI was made known to them within the time periods specified under applicable securities legislation. Management, under the supervision of the CEO and CFO, is responsible for the design and maintenance of adequate internal controls over financial reporting as defined in NI 52-109 for the purposes of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However, due to its inherent limitations, internal controls over financial reporting can only provide reasonable, not absolute, assurance that the financial statements are free of misstatements. The COSO framework was used to assist management, along with the CEO and CFO, in the evaluation of these internal control systems. Management, under the direction of the CEO and CFO, concluded that the internal controls over financial reporting were effective as at December 31, 2019. Management used various tools to evaluate internal controls over financial reporting which included interaction with key control systems, review of policy and procedure documentation, observation or reperformance of control procedures to evaluate the effectiveness of controls and concluded that these controls are effective. For the quarter ended December 31, 2019, there have been no changes to the internal controls that have materially affected, or are reasonably likely to affect, internal controls over financial reporting
Additional information relating to CI, including the most recent audited annual financial statements, management information circular and annual information form, is available on SEDAR at www.sedar.com and on CI’s website at www.cifinancial.com. Information contained in or otherwise accessible through the websites mentioned in this MD&A does not form part of, and is not incorporated by reference into, this MD&A. |
Q4 Financial Report | 35 | December 31, 2019 |
Exhibit 99.7
INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
March 31, 2019
Q1 Financial Report | 1 | March 31, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited)
As at | As at | |||||||
March 31, 2019 | December 31, 2018 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | 136,720 | 137,160 | ||||||
Client and trust funds on deposit | 349,229 | 365,520 | ||||||
Investments [note 8] | 175,105 | 168,122 | ||||||
Accounts receivable and prepaid expenses | 177,217 | 156,798 | ||||||
Income taxes receivable | 3,246 | 8,891 | ||||||
Total current assets | 841,517 | 836,491 | ||||||
Capital assets, net | 47,639 | 44,985 | ||||||
Right-of-use assets [note 2] | 50,792 | — | ||||||
Intangibles | 3,397,982 | 3,370,341 | ||||||
Other assets [notes 2 and 8] | 49,757 | 40,399 | ||||||
Total assets | 4,387,687 | 4,292,216 | ||||||
LIABILITIES AND EQUITY | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities | 239,782 | 253,518 | ||||||
Current portion of provision for other liabilities [note 5] | 11,179 | 14,591 | ||||||
Dividends payable [note 7] | 173,070 | 175,290 | ||||||
Client and trust funds payable | 358,807 | 370,756 | ||||||
Current portion of lease liabilities [note 2] | 11,154 | — | ||||||
Total current liabilities | 793,992 | 814,155 | ||||||
Deferred lease inducement [note 2] | — | 11,320 | ||||||
Long-term dividends payable [note 7] | — | 43,822 | ||||||
Long-term debt [note 4] | 1,528,522 | 1,503,733 | ||||||
Provision for other liabilities [note 5] | 20,062 | 20,177 | ||||||
Deferred income taxes [notes 2 and 3] | 463,539 | 466,083 | ||||||
Lease liabilities [note 2] | 68,388 | — | ||||||
Total liabilities | 2,874,503 | 2,859,290 | ||||||
Equity | ||||||||
Share capital [note 6(a)] | 2,098,541 | 2,125,130 | ||||||
Contributed surplus | 27,423 | 25,270 | ||||||
Deficit [note 2] | (620,106 | ) | (720,600 | ) | ||||
Accumulated other comprehensive income | 279 | 277 | ||||||
Total equity attributable to the shareholders of the Company | 1,506,137 | 1,430,077 | ||||||
Non-controlling interests [note 3] | 7,047 | 2,849 | ||||||
Total equity | 1,513,184 | 1,432,926 | ||||||
Total liabilities and equity | 4,387,687 | 4,292,216 | ||||||
(see accompanying notes) |
|
|
|||||||
On behalf of the Board of Directors: |
William T. Holland Director |
Tom P. Muir Director |
Q1 Financial Report | 2 | March 31, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME (unaudited)
For the three-month period ended March 31
2019 | 2018 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 459,457 | 513,728 | ||||||
Administration fees | 52,436 | 48,100 | ||||||
Redemption fees | 3,305 | 4,224 | ||||||
Realized and unrealized gain (loss) on investments | 8,404 | (736 | ) | |||||
Other income | 3,167 | 8,191 | ||||||
526,769 | 573,507 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 11] | 126,061 | 132,888 | ||||||
Trailer fees | 144,602 | 161,959 | ||||||
Investment dealer fees | 40,842 | 37,738 | ||||||
Deferred sales commissions | 4,605 | 8,507 | ||||||
Amortization and depreciation [notes 2 and 12] | 8,159 | 4,851 | ||||||
Interest and lease finance [notes 2 and 4] | 13,715 | 9,275 | ||||||
Other | 1,632 | 2,133 | ||||||
339,616 | 357,351 | |||||||
Income before income taxes | 187,153 | 216,156 | ||||||
Provision for income taxes | ||||||||
Current | 46,426 | 56,934 | ||||||
Deferred | 767 | 93 | ||||||
47,193 | 57,027 | |||||||
Net income for the period | 139,960 | 159,129 | ||||||
Net income (loss) attributable to non-controlling interests | (75 | ) | 90 | |||||
Net income attributable to shareholders | 140,035 | 159,039 | ||||||
Other comprehensive income, net of tax | ||||||||
Exchange differences on translation of foreign operations | 2 | 128 | ||||||
Total other comprehensive income, net of tax | 2 | 128 | ||||||
Comprehensive income for the period | 139,962 | 159,257 | ||||||
Comprehensive income (loss) attributable to non-controlling interests | (75 | ) | 90 | |||||
Comprehensive income attributable to shareholders | 140,037 | 159,167 | ||||||
Basic earnings per share attributable to shareholders [note 6(e)] | $ | 0.58 | $ | 0.59 | ||||
Diluted earnings per share attributable to shareholders [note 6(e)] | $ | 0.58 | $ | 0.59 | ||||
(see accompanying notes) |
Q1 Financial Report | 3 | March 31, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY (unaudited)
For the three-month period ended March 31
Share
capital
[note 6(a)] |
Contributed
surplus |
Deficit
[note 2] |
Accumulated
other comprehensive income |
Total
shareholders’
|
Non-
controlling interests |
Total equity |
||||||||||||||||||||||
[in thousands of Canadian dollars] | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Balance, January 1, 2019 | 2,125,130 | 25,270 | (730,663 | ) | 277 | 1,420,014 | 2,849 | 1,422,863 | ||||||||||||||||||||
Comprehensive income | — | — | 140,035 | 2 | 140,037 | (75 | ) | 139,962 | ||||||||||||||||||||
Dividends declared [note 7] | — | — | 2,143 | — | 2,143 | — | 2,143 | |||||||||||||||||||||
Shares repurchased, net of tax | (26,712 | ) | — | (31,621 | ) | — | (58,333 | ) | — | (58,333 | ) | |||||||||||||||||
Business combination [note 3] | — | — | — | — | — | 4,273 | 4,273 | |||||||||||||||||||||
Issuance of share capital for equity -based plans, net of tax |
123 | (123 | ) | — | — | — | — | — | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax |
— | 2,276 | — | — | 2,276 | — | 2,276 | |||||||||||||||||||||
Change during the period | (26,589 | ) | 2,153 | 110,557 | 2 | 86,123 | 4,198 | 90,321 | ||||||||||||||||||||
Balance, March 31, 2019 | 2,098,541 | 27,423 | (620,106 | ) | 279 | 1,506,137 | 7,047 | 1,513,184 | ||||||||||||||||||||
Balance, January 1, 2018 | 2,360,257 | 22,058 | (478,702 | ) | (531 | ) | 1,903,082 | 2,478 | 1,905,560 | |||||||||||||||||||
Comprehensive income | — | — | 159,039 | 128 | 159,167 | 90 | 159,257 | |||||||||||||||||||||
Dividends declared [note 7] | — | — | (93,560 | ) | — | (93,560 | ) | — | (93,560 | ) | ||||||||||||||||||
Shares repurchased, net of tax | (43,022 | ) | — | (108,781 | ) | — | (151,803 | ) | — | (151,803 | ) | |||||||||||||||||
Issuance [note 5] | 534 | — | — | — | 534 | — | 534 | |||||||||||||||||||||
Issuance of share capital for equity -based plans, net of tax |
1,735 | (1,330 | ) | — | — | 405 | — | 405 | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax |
— | 1,624 | — | — | 1,624 | — | 1,624 | |||||||||||||||||||||
Change during the period | (40,753 | ) | 294 | (43,302 | ) | 128 | (83,633 | ) | 90 | (83,543 | ) | |||||||||||||||||
Balance, March 31, 2018 | 2,319,504 | 22,352 | (522,004 | ) | (403 | ) | 1,819,449 | 2,568 | 1,822,017 | |||||||||||||||||||
(see accompanying notes) |
Q1 Financial Report | 4 | March 31, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the three-month period ended March 31
2019 | 2018 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
OPERATING ACTIVITIES (*) | ||||||||
Net income for the year | 139,960 | 159,129 | ||||||
Add (deduct) items not involving cash | ||||||||
Realized and unrealized (gain) loss on investments | (8,404 | ) | 736 | |||||
Equity-based compensation | 3,056 | 2,120 | ||||||
Amortization and depreciation | 8,159 | 4,851 | ||||||
Deferred income taxes | 767 | 93 | ||||||
Cash provided by operating activities before net change in operating assets and liabilities | 143,538 | 166,929 | ||||||
Net change in operating assets and liabilities | (22,636 | ) | (86,452 | ) | ||||
Cash provided by operating activities | 120,902 | 80,477 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (5,394 | ) | (823 | ) | ||||
Proceeds on sale of investments | 3,847 | 9,010 | ||||||
Additions to capital assets | (5,308 | ) | (4,176 | ) | ||||
Increase in other assets | (6,941 | ) | (1,334 | ) | ||||
Additions to intangibles | (1,107 | ) | (941 | ) | ||||
Cash paid to settle contingent liability [note 5] | — | (11,129 | ) | |||||
Acquisition of subsidiary, net of cash acquired [note 3] | (23,572 | ) | — | |||||
Cash used in investing activities | (38,475 | ) | (9,393 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Repayment of long-term debt | (283,500 | ) | — | |||||
Issuance of long-term debt | 308,000 | 248,000 | ||||||
Repurchase of share capital | (60,778 | ) | (155,608 | ) | ||||
Issuance of share capital | — | 405 | ||||||
Payment of lease liabilities | (2,690 | ) | — | |||||
Dividends paid to shareholders | (43,899 | ) | (95,399 | ) | ||||
Cash used in financing activities | (82,867 | ) | (2,602 | ) | ||||
Net (decrease) increase in cash and cash equivalents during the period | (440 | ) | 68,482 | |||||
Cash and cash equivalents, beginning of period | 137,160 | 124,582 | ||||||
Cash and cash equivalents, end of period | 136,720 | 193,064 | ||||||
(*) Included in operating activities are the following: | ||||||||
Interest paid | 13,379 | 9,274 | ||||||
Income taxes paid | 40,546 | 68,458 | ||||||
(see accompanying notes) |
Q1 Financial Report | 5 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI Financial Corp. [“CI”] is a publicly listed company (TSX: CIX) incorporated under the laws of the Province of Ontario and has its registered office and principal place of business located at 2 Queen Street East, Toronto, Ontario.
CI’s primary business is the management and distribution of a broad range of financial products and services, including mutual funds, segregated funds, exchange-traded funds, financial planning, insurance, investment advice, wealth management and estate and succession planning.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These unaudited interim condensed consolidated financial statements of CI have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting [“IAS 34”] as issued by the International Accounting Standards Board [“IASB”] and on a basis consistent with the accounting policies disclosed in the annual audited consolidated financial statements for the year ended December 31, 2018.
These unaudited interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of CI on May 9, 2019.
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of CI have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The unaudited interim condensed consolidated financial statements have been prepared on a going concern basis. CI’s presentation currency is the Canadian dollar, which is CI’s functional currency. The notes presented in these unaudited interim condensed consolidated financial statements include, in general, only significant changes and transactions occurring since CI’s last year-end, and are not fully inclusive of all disclosures required by International Financial Reporting Standards [“IFRS”] for annual financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2018.
BASIS OF CONSOLIDATION
The unaudited interim condensed consolidated financial statements include the accounts of CI and all its subsidiaries on a consolidated basis after elimination of intercompany transactions and balances. Subsidiaries are entities over which CI has control, when CI has the power, directly or indirectly, to govern the financial and operating policies of an entity, is exposed to variable returns from its activities, and is able to use its power to affect such variable returns to which it is exposed.
CI’s principal subsidiaries are as follows:
• | CI Investments Inc. [“CI Investments”], Assante Wealth Management (Canada) Ltd. [“AWM”], First Asset Investment Management Inc. [“First Asset”], BBS Securities Inc. [“BBS”] and their respective subsidiaries. |
• | CI holds a controlling 65% interest in Marret Asset Management Inc. [“Marret”] and a 75% interest in WealthBar Financial Services Inc. [“WealthBar”]. A non-controlling interest is recorded in the unaudited interim condensed consolidated statements of income and comprehensive income to reflect the non-controlling interest’s share of the income and comprehensive income, and a non-controlling interest is recorded within equity in the interim condensed consolidated statements of financial position to reflect the non-controlling interest’s share of the net assets. |
Q1 Financial Report | 6 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
• | CI holds a controlling 83% interest in GSFM Pty Ltd. (“GSFM”) and granted a put option to shareholders for the remaining 17% minority interest. CI considers the non-controlling interest in GSFM to have already been acquired and consolidates 100% of the income and comprehensive income in the consolidated statements of income and comprehensive income. GSFM has an interest in a joint arrangement classified as a joint operation. The unaudited interim condensed consolidated financial statements include GSFM’s recognition of its share of the joint operation’s assets, liabilities, income and comprehensive income. |
Hereinafter, CI and its subsidiaries are referred to as CI.
2. | NEW ACCOUNTING STANDARDS |
[A] IFRS 16
IFRS 16, Leases [“IFRS 16”], replaces the previous lease standard, IAS 17, Leases [“IAS 17”], and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.
Effective January 1, 2019, CI adopted IFRS 16 using the modified retrospective approach. Under this approach, CI recognized the lease liability based on the remaining lease payments discounted using CI’s incremental borrowing rate as at January 1, 2019. CI also recognized the right-of-use asset as at the date of initial application, as if IFRS 16 had always been applied since the commencement date of the lease, discounted using CI’s incremental rate of borrowing as at January 1, 2019. Comparative figures were not restated for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening interim condensed consolidated statement of financial position on January 1, 2019.
The adoption of IFRS 16 will result in CI reporting higher interest and depreciation expenses and lower selling, general and administrative expenses as of the effective date. Non-IFRS measures such as earnings before interest, taxes, depreciation and amortization will be positively impacted as a result.
Upon adoption of IFRS 16, CI recognized lease liabilities in relation to leases previously classified as operating leases under the principles of IAS 17. CI elected to apply the following practical expedients:
• | Apply a single discount rate to a portfolio of leases with reasonably similar characteristics |
• | Not recognize leases whose term ends within 12 months of initial application |
• | Exclude initial direct costs from the measurement of the right-of-use assets as at the date of initial application |
• | Not recognize leases of low value |
Q1 Financial Report | 7 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
• | The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease |
On transition to IFRS 16, CI assessed the classification of its sub-leased properties with reference to the right-of-use asset and concluded that its sub-leased properties previously classified as operating leases under IAS 17 should be accounted for as finance leases under IFRS 16.
The following summarizes the impact of adopting IFRS 16 as at January 1, 2019:
January 1, 2019 | ||||
$ | ||||
Assets | ||||
Right-of-use assets | 52,381 | |||
Other assets | 2,396 | |||
Total assets | 54,777 | |||
Liabilities | ||||
Accounts payable and other liabilities | (1,805 | ) | ||
Current portion of lease liabilities | 10,872 | |||
Non-current lease liabilities | 70,758 | |||
Leasehold inducements | (11,320 | ) | ||
Deferred tax liability | (3,665 | ) | ||
Total liabilities | 64,840 | |||
Deficit | (10,063 | ) |
The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as at December 31, 2018 as follows:
$ | ||||
Operating lease commitments as at December 31, 2018 | 90,050 | |||
Less: | ||||
Lease commitments related to short-term leases | (168 | ) | ||
Add: | ||||
Payments in optional extension periods considered reasonably certain to be exercised | 4,507 | |||
Gross lease liability as at January 1, 2019 | 94,389 | |||
Weighted average incremental borrowing rate as at January 1, 2019 | 4.2 | % | ||
Present value of lease liability recognized as at January 1, 2019 | 81,630 | |||
Current lease liabilities | 10,872 | |||
Non-current lease liabilities | 70,758 |
Q1 Financial Report | 8 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
The following is the new accounting policy for leases under IFRS 16:
Leases
All leases are accounted for by recognizing a right-of-use asset and a lease liability except for:
• | Leases of low value assets; and |
• | Leases with a duration of 12 months or less |
Right-of-use assets
CI recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of their estimated useful life and the lease term.
Lease liabilities
At the commencement date of the lease, CI recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include in substance fixed payments less any lease incentives receivable, variable payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by CI and payments of penalties for terminating a lease, if the lease term reflects CI exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, CI uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and lease of low-value assets
CI applies the short-term lease recognition exemption to its short-term leases of equipment and property leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). CI also applies the lease of low-value assets recognition exemption to leases of equipment that are considered of low value (i.e. below $5,000). Lease payments on short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis over the lease term.
Q1 Financial Report | 9 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Sub-leases
CI enters into lease agreements as an intermediate lessor with respect to some of its leased properties. When CI is an intermediate lessor, the head lease and the sub-lease are accounted for as two separate contracts. The sub-lease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease.
Amounts due from lessees under finance leases are recognized as other assets at the amount of CI’s net investment in the leases. Finance lease income is recognized over the lease term using the effective interest rate. Payments received reduce the net investment in the lease.
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.
Significant judgment in determining the lease
CI determines the lease term as the non-cancellable term of the lease, together with any period covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
CI has the option, under some of its leases to lease the assets for additional terms. CI applies judgment in evaluation whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, CI reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew.
CI included the renewal period on certain property leases where it expects to exercise such option.
The following shows the carrying amounts of CI’s right-of-use assets and lease liabilities and the movements during the three-month period ended March 31, 2019:
Right-of-use assets | ||||||||||||||||
Property leases |
Equipment
leases |
Total | Lease liabilities | |||||||||||||
$ | $ | $ | $ | |||||||||||||
As at January 1, 2019 | 50,240 | 2,141 | 52,381 | 81,630 | ||||||||||||
Additions | 593 | — | 593 | 607 | ||||||||||||
Depreciation expense | (1,935 | ) | (242 | ) | (2,177 | ) | — | |||||||||
Interest expense | — | — | — | 836 | ||||||||||||
Payments | — | — | — | (3,526 | ) | |||||||||||
Translation | (5 | ) | — | (5 | ) | (5 | ) | |||||||||
As at March 31, 2019 | 48,893 | 1,899 | 50,792 | 79,542 |
Q1 Financial Report | 10 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI recognized rent expense from short-term leases of $256, leases of low-value assets of $60 and variable lease payments of $3,151 for the three-month period ended March 31, 2019.
Included in other income is finance income of $24 received from sub-leasing right-of-use assets.
[B] IFRIC 23
Effective January 1, 2019, CI adopted IFRIC Interpretation 23, Uncertainty over Income Tax Treatments [“IFRIC 23”], which clarifies the accounting treatment used to reflect uncertainty in the recognition and measurement of income taxes. IFRIC 23 specifically addresses the following:
• | Whether an entity considers uncertain tax treatments separately |
• | The assumptions an entity makes about the examination of tax treatments by taxation authorities |
• | How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates |
• | How an entity considers changes in facts and circumstances |
CI has considered the impact of IFRIC 23 on the recognition and measurement of uncertainties over income tax treatments across the jurisdictions in which it operates. CI has determined that there is no cumulative effect to opening deficit, or other appropriate components of equity upon adoption.
3. BUSINESS ACQUISITION
WealthBar Financial Services Inc.
On January 23, 2019, CI completed the acquisition of 75% outstanding shares and debt obligations of WealthBar Financial Services Inc., a leading Canadian online wealth management and financial planning platform, for all cash consideration of $23,653. The acquisition was accounted for using the acquisition method of accounting and the results of operations have been consolidated from the date of the transaction.
Details of the net assets acquired as at January 23, 2019, at preliminary fair value, are as follows:
Q1 Financial Report | 11 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
$ | ||||
Cash and cash equivalents | 81 | |||
Accounts receivable and prepaid expenses | 416 | |||
Income taxes receivable | 226 | |||
Capital assets | 113 | |||
Right-of-use asset | 248 | |||
Fund administration contracts | 4,000 | |||
Intangible - technology | 15,000 | |||
Accounts payable and accrued liabilities | (375 | ) | ||
Lease liability | (262 | ) | ||
Deferred income taxes | (2,356 | ) | ||
Fair value of identifiable net assets | 17,091 | |||
Non-controlling interest (25% of identifiable net assets) | (4,273 | ) | ||
Goodwill on acquisition | 10,835 | |||
Total acquired cost | 23,653 |
The acquired fund administration contracts with a fair value of $4,000 have a finite life of 10 years. The technology acquired has a fair value of $15,000 and an estimated useful life of 10 years. The goodwill on acquisition is not deductible for income taxes. Goodwill of $10,835 relates to the asset administration segment.
4. | LONG-TERM DEBT |
Long-term debt consists of the following:
As at | As at | |||||||
March 31, 2019 | December 31, 2018 | |||||||
$ | $ | |||||||
Credit facility | ||||||||
Prime rate loan | — | 24,500 | ||||||
Banker’s acceptances | 308,000 | — | ||||||
LIBOR loan (USD $193,000) | — | 259,000 | ||||||
308,000 | 283,500 | |||||||
Debentures | ||||||||
$450 million, 2.645% due December 7, 2020 | 449,152 | 449,032 | ||||||
$200 million, 2.775% due November 25, 2021 | 199,336 | 199,278 | ||||||
$325 million, 3.520% due July 20, 2023 | 323,376 | 323,297 | ||||||
$250 million, 3.904% due September 27, 2027 | 248,658 | 248,626 | ||||||
1,220,522 | 1,220,233 | |||||||
Long-term debt | 1,528,522 | 1,503,733 |
Credit facility
CI has a $700,000 revolving credit facility with three Canadian chartered banks. Loans are made by the banks under a three-year revolving credit facility, with the outstanding principal balance due upon maturity on December 11, 2021. The credit facility contains a number of financial covenants that require CI to meet certain financial ratios and financial condition tests. CI is within its financial covenants with respect to its credit facility, which requires that the funded debt to annualized EBITDA ratio remains below 3:1 and that CI’s assets under management not fall below $85 billion, calculated based on a rolling 30-day average. There can be no assurance that future borrowings or equity financing will be available to CI or available on acceptable terms.
Q1 Financial Report | 12 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
On January 28, 2019, the forward exchange contract entered into on December 24, 2018 with a Canadian chartered bank to pay Canadian dollars $259,690 and receive U.S. dollars $193,666 matured. Hedge accounting was not applied to the forward foreign exchange contract, as the fair value changes are offset in net income with the foreign exchange revaluation of the U.S. denominated debt.
Debentures
On July 20, 2018, CI completed an offering pursuant to which it issued $325,000 principal amount of debentures due July 20, 2023 at par [the “2023 Debentures”]. Interest on the 2023 Debentures is paid semi-annually in arrears at a rate of 3.520%. The proceeds, net of transaction costs, were used to repay outstanding indebtedness under the credit facility.
On February 2, 2017, CI entered into an interest rate swap agreement with a Canadian chartered bank to swap the semi-annual fixed rate payments on the debentures due November 25, 2021 for floating rate payments. As at March 31, 2019, the fair value of the interest rate swap agreement was an unrealized loss of $3,232 and is included in long-term debt in the unaudited interim condensed consolidated statements of financial position.
5. | PROVISION FOR OTHER LIABILITIES AND CONTINGENCIES |
CI is a party to a number of claims, proceedings and investigations, including legal, regulatory and tax, in the ordinary course of its business. Due to the inherent uncertainty involved in these matters, it is difficult to predict the final outcome or the amount and timing of any outflow related to such matters. Based on current information and consultations with advisors, CI does not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on its financial position or on its ability to continue normal business operations.
CI has made provisions based on current information and the probable resolution of such contingent consideration, claims, proceedings and investigations as well as for amounts payable in connection with business acquisitions and severance. The movement in amounts provided for contingent liabilities and related expenses during the three months ended March 31, 2019 and the year ended December 31, 2018, are as follows:
Q1 Financial Report | 13 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
3 months ended
March 31, 2019 |
Year ended
December 31, 2018 |
|||||||
$ | $ | |||||||
Provision for other liabilities, beginning of period | 34,768 | 98,595 | ||||||
Additions | — | 3,151 | ||||||
Amounts used | (3,401 | ) | (54,838 | ) | ||||
Amounts reversed | (126 | ) | (12,140 | ) | ||||
Provision for other liabilities, end of period | 31,241 | 34,768 | ||||||
Current portion of provision for other liabilities | 11,179 | 14,591 |
Provision for other liabilities primarily includes the following:
LITIGATION
CI is a defendant to certain lawsuits of which two are class action lawsuits related to events and transactions that gave rise to a settlement agreement with the Ontario Securities Commission [“OSC”] in 2004. Although CI continues to believe that this settlement fully compensated investors affected by frequent trading activity, a provision has been made based on the probable resolution of these claims and related expenses.
CI maintains insurance policies that may provide coverage against certain claims. Amounts receivable under these policies are not accrued for unless the realization of income is virtually certain. During the three months ended March 31, 2019, no insurance proceeds were received related to the settlement of legal claims.
PUT OPTION AND CONTINGENT CONSIDERATION
Included in provision for other liabilities as at March 31, 2019, is a provision for the fair value of the put option granted to minority interest shareholders for the acquisition of GSFM of $11,287, including foreign exchange translation adjustments [December 31, 2018 - $11,438].
During the three months ended March 31, 2018, CI made payments of $11,633 [cash - $11,129 and shares - $534] related to contingent consideration that was payable for the First Asset acquisition. As at March 31, 2018, all contingent consideration related to this acquisition was paid.
6. | SHARE CAPITAL |
A summary of the changes to CI’s share capital for the period is as follows:
Q1 Financial Report | 14 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
[A] AUTHORIZED AND ISSUED
Number of shares | Stated value | |||||||
[in thousands] | $ | |||||||
Authorized | ||||||||
An unlimited number of common shares of CI | ||||||||
Issued | ||||||||
Common shares, balance, December 31, 2017 | 271,884 | 2,360,257 | ||||||
Issuance for acquisition of subsidiary | 17 | 534 | ||||||
Issuance of share capital on exercise of share options | 58 | 1,700 | ||||||
Issuance of share capital on vesting of restricted share units | 283 | 5,819 | ||||||
Share repurchases, net of tax | (28,521 | ) | (243,180 | ) | ||||
Common shares, balance, December 31, 2018 | 243,721 | 2,125,130 | ||||||
Issuance of share capital on vesting of restricted share units | 6 | 123 | ||||||
Share repurchases, net of tax | (3,352 | ) | (26,712 | ) | ||||
Common shares, balance, March 31, 2019 | 240,375 | 2,098,541 |
[B] EMPLOYEE INCENTIVE SHARE OPTION PLAN
CI has an employee incentive share option plan [the “Share Option Plan”], as amended and restated, for the executives and key employees of CI. CI granted 743 thousand options during the three months ended March 31, 2019 [three months ended March 31, 2018 - 78 thousand options]. The fair value method of accounting is used for the valuation of the 2019 and 2018 share option grants. Compensation expense is recognized over the applicable vesting periods, assuming an estimated average forfeiture rate of 0% - 13% for the options issued during 2019 [2018 - 0%], with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well as any consideration paid by the option holder are credited to share capital.
The fair value of the 2019 and 2018 option grants was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
Year of grant | 2019 | 2019 | 2018 | |||||||||
# of options granted [in thousands] | 213 | 530 | 78 | |||||||||
Vesting terms | At end of year 5 | 1/3 at end of years 3, 4 and 5 | 1/3 at end of years 1, 2 and 3 | |||||||||
Dividend yield | 3.792 | % | 3.792 | % | 5.044% - 5.085% | |||||||
Expected volatility (*) | 17 | % | 17 | % | 16 | % | ||||||
Risk-free interest rate | 2.238 | % | 2.182% - 2.238% | 2.285% - 2.363% | ||||||||
Expected life [years] | 6.8 | 5.2 - 6.8 | 2.9 - 3.7 | |||||||||
Forfeiture rate | 0 | % | 13 | % | 0 | % | ||||||
Fair value per stock option | $2.48 | $2.23 - $2.48 | $2.23 - $2.45 | |||||||||
Exercise price | $18.99 | $18.99 | $28.67 |
(*) Based on historical volatility of CI’s share price.
Q1 Financial Report | 15 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
A summary of the changes in the Share Option Plan is as follows:
Number of options |
Weighted average
exercise price |
|||||||
[in thousands] | $ | |||||||
Options outstanding, December 31, 2017 | 8,073 | 31.84 | ||||||
Options exercisable, December 31, 2017 | 5,014 | 33.03 | ||||||
Options granted | 78 | 28.67 | ||||||
Options exercised (*) | (609 | ) | 27.42 | |||||
Options cancelled | (584 | ) | 31.98 | |||||
Options outstanding, December 31, 2018 | 6,958 | 32.18 | ||||||
Options exercisable, December 31, 2018 | 5,789 | 32.97 | ||||||
Options granted | 743 | 18.99 | ||||||
Options cancelled | (1,664 | ) | 34.96 | |||||
Options outstanding, March 31, 2019 | 6,037 | 29.79 | ||||||
Options exercisable, March 31, 2019 | 5,154 | 31.40 |
(*) Weighted average share price of options exercised was nil during the three months ended March 31, 2019 [year ended December 31, 2018 - $29.54]
Options outstanding and exercisable as at March 31, 2019 are as follows:
Exercise price |
Number of options outstanding |
Weighted average remaining
contractual life |
Number of options
exercisable |
|||||||||
$ | [in thousands] | [years] | [in thousands] | |||||||||
18.99 | 743 | 9.9 | — | |||||||||
27.44 | 479 | 2.9 | 390 | |||||||||
28.63 | 2,100 | 1.9 | 2,083 | |||||||||
28.67 | 51 | 3.9 | 17 | |||||||||
33.96 | 2,215 | 0.9 | 2,215 | |||||||||
34.52 | 229 | 0.2 | 229 | |||||||||
35.88 | 220 | 1.0 | 220 | |||||||||
18.99 to 35.88 | 6,037 | 2.5 | 5,154 |
[C] RESTRICTED SHARE UNITS
CI has an employee restricted share unit plan [the “RSU Plan”] for senior executives and other key employees. Compensation expense is recognized and recorded as contributed surplus based upon the market value of the restricted share units [“RSUs”] at the grant date. Forfeitures of RSUs reduce compensation expense to the extent contributed surplus was previously recorded for such awards. On vesting of RSUs, share capital is credited for the amounts initially recorded as contributed surplus to reflect the issuance of share capital.
Q1 Financial Report | 16 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts]
During the three months ended March 31, 2019, CI granted 499 thousand RSUs [three months ended March 31, 2018 - 541 thousand RSUs], including 7 thousand RSUs granted to reflect dividends declared on the common shares [three months ended March 31, 2018 - 6 thousand]. Also during the three months ended March 31, 2019, 6 thousand RSUs were exercised, and 15 thousand RSUs were forfeited [three months ended March 31, 2018 - 2 thousand exercised and 0.1 thousand RSUs forfeited]. During the three months ended March 31, 2019, CI credited contributed surplus for $2,926 related to compensation expense recognized for the RSUs [three months ended March 31, 2018 - $1,860]. As at March 31, 2019, 1,142 thousand RSUs are outstanding [December 31, 2018 - 664 thousand RSUs].
CI uses a Trust to hold CI’s common shares, to fulfill obligations to employees arising from the RSU Plan. The common shares held by the Trust are not considered to be outstanding for the purposes of basic and diluted earnings per share calculations.
[D] DEFERRED SHARE UNITS
The deferred share unit plan [“DSU Plan”] was established in March 2017, whereby directors may elect to receive all or a portion of their quarterly compensation in either cash or deferred share units [“DSUs”]. The DSUs fully vest on the grant date and an expense is recorded based upon the market value of the DSUs at the grant date with an offset included in accounts payable and accrued liabilities. At the end of each period, the change in the fair value of the DSUs is recorded as an expense with an offset recorded to the liability. DSUs can only be redeemed for cash once the holder ceases to be a director of CI.
During the three months ended March 31, 2019, nil DSUs were granted and nil DSUs were exercised [three months ended March 31, 2018 - 2 thousand DSUs granted and nil exercised]. An expense recovery of $18 was recorded during the three months ended March 31, 2019 [three months ended March 31, 2018 - $(11)]. As at March 31, 2019, included in accounts payable and accrued liabilities, is an accrual of $287 for amounts to be paid under the DSU Plan [December 31, 2018 - $269].
Q1 Financial Report | 17 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
[E] BASIC AND DILUTED EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share for the three months ended March 31:
[in thousands] |
3 months ended
March 31, 2019 |
3 months ended
March 31, 2018 |
||||||
Numerator: | ||||||||
Net income attributable to shareholders of the Company basic and diluted | $ | 140,035 | $ | 159,039 | ||||
Denominator: | ||||||||
Weighted average number of common shares - basic | 241,947 | 269,649 | ||||||
Weighted average effect of dilutive stock options and RSU awards (*) | 653 | 321 | ||||||
Weighted average number of common shares - diluted | 242,600 | 269,970 | ||||||
Net earnings per common share attributable to shareholders | ||||||||
Basic | $ | 0.58 | $ | 0.59 | ||||
Diluted | $ | 0.58 | $ | 0.59 |
(*) The determination of the weighted average number of common shares - diluted excludes 6,037 thousand shares related to stock options that were anti-dilutive for the three months ended March 31, 2019 [three months ended March 31, 2018 - 6,870 thousand shares]. | ||
[F] MAXIMUM SHARE DILUTION
The following table presents the maximum number of shares that would be outstanding if all the outstanding options were exercised and if all RSU awards vested as at April 30, 2019:
[in thousands] | ||||
Shares outstanding at April 30, 2019 | 239,143 | |||
Options to purchase shares | 5,986 | |||
RSU awards | 1,147 | |||
246,276 |
Q1 Financial Report | 18 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
7. | DIVIDENDS |
The following dividends were paid by CI during the three months ended March 31, 2019:
Cash
dividend
|
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2018 | January 14, 2019 | 0.18 | 43,899 | |||||||
Paid during the three months ended March 31, 2019 | 43,899 |
The following dividends were declared but not paid during the three months ended March 31, 2019:
Cash
dividend
|
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
March 31, 2019 | April 15, 2019 | 0.18 | 43,268 | |||||||
June 30, 2019 | July 15, 2019 | 0.18 | 43,268 | |||||||
September 30, 2019 | October 15, 2019 | 0.18 | 43,267 | |||||||
December 31, 2019 | January 15, 2020 | 0.18 | 43,267 | |||||||
Declared and accrued as at March 31, 2019 | 173,070 |
The following dividends were paid by CI during the three months ended March 31, 2018:
Cash
dividend
|
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2017 | January 15, 2018 | 0.1175 | 31,957 | |||||||
January 31, 2018 | February 15, 2018 | 0.1175 | 31,736 | |||||||
February 28, 2018 | March 15, 2018 | 0.1175 | 31,706 | |||||||
Paid during the three months ended March 31, 2018 | 95,399 |
The following dividends were declared but not paid during the three months ended March 31, 2018:
Cash
dividend
|
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
March 31, 2018 | April 13, 2018 | 0.1175 | 31,380 | |||||||
April 30, 2018 | May 15, 2018 | 0.1175 | 31,379 | |||||||
Declared and accrued as at March 31, 2018 | 62,759 |
Q1 Financial Report | 19 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
8. | FINANCIAL INSTRUMENTS |
The carrying amounts of the financial instruments are presented in the table below and are classified according to the following categories:
As at | As at | |||||||
March 31, 2019 | December 31, 2018 | |||||||
$ | $ | |||||||
Financial assets | ||||||||
Fair value through profit or loss | ||||||||
Cash and cash equivalents | 136,720 | 137,160 | ||||||
Investments | 175,105 | 168,122 | ||||||
Other assets | 9,507 | 9,507 | ||||||
Amortized cost | ||||||||
Client and trust funds on deposit | 349,229 | 365,520 | ||||||
Accounts receivable | 166,801 | 137,979 | ||||||
Other assets | 22,168 | 23,006 | ||||||
Total financial assets | 859,530 | 841,294 | ||||||
Financial liabilities | ||||||||
Fair value through profit or loss | ||||||||
Provisions for other liabilities | 11,287 | 11,438 | ||||||
Amortized cost | ||||||||
Accounts payable and accrued liabilities | 222,045 | 222,233 | ||||||
Provisions for other liabilities | 19,954 | 23,330 | ||||||
Dividends payable | 173,070 | 219,112 | ||||||
Client and trust funds payable | 358,807 | 370,756 | ||||||
Long-term debt | 1,528,522 | 1,503,733 | ||||||
Total financial liabilities | 2,313,685 | 2,350,602 |
CI’s investments as at March 31, 2019 and December 31, 2018, include CI’s marketable securities comprised of seed capital investments in CI’s mutual funds and strategic investments. Mutual fund securities are valued using the net asset value per unit of each fund, which represents the underlying net assets at fair values determined using closing market prices. CI’s mutual fund securities that are valued daily are classified as Level 1 in the fair value hierarchy. Mutual fund securities and strategic investments that are valued less frequently are classified as Level 2 in the fair value hierarchy. CI’s investments as at March 31, 2019, also include securities owned, at market, consisting of money market, equity securities and bonds. Money market and equity securities are valued based on quoted prices and are classified as Level 1 in the fair value hierarchy. Bonds are valued using a market comparison technique to fair value these instruments using observable broker quotes and are classified as Level 2 in the fair value hierarchy. There have been no transfers between Level 1 and Level 2 during the period.
Q1 Financial Report | 20 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
Investments consist of the following as at March 31, 2019:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 142,839 | 68,240 | 70,946 | 3,653 | ||||||||||||
Securities owned, at market | 32,266 | 32,266 | — | — | ||||||||||||
Total investments | 175,105 | 100,506 | 70,946 | 3,653 |
Investments consist of the following as at December 31, 2018:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 132,953 | 56,603 | 72,697 | 3,653 | ||||||||||||
Securities owned, at market | 35,169 | 35,169 | — | — | ||||||||||||
Total investments | 168,122 | 91,772 | 72,697 | 3,653 |
Included in other assets are long-term private equity strategic investments of $9,507 [December 31, 2018 - $9,507] valued using level 3 inputs.
Included in provision for other liabilities, as at March 31, 2019, is put option payable on non-controlling interest of $11,287 [December 31, 2018 - $11,438] carried at fair value and classified as Level 3 in the fair value hierarchy. Long-term debt as at March 31, 2019, includes debentures with a fair value of $1,233,893 [December 31, 2018 - $1,208,715], as determined by quoted market prices that have been classified as Level 2 in the fair value hierarchy.
Q1 Financial Report | 21 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
9. | CAPITAL MANAGEMENT |
CI’s objectives in managing capital are to maintain a capital structure that allows CI to meet its growth strategies and build long-term shareholder value, while satisfying its financial obligations and meeting its long-term debt covenants. CI’s capital comprise shareholders’ equity and long-term debt (including the current portion of long-term debt).
CI and its subsidiaries are subject to minimum regulatory capital requirements whereby sufficient cash and other liquid assets must be on hand to maintain capital requirements rather than using them in connection with its business. As at March 31, 2019, cash and cash equivalents of $17,506 [December 31, 2018 - $20,226] were required to be on hand for regulatory capital maintenance. Failure to maintain required regulatory capital by CI may result in fines, suspension or revocation of registration by the relevant securities regulator. CI from time to time provides loans to its subsidiaries for operating purposes and may choose to subordinate these loans in favour of general creditors. The repayment of subordinated loans is subject to regulatory approval. As at March 31, 2019 and December 31, 2018, CI met its capital requirements.
CI’s capital consists of the following:
As at | As at | |||||||
March 31, 2019 | December 31, 2018 | |||||||
$ | $ | |||||||
Shareholders’ equity | 1,506,137 | 1,430,077 | ||||||
Long-term debt | 1,528,522 | 1,503,733 | ||||||
Total capital | 3,034,659 | 2,933,810 |
Q1 Financial Report | 22 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
10. | SEGMENTED INFORMATION |
CI has two reportable segments: asset management and asset administration. These segments reflect CI’s internal financial reporting and performance measurement.
The asset management segment includes the operating results and financial position of CI Investments, CI Private Counsel LP, First Asset, GSFM and Marret, which derive their revenues principally from the fees earned on the management of several families of mutual funds, segregated funds and exchange-traded funds.
The asset administration segment includes the operating results and financial position of WealthBar, BBS and AWM and its subsidiaries, including Assante Capital Management Ltd. and Assante Financial Management Ltd. These companies derive their revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients.
Segmented information as at and for the three-month period ended March 31, 2019 is as follows:
Asset
|
Asset
|
Intersegment
eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 459,457 | — | — | 459,457 | ||||||||||||
Administration fees | — | 95,005 | (42,569 | ) | 52,436 | |||||||||||
Other revenue | 6,876 | 8,000 | — | 14,876 | ||||||||||||
Total revenue | 466,333 | 103,005 | (42,569 | ) | 526,769 | |||||||||||
Selling, general and administrative | 100,947 | 25,114 | — | 126,061 | ||||||||||||
Trailer fees | 151,983 | — | (7,381 | ) | 144,602 | |||||||||||
Investment dealer fees | — | 75,784 | (34,942 | ) | 40,842 | |||||||||||
Deferred sales commissions | 4,851 | — | (246 | ) | 4,605 | |||||||||||
Amortization and depreciation | 5,504 | 2,655 | — | 8,159 | ||||||||||||
Other expenses | 1,479 | 153 | — | 1,632 | ||||||||||||
Total expenses | 264,764 | 103,706 | (42,569 | ) | 325,901 | |||||||||||
Income before income taxes and non-segmented items | 201,569 | (701 | ) | — | 200,868 | |||||||||||
Interest and lease finance | (13,715 | ) | ||||||||||||||
Provision for income taxes | (47,193 | ) | ||||||||||||||
Net income for the period | 139,960 | |||||||||||||||
Identifiable assets | 499,331 | 576,834 | — | 1,076,165 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,310,135 | 221,430 | — | 1,531,565 | ||||||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||||||
Total assets | 3,589,423 | 798,264 | — | 4,387,687 |
Q1 Financial Report | 23 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
Segmented information for the three-month period ended March 31, 2018 is as follows:
Asset
|
Asset
|
Intersegment
eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 513,728 | — | — | 513,728 | ||||||||||||
Administration fees | — | 92,003 | (43,903 | ) | 48,100 | |||||||||||
Other revenue | 3,585 | 8,094 | — | 11,679 | ||||||||||||
Total revenue | 517,313 | 100,097 | (43,903 | ) | 573,507 | |||||||||||
Selling, general and administrative | 108,390 | 24,498 | — | 132,888 | ||||||||||||
Trailer fees | 170,027 | — | (8,068 | ) | 161,959 | |||||||||||
Investment dealer fees | — | 73,179 | (35,441 | ) | 37,738 | |||||||||||
Deferred sales commissions | 8,901 | — | (394 | ) | 8,507 | |||||||||||
Amortization and depreciation | 3,932 | 919 | — | 4,851 | ||||||||||||
Other expenses | 2,122 | 11 | — | 2,133 | ||||||||||||
Total expenses | 293,372 | 98,607 | (43,903 | ) | 348,076 | |||||||||||
Income before income taxes and non-segmented items | 223,941 | 1,490 | — | 225,431 | ||||||||||||
Interest | (9,275 | ) | ||||||||||||||
Provision for income taxes | (57,027 | ) | ||||||||||||||
Net income for the period | 159,129 | |||||||||||||||
As at December 31, 2018 | ||||||||||||||||
Identifiable assets | 432,264 | 558,890 | — | 991,154 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,310,510 | 210,595 | — | 1,521,105 | ||||||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||||||
Total assets | 3,522,731 | 769,485 | — | 4,292,216 |
11. | SELLING, GENERAL AND ADMINISTRATIVE |
Included in selling, general and administrative expenses [“SG&A”] are salaries and benefits of $70,641 for the three months ended March 31, 2019 [three months ended March 31, 2018 - $72,303]. Other SG&A of $55,420 for the three months ended March 31, 2019, primarily includes marketing and information technology expenses as well as professional and regulatory fees [three months ended March 31, 2018 - $60,585].
Q1 Financial Report | 24 | March 31, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
12. AMORTIZATION AND DEPRECIATION
The following table provides details of amortization and depreciation:
3 months ended
March 31, 2019 |
3 months ended
March 31, 2018 |
|||||||
$ | $ | |||||||
Depreciation of capital assets | 2,766 | 2,354 | ||||||
Depreciation of right-of-use assets | 2,177 | — | ||||||
Amortization of intangibles | 2,926 | 2,293 | ||||||
Amortization of debenture transaction costs | 290 | 204 | ||||||
Total amortization and depreciation | 8,159 | 4,851 |
13. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform to the interim condensed consolidated financial statement presentation in the current period.
This Report contains forward-looking statements with respect to CI, including its business operations and strategy and financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things, general economic and market factors, including interest rates, business competition, changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time. |
Q1 Financial Report | 25 | March 31, 2019 |
Exhibit 99.8
MANAGEMENT’S DISCUSSION & ANALYSIS | March 31, 2019
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This Management’s Discussion and Analysis (“MD&A”) dated May 9, 2019 presents an analysis of the financial position of CI Financial Corp. and its subsidiaries (“CI”) as at March 31, 2019, compared with December 31, 2018, and the results of operations for the quarter ended March 31, 2019, compared with the quarter ended March 31, 2018 and the quarter ended December 31, 2018.
CI’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Amounts are expressed in Canadian dollars. The principal subsidiaries referenced herein include CI Investments Inc. (“CI Investments”) and Assante Wealth Management (Canada) Ltd. (“AWM” or “Assante”). The Asset Management segment of the business includes the operating results and financial position of CI Investments and its subsidiaries, including CI Private Counsel LP (“CIPC”), as well as the operating results and financial position of First Asset Investment Management Inc. (“First Asset”) and GSFM Pty Limited (“GSFM”). The Asset Administration segment includes the operating results and financial position of AWM and its subsidiaries, including Assante Capital Management Ltd. (“ACM”) and Assante Financial Management Ltd. (“AFM”), as well as the operating results and financial position of BBS Securities Inc. (“BBS”) and WealthBar Financial Services Inc. (“WealthBar”) .
This MD&A contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp. (“CI”) and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time. The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward-looking statement after the date on which it is made, whether to reflect new information, future events or otherwise.
This MD&A includes several non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full year results from period to period. Descriptions of these non-IFRS measures and reconciliations to the nearest IFRS measure, where necessary, are provided in the “Non-IFRS Measures” section of this MD&A. Note that figures in tables may not add due to rounding.
Q1 Financial Report | 2 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 1: SUMMARY OF QUARTERLY RESULTS
[millions of dollars, except per share amounts] | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||
Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | |||||||||||||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||||||||||||||
Management fees | 459.5 | 474.2 | 509.9 | 506.3 | 513.7 | 532.1 | 452.9 | 462.6 | ||||||||||||||||||||||||
Administration fees | 52.4 | 51.8 | 50.2 | 47.5 | 48.1 | 45.8 | 42.0 | 41.6 | ||||||||||||||||||||||||
Other revenues | 14.9 | 3.2 | 8.9 | 10.8 | 11.7 | 16.5 | 9.3 | 6.1 | ||||||||||||||||||||||||
Total revenues | 526.8 | 529.2 | 569.0 | 564.6 | 573.5 | 594.4 | 504.1 | 510.3 | ||||||||||||||||||||||||
Selling, general & administrative | 126.1 | 123.5 | 128.9 | 127.3 | 132.9 | 128.6 | 106.9 | 109.8 | ||||||||||||||||||||||||
Trailer fees | 144.6 | 149.1 | 160.6 | 159.6 | 162.0 | 167.8 | 139.3 | 142.3 | ||||||||||||||||||||||||
Investment dealer fees | 40.8 | 40.5 | 40.1 | 37.6 | 37.7 | 37.3 | 34.5 | 34.2 | ||||||||||||||||||||||||
Deferred sales commissions paid | 4.6 | 3.9 | 4.1 | 5.6 | 8.5 | 7.3 | 6.5 | 7.1 | ||||||||||||||||||||||||
Interest and lease finance | 13.7 | 12.4 | 11.6 | 9.9 | 9.3 | 8.6 | 5.7 | 5.3 | ||||||||||||||||||||||||
Amortization and depreciation | 8.2 | 5.4 | 5.2 | 5.1 | 4.9 | 4.7 | 3.3 | 3.4 | ||||||||||||||||||||||||
Other expenses | 1.6 | 3.1 | 0.8 | 1.6 | 2.1 | 46.7 | 0.2 | 2.0 | ||||||||||||||||||||||||
Total expenses | 339.6 | 337.8 | 351.2 | 346.7 | 357.4 | 401.0 | 296.5 | 304.0 | ||||||||||||||||||||||||
Income before income taxes | 187.2 | 191.3 | 217.8 | 218.0 | 216.2 | 193.4 | 207.6 | 206.3 | ||||||||||||||||||||||||
Income taxes | 47.2 | 51.0 | 59.5 | 58.0 | 57.0 | 53.9 | 54.0 | 96.8 | ||||||||||||||||||||||||
Non-controlling interest | (0.1 | ) | — | 0.1 | 0.1 | 0.1 | 0.1 | — | (0.2 | ) | ||||||||||||||||||||||
Net income attributable to shareholders | 140.0 | 140.3 | 158.2 | 159.9 | 159.0 | 139.4 | 153.6 | 109.6 | ||||||||||||||||||||||||
Earnings per share | 0.58 | 0.57 | 0.62 | 0.61 | 0.59 | 0.51 | 0.60 | 0.42 | ||||||||||||||||||||||||
Diluted earnings per share | 0.58 | 0.57 | 0.62 | 0.60 | 0.59 | 0.51 | 0.60 | 0.42 | ||||||||||||||||||||||||
Dividends paid per share | 0.1800 | 0.1800 | 0.2350 | 0.3525 | 0.3525 | 0.3525 | 0.3525 | 0.3475 |
Q1 Financial Report | 3 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
BUSINESS OVERVIEW
CI is a diversified wealth management firm and through CI Investments, one of Canada’s largest independent investment fund companies. The principal business of CI is the management, marketing, distribution and administration of investment products for Canadian investors. CI also provides tax, retirement, estate and wealth planning services to clients of Assante and CIPC. In addition, CI has asset management operations in Australia through its subsidiary GSFM. CI’s products are distributed primarily through brokers, independent financial planners and insurance advisors, including ACM and AFM financial advisors. CI operates through two business segments, Asset Management and Asset Administration. The Asset Management segment provides the majority of CI’s income and derives its revenue principally from the fees earned on the management of investment funds and other fee-earning investment products. The Asset Administration segment derives its revenue principally from fees and commissions from ongoing service and on the sale of investment funds and other financial products.
BUSINESS STRATEGY
CI provides wealth and investment management services and earns fee revenue on its assets under management (“AUM”) and assets under administration (“AUA”). Management believes that client goals and asset growth can be achieved by focusing on the following factors: quality and diversity of products offered by CI; experience and depth of investment managers; service levels provided to dealers and investors; and the skill and knowledge of its employees.
CI offers investors a wide range of Canadian and global investment products through a network of investment dealers, mutual fund dealers, and insurance agents, which include advisors with AWM. Acquisitions of fund management companies and years of product innovation and development have allowed CI to offer investors a broad selection of investment products.
CI uses in-house teams and external investment managers to provide portfolio management services. These investment managers typically have long careers in the industry as well as extensive track records with CI. This lineup of investment managers provides a wide selection of styles and areas of expertise for CI’s funds.
CI’s management is focused on continuing to build a global diversified wealth management company based in Canada. With ongoing expansion in terms of scale, expertise and reach, CI will be able to explore new markets and introduce new capabilities that will help drive the organization’s future growth. At the same time, CI continues to view the Canadian business, relationships and channels as critical parts of the organization’s DNA. In summary, CI’s strategy is based on three major themes:
• | Maintain and grow our leading position in Canada; |
• | Achieve greater scale by growing assets in Canada and abroad; |
• | Increase access to distribution in Canada and abroad. |
An important factor underlying these themes is the continued development of our digital capabilities. The acquisition of BBS in 2017 added advanced trading technology and online services to the firm, and has assisted in CI’s digital transformation. CI acquired WealthBar in January 2019, a leading Canadian online wealth management and financial planning platform. CI’s goal is to expand avenues of distribution and to provide clients with improved products and services, allowing them to do business with the firm when, where and how they want.
Q1 Financial Report | 4 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
KEY PERFORMANCE DRIVERS
The key performance indicator for the Asset Management segment is the level of AUM, and for the Asset Administration segment, the level of AUA. Assets Under Advisement includes both AUA (assets under administration) and assets held by clients of advisors with Stonegate Private Counsel. Total assets are comprised of AUM and Assets Under Advisement. CI’s AUM and AUA are primarily driven by fund performance as well as the gross sales and redemptions of its investment products. As most of CI’s revenues and expenses are based on daily asset levels throughout the year, average assets for a particular period are critical to the analysis of CI’s financial results. While some expenses, such as trailer fees, vary directly with the level of AUM, a portion of CI’s expenses do not, such as a portion of overhead, discretionary spend, and deferred sales commissions. Over the long term, CI manages the level of its discretionary spend to be consistent with, or below, the growth in its revenue. In any given period, CI may choose to make investments in people or technology that benefit the long-term growth of the company.
CI uses several performance indicators to assess its results. These indicators are described throughout the results of operations and the discussion of the two operating segments and include the following measures prescribed by IFRS: net income and earnings per share; and measures not prescribed by IFRS: adjusted net income, adjusted earnings per share, operating cash flow, free cash flow, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, dealer gross margin, net debt, asset management margin, and SG&A efficiency margin. Descriptions of these non-IFRS measures and reconciliations to IFRS are provided below.
Q1 Financial Report | 5 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NON-IFRS MEASURES
CI reports certain financial information using non-IFRS measures as CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full-year results from period to period.
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
CI defines adjusted net income as net income, net of non-controlling interest, and net of other provisions and adjustments. CI uses adjusted net income and adjusted earnings per share to compare underlying profitability for different periods.
TABLE 2: ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
[millions of dollars, except per share amounts] |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Mar. 31, 2018 |
|||||||||
Net Income | 140.0 | 140.4 | 159.1 | |||||||||
Less: | ||||||||||||
Non-controlling interest | (0.1 | ) | — | 0.1 | ||||||||
Adjusted net income | 140.0 | 140.3 | 159.0 | |||||||||
Adjusted earnings per share | 0.58 | 0.57 | 0.59 |
OPERATING CASH FLOW AND FREE CASH FLOW
CI measures its operating cash flow before the change in operating assets and liabilities, and the actual cash amount paid for interest and income taxes, as these items often distort the cash flow generated during the period. Operating assets and liabilities are affected by seasonality, the timing of interest payments depends on terms in specific debt instruments, and tax installments paid may differ materially from the cash tax accrual.
Free cash flow is calculated as operating cash flow adjusted for provisions. CI uses this measure, among others, when determining how to deploy capital.
TABLE 3: OPERATING CASH FLOW AND FREE CASH FLOW
[millions of dollars] |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Mar. 31, 2018 |
|||||||||
Cash provided by operating activities | 120.9 | 178.3 | 80.5 | |||||||||
Add: | ||||||||||||
Income taxes paid | 40.5 | 57.7 | 68.5 | |||||||||
Interest paid | 13.4 | 12.4 | 9.3 | |||||||||
Less: | ||||||||||||
Net change in non-cash working capital | 31.3 | 91.8 | (8.7 | ) | ||||||||
Operating cash flow and free cash flow | 143.5 | 156.5 | 166.9 |
Q1 Financial Report | 6 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
CI uses EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA, which it defines as EBITDA, net of non-controlling interest and other provisions and adjustments, to assess its underlying profitability prior to the impact of its financing structure, income taxes and amortization and depreciation. This permits comparisons of companies within the industry, normalizing for different financing methods and levels of taxation. Adjusted EBITDA is a measure of operating performance, a facilitator for valuation and a proxy for cash flow. Adjusted EBITDA margin expresses adjusted EBITDA as a percentage of total revenue. Please note that effective for the first quarter of 2019, CI adopted IFRS 16, an accounting standard that requires lessees to recognize assets and liabilities for leases longer than 12 months. This change impacts EBITDA by replacing lease expense with interest and depreciation, which are not included in EBITDA. This accounting change was not adopted retroactively - further information can be found in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements.
TABLE 4: EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
[millions of dollars, except per share amounts] |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Mar. 31, 2018 |
|||||||||
Net Income | 140.0 | 140.4 | 159.1 | |||||||||
Add: | ||||||||||||
Interest and lease finance | 13.7 | 12.4 | 9.3 | |||||||||
Provision for income taxes | 47.2 | 51.0 | 57.0 | |||||||||
Amortization and depreciation | 8.2 | 5.4 | 4.9 | |||||||||
EBITDA | 209.0 | 209.1 | 230.3 | |||||||||
EBITDA per share | 0.86 | 0.85 | 0.85 | |||||||||
Less: | ||||||||||||
Non-controlling interest | — | 0.1 | 0.2 | |||||||||
Adjusted EBITDA | 209.0 | 209.0 | 230.1 | |||||||||
Adjusted EBITDA per share | 0.86 | 0.85 | 0.85 | |||||||||
Total revenue | 526.8 | 529.2 | 573.5 | |||||||||
Adjusted EBITDA Margin | 39.7 | % | 39.5 | % | 40.1 | % |
NET DEBT
CI calculates net debt as long-term debt (including the current portion) less cash and marketable securities, net of cash required for regulatory purposes and non-controlling interests. Net debt is a measure of leverage and CI uses this measure to assess its financial flexibility.
Q1 Financial Report | 7 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 5: NET DEBT | ||||||||
As at | As at | |||||||
[millions of dollars] | Mar. 31, 2019 | Dec. 31, 2018 | ||||||
Long-term debt | 1,528.5 | 1,503.7 | ||||||
Less: | ||||||||
Cash and short-term investments | 136.7 | 137.2 | ||||||
Marketable securities, excluding BBS’ securities owned, at market | 142.8 | 133.0 | ||||||
Add: | ||||||||
Regulatory capital and non-controlling interests | 19.5 | 21.7 | ||||||
Net Debt | 1,268.5 | 1,255.3 |
DEALER GROSS MARGIN
CI monitors its operating profitability on the revenues earned within its Asset Administration segment by measuring its dealer gross margin, which is calculated as administration fee revenue less investment dealer fees, divided by administration fee revenue (all figures before inter-segment eliminations). CI uses this measure to assess the profitability of the Asset Administration segment before SG&A expenses.
TABLE 6: DEALER GROSS MARGIN
[millions of dollars] |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Mar. 31, 2018 |
|||||||||
Administration fees | 95.0 | 94.2 | 92.0 | |||||||||
Less: | ||||||||||||
Investment dealer fees | 75.8 | 75.4 | 73.2 | |||||||||
19.2 | 18.7 | 18.8 | ||||||||||
Dealer gross margin | 20.2 | % | 19.9 | % | 20.5 | % |
ASSET MANAGEMENT MARGIN
CI assesses the overall performance of the asset management segment using a trailing 12-month asset management margin, where deferred sales commissions, trailer fees, and SG&A expenses are deducted from management fees and measured as a percentage of management fees (all figures are before inter-segment eliminations). This removes distortion caused by other revenues and expenses, eliminates the financing impact of back-end load funds, and eliminates revenue mix variances because it is measured as a percentage of management fees and not average AUM. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
Q1 Financial Report | 8 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 7: ASSET MANAGEMENT MARGIN
[millions of dollars - trailing 12 months] |
Quarter ended
Mar. 31, 2019 |
Quarter ended
Dec. 31, 2018 |
Quarter ended
Sep. 30, 2018 |
Quarter ended
Jun. 30, 2018 |
Quarter ended
Mar. 31, 2018 |
|||||||||||||||
Management fees | 1,949.9 | 2,004.2 | 2,062.0 | 2,005.0 | 1,961.3 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 19.1 | 23.1 | 26.7 | 29.2 | 30.8 | |||||||||||||||
Trailer fees | 644.8 | 662.8 | 682.5 | 660.1 | 642.0 | |||||||||||||||
Net management fees | 1,286.0 | 1,318.2 | 1,352.8 | 1,315.6 | 1,288.5 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 407.3 | 414.7 | 423.6 | 406.5 | 394.3 | |||||||||||||||
878.7 | 903.4 | 929.1 | 909.1 | 894.3 | ||||||||||||||||
Asset management margin | 45.1 | % | 45.1 | % | 45.1 | % | 45.3 | % | 45.6 | % |
SG&A EFFICIENCY MARGIN
CI uses a trailing 12-month SG&A efficiency margin to assess its costs relative to management fees earned, net of deferred sales commissions and trailer fees, which are not directly controllable by CI. These expenses are determined by the type, class and load of funds in which CI’s clients invest. SG&A expenses are subtracted from these net management fees and the remainder is measured as a percentage of net management fees. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
TABLE 8: SG&A EFFICIENCY MARGIN
[millions of dollars - trailing 12 months] |
Quarter ended
Mar. 31, 2019 |
Quarter ended
Dec. 31, 2018 |
Quarter ended
Sep. 30, 2018 |
Quarter ended
Jun. 30, 2018 |
Quarter ended
Mar. 31, 2018 |
|||||||||||||||
Management fees | 1,949.9 | 2,004.2 | 2,062.0 | 2,005.0 | 1,961.3 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 19.1 | 23.1 | 26.7 | 29.2 | 30.8 | |||||||||||||||
Trailer fees | 644.8 | 662.8 | 682.5 | 660.1 | 642.0 | |||||||||||||||
Net management fees | 1,286.0 | 1,318.2 | 1,352.8 | 1,315.6 | 1,288.5 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 407.3 | 414.7 | 423.6 | 406.5 | 394.3 | |||||||||||||||
878.7 | 903.4 | 929.1 | 909.1 | 894.3 | ||||||||||||||||
SG&A efficiency margin | 68.3 | % | 68.5 | % | 68.7 | % | 69.1 | % | 69.4 | % |
Q1 Financial Report | 9 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
ASSETS AND SALES
CI is one of Canada’s largest independent investment fund companies with assets under management of $131.3 billion and assets under advisement of $45.6 billion at March 31, 2019, as shown in Table 9. Assets under advisement are comprised of AUA and assets held by clients of advisors with Stonegate Private Counsel. Assets under management decreased 6% year over year, mainly due to net redemptions of funds. The 7% increase in assets under advisement from last year was due to net sales, advisor recruitment, and the acquisition of WealthBar. Total assets, which include mutual, segregated and hedge funds, separately managed accounts, structured products, exchange-traded funds, pooled funds and assets under advisement, were $177.0 billion at March 31, 2019, down $4.9 billion from $181.9 billion at March 31, 2018.
TABLE 9: TOTAL ASSETS | ||||||||||||
As at | As at | |||||||||||
[billions of dollars] | March 31, 2019 | March 31, 2018 | % change | |||||||||
Assets under management | 131.3 | 139.2 | (6 | ) | ||||||||
Assets under advisement1 | 45.6 | 42.7 | 7 | |||||||||
Total assets | 177.0 | 181.9 | (3 | ) |
1Includes $27.1 billion and $25.9 billion of assets managed by CI and held by clients of advisors with Assante and Stonegate in 2019 and 2018, respectively.
Global capital markets reversed course after a notably difficult end to 2018, rebounding strongly to post mainly positive results for the first quarter of 2019. Equity markets appeared to be lifted by the prospect of easier monetary policy, while bond markets benefited from economic data showing slowing global growth.
The MSCI World Index, which reflects equity market results for 23 developed market economies, climbed 10.3% in Canadian dollar terms, with broad-based gains across markets in North America, Europe and Asia. In the U.S., the S&P 500 Index finished the quarter with a gain of 11.3% (also in Canadian currency), led by strong results for the information technology, energy and industrials sectors. Emerging markets equities also made gains during the quarter.
The Canadian benchmark S&P/TSX Composite Index posted a robust quarterly gain of 13.3%. Although most sectors added value, Canada’s resource-heavy market was particularly buoyed by rebounding oil prices, while the industrials, information technology and health care sectors also performed well.
The change in AUM during each of the past five quarters is detailed in Table 10 and a breakdown of CI’s sales is provided in Table 11.
Q1 Financial Report | 10 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 10: CHANGE IN ASSETS UNDER MANAGEMENT | ||||||||||||||||||||
[billions of dollars] |
Quarter ended
Mar. 31, 2019 |
Quarter ended
Dec. 31, 2018 |
Quarter ended
Sep. 30, 2018 |
Quarter ended
Jun. 30, 2018 |
Quarter ended
Mar. 31, 2018 |
|||||||||||||||
Assets under management, beginning | 124.360 | 136.526 | 138.182 | 139.223 | 143.028 | |||||||||||||||
Gross sales | 3.596 | 3.023 | 3.015 | 3.209 | 5.187 | |||||||||||||||
Redemptions | 5.860 | 5.742 | 5.433 | 6.028 | 6.515 | |||||||||||||||
Net sales | (2.265 | ) | (2.719 | ) | (2.418 | ) | (2.819 | ) | (1.328 | ) | ||||||||||
Acquisitions (divestitures) | — | — | — | (1.025 | ) | — | ||||||||||||||
Fund performance | 9.214 | (9.447 | ) | 0.762 | 2.803 | (2.477 | ) | |||||||||||||
Assets under management, ending | 131.309 | 124.360 | 136.526 | 138.182 | 139.223 | |||||||||||||||
Average assets under management | 128.887 | 129.316 | 138.322 | 139.487 | 141.870 |
CI’s Canadian business, excluding products closed to new investors, had $3.3 billion in gross sales and $1.9 billion in net redemptions for the quarter ended March 31, 2019. CI’s international business had $253 million in gross sales and $117 million in net redemptions in the first quarter. CI’s closed business, comprised primarily of segregated fund contracts that are no longer available for sale, had $294 million in net redemptions for the quarter.
TABLE 11: SALES BREAKDOWN | ||||||||||||
Quarter ended March 31, 2019 | ||||||||||||
[millions of dollars] | Gross Sales | Redemptions | Net Sales | |||||||||
Canadian Business | ||||||||||||
Retail | 2,857 | 4,500 | (1,643 | ) | ||||||||
Institutional | 468 | 679 | (211 | ) | ||||||||
3,325 | 5,179 | (1,854 | ) | |||||||||
International Business | ||||||||||||
Retail | 55 | 57 | (2 | ) | ||||||||
Institutional | 198 | 313 | (115 | ) | ||||||||
253 | 370 | (117 | ) | |||||||||
Closed Business | 17 | 311 | (294 | ) | ||||||||
Total | 3,595 | 5,860 | (2,265 | ) |
Q1 Financial Report | 11 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RESULTS OF OPERATIONS
For the quarter ended March 31, 2019, CI reported net income attributable to shareholders of $140.0 million ($0.58 per share) versus $159.0 million ($0.59 per share) for the quarter ended March 31, 2018 and $140.3 million ($0.57 per share) for the quarter ended December 31, 2018. The decrease from the prior year was mainly due to lower management fees resulting from lower average AUM.
CI’s total revenue was $526.8 million in the first quarter of 2019, a decrease of 8.1% when compared to total revenue of $573.5 million in the same period in 2018. On a consecutive quarter basis, total revenue was relatively flat. The decrease from one year ago was primarily due to lower average AUM.
For the quarter ended March 31, 2019, SG&A expenses were $126.1 million, compared to $132.9 million in the same quarter of 2018 and $123.5 million in the prior quarter. The decrease in SG&A from last year was primarily a result of lower variable SG&A resulting from lower average AUM, as well as a change in accounting methodology. Effective for the first quarter of 2019, CI adopted IFRS 16, an accounting standard that requires lessees to recognize assets and liabilities for leases longer than 12 months. This change impacts SG&A by replacing lease expense with interest and depreciation, which are not included in SG&A. This accounting change was not adopted retroactively - further information can be found in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements.
As an annualized percentage of average AUM, SG&A expenses were 0.397%, up from 0.380% for the first quarter of last year and up from 0.379% for the prior quarter. The increase from the fourth quarter of last year was primarily due to the addition of WealthBar, seasonally higher payroll taxes, and annual compensation increases, which do not vary directly with AUM levels. The increase in the SG&A rate from the same quarter of last year was mainly due to the addition of WealthBar, annual compensation increases, as well as other strategic investments in CI’s business. Formerly, SG&A included amortization of capital assets and debentures; SG&A no longer includes any amortization (for the current and comparable quarters) to align CI’s reporting with its publicly-traded peers.
In the first quarter of 2019, CI paid $4.6 million in deferred sales commissions, compared with $8.5 million in the same quarter of 2018 and $3.9 million in the prior quarter. Consistent with the Canadian mutual fund industry, CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Interest expense of $13.7 million was recorded for the quarter ended March 31, 2019 compared with $9.3 million for the quarter ended March 31, 2018 and $12.4 million for the quarter ended December 31, 2018. The change in interest expense reflects the addition of lease interest expense in the first quarter of 2019 (relating to the adoption of IFRS 16), as well as the changes in average debt levels and interest rates, as discussed under the Liquidity and Capital Resources section.
For the first quarter of 2019, CI recorded $47.2 million in income tax expense for an effective tax rate of 25.2% compared to $57.0 million, or 26.4%, in the first quarter of 2018, and $51.0 million, or 26.6%, in the prior quarter. The effective tax rate in the first quarter was lower than comparable periods due to income tax refunds/recoveries. CI’s effective tax rate may differ from its statutory tax rate, which is currently 26.5%, as a result of some expenses being nondeductible or partially deductible, or some revenue items not being fully taxable.
Q1 Financial Report | 12 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
ASSET MANAGEMENT SEGMENT
The Asset Management segment is CI’s principal business segment and its operating results are presented in Table 12.
TABLE 12: RESULTS OF OPERATIONS - ASSET MANAGEMENT SEGMENT | ||||||||||||
[millions of dollars] |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Mar. 31, 2018 |
|||||||||
Management fees | 459.5 | 474.2 | 513.7 | |||||||||
Other revenue | 6.9 | (5.0 | ) | 3.6 | ||||||||
Total revenue | 466.3 | 469.2 | 517.3 | |||||||||
Selling, general and administrative | 100.9 | 98.4 | 108.4 | |||||||||
Trailer fees | 152.0 | 156.3 | 170.0 | |||||||||
Deferred sales commissions paid | 4.9 | 4.1 | 8.9 | |||||||||
Amortization and depreciation | 5.5 | 4.5 | 3.9 | |||||||||
Other expenses | 1.5 | 3.0 | 2.1 | |||||||||
Total expenses | 264.8 | 266.3 | 293.4 | |||||||||
Non-controlling interest | 0.2 | 0.1 | 0.1 | |||||||||
Income before taxes and non-segmented items | 201.4 | 202.8 | 223.8 |
Revenues
Revenues from management fees were $459.5 million for the quarter ended March 31, 2019, a decrease of 10.6% from $513.7 million for the quarter ended March 31, 2018 and a decrease of 3.1% from $474.2 million for the quarter ended December 31, 2018. The decrease in management fees from the first quarter of last year was mainly due to the 9.2% decrease in average AUM. The decrease from the prior quarter was primarily due to the difference in the number of days in the quarter (90 vs. 92). Net management fees (management fees less trailer fees and deferred sales commissions) as a percentage of average AUM were 0.952%, down from 0.957% for the first quarter last year and from 0.963% for the prior quarter. The net management fee rate has been generally declining due to a change in CI’s mix of business towards newer products with lower pricing, along with new pricing initiatives intended to keep CI’s products competitive.
For the quarter ended March 31, 2019, other revenue was $6.9 million versus $3.6 million for the quarter ended March 31, 2018 and $(5.0) million for the quarter ended December 31, 2018. The increase in other revenue from prior periods was mainly due to mark-to-market gains on marketable securities.
Expenses
SG&A expenses for the Asset Management segment were $100.9 million for the quarter ended March 31, 2019, compared with $108.4 million for the first quarter in 2018 and $98.4 million for the prior quarter. CI’s SG&A increased from the fourth quarter of 2018, primarily as a result of seasonally higher payroll taxes and annual compensation increases, partially offset by lease accounting changes through the adoption of IFRS 16, which was not adopted retroactively. Further information can be found in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements. As a percentage of average AUM, SG&A expenses were 0.318% for the quarter ended March 31, 2019, up from 0.310% for the quarter ended March 31, 2018, and up from 0.302% in the quarter ended December 31, 2018. Another measure that CI uses to assess its costs is the SG&A efficiency margin, as discussed in the “Non-IFRS Measures” section and as set out in Table 8. CI’s current quarter SG&A efficiency margin was 66.6%, down from 67.6% in the first quarter of last year and down from 68.6% in the prior quarter.
Q1 Financial Report | 13 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Trailer fees were $152.0 million for the quarter ended March 31, 2019, down 10.6% from $170.0 million for the quarter ended March 31, 2018 and down 2.8% from $156.3 million for the prior quarter. Net of inter-segment amounts, this expense was $144.6 million for the quarter ended March 31, 2019 versus $162.0 million for the first quarter of 2018 and $149.1 million for the fourth quarter of 2018. The decrease from the first quarter last year related to the decrease in average AUM. The decrease from the prior quarter was mainly due to the difference in the number of days in the quarter (90 vs. 92).
In the first quarter of 2019, before inter-segment eliminations, CI paid $4.9 million in deferred sales commissions, compared with $8.9 million in the same quarter of 2018 and $4.1 million in the prior quarter. CI’s sales into deferred load funds have been steadily decreasing over the past decade, but generally increase from the fourth quarter to the first quarter due to increased gross sales during the RSP season.
Other expenses for the quarter ended March 31, 2019 were $1.5 million, compared to $2.1 million in the same quarter of last year and $3.0 million in the previous quarter.
The asset management margin for the first quarter of 2019 was 43.9% compared to 44.1% in the first quarter of 2018 and 45.4% in the prior quarter. The calculations and definitions of asset management margin can be found in the “Non-IFRS Measures” section.
Income before taxes and non-segmented items for CI’s principal segment was $201.4 million for the quarter ended March 31, 2019, down 10.0% from $223.8 million in the same period in 2018 and down 0.7% from $202.8 million in the previous quarter.
Q1 Financial Report | 14 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
ASSET ADMINISTRATION SEGMENT
The Asset Administration segment operating results are presented in Table 13.
TABLE 13: RESULTS OF OPERATIONS - ASSET ADMINISTRATION SEGMENT
[millions of dollars] |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Mar. 31, 2018 |
|||||||||
Administration fees | 95.0 | 94.2 | 92.0 | |||||||||
Other revenue | 8.0 | 8.3 | 8.1 | |||||||||
Total revenue | 103.0 | 102.4 | 100.1 | |||||||||
Selling, general and administrative | 25.1 | 25.1 | 24.5 | |||||||||
Investment dealer fees | 75.8 | 75.4 | 73.2 | |||||||||
Amortization and depreciation | 2.7 | 1.0 | 0.9 | |||||||||
Other expenses | 0.2 | 0.1 | — | |||||||||
Total expenses | 103.7 | 101.6 | 98.6 | |||||||||
Non-controlling interest | (0.3 | ) | — | — | ||||||||
Income before taxes and non-segmented items | (0.4 | ) | 0.8 | 1.5 |
Revenues
Administration fees were $95.0 million for the quarter ended March 31, 2019, an increase of 3.3% from $92.0 million for the same period a year ago and an increase of 0.8% from $94.2 million for the prior quarter. The change in administration fees from prior periods related to the change in assets under administration at Assante and the addition of WealthBar in the first quarter this year. Net of inter-segment amounts, administration fee revenue was $52.4 million for the quarter ended March 31, 2019, up from $48.1 million for the quarter ended March 31, 2018 and up from $51.8 million in the previous quarter.
For the quarter ended March 31, 2019, other revenue was $8.0 million, down from $8.1 million in the same quarter of 2018 and down from $8.3 million in the fourth quarter of 2018. Other revenue consists mainly of non-advisor-related activities.
Expenses
Investment dealer fees were $75.8 million for the quarter ended March 31, 2019 compared to $73.2 million for the first quarter of 2018 and $75.4 million for the quarter ended December 31, 2018. Net of inter-segment amounts, investment dealer fees were $40.8 million, up from $37.7 million for the same quarter last year and up from $40.5 million for the quarter ended December 31, 2018.
As discussed in the “Non-IFRS Measures” section of this MD&A and as set out in Table 6, dealer gross margin was $19.2 million or 20.2% of administration fee revenue for the quarter ended March 31, 2019 compared to $18.8 million or 20.5% for the first quarter of 2018 and $18.7 million or 19.9% for the previous quarter.
SG&A expenses for the segment were $25.1 million for the quarter ended March 31, 2019 compared to $24.5 million in the first quarter of 2018 and $25.1 million in the fourth quarter of 2018.
The Asset Administration segment had income before taxes and non-segmented items of $(0.4) million for the quarter ended March 31, 2019, compared to $1.5 million for the first quarter of 2018 and $0.8 million for the prior quarter.
Q1 Financial Report | 15 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
LIQUIDITY AND CAPITAL RESOURCES
CI generated $143.5 million of free cash flow in the first quarter of 2019, compared to $166.9 million for the same period of 2018. Reconciliations of free cash flow to cash provided by operating activities are provided in the “Non-IFRS Measures” section and set out in Table 3.
CI primarily uses cash flow to fund capital expenditures, fund acquisitions, pay down debt, pay dividends on its shares, and repurchase shares through its normal course issuer bid. At current levels of cash flow and anticipated dividend payout rates, CI produces sufficient cash to meet its obligations and support planned business operations for at least the next 12 months.
CI’s cash flows may fluctuate, primarily in the first quarter, as a result of the balance of cash income taxes and incentive compensation related to the prior year being paid at the end of February.
TABLE 14: SUMMARY OF CASH FLOWS
[millions of dollars] |
Quarter ended Mar. 31, 2019 |
Quarter ended Mar. 31, 2018 |
||||||
Free cash flow | 143.5 | 166.9 | ||||||
Less: | ||||||||
Investments in marketable securities, net of marketable securities sold | 1.5 | (8.2 | ) | |||||
Capital expenditures | 5.3 | 4.2 | ||||||
Share repurchases, net of shares issued | 60.8 | 155.2 | ||||||
Dividends paid | 43.9 | 95.4 | ||||||
Debt repaid / (drawn) | (24.5 | ) | (248.0 | ) | ||||
Working capital and other items | 56.9 | 99.9 | ||||||
143.9 | 98.5 | |||||||
Net change in cash | (0.4 | ) | 68.5 | |||||
Cash at January 1 | 137.2 | 124.6 | ||||||
Cash at March 31 | 136.7 | 193.1 |
During the first quarter of 2019, CI invested $5.4 million in marketable securities and received proceeds of $3.8 million from the disposition of marketable securities. Excluding BBS’ securities owned, at market, the fair value of CI’s investments as of March 31, 2019 was $142.8 million. This was comprised of seed capital investments in CI funds and strategic investments.
During the three months ended March 31, 2019, CI invested $5.3 million in capital assets, up from $4.2 million in the three months ended March 31, 2018. These investments related primarily to technology.
During the quarter ended March 31, 2019, CI paid dividends of $43.9 million and repurchased 3.4 million shares under its normal course issuer bid at a total cost of $60.8 million, or $18.13 per share. CI’s current dividend rate is $0.18/share per calendar quarter.
The statement of financial position for CI at March 31, 2019 reflected total assets of $4.388 billion, an increase of $95.5 million million from $4.292 billion at December 31, 2018. This change was primarily due to the lease accounting change discussed earlier and detailed in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements, as well as the addition of WealthBar.
Q1 Financial Report | 16 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI’s cash and cash equivalents decreased by $0.4 million in the first quarter to $136.7 million as of March 31, 2019. Accounts receivable and prepaid expenses increased by $20.4 million to $177.2 million as of March 31, 2019. Capital assets increased by $2.7 million during the quarter ended March 31, 2019 as a result of $5.3 million in capital additions less $2.8 million in amortization.
Total liabilities increased by $15.2 million during the quarter to $2.875 billion at March 31, 2019. This change was mainly attributable to a $24.8 million increase in debt and an increase in lease liabilities caused by the adoption of IFRS 16 discussed earlier and in Note 2 to the Notes to Interim Condensed Consolidated Financial Statements, partially offset by a $43.8 million decrease in dividends payable long-term, as CI hasn’t yet declared dividends beyond 2019.
At March 31, 2019, CI had $1,225.0 million in outstanding debentures with a weighted average interest rate of 3.16% and a carrying value of $1,220.5 million. At the same time, CI had drawn $308.0 million against its $700 million credit facility. Principal repayments on any drawn amounts are only required at the maturity of the facility, which is December 11, 2021.
Net debt, as discussed in the “Non-IFRS Measures” section and as set out in Table 5, was $1,268 million at March 31, 2019, up from $1,255 million at December 31, 2018. This increase was primarily due to the acquisition of WealthBar. The average gross debt level for the quarter ended March 31, 2019 was $1,573 million, compared to $1,264 million for the same period last year.
At March 31, 2019, CI was in a positive working capital position. This, in addition to the availability of its credit facility, reflects the ability of CI to meet its cash flow requirements.
CI’s ratios of debt to adjusted EBITDA and net debt to adjusted EBITDA were 1.8 to 1 and 1.5 to 1, respectively. CI was within its financial covenants with respect to its credit facility, which required that the debt to EBITDA ratio remain below 3.0 to 1, and assets under management not fall below $85 billion, based on a rolling 30-day average.
Shareholders’ equity was $1.506 billion at March 31, 2019, an increase of $76.1 million from December 31, 2018.
Q1 Financial Report | 17 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RISK MANAGEMENT
CI is exposed to a number of risks that are inherent in the wealth management business. Some factors which introduce or exacerbate risk are within the control of management and others are, by their nature, outside of CI’s direct control but must still be managed. Effective risk management is a key component to achieving CI’s business objectives and protecting company and client assets. It is an ongoing process involving the Board of Directors and the company’s Risk Management Committee, comprised of senior executives representing CI’s business units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board of Directors.
The Risk Management Committee monitors, evaluates and manages risk, and ensures that business strategies and activities are consistent with CI’s risk appetite. Regular reports are provided to the Audit and Risk Committee of CI’s Board.
As noted above, the Risk Management Committee is comprised of senior executives from each core business unit and operating area at CI. CI has developed an enterprise-wide approach to monitoring, evaluating and managing risk. The members of the Risk Management Committee identify and evaluate specific and material risks, applying both a quantitative and a qualitative analysis and then assess the likelihood of occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize or avoid negative consequences and these risk mitigation processes are implemented and monitored with each business unit.
The risks described below are not the only risks facing CI. The risks set out below are risks and uncertainties that the Risk Management Committee currently believe could materially affect CI’s future financial performance. The reader should carefully consider the risks described below, and the other information contained in this MD&A, including under the heading “Forward- Looking Statements” before making an investment decision.
MARKET RISK
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates, foreign exchange rates, and equity and commodity prices. A description of each component of market risk is described below:
– | Interest rate risk is the risk of gain or loss due to the volatility of interest rates. |
– | Foreign exchange rate risk is the risk of gain or loss due to volatility of foreign exchange rates. |
– | Equity risk is the risk of gain or loss due to the changes in prices and volatility of individual equity instruments and equity indexes. |
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in the performance of CI’s investment funds and may adversely affect CI’s assets under management, management fees and revenues, which would reduce cash flow to CI and ultimately impact CI’s ability to meet its financial obligations.
Q1 Financial Report | 18 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
MARKET RISK FOR THE ASSET MANAGEMENT SEGMENT
At March 31, 2019, approximately 25% of CI’s assets under management were held in fixed-income securities, which are exposed to interest rate risk. An increase in interest rates causes market prices of fixed-income securities to fall, while a decrease in interest rates causes market prices to rise. CI estimates that a 50 basis point change in interest rates would cause a change of about $6 million in annual pre-tax earnings in the Asset Management segment.
At March 31, 2019, about 49% of CI’s assets under management were based in Canadian currency. While CI’s concentration in Canadian currency assets reduces its exposure to foreign exchange risk, approximately 27% of CI’s assets under management were based in U.S. currency. Any change in the value of the Canadian dollar relative to U.S. currency will cause fluctuations in CI’s assets under management. CI estimates that a 10% change in Canadian/U.S. exchange rates would cause a change of about $27 million in the Asset Management segment’s annual pre-tax earnings.
About 60% of CI’s assets under management were held in equity securities at March 31, 2019, which are subject to equity risk. Equity risk is classified into two categories: general equity risk and issuer-specific risk. CI employs internal and external fund managers to take advantage of these individuals’ expertise in particular market niches, sectors and products and to reduce issuer- specific risk through diversification. CI estimates that a 10% change in the prices of equity indexes would cause a change of about $64 million in annual pre-tax earnings.
CI has a control environment that ensures market risks are reviewed regularly. CI’s compliance group reviews and monitors CI’s fund and portfolio investments for compliance with investment policies and regulations. CI also reviews investment processes, portfolio positioning and attribution of results of its investment teams on a regular basis.
MARKET RISK FOR THE ASSET ADMINISTRATION SEGMENT
CI’s operating results are not materially exposed to market risk impacting the asset administration segment given that this segment usually generates less than 1% of the total income before non-segmented items (this segment reported a loss of $0.4 million before income taxes and non-segmented items for the quarter ended March 31, 2019). Investment advisors regularly review their client portfolios to assess market risk and consult with clients to make appropriate changes to mitigate it. The effect of a 10% change in any one component of market risk (comprised of interest rate risk, foreign exchange risk and equity risk) would have resulted in a change of approximately $4 million to the Asset Administration segment’s annual pre-tax earnings.
POLITICAL AND MARKET RISK
CI’s performance is directly affected by financial markets and political conditions, including any political change and uncertainty in the United States and globally. These changes may cause significant volatility and decline in the global economy or specific international, regional and domestic financial markets which are beyond the control of CI. There can be no assurance that financial market performance will be favourable in the future. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in performance, which could negatively impact CI’s business and impede the growth of CI’s assets under management and revenue.
Q1 Financial Report | 19 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
STRATEGIC RISK
Strategic risks are risks that directly impact the overall direction of CI and the ability of CI to successfully identify growth opportunities and implement proposed solutions. The key strategic risk is the risk that management fails to anticipate, and respond to, changes in the business environment, including demographic, regulatory and competitive changes. CI’s performance is directly affected by the financial market and business conditions, including the legislation and policies of the governments and regulatory authorities having jurisdiction over CI’s operations. These are beyond the control of CI; however, an important part of the risk management process is the ongoing review and assessment of industry and economic trends and changes. Strategies are then designed to effectively respond to any anticipated changes, including identifying acquisition opportunities, developing new business lines, introducing new products, and implementing cost control strategies.
Part of CI’s strategy includes strategic acquisitions and investments in growth opportunities. Strategic acquisitions may benefit CI through increasing fee earning assets, broadening CI’s distribution relationships, enhancing CI’s business capabilities and capturing cost synergies. CI embarks on a thorough due diligence process prior to any acquisition; however, there can be no assurances that the anticipated benefits of any acquisition will be achieved. The success of an acquisition is contingent upon many factors, including retaining key employees, securing assets acquired, obtaining legal and regulatory approvals, integrating operations and vendor relationships, and having favourable economic conditions.
REPUTATION RISK
Reputation risk is the potential negative impact of a deterioration of CI’s image or lower public confidence in the CI brand, its senior management or its products and services. Operational errors, poor performance, regulatory investigation or sanctions, litigation or employee misconduct could result in reputational harm to CI. Through its Codes of Conduct, governance practices, risk management programs, policies, procedures and training, CI attempts to prevent and detect any activities by CI officers, directors, and employees that would harm CI’s reputation. While all employees, directors and officers are expected to protect the reputation of CI, there can be no assurances that unauthorized or unsuccessful activities may result in damage to CI’s reputation, which could adversely affect CI’s business and profitability.
COMPETITION RISK
CI operates in a highly competitive environment, with competition based on a variety of factors, including the range of products offered, brand recognition, investment performance, business reputation, financing strength, management and sales relationships, quality of service, level of fees charged and level of commissions and other compensation paid. CI competes with a large number of mutual fund companies and other providers of investment products, investment management firms, broker-dealers, banks, insurance companies and other financial institutions. Some of these competitors have, and potential future competitors may have, greater technical, financial, marketing, distribution or other resources than CI. The trend toward greater consolidation within the investment management industry has increased the strength of a number of CI’s competitors. CI’s competitors seek to expand market share by offering different products and services and more competitive pricing than those offered by CI. While CI continues to develop and market new products and services and remains competitive with respect to fees, there can be no assurance that CI will maintain its current standing or market share or investment performance relative to its competitors, which may adversely affect the business, financial condition or operating results of CI.
Q1 Financial Report | 20 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
In addition, there are uncertainties involved in the introduction of new products and services, including technical requirements, operational controls and procedures, compliance with regulatory requirements and shifting market preferences. The development and introduction of new products and services may require ongoing support and investment. A failure to manage the risks involved in the implementation of new products and services may lead to operational lapses, increased capital requirements, and competitive alternatives, which could adversely affect CI’s standing, market share or investment performance relative to its competitors and negatively impact the business, financial condition or operating results of CI.
DISTRIBUTION RISK
CI distributes its investment products through a number of distribution channels, including brokers, independent financial planners and insurance advisors. CI’s access to these distribution channels is impacted by the strength of the relationship with certain business partners and the level of competition faced from the financial institutions that own those channels. While CI continues to develop and enhance existing relationships, there can be no assurance that CI will, in the future, enjoy the level of access that it has in the past, which would adversely affect its sales of investment products.
REGULATORY AND LEGAL RISK
CI’s business is dependent upon compliance with and continued registration under securities laws in all jurisdictions in which CI and its subsidiaries carry on business. Laws and regulations applied at the national and provincial level generally grant governmental agencies and self-regulatory bodies broad administrative discretion over the activities of CI, including the power to limit or restrict business activities as well as impose additional disclosure requirements on CI products and services. Possible sanctions include the revocation or imposition of conditions on licenses to operate certain businesses, the suspension or expulsion from a particular market or jurisdiction of any of CI’s business segments or its key personnel or financial advisors, and the imposition of fines and censures. It is also possible that the laws and regulations governing a subsidiary’s operations or particular investment products or services could be amended or interpreted in a manner that is adverse to CI. To the extent that existing or future regulations affecting the sale or offering of CI’s product or services or CI’s investment strategies cause or contribute to reduced sales of CI’s products or lower margins or impair the investment performance of CI’s products, CI’s aggregate assets under management and its revenues may be adversely affected. In addition, the ongoing change in the securities regulatory environment governing CI’s business may require additional human resources and operations which will increase costs.
Given the nature of CI’s business, CI may from time to time be subject to claims or complaints from investors or others in the normal course of business. The legal risks facing CI, its directors, officers, employees or agents in this respect include potential liability for violations of corporate laws, securities laws, stock exchange rules and misuse of investors’ funds. Some violations of corporate laws, securities laws or stock exchange rules could result in civil liability, fines, sanctions, or expulsion from a self- regulatory organization or the suspension or revocation of CI’s right to carry on an existing business. CI may incur significant costs in connection with such potential liabilities.
Q1 Financial Report | 21 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
INFORMATION TECHNOLOGY RISK
CI uses information technology and the internet to streamline business operations and to improve the client and advisor experience. However, with the use of information technology and the internet, email messaging and other online capabilities, CI is exposed to information security risk that could potentially have an adverse impact on its business. CI is dependent on its information security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that it transmits through its information technology systems. Any information technology event, such as a hacker attack or virus, or internal issue, such as the failure to implement sufficient controls, could result in unauthorized access to sensitive or confidential information, theft, operational disruption, regulatory actions, legal liability or reputational harm. CI actively monitors this risk and continues to develop controls to protect against cyber threats that are becoming more sophisticated and pervasive. In addition, CI has and will continue to implement safeguards to control access to sensitive information, through password protection, encryption of confidential information and other means. Notwithstanding these measures, CI cannot fully mitigate the risk associated with information technology security. If mobile electronic devices, such as laptops or smart phones, are stolen, lost or left unattended, such devices may become exposed to hacking or other unauthorized use. As well, CI is dependent on the efficiency and effectiveness of the technology it uses and keeping pace with a continuously evolving information technology landscape. Malfunctioning of any of the technologies used by CI and being slow to keep pace could disrupt the company’s success and negatively impact CI’s financial position and reputation.
CI’s business is dependent on the physical integrity of its infrastructure, including its office space, storage centers and other facilities. CI has taken precautions to protect the physical security of its infrastructure, and the sensitive information contained therein, through passkey protection, limited after-hours access and clean desk policies. However, a breach of the physical integrity of CI infrastructure may leave sensitive information vulnerable to unauthorized access and use, increasing a possible security risk, which could negatively impact CI’s business and reputation.
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequate or failed internal processes or systems. The operational risk that CI is exposed to may arise from, technology failures, business disruption, theft and fraud, failure of key third parties, employee errors, processing and execution errors, and inaccurate or incomplete client information. Operational risk may result in a financial loss but can also lead to regulatory sanctions and harm to CI’s reputation. Operational risk driven by people and processes are mitigated through human resources policies and practices, and a strong internal control environment. Operational risks driven by systems and services are managed through controls over technology development and change management as well as enhanced procedures for oversight of third-party service providers. While CI continuously monitors its operational risks, there can be no assurances that CI’s internal control procedures can mitigate all operational risks.
Q1 Financial Report | 22 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TAXATION RISK
CI is subject to various uncertainties concerning the interpretation and application of Canadian tax laws. CI Investments is considered a large case file by the Canada Revenue Agency and, as such, is subject to audit each year. There is a significant lag between the end of a fiscal year and when such audits are completed. Therefore, at any given time, several years may be open for audit and/or adjustments. While CI regularly assesses the likely outcome of these audits in order to determine the appropriateness of its tax provision, there can be no assurance that CI will accurately predict the outcomes of these audits. If tax authorities disagree with CI’s application of such tax laws, CI’s profitability and cash flows could be adversely affected.
REDEMPTION RISK
CI earns revenue primarily from management fees earned for advising and managing investment fund assets. The level of these assets is dependent on (i) sales; (ii) redemptions; and (iii) investment performance. Sales and redemptions may fluctuate depending on market and economic conditions, investment preference, or other factors.
Significant redemptions could adversely affect investor fund returns by impacting market values and increasing transaction costs or taxable distributions. Continued large redemptions could negatively impact the prospects and operating results of CI.
KEY PERSONNEL RISK
The success of CI is dependent to a significant degree upon the contributions of senior management. The loss of any of these individuals, or an inability to attract, retain and motivate sufficient numbers of qualified senior management personnel, could adversely affect CI’s business. The retention of these key managers and the identification and development of the next generation of managers is an area of focus for CI. CI has not purchased any “key man” insurance with respect to any of its directors, officers or key employees and has no current plans to do so.
The success of CI is also dependent upon, among other things, the skills and expertise of its human resources, including the management and investment personnel with specialized skills related to, among other things, marketing, risk management, credit, information technology, accounting, administrative operations and legal affairs. These highly skilled and often highly specialized individuals play an important role in developing, implementing, operating, managing and distributing CI’s products and services. Accordingly, the recruitment and retention of skilled personnel, continuous training and transfer of knowledge are key activities that are essential to CI’s performance. CI has taken, and will continue to take, steps to encourage our key employees to remain employed at CI, including the implementation of long-service awards, employee engagement strategies and enhanced transparency measures with respect to compensation. In addition, the focus on asset growth and the reliance on investment performance to sell financial products has increased the demand for experienced and high- performing portfolio managers. Compensation packages for these managers may increase at a rate well in excess of inflation and well above the rates of increase observed in other industries and the rest of the labour market. The loss of these individuals or an inability to attract, retain and motivate a sufficient number of qualified personnel could result in a loss of clients and a decline in sales and adversely affect CI’s business.
The market for financial advisors is extremely competitive and is increasingly characterized by frequent movement by financial advisors among different firms. Individual financial advisors of AWM have regular direct contact with clients, which can lead to a strong and personal client relationship based on the client’s trust in the individual financial advisor. The loss of a significant number of financial advisors could lead to the loss of client accounts which could have a material adverse effect on the results of operations and prospects of AWM and, in turn, CI. Although AWM uses or has used a combination of competitive compensation structures and equity with vesting provisions as a means of seeking to retain financial advisors, there can be no assurance that financial advisors will remain with AWM.
Q1 Financial Report | 23 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
INSURANCE RISK
CI maintains various types of insurance which include financial institution bonds, errors and omissions insurance, directors’, trustees’ and officers’ liability insurance, agents’ insurance and general commercial liability insurance. Management evaluates the adequacy of CI’s insurance coverage on an ongoing basis. However, there can be no assurance that a claim or claims will not exceed the limits of available insurance coverage, that any insurer will remain solvent or willing to continue providing insurance coverage with sufficient limits or at a reasonable cost or that any insurer will not dispute coverage of certain claims due to ambiguities in the relevant policies. A judgment against CI in excess of available coverage could have a material adverse effect on CI both in terms of damages awarded and the impact on the reputation of CI.
CAPITAL RISK
Certain subsidiaries of CI are subject to minimum regulatory capital requirements. This may require CI to keep sufficient cash and other liquid assets on hand to maintain capital requirements rather than using them in connection with its business. Failure to maintain required regulatory capital by CI may subject it to fines, suspension or revocation of registration by the relevant securities regulator. A significant operating loss by a registrant subsidiary or an unusually large charge against regulatory capital could adversely affect the ability of CI to expand or even maintain its present level of business, which could have a material adverse effect on CI’s business, results of operations, financial condition and prospects.
CREDIT RISK
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed to the risk that third parties that owe it money, securities or other assets will not perform their obligations. These parties include trading counterparties, customers, clearing agents, exchanges, clearing houses and other financial intermediaries, as well as issuers whose securities are held by CI. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. CI does not have significant exposure to any individual counterparty. Credit risk is mitigated by regularly monitoring the credit performance of individual counterparties and holding collateral where appropriate.
One of the primary sources of credit risk arises when CI extends credit to clients to purchase securities by way of margin lending. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory requirements and by CI’s internal credit policy.
Q1 Financial Report | 24 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
LIQUIDITY RISK
Liquidity risk is the risk that CI may not be able to generate sufficient funds and within the time required in order to meet its obligations as they come due. While CI currently has access to financing, unfavourable market conditions may affect the ability of CI to obtain loans or make other arrangements on terms acceptable to CI.
SHARE CAPITAL
As at March 31, 2019, CI had 240,375,825 shares outstanding.
Employee Incentive Share Option Plan: At March 31, 2019, 6.0 million options to purchase shares were outstanding, of which 5.2 million options were exercisable at prices ranging from $27.44 to $35.88.
Restricted Share Unit (“RSU”) Plan: 1,141,553 RSUs were outstanding as at March 31, 2019.
Deferred Share Unit (“DSU”) Plan: 15,722 DSUs were outstanding as at March 31, 2019.
Additional details about the above Plans can be found in Note 9 to the Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
The table that follows summarizes CI’s contractual obligations at March 31, 2019.
PAYMENTS DUE BY YEAR
[millions of dollars] | Total |
1 year or less |
2 | 3 | 4 | 5 |
More than 5 years |
|||||||||||||||||||||
Long-term debt | 1,533.0 | — | 450.0 | 508.0 | — | 325.0 | 250.0 | |||||||||||||||||||||
Operating leases | 88.8 | 14.4 | 13.3 | 12.4 | 11.9 | 12.0 | 24.7 | |||||||||||||||||||||
Total | 1,621.8 | 14.4 | 463.3 | 520.4 | 11.9 | 337.0 | 274.7 |
SIGNIFICANT ACCOUNTING ESTIMATES
The March 31, 2019 Consolidated Financial Statements have been prepared in accordance with IFRS. For a discussion of all significant accounting policies, refer to Note 1 of the Notes to Interim Condensed Consolidated Financial Statements. Note 3 provides a discussion regarding the methodology used for business acquisitions. Note 5 provides a discussion regarding the recoverable amount of CI’s provision for other liabilities and contingencies.
NEW ACCOUNTING POLICIES
Effective January 1, 2019, CI adopted IFRS 16 using the modified retrospective approach. Under this approach CI recognized the lease liability based on the remaining lease payments discounted using CI’s incremental borrowing rate as at January 1, 2019. CI also recognized the right-of-use asset as at the date of initial application, as if IFRS 16 had always been applied since the commencement date of the lease, discounted using CI’s incremental rate of borrowing as at January 1, 2019. Comparative figures were not restated for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on January 1, 2019. Please refer to Note 2 of the Notes to Interim Condensed Consolidated Financial Statements for more information.
Q1 Financial Report | 25 | March 31, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with management, are responsible for the design of CI’s disclosure controls and procedures as defined in National Instrument 52-109 (NI 52-109). Management evaluated, with participation of the CEO and CFO, the effectiveness of the disclosure controls and procedures as at March 31, 2019. Based on this evaluation, the CEO and CFO have concluded that they are reasonably assured these disclosure controls and procedures were effective as at March 31, 2019 and that material information relating to CI was made known to them within the time periods specified under applicable securities legislation.
Management, under the supervision of the CEO and CFO, is responsible for the design and maintenance of adequate internal controls over financial reporting as defined in NI 52-109 for the purposes of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However, due to its inherent limitations, internal controls over financial reporting can only provide reasonable, not absolute, assurance that the financial statements are free of misstatements. The COSO framework was used to assist management, along with the CEO and CFO, in the evaluation of these internal control systems. Management, under the direction of the CEO and CFO, concluded that the internal controls over financial reporting were effective as at March 31, 2019. Management used various tools to evaluate internal controls over financial reporting which included interaction with key control systems, review of policy and procedure documentation, observation or reperformance of control procedures to evaluate the effectiveness of controls and concluded that these controls are effective. For the quarter ended March 31, 2019, there have been no changes to the internal controls that have materially affected, or are reasonably likely to affect, internal controls over financial reporting
Additional information relating to CI, including the most recent audited annual financial statements, management information circular and annual information form, is available on SEDAR at www.sedar.com and on CI’s website at www.cifinancial.com. Information contained in or otherwise accessible through the websites mentioned in this MD&A does not form part of, and is not incorporated by reference into, this MD&A.
Q1 Financial Report | 26 | March 31, 2019 |
Exhibit 99.9
INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
June 30, 2019
Q2 Financial Report | 1 | June 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited)
As at | As at | |||||||
June 30, 2019 | December 31, 2018 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | 136,894 | 137,160 | ||||||
Client and trust funds on deposit | 356,133 | 365,520 | ||||||
Investments [note 8] | 154,215 | 168,122 | ||||||
Accounts receivable and prepaid expenses | 195,562 | 156,798 | ||||||
Income taxes receivable | 10,423 | 8,891 | ||||||
Total current assets | 853,227 | 836,491 | ||||||
Capital assets, net | 47,713 | 44,985 | ||||||
Right-of-use assets [note 2] | 48,992 | — | ||||||
Intangibles | 3,388,280 | 3,370,341 | ||||||
Other assets [notes 2 and 8] | 62,663 | 40,399 | ||||||
Total assets | 4,400,875 | 4,292,216 | ||||||
LIABILITIES AND EQUITY | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities | 257,498 | 253,518 | ||||||
Current portion of provision for other liabilities [note 5] | 34,831 | 14,591 | ||||||
Dividends payable [note 7] | 127,273 | 175,290 | ||||||
Client and trust funds payable | 365,666 | 370,756 | ||||||
Current portion of lease liabilities [note 2] | 11,242 | — | ||||||
Total current liabilities | 796,510 | 814,155 | ||||||
Deferred lease inducement [note 2] | — | 11,320 | ||||||
Long-term dividends payable [note 7] | — | 43,822 | ||||||
Long-term debt [note 4] | 1,525,312 | 1,503,733 | ||||||
Provision for other liabilities [note 5] | 19,784 | 20,177 | ||||||
Deferred income taxes [notes 2 and 3] | 459,342 | 466,083 | ||||||
Lease liabilities [note 2] | 65,939 | — | ||||||
Total liabilities | 2,866,887 | 2,859,290 | ||||||
Equity | ||||||||
Share capital [note 6(a)] | 2,057,838 | 2,125,130 | ||||||
Contributed surplus | 29,807 | 25,270 | ||||||
Deficit [note 2] | (559,732 | ) | (720,600 | ) | ||||
Accumulated other comprehensive income | 248 | 277 | ||||||
Total equity attributable to the shareholders of the Company | 1,528,161 | 1,430,077 | ||||||
Non-controlling interests [note 3] | 5,827 | 2,849 | ||||||
Total equity | 1,533,988 | 1,432,926 | ||||||
Total liabilities and equity | 4,400,875 | 4,292,216 |
(see accompanying notes) | |||
/s/ William T. Holland | /s/ Tom P. Muir | ||
On behalf of the Board of Directors: | |||
William T. Holland Director |
Tom P. Muir Director |
Q2 Financial Report | 2 | June 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (unaudited)
For the three-month period ended June 30
2019 | 2018 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 468,471 | 506,306 | ||||||
Administration fees | 53,644 | 47,533 | ||||||
Redemption fees | 2,857 | 4,114 | ||||||
Realized and unrealized gain on investments | 597 | 749 | ||||||
Other income | 4,752 | 5,933 | ||||||
530,321 | 564,635 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 11] | 124,834 | 127,275 | ||||||
Trailer fees | 148,101 | 159,622 | ||||||
Investment dealer fees | 42,414 | 37,573 | ||||||
Deferred sales commissions | 3,134 | 5,649 | ||||||
Amortization and depreciation [notes 2 and 12] | 8,328 | 5,054 | ||||||
Interest and lease finance [notes 2 and 4] | 13,691 | 9,859 | ||||||
Other [note 5] | 37,424 | 1,645 | ||||||
377,926 | 346,677 | |||||||
Income before income taxes | 152,395 | 217,958 | ||||||
Provision for income taxes | ||||||||
Current | 45,235 | 63,295 | ||||||
Deferred | (4,354 | ) | (5,328 | ) | ||||
40,881 | 57,967 | |||||||
Net income for the period | 111,514 | 159,991 | ||||||
Net income (loss) attributable to non-controlling interests | (338 | ) | 129 | |||||
Net income attributable to shareholders | 111,852 | 159,862 | ||||||
Other comprehensive income, net of tax | ||||||||
Exchange differences on translation of foreign operations | (31 | ) | (268 | ) | ||||
Total other comprehensive loss, net of tax | (31 | ) | (268 | ) | ||||
Comprehensive income for the period | 111,483 | 159,723 | ||||||
Comprehensive income (loss) attributable to non-controlling interests | (338 | ) | 129 | |||||
Comprehensive income attributable to shareholders | 111,821 | 159,594 | ||||||
Basic earnings per share attributable to shareholders [note 6(e)] | $ | 0.47 | $ | 0.61 | ||||
Diluted earnings per share attributable to shareholders [note 6(e)] | $ | 0.47 | $ | 0.60 | ||||
(see accompanying notes) |
Q2 Financial Report | 3 | June 30, 2019 |
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (unaudited)
For the six-month period ended June 30
2019 | 2018 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 927,928 | 1,020,034 | ||||||
Administration fees | 106,080 | 95,633 | ||||||
Redemption fees | 6,162 | 8,338 | ||||||
Realized and unrealized gain on investments | 9,001 | 13 | ||||||
Other income | 7,919 | 14,124 | ||||||
1,057,090 | 1,138,142 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 11] | 250,895 | 260,163 | ||||||
Trailer fees | 292,703 | 321,581 | ||||||
Investment dealer fees | 83,256 | 75,311 | ||||||
Deferred sales commissions | 7,739 | 14,156 | ||||||
Amortization and depreciation [notes 2 and 12] | 16,487 | 9,905 | ||||||
Interest and lease finance [notes 2 and 4] | 27,406 | 19,134 | ||||||
Other [note 5] | 39,056 | 3,778 | ||||||
717,542 | 704,028 | |||||||
Income before income taxes | 339,548 | 434,114 | ||||||
Provision for income taxes | ||||||||
Current | 91,661 | 120,229 | ||||||
Deferred | (3,587 | ) | (5,235 | ) | ||||
88,074 | 114,994 | |||||||
Net income for the period | 251,474 | 319,120 | ||||||
Net income (loss) attributable to non-controlling interests | (413 | ) | 219 | |||||
Net income attributable to shareholders | 251,887 | 318,901 | ||||||
Other comprehensive income, net of tax | ||||||||
Exchange differences on translation of foreign operations | (29 | ) | (140 | ) | ||||
Total other comprehensive loss, net of tax | (29 | ) | (140 | ) | ||||
Comprehensive income for the period | 251,445 | 318,980 | ||||||
Comprehensive income (loss) attributable to non-controlling interests | (413 | ) | 219 | |||||
Comprehensive income attributable to shareholders | 251,858 | 318,761 | ||||||
Basic earnings per share attributable to shareholders [note 6(e)] | $ | 1.05 | $ | 1.20 | ||||
Diluted earnings per share attributable to shareholders [note 6(e)] | $ | 1.05 | $ | 1.19 | ||||
(see accompanying notes) |
Q2 Financial Report | 4 | June 30, 2019 |
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY (unaudited)
For the six-month period ended June 30
Share capital
[note 6(a)] |
Contributed
surplus |
Deficit
[note 2] |
Accumulated
other comprehensive income (loss) |
Total
shareholders’ equity |
Non-
controlling interests |
Total equity |
||||||||||||||||||||||
[in thousands of Canadian dollars] | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Balance, January 1, 2019 | 2,125,130 | 25,270 | (730,663 | ) | 277 | 1,420,014 | 2,849 | 1,422,863 | ||||||||||||||||||||
Comprehensive income | — | — | 251,887 | (29 | ) | 251,858 | (413 | ) | 251,445 | |||||||||||||||||||
Dividends declared [note 7] | — | — | 4,655 | — | 4,655 | (875 | ) | 3,780 | ||||||||||||||||||||
Shares repurchased, net of tax | (67,526 | ) | — | (85,611 | ) | — | (153,137 | ) | — | (153,137 | ) | |||||||||||||||||
Business combination [note 3] | — | — | — | — | — | 4,266 | 4,266 | |||||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 234 | (234 | ) | — | — | — | — | — | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 4,771 | — | — | 4,771 | — | 4,771 | |||||||||||||||||||||
Change during the period | (67,292 | ) | 4,537 | 170,931 | (29 | ) | 108,147 | 2,978 | 111,125 | |||||||||||||||||||
Balance, June 30, 2019 | 2,057,838 | 29,807 | (559,732 | ) | 248 | 1,528,161 | 5,827 | 1,533,988 | ||||||||||||||||||||
Balance, January 1, 2018 | 2,360,257 | 22,058 | (478,702 | ) | (531 | ) | 1,903,082 | 2,478 | 1,905,560 | |||||||||||||||||||
Comprehensive income | — | — | 318,901 | (140 | ) | 318,761 | 219 | 318,980 | ||||||||||||||||||||
Dividends declared [note 7] | — | — | (185,543 | ) | — | (185,543 | ) | — | (185,543 | ) | ||||||||||||||||||
Shares repurchased, net of tax | (94,645 | ) | — | (209,349 | ) | — | (303,994 | ) | — | (303,994 | ) | |||||||||||||||||
Issuance [note 5] | 534 | — | — | — | 534 | — | 534 | |||||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 1,803 | (1,398 | ) | — | — | 405 | — | 405 | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 4,612 | — | — | 4,612 | — | 4,612 | |||||||||||||||||||||
Change during the period | (92,308 | ) | 3,214 | (75,991 | ) | (140 | ) | (165,225 | ) | 219 | (165,006 | ) | ||||||||||||||||
Balance, June 30, 2018 | 2,267,949 | 25,272 | (554,693 | ) | (671 | ) | 1,737,857 | 2,697 | 1,740,554 | |||||||||||||||||||
(see accompanying notes) |
Q2 Financial Report | 5 | June 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the three-month period ended June 30
2019 | 2018 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
OPERATING ACTIVITIES (*) | ||||||||
Net income for the period | 111,514 | 159,991 | ||||||
Add (deduct) items not involving cash | ||||||||
Realized and unrealized gain on investments | (597 | ) | (749 | ) | ||||
Equity-based compensation | 3,357 | 3,989 | ||||||
Amortization and depreciation | 8,328 | 5,055 | ||||||
Deferred income taxes | (4,354 | ) | (5,328 | ) | ||||
Impairment loss on intangibles [note 5] | 6,442 | — | ||||||
Cash provided by operating activities before net change in operating assets and liabilities | 124,690 | 162,958 | ||||||
Net change in operating assets and liabilities | 27,721 | 12,496 | ||||||
Cash provided by operating activities | 152,411 | 175,454 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (1,968 | ) | (3,450 | ) | ||||
Proceeds on sale of investments | 11,225 | 9,295 | ||||||
Additions to capital assets | (2,976 | ) | (2,983 | ) | ||||
Increase in other assets | (12,740 | ) | (918 | ) | ||||
Additions to intangibles | (536 | ) | (1,415 | ) | ||||
Cash provided by (used in) investing activities | (6,995 | ) | 529 | |||||
FINANCING ACTIVITIES | ||||||||
Repayment of long-term debt | (3,500 | ) | — | |||||
Issuance of long-term debt | — | 62,000 | ||||||
Repurchase of share capital | (94,804 | ) | (152,658 | ) | ||||
Payment of lease liabilities | (2,778 | ) | — | |||||
Dividends paid to shareholders | (43,285 | ) | (93,510 | ) | ||||
Dividends paid to non-controlling interests | (875 | ) | — | |||||
Cash used in financing activities | (145,242 | ) | (184,168 | ) | ||||
Net increase (decrease) in cash and cash equivalents during the period | 174 | (8,185 | ) | |||||
Cash and cash equivalents, beginning of period | 136,720 | 193,064 | ||||||
Cash and cash equivalents, end of period | 136,894 | 184,879 | ||||||
(*) Included in operating activities are the following: | ||||||||
Interest paid | 12,973 | 9,535 | ||||||
Income taxes paid | 52,427 | 56,257 | ||||||
(see accompanying notes) |
Q2 Financial Report | 6 | June 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the six-month period ended June 30
2019 | 2018 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
OPERATING ACTIVITIES (*) | ||||||||
Net income for the period | 251,474 | 319,120 | ||||||
Add (deduct) items not involving cash | ||||||||
Realized and unrealized gain on investments | (9,001 | ) | (13 | ) | ||||
Equity-based compensation | 6,413 | 6,109 | ||||||
Amortization and depreciation | 16,487 | 9,908 | ||||||
Deferred income taxes | (3,587 | ) | (5,235 | ) | ||||
Impairment loss on intangibles [note 5] | 6,442 | — | ||||||
Cash provided by operating activities before net change in operating assets and liabilities | 268,228 | 329,889 | ||||||
Net change in operating assets and liabilities | 5,085 | (73,958 | ) | |||||
Cash provided by operating activities | 273,313 | 255,931 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (7,362 | ) | (4,273 | ) | ||||
Proceeds on sale of investments | 15,072 | 18,305 | ||||||
Additions to capital assets | (8,284 | ) | (7,159 | ) | ||||
Increase in other assets | (19,681 | ) | (2,252 | ) | ||||
Additions to intangibles | (1,643 | ) | (2,356 | ) | ||||
Cash paid to settle contingent liability [note 5] | — | (11,129 | ) | |||||
Acquisition of subsidiary, net of cash acquired [note 3] | (23,572 | ) | — | |||||
Cash used in investing activities | (45,470 | ) | (8,864 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Repayment of long-term debt | (287,000 | ) | — | |||||
Issuance of long-term debt | 308,000 | 310,000 | ||||||
Repurchase of share capital | (155,582 | ) | (308,266 | ) | ||||
Issuance of share capital | — | 405 | ||||||
Payment of lease liabilities | (5,468 | ) | — | |||||
Dividends paid to shareholders | (87,184 | ) | (188,909 | ) | ||||
Dividends paid to non-controlling interests | (875 | ) | — | |||||
Cash used in financing activities | (228,109 | ) | (186,770 | ) | ||||
Net increase (decrease) in cash and cash equivalents during the period | (266 | ) | 60,297 | |||||
Cash and cash equivalents, beginning of period | 137,160 | 124,582 | ||||||
Cash and cash equivalents, end of period | 136,894 | 184,879 | ||||||
(*) Included in operating activities are the following: | ||||||||
Interest paid | 26,352 | 18,809 | ||||||
Income taxes paid | 92,973 | 124,715 | ||||||
(see accompanying notes) |
Q2 Financial Report | 7 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI Financial Corp. [“CI”] is a publicly listed company (TSX: CIX) incorporated under the laws of the Province of Ontario and has its registered office and principal place of business located at 2 Queen Street East, Toronto, Ontario.
CI’s primary business is the management and distribution of a broad range of financial products and services, including mutual funds, segregated funds, exchange-traded funds, financial planning, insurance, investment advice, wealth management and estate and succession planning.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These unaudited interim condensed consolidated financial statements of CI have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting [“IAS 34”] as issued by the International Accounting Standards Board [“IASB”] and on a basis consistent with the accounting policies disclosed in the annual audited consolidated financial statements for the year ended December 31, 2018.
These unaudited interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of CI on August 7, 2019.
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of CI have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The unaudited interim condensed consolidated financial statements have been prepared on a going concern basis. CI’s presentation currency is the Canadian dollar, which is CI’s functional currency. The notes presented in these unaudited interim condensed consolidated financial statements include, in general, only significant changes and transactions occurring since CI’s last year-end, and are not fully inclusive of all disclosures required by International Financial Reporting Standards [“IFRS”] for annual financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2018.
BASIS OF CONSOLIDATION
The unaudited interim condensed consolidated financial statements include the accounts of CI and all its subsidiaries on a consolidated basis after elimination of intercompany transactions and balances. Subsidiaries are entities over which CI has control, when CI has the power, directly or indirectly, to govern the financial and operating policies of an entity, is exposed to variable returns from its activities, and is able to use its power to affect such variable returns to which it is exposed.
CI’s principal subsidiaries are as follows:
• | CI Investments Inc. [“CI Investments”], Assante Wealth Management (Canada) Ltd. [“AWM”], First Asset Investment Management Inc. [“First Asset”], BBS Securities Inc. [“BBS”] and their respective subsidiaries. |
Q2 Financial Report | 8 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
• | CI holds a controlling 65% interest in Marret Asset Management Inc. [“Marret”] and a 75% interest in WealthBar Financial Services Inc. [“WealthBar”]. A non-controlling interest is recorded in the unaudited interim condensed consolidated statements of income and comprehensive income to reflect the non-controlling interest’s share of the income and comprehensive income, and a non-controlling interest is recorded within equity in the interim condensed consolidated statements of financial position to reflect the non-controlling interest’s share of the net assets. |
• | CI holds a controlling 83% interest in GSFM Pty Ltd. (“GSFM”) and granted a put option to shareholders for the remaining 17% minority interest. CI considers the non-controlling interest in GSFM to have already been acquired and consolidates 100% of the income and comprehensive income in the unaudited interim condensed consolidated statements of income and comprehensive income. GSFM has an interest in a joint arrangement classified as a joint operation. The unaudited interim condensed consolidated financial statements include GSFM’s recognition of its share of the joint operation’s assets, liabilities, income and comprehensive income. |
Hereinafter, CI and its subsidiaries are referred to as CI.
2. | NEW ACCOUNTING STANDARDS |
[A] IFRS 16
IFRS 16, Leases [“IFRS 16”], replaces the previous lease standard, IAS 17, Leases [“IAS 17”], and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.
Effective January 1, 2019, CI adopted IFRS 16 using the modified retrospective approach. Under this approach, CI recognized the lease liability based on the remaining lease payments discounted using CI’s incremental borrowing rate as at January 1, 2019. CI also recognized the right-of-use asset as at the date of initial application, as if IFRS 16 had always been applied since the commencement date of the lease, discounted using CI’s incremental rate of borrowing as at January 1, 2019. Comparative figures were not restated for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening interim condensed consolidated statement of financial position on January 1, 2019.
The adoption of IFRS 16 will result in CI reporting higher interest and depreciation expenses and lower selling, general and administrative expenses as of the effective date. Non-IFRS measures such as earnings before interest, taxes, depreciation and amortization will be positively impacted as a result.
Upon adoption of IFRS 16, CI recognized lease liabilities in relation to leases previously classified as operating leases under the principles of IAS 17. CI elected to apply the following practical expedients:
• | Apply a single discount rate to a portfolio of leases with reasonably similar characteristics |
• | Not recognize leases whose term ends within 12 months of initial application |
• | Exclude initial direct costs from the measurement of the right-of-use assets as at the date of initial application |
• | Not recognize leases of low value |
• | The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease |
Q2 Financial Report | 9 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
On transition to IFRS 16, CI assessed the classification of its sub-leased properties with reference to the right-of-use asset and concluded that its sub-leased properties previously classified as operating leases under IAS 17 should be accounted for as finance leases under IFRS 16.
The following summarizes the impact of adopting IFRS 16 as at January 1, 2019:
January 1, 2019 | ||||
$ | ||||
Assets | ||||
Right-of-use assets | 52,381 | |||
Other assets | 2,396 | |||
Total assets | 54,777 | |||
Liabilities | ||||
Accounts payable and other liabilities | (1,805 | ) | ||
Current portion of lease liabilities | 10,872 | |||
Non-current lease liabilities | 70,758 | |||
Leasehold inducements | (11,320 | ) | ||
Deferred tax liability | (3,665 | ) | ||
Total liabilities | 64,840 | |||
Deficit | (10,063 | ) |
The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as at December 31, 2018 as follows:
$ | ||||
Operating lease commitments as at December 31, 2018 | 90,050 | |||
Less: | ||||
Lease commitments related to short-term leases | (168 | ) | ||
Add: | ||||
Payments in optional extension periods considered reasonably certain to be exercised | 4,507 | |||
Gross lease liability as at January 1, 2019 | 94,389 | |||
Weighted average incremental borrowing rate as at January 1, 2019 | 4.2 | % | ||
Present value of lease liability recognized as at January 1, 2019 | 81,630 | |||
Current lease liabilities | 10,872 | |||
Non-current lease liabilities | 70,758 |
Q2 Financial Report | 10 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
The following shows the carrying amounts of CI’s right-of-use assets and lease liabilities and the movements during the six-month period ended June 30, 2019:
Right-of-use assets | ||||||||||||||||
Property leases | Equipment leases | Total | Lease liabilities | |||||||||||||
$ | $ | $ | $ | |||||||||||||
As at January 1, 2019 | 50,240 | 2,141 | 52,381 | 81,630 | ||||||||||||
Additions | 999 | — | 999 | 1,028 | ||||||||||||
Depreciation expense | (3,895 | ) | (485 | ) | (4,380 | ) | — | |||||||||
Interest expense | — | — | — | 1,649 | ||||||||||||
Payments | — | — | — | (7,117 | ) | |||||||||||
Translation | (8 | ) | — | (8 | ) | (9 | ) | |||||||||
As at June 30, 2019 | 47,336 | 1,656 | 48,992 | 77,181 |
CI recognized rent expense from short-term leases of $455, leases of low-value assets of $100 and variable lease payments of $6,218 during the six-month period ended June 30, 2019.
Included in other income is finance income of $47 received from sub-leasing right-of-use assets.
[B] IFRIC 23
Effective January 1, 2019, CI adopted IFRIC Interpretation 23, Uncertainty over Income Tax Treatments [“IFRIC 23”], which clarifies the accounting treatment used to reflect uncertainty in the recognition and measurement of income taxes. IFRIC 23 specifically addresses the following:
• | Whether an entity considers uncertain tax treatments separately |
• | The assumptions an entity makes about the examination of tax treatments by taxation authorities |
• | How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates |
• | How an entity considers changes in facts and circumstances |
CI has considered the impact of IFRIC 23 on the recognition and measurement of uncertainties over income tax treatments across the jurisdictions in which it operates. CI has determined that there is no cumulative effect to opening deficit, or other appropriate components of equity upon adoption.
Q2 Financial Report | 11 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
3. | BUSINESS ACQUISITION |
WealthBar Financial Services Inc.
On January 23, 2019, CI completed the acquisition of 75% outstanding shares and debt obligations of WealthBar Financial Services Inc., a leading Canadian online wealth management and financial planning platform, for all cash consideration of $23,653. The acquisition was accounted for using the acquisition method of accounting and the results of operations have been consolidated from the date of the transaction.
Details of the net assets acquired as at January 23, 2019, at preliminary fair value, are as follows:
$ | ||||
Cash and cash equivalents | 81 | |||
Accounts receivable and prepaid expenses | 416 | |||
Income taxes receivable | 226 | |||
Capital assets | 113 | |||
Right-of-use asset | 248 | |||
Fund administration contracts | 4,000 | |||
Intangible - technology | 15,000 | |||
Accounts payable and accrued liabilities | (401 | ) | ||
Lease liability | (262 | ) | ||
Deferred income taxes | (2,356 | ) | ||
Fair value of identifiable net assets | 17,065 | |||
Non-controlling interest (25% of identifiable net assets) | (4,266 | ) | ||
Goodwill on acquisition | 10,854 | |||
Total acquired cost | 23,653 |
The acquired fund administration contracts with a fair value of $4,000 have a finite life of 10 years. The technology acquired has a fair value of $15,000 and an estimated useful life of 10 years. The goodwill on acquisition is not deductible for income taxes. Goodwill of $10,854 relates to the asset administration segment.
Q2 Financial Report | 12 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
4. | LONG-TERM DEBT |
Long-term debt consists of the following:
As at | As at | |||||||
June 30, 2019 | December 31, 2018 | |||||||
$ | $ | |||||||
Credit facility | ||||||||
Prime rate loan | — | 24,500 | ||||||
Banker’s acceptances | 304,500 | — | ||||||
LIBOR loan (USD $193,000) | — | 259,000 | ||||||
304,500 | 283,500 | |||||||
Debentures | ||||||||
$450 million, 2.645% due December 7, 2020 | 449,271 | 449,032 | ||||||
$200 million, 2.775% due November 25, 2021 | 199,395 | 199,278 | ||||||
$325 million, 3.520% due July 20, 2023 | 323,455 | 323,297 | ||||||
$250 million, 3.904% due September 27, 2027 | 248,691 | 248,626 | ||||||
1,220,812 | 1,220,233 | |||||||
Long-term debt | 1,525,312 | 1,503,733 |
Credit facility
CI has a $700,000 revolving credit facility with three Canadian chartered banks. Loans are made by the banks under a three-year revolving credit facility, with the outstanding principal balance due upon maturity on December 11, 2021. The credit facility contains a number of financial covenants that require CI to meet certain financial ratios and financial condition tests. CI is within its financial covenants with respect to its credit facility, which requires that the funded debt to annualized EBITDA ratio remains below 3:1 and that CI’s assets under management not fall below $85 billion, calculated based on a rolling 30-day average. There can be no assurance that future borrowings or equity financing will be available to CI or available on acceptable terms.
On January 28, 2019, the forward exchange contract entered into on December 24, 2018 with a Canadian chartered bank to pay Canadian dollars $259,690 and receive U.S. dollars $193,666 matured. Hedge accounting was not applied to the forward foreign exchange contract, as the fair value changes are offset in net income with the foreign exchange revaluation of the U.S. denominated debt.
Debentures
On July 20, 2018, CI completed an offering pursuant to which it issued $325,000 principal amount of debentures due July 20, 2023 at par [the “2023 Debentures”]. Interest on the 2023 Debentures is paid semi-annually in arrears at a rate of 3.520%. The proceeds, net of transaction costs, were used to repay outstanding indebtedness under the credit facility.
On February 2, 2017, CI entered into an interest rate swap agreement with a Canadian chartered bank to swap the semi-annual fixed rate payments on the debentures due November 25, 2021 for floating rate payments. As at June 30, 2019, the fair value of the interest rate swap agreement was an unrealized loss of $1,914 and is included in long-term debt in the unaudited interim condensed consolidated statements of financial position.
Q2 Financial Report | 13 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
5. | PROVISION FOR OTHER LIABILITIES AND CONTINGENCIES |
CI is a party to a number of claims, proceedings and investigations, including legal, regulatory and tax, in the ordinary course of its business. Due to the inherent uncertainty involved in these matters, it is difficult to predict the final outcome or the amount and timing of any outflow related to such matters. Based on current information and consultations with advisors, CI does not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on its financial position or on its ability to continue normal business operations.
CI has made provisions based on current information and the probable resolution of such contingent consideration, claims, proceedings and investigations as well as for amounts payable in connection with business acquisitions and severance. The movement in amounts provided for contingent liabilities and related expenses during the six months ended June 30, 2019 and the year ended December 31, 2018, are as follows:
6 months ended
June 30, 2019 |
Year ended
December 31, 2018 |
|||||||
$ | $ | |||||||
Provision for other liabilities, beginning of period | 34,768 | 98,595 | ||||||
Additions | 35,000 | 3,151 | ||||||
Amounts used | (15,027 | ) | (54,838 | ) | ||||
Amounts reversed | (126 | ) | (12,140 | ) | ||||
Provision for other liabilities, end of period | 54,615 | 34,768 | ||||||
Current portion of provision for other liabilities | 34,831 | 14,591 |
Provision for other liabilities primarily includes the following:
LITIGATION
CI is a defendant to certain lawsuits of which two are class action lawsuits related to events and transactions that gave rise to a settlement agreement with the Ontario Securities Commission [“OSC”] in 2004. Although CI continues to believe that this settlement fully compensated investors affected by frequent trading activity, a provision has been made based on the probable resolution of these claims and related expenses.
CI maintains insurance policies that may provide coverage against certain claims. Amounts receivable under these policies are not accrued for unless the realization of income is virtually certain. During the three and six months ended June 30, 2019, no insurance proceeds were received related to the settlement of legal claims.
PUT OPTION AND CONTINGENT CONSIDERATION
Included in provision for other liabilities as at June 30, 2019, is a provision for the fair value of the put option granted to minority interest shareholders for the acquisition of GSFM of $10,939, including foreign exchange translation adjustments [December 31, 2018 - $11,438].
Q2 Financial Report | 14 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
During the three and six months ended June 30, 2018, CI made payments of nil and $11,633 [cash - $11,129 and shares - $534] related to contingent consideration that was payable for the First Asset acquisition. As at June 30, 2018, all contingent consideration related to this acquisition was paid.
RESTRUCTURING
During the three months ended June 30, 2019, CI recorded a provision for restructuring of $35,000 related to severance and the write-down of software intangibles that were retired. As at June 30, 2019, a provision of $24,081 remains.
Q2 Financial Report | 15 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
6. | SHARE CAPITAL |
A summary of the changes to CI’s share capital for the period is as follows:
[A] AUTHORIZED AND ISSUED
Number of shares | Stated value | |||||||
[in thousands] | $ | |||||||
Authorized | ||||||||
An unlimited number of common shares of CI | ||||||||
Issued | ||||||||
Common shares, balance, December 31, 2017 | 271,884 | 2,360,257 | ||||||
Issuance for acquisition of subsidiary | 17 | 534 | ||||||
Issuance of share capital on exercise of share options | 58 | 1,700 | ||||||
Issuance of share capital on vesting of restricted share units | 283 | 5,819 | ||||||
Share repurchases, net of tax | (28,521 | ) | (243,180 | ) | ||||
Common shares, balance, December 31, 2018 | 243,721 | 2,125,130 | ||||||
Issuance of share capital on vesting of restricted share units | 6 | 123 | ||||||
Share repurchases, net of tax | (3,352 | ) | (26,712 | ) | ||||
Common shares, balance, March 31, 2019 | 240,375 | 2,098,541 | ||||||
Issuance of share capital on vesting of restricted share units | 9 | 111 | ||||||
Share repurchases, net of tax | (4,691 | ) | (40,814 | ) | ||||
Common shares, balance, June 30, 2019 | 235,693 | 2,057,838 |
[B] EMPLOYEE INCENTIVE SHARE OPTION PLAN
CI has an employee incentive share option plan [the “Share Option Plan”], as amended and restated, for the executives and key employees of CI. CI granted nil and 743 thousand options during the three and six months ended June 30, 2019, respectively [three and six months ended June 30, 2018 - nil and 78 thousand options, respectively]. The fair value method of accounting is used for the valuation of the 2019 and 2018 share option grants. Compensation expense is recognized over the applicable vesting periods, assuming an estimated average forfeiture rate of 0% - 13% for the options issued during 2019 [2018 - 0%], with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well as any consideration paid by the option holder are credited to share capital.
Q2 Financial Report | 16 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
The fair value of the 2019 and 2018 option grants was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
Year of grant | 2019 | 2019 | 2018 | |||||||||
# of options granted [in thousands] | 213 | 530 | 78 | |||||||||
Vesting terms | At end of year 5 | 1/3 at end of years 3, 4 and 5 | 1/3 at end of years 1, 2 and 3 | |||||||||
Dividend yield | 3.792% | 3.792% | 5.044% - 5.085% | |||||||||
Expected volatility (*) | 17% | 17% | 16% | |||||||||
Risk-free interest rate | 2.238% | 2.182% - 2.238% | 2.285% - 2.363% | |||||||||
Expected life [years] | 6.8 | 5.2 - 6.8 | 2.9 - 3.7 | |||||||||
Forfeiture rate | 0% | 13% | 0% | |||||||||
Fair value per stock option | $2.48 | $2.23 - $2.48 | $2.23 - $2.45 | |||||||||
Exercise price | $18.99 | $18.99 | $28.67 |
(*) Based on historical volatility of CI’s share price.
A summary of the changes in the Share Option Plan is as follows:
Number of options |
Weighted average
exercise price |
|||||||
[in thousands] | $ | |||||||
Options outstanding, December 31, 2017 | 8,073 | 31.84 | ||||||
Options exercisable, December 31, 2017 | 5,014 | 33.03 | ||||||
Options granted | 78 | 28.67 | ||||||
Options exercised (*) | (609 | ) | 27.42 | |||||
Options cancelled | (584 | ) | 31.98 | |||||
Options outstanding, December 31, 2018 | 6,958 | 32.18 | ||||||
Options exercisable, December 31, 2018 | 5,789 | 32.97 | ||||||
Options granted | 743 | 18.99 | ||||||
Options cancelled | (1,664 | ) | 34.96 | |||||
Options outstanding, March 31, 2019 | 6,037 | 29.79 | ||||||
Options exercisable, March 31, 2019 | 5,154 | 31.40 | ||||||
Options cancelled | (327 | ) | 32.79 | |||||
Options outstanding, June 30, 2019 | 5,710 | 29.62 | ||||||
Options exercisable, June 30, 2019 | 4,865 | 31.25 |
(*) | Weighted average share price of options exercised was nil during the three and six months ended June 30, 2019 [year ended December 31, 2018 - $29.54] |
Options outstanding and exercisable as at June 30, 2019 are as follows:
Exercise price |
Number of options outstanding |
Weighted average remaining
contractual life |
Number of options
exercisable |
||||||||||
$ | [in thousands] | [years] | [in thousands] | ||||||||||
18.99 | 722 | 9.7 | — | ||||||||||
27.44 | 479 | 2.7 | 390 | ||||||||||
28.63 | 2,063 | 1.6 | 2,063 | ||||||||||
28.67 | 51 | 3.7 | 17 | ||||||||||
33.96 | 2,175 | 0.6 | 2,175 | ||||||||||
35.88 | 220 | 0.8 | 220 | ||||||||||
18.99 to 35.88 | 5,710 | 2.3 | 4,865 |
Q2 Financial Report | 17 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
[C] RESTRICTED SHARE UNITS
CI has an employee restricted share unit plan [the “RSU Plan”] for senior executives and other key employees. Compensation expense is recognized and recorded as contributed surplus based upon the market value of the restricted share units [“RSUs”] at the grant date. Forfeitures of RSUs reduce compensation expense to the extent contributed surplus was previously recorded for such awards. On vesting of RSUs, share capital is credited for the amounts initially recorded as contributed surplus to reflect the issuance of share capital.
During the three and six months ended June 30, 2019, CI granted 12 and 511 thousand RSUs, respectively [three and six months ended June 30, 2018 - 13 and 561 thousand RSUs, respectively], including 12 and 19 thousand RSUs granted to reflect dividends declared on the common shares, respectively [three and six months ended June 30, 2018 - 13 and 19 thousand, respectively]. Also during the three and six months ended June 30, 2019, 10 thousand and 16 thousand RSUs were exercised, and 6 thousand and 21 thousand RSUs were forfeited, respectively [three and six months ended June 30, 2018 - 6 thousand and 7 thousand exercised and 15 thousand and 15 thousand RSUs forfeited, respectively]. During the three and six months ended June 30, 2019, CI credited contributed surplus for $3,229 and $6,155, respectively, related to compensation expense recognized for the RSUs [three and six months ended June 30, 2018 - $3,751 and 5,611, respectively]. As at June 30, 2019, 1,138 thousand RSUs are outstanding [December 31, 2018 - 664 thousand RSUs].
CI uses a Trust to hold CI’s common shares, to fulfil obligations to employees arising from the RSU Plan. The common shares held by the Trust are not considered to be outstanding for the purposes of basic and diluted earnings per share calculations.
[D] DEFERRED SHARE UNITS
The deferred share unit plan [“DSU Plan”] was established in March 2017, whereby directors may elect to receive all or a portion of their quarterly compensation in either cash or deferred share units [“DSUs”]. The DSUs fully vest on the grant date and an expense is recorded based upon the market value of the DSUs at the grant date with an offset included in accounts payable and accrued liabilities. At the end of each period, the change in the fair value of the DSUs is recorded as an expense with an offset recorded to the liability. DSUs can only be redeemed for cash once the holder ceases to be a director of CI.
During the three and six months ended June 30, 2019, 1.9 thousand and 2.1 thousand DSUs were granted, respectively, and nil DSUs were exercised, respectively [three and six months ended June 30, 2018 - 0.4 thousand and 2 thousand DSUs granted, respectively, and 6 thousand and 6 thousand exercised, respectively]. An expense of $89 and $107 was recorded during the three and six months ended June 30, 2019, respectively [three and six months ended June 30, 2018 - $(88) and $(99)]. As at June 30, 2019, included in accounts payable and accrued liabilities, is an accrual of $376 for amounts to be paid under the DSU Plan [December 31, 2018 - $269].
Q2 Financial Report | 18 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
[E] BASIC AND DILUTED EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share for the three and six months ended June 30:
[in thousands] |
3 months ended
June 30, 2019 |
6 months ended
June 30, 2019 |
3 months ended
June 30, 2018 |
6 months ended
June 30, 2018 |
||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to shareholders of the Company basic and diluted | $ | 111,852 | $ | 251,887 | $ | 159,862 | $ | 318,901 | ||||||||
Denominator: | ||||||||||||||||
Weighted average number of common shares - basic | 238,255 | 240,091 | 264,091 | 266,854 | ||||||||||||
Weighted average effect of dilutive stock options and RSU awards (*) | 889 | 776 | 344 | 309 | ||||||||||||
Weighted average number of common shares - diluted | 239,144 | 240,867 | 264,435 | 267,163 | ||||||||||||
Net earnings per common share attributable to shareholders | ||||||||||||||||
Basic | $ | 0.47 | $ | 1.05 | $ | 0.61 | $ | 1.20 | ||||||||
Diluted | $ | 0.47 | $ | 1.05 | $ | 0.60 | $ | 1.19 |
(*) | The determination of the weighted average number of common shares - diluted excludes 5,710 thousand shares related to stock options that were anti-dilutive for the three and six months ended June 30, 2019 [three and six months ended June 30, 2018 - 7,177 thousand shares]. |
[F] MAXIMUM SHARE DILUTION
The following table presents the maximum number of shares that would be outstanding if all the outstanding options were exercised and if all RSU awards vested as at July 31, 2019:
[in thousands] | ||||
Shares outstanding at July 31, 2019 | 233,847 | |||
Options to purchase shares | 5,702 | |||
RSU awards | 1,143 | |||
240,692 |
Q2 Financial Report | 19 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
7. | DIVIDENDS |
The following dividends were paid by CI during the three and six months ended June 30, 2019:
Cash dividend per share |
Total dividend amount | |||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2018 | January 14, 2019 | 0.18 | 43,899 | |||||||
Paid during the three months ended March 31, 2019 | 43,899 | |||||||||
March 31, 2019 | April 12, 2019 | 0.18 | 43,285 | |||||||
Paid during the three months ended June 30, 2019 | 43,285 | |||||||||
Paid during the six months ended June 30, 2019 | 87,184 |
The following dividends were declared but not paid during the three months ended June 30, 2019:
Cash dividend per share |
Total dividend amount | |||||||||
Record date | Payment date | $ | $ | |||||||
June 30, 2019 | July 15, 2019 | 0.18 | 42,424 | |||||||
September 30, 2019 | October 15, 2019 | 0.18 | 42,424 | |||||||
December 31, 2019 | January 15, 2020 | 0.18 | 42,425 | |||||||
Declared and accrued as at June 30, 2019 | 127,273 |
The following dividends were paid by CI during the three and six months ended June 30, 2018:
Cash dividend per share |
Total dividend amount | |||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2017 | January 15, 2018 | 0.1175 | 31,957 | |||||||
January 31, 2018 | February 15, 2018 | 0.1175 | 31,736 | |||||||
February 28, 2018 | March 15, 2018 | 0.1175 | 31,706 | |||||||
Paid during the three months ended March 31, 2018 | 95,399 | |||||||||
March 31, 2018 | April 13, 2018 | 0.1175 | 31,344 | |||||||
April 30, 2018 | May 15, 2018 | 0.1175 | 31,170 | |||||||
May 31, 2018 | June 15, 2018 | 0.1175 | 30,996 | |||||||
Paid during the three months ended June 30, 2018 | 93,510 | |||||||||
Paid during the six months ended June 30, 2018 | 188,909 |
The following dividends were declared but not paid during the three months ended June 30, 2018:
Cash dividend per share |
Total dividend amount | |||||||||
Record date | Payment date | $ | $ | |||||||
June 30, 2018 | July 13, 2018 | 0.1175 | 30,616 | |||||||
July 31, 2018 | August 15, 2018 | 0.1175 | 30,616 | |||||||
Declared and accrued as at June 30, 2018 | 61,232 |
Q2 Financial Report | 20 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
8. | FINANCIAL INSTRUMENTS |
The carrying amounts of the financial instruments are presented in the tables below and are classified according to the following categories:
As at | As at | |||||||
June 30, 2019 |
December 31, 2018 | |||||||
$ | $ | |||||||
Financial assets | ||||||||
Fair value through profit or loss | ||||||||
Cash and cash equivalents | 136,894 | 137,160 | ||||||
Investments | 154,215 | 168,122 | ||||||
Other assets | 20,959 | 9,507 | ||||||
Amortized cost | ||||||||
Client and trust funds on deposit | 356,133 | 365,520 | ||||||
Accounts receivable | 186,598 | 137,979 | ||||||
Other assets | 37,666 | 23,006 | ||||||
Total financial assets | 892,465 | 841,294 | ||||||
Financial liabilities | ||||||||
Fair value through profit or loss | ||||||||
Provisions for other liabilities | 10,939 | 11,438 | ||||||
Amortized cost | ||||||||
Accounts payable and accrued liabilities | 238,497 | 222,233 | ||||||
Provisions for other liabilities | 43,676 | 23,330 | ||||||
Dividends payable | 127,273 | 219,112 | ||||||
Client and trust funds payable | 365,666 | 370,756 | ||||||
Long-term debt | 1,525,312 | 1,503,733 | ||||||
Total financial liabilities | 2,311,363 | 2,350,602 |
CI’s investments as at June 30, 2019 and December 31, 2018, include CI’s marketable securities comprised of seed capital investments in CI’s mutual funds and strategic investments. Mutual fund securities are valued using the net asset value per unit of each fund, which represents the underlying net assets at fair values determined using closing market prices. CI’s mutual fund securities that are valued daily are classified as Level 1 in the fair value hierarchy. Mutual fund securities and strategic investments that are valued less frequently are classified as Level 2 in the fair value hierarchy. CI’s investments as at June 30, 2019, also include securities owned, at market, consisting of money market, equity securities and bonds. Money market and equity securities are valued based on quoted prices and are classified as Level 1 in the fair value hierarchy. Bonds are valued using a market comparison technique to fair value these instruments using observable broker quotes and are classified as Level 2 in the fair value hierarchy. There have been no transfers between Level 1 and Level 2 during the period.
Q2 Financial Report | 21 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts] |
Investments consist of the following as at June 30, 2019:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 134,031 | 59,641 | 70,737 | 3,653 | ||||||||||||
Securities owned, at market | 20,184 | 20,184 | — | — | ||||||||||||
Total investments | 154,215 | 79,825 | 70,737 | 3,653 |
Investments consist of the following as at December 31, 2018:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 132,953 | 56,603 | 72,697 | 3,653 | ||||||||||||
Securities owned, at market | 35,169 | 35,169 | — | — | ||||||||||||
Total investments | 168,122 | 91,772 | 72,697 | 3,653 |
Included in other assets are long-term private equity strategic investments of $20,959 [December 31, 2018 - $9,507] valued using level 3 inputs.
Included in provision for other liabilities, as at June 30, 2019, is put option payable on non-controlling interest of $10,939 [December 31, 2018 - $11,438] carried at fair value and classified as Level 3 in the fair value hierarchy. Long-term debt as at June 30, 2019, includes debentures with a fair value of $1,242,650 [December 31, 2018 - $1,208,715], as determined by quoted market prices that have been classified as Level 2 in the fair value hierarchy.
Q2 Financial Report | 22 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
9. | CAPITAL MANAGEMENT |
CI’s objectives in managing capital are to maintain a capital structure that allows CI to meet its growth strategies and build long-term shareholder value, while satisfying its financial obligations and meeting its long-term debt covenants. CI’s capital comprise shareholders’ equity and long-term debt (including the current portion of long-term debt).
CI and its subsidiaries are subject to minimum regulatory capital requirements whereby sufficient cash and other liquid assets must be on hand to maintain capital requirements rather than using them in connection with its business. As at June 30, 2019, cash and cash equivalents of $13,976 [December 31, 2018 - $20,226] were required to be on hand for regulatory capital maintenance. Failure to maintain required regulatory capital by CI may result in fines, suspension or revocation of registration by the relevant securities regulator. CI from time to time provides loans to its subsidiaries for operating purposes and may choose to subordinate these loans in favour of general creditors. The repayment of subordinated loans is subject to regulatory approval. As at June 30, 2019 and December 31, 2018, CI met its capital requirements.
CI’s capital consists of the following:
As at | As at | |||||||
June 30, 2019 | December 31, 2018 | |||||||
$ | $ | |||||||
Shareholders’ equity | 1,528,161 | 1,430,077 | ||||||
Long-term debt | 1,525,312 | 1,503,733 | ||||||
Total capital | 3,053,473 | 2,933,810 |
Q2 Financial Report | 23 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
10. | SEGMENTED INFORMATION |
CI has two reportable segments: asset management and asset administration. These segments reflect CI’s internal financial reporting and performance measurement.
The asset management segment includes the operating results and financial position of CI Investments, CI Private Counsel LP, First Asset, GSFM and Marret, which derive their revenues principally from the fees earned on the management of several families of mutual funds, segregated funds and exchange-traded funds.
The asset administration segment includes the operating results and financial position of WealthBar, BBS and AWM and its subsidiaries, including Assante Capital Management Ltd. and Assante Financial Management Ltd. These companies derive their revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients.
Segmented information for the three-month period ended June 30, 2019 is as follows:
Asset management |
Asset administration |
Intersegment eliminations | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 468,471 | — | — | 468,471 | ||||||||||||
Administration fees | — | 97,686 | (44,042 | ) | 53,644 | |||||||||||
Other revenue | (1,026 | ) | 9,232 | — | 8,206 | |||||||||||
Total revenue | 467,445 | 106,918 | (44,042 | ) | 530,321 | |||||||||||
Selling, general and administrative | 99,326 | 25,508 | — | 124,834 | ||||||||||||
Trailer fees | 155,797 | — | (7,696 | ) | 148,101 | |||||||||||
Investment dealer fees | — | 78,604 | (36,190 | ) | 42,414 | |||||||||||
Deferred sales commissions | 3,290 | — | (156 | ) | 3,134 | |||||||||||
Amortization and depreciation | 5,688 | 2,640 | — | 8,328 | ||||||||||||
Other expenses | 34,347 | 3,077 | — | 37,424 | ||||||||||||
Total expenses | 298,448 | 109,829 | (44,042 | ) | 364,235 | |||||||||||
Income before income taxes and non-segmented items | 168,997 | (2,911 | ) | — | 166,086 | |||||||||||
Interest and lease finance | (13,691 | ) | ||||||||||||||
Provision for income taxes | (40,881 | ) | ||||||||||||||
Net income for the period | 111,514 |
Q2 Financial Report | 24 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Segmented information for the three-month period ended June 30, 2018 is as follows:
Asset
management |
Asset
administration |
Intersegment
eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 506,306 | — | — | 506,306 | ||||||||||||
Administration fees | — | 91,364 | (43,831 | ) | 47,533 | |||||||||||
Other revenue | 2,789 | 8,007 | — | 10,796 | ||||||||||||
Total revenue | 509,095 | 99,371 | (43,831 | ) | 564,635 | |||||||||||
Selling, general and administrative | 102,934 | 24,341 | — | 127,275 | ||||||||||||
Trailer fees | 167,773 | — | (8,151 | ) | 159,622 | |||||||||||
Investment dealer fees | — | 73,006 | (35,433 | ) | 37,573 | |||||||||||
Deferred sales commissions | 5,896 | — | (247 | ) | 5,649 | |||||||||||
Amortization and depreciation | 4,055 | 999 | — | 5,054 | ||||||||||||
Other expenses | 1,551 | 94 | — | 1,645 | ||||||||||||
Total expenses | 282,209 | 98,440 | (43,831 | ) | 336,818 | |||||||||||
Income before income taxes and non-segmented items | 226,886 | 931 | — | 227,817 | ||||||||||||
Interest | (9,859 | ) | ||||||||||||||
Provision for income taxes | (57,967 | ) | ||||||||||||||
Net income for the period | 159,991 |
Q2 Financial Report | 25 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Segmented information as at and for the six-month period ended June 30, 2019 is as follows:
Asset
management |
Asset
administration |
Intersegment eliminations | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 927,928 | — | — | 927,928 | ||||||||||||
Administration fees | — | 192,691 | (86,611 | ) | 106,080 | |||||||||||
Other revenue | 5,850 | 17,232 | — | 23,082 | ||||||||||||
Total revenue | 933,778 | 209,923 | (86,611 | ) | 1,057,090 | |||||||||||
Selling, general and administrative | 200,273 | 50,622 | — | 250,895 | ||||||||||||
Trailer fees | 307,780 | — | (15,077 | ) | 292,703 | |||||||||||
Investment dealer fees | — | 154,388 | (71,132 | ) | 83,256 | |||||||||||
Deferred sales commissions | 8,141 | — | (402 | ) | 7,739 | |||||||||||
Amortization and depreciation | 11,192 | 5,295 | — | 16,487 | ||||||||||||
Other expenses | 35,826 | 3,230 | — | 39,056 | ||||||||||||
Total expenses | 563,212 | 213,535 | (86,611 | ) | 690,136 | |||||||||||
Income before income taxes and non-segmented items | 370,566 | (3,612 | ) | — | 366,954 | |||||||||||
Interest and lease finance | (27,406 | ) | ||||||||||||||
Provision for income taxes | (88,074 | ) | ||||||||||||||
Net income for the period | 251,474 | |||||||||||||||
Identifiable assets | 509,678 | 580,536 | — | 1,090,214 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,309,255 | 221,449 | — | 1,530,704 | ||||||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||||||
Total assets | 3,598,890 | 801,985 | — | 4,400,875 |
Q2 Financial Report | 26 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Segmented information for the six-month period ended June 30, 2018 is as follows:
Asset management |
Asset administration |
Intersegment
eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 1,020,034 | — | — | 1,020,034 | ||||||||||||
Administration fees | — | 183,367 | (87,734 | ) | 95,633 | |||||||||||
Other revenue | 6,374 | 16,101 | — | 22,475 | ||||||||||||
Total revenue | 1,026,408 | 199,468 | (87,734 | ) | 1,138,142 | |||||||||||
Selling, general and administrative | 211,324 | 48,839 | — | 260,163 | ||||||||||||
Trailer fees | 337,800 | — | (16,219 | ) | 321,581 | |||||||||||
Investment dealer fees | — | 146,185 | (70,874 | ) | 75,311 | |||||||||||
Deferred sales commissions | 14,797 | — | (641 | ) | 14,156 | |||||||||||
Amortization and depreciation | 7,987 | 1,918 | — | 9,905 | ||||||||||||
Other expenses | 3,673 | 105 | — | 3,778 | ||||||||||||
Total expenses | 575,581 | 197,047 | (87,734 | ) | 684,894 | |||||||||||
Income before income taxes and non-segmented items | 450,827 | 2,421 | — | 453,248 | ||||||||||||
Interest | (19,134 | ) | ||||||||||||||
Provision for income taxes | (114,994 | ) | ||||||||||||||
Net income for the period | 319,120 | |||||||||||||||
As at December 31, 2018 | ||||||||||||||||
Identifiable assets | 432,264 | 558,890 | — | 991,154 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,310,510 | 210,595 | — | 1,521,105 | ||||||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||||||
Total assets | 3,522,731 | 769,485 | — | 4,292,216 |
Q2 Financial Report | 27 | June 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
11. | SELLING, GENERAL AND ADMINISTRATIVE |
Included in selling, general and administrative expenses [“SG&A”] are salaries and benefits of $67,858 and $138,499 for the three and six months ended June 30, 2019, respectively [three and six months ended June 30, 2018 - $70,082 and $142,385, respectively]. Other SG&A of $56,976 and $112,396 for the three and six months ended June 30, 2019, respectively, primarily includes marketing and information technology expenses as well as professional and regulatory fees [three and six months ended June 30, 2018 - $57,193 and $117,778, respectively].
12. | AMORTIZATION AND DEPRECIATION |
The following table provides details of amortization and depreciation:
3 months
ended
June 30, 2019 |
6 months ended
June 30, 2019 |
3 months ended
June 30, 2018 |
6 months
ended
June 30, 2018 |
|||||||||||||
$ | $ | $ | $ | |||||||||||||
Depreciation of capital assets | 2,900 | 5,666 | 2,453 | 4,807 | ||||||||||||
Depreciation of right-of-use assets | 2,203 | 4,380 | — | — | ||||||||||||
Amortization of intangibles | 2,936 | 5,862 | 2,397 | 4,690 | ||||||||||||
Amortization of debenture transaction costs | 289 | 579 | 204 | 408 | ||||||||||||
Total amortization and depreciation | 8,328 | 16,487 | 5,054 | 9,905 |
13. | SUBSEQUENT EVENT |
On July 22, 2019, CI completed an offering pursuant to which it issued $350,000 principal amount debenture due July 22, 2024 at par. Interest on the debentures is paid semi-annually in arrears at a rate of 3.215%. The proceeds, net of transaction costs, were primarily used to repay outstanding indebtedness under the credit facility.
On August 6, 2019, CI announced the appointment of Kurt MacAlpine as Chief Executive Officer, effective September 1, 2019.
14. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform to the interim condensed consolidated financial statement presentation in the current period.
This Report contains forward-looking statements with respect to CI, including its business operations and strategy and financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things, general economic and market factors, including interest rates, business competition, changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time.
Q2 Financial Report | 28 | June 30, 2019 |
Exhibit 99.10
MANAGEMENT’S DISCUSSION & ANALYSIS | June 30, 2019
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This Management’s Discussion and Analysis (“MD&A”) dated August 7, 2019 presents an analysis of the financial position of CI Financial Corp. and its subsidiaries (“CI”) as at June 30, 2019, compared with December 31, 2018, and the results of operations for the quarter ended June 30, 2019, compared with the quarter ended June 30, 2018 and the quarter ended March 31, 2019.
CI’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Amounts are expressed in Canadian dollars. The principal subsidiaries referenced herein include CI Investments Inc. (“CI Investments”) and Assante Wealth Management (Canada) Ltd. (“AWM” or “Assante”). The Asset Management segment of the business includes the operating results and financial position of CI Investments and its subsidiaries, including CI Private Counsel LP (“CIPC”), as well as the operating results and financial position of First Asset Investment Management Inc. (“First Asset”) and GSFM Pty Limited (“GSFM”). The Asset Administration segment includes the operating results and financial position of AWM and its subsidiaries, including Assante Capital Management Ltd. (“ACM”) and Assante Financial Management Ltd. (“AFM”), as well as the operating results and financial position of BBS Securities Inc. (“BBS”) and WealthBar Financial Services Inc. (“WealthBar”).
This MD&A contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp. (“CI”) and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time. The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward-looking statement after the date on which it is made, whether to reflect new information, future events or otherwise.
This MD&A includes several non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full year results from period to period. Descriptions of these non-IFRS measures and reconciliations to the nearest IFRS measure, where necessary, are provided in the “Non-IFRS Measures” section of this MD&A. Note that figures in tables may not add due to rounding.
Q2 Financial Report | 2 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 1: SUMMARY OF QUARTERLY RESULTS | ||||||||||||||||||||||||||||||||
[millions of dollars, except per share amounts] | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||
Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | |||||||||||||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||||||||||||||
Management fees | 468.5 | 459.5 | 474.2 | 509.9 | 506.3 | 513.7 | 532.1 | 452.9 | ||||||||||||||||||||||||
Administration fees | 53.6 | 52.4 | 51.8 | 50.2 | 47.5 | 48.1 | 45.8 | 42.0 | ||||||||||||||||||||||||
Other revenues | 8.2 | 14.9 | 3.2 | 8.9 | 10.8 | 11.7 | 16.5 | 9.3 | ||||||||||||||||||||||||
Total revenues | 530.3 | 526.8 | 529.2 | 569.0 | 564.6 | 573.5 | 594.4 | 504.1 | ||||||||||||||||||||||||
Selling, general & administrative | 124.8 | 126.1 | 123.5 | 128.9 | 127.3 | 132.9 | 128.6 | 106.9 | ||||||||||||||||||||||||
Trailer fees | 148.1 | 144.6 | 149.1 | 160.6 | 159.6 | 162.0 | 167.8 | 139.3 | ||||||||||||||||||||||||
Investment dealer fees | 42.4 | 40.8 | 40.5 | 40.1 | 37.6 | 37.7 | 37.3 | 34.5 | ||||||||||||||||||||||||
Deferred sales commissions paid | 3.1 | 4.6 | 3.9 | 4.1 | 5.6 | 8.5 | 7.3 | 6.5 | ||||||||||||||||||||||||
Interest and lease finance | 13.7 | 13.7 | 12.4 | 11.6 | 9.9 | 9.3 | 8.6 | 5.7 | ||||||||||||||||||||||||
Amortization and depreciation | 8.3 | 8.2 | 5.4 | 5.2 | 5.1 | 4.9 | 4.7 | 3.3 | ||||||||||||||||||||||||
Other expenses | 37.4 | 1.6 | 3.1 | 0.8 | 1.6 | 2.1 | 46.7 | 0.2 | ||||||||||||||||||||||||
Total expenses | 377.9 | 339.6 | 337.8 | 351.2 | 346.7 | 357.4 | 401.0 | 296.5 | ||||||||||||||||||||||||
Income before income taxes | 152.4 | 187.2 | 191.3 | 217.8 | 218.0 | 216.2 | 193.4 | 207.6 | ||||||||||||||||||||||||
Income taxes | 40.9 | 47.2 | 51.0 | 59.5 | 58.0 | 57.0 | 53.9 | 54.0 | ||||||||||||||||||||||||
Non-controlling interest | (0.3 | ) | (0.1 | ) | — | 0.1 | 0.1 | 0.1 | 0.1 | — | ||||||||||||||||||||||
Net income attributable to shareholders | 111.9 | 140.0 | 140.3 | 158.2 | 159.9 | 159.0 | 139.4 | 153.6 | ||||||||||||||||||||||||
Earnings per share | 0.47 | 0.58 | 0.57 | 0.62 | 0.61 | 0.59 | 0.51 | 0.60 | ||||||||||||||||||||||||
Diluted earnings per share | 0.47 | 0.58 | 0.57 | 0.62 | 0.60 | 0.59 | 0.51 | 0.60 | ||||||||||||||||||||||||
Dividends paid per share | 0.1800 | 0.1800 | 0.1800 | 0.2350 | 0.3525 | 0.3525 | 0.3525 | 0.3525 |
Q2 Financial Report | 3 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
BUSINESS OVERVIEW
CI is a diversified wealth management firm and through CI Investments, one of Canada’s largest independent investment fund companies. The principal business of CI is the management, marketing, distribution and administration of investment products for Canadian investors. CI also provides tax, retirement, estate and wealth planning services to clients of Assante and CIPC. In addition, CI has asset management operations in Australia through its subsidiary GSFM. CI’s products are distributed primarily through brokers, independent financial planners and insurance advisors, including ACM and AFM financial advisors. CI operates through two business segments, Asset Management and Asset Administration. The Asset Management segment provides the majority of CI’s income and derives its revenue principally from the fees earned on the management of investment funds and other fee-earning investment products. The Asset Administration segment derives its revenue principally from fees and commissions from ongoing service and on the sale of investment funds and other financial products.
BUSINESS STRATEGY
CI provides wealth and investment management services and earns fee revenue on its assets under management (“AUM”) and assets under administration (“AUA”). Management believes that client goals and asset growth can be achieved by focusing on the following factors: quality and diversity of products offered by CI; experience and depth of investment managers; service levels provided to dealers and investors; and the skill and knowledge of its employees.
CI offers investors a wide range of Canadian and global investment products through a network of investment dealers, mutual fund dealers, and insurance agents, which include advisors with AWM. Acquisitions of fund management companies and years of product innovation and development have allowed CI to offer investors a broad selection of investment products.
CI uses in-house teams and external investment managers to provide portfolio management services. These investment managers typically have long careers in the industry as well as extensive track records with CI. This lineup of investment managers provides a wide selection of styles and areas of expertise for CI’s funds.
CI’s management is focused on continuing to build a global diversified wealth management company based in Canada. With ongoing expansion in terms of scale, expertise and reach, CI will be able to explore new markets and introduce new capabilities that will help drive the organization’s future growth. At the same time, CI continues to view the Canadian business, relationships and channels as critical parts of the organization’s DNA. In summary, CI’s strategy is based on three major themes:
• | Maintain and grow our leading position in Canada; |
• | Achieve greater scale by growing assets in Canada and abroad; |
• | Increase access to distribution in Canada and abroad. |
An important factor underlying these themes is the continued development of our digital capabilities. The acquisition of BBS in 2017 added advanced trading technology and online services to the firm, and has assisted in CI’s digital transformation. CI acquired WealthBar in January 2019, a leading Canadian online wealth management and financial planning platform. CI’s goal is to expand avenues of distribution and to provide clients with improved products and services, allowing them to do business with the firm when, where and how they want.
Q2 Financial Report | 4 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
KEY PERFORMANCE DRIVERS
The key performance indicator for the Asset Management segment is the level of AUM, and for the Asset Administration segment, the level of AUA. Assets Under Advisement includes both AUA (assets under administration) and assets held by clients of advisors with Stonegate Private Counsel. Total assets are comprised of AUM and Assets Under Advisement. CI’s AUM and AUA are primarily driven by fund performance as well as the gross sales and redemptions of its investment products. As most of CI’s revenues and expenses are based on daily asset levels throughout the year, average assets for a particular period are critical to the analysis of CI’s financial results. While some expenses, such as trailer fees, vary directly with the level of AUM, a portion of CI’s expenses do not, such as a portion of overhead, discretionary spend, and deferred sales commissions. Over the long term, CI manages the level of its discretionary spend to be consistent with, or below, the growth in its revenue. In any given period, CI may choose to make investments in people or technology that benefit the long-term growth of the company.
CI uses several performance indicators to assess its results. These indicators are described throughout the results of operations and the discussion of the two operating segments and include the following measures prescribed by IFRS: net income and earnings per share; and measures not prescribed by IFRS: adjusted net income, adjusted earnings per share, operating cash flow, free cash flow, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, dealer gross margin, net debt, asset management margin, and SG&A efficiency margin. Descriptions of these non-IFRS measures and reconciliations to IFRS are provided below.
Q2 Financial Report | 5 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NON-IFRS MEASURES
CI reports certain financial information using non-IFRS measures as CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full-year results from period to period.
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
CI defines adjusted net income as net income, net of non-controlling interest, and net of other provisions and adjustments. CI uses adjusted net income and adjusted earnings per share to compare underlying profitability for different periods.
TABLE 2: ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE | ||||||||||||||||||||
[millions of dollars, except per share amounts] |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Jun. 30, 2018 |
Six months
ended Jun. 30, 2019 |
Six months
ended Jun. 30, 2018 |
|||||||||||||||
Net Income | 111.5 | 140.0 | 160.0 | 251.5 | 319.1 | |||||||||||||||
Add: | ||||||||||||||||||||
Restructuring provision | 26.6 | — | — | 26.6 | — | |||||||||||||||
Less: | ||||||||||||||||||||
Non-controlling interest | (0.3 | ) | (0.1 | ) | 0.1 | (0.4 | ) | 0.2 | ||||||||||||
Adjusted net income | 138.5 | 140.0 | 159.9 | 278.5 | 318.9 | |||||||||||||||
Adjusted earnings per share | 0.58 | 0.58 | 0.61 | 1.16 | 1.20 |
OPERATING CASH FLOW AND FREE CASH FLOW
CI measures its operating cash flow before the change in operating assets and liabilities, and the actual cash amount paid for interest and income taxes, as these items often distort the cash flow generated during the period. Operating assets and liabilities are affected by seasonality, the timing of interest payments depends on terms in specific debt instruments, and tax installments paid may differ materially from the cash tax accrual.
Free cash flow is calculated as operating cash flow adjusted for provisions. CI uses this measure, among others, when determining how to deploy capital.
Q2 Financial Report | 6 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 3: OPERATING CASH FLOW AND FREE CASH FLOW
[millions of dollars] |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Jun. 30, 2018 |
Six months
ended Jun. 30, 2019 |
Six months
ended Jun. 30, 2018 |
|||||||||||||||
Cash provided by operating activities | 152.4 | 120.9 | 175.5 | 273.3 | 255.9 | |||||||||||||||
Add: | ||||||||||||||||||||
Income taxes paid | 52.4 | 40.5 | 56.3 | 93.0 | 124.7 | |||||||||||||||
Interest paid | 13.0 | 13.4 | 9.5 | 26.4 | 18.8 | |||||||||||||||
Less: | ||||||||||||||||||||
Net change in non-cash working capital | 93.1 | 31.3 | 78.3 | 124.4 | 69.6 | |||||||||||||||
Operating cash flow | 124.7 | 143.5 | 163.0 | 268.2 | 329.9 | |||||||||||||||
Add: | ||||||||||||||||||||
Restructuring provision | 21.9 | — | — | 21.9 | — | |||||||||||||||
Free cash flow | 146.5 | 143.5 | 163.0 | 290.1 | 329.9 |
EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
CI uses EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA, which it defines as EBITDA, net of non-controlling interest and other provisions and adjustments, to assess its underlying profitability prior to the impact of its financing structure, income taxes and amortization and depreciation. This permits comparisons of companies within the industry, normalizing for different financing methods and levels of taxation. Adjusted EBITDA is a measure of operating performance, a facilitator for valuation and a proxy for cash flow. Adjusted EBITDA margin expresses adjusted EBITDA as a percentage of total revenue. Please note that effective for the first quarter of 2019, CI adopted IFRS 16, an accounting standard that requires lessees to recognize assets and liabilities for leases longer than 12 months. This change impacts EBITDA by replacing lease expense with interest and depreciation, which are not included in EBITDA. This accounting change was not adopted retroactively - further information can be found in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements.
Q2 Financial Report | 7 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 4: EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
[millions of dollars, except per share amounts] |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Jun. 30, 2018 |
Six months
ended Jun. 30, 2019 |
Six months
ended Jun. 30, 2018 |
|||||||||||||||
Net Income | 111.5 | 140.0 | 160.0 | 251.5 | 319.1 | |||||||||||||||
Add: | ||||||||||||||||||||
Interest and lease finance | 13.7 | 13.7 | 9.9 | 27.4 | 19.1 | |||||||||||||||
Provision for income taxes | 40.9 | 47.2 | 58.0 | 88.1 | 115.0 | |||||||||||||||
Amortization and depreciation | 8.3 | 8.2 | 5.1 | 16.5 | 9.9 | |||||||||||||||
EBITDA | 174.4 | 209.0 | 232.9 | 383.4 | 463.2 | |||||||||||||||
EBITDA per share | 0.73 | 0.86 | 0.88 | 1.60 | 1.74 | |||||||||||||||
Add: | ||||||||||||||||||||
Restructuring provision | 35.0 | — | — | 35.0 | — | |||||||||||||||
Less: | ||||||||||||||||||||
Non-controlling interest | (0.3 | ) | — | 0.2 | (0.2 | ) | 0.4 | |||||||||||||
Adjusted EBITDA | 209.7 | 209.0 | 232.6 | 418.7 | 462.7 | |||||||||||||||
Adjusted EBITDA per share | 0.88 | 0.86 | 0.88 | 1.74 | 1.73 | |||||||||||||||
Total revenue | 530.3 | 526.8 | 564.6 | 1,057.1 | 1,138.1 | |||||||||||||||
Adjusted EBITDA Margin | 39.5 | % | 39.7 | % | 41.2 | % | 39.6 | % | 40.7 | % |
NET DEBT
CI calculates net debt as long-term debt (including the current portion) less cash and marketable securities, net of cash required for regulatory purposes and non-controlling interests. Net debt is a measure of leverage and CI uses this measure to assess its financial flexibility.
TABLE 5: NET DEBT
As at | As at | |||||||
[millions of dollars] | Jun. 30, 2019 | Dec. 31, 2018 | ||||||
Long-term debt | 1,525.3 | 1,503.7 | ||||||
Less: | ||||||||
Cash and short-term investments | 136.9 | 137.2 | ||||||
Marketable securities, excluding BBS’ securities owned, at market | 134.0 | 133.0 | ||||||
Add: | ||||||||
Regulatory capital and non-controlling interests | 15.5 | 21.7 | ||||||
Net Debt | 1,269.9 | 1,255.3 |
DEALER GROSS MARGIN
CI monitors its operating profitability on the revenues earned within its Asset Administration segment by measuring its dealer gross margin, which is calculated as administration fee revenue less investment dealer fees, divided by administration fee revenue (all figures before inter-segment eliminations). CI uses this measure to assess the profitability of the Asset Administration segment before SG&A expenses.
Q2 Financial Report | 8 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 6: DEALER GROSS MARGIN
[millions of dollars] |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Jun. 30, 2018 |
Six months
ended Jun. 30, 2019 |
Six months
ended Jun. 30, 2018 |
|||||||||||||||
Administration fees | 97.7 | 95.0 | 91.4 | 192.7 | 183.4 | |||||||||||||||
Less: | ||||||||||||||||||||
Investment dealer fees | 78.6 | 75.8 | 73.0 | 154.4 | 146.2 | |||||||||||||||
19.1 | 19.2 | 18.4 | 38.3 | 37.2 | ||||||||||||||||
Dealer gross margin | 19.5 | % | 20.2 | % | 20.1 | % | 19.9 | % | 20.3 | % |
ASSET MANAGEMENT MARGIN
CI assesses the overall performance of the asset management segment using a trailing 12-month asset management margin, where deferred sales commissions, trailer fees, and SG&A expenses are deducted from management fees and measured as a percentage of management fees (all figures are before inter-segment eliminations). This removes distortion caused by other revenues and expenses, eliminates the financing impact of back-end load funds, and eliminates revenue mix variances because it is measured as a percentage of management fees and not average AUM. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
TABLE 7: ASSET MANAGEMENT MARGIN
[millions of dollars - trailing 12 months] |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Sep. 30, 2018 |
Quarter
ended Jun. 30, 2018 |
|||||||||||||||
Management fees | 1,912.0 | 1,949.9 | 2,004.2 | 2,062.0 | 2,005.0 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 16.5 | 19.1 | 23.1 | 26.7 | 29.2 | |||||||||||||||
Trailer fees | 632.8 | 644.8 | 662.8 | 682.5 | 660.1 | |||||||||||||||
Net management fees | 1,262.8 | 1,286.0 | 1,318.2 | 1,352.8 | 1,315.6 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 403.7 | 407.3 | 414.7 | 423.6 | 406.5 | |||||||||||||||
859.1 | 878.7 | 903.4 | 929.1 | 909.1 | ||||||||||||||||
Asset management margin | 44.9 | % | 45.1 | % | 45.1 | % | 45.1 | % | 45.3 | % |
SG&A EFFICIENCY MARGIN
CI uses a trailing 12-month SG&A efficiency margin to assess its costs relative to management fees earned, net of deferred sales commissions and trailer fees, which are not directly controllable by CI. These expenses are determined by the type, class and load of funds in which CI’s clients invest. SG&A expenses are subtracted from these net management fees and the remainder is measured as a percentage of net management fees. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
Q2 Financial Report | 9 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 8: SG&A EFFICIENCY MARGIN
[millions of dollars - trailing 12 months] |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Sep. 30, 2018 |
Quarter
ended Jun. 30, 2018 |
|||||||||||||||
Management fees | 1,912.0 | 1,949.9 | 2,004.2 | 2,062.0 | 2,005.0 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 16.5 | 19.1 | 23.1 | 26.7 | 29.2 | |||||||||||||||
Trailer fees | 632.8 | 644.8 | 662.8 | 682.5 | 660.1 | |||||||||||||||
Net management fees | 1,262.8 | 1,286.0 | 1,318.2 | 1,352.8 | 1,315.6 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 403.7 | 407.3 | 414.7 | 423.6 | 406.5 | |||||||||||||||
859.1 | 878.7 | 903.4 | 929.1 | 909.1 | ||||||||||||||||
SG&A efficiency margin | 68.0 | % | 68.3 | % | 68.5 | % | 68.7 | % | 69.1 | % |
ASSETS AND SALES
CI is one of Canada’s largest independent investment fund companies with assets under management of $130.2 billion and assets under advisement of $46.6 billion at June 30, 2019, as shown in Table 9. Assets under advisement are comprised of AUA and assets held by clients of advisors with Stonegate Private Counsel. Assets under management decreased 6% year over year, mainly due to net redemptions of funds. The 7% increase in assets under advisement from last year was due to net sales, advisor recruitment, and the acquisition of WealthBar. Total assets, which include mutual, segregated and hedge funds, separately managed accounts, structured products, exchange-traded funds, pooled funds and assets under advisement, were $176.8 billion at June 30, 2019, down $5.1 billion from $181.9 billion at June 30, 2018.
TABLE 9: TOTAL ASSETS
As at | As at | |||||||||||
[billions of dollars] | June 30, 2019 | June 30, 2018 | % change | |||||||||
Assets under management | 130.2 | 138.2 | (6 | ) | ||||||||
Assets under advisement1 | 46.6 | 43.7 | 7 | |||||||||
Total assets | 176.8 | 181.9 | (3 | ) |
1Includes $27.5 billion and $26.3 billion of assets managed by CI and held by clients of advisors with Assante and Stonegate in 2019 and 2018, respectively.
Coming off a very strong start to the year in the first quarter, global capital markets continued to chart a generally positive course through the second quarter of 2019. Although ongoing trade disputes unsettled investors for much of the period, equity markets around the globe moved higher, while bond prices also climbed as central banks maintained an easy monetary policy stance.
Q2 Financial Report | 10 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
In Canada, the S&P/TSX Composite Index benefited from strength in the materials and information technology sectors to generate a return of 2.6% for the quarter, bringing the equity benchmark’s overall gain to 16.2% for the year-to-date. In the U.S., the S&P 500 Index reached new all-time highs early in the quarter and finished the three-month period 2.2% higher in Canadian dollar terms. Most overseas equity markets registered modest gains, while the MSCI World Index added about 2.0% for the quarter, also in Canadian dollars.
The equity market rally was supported, in part, by continued low interest rates in North America and abroad. The U.S. Federal Reserve kept its target interest rate unchanged and had indicated the possibility of a rate cut in the second half of 2019, prompting the U.S. 10-year government bond yield to decline through the period. As expected, the Bank of Canada also maintained its overnight lending rate of 1.75%, noting that economic growth had been slower than initially anticipated at the beginning of the year.
The change in AUM during each of the past five quarters is detailed in Table 10 and a breakdown of CI’s sales is provided in Table 11.
TABLE 10: CHANGE IN ASSETS UNDER MANAGEMENT |
[billions of dollars] |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Dec. 31, 2018 |
Quarter
ended Sep. 30, 2018 |
Quarter
ended Jun. 30, 2018 |
|||||||||||||||
Assets under management, beginning | 131.309 | 124.360 | 136.526 | 138.182 | 139.223 | |||||||||||||||
Gross sales | 2.908 | 3.596 | 3.023 | 3.015 | 3.209 | |||||||||||||||
Redemptions | 5.375 | 5.860 | 5.742 | 5.433 | 6.028 | |||||||||||||||
Net sales | (2.467 | ) | (2.265 | ) | (2.719 | ) | (2.418 | ) | (2.819 | ) | ||||||||||
Acquisitions (divestitures) | (0.560 | ) | — | — | — | (1.025 | ) | |||||||||||||
Fund performance | 1.904 | 9.214 | (9.447 | ) | 0.762 | 2.803 | ||||||||||||||
Assets under management, ending | 130.186 | 131.309 | 124.360 | 136.526 | 138.182 | |||||||||||||||
Average assets under management | 131.133 | 128.887 | 129.316 | 138.322 | 139.487 |
CI’s Canadian business, excluding products closed to new investors, had $2.7 billion in gross sales and $2.2 billion in net redemptions for the quarter ended June 30, 2019. CI’s international business had $187 million in gross sales and $53 million in net sales in the second quarter. CI’s closed business, comprised primarily of segregated fund contracts that are no longer available for sale, had $296 million in net redemptions for the quarter. In total, CI’s net redemptions improved $352 million over the same quarter of 2018 as a result of an 11% improvement in redemptions.
TABLE 11: SALES BREAKDOWN
Quarter ended June 30, 2019 | ||||||||||||
[millions of dollars] | Gross Sales | Redemptions | Net Sales | |||||||||
Canadian Business | ||||||||||||
Retail | 2,286 | 4,202 | (1,916 | ) | ||||||||
Institutional | 424 | 732 | (308 | ) | ||||||||
2,710 | 4,934 | (2,224 | ) | |||||||||
International Business | ||||||||||||
Retail | 137 | 36 | 101 | |||||||||
Institutional | 50 | 98 | (48 | ) | ||||||||
187 | 134 | 53 | ||||||||||
Closed Business | 11 | 307 | (296 | ) | ||||||||
Total | 2,908 | 5,375 | (2,467 | ) |
Q2 Financial Report | 11 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RESULTS OF OPERATIONS
For the quarter ended June 30, 2019, CI reported net income attributable to shareholders of $111.9 million ($0.47 per share) versus $159.9 million ($0.61 per share) for the quarter ended June 30, 2018 and $140.0 million ($0.58 per share) for the quarter ended March 31, 2019. The second quarter of 2019 included a restructuring provision of $26.6 million ($35.0 million before-tax) related to severances and technology write downs. Excluding this provision, CI’s net income attributable to shareholders was $138.5 million ($0.58 per share). The decrease from the prior year was mainly due to lower management fees resulting from lower average AUM.
CI’s total revenue was $530.3 million in the second quarter of 2019, a decrease of 6.1% when compared to total revenue of $564.6 million in the same period in 2018. On a consecutive quarter basis, total revenue increased 0.7%. The decrease from one year ago was primarily due to lower average AUM.
For the quarter ended June 30, 2019, SG&A expenses were $124.8 million, down 2.0% from $127.3 million in the same quarter of 2018 and down from $126.1 million in the prior quarter. The change in SG&A from last year was primarily a result of a change in accounting methodology. Effective for the first quarter of 2019, CI adopted IFRS 16, an accounting standard that requires lessees to recognize assets and liabilities for leases longer than 12 months. This change impacts SG&A by replacing lease expense with interest and depreciation, which are not included in SG&A. This accounting change was not adopted retroactively - further information can be found in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements.
As an annualized percentage of average AUM, SG&A expenses were 0.382%, up from 0.366% for the second quarter of last year and down from 0.397% for the prior quarter. The decrease in the SG&A rate from the first quarter this year was primarily due to cost containment initiatives. The increase from the same quarter last year was primarily due to the addition of WealthBar and annual compensation increases.
In the second quarter of 2019, CI paid $3.1 million in deferred sales commissions, compared with $5.6 million in the same quarter of 2018 and $4.6 million in the prior quarter. Consistent with the Canadian mutual fund industry, CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Interest expense of $13.7 million was recorded for the quarter ended June 30, 2019 compared with $9.9 million for the quarter ended June 30, 2018 and $13.7 million for the quarter ended March 31, 2019. The change in interest expense from the same quarter last year reflects the addition of lease interest expense beginning in the first quarter of 2019 (relating to the adoption of IFRS 16), as well as the changes in average debt levels and interest rates, as discussed under the Liquidity and Capital Resources section.
For the second quarter of 2019, CI recorded $40.9 million in income tax expense for an effective tax rate of 26.8% compared to $58.0 million, or 26.6%, in the second quarter of 2018, and $47.2 million, or 25.2%, in the prior quarter. The effective tax rate in the first quarter was lower than the current quarter due to income tax refunds/recoveries. CI’s effective tax rate may differ from its statutory tax rate, which is currently 26.5%, as a result of some expenses being nondeductible or partially deductible, or some revenue items not being fully taxable.
Q2 Financial Report | 12 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
ASSET MANAGEMENT SEGMENT
The Asset Management segment is CI’s principal business segment and its operating results are presented in Table 12.
TABLE 12: RESULTS OF OPERATIONS - ASSET MANAGEMENT SEGMENT |
[millions of dollars] |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Jun. 30, 2018 |
|||||||||
Management fees | 468.5 | 459.5 | 506.3 | |||||||||
Other revenue | (1.0 | ) | 6.9 | 2.8 | ||||||||
Total revenue | 467.4 | 466.3 | 509.1 | |||||||||
Selling, general and administrative | 99.3 | 100.9 | 102.9 | |||||||||
Trailer fees | 155.8 | 152.0 | 167.8 | |||||||||
Deferred sales commissions paid | 3.3 | 4.9 | 5.9 | |||||||||
Amortization and depreciation | 5.7 | 5.5 | 4.1 | |||||||||
Other expenses | 34.3 | 1.5 | 1.6 | |||||||||
Total expenses | 298.4 | 264.8 | 282.2 | |||||||||
Non-controlling interest | — | 0.2 | 0.2 | |||||||||
Income before taxes and non-segmented items | 168.9 | 201.4 | 226.7 |
Revenues
Revenues from management fees were $468.5 million for the quarter ended June 30, 2019, a decrease of 7.5% from $506.3 million for the quarter ended June 30, 2018 and an increase of 2.0% from $459.5 million for the quarter ended March 31, 2019. The decrease in management fees from the second quarter of last year was mainly due to the 6.0% decrease in average AUM. The increase from the prior quarter was primarily due to the difference in the number of days in the quarter (91 vs. 90) as well as the 1.7% increase in average AUM. Net management fees (management fees less trailer fees and deferred sales commissions) as a percentage of average AUM were 0.946%, down from 0.957% for the second quarter last year and from 0.952% for the prior quarter. The net management fee rate has been generally declining due to a change in CI’s mix of business towards newer products with lower pricing, along with new pricing initiatives intended to keep CI’s products competitive.
For the quarter ended June 30, 2019, other revenue was $(1.0) million versus $2.8 million for the quarter ended June 30, 2018 and $6.9 million for the quarter ended March 31, 2019. The decrease in other revenue from the prior quarter was mainly due to lower mark-to-market gains on marketable securities. The decrease in other revenue from the same quarter last year was primarily a result of foreign exchange losses.
Expenses
SG&A expenses for the Asset Management segment were $99.3 million for the quarter ended June 30, 2019, compared with $102.9 million for the second quarter in 2018 and $100.9 million for the prior quarter. CI’s SG&A decreased from the first quarter, primarily as a result of cost containment initiatives. As a percentage of average AUM, SG&A expenses were 0.304% for the quarter ended June 30, 2019, up from 0.296% for the quarter ended June 30, 2018, and down from 0.318% in the quarter ended March 31, 2019. Another measure that CI uses to assess its costs is the SG&A efficiency margin, as discussed in the “Non-IFRS Measures” section and as set out in Table 8. CI’s current quarter SG&A efficiency margin was 67.9%, down from 69.1% in the second quarter of last year and up from 66.6% in the prior quarter.
Q2 Financial Report | 13 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Trailer fees were $155.8 million for the quarter ended June 30, 2019, down 7.2% from $167.8 million for the quarter ended June 30, 2018 and up 2.5% from $152.0 million for the quarter ended March 31, 2019. Net of inter-segment amounts, this expense was $148.1 million for the quarter ended June 30, 2019 versus $159.6 million for the second quarter of 2018 and $144.6 million for the first quarter of 2019. The decrease from the second quarter last year related to the decrease in average AUM. The increase from the prior quarter was mainly due to the difference in the number of days in the quarter (91 vs. 90) and the increase in average AUM.
In the second quarter of 2019, before inter-segment eliminations, CI paid $3.3 million in deferred sales commissions, compared with $5.9 million in the same quarter of 2018 and $4.9 million in the prior quarter. CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Other expenses for the quarter ended June 30, 2019 were $34.3 million, compared to $1.6 million for the quarter ended June 30, 2018 and $1.5 million for the quarter ended March 31, 2019. As discussed earlier, the second quarter of 2019 included a restructuring provision, of which $32.4 million related to the asset management segment.
The asset management margin for the second quarter of 2019 was 44.8% compared to 45.4% in the second quarter of 2018 and 43.9% in the prior quarter. The calculations and definitions of asset management margin can be found in the “Non-IFRS Measures” section.
Income before taxes and non-segmented items for CI’s principal segment was $168.9 million for the quarter ended June 30, 2019, down 25.5% from $226.7 million in the same period in 2018 and down 16.1% from $201.4 million in the previous quarter. Excluding the restructuring provision, income before taxes and non-segmented items was $201.3 million for the second quarter of 2019.
ASSET ADMINISTRATION SEGMENT
The Asset Administration segment operating results are presented in Table 13.
Q2 Financial Report | 14 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 13: RESULTS OF OPERATIONS - ASSET ADMINISTRATION SEGMENT |
[millions of dollars] |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Mar. 31, 2019 |
Quarter
ended Jun. 30, 2018 |
|||||||||
Administration fees | 97.7 | 95.0 | 91.4 | |||||||||
Other revenue | 9.2 | 8.0 | 8.0 | |||||||||
Total revenue | 106.9 | 103.0 | 99.4 | |||||||||
Selling, general and administrative | 25.5 | 25.1 | 24.3 | |||||||||
Investment dealer fees | 78.6 | 75.8 | 73.0 | |||||||||
Amortization and depreciation | 2.6 | 2.7 | 1.0 | |||||||||
Other expenses | 3.1 | 0.2 | 0.1 | |||||||||
Total expenses | 109.8 | 103.7 | 98.4 | |||||||||
Non-controlling interest | (0.5 | ) | (0.3 | ) | — | |||||||
Income before taxes and non-segmented items | (2.4 | ) | (0.4 | ) | 0.9 |
Revenues
Administration fees were $97.7 million for the quarter ended June 30, 2019, an increase of 6.9% from $91.4 million for the same period a year ago and an increase of 2.8% from $95.0 million for the prior quarter. The change in administration fees from the second quarter last year related to the change in assets under administration at Assante and the addition of WealthBar earlier this year. Net of inter-segment amounts, administration fee revenue was $53.6 million for the quarter ended June 30, 2019, up from $47.5 million for the quarter ended June 30, 2018 and up from $52.4 million for the quarter ended March 31, 2019.
For the quarter ended June 30, 2019, other revenue was $9.2 million, up from $8.0 million for each of the comparable quarters. Other revenue consists mainly of non-advisor-related activities.
Expenses
Investment dealer fees were $78.6 million for the quarter ended June 30, 2019 compared to $73.0 million for the second quarter of 2018 and $75.8 million for the quarter ended March 31, 2019. Net of inter-segment amounts, investment dealer fees were $42.4 million, up from $37.6 million for the same quarter last year and up from $40.8 million for the prior quarter.
As discussed in the “Non-IFRS Measures” section of this MD&A and as set out in Table 6, dealer gross margin was $19.1 million or 19.5% of administration fee revenue for the quarter ended June 30, 2019 compared to $18.4 million or 20.1% for the second quarter of 2018 and $19.2 million or 20.2% for the previous quarter.
SG&A expenses for the segment were $25.5 million for the quarter ended June 30, 2019 compared to $24.3 million in the second quarter of 2018 and $25.1 million in the first quarter of 2019.
Other expenses were $3.1 million for the quarter ended June 30, 2019, up from $0.1 million in the same quarter of 2018 and $0.2 million in the first quarter of 2019. As discussed earlier, the second quarter of 2019 included a restructuring provision, of which $2.6 million related to the asset administration segment.
Q2 Financial Report | 15 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
The Asset Administration segment had income before taxes and non-segmented items of $(2.4) million for the quarter ended June 30, 2019, compared to $0.9 million for the second quarter of 2018 and $(0.4) million for the prior quarter. Excluding the restructuring provision, the second quarter of 2019 had income before taxes and non-segmented items of $0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
CI generated $290.1 million of free cash flow in the first half of 2019, compared to $329.9 million for the same period of 2018. Reconciliations of free cash flow to cash provided by operating activities are provided in the “Non-IFRS Measures” section and set out in Table 3.
CI primarily uses cash flow to fund capital expenditures, fund acquisitions, pay down debt, pay dividends on its shares, and repurchase shares through its normal course issuer bid. At current levels of cash flow and anticipated dividend payout rates, CI produces sufficient cash to meet its obligations and support planned business operations for at least the next 12 months.
CI’s cash flows may fluctuate, primarily in the first quarter, as a result of the balance of cash income taxes and incentive compensation related to the prior year being paid at the end of February.
TABLE 14: SUMMARY OF CASH FLOWS
[millions of dollars] |
Six months ended
June 30, 2019 |
Six months ended
June 30, 2018 |
||||||
Free cash flow | 290.1 | 329.9 | ||||||
Less: | ||||||||
Investments in marketable securities, net of marketable securities sold | (7.7 | ) | (14.0 | ) | ||||
Capital expenditures | 8.3 | 7.2 | ||||||
Share repurchases, net of shares issued | 155.6 | 307.9 | ||||||
Dividends paid | 87.2 | 188.9 | ||||||
Debt repaid / (drawn) | (21.0 | ) | (310.0 | ) | ||||
Working capital and other items | 68.0 | 89.7 | ||||||
290.4 | 269.7 | |||||||
Net change in cash | (0.3 | ) | 60.3 | |||||
Cash at January 1 | 137.2 | 124.6 | ||||||
Cash at June 30 | 136.9 | 184.9 |
During the first half of 2019, CI invested $7.4 million in marketable securities and received proceeds of $15.1 million from the disposition of marketable securities. Excluding BBS’ securities owned, at market, the fair value of CI’s investments as of June 30, 2019 was $134.0 million. This was comprised of seed capital investments in CI funds and strategic investments.
During the six months ended June 30, 2019, CI invested $8.3 million in capital assets, up from $7.2 million in the six months ended June 30, 2018. These investments related primarily to leasehold improvements and technology.
During the six months ended June 30, 2019, CI repurchased 8.0 million shares under its normal course issuer bid at a total cost of $155.6 million, or $19.34 per share. CI had 235,693,761 shares outstanding at the end of June, which differs from CI’s TSX-listed shares outstanding, 236,835,037, due to restricted employee shares held in trust.
Q2 Financial Report | 16 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI paid dividends of $87.2 million during the first half of the year; CI’s current dividend rate is $0.18/share per calendar quarter.
The statement of financial position for CI at June 30, 2019 reflected total assets of $4.401 billion, an increase of $108.7 million million from $4.292 billion at December 31, 2018. This change was primarily due to the lease accounting change discussed earlier and detailed in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements, as well as the addition of WealthBar.
CI’s cash and cash equivalents decreased by $0.3 million in the first half of the year to $136.9 million as of June 30, 2019. Accounts receivable and prepaid expenses increased by $38.8 million to $195.6 million as of June 30, 2019. Capital assets increased by $2.7 million during the six months ended June 30, 2019 as a result of $8.3 million in capital additions less $5.7 million in amortization.
Total liabilities increased by $7.6 million during the six months to $2.867 billion at June 30, 2019. This change was mainly attributable to a decrease in dividends payable, as CI hasn’t yet declared dividends beyond 2019, partially offset by an increase in lease liabilities, due to the lease accounting change referenced earlier.
At June 30, 2019, CI had $1,225.0 million in outstanding debentures with a weighted average interest rate of 3.09% and a carrying value of $1,220.8 million. At the same time, CI had drawn $304.5 million against its $700 million credit facility. Principal repayments on any drawn amounts are only required at the maturity of the facility, which is December 11, 2021. Following the quarter, on July 22, 2019, CI issued $350 million debentures, the proceeds of which, net of transaction costs, were used primarily to pay down CI’s credit facility balance.
Net debt, as discussed in the “Non-IFRS Measures” section and as set out in Table 5, was $1,270 million at June 30, 2019, up from $1,255 million at December 31, 2018. This change was primarily due to the acquisition of WealthBar. The average gross debt level for the six months ended June 30, 2019 was $1,576 million, compared to $1,330 million for the same period last year.
At June 30, 2019, CI was in a positive working capital position. This, in addition to the availability of its credit facility, reflects the ability of CI to meet its cash flow requirements.
CI’s ratios of debt to adjusted EBITDA and net debt to adjusted EBITDA were 1.8 to 1 and 1.5 to 1, respectively. CI was within its financial covenants with respect to its credit facility, which required that the debt to EBITDA ratio remain below 3.0 to 1, and assets under management not fall below $85 billion, based on a rolling 30-day average.
Shareholders’ equity was $1.528 billion at June 30, 2019, an increase of $98.1 million from December 31, 2018.
Q2 Financial Report | 17 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RISK MANAGEMENT
CI is exposed to a number of risks that are inherent in the wealth management business. Some factors which introduce or exacerbate risk are within the control of management and others are, by their nature, outside of CI’s direct control but must still be managed. Effective risk management is a key component to achieving CI’s business objectives and protecting company and client assets. It is an ongoing process involving the Board of Directors and the company’s Risk Management Committee, comprised of senior executives representing CI’s business units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board of Directors.
The Risk Management Committee monitors, evaluates and manages risk, and ensures that business strategies and activities are consistent with CI’s risk appetite. Regular reports are provided to the Audit and Risk Committee of CI’s Board.
As noted above, the Risk Management Committee is comprised of senior executives from each core business unit and operating area at CI. CI has developed an enterprise-wide approach to monitoring, evaluating and managing risk. The members of the Risk Management Committee identify and evaluate specific and material risks, applying both a quantitative and a qualitative analysis and then assess the likelihood of occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize or avoid negative consequences and these risk mitigation processes are implemented and monitored with each business unit.
The risks described below are not the only risks facing CI. The risks set out below are risks and uncertainties that the Risk Management Committee currently believe could materially affect CI’s future financial performance. The reader should carefully consider the risks described below, and the other information contained in this MD&A, including under the heading “Forward- Looking Statements” before making an investment decision.
MARKET RISK
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates, foreign exchange rates, and equity and commodity prices. A description of each component of market risk is described below:
– | Interest rate risk is the risk of gain or loss due to the volatility of interest rates. |
– | Foreign exchange rate risk is the risk of gain or loss due to volatility of foreign exchange rates. |
– | Equity risk is the risk of gain or loss due to the changes in prices and volatility of individual equity instruments and equity indexes. |
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in the performance of CI’s investment funds and may adversely affect CI’s assets under management, management fees and revenues, which would reduce cash flow to CI and ultimately impact CI’s ability to meet its financial obligations.
Q2 Financial Report | 18 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
MARKET RISK FOR THE ASSET MANAGEMENT SEGMENT
At June 30, 2019, approximately 25% of CI’s assets under management were held in fixed-income securities, which are exposed to interest rate risk. An increase in interest rates causes market prices of fixed-income securities to fall, while a decrease in interest rates causes market prices to rise. CI estimates that a 50 basis point change in interest rates would cause a change of about $5 million in annual pre-tax earnings in the Asset Management segment.
At June 30, 2019, about 49% of CI’s assets under management were based in Canadian currency. While CI’s concentration in Canadian currency assets reduces its exposure to foreign exchange risk, approximately 26% of CI’s assets under management were based in U.S. currency. Any change in the value of the Canadian dollar relative to U.S. currency will cause fluctuations in CI’s assets under management. CI estimates that a 10% change in Canadian/U.S. exchange rates would cause a change of about $25 million in the Asset Management segment’s annual pre-tax earnings.
About 59% of CI’s assets under management were held in equity securities at June 30, 2019, which are subject to equity risk. Equity risk is classified into two categories: general equity risk and issuer-specific risk. CI employs internal and external fund managers to take advantage of these individuals’ expertise in particular market niches, sectors and products and to reduce issuer- specific risk through diversification. CI estimates that a 10% change in the prices of equity indexes would cause a change of about $61 million in annual pre-tax earnings.
CI has a control environment that ensures market risks are reviewed regularly. CI’s compliance group reviews and monitors CI’s fund and portfolio investments for compliance with investment policies and regulations. CI also reviews investment processes, portfolio positioning and attribution of results of its investment teams on a regular basis.
MARKET RISK FOR THE ASSET ADMINISTRATION SEGMENT
CI’s operating results are not materially exposed to market risk impacting the asset administration segment given that this segment usually generates less than 1% of the total income before non-segmented items (this segment reported a gain of $2.4 million before income taxes and non-segmented items for the quarter ended June 30, 2019). Investment advisors regularly review their client portfolios to assess market risk and consult with clients to make appropriate changes to mitigate it. The effect of a 10% change in any one component of market risk (comprised of interest rate risk, foreign exchange risk and equity risk) would have resulted in a change of approximately $4 million to the Asset Administration segment’s annual pre-tax earnings.
POLITICAL AND MARKET RISK
CI’s performance is directly affected by financial markets and political conditions, including any political change and uncertainty in the United States and globally. These changes may cause significant volatility and decline in the global economy or specific international, regional and domestic financial markets which are beyond the control of CI. There can be no assurance that financial market performance will be favourable in the future. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in performance, which could negatively impact CI’s business and impede the growth of CI’s assets under management and revenue.
Q2 Financial Report | 19 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
STRATEGIC RISK
Strategic risks are risks that directly impact the overall direction of CI and the ability of CI to successfully identify growth opportunities and implement proposed solutions. The key strategic risk is the risk that management fails to anticipate, and respond to, changes in the business environment, including demographic, regulatory and competitive changes. CI’s performance is directly affected by the financial market and business conditions, including the legislation and policies of the governments and regulatory authorities having jurisdiction over CI’s operations. These are beyond the control of CI; however, an important part of the risk management process is the ongoing review and assessment of industry and economic trends and changes. Strategies are then designed to effectively respond to any anticipated changes, including identifying acquisition opportunities, developing new business lines, introducing new products, and implementing cost control strategies.
Part of CI’s strategy includes strategic acquisitions and investments in growth opportunities. Strategic acquisitions may benefit CI through increasing fee earning assets, broadening CI’s distribution relationships, enhancing CI’s business capabilities and capturing cost synergies. CI embarks on a thorough due diligence process prior to any acquisition; however, there can be no assurances that the anticipated benefits of any acquisition will be achieved. The success of an acquisition is contingent upon many factors, including retaining key employees, securing assets acquired, obtaining legal and regulatory approvals, integrating operations and vendor relationships, and having favourable economic conditions.
REPUTATION RISK
Reputation risk is the potential negative impact of a deterioration of CI’s image or lower public confidence in the CI brand, its senior management or its products and services. Operational errors, poor performance, regulatory investigation or sanctions, litigation or employee misconduct could result in reputational harm to CI. Through its Codes of Conduct, governance practices, risk management programs, policies, procedures and training, CI attempts to prevent and detect any activities by CI officers, directors, and employees that would harm CI’s reputation. While all employees, directors and officers are expected to protect the reputation of CI, there can be no assurances that unauthorized or unsuccessful activities may result in damage to CI’s reputation, which could adversely affect CI’s business and profitability.
COMPETITION RISK
CI operates in a highly competitive environment, with competition based on a variety of factors, including the range of products offered, brand recognition, investment performance, business reputation, financing strength, management and sales relationships, quality of service, level of fees charged and level of commissions and other compensation paid. CI competes with a large number of mutual fund companies and other providers of investment products, investment management firms, broker-dealers, banks, insurance companies and other financial institutions. Some of these competitors have, and potential future competitors may have, greater technical, financial, marketing, distribution or other resources than CI. The trend toward greater consolidation within the investment management industry has increased the strength of a number of CI’s competitors. CI’s competitors seek to expand market share by offering different products and services and more competitive pricing than those offered by CI. While CI continues to develop and market new products and services and remains competitive with respect to fees, there can be no assurance that CI will maintain its current standing or market share or investment performance relative to its competitors, which may adversely affect the business, financial condition or operating results of CI.
Q2 Financial Report | 20 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
In addition, there are uncertainties involved in the introduction of new products and services, including technical requirements, operational controls and procedures, compliance with regulatory requirements and shifting market preferences. The development and introduction of new products and services may require ongoing support and investment. A failure to manage the risks involved in the implementation of new products and services may lead to operational lapses, increased capital requirements, and competitive alternatives, which could adversely affect CI’s standing, market share or investment performance relative to its competitors and negatively impact the business, financial condition or operating results of CI.
DISTRIBUTION RISK
CI distributes its investment products through a number of distribution channels, including brokers, independent financial planners and insurance advisors. CI’s access to these distribution channels is impacted by the strength of the relationship with certain business partners and the level of competition faced from the financial institutions that own those channels. While CI continues to develop and enhance existing relationships, there can be no assurance that CI will, in the future, enjoy the level of access that it has in the past, which would adversely affect its sales of investment products.
REGULATORY AND LEGAL RISK
CI’s business is dependent upon compliance with and continued registration under securities laws in all jurisdictions in which CI and its subsidiaries carry on business. Laws and regulations applied at the national and provincial level generally grant governmental agencies and self-regulatory bodies broad administrative discretion over the activities of CI, including the power to limit or restrict business activities as well as impose additional disclosure requirements on CI products and services. Possible sanctions include the revocation or imposition of conditions on licenses to operate certain businesses, the suspension or expulsion from a particular market or jurisdiction of any of CI’s business segments or its key personnel or financial advisors, and the imposition of fines and censures. It is also possible that the laws and regulations governing a subsidiary’s operations or particular investment products or services could be amended or interpreted in a manner that is adverse to CI. To the extent that existing or future regulations affecting the sale or offering of CI’s product or services or CI’s investment strategies cause or contribute to reduced sales of CI’s products or lower margins or impair the investment performance of CI’s products, CI’s aggregate assets under management and its revenues may be adversely affected. In addition, the ongoing change in the securities regulatory environment governing CI’s business may require additional human resources and operations which will increase costs.
Given the nature of CI’s business, CI may from time to time be subject to claims or complaints from investors or others in the normal course of business. The legal risks facing CI, its directors, officers, employees or agents in this respect include potential liability for violations of corporate laws, securities laws, stock exchange rules and misuse of investors’ funds. Some violations of corporate laws, securities laws or stock exchange rules could result in civil liability, fines, sanctions, or expulsion from a self- regulatory organization or the suspension or revocation of CI’s right to carry on an existing business. CI may incur significant costs in connection with such potential liabilities.
Q2 Financial Report | 21 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
INFORMATION TECHNOLOGY RISK
CI uses information technology and the internet to streamline business operations and to improve the client and advisor experience. However, with the use of information technology and the internet, email messaging and other online capabilities, CI is exposed to information security risk that could potentially have an adverse impact on its business. CI is dependent on its information security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that it transmits through its information technology systems. Any information technology event, such as a hacker attack or virus, or internal issue, such as the failure to implement sufficient controls, could result in unauthorized access to sensitive or confidential information, theft, operational disruption, regulatory actions, legal liability or reputational harm. CI actively monitors this risk and continues to develop controls to protect against cyber threats that are becoming more sophisticated and pervasive. In addition, CI has and will continue to implement safeguards to control access to sensitive information, through password protection, encryption of confidential information and other means. Notwithstanding these measures, CI cannot fully mitigate the risk associated with information technology security. If mobile electronic devices, such as laptops or smart phones, are stolen, lost or left unattended, such devices may become exposed to hacking or other unauthorized use. As well, CI is dependent on the efficiency and effectiveness of the technology it uses and keeping pace with a continuously evolving information technology landscape. Malfunctioning of any of the technologies used by CI and being slow to keep pace could disrupt the company’s success and negatively impact CI’s financial position and reputation.
CI’s business is dependent on the physical integrity of its infrastructure, including its office space, storage centers and other facilities. CI has taken precautions to protect the physical security of its infrastructure, and the sensitive information contained therein, through passkey protection, limited after-hours access and clean desk policies. However, a breach of the physical integrity of CI infrastructure may leave sensitive information vulnerable to unauthorized access and use, increasing a possible security risk, which could negatively impact CI’s business and reputation.
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequate or failed internal processes or systems. The operational risk that CI is exposed to may arise from, technology failures, business disruption, theft and fraud, failure of key third parties, employee errors, processing and execution errors, and inaccurate or incomplete client information. Operational risk may result in a financial loss but can also lead to regulatory sanctions and harm to CI’s reputation. Operational risk driven by people and processes are mitigated through human resources policies and practices, and a strong internal control environment. Operational risks driven by systems and services are managed through controls over technology development and change management as well as enhanced procedures for oversight of third-party service providers. While CI continuously monitors its operational risks, there can be no assurances that CI’s internal control procedures can mitigate all operational risks.
Q2 Financial Report | 22 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TAXATION RISK
CI is subject to various uncertainties concerning the interpretation and application of Canadian tax laws. CI Investments is considered a large case file by the Canada Revenue Agency and, as such, is subject to audit each year. There is a significant lag between the end of a fiscal year and when such audits are completed. Therefore, at any given time, several years may be open for audit and/or adjustments. While CI regularly assesses the likely outcome of these audits in order to determine the appropriateness of its tax provision, there can be no assurance that CI will accurately predict the outcomes of these audits. If tax authorities disagree with CI’s application of such tax laws, CI’s profitability and cash flows could be adversely affected.
REDEMPTION RISK
CI earns revenue primarily from management fees earned for advising and managing investment fund assets. The level of these assets is dependent on (i) sales; (ii) redemptions; and (iii) investment performance. Sales and redemptions may fluctuate depending on market and economic conditions, investment preference, or other factors.
Significant redemptions could adversely affect investor fund returns by impacting market values and increasing transaction costs or taxable distributions. Continued large redemptions could negatively impact the prospects and operating results of CI.
KEY PERSONNEL RISK
The success of CI is dependent to a significant degree upon the contributions of senior management. The loss of any of these individuals, or an inability to attract, retain and motivate sufficient numbers of qualified senior management personnel, could adversely affect CI’s business. The retention of these key managers and the identification and development of the next generation of managers is an area of focus for CI. CI has not purchased any “key man” insurance with respect to any of its directors, officers or key employees and has no current plans to do so.
The success of CI is also dependent upon, among other things, the skills and expertise of its human resources, including the management and investment personnel with specialized skills related to, among other things, marketing, risk management, credit, information technology, accounting, administrative operations and legal affairs. These highly skilled and often highly specialized individuals play an important role in developing, implementing, operating, managing and distributing CI’s products and services. Accordingly, the recruitment and retention of skilled personnel, continuous training and transfer of knowledge are key activities that are essential to CI’s performance. CI has taken, and will continue to take, steps to encourage our key employees to remain employed at CI, including the implementation of long-service awards, employee engagement strategies and enhanced transparency measures with respect to compensation. In addition, the focus on asset growth and the reliance on investment performance to sell financial products has increased the demand for experienced and high- performing portfolio managers. Compensation packages for these managers may increase at a rate well in excess of inflation and well above the rates of increase observed in other industries and the rest of the labour market. The loss of these individuals or an inability to attract, retain and motivate a sufficient number of qualified personnel could result in a loss of clients and a decline in sales and adversely affect CI’s business.
Q2 Financial Report | 23 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
The market for financial advisors is extremely competitive and is increasingly characterized by frequent movement by financial advisors among different firms. Individual financial advisors of AWM have regular direct contact with clients, which can lead to a strong and personal client relationship based on the client’s trust in the individual financial advisor. The loss of a significant number of financial advisors could lead to the loss of client accounts which could have a material adverse effect on the results of operations and prospects of AWM and, in turn, CI. Although AWM uses or has used a combination of competitive compensation structures and equity with vesting provisions as a means of seeking to retain financial advisors, there can be no assurance that financial advisors will remain with AWM.
INSURANCE RISK
CI maintains various types of insurance which include financial institution bonds, errors and omissions insurance, directors’, trustees’ and officers’ liability insurance, agents’ insurance and general commercial liability insurance. Management evaluates the adequacy of CI’s insurance coverage on an ongoing basis. However, there can be no assurance that a claim or claims will not exceed the limits of available insurance coverage, that any insurer will remain solvent or willing to continue providing insurance coverage with sufficient limits or at a reasonable cost or that any insurer will not dispute coverage of certain claims due to ambiguities in the relevant policies. A judgment against CI in excess of available coverage could have a material adverse effect on CI both in terms of damages awarded and the impact on the reputation of CI.
CAPITAL RISK
Certain subsidiaries of CI are subject to minimum regulatory capital requirements. This may require CI to keep sufficient cash and other liquid assets on hand to maintain capital requirements rather than using them in connection with its business. Failure to maintain required regulatory capital by CI may subject it to fines, suspension or revocation of registration by the relevant securities regulator. A significant operating loss by a registrant subsidiary or an unusually large charge against regulatory capital could adversely affect the ability of CI to expand or even maintain its present level of business, which could have a material adverse effect on CI’s business, results of operations, financial condition and prospects.
CREDIT RISK
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed to the risk that third parties that owe it money, securities or other assets will not perform their obligations. These parties include trading counterparties, customers, clearing agents, exchanges, clearing houses and other financial intermediaries, as well as issuers whose securities are held by CI. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. CI does not have significant exposure to any individual counterparty. Credit risk is mitigated by regularly monitoring the credit performance of individual counterparties and holding collateral where appropriate.
One of the primary sources of credit risk arises when CI extends credit to clients to purchase securities by way of margin lending. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory requirements and by CI’s internal credit policy.
Q2 Financial Report | 24 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
LIQUIDITY RISK
Liquidity risk is the risk that CI may not be able to generate sufficient funds and within the time required in order to meet its obligations as they come due. While CI currently has access to financing, unfavourable market conditions may affect the ability of CI to obtain loans or make other arrangements on terms acceptable to CI.
SHARE CAPITAL
As at June 30, 2019, CI had 235,693,761 shares outstanding.
Employee Incentive Share Option Plan: At June 30, 2019, 5.7 million options to purchase shares were outstanding, of which 4.9 million options were exercisable at prices ranging from $27.44 to $35.88.
Restricted Share Unit (“RSU”) Plan: 1,137,569 RSUs were outstanding as at June 30, 2019.
Deferred Share Unit (“DSU”) Plan: 17,622 DSUs were outstanding as at June 30, 2019.
Additional details about the above Plans can be found in Note 9 to the Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
The table that follows summarizes CI’s contractual obligations at June 30, 2019.
PAYMENTS DUE BY YEAR
[millions of dollars] | Total |
1 year
or less |
2 | 3 | 4 | 5 |
More than
5 years |
|||||||||||||||||||||
Long-term debt | 1,529.5 | — | 450.0 | 504.5 | — | 325.0 | 250.0 | |||||||||||||||||||||
Leases | 86.8 | 14.3 | 13.4 | 12.5 | 12.1 | 12.3 | 22.2 | |||||||||||||||||||||
Total | 1,616.3 | 14.3 | 463.4 | 517.0 | 12.1 | 337.3 | 272.2 |
SIGNIFICANT ACCOUNTING ESTIMATES
The June 30, 2019 Consolidated Financial Statements have been prepared in accordance with IFRS. For a discussion of all significant accounting policies, refer to Note 1 of the Notes to Interim Condensed Consolidated Financial Statements. Note 3 provides a discussion regarding the methodology used for business acquisitions. Note 5 provides a discussion regarding the recoverable amount of CI’s provision for other liabilities and contingencies.
NEW ACCOUNTING POLICIES
Effective January 1, 2019, CI adopted IFRS 16 using the modified retrospective approach. Under this approach CI recognized the lease liability based on the remaining lease payments discounted using CI’s incremental borrowing rate as at January 1, 2019. CI also recognized the right-of-use asset as at the date of initial application, as if IFRS 16 had always been applied since the commencement date of the lease, discounted using CI’s incremental rate of borrowing as at January 1, 2019. Comparative figures were not restated for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on January 1, 2019. Please refer to Note 2 of the Notes to Interim Condensed Consolidated Financial Statements for more information.
Q2 Financial Report | 25 | June 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with management, are responsible for the design of CI’s disclosure controls and procedures as defined in National Instrument 52-109 (NI 52-109). Management evaluated, with participation of the CEO and CFO, the effectiveness of the disclosure controls and procedures as at June 30, 2019. Based on this evaluation, the CEO and CFO have concluded that they are reasonably assured these disclosure controls and procedures were effective as at June 30, 2019 and that material information relating to CI was made known to them within the time periods specified under applicable securities legislation.
Management, under the supervision of the CEO and CFO, is responsible for the design and maintenance of adequate internal controls over financial reporting as defined in NI 52-109 for the purposes of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However, due to its inherent limitations, internal controls over financial reporting can only provide reasonable, not absolute, assurance that the financial statements are free of misstatements. The COSO framework was used to assist management, along with the CEO and CFO, in the evaluation of these internal control systems. Management, under the direction of the CEO and CFO, concluded that the internal controls over financial reporting were effective as at June 30, 2019. Management used various tools to evaluate internal controls over financial reporting which included interaction with key control systems, review of policy and procedure documentation, observation or reperformance of control procedures to evaluate the effectiveness of controls and concluded that these controls are effective. For the quarter ended June 30, 2019, there have been no changes to the internal controls that have materially affected, or are reasonably likely to affect, internal controls over financial reporting
Additional information relating to CI, including the most recent audited annual financial statements, management information circular and annual information form, is available on SEDAR at www.sedar.com and on CI’s website at www.cifinancial.com. Information contained in or otherwise accessible through the websites mentioned in this MD&A does not form part of, and is not incorporated by reference into, this MD&A.
Q2 Financial Report | 26 | June 30, 2019 |
Exhibit 99.11
INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
September 30, 2019
Q3 Financial Report | 1 | September 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited)
As at | As at | |||||||
September 30, 2019 | December 31, 2018 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | 119,894 | 137,160 | ||||||
Client and trust funds on deposit | 355,477 | 365,520 | ||||||
Investments [note 8] | 143,431 | 168,122 | ||||||
Accounts receivable and prepaid expenses | 177,400 | 156,798 | ||||||
Income taxes receivable | 24,426 | 8,891 | ||||||
Total current assets | 820,628 | 836,491 | ||||||
Capital assets, net | 46,404 | 44,985 | ||||||
Right-of-use assets [note 2] | 47,656 | — | ||||||
Intangibles | 3,385,921 | 3,370,341 | ||||||
Other assets [notes 2 and 8] | 62,187 | 40,399 | ||||||
Total assets | 4,362,796 | 4,292,216 | ||||||
LIABILITIES AND EQUITY | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities | 250,616 | 253,518 | ||||||
Current portion of provision for other liabilities [note 5] | 20,864 | 14,591 | ||||||
Dividends payable [note 7] | 82,112 | 175,290 | ||||||
Client and trust funds payable | 365,322 | 370,756 | ||||||
Current portion of lease liabilities [note 2] | 11,287 | — | ||||||
Total current liabilities | 730,201 | 814,155 | ||||||
Deferred lease inducement [note 2] | — | 11,320 | ||||||
Long-term dividends payable [note 7] | — | 43,822 | ||||||
Long-term debt [note 4] | 1,569,185 | 1,503,733 | ||||||
Provision for other liabilities [note 5] | 18,960 | 20,177 | ||||||
Deferred income taxes [notes 2 and 3] | 451,647 | 466,083 | ||||||
Lease liabilities [note 2] | 63,972 | — | ||||||
Total liabilities | 2,833,965 | 2,859,290 | ||||||
Equity | ||||||||
Share capital [note 6(a)] | 1,993,687 | 2,125,130 | ||||||
Contributed surplus | 30,729 | 25,270 | ||||||
Deficit [note 2] | (501,483 | ) | (720,600 | ) | ||||
Accumulated other comprehensive income | 235 | 277 | ||||||
Total equity attributable to the shareholders of the Company | 1,523,168 | 1,430,077 | ||||||
Non-controlling interests [note 3] | 5,663 | 2,849 | ||||||
Total equity | 1,528,831 | 1,432,926 | ||||||
Total liabilities and equity | 4,362,796 | 4,292,216 |
(see accompanying notes)
On behalf of the Board of Directors: |
|
|
William T. Holland Director |
Tom P. Muir Director |
Q3 Financial Report | 2 | September 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
For the three-month period ended September 30
2019 | 2018 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 465,606 | 509,943 | ||||||
Administration fees | 54,917 | 50,193 | ||||||
Redemption fees | 2,649 | 3,450 | ||||||
Realized and unrealized loss on investments | (1,229 | ) | (234 | ) | ||||
Other income | 5,537 | 5,691 | ||||||
527,480 | 569,043 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 11] | 124,566 | 128,880 | ||||||
Trailer fees | 146,516 | 160,600 | ||||||
Investment dealer fees | 43,191 | 40,100 | ||||||
Deferred sales commissions | 2,628 | 4,081 | ||||||
Amortization and depreciation [notes 2 and 12] | 8,165 | 5,201 | ||||||
Interest and lease finance [notes 2 and 4] | 13,812 | 11,569 | ||||||
Other [note 5] | 2,426 | 776 | ||||||
341,304 | 351,207 | |||||||
Income before income taxes | 186,176 | 217,836 | ||||||
Provision for income taxes | ||||||||
Current | 55,619 | 58,026 | ||||||
Deferred | (8,239 | ) | 1,469 | |||||
47,380 | 59,495 | |||||||
Net income for the period | 138,796 | 158,341 | ||||||
Net income (loss) attributable to non-controlling interests | (164 | ) | 112 | |||||
Net income attributable to shareholders | 138,960 | 158,229 | ||||||
Other comprehensive loss, net of tax | ||||||||
Exchange differences on translation of foreign operations | (13 | ) | (509 | ) | ||||
Total other comprehensive loss, net of tax | (13 | ) | (509 | ) | ||||
Comprehensive income for the period | 138,783 | 157,832 | ||||||
Comprehensive income (loss) attributable to non-controlling interests | (164 | ) | 112 | |||||
Comprehensive income attributable to shareholders | 138,947 | 157,720 | ||||||
Basic earnings per share attributable to shareholders [note 6(e)] | $ | 0.60 | $ | 0.62 | ||||
Diluted earnings per share attributable to shareholders [note 6(e)] | $ | 0.60 | $ | 0.62 | ||||
(see accompanying notes) |
Q3 Financial Report | 3 | September 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
For the nine-month period ended September 30
2019 | 2018 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 1,393,534 | 1,529,977 | ||||||
Administration fees | 160,997 | 145,826 | ||||||
Redemption fees | 8,811 | 11,788 | ||||||
Realized and unrealized gain (loss) on investments | 7,772 | (221 | ) | |||||
Other income | 13,456 | 19,815 | ||||||
1,584,570 | 1,707,185 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 11] | 375,461 | 389,043 | ||||||
Trailer fees | 439,219 | 482,181 | ||||||
Investment dealer fees | 126,447 | 115,411 | ||||||
Deferred sales commissions | 10,367 | 18,237 | ||||||
Amortization and depreciation [notes 2 and 12] | 24,652 | 15,107 | ||||||
Interest and lease finance [notes 2 and 4] | 41,218 | 30,703 | ||||||
Other [note 5] | 41,482 | 4,553 | ||||||
1,058,846 | 1,055,235 | |||||||
Income before income taxes | 525,724 | 651,950 | ||||||
Provision for income taxes | ||||||||
Current | 147,280 | 178,255 | ||||||
Deferred | (11,826 | ) | (3,766 | ) | ||||
135,454 | 174,489 | |||||||
Net income for the period | 390,270 | 477,461 | ||||||
Net income (loss) attributable to non-controlling interests | (577 | ) | 331 | |||||
Net income attributable to shareholders | 390,847 | 477,130 | ||||||
Other comprehensive loss, net of tax | ||||||||
Exchange differences on translation of foreign operations | (42 | ) | (649 | ) | ||||
Total other comprehensive loss, net of tax | (42 | ) | (649 | ) | ||||
Comprehensive income for the period | 390,228 | 476,812 | ||||||
Comprehensive income (loss) attributable to non-controlling interests | (577 | ) | 331 | |||||
Comprehensive income attributable to shareholders | 390,805 | 476,481 | ||||||
Basic earnings per share attributable to shareholders [note 6(e)] | $ | 1.65 | $ | 1.81 | ||||
Diluted earnings per share attributable to shareholders [note 6(e)] | $ | 1.64 | $ | 1.81 | ||||
(see accompanying notes) |
Q3 Financial Report | 4 | September 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
For the nine-month period ended September 30
Share
capital
[note 6(a)] |
Contributed
surplus |
Deficit
[note 2] |
Accumulated
other comprehensive income (loss) |
Total
shareholders’
|
Non-
controlling interests |
Total equity |
||||||||||||||||||||||
[in thousands of Canadian dollars] | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Balance, January 1, 2019 | 2,125,130 | 25,270 | (730,663 | ) | 277 | 1,420,014 | 2,849 | 1,422,863 | ||||||||||||||||||||
Comprehensive income | — | — | 390,847 | (42 | ) | 390,805 | (577 | ) | 390,228 | |||||||||||||||||||
Dividends declared [note 7] | — | — | 7,354 | — | 7,354 | (875 | ) | 6,479 | ||||||||||||||||||||
Shares repurchased, net of tax | (134,300 | ) | — | (169,021 | ) | — | (303,321 | ) | — | (303,321 | ) | |||||||||||||||||
Business combination [note 3] | — | — | — | — | — | 4,266 | 4,266 | |||||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 2,857 | (2,857 | ) | — | — | — | — | — | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 8,316 | — | — | 8,316 | — | 8,316 | |||||||||||||||||||||
Change during the period | (131,443 | ) | 5,459 | 229,180 | (42 | ) | 103,154 | 2,814 | 105,968 | |||||||||||||||||||
Balance, September 30, 2019 | 1,993,687 | 30,729 | (501,483 | ) | 235 | 1,523,168 | 5,663 | 1,528,831 | ||||||||||||||||||||
Balance, January 1, 2018 | 2,360,257 | 22,058 | (478,702 | ) | (531 | ) | 1,903,082 | 2,478 | 1,905,560 | |||||||||||||||||||
Comprehensive income | — | — | 477,130 | (649 | ) | 476,481 | 331 | 476,812 | ||||||||||||||||||||
Dividends declared [note 7] | — | — | (457,169 | ) | — | (457,169 | ) | — | (457,169 | ) | ||||||||||||||||||
Shares repurchased, net of tax | (171,117 | ) | — | (321,635 | ) | — | (492,752 | ) | — | (492,752 | ) | |||||||||||||||||
Issuance [note 5] | 534 | — | — | — | 534 | — | 534 | |||||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 1,953 | (1,547 | ) | — | — | 406 | — | 406 | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 7,536 | — | — | 7,536 | — | 7,536 | |||||||||||||||||||||
Change during the period | (168,630 | ) | 5,989 | (301,674 | ) | (649 | ) | (464,964 | ) | 331 | (464,633 | ) | ||||||||||||||||
Balance, September 30, 2018 | 2,191,627 | 28,047 | (780,376 | ) | (1,180 | ) | 1,438,118 | 2,809 | 1,440,927 | |||||||||||||||||||
(see accompanying notes) |
Q3 Financial Report | 5 | September 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the three-month period ended September 30
2019 | 2018 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
OPERATING ACTIVITIES (*) | ||||||||
Net income for the period | 138,796 | 158,341 | ||||||
Add (deduct) items not involving cash | ||||||||
Realized and unrealized loss on investments | 1,229 | 234 | ||||||
Equity-based compensation | 4,789 | 3,902 | ||||||
Amortization and depreciation | 8,165 | 5,204 | ||||||
Deferred income taxes | (8,239 | ) | 1,469 | |||||
Cash provided by operating activities before net change in operating assets and liabilities | 144,740 | 169,150 | ||||||
Net change in operating assets and liabilities | (17,044 | ) | 4,839 | |||||
Cash provided by operating activities | 127,696 | 173,989 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (1,652 | ) | (7,866 | ) | ||||
Proceeds on sale of investments | 11,107 | 79 | ||||||
Additions to capital assets | (1,580 | ) | (1,888 | ) | ||||
Decrease in other assets | 457 | 2,384 | ||||||
Additions to intangibles | (1,075 | ) | (1,175 | ) | ||||
Cash provided by (used in) investing activities | 7,257 | (8,466 | ) | |||||
FINANCING ACTIVITIES | ||||||||
Repayment of long-term debt | (304,500 | ) | (338,000 | ) | ||||
Issuance of long-term debt | 348,029 | 353,233 | ||||||
Repurchase of share capital | (150,184 | ) | (188,758 | ) | ||||
Payment of lease liabilities | (2,837 | ) | — | |||||
Dividends paid to shareholders [note 7] | (42,461 | ) | (61,129 | ) | ||||
Cash used in financing activities | (151,953 | ) | (234,654 | ) | ||||
Net decrease in cash and cash equivalents during the period | (17,000 | ) | (69,131 | ) | ||||
Cash and cash equivalents, beginning of period | 136,894 | 184,879 | ||||||
Cash and cash equivalents, end of period | 119,894 | 115,748 | ||||||
(*) Included in operating activities are the following: | ||||||||
Interest paid | 12,418 | 7,118 | ||||||
Income taxes paid | 69,632 | 58,152 | ||||||
(see accompanying notes) |
Q3 Financial Report | 6 | September 30, 2019 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the nine-month period ended September 30
2019 | 2018 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
OPERATING ACTIVITIES (*) | ||||||||
Net income for the period | 390,270 | 477,461 | ||||||
Add (deduct) items not involving cash | ||||||||
Realized and unrealized (gain) loss on investments | (7,772 | ) | 221 | |||||
Equity-based compensation | 11,202 | 10,011 | ||||||
Amortization and depreciation | 24,652 | 15,112 | ||||||
Deferred income taxes | (11,826 | ) | (3,766 | ) | ||||
Impairment loss on intangibles [note 5] | 6,442 | — | ||||||
Cash provided by operating activities before net change in operating assets and liabilities | 412,968 | 499,039 | ||||||
Net change in operating assets and liabilities | (11,959 | ) | (69,119 | ) | ||||
Cash provided by operating activities | 401,009 | 429,920 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (9,014 | ) | (12,139 | ) | ||||
Proceeds on sale of investments | 26,179 | 18,384 | ||||||
Additions to capital assets | (9,864 | ) | (9,047 | ) | ||||
Decrease (increase) in other assets | (19,224 | ) | 132 | |||||
Additions to intangibles | (2,718 | ) | (3,531 | ) | ||||
Cash paid to settle contingent liability [note 5] | — | (11,129 | ) | |||||
Acquisition of subsidiary, net of cash acquired [note 3] | (23,572 | ) | — | |||||
Cash used in investing activities | (38,213 | ) | (17,330 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Repayment of long-term debt | (591,500 | ) | (338,000 | ) | ||||
Issuance of long-term debt | 656,029 | 663,233 | ||||||
Repurchase of share capital | (305,766 | ) | (497,024 | ) | ||||
Issuance of share capital | — | 405 | ||||||
Payment of lease liabilities | (8,305 | ) | — | |||||
Dividends paid to shareholders [note 7] | (129,645 | ) | (250,038 | ) | ||||
Dividends paid to non-controlling interests | (875 | ) | — | |||||
Cash used in financing activities | (380,062 | ) | (421,424 | ) | ||||
Net decrease in cash and cash equivalents during the period | (17,266 | ) | (8,834 | ) | ||||
Cash and cash equivalents, beginning of period | 137,160 | 124,582 | ||||||
Cash and cash equivalents, end of period | 119,894 | 115,748 | ||||||
(*) Included in operating activities are the following: | ||||||||
Interest paid | 38,770 | 25,928 | ||||||
Income taxes paid | 162,605 | 182,867 | ||||||
(see accompanying notes) |
Q3 Financial Report | 7 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI Financial Corp. [“CI”] is a publicly listed company (TSX: CIX) incorporated under the laws of the Province of Ontario and has its registered office and principal place of business located at 2 Queen Street East, Toronto, Ontario.
CI’s primary business is the management and distribution of a broad range of financial products and services, including mutual funds, segregated funds, exchange-traded funds, financial planning, insurance, investment advice, wealth management and estate and succession planning.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These unaudited interim condensed consolidated financial statements of CI have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting [“IAS 34”] as issued by the International Accounting Standards Board [“IASB”] and on a basis consistent with the accounting policies disclosed in the annual audited consolidated financial statements for the year ended December 31, 2018.
These unaudited interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of CI on November 6, 2019.
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of CI have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The unaudited interim condensed consolidated financial statements have been prepared on a going concern basis. CI’s presentation currency is the Canadian dollar, which is CI’s functional currency. The notes presented in these unaudited interim condensed consolidated financial statements include, in general, only significant changes and transactions occurring since CI’s last year-end, and are not fully inclusive of all disclosures required by International Financial Reporting Standards [“IFRS”] for annual financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2018.
BASIS OF CONSOLIDATION
The unaudited interim condensed consolidated financial statements include the accounts of CI and all its subsidiaries on a consolidated basis after elimination of intercompany transactions and balances. Subsidiaries are entities over which CI has control, when CI has the power, directly or indirectly, to govern the financial and operating policies of an entity, is exposed to variable returns from its activities, and is able to use its power to affect such variable returns to which it is exposed.
Q3 Financial Report | 8 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI’s principal subsidiaries are as follows:
· | CI Investments Inc. [“CI Investments”], Assante Wealth Management (Canada) Ltd. [“AWM”], BBS Securities Inc. [“BBS”] and their respective subsidiaries. Effective July 1, 2019, First Asset Investment Management Inc. amalgamated with CI Investments. |
· | CI holds a controlling 65% interest in Marret Asset Management Inc. [“Marret”] and a 75% interest in WealthBar Financial Services Inc. [“WealthBar”]. A non-controlling interest is recorded in the unaudited interim condensed consolidated statements of income and comprehensive income to reflect the non-controlling interest’s share of the income and comprehensive income, and a non-controlling interest is recorded within equity in the interim condensed consolidated statements of financial position to reflect the non-controlling interest’s share of the net assets. |
· | CI holds a controlling 83% interest in GSFM Pty Ltd. (“GSFM”) and granted a put option to shareholders for the remaining 17% minority interest. CI considers the non-controlling interest in GSFM to have already been acquired and consolidates 100% of the income and comprehensive income in the unaudited interim condensed consolidated statements of income and comprehensive income. GSFM has an interest in a joint arrangement classified as a joint operation. The unaudited interim condensed consolidated financial statements include GSFM’s recognition of its share of the joint operation’s assets, liabilities, income and comprehensive income. |
Hereinafter, CI and its subsidiaries are referred to as CI.
2. | NEW ACCOUNTING STANDARDS |
[A] IFRS 16
IFRS 16, Leases [“IFRS 16”], replaces the previous lease standard, IAS 17, Leases [“IAS 17”], and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.
Effective January 1, 2019, CI adopted IFRS 16 using the modified retrospective approach. Under this approach, CI recognized the lease liability based on the remaining lease payments discounted using CI’s incremental borrowing rate as at January 1, 2019. CI also recognized the right-of-use asset as at the date of initial application, as if IFRS 16 had always been applied since the commencement date of the lease, discounted using CI’s incremental rate of borrowing as at January 1, 2019. Comparative figures were not restated for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening interim condensed consolidated statement of financial position on January 1, 2019.
Q3 Financial Report | 9 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
The adoption of IFRS 16 will result in CI reporting higher interest and depreciation expenses and lower selling, general and administrative expenses as of the effective date. Non-IFRS measures such as earnings before interest, taxes, depreciation and amortization will be positively impacted as a result.
Upon adoption of IFRS 16, CI recognized lease liabilities in relation to leases previously classified as operating leases under the principles of IAS 17. CI elected to apply the following practical expedients:
· | Apply a single discount rate to a portfolio of leases with reasonably similar characteristics |
· | Not recognize leases whose term ends within 12 months of initial application |
· | Exclude initial direct costs from the measurement of the right-of-use assets as at the date of initial application |
· | Not recognize leases of low value |
· | The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease |
On transition to IFRS 16, CI assessed the classification of its sub-leased properties with reference to the right-of-use asset and concluded that its sub-leased properties previously classified as operating leases under IAS 17 should be accounted for as finance leases under IFRS 16.
The following summarizes the impact of adopting IFRS 16 as at January 1, 2019:
January 1, 2019 | |||
$ | |||
Assets | |||
Right-of-use assets | 52,381 | ||
Other assets | 2,396 | ||
Total assets | 54,777 | ||
Liabilities | |||
Accounts payable and other liabilities | (1,805 | ) | |
Current portion of lease liabilities | 10,872 | ||
Non-current lease liabilities | 70,758 | ||
Leasehold inducements | (11,320 | ) | |
Deferred tax liability | (3,665 | ) | |
Total liabilities | 64,840 | ||
Deficit | (10,063 | ) |
Q3 Financial Report | 10 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as at December 31, 2018 as follows:
$ | ||||
Operating lease commitments as at December 31, 2018 | 90,050 | |||
Less: | ||||
Lease commitments related to short-term leases | (168 | ) | ||
Add: | ||||
Payments in optional extension periods considered reasonably certain to be exercised | 4,507 | |||
Gross lease liability as at January 1, 2019 | 94,389 | |||
Weighted average incremental borrowing rate as at January 1, 2019 | 4.2 | % | ||
Present value of lease liability recognized as at January 1, 2019 | 81,630 | |||
Current lease liabilities | 10,872 | |||
Non-current lease liabilities | 70,758 |
The following shows the carrying amounts of CI’s right-of-use assets and lease liabilities and the movements during the nine-month period ended September 30, 2019:
Right-of-use assets | ||||||||||||||||
Property leases |
Equipment
leases |
Total | Lease liabilities | |||||||||||||
$ | $ | $ | $ | |||||||||||||
As at January 1, 2019 | 50,240 | 2,141 | 52,381 | 81,630 | ||||||||||||
Additions | 1,910 | — | 1,910 | 1,941 | ||||||||||||
Depreciation expense | (5,902 | ) | (727 | ) | (6,629 | ) | — | |||||||||
Interest expense | — | — | — | 2,443 | ||||||||||||
Payments | — | — | — | (10,748 | ) | |||||||||||
Translation | (6 | ) | — | (6 | ) | (7 | ) | |||||||||
As at September 30, 2019 | 46,242 | 1,414 | 47,656 | 75,259 |
CI recognized rent expense from short-term leases of $674, leases of low-value assets of $142 and variable lease payments of $9,565 during the nine-month period ended September 30, 2019.
Included in other income is finance income of $70 received from sub-leasing right-of-use assets.
Q3 Financial Report | 11 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
[B] IFRIC 23
Effective January 1, 2019, CI adopted IFRIC Interpretation 23, Uncertainty over Income Tax Treatments [“IFRIC 23”], which clarifies the accounting treatment used to reflect uncertainty in the recognition and measurement of income taxes. IFRIC 23 specifically addresses the following:
· | Whether an entity considers uncertain tax treatments separately |
· | The assumptions an entity makes about the examination of tax treatments by taxation authorities |
· | How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates |
· | How an entity considers changes in facts and circumstances |
CI has considered the impact of IFRIC 23 on the recognition and measurement of uncertainties over income tax treatments across the jurisdictions in which it operates. CI has determined that there is no cumulative effect to opening deficit, or other appropriate components of equity upon adoption.
3. | BUSINESS ACQUISITION |
WealthBar Financial Services Inc.
On January 23, 2019, CI completed the acquisition of 75% outstanding shares and debt obligations of WealthBar Financial Services Inc., a leading Canadian online wealth management and financial planning platform, for all cash consideration of $23,653. The acquisition was accounted for using the acquisition method of accounting and the results of operations have been consolidated from the date of the transaction.
Q3 Financial Report | 12 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Details of the net assets acquired as at January 23, 2019, at preliminary fair value, are as follows:
$ | |||
Cash and cash equivalents | 81 | ||
Accounts receivable and prepaid expenses | 416 | ||
Income taxes receivable | 226 | ||
Capital assets | 113 | ||
Right-of-use asset | 248 | ||
Fund administration contracts | 4,000 | ||
Intangible - technology | 15,000 | ||
Accounts payable and accrued liabilities | (401 | ) | |
Lease liability | (262 | ) | |
Deferred income taxes | (2,356 | ) | |
Fair value of identifiable net assets | 17,065 | ||
Non-controlling interest (25% of identifiable net assets) | (4,266 | ) | |
Goodwill on acquisition | 10,854 | ||
Total acquired cost | 23,653 |
The acquired fund administration contracts with a fair value of $4,000 have a finite life of 10 years. The technology acquired has a fair value of $15,000 and an estimated useful life of 10 years. The goodwill on acquisition is not deductible for income taxes. Goodwill of $10,854 relates to the asset administration segment.
4. | LONG-TERM DEBT |
Long-term debt consists of the following:
As at | As at | |||||||
September 30, 2019 | December 31, 2018 | |||||||
$ | $ | |||||||
Credit facility | ||||||||
Prime rate loan | — | 24,500 | ||||||
LIBOR loan (USD $193,000) | — | 259,000 | ||||||
— | 283,500 | |||||||
Debentures | ||||||||
$450 million, 2.645% due December 7, 2020 | 449,390 | 449,032 | ||||||
$200 million, 2.775% due November 25, 2021 | 199,453 | 199,278 | ||||||
$325 million, 3.520% due July 20, 2023 | 323,537 | 323,297 | ||||||
$350 million, 3.215% due July 20, 2024 | 348,082 | — | ||||||
$250 million, 3.904% due September 27, 2027 | 248,723 | 248,626 | ||||||
1,569,185 | 1,220,233 | |||||||
Long-term debt | 1,569,185 | 1,503,733 |
Q3 Financial Report | 13 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Credit facility
CI has a $700,000 revolving credit facility with three Canadian chartered banks. Loans are made by the banks under a three-year revolving credit facility, with the outstanding principal balance due upon maturity on December 11, 2021. The credit facility contains a number of financial covenants that require CI to meet certain financial ratios and financial condition tests. CI is within its financial covenants with respect to its credit facility, which requires that the funded debt to annualized EBITDA ratio remains below 3:1 and that CI’s assets under management not fall below $85 billion, calculated based on a rolling 30-day average. There can be no assurance that future borrowings or equity financing will be available to CI or available on acceptable terms.
On January 28, 2019, the forward exchange contract entered into on December 24, 2018 with a Canadian chartered bank to pay Canadian dollars $259,690 and receive U.S. dollars $193,666 matured. Hedge accounting was not applied to the forward foreign exchange contract, as the fair value changes are offset in net income with the foreign exchange revaluation of the U.S. denominated debt.
Debentures
On July 22, 2019, CI completed an offering pursuant to which it issued $350,000 principal amount of debentures due July 22, 2024 at par [the “2024 Debentures”]. Interest on the 2024 Debentures is paid semi-annually in arrears at a rate of 3.215%. The proceeds, net of transaction costs, were used to repay outstanding indebtedness under the credit facility.
On July 20, 2018, CI completed an offering pursuant to which it issued $325,000 principal amount of debentures due July 20, 2023 at par [the “2023 Debentures”]. Interest on the 2023 Debentures is paid semi-annually in arrears at a rate of 3.520%. The proceeds, net of transaction costs, were used to repay outstanding indebtedness under the credit facility.
On February 2, 2017, CI entered into an interest rate swap agreement with a Canadian chartered bank to swap the semi-annual fixed rate payments on the debentures due November 25, 2021 for floating rate payments. As at September 30, 2019, the fair value of the interest rate swap agreement was an unrealized loss of $2,407 and is included in long-term debt in the unaudited interim condensed consolidated statements of financial position.
5. | PROVISION FOR OTHER LIABILITIES AND CONTINGENCIES |
CI is a party to a number of claims, proceedings and investigations, including legal, regulatory and tax, in the ordinary course of its business. Due to the inherent uncertainty involved in these matters, it is difficult to predict the final outcome or the amount and timing of any outflow related to such matters. Based on current information and consultations with advisors, CI does not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on its financial position or on its ability to continue normal business operations.
Q3 Financial Report | 14 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI has made provisions based on current information and the probable resolution of such contingent consideration, claims, proceedings and investigations as well as for amounts payable in connection with business acquisitions and severance. The movement in amounts provided for contingent liabilities and related expenses during the nine months ended September 30, 2019 and the year ended December 31, 2018, are as follows:
9 months ended
September 30, 2019 |
Year ended
December 31, 2018 |
|||||
$ | $ | |||||
Provision for other liabilities, beginning of period | 34,768 | 98,595 | ||||
Additions | 35,135 | 3,151 | ||||
Amounts used | (29,953 | ) | (54,838 | ) | ||
Amounts reversed | (126 | ) | (12,140 | ) | ||
Provision for other liabilities, end of period | 39,824 | 34,768 | ||||
Current portion of provision for other liabilities | 20,864 | 14,591 |
Provision for other liabilities primarily includes the following:
LITIGATION
CI is a defendant to certain lawsuits of which two are class action lawsuits related to events and transactions that gave rise to a settlement agreement with the Ontario Securities Commission [“OSC”] in 2004. Although CI continues to believe that this settlement fully compensated investors affected by frequent trading activity, a provision has been made based on the probable resolution of these claims and related expenses.
CI maintains insurance policies that may provide coverage against certain claims. Amounts receivable under these policies are not accrued for unless the realization of income is virtually certain. During the three and nine months ended September 30, 2019, no insurance proceeds were received related to the settlement of legal claims.
PUT OPTION AND CONTINGENT CONSIDERATION
Included in provision for other liabilities as at September 30, 2019, is a provision for the fair value of the put option granted to minority interest shareholders for the acquisition of GSFM of $10,180, including foreign exchange translation adjustments [December 31, 2018 - $11,438]. During the three and nine months ended September 2019, the put option liability was reduced by $444, respectively, representing dividends paid by GSFM to non-controlling shareholders [three and nine months ended September 30, 2018 - $1,167, respectively]. During the three and nine months ended September 30, 2018, the fair value was reduced by $1,144 to reflect lower forecasted earnings estimates with an offset to other income.
Q3 Financial Report | 15 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
During the three and nine months ended September 30, 2018, CI made payments of nil and $11,633 [cash - $11,129 and shares - $534] related to contingent consideration that was payable for the First Asset acquisition. As at September 30, 2018, all contingent consideration related to this acquisition was paid.
RESTRUCTURING
During the three and nine months ended September 30, 2019, CI recorded a provision for restructuring of nil and $35,000 related to severance and the write-down of software intangibles that were retired. As at September 30, 2019, a provision of $11,104 remains.
Q3 Financial Report | 16 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
6. | SHARE CAPITAL |
A summary of the changes to CI’s share capital for the period is as follows:
[A] AUTHORIZED AND ISSUED
Number of shares | Stated value | |||||||
[in thousands] | $ | |||||||
Authorized | ||||||||
An unlimited number of common shares of CI | ||||||||
Issued | ||||||||
Common shares, balance, December 31, 2017 | 271,884 | 2,360,257 | ||||||
Issuance for acquisition of subsidiary | 17 | 534 | ||||||
Issuance of share capital on exercise of share options | 58 | 1,700 | ||||||
Issuance of share capital on vesting of restricted share units | 283 | 5,819 | ||||||
Share repurchases, net of tax | (28,521 | ) | (243,180 | ) | ||||
Common shares, balance, December 31, 2018 | 243,721 | 2,125,130 | ||||||
Issuance of share capital on vesting of restricted share units | 6 | 123 | ||||||
Share repurchases, net of tax | (3,352 | ) | (26,712 | ) | ||||
Common shares, balance, March 31, 2019 | 240,375 | 2,098,541 | ||||||
Issuance of share capital on vesting of restricted share units | 9 | 111 | ||||||
Share repurchases, net of tax | (4,691 | ) | (40,814 | ) | ||||
Common shares, balance, June 30, 2019 | 235,693 | 2,057,838 | ||||||
Issuance of share capital on vesting of restricted share units | 143 | 2,623 | ||||||
Share repurchases, net of tax | (7,675 | ) | (66,774 | ) | ||||
Common shares, balance, September 30, 2019 | 228,161 | 1,993,687 |
[B] EMPLOYEE INCENTIVE SHARE OPTION PLAN
CI has an employee incentive share option plan [the “Share Option Plan”], as amended and restated, for the executives and key employees of CI. CI granted nil and 743 thousand options during the three and nine months ended September 30, 2019, respectively [three and nine months ended September 30, 2018 - nil and 78 thousand options, respectively]. The fair value method of accounting is used for the valuation of the 2019 and 2018 share option grants. Compensation expense is recognized over the applicable vesting periods, assuming an estimated average forfeiture rate of 0% - 13% for the options issued during 2019 [2018 - 0%], with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well as any consideration paid by the option holder are credited to share capital.
Q3 Financial Report | 17 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
The fair value of the 2019 and 2018 option grants was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
Year of grant | 2019 | 2019 | 2018 | |||||||||
# of options granted [in thousands] | 213 | 530 | 78 | |||||||||
Vesting terms | At end of year 5 | 1/3 at end of years 3, 4 and 5 | 1/3 at end of years 1, 2 and 3 | |||||||||
Dividend yield | 3.792 | % | 3.792 | % | 5.044% - 5.085% | |||||||
Expected volatility (*) | 17 | % | 17 | % | 16 | % | ||||||
Risk-free interest rate | 2.238 | % | 2.182% - 2.238% | 2.285% - 2.363% | ||||||||
Expected life [years] | 6.8 | 5.2 - 6.8 | 2.9 - 3.7 | |||||||||
Forfeiture rate | 0 | % | 13 | % | 0 | % | ||||||
Fair value per stock option | $2.48 | $2.23 - $2.48 | $2.23 - $2.45 | |||||||||
Exercise price | $18.99 | $18.99 | $28.67 |
(*) Based on historical volatility of CI’s share price. |
A summary of the changes in the Share Option Plan is as follows:
Number of options |
Weighted average
exercise price |
|||||||
[in thousands] | $ | |||||||
Options outstanding, December 31, 2017 | 8,073 | 31.84 | ||||||
Options exercisable, December 31, 2017 | 5,014 | 33.03 | ||||||
Options granted | 78 | 28.67 | ||||||
Options exercised (*) | (609 | ) | 27.42 | |||||
Options cancelled | (584 | ) | 31.98 | |||||
Options outstanding, December 31, 2018 | 6,958 | 32.18 | ||||||
Options exercisable, December 31, 2018 | 5,789 | 32.97 | ||||||
Options granted | 743 | 18.99 | ||||||
Options cancelled | (1,664 | ) | 34.96 | |||||
Options outstanding, March 31, 2019 | 6,037 | 29.79 | ||||||
Options exercisable, March 31, 2019 | 5,154 | 31.40 | ||||||
Options cancelled | (327 | ) | 32.79 | |||||
Options outstanding, June 30, 2019 | 5,710 | 29.62 | ||||||
Options exercisable, June 30, 2019 | 4,865 | 31.25 | ||||||
Options cancelled | (73 | ) | 30.89 | |||||
Options outstanding, September 30, 2019 | 5,637 | 29.60 | ||||||
Options exercisable, September 30, 2019 | 4,792 | 31.25 |
(*) Weighted average share price of options exercised was nil during the three and nine months ended September 30, 2019 [year ended December 31, 2018 - $29.54]
Q3 Financial Report | 18 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Options outstanding and exercisable as at September 30, 2019 are as follows:
Exercise price |
Number of
options outstanding |
Weighted average
remaining
contractual life |
Number of options
exercisable |
|||||||||
$ | [in thousands] | [years] | [in thousands] | |||||||||
18.99 | 722 | 9.4 | — | |||||||||
27.44 | 479 | 2.4 | 390 | |||||||||
28.63 | 2,021 | 1.4 | 2,021 | |||||||||
28.67 | 51 | 3.4 | 17 | |||||||||
33.96 | 2,144 | 0.4 | 2,144 | |||||||||
35.88 | 220 | 0.5 | 220 | |||||||||
18.99 to 35.88 | 5,637 | 2.1 | 4,792 |
[C] RESTRICTED SHARE UNITS
CI has an employee restricted share unit plan [the “RSU Plan”] for senior executives and other key employees. Compensation expense is recognized and recorded as contributed surplus based upon the market value of the restricted share units [“RSUs”] at the grant date. Forfeitures of RSUs reduce compensation expense to the extent contributed surplus was previously recorded for such awards. On vesting of RSUs, share capital is credited for the amounts initially recorded as contributed surplus to reflect the issuance of share capital.
During the three and nine months ended September 30, 2019, CI granted 214 and 725 thousand RSUs, respectively [three and nine months ended September 30, 2018 - 9 and 570 thousand RSUs, respectively], including 11 and 28 thousand RSUs granted to reflect dividends declared on the common shares, respectively [three and nine months ended September 30, 2018 - 9 and 29 thousand, respectively]. Also during the three and nine months ended September 30, 2019, 142 thousand and 158 thousand RSUs were exercised, and 3 thousand and 24 thousand RSUs were forfeited, respectively [three and nine months ended September 30, 2018 - 6 thousand and 13 thousand exercised and 9 thousand and 25 thousand RSUs forfeited, respectively]. During the three and nine months ended September 30, 2019, CI credited contributed surplus for $4,661 and $10,816, respectively, related to compensation expense recognized for the RSUs [three and nine months ended September 30, 2018 - $3,663 and 9,274, respectively]. As at September 30, 2019, 1,207 thousand RSUs are outstanding [December 31, 2018 - 664 thousand RSUs].
CI uses a Trust to hold CI’s common shares, to fulfil obligations to employees arising from the RSU Plan. The common shares held by the Trust are not considered to be outstanding for the purposes of basic and diluted earnings per share calculations.
Q3 Financial Report | 19 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
[D] DEFERRED SHARE UNITS
The deferred share unit plan [the “DSU Plan”] was established in March 2017, whereby directors may elect to receive all or a portion of their quarterly compensation in either cash or deferred share units [“DSUs”]. The DSUs fully vest on the grant date and an expense is recorded based upon the market value of the DSUs at the grant date with an offset included in accounts payable and accrued liabilities. At the end of each period, the change in the fair value of the DSUs is recorded as an expense with an offset recorded to the liability. DSUs can only be redeemed for cash once the holder ceases to be a director of CI.
During the three and nine months ended September 30, 2019, 2 thousand and 4 thousand DSUs were granted, respectively, and nil DSUs were exercised [three and nine months ended September 30, 2018 - 0.2 thousand and 2 thousand DSUs granted, respectively, and nil and 6 thousand exercised, respectively]. An expense of $2 and $110 was recorded during the three and nine months ended September 30, 2019, respectively [three and nine months ended September 30, 2018 - $(60) and $(159)]. As at September 30, 2019, included in accounts payable and accrued liabilities, is an accrual of $378 for amounts to be paid under the DSU Plan [December 31, 2018 - $269].
[E] BASIC AND DILUTED EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share for the three and nine months ended September 30:
[in thousands] |
3
months ended
September 30, 2019 |
9
months ended
September 30, 2019 |
3
months ended
September 30, 2018 |
9
months ended
September 30, 2018 |
||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to shareholders of the Company basic and diluted | $ | 138,960 | $ | 390,847 | $ | 158,229 | $ | 477,130 | ||||||||
Denominator: | ||||||||||||||||
Weighted average number of common shares - basic | 232,140 | 237,412 | 256,740 | 263,446 | ||||||||||||
Weighted average effect of dilutive stock options and RSU awards (*) | 1,094 | 913 | 393 | 316 | ||||||||||||
Weighted average number of common shares - diluted | 233,234 | 238,325 | 257,133 | 263,762 | ||||||||||||
Net earnings per common share attributable to shareholders | ||||||||||||||||
Basic | $ | 0.60 | $ | 1.65 | $ | 0.62 | $ | 1.81 | ||||||||
Diluted | $ | 0.60 | $ | 1.64 | $ | 0.62 | $ | 1.81 |
(*) The determination of the weighted average number of common shares - diluted excludes 5,637 thousand shares related to stock options that were anti-dilutive for the three and nine months ended September 30, 2019 [three and nine months ended September 30, 2018 - 7,050 thousand shares].
Q3 Financial Report | 20 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
[F] MAXIMUM SHARE DILUTION
The following table presents the maximum number of shares that would be outstanding if all the outstanding options were exercised and if all RSU awards vested as at October 31, 2019:
[in thousands] | |||
Shares outstanding at October 31, 2019 | 226,016 | ||
Options to purchase shares | 5,603 | ||
RSU awards | 1,065 | ||
232,684 |
Q3 Financial Report | 21 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
7. | DIVIDENDS |
The following dividends were paid by CI during the three and nine months ended September 30, 2019:
Record date | Payment date |
Cash
dividend
per share $ |
Total
dividend
amount $ |
||||||
December 31, 2018 | January 14, 2019 | 0.18 | 43,899 | ||||||
Paid during the three months ended March 31, 2019 | 43,899 | ||||||||
March 31, 2019 | April 12, 2019 | 0.18 | 43,285 | ||||||
Paid during the three months ended June 30, 2019 | 43,285 | ||||||||
Paid during the six months ended June 30, 2019 | 87,184 | ||||||||
June 30, 2019 | July 15, 2019 | 0.18 | 42,461 | ||||||
Paid during the three months ended September 30, 2019 | 42,461 | ||||||||
Paid during the nine months ended September 30, 2019 | 129,645 |
The following dividends were declared but not paid during the three months ended September 30, 2019:
Record date | Payment date |
Cash
dividend
per share $ |
Total
dividend
amount $ |
||||||
September 30, 2019 | October 15, 2019 | 0.18 | 41,056 | ||||||
December 31, 2019 | January 15, 2020 | 0.18 | 41,056 | ||||||
Declared and accrued as at September 30, 2019 | 82,112 |
The following dividends were paid by CI during the three and nine months ended September 30, 2018:
Record date | Payment date |
Cash
dividend
per share $ |
Total
dividend
amount $ |
||||||
December 31, 2017 | January 15, 2018 | 0.1175 | 31,957 | ||||||
January 31, 2018 | February 15, 2018 | 0.1175 | 31,736 | ||||||
February 28, 2018 | March 15, 2018 | 0.1175 | 31,706 | ||||||
Paid during the three months ended March 31, 2018 | 95,399 | ||||||||
March 31, 2018 | April 13, 2018 | 0.1175 | 31,344 | ||||||
April 30, 2018 | May 15, 2018 | 0.1175 | 31,170 | ||||||
May 31, 2018 | June 15, 2018 | 0.1175 | 30,996 | ||||||
Paid during the three months ended June 30, 2018 | 93,510 | ||||||||
Paid during the six months ended June 30, 2018 | 188,909 | ||||||||
June 30, 2018 | July 13, 2018 | 0.1175 | 30,616 | ||||||
July 31, 2018 | August 15, 2018 | 0.1175 | 30,513 | ||||||
Paid during the three months ended September 30, 2018 | 61,129 | ||||||||
Paid during the nine months ended September 30, 2018 | 250,038 |
Q3 Financial Report | 22 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
The following dividends were declared but not paid during the three months ended September 30, 2018:
Record date | Payment date |
Cash
dividend
per share $ |
Total
dividend
amount $ |
||||||
September 30, 2018 | October 15, 2018 | 0.1800 | 45,316 | ||||||
December 31, 2018 | January 15, 2019 | 0.1800 | 45,316 | ||||||
March 31, 2019 | April 15, 2019 | 0.1800 | 45,316 | ||||||
June 30, 2019 | July 15, 2019 | 0.1800 | 45,316 | ||||||
September 30, 2019 | October 15, 2019 | 0.1800 | 45,316 | ||||||
December 31, 2019 | January 15, 2020 | 0.1800 | 45,316 | ||||||
Declared and accrued as at September 30, 2018 | 271,896 |
8. | FINANCIAL INSTRUMENTS |
The carrying amounts of the financial instruments are presented in the tables below and are classified according to the following categories:
As at | As at | |||||||
September 30, 2019 | December 31, 2018 | |||||||
$ | $ | |||||||
Financial assets | ||||||||
Fair value through profit or loss | ||||||||
Cash and cash equivalents | 119,894 | 137,160 | ||||||
Investments | 143,431 | 168,122 | ||||||
Other assets | 20,959 | 9,507 | ||||||
Amortized cost | ||||||||
Client and trust funds on deposit | 355,477 | 365,520 | ||||||
Accounts receivable | 170,086 | 137,979 | ||||||
Other assets | 37,446 | 23,006 | ||||||
Total financial assets | 847,293 | 841,294 | ||||||
Financial liabilities | ||||||||
Fair value through profit or loss | ||||||||
Provisions for other liabilities | 10,180 | 11,438 | ||||||
Amortized cost | ||||||||
Accounts payable and accrued liabilities | 231,321 | 222,233 | ||||||
Provisions for other liabilities | 29,644 | 23,330 | ||||||
Dividends payable | 82,112 | 219,112 | ||||||
Client and trust funds payable | 365,322 | 370,756 | ||||||
Long-term debt | 1,569,185 | 1,503,733 | ||||||
Total financial liabilities | 2,287,764 | 2,350,602 |
Q3 Financial Report | 23 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
CI’s investments as at September 30, 2019 and December 31, 2018, include CI’s marketable securities comprised of seed capital investments in CI’s mutual funds and strategic investments. Mutual fund securities are valued using the net asset value per unit of each fund, which represents the underlying net assets at fair values determined using closing market prices. CI’s mutual fund securities that are valued daily are classified as Level 1 in the fair value hierarchy. Mutual fund securities and strategic investments that are valued less frequently are classified as Level 2 in the fair value hierarchy. CI’s investments as at September 30, 2019, also include securities owned, at market, consisting of money market, equity securities and bonds. Money market and equity securities are valued based on quoted prices and are classified as Level 1 in the fair value hierarchy. Bonds are valued using a market comparison technique to fair value these instruments using observable broker quotes and are classified as Level 2 in the fair value hierarchy. There have been no transfers between Level 1 and Level 2 during the period.
Investments consist of the following as at September 30, 2019:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 123,221 | 49,101 | 70,467 | 3,653 | ||||||||||||
Securities owned, at market | 20,210 | 20,210 | — | — | ||||||||||||
Total investments | 143,431 | 69,311 | 70,467 | 3,653 |
Investments consist of the following as at December 31, 2018:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 132,953 | 56,603 | 72,697 | 3,653 | ||||||||||||
Securities owned, at market | 35,169 | 35,169 | — | — | ||||||||||||
Total investments | 168,122 | 91,772 | 72,697 | 3,653 |
Included in other assets are long-term private equity strategic investments of $20,959 [December 31, 2018 - $9,507] valued using Level 3 inputs.
Included in provision for other liabilities, as at September 30, 2019, is put option payable on non-controlling interest of $10,180 [December 31, 2018 - $11,438] carried at fair value and classified as Level 3 in the fair value hierarchy. Long-term debt as at September 30, 2019, includes debentures with a fair value of $1,587,968 [December 31, 2018 - $1,208,715], as determined by quoted market prices that have been classified as Level 2 in the fair value hierarchy.
Q3 Financial Report | 24 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
9. | CAPITAL MANAGEMENT |
CI’s objectives in managing capital are to maintain a capital structure that allows CI to meet its growth strategies and build long-term shareholder value, while satisfying its financial obligations and meeting its long-term debt covenants. CI’s capital comprise shareholders’ equity and long-term debt (including the current portion of long-term debt).
CI and its subsidiaries are subject to minimum regulatory capital requirements whereby sufficient cash and other liquid assets must be on hand to maintain capital requirements rather than using them in connection with its business. As at September 30, 2019, cash and cash equivalents of $13,195 [December 31, 2018 - $20,226] were required to be on hand for regulatory capital maintenance. Failure to maintain required regulatory capital by CI may result in fines, suspension or revocation of registration by the relevant securities regulator. CI from time to time provides loans to its subsidiaries for operating purposes and may choose to subordinate these loans in favour of general creditors. The repayment of subordinated loans is subject to regulatory approval. As at September 30, 2019 and December 31, 2018, CI met its capital requirements.
CI’s capital consists of the following:
As at | As at | |||||||
September 30, 2019 | December 31, 2018 | |||||||
$ | $ | |||||||
Shareholders’ equity | 1,523,168 | 1,430,077 | ||||||
Long-term debt | 1,569,185 | 1,503,733 | ||||||
Total capital | 3,092,353 | 2,933,810 |
Q3 Financial Report | 25 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
10. | SEGMENTED INFORMATION |
CI has two reportable segments: asset management and asset administration. These segments reflect CI’s internal financial reporting and performance measurement.
The asset management segment includes the operating results and financial position of CI Investments, CI Private Counsel LP, GSFM and Marret, which derive their revenues principally from the fees earned on the management of several families of mutual funds, segregated funds and exchange-traded funds.
The asset administration segment includes the operating results and financial position of WealthBar, BBS and AWM and its subsidiaries, including Assante Capital Management Ltd. and Assante Financial Management Ltd. These companies derive their revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients.
Segmented information for the three-month period ended September 30, 2019 is as follows:
Asset management
|
Asset administration
|
Intersegment
eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 465,606 | — | — | 465,606 | ||||||||||||
Administration fees | — | 99,820 | (44,903 | ) | 54,917 | |||||||||||
Other revenue | (2,093 | ) | 9,050 | — | 6,957 | |||||||||||
Total revenue | 463,513 | 108,870 | (44,903 | ) | 527,480 | |||||||||||
Selling, general and administrative | 98,608 | 25,958 | — | 124,566 | ||||||||||||
Trailer fees | 154,355 | — | (7,839 | ) | 146,516 | |||||||||||
Investment dealer fees | — | 80,100 | (36,909 | ) | 43,191 | |||||||||||
Deferred sales commissions | 2,783 | — | (155 | ) | 2,628 | |||||||||||
Amortization and depreciation | 5,571 | 2,594 | — | 8,165 | ||||||||||||
Other expenses | 1,830 | 596 | — | 2,426 | ||||||||||||
Total expenses | 263,147 | 109,248 | (44,903 | ) | 327,492 | |||||||||||
Income before income taxes and non-segmented items | 200,366 | (378 | ) | — | 199,988 | |||||||||||
Interest and lease finance | (13,812 | ) | ||||||||||||||
Provision for income taxes | (47,380 | ) | ||||||||||||||
Net income for the period | 138,796 |
Q3 Financial Report | 26 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Segmented information for the three-month period ended September 30, 2018 is as follows:
Asset
management |
Asset
administration |
Intersegment
eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 509,943 | — | — | 509,943 | ||||||||||||
Administration fees | — | 94,831 | (44,638 | ) | 50,193 | |||||||||||
Other revenue | 949 | 7,958 | — | 8,907 | ||||||||||||
Total revenue | 510,892 | 102,789 | (44,638 | ) | 569,043 | |||||||||||
Selling, general and administrative | 104,978 | 23,902 | — | 128,880 | ||||||||||||
Trailer fees | 168,707 | — | (8,107 | ) | 160,600 | |||||||||||
Investment dealer fees | — | 76,427 | (36,327 | ) | 40,100 | |||||||||||
Deferred sales commissions | 4,285 | — | (204 | ) | 4,081 | |||||||||||
Amortization and depreciation | 4,211 | 990 | — | 5,201 | ||||||||||||
Other expenses | 712 | 64 | — | 776 | ||||||||||||
Total expenses | 282,893 | 101,383 | (44,638 | ) | 339,638 | |||||||||||
Income before income taxes and non-segmented items | 227,999 | 1,406 | — | 229,405 | ||||||||||||
Interest | (11,569 | ) | ||||||||||||||
Provision for income taxes | (59,495 | ) | ||||||||||||||
Net income for the period | 158,341 |
Q3 Financial Report | 27 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Segmented information as at and for the nine-month period ended September 30, 2019 is as follows:
Asset
management |
Asset
administration |
Intersegment eliminations | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 1,393,534 | — | — | 1,393,534 | ||||||||||||
Administration fees | — | 292,511 | (131,514 | ) | 160,997 | |||||||||||
Other revenue | 3,757 | 26,282 | — | 30,039 | ||||||||||||
Total revenue | 1,397,291 | 318,793 | (131,514 | ) | 1,584,570 | |||||||||||
Selling, general and administrative | 298,881 | 76,580 | — | 375,461 | ||||||||||||
Trailer fees | 462,135 | — | (22,916 | ) | 439,219 | |||||||||||
Investment dealer fees | — | 234,488 | (108,041 | ) | 126,447 | |||||||||||
Deferred sales commissions | 10,924 | — | (557 | ) | 10,367 | |||||||||||
Amortization and depreciation | 16,763 | 7,889 | — | 24,652 | ||||||||||||
Other expenses | 37,656 | 3,826 | — | 41,482 | ||||||||||||
Total expenses | 826,359 | 322,783 | (131,514 | ) | 1,017,628 | |||||||||||
Income before income taxes and non-segmented items | 570,932 | (3,990 | ) | — | 566,942 | |||||||||||
Interest and lease finance | (41,218 | ) | ||||||||||||||
Provision for income taxes | (135,454 | ) | ||||||||||||||
Net income for the period | 390,270 | |||||||||||||||
Identifiable assets | 483,044 | 569,845 | — | 1,052,889 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,308,501 | 221,449 | — | 1,529,950 | ||||||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||||||
Total assets | 3,571,502 | 791,294 | — | 4,362,796 |
Q3 Financial Report | 28 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
Segmented information for the nine-month period ended September 30, 2018 is as follows:
Asset management
|
Asset administration
|
Intersegment eliminations | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 1,529,977 | — | — | 1,529,977 | ||||||||||||
Administration fees | — | 278,199 | (132,373 | ) | 145,826 | |||||||||||
Other revenue | 7,323 | 24,059 | — | 31,382 | ||||||||||||
Total revenue | 1,537,300 | 302,258 | (132,373 | ) | 1,707,185 | |||||||||||
Selling, general and administrative | 316,302 | 72,741 | — | 389,043 | ||||||||||||
Trailer fees | 506,507 | — | (24,326 | ) | 482,181 | |||||||||||
Investment dealer fees | — | 222,613 | (107,202 | ) | 115,411 | |||||||||||
Deferred sales commissions | 19,082 | — | (845 | ) | 18,237 | |||||||||||
Amortization and depreciation | 12,199 | 2,908 | — | 15,107 | ||||||||||||
Other expenses | 4,385 | 168 | — | 4,553 | ||||||||||||
Total expenses | 858,475 | 298,430 | (132,373 | ) | 1,024,532 | |||||||||||
Income before income taxes and non-segmented items | 678,825 | 3,828 | — | 682,653 | ||||||||||||
Interest | (30,703 | ) | ||||||||||||||
Provision for income taxes | (174,489 | ) | ||||||||||||||
Net income for the period | 477,461 | |||||||||||||||
As at December 31, 2018 | ||||||||||||||||
Identifiable assets | 432,264 | 558,890 | — | 991,154 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,310,510 | 210,595 | — | 1,521,105 | ||||||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||||||
Total assets | 3,522,731 | 769,485 | — | 4,292,216 |
Q3 Financial Report | 29 | September 30, 2019 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2019 and 2018 • [in thousands of dollars, except per share amounts]
11. | SELLING, GENERAL AND ADMINISTRATIVE |
Included in selling, general and administrative expenses [“SG&A”] are salaries and benefits of $69,444 and $207,943 for the three and nine months ended September 30, 2019, respectively [three and nine months ended September 30, 2018 - $70,116 and $212,501, respectively]. Other SG&A of $55,122 and $167,518 for the three and nine months ended September 30, 2019, respectively, primarily includes marketing and information technology expenses as well as professional and regulatory fees [three and nine months ended September 30, 2018 - $58,764 and $176,542, respectively].
12. AMORTIZATION AND DEPRECIATION
The following table provides details of amortization and depreciation:
3 months ended
September 30, 2019 |
9 months ended
September 30, 2019 |
3 months ended
September 30, 2018 |
9 months ended
September 30, 2018 |
|||||||||||||
$ | $ | $ | $ | |||||||||||||
Depreciation of capital assets | 2,892 | 8,558 | 2,514 | 7,321 | ||||||||||||
Depreciation of right-of-use assets | 2,249 | 6,629 | — | — | ||||||||||||
Amortization of intangibles | 2,680 | 8,542 | 2,433 | 7,123 | ||||||||||||
Amortization of debenture transaction costs | 344 | 923 | 254 | 663 | ||||||||||||
Total amortization and depreciation | 8,165 | 24,652 | 5,201 | 15,107 | ||||||||||||
13. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform to the interim condensed consolidated financial statement presentation in the current period.
This Report contains forward-looking statements with respect to CI, including its business operations and strategy and financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things, general economic and market factors, including interest rates, business competition, changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time. |
Q3 Financial Report | 30 | September 30, 2019 |
Exhibit 99.12
MANAGEMENT’S DISCUSSION & ANALYSIS | September 30, 2019
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This Management’s Discussion and Analysis (“MD&A”) dated November 6, 2019 presents an analysis of the financial position of CI Financial Corp. and its subsidiaries (“CI”) as at September 30, 2019, compared with December 31, 2018, and the results of operations for the quarter ended September 30, 2019, compared with the quarter ended September 30, 2018 and the quarter ended June 30, 2019.
CI’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Amounts are expressed in Canadian dollars. The principal subsidiaries referenced herein include CI Investments Inc. (“CI Investments”) and Assante Wealth Management (Canada) Ltd. (“AWM” or “Assante”). The Asset Management segment of the business includes the operating results and financial position of CI Investments and its subsidiaries, including CI Private Counsel LP (“CIPC”), as well as the operating results and financial position of GSFM Pty Limited (“GSFM”). First Asset Investment Management Inc. was formerly a subsidiary of CI Investments, but was amalgamated on July 1, 2019. The Asset Administration segment includes the operating results and financial position of AWM and its subsidiaries, including Assante Capital Management Ltd. (“ACM”) and Assante Financial Management Ltd. (“AFM”), as well as the operating results and financial position of BBS Securities Inc. (“BBS”) and WealthBar Financial Services Inc. (“WealthBar”).
This MD&A contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp. (“CI”) and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time. The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward-looking statement after the date on which it is made, whether to reflect new information, future events or otherwise.
This MD&A includes several non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full year results from period to period. Descriptions of these non-IFRS measures and reconciliations to the nearest IFRS measure, where necessary, are provided in the “Non-IFRS Measures” section of this MD&A. Note that figures in tables may not add due to rounding.
Q3 Financial Report | 2 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 1: SUMMARY OF QUARTERLY RESULTS | |||||||||||||||||||||||||
[millions of dollars, except per share amounts] | 2019 | 2018 | 2017 | ||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||||||||||||
INCOME STATEMENT DATA | |||||||||||||||||||||||||
Management fees | 465.6 | 468.5 | 459.5 | 474.2 | 509.9 | 506.3 | 513.7 | 532.1 | |||||||||||||||||
Administration fees | 54.9 | 53.6 | 52.4 | 51.8 | 50.2 | 47.5 | 48.1 | 45.8 | |||||||||||||||||
Other revenues | 7.0 | 8.2 | 14.9 | 3.2 | 8.9 | 10.8 | 11.7 | 16.5 | |||||||||||||||||
Total revenues | 527.5 | 530.3 | 526.8 | 529.2 | 569.0 | 564.6 | 573.5 | 594.4 | |||||||||||||||||
Selling, general & administrative | 124.6 | 124.8 | 126.1 | 123.5 | 128.9 | 127.3 | 132.9 | 128.6 | |||||||||||||||||
Trailer fees | 146.5 | 148.1 | 144.6 | 149.1 | 160.6 | 159.6 | 162.0 | 167.8 | |||||||||||||||||
Investment dealer fees | 43.2 | 42.4 | 40.8 | 40.5 | 40.1 | 37.6 | 37.7 | 37.3 | |||||||||||||||||
Deferred sales commissions paid | 2.6 | 3.1 | 4.6 | 3.9 | 4.1 | 5.6 | 8.5 | 7.3 | |||||||||||||||||
Interest and lease finance | 13.8 | 13.7 | 13.7 | 12.4 | 11.6 | 9.9 | 9.3 | 8.6 | |||||||||||||||||
Amortization and depreciation | 8.2 | 8.3 | 8.2 | 5.4 | 5.2 | 5.1 | 4.9 | 4.7 | |||||||||||||||||
Other expenses | 2.4 | 37.4 | 1.6 | 3.1 | 0.8 | 1.6 | 2.1 | 46.7 | |||||||||||||||||
Total expenses | 341.3 | 377.9 | 339.6 | 337.8 | 351.2 | 346.7 | 357.4 | 401.0 | |||||||||||||||||
Income before income taxes | 186.2 | 152.4 | 187.2 | 191.3 | 217.8 | 218.0 | 216.2 | 193.4 | |||||||||||||||||
Income taxes | 47.4 | 40.9 | 47.2 | 51.0 | 59.5 | 58.0 | 57.0 | 53.9 | |||||||||||||||||
Non-controlling interest | (0.2 | ) | (0.3 | ) | (0.1 | ) | — | 0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||||
Net income attributable to shareholders | 139.0 | 111.9 | 140.0 | 140.3 | 158.2 | 159.9 | 159.0 | 139.4 | |||||||||||||||||
Earnings per share | 0.60 | 0.47 | 0.58 | 0.57 | 0.62 | 0.61 | 0.59 | 0.51 | |||||||||||||||||
Diluted earnings per share | 0.60 | 0.47 | 0.58 | 0.57 | 0.62 | 0.60 | 0.59 | 0.51 | |||||||||||||||||
Dividends paid per share | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.2350 | 0.3525 | 0.3525 | 0.3525 |
Q3 Financial Report | 3 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
BUSINESS OVERVIEW
CI is a diversified wealth management firm and through CI Investments, one of Canada’s largest independent investment fund companies. The principal business of CI is the management, marketing, distribution and administration of investment products for Canadian investors. CI also provides financial advice, tax, retirement, estate and wealth planning services to clients of Assante, CIPC, and WealthBar. In addition, CI has asset management operations in Australia through its subsidiary GSFM. CI’s products are distributed primarily through brokers, independent financial planners and insurance advisors, including ACM and AFM financial advisors. CI operates through two business segments, Asset Management and Asset Administration. The Asset Management segment provides the majority of CI’s income and derives its revenue principally from the fees earned on the management of investment funds and other fee-earning investment products. The Asset Administration segment derives its revenue principally from fees and commissions from ongoing service and on the sale of investment funds and other financial products.
BUSINESS STRATEGY
CI provides wealth and investment management services and earns fee revenue on its assets under management (“AUM”) and assets under administration (“AUA”). Management believes that client goals and asset growth can be achieved by focusing on the following factors: quality and diversity of products offered by CI; experience and depth of investment managers; service levels provided to dealers and investors; and the skill and knowledge of its employees.
CI offers investors a wide range of investment products through a network of investment dealers, mutual fund dealers, and insurance agents, which include advisors with AWM. Acquisitions of fund management companies and years of product innovation and development have allowed CI to offer investors a broad selection of investment products.
CI uses in-house teams and external investment managers to provide portfolio management services. These investment managers typically have long careers in the industry as well as extensive track records with CI. This lineup of investment managers provides a wide selection of styles and areas of expertise for CI’s funds.
CI’s management is focused on continuing to build a global diversified wealth management company. With ongoing expansion in terms of scale, expertise and reach, CI will be able to explore new markets and introduce new capabilities that will help drive the organization’s future growth. At the same time, CI views the Canadian business, relationships and channels as critical parts of the organization’s DNA. In summary, CI’s strategy is based on three major themes:
• | Modernize our asset management business; |
• | Expand our wealth management platform; |
• | Globalize our company. |
An important factor underlying these themes is the continued development of our digital capabilities. The acquisition of BBS in 2017 added advanced trading technology and online services to the firm, and has assisted in CI’s digital transformation. CI acquired WealthBar in January 2019, a leading Canadian online wealth management and financial planning platform. CI’s goal is to provide clients with improved products and services, allowing them to do business with the firm when, where and how they want.
Q3 Financial Report | 4 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
KEY PERFORMANCE DRIVERS
The key performance indicator for the Asset Management segment is the level of AUM, and for the Asset Administration segment, the level of AUA. Assets Under Advisement includes both AUA (assets under administration) and assets held by clients of advisors with Stonegate Private Counsel. Total assets are comprised of AUM and Assets Under Advisement. CI’s AUM and AUA are primarily driven by fund performance, as well as gross sales and redemptions of investment products. As most of CI’s revenues and expenses are based on daily asset levels throughout the year, average assets for a particular period are critical to the analysis of CI’s financial results. While some expenses, such as trailer fees, vary directly with the level of AUM, a portion of CI’s expenses do not, such as a portion of overhead, discretionary spend, and deferred sales commissions. Over the long term, CI manages the level of its discretionary spend to be consistent with, or below, the growth in its revenue. In any given period, CI may choose to make investments in people or technology that benefit the long-term growth of the company.
CI uses several performance indicators to assess its results. These indicators are described throughout the results of operations and the discussion of the two operating segments and include the following measures prescribed by IFRS: net income and earnings per share; and measures not prescribed by IFRS: adjusted net income, adjusted earnings per share, operating cash flow, free cash flow, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, dealer gross margin, net debt, asset management margin, and SG&A efficiency margin. Descriptions of these non-IFRS measures and reconciliations to IFRS are provided below.
Q3 Financial Report | 5 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NON-IFRS MEASURES
CI reports certain financial information using non-IFRS measures as CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full-year results from period to period.
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
CI defines adjusted net income as net income, net of non-controlling interest, and net of other provisions and adjustments. CI uses adjusted net income and adjusted earnings per share to compare underlying profitability for different periods.
TABLE 2: ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
[millions of dollars, except per share amounts] |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Sep. 30, 2018 |
Nine
months
ended Sep. 30, 2019 |
Nine
months
ended Sep. 30, 2018 |
|||||||||||||||
Net Income | 138.8 | 111.5 | 158.3 | 390.3 | 477.5 | |||||||||||||||
Add: | ||||||||||||||||||||
Restructuring provision | — | 26.6 | — | 26.6 | — | |||||||||||||||
Less: | ||||||||||||||||||||
Non-controlling interest | (0.2 | ) | (0.3 | ) | 0.1 | (0.6 | ) | 0.3 | ||||||||||||
Adjusted net income | 139.0 | 138.5 | 158.2 | 417.4 | 477.1 | |||||||||||||||
Adjusted earnings per share | 0.60 | 0.58 | 0.62 | 1.76 | 1.81 |
OPERATING CASH FLOW AND FREE CASH FLOW
CI measures its operating cash flow before the change in operating assets and liabilities, and the actual cash amount paid for interest and income taxes, as these items often distort the cash flow generated during the period. Operating assets and liabilities are affected by seasonality, the timing of interest payments depends on terms in specific debt instruments, and tax installments paid may differ materially from the cash tax accrual.
Free cash flow is calculated as operating cash flow adjusted for provisions. CI uses this measure, among others, when determining how to deploy capital.
Q3 Financial Report | 6 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 3: OPERATING CASH FLOW AND FREE CASH FLOW | ||||||||||||||||||||
[millions of dollars] |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Sep. 30, 2018 |
Nine
months
ended Sep. 30, 2019 |
Nine
months
ended Sep. 30, 2018 |
|||||||||||||||
Cash provided by operating activities | 127.7 | 152.4 | 174.0 | 401.0 | 429.9 | |||||||||||||||
Add: | ||||||||||||||||||||
Income taxes paid | 69.6 | 52.4 | 58.2 | 162.6 | 182.9 | |||||||||||||||
Interest paid | 12.4 | 13.0 | 7.1 | 38.8 | 25.9 | |||||||||||||||
Less: | ||||||||||||||||||||
Net change in non-cash working capital | 65.0 | 93.1 | 70.1 | 189.4 | 139.7 | |||||||||||||||
Operating cash flow | 144.7 | 124.7 | 169.2 | 413.0 | 499.0 | |||||||||||||||
Add: | ||||||||||||||||||||
Restructuring provision | — | 21.9 | — | 21.9 | — | |||||||||||||||
Free cash flow | 144.7 | 146.5 | 169.2 | 434.8 | 499.0 |
EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
CI uses EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA, which it defines as EBITDA, net of non-controlling interest and other provisions and adjustments, to assess its underlying profitability prior to the impact of its financing structure, income taxes and amortization and depreciation. This permits comparisons of companies within the industry, normalizing for different financing methods and levels of taxation. Adjusted EBITDA is a measure of operating performance, a facilitator for valuation and a proxy for cash flow. Adjusted EBITDA margin expresses adjusted EBITDA as a percentage of total revenue. Please note that effective January 1, 2019, CI adopted IFRS 16, an accounting standard that requires lessees to recognize assets and liabilities for leases longer than 12 months. This change impacts EBITDA by replacing lease expense with interest and depreciation, which are not included in EBITDA. This accounting change was not adopted retroactively - further information can be found in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements.
Q3 Financial Report | 7 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 4: EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN | ||||||||||||||||||||
[millions of dollars, except per share amounts] |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Sep. 30, 2018 |
Nine
months
ended Sep. 30, 2019 |
Nine
months
ended Sep. 30, 2018 |
|||||||||||||||
Net Income | 138.8 | 111.5 | 158.3 | 390.3 | 477.5 | |||||||||||||||
Add: | ||||||||||||||||||||
Interest and lease finance | 13.8 | 13.7 | 11.6 | 41.2 | 30.7 | |||||||||||||||
Provision for income taxes | 47.4 | 40.9 | 59.5 | 135.5 | 174.5 | |||||||||||||||
Amortization and depreciation | 8.2 | 8.3 | 5.2 | 24.7 | 15.1 | |||||||||||||||
EBITDA | 208.2 | 174.4 | 234.6 | 591.6 | 697.8 | |||||||||||||||
EBITDA per share | 0.90 | 0.73 | 0.91 | 2.49 | 2.65 | |||||||||||||||
Add: | ||||||||||||||||||||
Restructuring provision | — | 35.0 | — | 35.0 | — | |||||||||||||||
Less: | ||||||||||||||||||||
Non-controlling interest | — | (0.3 | ) | 0.2 | (0.2 | ) | 0.6 | |||||||||||||
Adjusted EBITDA | 208.2 | 209.7 | 234.4 | 626.8 | 697.2 | |||||||||||||||
Adjusted EBITDA per share | 0.90 | 0.88 | 0.91 | 2.64 | 2.65 | |||||||||||||||
Total revenue | 527.5 | 530.3 | 569.0 | 1,584.6 | 1,707.2 | |||||||||||||||
Adjusted EBITDA Margin | 39.5 | % | 39.5 | % | 41.2 | % | 39.6 | % | 40.8 | % |
NET DEBT
CI calculates net debt as long-term debt (including the current portion) less cash and marketable securities, net of cash required for regulatory purposes and non-controlling interests. Net debt is a measure of leverage and CI uses this measure to assess its financial flexibility.
TABLE 5: NET DEBT | ||||||||
As at | As at | |||||||
[millions of dollars] | Sep. 30, 2019 | Dec. 31, 2018 | ||||||
Long-term debt | 1,569.2 | 1,503.7 | ||||||
Less: | ||||||||
Cash and short-term investments | 119.9 | 137.2 | ||||||
Marketable securities, excluding BBS’ securities owned, at market | 123.2 | 133.0 | ||||||
Add: | ||||||||
Regulatory capital and non-controlling interests | 14.5 | 21.7 | ||||||
Net Debt | 1,340.5 | 1,255.3 |
DEALER GROSS MARGIN
CI monitors its operating profitability on the revenues earned within its Asset Administration segment by measuring its dealer gross margin, which is calculated as administration fee revenue less investment dealer fees, divided by administration fee revenue (all figures before inter-segment eliminations). CI uses this measure to assess the profitability of the Asset Administration segment before SG&A expenses.
Q3 Financial Report | 8 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 6: DEALER GROSS MARGIN | ||||||||||||||||||||
[millions of dollars] |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Sep. 30, 2018 |
Nine
months
ended Sep. 30, 2019 |
Nine months
ended Sep. 30, 2018 |
|||||||||||||||
Administration fees | 99.8 | 97.7 | 94.8 | 292.5 | 278.2 | |||||||||||||||
Less: | ||||||||||||||||||||
Investment dealer fees | 80.1 | 78.6 | 76.4 | 234.5 | 222.6 | |||||||||||||||
19.7 | 19.1 | 18.4 | 58.0 | 55.6 | ||||||||||||||||
Dealer gross margin | 19.8 | % | 19.5 | % | 19.4 | % | 19.8 | % | 20.0 | % |
ASSET MANAGEMENT MARGIN
CI assesses the overall performance of the asset management segment using a trailing 12-month asset management margin, where deferred sales commissions, trailer fees, and SG&A expenses are deducted from management fees and measured as a percentage of management fees (all figures are before inter-segment eliminations). This removes distortion caused by other revenues and expenses, eliminates the financing impact of back-end load funds, and eliminates revenue mix variances because it is measured as a percentage of management fees and not average AUM. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
TABLE 7: ASSET MANAGEMENT MARGIN | ||||||||||||||||||||
[millions of dollars - trailing 12 months] |
Quarter ended
Sep. 30, 2019 |
Quarter ended
Jun. 30, 2019 |
Quarter ended
Mar. 31, 2019 |
Quarter ended
Dec. 31, 2018 |
Quarter ended
Sep. 30, 2018 |
|||||||||||||||
Management fees | 1,867.7 | 1,912.0 | 1,949.9 | 2,004.2 | 2,062.0 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 15.0 | 16.5 | 19.1 | 23.1 | 26.7 | |||||||||||||||
Trailer fees | 618.5 | 632.8 | 644.8 | 662.8 | 682.5 | |||||||||||||||
Net management fees | 1,234.3 | 1,262.8 | 1,286.0 | 1,318.2 | 1,352.8 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 397.3 | 403.7 | 407.3 | 414.7 | 423.6 | |||||||||||||||
836.9 | 859.1 | 878.7 | 903.4 | 929.1 | ||||||||||||||||
Asset management margin | 44.8 | % | 44.9 | % | 45.1 | % | 45.1 | % | 45.1 | % |
SG&A EFFICIENCY MARGIN
CI uses a trailing 12-month SG&A efficiency margin to assess its costs relative to management fees earned, net of deferred sales commissions and trailer fees, which are not directly controllable by CI. SG&A expenses are subtracted from these net management fees and the remainder is measured as a percentage of net management fees. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
Q3 Financial Report | 9 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 8: SG&A EFFICIENCY MARGIN
[millions of dollars - trailing 12 months] |
Quarter ended
Sep. 30, 2019 |
Quarter ended
Jun. 30, 2019 |
Quarter ended
Mar. 31, 2019 |
Quarter ended
Dec. 31, 2018 |
Quarter ended
Sep. 30, 2018 |
|||||||||||||||
Management fees | 1,867.7 | 1,912.0 | 1,949.9 | 2,004.2 | 2,062.0 | |||||||||||||||
Less: | ||||||||||||||||||||
Deferred sales commissions paid | 15.0 | 16.5 | 19.1 | 23.1 | 26.7 | |||||||||||||||
Trailer fees | 618.5 | 632.8 | 644.8 | 662.8 | 682.5 | |||||||||||||||
Net management fees | 1,234.3 | 1,262.8 | 1,286.0 | 1,318.2 | 1,352.8 | |||||||||||||||
Less: | ||||||||||||||||||||
SG&A expenses | 397.3 | 403.7 | 407.3 | 414.7 | 423.6 | |||||||||||||||
836.9 | 859.1 | 878.7 | 903.4 | 929.1 | ||||||||||||||||
SG&A efficiency margin | 67.8 | % | 68.0 | % | 68.3 | % | 68.5 | % | 68.7 | % |
ASSETS AND SALES
CI is one of Canada’s largest independent investment fund companies with assets under management of $130.0 billion and assets under advisement of $47.4 billion at September 30, 2019, as shown in Table 9. Assets under advisement are comprised of AUA and assets held by clients of advisors with Stonegate Private Counsel. Assets under management decreased 5% year over year, mainly due to net redemptions of funds. The 7% increase in assets under advisement from last year was due to net sales, advisor recruitment, and the acquisition of WealthBar. Total assets, which include mutual, segregated and hedge funds, separately managed accounts, structured products, exchange-traded funds, pooled funds and assets under advisement, were $177.4 billion at September 30, 2019, down $3.5 billion from $180.9 billion at September 30, 2018.
TABLE 9: TOTAL ASSETS | ||||||||||||
As at | As at | |||||||||||
[billions of dollars] | September 30, 2019 | September 30, 2018 | % change | |||||||||
Assets under management | 130.0 | 136.5 | (5 | ) | ||||||||
Assets under advisement1 | 47.4 | 44.4 | 7 | |||||||||
Total assets | 177.4 | 180.9 | (2 | ) |
1Includes $28.1 billion and $26.9 billion of assets managed by CI and held by clients of advisors with Assante and Stonegate in 2019 and 2018, respectively.
After reaching a new high in the prior quarter, the U.S. equity market fell sharply near the end of July and remained volatile over the next several weeks before climbing higher again. The S&P 500 Index, an index of the 500 largest U.S. publicly traded companies, finished the period up 3% and with a gain of 17% for the year-to-date in Canadian dollars. The U.S. market rally has been broad-based in 2019, with particularly strong results for companies in the information technology, utilities and real estate sectors.
Q3 Financial Report | 10 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
In Canada, the S&P/TSX Composite Index also weakened in late July, but bounced back to reach a record high late in the quarter, with a rally that was fuelled by companies in the financials and consumer staples sectors. The Canadian benchmark gained nearly 2.5% for the quarter, and was one of the best-performing equity markets globally with a year-to-date gain of 19.1%.
The change in AUM during each of the past five quarters is detailed in Table 10 and a breakdown of CI’s sales is provided in Table 11.
TABLE 10: CHANGE IN ASSETS UNDER MANAGEMENT | ||||||||||||||||||||
[billions of dollars] |
Quarter ended
Sep. 30, 2019 |
Quarter ended
Jun. 30, 2019 |
Quarter ended
Mar. 31, 2019 |
Quarter ended
Dec. 31, 2018 |
Quarter ended
Sep. 30, 2018 |
|||||||||||||||
Assets under management, beginning | 130.186 | 131.309 | 124.360 | 136.526 | 138.182 | |||||||||||||||
Gross sales | 3.577 | 2.908 | 3.596 | 3.023 | 3.015 | |||||||||||||||
Redemptions | 5.116 | 5.375 | 5.860 | 5.742 | 5.433 | |||||||||||||||
Net sales | (1.539 | ) | (2.467 | ) | (2.265 | ) | (2.719 | ) | (2.418 | ) | ||||||||||
Acquisitions (divestitures) | — | (0.560 | ) | — | — | — | ||||||||||||||
Fund performance | 1.351 | 1.904 | 9.214 | (9.447 | ) | 0.762 | ||||||||||||||
Assets under management, ending | 129.998 | 130.186 | 131.309 | 124.360 | 136.526 | |||||||||||||||
Average assets under management | 129.784 | 131.133 | 128.887 | 129.316 | 138.322 |
CI’s overall net redemptions in the third quarter were $1.5 billion, an improvement of $0.9 billion over both the prior quarter and the same quarter last year. CI’s Canadian business, excluding products closed to new investors, had $3.0 billion in gross sales in the third quarter of 2019, an improvement of $0.3 billion over both the prior quarter and the same quarter last year. Redemptions in this segment decreased, resulting in net redemptions of $1.8 billion for the third quarter of 2019, an improvement of $0.6 billion over the third quarter of 2018. CI’s international business had $594 million in gross sales and $495 million in net sales in the third quarter due to a large institutional investment. CI’s closed business, comprised primarily of segregated fund contracts that are no longer available for sale, had $225 million in net redemptions for the quarter.
TABLE 11: SALES BREAKDOWN
Quarter ended September 30, 2019 | Quarter ended September 30, 2018 | |||||||||||||||||||||||
[millions of dollars] | Gross Sales | Redemptions | Net Sales | Gross Sales | Redemptions | Net Sales | ||||||||||||||||||
Canadian Business | ||||||||||||||||||||||||
Retail | 2,668 | 4,079 | (1,411 | ) | 2,154 | 4,204 | (2,051 | ) | ||||||||||||||||
Institutional | 301 | 699 | (398 | ) | 533 | 860 | (327 | ) | ||||||||||||||||
2,969 | 4,778 | (1,809 | ) | 2,687 | 5,064 | (2,377 | ) | |||||||||||||||||
International Business | ||||||||||||||||||||||||
Retail | 127 | 89 | 38 | 93 | 62 | 31 | ||||||||||||||||||
Institutional | 468 | 11 | 457 | 223 | 68 | 155 | ||||||||||||||||||
594 | 99 | 495 | 317 | 130 | 186 | |||||||||||||||||||
Closed Business | 14 | 239 | (225 | ) | 11 | 239 | (227 | ) | ||||||||||||||||
Total | 3,577 | 5,116 | (1,539 | ) | 3,015 | 5,433 | (2,418 | ) |
Q3 Financial Report | 11 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RESULTS OF OPERATIONS
For the quarter ended September 30, 2019, CI reported net income attributable to shareholders of $139.0 million ($0.60 per share) versus $158.2 million ($0.62 per share) for the quarter ended September 30, 2018. The decrease from the prior year was mainly due to lower management fees resulting from lower average AUM. Net income attributable to shareholders for the quarter ended June 30, 2019 was $111.9 million ($0.47 per share). That quarter included a restructuring provision of $26.6 million ($35.0 million before-tax) related to severances and technology write downs. Excluding the provision, CI’s net income attributable to shareholders was $138.5 million ($0.58 per share) in the prior quarter.
CI’s total revenue was $527.5 million in the third quarter of 2019, a decrease of 7.3% when compared to total revenue of $569.0 million in the same period in 2018. On a consecutive quarter basis, total revenue decreased 0.5%. The decreases were primarily due to lower average AUM.
For the quarter ended September 30, 2019, SG&A expenses were $124.6 million, down 3.3% from $128.9 million in the same quarter of 2018 and down 0.2% from $124.8 million in the prior quarter. The change in SG&A from last year was primarily a result of a change in accounting methodology. Effective for the first quarter of 2019, CI adopted IFRS 16, an accounting standard that requires lessees to recognize assets and liabilities for leases longer than 12 months. This change impacts SG&A by replacing lease expense with interest and depreciation, which are not included in SG&A. This accounting change was not adopted retroactively - further information can be found in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements.
As an annualized percentage of average AUM, SG&A expenses were 0.381%, up from 0.370% for the third quarter of last year and down slightly from 0.382% for the prior quarter. The increase from the same quarter last year was primarily due to the addition of WealthBar and annual compensation increases.
In the third quarter of 2019, CI paid $2.6 million in deferred sales commissions, compared with $4.1 million in the same quarter of 2018 and $3.1 million in the prior quarter. Consistent with the Canadian mutual fund industry, CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Interest expense of $13.8 million was recorded for the quarter ended September 30, 2019 compared with $11.6 million for the quarter ended September 30, 2018 and $13.7 million for the quarter ended June 30, 2019. The change in interest expense from the same quarter last year reflected the addition of lease interest expense beginning in the first quarter of 2019 (relating to the adoption of IFRS 16), as well as the changes in average debt levels and interest rates, as discussed under the Liquidity and Capital Resources section.
For the third quarter of 2019, CI recorded $47.4 million in income tax expense for an effective tax rate of 25.4% compared to $59.5 million, or 27.3%, in the third quarter of 2018, and $40.9 million, or 26.8%, in the prior quarter. The effective tax rate for the quarter ended September 30, 2019 was lower than the comparable periods due to tax recoveries. Please note that CI’s effective tax rate may differ from its statutory tax rate, which is currently 26.5%, as a result of some expenses being nondeductible or partially deductible, or some revenue items not being fully taxable.
Q3 Financial Report | 12 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
ASSET MANAGEMENT SEGMENT
The Asset Management segment is CI’s principal business segment and its operating results are presented in Table 12.
TABLE 12: RESULTS OF OPERATIONS - ASSET MANAGEMENT SEGMENT | ||||||||||||
[millions of dollars] |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Sep. 30, 2018 |
|||||||||
Management fees | 465.6 | 468.5 | 509.9 | |||||||||
Other revenue | (2.1 | ) | (1.0 | ) | 0.9 | |||||||
Total revenue | 463.5 | 467.4 | 510.9 | |||||||||
Selling, general and administrative | 98.6 | 99.3 | 105.0 | |||||||||
Trailer fees | 154.4 | 155.8 | 168.7 | |||||||||
Deferred sales commissions paid | 2.8 | 3.3 | 4.3 | |||||||||
Amortization and depreciation | 5.6 | 5.7 | 4.2 | |||||||||
Other expenses | 1.8 | 34.3 | 0.7 | |||||||||
Total expenses | 263.1 | 298.4 | 282.9 | |||||||||
Non-controlling interest | 0.2 | — | 0.2 | |||||||||
Income before taxes and non-segmented items | 200.2 | 168.9 | 227.8 |
Revenues
Revenues from management fees were $465.6 million for the quarter ended September 30, 2019, a decrease of 8.7% from $509.9 million for the quarter ended September 30, 2018 and a decrease of 0.6% from $468.5 million for the quarter ended June 30, 2019. The decrease in management fees from the third quarter of last year was due to the 6.2% decrease in average AUM and a decline in net management fees. The net management fee rate has been generally declining due to a change in CI’s mix of business towards newer products with lower pricing, products that do not pay trailer fees, as well as new pricing initiatives intended to keep CI’s products competitive. The decrease from the prior quarter was primarily due to the 1.0% decrease in average AUM, slightly offset by the difference in days during the period (92 vs. 91). Net management fees (management fees less trailer fees and deferred sales commissions) as a percentage of average AUM were 0.943%, down from 0.966% for the third quarter last year and from 0.946% for the prior quarter.
For the quarter ended September 30, 2019, other revenue was $(2.1) million versus $0.9 million for the quarter ended September 30, 2018 and $(1.0) million for the quarter ended June 30, 2019. The decrease in other revenue from the prior quarters was mainly due to unrealized losses on marketable securities.
Expenses
SG&A expenses for the Asset Management segment were $98.6 million for the quarter ended September 30, 2019, compared with $105.0 million for the third quarter in 2018 and $99.3 million for the prior quarter. The decrease from the same quarter last year was primarily due to the adoption of IFRS 16, as discussed in the Results of Operations section. As a percentage of average AUM, SG&A expenses were 0.301% for the quarter ended September 30, 2019, unchanged from 0.301% for the quarter ended September 30, 2018, and down from 0.304% the quarter ended June 30, 2019.
Q3 Financial Report | 13 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Trailer fees were $154.4 million for the quarter ended September 30, 2019, down 8.5% from $168.7 million for the quarter ended September 30, 2018 and down 0.9% from $155.8 million for the quarter ended June 30, 2019. Net of inter-segment amounts, this expense was $146.5 million for the quarter ended September 30, 2019 versus $160.6 million for the third quarter of 2018 and $148.1 million for the second quarter of 2019. The decrease from both comparable periods related to the decrease in average AUM and the change in asset mix towards products that do not pay trailer fees.
In the third quarter of 2019, before inter-segment eliminations, CI paid $2.8 million in deferred sales commissions, compared with $4.3 million in the same quarter of 2018 and $3.3 million in the prior quarter. CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Other expenses for the quarter ended September 30, 2019 were $1.8 million, compared to $0.7 million for the quarter ended September 30, 2018 and $34.3 million for the quarter ended June 30, 2019. As discussed earlier, the second quarter of 2019 included a restructuring provision, of which $32.4 million related to the asset management segment.
The asset management margin for the third quarter of 2019 was 45.1% compared to 45.5% in the third quarter of 2018 and 44.8% in the prior quarter. CI’s quarterly asset management margin has improved each quarter this year mainly due to cost containment measures in response to declining fees. During periods of declining AUM and/or fee rates, CI’s management will respond by strategically reducing SG&A. On a trailing 12-month basis, CI’s asset management margin was 44.8%, down slightly from 45.1% for the same period last year. Another measure that CI uses to assess its costs is the SG&A efficiency margin. This measure differs from asset management margin as it is calculated as a percentage of net management fees (management fees less trailers and deferred sales commissions). CI’s current quarter SG&A efficiency margin was 68.0%, down from 68.8% in the third quarter of last year and up from 67.9% in the prior quarter. The calculations and definitions of asset management margin and SG&A efficiency margin can be found in the “Non-IFRS Measures” section.
Income before taxes and non-segmented items for CI’s principal segment was $200.2 million for the quarter ended September 30, 2019, down 12.1% from $227.8 million in the same period in 2018 and up 18.5% from $168.9 million in the previous quarter. Excluding the restructuring provision, income before taxes and non-segmented items was $201.3 million for the second quarter of 2019.
Q3 Financial Report | 14 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
ASSET ADMINISTRATION SEGMENT
The Asset Administration segment operating results are presented in Table 13.
TABLE 13: RESULTS OF OPERATIONS - ASSET ADMINISTRATION SEGMENT | ||||||||||||
[millions of dollars] |
Quarter
ended Sep. 30, 2019 |
Quarter
ended Jun. 30, 2019 |
Quarter
ended Sep. 30, 2018 |
|||||||||
Administration fees | 99.8 | 97.7 | 94.8 | |||||||||
Other revenue | 9.1 | 9.2 | 8.0 | |||||||||
Total revenue | 108.9 | 106.9 | 102.8 | |||||||||
Selling, general and administrative | 26.0 | 25.5 | 23.9 | |||||||||
Investment dealer fees | 80.1 | 78.6 | 76.4 | |||||||||
Amortization and depreciation | 2.6 | 2.6 | 1.0 | |||||||||
Other expenses | 0.6 | 3.1 | 0.1 | |||||||||
Total expenses | 109.2 | 109.8 | 101.4 | |||||||||
Non-controlling interest | (0.4 | ) | (0.5 | ) | — | |||||||
Income before taxes and non-segmented items | — | (2.4 | ) | 1.4 |
Revenues
Administration fees were $99.8 million for the quarter ended September 30, 2019, an increase of 5.3% from $94.8 million for the same period a year ago and an increase of 2.1% from $97.7 million for the prior quarter. The change in administration fees from the third quarter last year related to the change in assets under administration at Assante and the addition of WealthBar in January of this year. Net of inter-segment amounts, administration fee revenue was $54.9 million for the quarter ended September 30, 2019, up from $50.2 million for the quarter ended September 30, 2018 and up from $53.6 million for the quarter ended June 30, 2019.
For the quarter ended September 30, 2019, other revenue was $9.1 million, up from $8.0 million for the quarter ended September 30, 2018 and down slightly from the prior quarter. Other revenue consists mainly of non-advisor-related activities.
Expenses
Investment dealer fees were $80.1 million for the quarter ended September 30, 2019 compared to $76.4 million for the third quarter of 2018 and $78.6 million for the quarter ended June 30, 2019. Net of inter-segment amounts, investment dealer fees were $43.2 million, up from $40.1 million for the same quarter last year and up from $42.4 million for the prior quarter.
As discussed in the “Non-IFRS Measures” section of this MD&A and as set out in Table 6, dealer gross margin was $19.7 million or 19.8% of administration fee revenue for the quarter ended September 30, 2019 compared to $18.4 million or 19.4% for the third quarter of 2018 and $19.1 million or 19.5% for the previous quarter.
SG&A expenses for the segment were $26.0 million for the quarter ended September 30, 2019 compared to $23.9 million in the third quarter of 2018 and $25.5 million in the second quarter of 2019. The increases in SG&A relates to strategic investments in this segment of CI’s business.
Q3 Financial Report | 15 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Other expenses were $0.6 million for the quarter ended September 30, 2019, up from $0.1 million in the same quarter of 2018 and down from $3.1 million in the second quarter of 2019. As discussed earlier, the second quarter of 2019 included a restructuring provision, of which $2.6 million related to the asset administration segment.
The Asset Administration segment had income before taxes and non-segmented items of $0.0 million for the quarter ended September 30, 2019, compared to $1.4 million for the third quarter of 2018 and $(2.4) million for the prior quarter. Excluding the restructuring provision, the second quarter of 2019 had income before taxes and non-segmented items of $0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
CI generated $434.8 million of free cash flow in the first nine months of 2019, compared to $499.0 million for the same period of 2018. Reconciliations of free cash flow to cash provided by operating activities are provided in the “Non-IFRS Measures” section and set out in Table 3.
CI primarily uses cash flow to fund capital expenditures, fund acquisitions, pay down debt, pay dividends on its shares, and repurchase shares through its normal course issuer bid. At current levels of cash flow and anticipated dividend payout rates, CI produces sufficient cash to meet its obligations and support planned business operations for at least the next 12 months.
CI’s cash flows may fluctuate, primarily in the first quarter, as a result of the balance of cash income taxes and incentive compensation related to the prior year being paid at the end of February.
TABLE 14: SUMMARY OF CASH FLOWS | ||||||||
[millions of dollars] |
Nine months ended
Sep. 30, 2019 |
Nine months ended
Sep. 30, 2018 |
||||||
Free cash flow | 434.8 | 499.0 | ||||||
Less: | ||||||||
Investments in marketable securities, net of marketable securities sold | (17.2 | ) | (6.2 | ) | ||||
Capital expenditures | 9.9 | 9.0 | ||||||
Share repurchases, net of shares issued | 305.8 | 496.6 | ||||||
Dividends paid | 129.6 | 250.0 | ||||||
Debt repaid / (drawn) | (64.5 | ) | (325.2 | ) | ||||
Working capital and other items | 88.5 | 83.6 | ||||||
452.1 | 507.8 | |||||||
Net change in cash | (17.3 | ) | (8.8 | ) | ||||
Cash at January 1 | 137.2 | 124.6 | ||||||
Cash at September 30 | 119.9 | 115.7 |
During the first nine months of 2019, CI invested $9.0 million in marketable securities and received proceeds of $26.2 million from the disposition of marketable securities. Excluding BBS’ securities owned, at market, the fair value of CI’s investments as of September 30, 2019 was $123.2 million. This was comprised of seed capital investments in CI funds and strategic investments.
During the nine months ended September 30, 2019, CI invested $9.9 million in capital assets, up from $9.0 million in the nine months ended September 30, 2018. These investments related primarily to leasehold improvements and technology.
Q3 Financial Report | 16 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
During the nine months ended September 30, 2019, CI repurchased 15.7 million shares under its normal course issuer bid at a total cost of $305.8 million, or $19.45 per share. CI had 228,161,314 shares outstanding at the end of September, which differs from CI’s TSX-listed shares outstanding, 229,159,837, due to restricted employee shares held in trust.
CI paid dividends of $129.6 million during the first nine months of the year. The Board of Directors declared a quarterly dividend of $0.18 per share, payable on April 15, 2020, to shareholders of record on March 31, 2020. Previously, in August 2018, the Board declared a quarterly dividend of $0.18 per share to be paid for the remainder of 2018 and for all of 2019.
The statement of financial position for CI at September 30, 2019 reflected total assets of $4.363 billion, an increase of $70.6 million from $4.292 billion at December 31, 2018. This change was primarily due to the lease accounting change discussed earlier and detailed in Note 2 of the Notes to Interim Condensed Consolidated Financial Statements, as well as the addition of WealthBar.
CI’s cash and cash equivalents decreased by $17.3 million in the first nine months of the year to $119.9 million as of September 30, 2019. Accounts receivable and prepaid expenses increased by $20.6 million to $177.4 million as of September 30, 2019. Capital assets increased by $1.4 million during the nine months ended September 30, 2019 as a result of $9.9 million in capital additions less $8.6 million in amortization.
Total liabilities decreased by $25.3 million during the nine months to $2.834 billion at September 30, 2019. This change was mainly attributable to a decrease in dividends payable, as CI had declared six quarters of dividends in August of 2018. This was partially offset by an increase in lease liabilities, due to the lease accounting change referenced earlier.
At September 30, 2019, CI had $1,575.0 million in outstanding debentures with a weighted average interest rate of 3.17% and a carrying value of $1,569.2 million. During the quarter, CI issued $350.0 million debentures due July 22, 2024 at a 3.215% interest rate, which was primarily used to pay down its credit facility. On September 30, 2019, CI had not drawn against its $700 million credit facility. Principal repayments on any drawn amounts are only required at the maturity of the facility, which is December 11, 2021.
Net debt, as discussed in the “Non-IFRS Measures” section and as set out in Table 5, was $1,341 million at September 30, 2019, up from $1,255 million at December 31, 2018. The average gross debt level for the nine months ended September 30, 2019 was $1,576 million, compared to $1,378 million for the same period last year.
At September 30, 2019, CI was in a positive working capital position. This, in addition to the availability of its credit facility, reflects the ability of CI to meet its cash flow requirements.
CI’s ratios of debt to adjusted EBITDA and net debt to adjusted EBITDA were 1.9 to 1 and 1.6 to 1, respectively. CI was within its financial covenants with respect to its credit facility, which required that the debt to EBITDA ratio remain below 3.0 to 1, and assets under management not fall below $85 billion, based on a rolling 30-day average.
Shareholders’ equity was $1.523 billion at September 30, 2019, an increase of $93.1 million from December 31, 2018.
Q3 Financial Report | 17 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RISK MANAGEMENT
CI is exposed to a number of risks that are inherent in the wealth management business. Some factors which introduce or exacerbate risk are within the control of management and others are, by their nature, outside of CI’s direct control but must still be managed. Effective risk management is a key component to achieving CI’s business objectives and protecting company and client assets. It is an ongoing process involving the Board of Directors and the company’s Risk Management Committee, comprised of senior executives representing CI’s business units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board of Directors.
The Risk Management Committee monitors, evaluates and manages risk, and ensures that business strategies and activities are consistent with CI’s risk appetite. Regular reports are provided to the Audit and Risk Committee of CI’s Board.
As noted above, the Risk Management Committee is comprised of senior executives from each core business unit and operating area at CI. CI has developed an enterprise-wide approach to monitoring, evaluating and managing risk. The members of the Risk Management Committee identify and evaluate specific and material risks, applying both a quantitative and a qualitative analysis and then assess the likelihood of occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize or avoid negative consequences and these risk mitigation processes are implemented and monitored with each business unit.
The risks described below are not the only risks facing CI. The risks set out below are risks and uncertainties that the Risk Management Committee currently believe could materially affect CI’s future financial performance. The reader should carefully consider the risks described below, and the other information contained in this MD&A, including under the heading “Forward- Looking Statements” before making an investment decision.
MARKET RISK
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates, foreign exchange rates, and equity and commodity prices. A description of each component of market risk is described below:
– | Interest rate risk is the risk of gain or loss due to the volatility of interest rates. |
– | Foreign exchange rate risk is the risk of gain or loss due to volatility of foreign exchange rates. |
– | Equity risk is the risk of gain or loss due to the changes in prices and volatility of individual equity instruments and equity indexes. |
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in the performance of CI’s investment funds and may adversely affect CI’s assets under management, management fees and revenues, which would reduce cash flow to CI and ultimately impact CI’s ability to meet its financial obligations.
Q3 Financial Report | 18 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
MARKET RISK FOR THE ASSET MANAGEMENT SEGMENT
At September 30, 2019, approximately 28% of CI’s assets under management were held in fixed-income securities, which are exposed to interest rate risk. An increase in interest rates causes market prices of fixed-income securities to fall, while a decrease in interest rates causes market prices to rise. CI’s fund managers invest in a well-diversified portfolio of securities across issuers, durations and maturities, which reduces risk. CI estimates that a 100 basis point change in interest rates across the yield curve would cause a change of approximately $30 million to $40 million in annual pre-tax earnings in the Asset Management segment.
At September 30, 2019, about 43% of CI’s assets under management were based in Canadian currency. While CI’s concentration in Canadian currency assets reduces its exposure to foreign exchange risk, approximately 43% of CI’s assets under management were based in U.S. currency. Any change in the value of the Canadian dollar relative to U.S. currency will cause fluctuations in CI’s assets under management. CI estimates that a 10% change in Canadian/U.S. exchange rates would cause a change of approximately $20 million to $30 million in the Asset Management segment’s annual pre-tax earnings.
About 67% of CI’s assets under management were held in equity securities at September 30, 2019, which are subject to equity risk. Equity risk is classified into two categories: general equity risk and issuer-specific risk. CI employs internal and external fund managers to take advantage of their expertise in particular market niches, sectors and products and to reduce issuer-specific risk through diversification. CI estimates that a 10% change in the value of equities would cause a change of approximately $45 million to $55 million in annual pre-tax earnings.
As of September 30, 2019, CI’s methodology for calculating exposures changed. The sensitivity of CI’s assets to changes in each of the above factors was calculated using an enhanced risk model that incorporates correlations between various market factors. Exposures and sensitivities do not account for currency hedging that portfolio managers may employ. There are risks and limitations with relying on models and it is possible that actual results may differ from those presented above.
CI has a control environment that ensures market risks are reviewed regularly. CI’s compliance group reviews and monitors CI’s fund and portfolio investments for compliance with investment policies and regulations. CI also reviews investment processes, portfolio positioning and attribution of results of its investment teams on a regular basis.
MARKET RISK FOR THE ASSET ADMINISTRATION SEGMENT
CI’s operating results are not materially exposed to market risk impacting the asset administration segment given that this segment usually generates less than 1% of the total income before non-segmented items (this segment reported a gain of $0.0 million before income taxes and non-segmented items for the quarter ended September 30, 2019). Investment advisors regularly review their client portfolios to assess market risk and consult with clients to make appropriate changes to mitigate it.
POLITICAL AND MARKET RISK
CI’s performance is directly affected by financial markets and political conditions, including any political change and uncertainty in the United States and globally. These changes may cause significant volatility and decline in the global economy or specific international, regional and domestic financial markets which are beyond the control of CI. There can be no assurance that financial market performance will be favourable in the future. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in performance, which could negatively impact CI’s business and impede the growth of CI’s assets under management and revenue.
Q3 Financial Report | 19 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
STRATEGIC RISK
Strategic risks are risks that directly impact the overall direction of CI and the ability of CI to successfully identify growth opportunities and implement proposed solutions. The key strategic risk is the risk that management fails to anticipate, and respond to, changes in the business environment, including demographic, regulatory and competitive changes. CI’s performance is directly affected by the financial market and business conditions, including the legislation and policies of the governments and regulatory authorities having jurisdiction over CI’s operations. These are beyond the control of CI; however, an important part of the risk management process is the ongoing review and assessment of industry and economic trends and changes. Strategies are then designed to effectively respond to any anticipated changes, including identifying acquisition opportunities, developing new business lines, introducing new products, and implementing cost control strategies.
Part of CI’s strategy includes strategic acquisitions and investments in growth opportunities. Strategic acquisitions may benefit CI through increasing fee earning assets, broadening CI’s distribution relationships, enhancing CI’s business capabilities and capturing cost synergies. CI embarks on a thorough due diligence process prior to any acquisition; however, there can be no assurances that the anticipated benefits of any acquisition will be achieved. The success of an acquisition is contingent upon many factors, including retaining key employees, securing assets acquired, obtaining legal and regulatory approvals, integrating operations and vendor relationships, and having favourable economic conditions.
REPUTATION RISK
Reputation risk is the potential negative impact of a deterioration of CI’s image or lower public confidence in the CI brand, its senior management or its products and services. Operational errors, poor performance, regulatory investigation or sanctions, litigation or employee misconduct could result in reputational harm to CI. Through its Codes of Conduct, governance practices, risk management programs, policies, procedures and training, CI attempts to prevent and detect any activities by CI officers, directors, and employees that would harm CI’s reputation. While all employees, directors and officers are expected to protect the reputation of CI, there can be no assurances that unauthorized or unsuccessful activities may result in damage to CI’s reputation, which could adversely affect CI’s business and profitability.
Q3 Financial Report | 20 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
COMPETITION RISK
CI operates in a highly competitive environment, with competition based on a variety of factors, including the range of products offered, brand recognition, investment performance, business reputation, financing strength, management and sales relationships, quality of service, level of fees charged and level of commissions and other compensation paid. CI competes with a large number of mutual fund companies and other providers of investment products, investment management firms, broker-dealers, banks, insurance companies and other financial institutions. Some of these competitors have, and potential future competitors may have, greater technical, financial, marketing, distribution or other resources than CI. The trend toward greater consolidation within the investment management industry has increased the strength of a number of CI’s competitors. CI’s competitors seek to expand market share by offering different products and services and more competitive pricing than those offered by CI. While CI continues to develop and market new products and services and remains competitive with respect to fees, there can be no assurance that CI will maintain its current standing or market share or investment performance relative to its competitors, which may adversely affect the business, financial condition or operating results of CI.
In addition, there are uncertainties involved in the introduction of new products and services, including technical requirements, operational controls and procedures, compliance with regulatory requirements and shifting market preferences. The development and introduction of new products and services may require ongoing support and investment. A failure to manage the risks involved in the implementation of new products and services may lead to operational lapses, increased capital requirements, and competitive alternatives, which could adversely affect CI’s standing, market share or investment performance relative to its competitors and negatively impact the business, financial condition or operating results of CI.
DISTRIBUTION RISK
CI distributes its investment products through a number of distribution channels, including brokers, independent financial planners and insurance advisors. CI’s access to these distribution channels is impacted by the strength of the relationship with certain business partners and the level of competition faced from the financial institutions that own those channels. While CI continues to develop and enhance existing relationships, there can be no assurance that CI will, in the future, enjoy the level of access that it has in the past, which would adversely affect its sales of investment products.
REGULATORY AND LEGAL RISK
CI’s business is dependent upon compliance with and continued registration under securities laws in all jurisdictions in which CI and its subsidiaries carry on business. Laws and regulations applied at the national and provincial level generally grant governmental agencies and self-regulatory bodies broad administrative discretion over the activities of CI, including the power to limit or restrict business activities as well as impose additional disclosure requirements on CI products and services. Possible sanctions include the revocation or imposition of conditions on licenses to operate certain businesses, the suspension or expulsion from a particular market or jurisdiction of any of CI’s business segments or its key personnel or financial advisors, and the imposition of fines and censures. It is also possible that the laws and regulations governing a subsidiary’s operations or particular investment products or services could be amended or interpreted in a manner that is adverse to CI. To the extent that existing or future regulations affecting the sale or offering of CI’s product or services or CI’s investment strategies cause or contribute to reduced sales of CI’s products or lower margins or impair the investment performance of CI’s products, CI’s aggregate assets under management and its revenues may be adversely affected. In addition, the ongoing change in the securities regulatory environment governing CI’s business may require additional human resources and operations which will increase costs.
Given the nature of CI’s business, CI may from time to time be subject to claims or complaints from investors or others in the normal course of business. The legal risks facing CI, its directors, officers, employees or agents in this respect include potential liability for violations of corporate laws, securities laws, stock exchange rules and misuse of investors’ funds. Some violations of corporate laws, securities laws or stock exchange rules could result in civil liability, fines, sanctions, or expulsion from a self- regulatory organization or the suspension or revocation of CI’s right to carry on an existing business. CI may incur significant costs in connection with such potential liabilities.
Q3 Financial Report | 21 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
INFORMATION TECHNOLOGY RISK
CI uses information technology and the internet to streamline business operations and to improve the client and advisor experience. However, with the use of information technology and the internet, email messaging and other online capabilities, CI is exposed to information security risk that could potentially have an adverse impact on its business. CI is dependent on its information security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that it transmits through its information technology systems. Any information technology event, such as a hacker attack or virus, or internal issue, such as the failure to implement sufficient controls, could result in unauthorized access to sensitive or confidential information, theft, operational disruption, regulatory actions, legal liability or reputational harm. CI actively monitors this risk and continues to develop controls to protect against cyber threats that are becoming more sophisticated and pervasive. In addition, CI has and will continue to implement safeguards to control access to sensitive information, through password protection, encryption of confidential information and other means. Notwithstanding these measures, CI cannot fully mitigate the risk associated with information technology security. If mobile electronic devices, such as laptops or smart phones, are stolen, lost or left unattended, such devices may become exposed to hacking or other unauthorized use. As well, CI is dependent on the efficiency and effectiveness of the technology it uses and keeping pace with a continuously evolving information technology landscape. Malfunctioning of any of the technologies used by CI and being slow to keep pace could disrupt the company’s success and negatively impact CI’s financial position and reputation.
CI’s business is dependent on the physical integrity of its infrastructure, including its office space, storage centers and other facilities. CI has taken precautions to protect the physical security of its infrastructure, and the sensitive information contained therein, through passkey protection, limited after-hours access and clean desk policies. However, a breach of the physical integrity of CI infrastructure may leave sensitive information vulnerable to unauthorized access and use, increasing a possible security risk, which could negatively impact CI’s business and reputation.
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequate or failed internal processes or systems. The operational risk that CI is exposed to may arise from, technology failures, business disruption, theft and fraud, failure of key third parties, employee errors, processing and execution errors, and inaccurate or incomplete client information. Operational risk may result in a financial loss but can also lead to regulatory sanctions and harm to CI’s reputation. Operational risk driven by people and processes are mitigated through human resources policies and practices, and a strong internal control environment. Operational risks driven by systems and services are managed through controls over technology development and change management as well as enhanced procedures for oversight of third-party service providers. While CI continuously monitors its operational risks, there can be no assurances that CI’s internal control procedures can mitigate all operational risks.
Q3 Financial Report | 22 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TAXATION RISK
CI is subject to various uncertainties concerning the interpretation and application of Canadian tax laws. CI Investments is considered a large case file by the Canada Revenue Agency and, as such, is subject to audit each year. There is a significant lag between the end of a fiscal year and when such audits are completed. Therefore, at any given time, several years may be open for audit and/or adjustments. While CI regularly assesses the likely outcome of these audits in order to determine the appropriateness of its tax provision, there can be no assurance that CI will accurately predict the outcomes of these audits. If tax authorities disagree with CI’s application of such tax laws, CI’s profitability and cash flows could be adversely affected.
REDEMPTION RISK
CI earns revenue primarily from management fees earned for advising and managing investment fund assets. The level of these assets is dependent on (i) sales; (ii) redemptions; and (iii) investment performance. Sales and redemptions may fluctuate depending on market and economic conditions, investment preference, or other factors.
Significant redemptions could adversely affect investor fund returns by impacting market values and increasing transaction costs or taxable distributions. Continued large redemptions could negatively impact the prospects and operating results of CI.
KEY PERSONNEL RISK
The success of CI is dependent to a significant degree upon the contributions of senior management. The loss of any of these individuals, or an inability to attract, retain and motivate sufficient numbers of qualified senior management personnel, could adversely affect CI’s business. The retention of these key managers and the identification and development of the next generation of managers is an area of focus for CI. CI has not purchased any “key man” insurance with respect to any of its directors, officers or key employees and has no current plans to do so.
The success of CI is also dependent upon, among other things, the skills and expertise of its human resources, including the management and investment personnel with specialized skills related to, among other things, marketing, risk management, credit, information technology, accounting, administrative operations and legal affairs. These highly skilled and often highly specialized individuals play an important role in developing, implementing, operating, managing and distributing CI’s products and services. Accordingly, the recruitment and retention of skilled personnel, continuous training and transfer of knowledge are key activities that are essential to CI’s performance. CI has taken, and will continue to take, steps to encourage our key employees to remain employed at CI, including the implementation of long-service awards, employee engagement strategies and enhanced transparency measures with respect to compensation. In addition, the focus on asset growth and the reliance on investment performance to sell financial products has increased the demand for experienced and high- performing portfolio managers. Compensation packages for these managers may increase at a rate well in excess of inflation and well above the rates of increase observed in other industries and the rest of the labour market. The loss of these individuals or an inability to attract, retain and motivate a sufficient number of qualified personnel could result in a loss of clients and a decline in sales and adversely affect CI’s business.
The market for financial advisors is extremely competitive and is increasingly characterized by frequent movement by financial advisors among different firms. Individual financial advisors of AWM have regular direct contact with clients, which can lead to a strong and personal client relationship based on the client’s trust in the individual financial advisor. The loss of a significant number of financial advisors could lead to the loss of client accounts which could have a material adverse effect on the results of operations and prospects of AWM and, in turn, CI. Although AWM uses or has used a combination of competitive compensation structures and equity with vesting provisions as a means of seeking to retain financial advisors, there can be no assurance that financial advisors will remain with AWM.
Q3 Financial Report | 23 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
INSURANCE RISK
CI maintains various types of insurance which include financial institution bonds, errors and omissions insurance, directors’, trustees’ and officers’ liability insurance, agents’ insurance and general commercial liability insurance. Management evaluates the adequacy of CI’s insurance coverage on an ongoing basis. However, there can be no assurance that a claim or claims will not exceed the limits of available insurance coverage, that any insurer will remain solvent or willing to continue providing insurance coverage with sufficient limits or at a reasonable cost or that any insurer will not dispute coverage of certain claims due to ambiguities in the relevant policies. A judgment against CI in excess of available coverage could have a material adverse effect on CI both in terms of damages awarded and the impact on the reputation of CI.
CAPITAL RISK
Certain subsidiaries of CI are subject to minimum regulatory capital requirements. This may require CI to keep sufficient cash and other liquid assets on hand to maintain capital requirements rather than using them in connection with its business. Failure to maintain required regulatory capital by CI may subject it to fines, suspension or revocation of registration by the relevant securities regulator. A significant operating loss by a registrant subsidiary or an unusually large charge against regulatory capital could adversely affect the ability of CI to expand or even maintain its present level of business, which could have a material adverse effect on CI’s business, results of operations, financial condition and prospects.
CREDIT RISK
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed to the risk that third parties that owe it money, securities or other assets will not perform their obligations. These parties include trading counterparties, customers, clearing agents, exchanges, clearing houses and other financial intermediaries, as well as issuers whose securities are held by CI. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. CI does not have significant exposure to any individual counterparty. Credit risk is mitigated by regularly monitoring the credit performance of individual counterparties and holding collateral where appropriate.
One of the primary sources of credit risk arises when CI extends credit to clients to purchase securities by way of margin lending. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory requirements and by CI’s internal credit policy.
Q3 Financial Report | 24 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
LIQUIDITY RISK
Liquidity risk is the risk that CI may not be able to generate sufficient funds and within the time required in order to meet its obligations as they come due. While CI currently has access to financing, unfavourable market conditions may affect the ability of CI to obtain loans or make other arrangements on terms acceptable to CI.
SHARE CAPITAL
As at September 30, 2019, CI had 228,161,314 shares outstanding.
Employee Incentive Share Option Plan: At September 30, 2019, 5.6 million options to purchase shares were outstanding, of which 4.8 million options were exercisable at prices ranging from $27.44 to $35.88.
Restricted Share Unit (“RSU”) Plan: 1,206,662 RSUs were outstanding as at September 30, 2019.
Deferred Share Unit (“DSU”) Plan: 19,580 DSUs were outstanding as at September 30, 2019.
Additional details about the above Plans can be found in Note 6 to the Interim Condensed Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
The table that follows summarizes CI’s contractual obligations at September 30, 2019.
PAYMENTS DUE BY YEAR | ||||||||||||||||||||||||||||
[millions of dollars] | Total |
1 year or
less |
2 | 3 | 4 | 5 |
More than
5 years |
|||||||||||||||||||||
Long-term debt | 1,575.0 | — | 450.0 | 200.0 | 325.0 | 350.0 | 250.0 | |||||||||||||||||||||
Leases | 83.0 | 14.0 | 13.1 | 12.4 | 12.1 | 12.2 | 19.2 | |||||||||||||||||||||
Total | 1,658.0 | 14.0 | 463.1 | 212.4 | 337.1 | 362.2 | 269.2 |
SIGNIFICANT ACCOUNTING ESTIMATES
The September 30, 2019 Consolidated Financial Statements have been prepared in accordance with IFRS. For a discussion of all significant accounting policies, refer to Note 1 of the Notes to Interim Condensed Consolidated Financial Statements. Note 3 provides a discussion regarding the methodology used for business acquisitions. Note 5 provides a discussion regarding the recoverable amount of CI’s provision for other liabilities and contingencies.
NEW ACCOUNTING POLICIES
Effective January 1, 2019, CI adopted IFRS 16 using the modified retrospective approach. Under this approach CI recognized the lease liability based on the remaining lease payments discounted using CI’s incremental borrowing rate as at January 1, 2019. CI also recognized the right-of-use asset as at the date of initial application, as if IFRS 16 had always been applied since the commencement date of the lease, discounted using CI’s incremental rate of borrowing as at January 1, 2019. Comparative figures were not restated for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on January 1, 2019. Please refer to Note 2 of the Notes to Interim Condensed Consolidated Financial Statements for more information.
Q3 Financial Report | 25 | December 30, 2019 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with management, are responsible for the design of CI’s disclosure controls and procedures as defined in National Instrument 52-109 (NI 52-109). Management evaluated, with participation of the CEO and CFO, the effectiveness of the disclosure controls and procedures as at September 30, 2019. Based on this evaluation, the CEO and CFO have concluded that they are reasonably assured these disclosure controls and procedures were effective as at September 30, 2019 and that material information relating to CI was made known to them within the time periods specified under applicable securities legislation.
Management, under the supervision of the CEO and CFO, is responsible for the design and maintenance of adequate internal controls over financial reporting as defined in NI 52-109 for the purposes of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However, due to its inherent limitations, internal controls over financial reporting can only provide reasonable, not absolute, assurance that the financial statements are free of misstatements. The COSO framework was used to assist management, along with the CEO and CFO, in the evaluation of these internal control systems. Management, under the direction of the CEO and CFO, concluded that the internal controls over financial reporting were effective as at September 30, 2019. Management used various tools to evaluate internal controls over financial reporting which included interaction with key control systems, review of policy and procedure documentation, observation or reperformance of control procedures to evaluate the effectiveness of controls and concluded that these controls are effective. For the quarter ended September 30, 2019, there have been no changes to the internal controls that have materially affected, or are reasonably likely to affect, internal controls over financial reporting
Additional information relating to CI, including the most recent audited annual financial statements, management information circular and annual information form, is available on SEDAR at www.sedar.com and on CI’s website at www.cifinancial.com. Information contained in or otherwise accessible through the websites mentioned in this MD&A does not form part of, and is not incorporated by reference into, this MD&A.
Q3 Financial Report | 26 | December 30, 2019 |
Exhibit 99.13
INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
March 31, 2020
Q1 Financial Report | 1 | March 31, 2020 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited)
As at | As at | |||||||
March 31, 2020 | December 31, 2019 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | 182,723 | 118,360 | ||||||
Client and trust funds on deposit | 490,765 | 364,964 | ||||||
Investments [note 8] | 147,001 | 138,412 | ||||||
Accounts receivable and prepaid expenses | 175,086 | 170,156 | ||||||
Income taxes receivable | 988 | 25,841 | ||||||
Total current assets | 996,563 | 817,733 | ||||||
Capital assets, net | 48,947 | 45,954 | ||||||
Right-of-use assets [note 5] | 43,121 | 44,882 | ||||||
Intangibles [note 2] | 3,399,190 | 3,388,482 | ||||||
Other assets [note 8] | 84,831 | 70,755 | ||||||
Total assets | 4,572,652 | 4,367,806 | ||||||
LIABILITIES AND EQUITY | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities | 197,759 | 245,267 | ||||||
Current portion of provision for other liabilities [note 4] | 8,022 | 14,643 | ||||||
Dividends payable [note 7] | 77,988 | 79,845 | ||||||
Client and trust funds payable | 514,486 | 368,348 | ||||||
Current portion of long-term debt [note 3] | 449,632 | 449,509 | ||||||
Current portion of lease liabilities [note 5] | 11,249 | 11,348 | ||||||
Total current liabilities | 1,259,136 | 1,168,960 | ||||||
Long-term debt [note 3] | 1,295,249 | 1,154,985 | ||||||
Provision for other liabilities [note 4] | 22,956 | 18,493 | ||||||
Deferred income taxes [note 2] | 452,938 | 464,841 | ||||||
Lease liabilities [note 5] | 58,619 | 61,171 | ||||||
Total liabilities | 3,088,898 | 2,868,450 | ||||||
Equity | ||||||||
Share capital [note 6(a)] | 1,902,146 | 1,944,311 | ||||||
Contributed surplus | 24,037 | 23,435 | ||||||
Deficit | (449,896 | ) | (474,013 | ) | ||||
Accumulated other comprehensive income | 293 | 255 | ||||||
Total equity attributable to the shareholders of the Company | 1,476,580 | 1,493,988 | ||||||
Non-controlling interests [note 2] | 7,174 | 5,368 | ||||||
Total equity | 1,483,754 | 1,499,356 | ||||||
Total liabilities and equity | 4,572,652 | 4,367,806 |
(see accompanying notes)
On behalf of the Board of Directors: |
|
|
William T. Holland | Tom P. Muir | |
Director | Director |
Q1 Financial Report | 2 | March 31, 2020 |
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (unaudited)
For the three-month period ended March 31
2020 | 2019 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 422,579 | 442,427 | ||||||
Administration fees | 76,201 | 69,466 | ||||||
Redemption fees | 2,855 | 3,305 | ||||||
Realized and unrealized gain (loss) on investments | (12,625 | ) | 8,404 | |||||
Other income | 10,282 | 3,167 | ||||||
499,292 | 526,769 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 11] | 114,994 | 126,061 | ||||||
Trailer fees | 130,353 | 136,363 | ||||||
Investment dealer fees | 53,155 | 49,081 | ||||||
Deferred sales commissions | 3,245 | 4,605 | ||||||
Amortization and depreciation [note 12] | 8,594 | 8,159 | ||||||
Interest and lease finance [notes 3 and 5] | 14,612 | 13,715 | ||||||
Other [note 4] | 10,984 | 1,632 | ||||||
335,937 | 339,616 | |||||||
Income before income taxes | 163,355 | 187,153 | ||||||
Provision for income taxes | ||||||||
Current | 45,829 | 46,426 | ||||||
Deferred | (2,368 | ) | 767 | |||||
43,461 | 47,193 | |||||||
Net income for the period | 119,894 | 139,960 | ||||||
Net loss attributable to non-controlling interests | (321 | ) | (75 | ) | ||||
Net income attributable to shareholders | 120,215 | 140,035 | ||||||
Other comprehensive income, net of tax | ||||||||
Exchange differences on translation of foreign operations | 38 | 2 | ||||||
Total other comprehensive income, net of tax | 38 | 2 | ||||||
Comprehensive income for the period | 119,932 | 139,962 | ||||||
Comprehensive loss attributable to non-controlling interests | (321 | ) | (75 | ) | ||||
Comprehensive income attributable to shareholders | 120,253 | 140,037 | ||||||
Basic earnings per share attributable to shareholders [note 6(e)] | $ | 0.55 | $ | 0.58 | ||||
Diluted earnings per share attributable to shareholders [note 6(e)] | $ | 0.54 | $ | 0.58 |
(see accompanying notes)
Q1 Financial Report | 3 | March 31, 2020 |
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY (unaudited)
For the three-month period ended March 31
Share
capital
[note 6(a)] |
Contributed surplus | Deficit | Accumulated other comprehensive income |
Total shareholders’ equity |
Non-controlling interests |
Total equity |
||||||||||||||||||||||
[in thousands of Canadian dollars] | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Balance, January 1, 2020 | 1,944,311 | 23,435 | (474,013 | ) | 255 | 1,493,988 | 5,368 | 1,499,356 | ||||||||||||||||||||
Comprehensive income | — | — | 120,215 | 38 | 120,253 | (321 | ) | 119,932 | ||||||||||||||||||||
Dividends declared [note 7] | — | — | (38,114 | ) | — | (38,114 | ) | (38,114 | ) | |||||||||||||||||||
Shares repurchased, net of tax | (43,624 | ) | — | (57,984 | ) | — | (101,608 | ) | — | (101,608 | ) | |||||||||||||||||
Business combination [note 2] | — | — | — | — | — | 2,127 | 2,127 | |||||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 1,459 | (1,459 | ) | — | — | — | — | — | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 2,061 | — | — | 2,061 | — | 2,061 | |||||||||||||||||||||
Change during the period | (42,165 | ) | 602 | 24,117 | 38 | (17,408 | ) | 1,806 | (15,602 | ) | ||||||||||||||||||
Balance, March 31, 2020 | 1,902,146 | 24,037 | (449,896 | ) | 293 | 1,476,580 | 7,174 | 1,483,754 | ||||||||||||||||||||
Balance, January 1, 2019 | 2,125,130 | 25,270 | (730,663 | ) | 277 | 1,420,014 | 2,849 | 1,422,863 | ||||||||||||||||||||
Comprehensive income | — | — | 140,035 | 2 | 140,037 | (75 | ) | 139,962 | ||||||||||||||||||||
Dividends declared [note 7] | — | — | 2,143 | — | 2,143 | — | 2,143 | |||||||||||||||||||||
Shares repurchased, net of tax | (26,712 | ) | — | (31,621 | ) | — | (58,333 | ) | — | (58,333 | ) | |||||||||||||||||
Business combination [note 2] | — | — | — | — | — | 4,273 | 4,273 | |||||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 123 | (123 | ) | — | — | — | — | — | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 2,276 | — | — | 2,276 | — | 2,276 | |||||||||||||||||||||
Change during the period | (26,589 | ) | 2,153 | 110,557 | 2 | 86,123 | 4,198 | 90,321 | ||||||||||||||||||||
Balance, March 31, 2019 | 2,098,541 | 27,423 | (620,106 | ) | 279 | 1,506,137 | 7,047 | 1,513,184 |
(see accompanying notes)
Q1 Financial Report | 4 | March 31, 2020 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the three-month period ended March 31
2020 | 2019 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
OPERATING ACTIVITIES (*) | ||||||||
Net income for the period | 119,894 | 139,960 | ||||||
Add (deduct) items not involving cash | ||||||||
Realized and unrealized (gain) loss on investments | 12,625 | (8,404 | ) | |||||
Equity-based compensation | 2,773 | 3,056 | ||||||
Amortization and depreciation | 8,594 | 8,159 | ||||||
Deferred income taxes | (2,368 | ) | 767 | |||||
Cash provided by operating activities before net change in operating assets and liabilities | 141,518 | 143,538 | ||||||
Net change in operating assets and liabilities | (25,631 | ) | (22,636 | ) | ||||
Cash provided by operating activities | 115,887 | 120,902 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (10,396 | ) | (5,394 | ) | ||||
Proceeds on sale of investments | 26 | 3,847 | ||||||
Additions to capital assets | (5,950 | ) | (5,308 | ) | ||||
Increase in other assets | (15,017 | ) | (6,941 | ) | ||||
Additions to intangibles | (3,238 | ) | (1,107 | ) | ||||
Acquisition of subsidiary, net of cash acquired [note 2] | (10,382 | ) | (23,572 | ) | ||||
Cash used in investing activities | (44,957 | ) | (38,475 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Repayment of long-term debt | — | (283,500 | ) | |||||
Issuance of long-term debt | 140,000 | 308,000 | ||||||
Repurchase of share capital | (103,864 | ) | (60,778 | ) | ||||
Payment of lease liabilities | (2,732 | ) | (2,690 | ) | ||||
Dividends paid to shareholders [note 7] | (39,971 | ) | (43,899 | ) | ||||
Cash used in financing activities | (6,567 | ) | (82,867 | ) | ||||
Net increase (decrease) in cash and cash equivalents during the period | 64,363 | (440 | ) | |||||
Cash and cash equivalents, beginning of period | 118,360 | 137,160 | ||||||
Cash and cash equivalents, end of period | 182,723 | 136,720 | ||||||
(*) Included in operating activities are the following: | ||||||||
Interest paid | 17,934 | 13,379 | ||||||
Income taxes paid | 20,957 | 40,546 |
(see accompanying notes)
Q1 Financial Report | 5 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
CI Financial Corp. [“CI”] is a publicly listed company (TSX: CIX) incorporated under the laws of the Province of Ontario and has its registered office and principal place of business located at 2 Queen Street East, Toronto, Ontario.
CI’s primary business is the management and distribution of a broad range of financial products and services, including mutual funds, segregated funds, exchange-traded funds, financial planning, insurance, investment advice, wealth management and estate and succession planning.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These unaudited interim condensed consolidated financial statements of CI have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting [“IAS 34”] as issued by the International Accounting Standards Board [“IASB”] and on a basis consistent with the accounting policies disclosed in the annual audited consolidated financial statements for the year ended December 31, 2019.
These unaudited interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of CI on May 5, 2020.
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of CI have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The unaudited interim condensed consolidated financial statements have been prepared on a going concern basis. CI’s presentation currency is the Canadian dollar, which is CI’s functional currency. The notes presented in these unaudited interim condensed consolidated financial statements include, in general, only significant changes and transactions occurring since CI’s last year-end, and are not fully inclusive of all disclosures required by International Financial Reporting Standards [“IFRS”] for annual financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2019.
BASIS OF CONSOLIDATION
The unaudited interim condensed consolidated financial statements include the accounts of CI and all its subsidiaries on a consolidated basis after elimination of intercompany transactions and balances. Subsidiaries are entities over which CI has control, when CI has the power, directly or indirectly, to govern the financial and operating policies of an entity, is exposed to variable returns from its activities, and is able to use its power to affect such variable returns to which it is exposed.
CI’s principal subsidiaries are as follows:
• | CI Investments Inc. [“CI Investments”], Assante Wealth Management (Canada) Ltd. [“AWM”], BBS Securities Inc. [“BBS”] and their respective subsidiaries. Effective July 1, 2019, First Asset Investment Management Inc. amalgamated with CI Investments. |
• | CI holds a controlling interest in Marret Asset Management Inc. [“Marret”], CI ETF Investment Management Inc., formerly WisdomTree Asset Management Canada, Inc. [“CIETF”] and Surevest Wealth Management [“Surevest”]. A non-controlling interest is recorded in the unaudited interim condensed consolidated statements of income and comprehensive income to reflect the non-controlling interest’s share of the income and comprehensive income, and a non-controlling interest is recorded within equity in the interim condensed consolidated statements of financial position to reflect the non-controlling interest’s share of the net assets. |
Q1 Financial Report | 6 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
• | CI holds a controlling interest in GSFM Pty Limited [“GSFM”] with put and call options over the remaining minority interest. CI considers the non-controlling interest in GSFM to have already been acquired and consolidates 100% of the income and comprehensive income in the unaudited interim condensed consolidated statements of income and comprehensive income. GSFM has an interest in a joint arrangement classified as a joint operation. The unaudited interim condensed consolidated financial statements include GSFM’s recognition of its share of the joint operation’s assets, liabilities, income and comprehensive income. |
Hereinafter, CI and its subsidiaries are referred to as CI.
2. | BUSINESS ACQUISITION |
WisdomTree
On February 19, 2020, CI acquired 100% of the outstanding shares and debt obligations of CI ETF Investment Management Inc., formerly WisdomTree Asset Management Canada, Inc., an investment fund manager of exchange-traded funds. The acquisition was accounted for using the acquisition method of accounting. The estimated fair values of the assets acquired and liabilities assumed and the results of operations have been consolidated from the date of the transaction and are included in the asset management segment.
Surevest Wealth Management
On January 24, 2020, CI acquired a majority stake in Surevest Wealth Management, a Phoenix-based registered investment advisory firm. The acquisition was accounted for using the acquisition method of accounting. The estimated fair values of the assets acquired and liabilities assumed and the results of operations have been consolidated from the date of the transaction and are included in the wealth management segment.
Snap Projections Inc.
On October 16, 2019, WealthBar acquired 100% of the outstanding shares of Snap Projections Inc. The acquisition was accounted for using the acquisition method of accounting. The estimated fair values of the assets acquired and liabilities assumed and the results of operations have been consolidated from the date of the transaction.
Q1 Financial Report | 7 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
One Capital Management LLC
On December 23, 2019, CI reached an agreement to acquire a majority stake in One Capital Management LLC. The details of the acquisition are being finalized and is expected to close before June 30, 2020.
The Cabana Group, LLC
On April 2, 2020, CI reached an agreement to acquire an interest in The Cabana Group, LLC, the parent company of Cabana Asset Management [together “Cabana”]. The details of the acquisition are being finalized and is expected to close before June 30, 2020.
WealthBar Financial Services Inc.
On January 23, 2019, CI acquired 75% of the outstanding shares and debt obligations of WealthBar Financial Services Inc., [“WealthBar”] a leading Canadian online wealth management and financial planning platform, for all cash consideration of $23,653.
$ | ||||
Cash and cash equivalents | 81 | |||
Accounts receivable and prepaid expenses | 416 | |||
Income taxes receivable | 226 | |||
Capital assets | 113 | |||
Right-of-use asset | 248 | |||
Fund administration contracts | 4,000 | |||
Intangible - technology | 15,000 | |||
Accounts payable and accrued liabilities | (401 | ) | ||
Lease liability | (262 | ) | ||
Deferred income taxes | (2,356 | ) | ||
Fair value of identifiable net assets | 17,065 | |||
Non-controlling interest (25% of identifiable net assets) | (4,266 | ) | ||
Goodwill on acquisition | 10,854 | |||
Total acquired cost | 23,653 |
The acquired fund administration contracts with a fair value of $4,000 have a finite life of 10 years. The technology acquired has a fair value of $15,000 and an estimated useful life of 10 years. The goodwill on acquisition is not deductible for income taxes. Goodwill of $10,854 relates to the wealth management segment.
Q1 Financial Report | 8 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
3. | LONG-TERM DEBT |
Long-term debt consists of the following:
As at
March 31, 2020 |
As at
December 31, 2019 |
|||||||
$ | $ | |||||||
Credit facility | ||||||||
Banker’s acceptances | 175,000 | 35,000 | ||||||
175,000 | 35,000 |
Debenture principal amount | Interest rate | Issued date | Maturity date | |||||||||||||
$450 million | 2.645 | % | December 7, 2015 | December 7, 2020 | 449,632 | 449,509 | ||||||||||
$200 million | 2.775 | % | November 25, 2016 | November 25, 2021 | 199,572 | 199,512 | ||||||||||
$325 million | 3.520 | % | July 20, 2018 | July 20, 2023 | 323,698 | 323,616 | ||||||||||
$350 million | 3.215 | % | July 22, 2019 | July 22, 2024 | 348,190 | 348,101 | ||||||||||
$250 million | 3.904 | % | September 27, 2017 | September 27, 2027 | 248,789 | 248,756 | ||||||||||
1,569,881 | 1,569,494 | |||||||||||||||
Long-term debt | 1,744,881 | 1,604,494 | ||||||||||||||
Current portion of long-term debt | 449,632 | 449,509 |
Credit facility
CI has a $700,000 revolving credit facility with three Canadian chartered banks. Loans are made by the banks under a three-year revolving credit facility, with the outstanding principal balance due upon maturity on December 11, 2021. The credit facility contains a number of financial covenants that require CI to meet certain financial ratios and financial condition tests. CI is within its financial covenants with respect to its credit facility, which requires that the funded debt to annualized EBITDA ratio remains below 3:1 and that CI’s assets under management not fall below $85 billion, calculated based on a rolling 30-day average. There can be no assurance that future borrowings or equity financing will be available to CI or available on acceptable terms.
Debentures
On July 22, 2019, CI completed an offering pursuant to which it issued $350,000 principal amount of debentures due July 22, 2024 at par [the “2024 Debentures”]. Interest on the 2024 Debentures is paid semi-annually in arrears at a rate of 3.215%. The proceeds, net of transaction costs, were used to repay outstanding indebtedness under the credit facility.
On February 2, 2017, CI entered into an interest rate swap agreement with a Canadian chartered bank to swap the semi-annual fixed rate payments on the debentures due November 25, 2021 for floating rate payments. As at March 31, 2020, the fair value of the interest rate swap agreement was an unrealized gain of $1,626 and is included in long-term debt in the unaudited interim condensed consolidated statements of financial position.
Q1 Financial Report | 9 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
4. | PROVISION FOR OTHER LIABILITIES AND CONTINGENCIES |
CI is a party to a number of claims, proceedings and investigations, including legal, regulatory and tax, in the ordinary course of its business. Due to the inherent uncertainty involved in these matters, it is difficult to predict the final outcome or the amount and timing of any outflow related to such matters. Based on current information and consultations with advisors, CI does not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on its financial position or on its ability to continue normal business operations.
CI has made provisions based on current information and the probable resolution of such contingent consideration, claims, proceedings and investigations as well as for amounts payable in connection with business acquisitions and severance. The movement in amounts provided for contingent liabilities and related expenses during the three months ended March 31, 2020 and the year ended December 31, 2019, are as follows:
3 months ended
March 31, 2020 |
Year ended
December 31, 2019 |
|||||||
$ | $ | |||||||
Provision for other liabilities, beginning of period | 33,136 | 34,768 | ||||||
Additions | 7,054 | 35,214 | ||||||
Amounts used | (9,212 | ) | (36,504 | ) | ||||
Amounts reversed | — | (342 | ) | |||||
Provision for other liabilities, end of period | 30,978 | 33,136 | ||||||
Current portion of provision for other liabilities | 8,022 | 14,643 |
Provision for other liabilities primarily includes the following:
LITIGATION
CI is a defendant to certain lawsuits of which two are class action lawsuits related to events and transactions that gave rise to a settlement agreement with the Ontario Securities Commission [“OSC”] in 2004. Although CI continues to believe that this settlement fully compensated investors affected by frequent trading activity, a provision has been made based on the probable resolution of these claims and related expenses.
CI maintains insurance policies that may provide coverage against certain claims. Amounts receivable under these policies are not accrued for unless the realization of income is virtually certain. During the three months ended March 31, 2020, no insurance proceeds were received related to the settlement of legal claims.
PUT OPTION AND CONTINGENT CONSIDERATION
Included in provision for other liabilities as at March 31, 2020, is a provision for the fair value of the put option granted to minority interest shareholders for the acquisition of GSFM of $7,193, including foreign exchange translation adjustments [December 31, 2019 – $7,573].
Q1 Financial Report | 10 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
RESTRUCTURING
During the three months ended March 31, 2020, CI recorded an additional provision of $8,500 related to severance. During the three months ended June 30, 2019, CI recorded an initial provision of $35,000 related to severance and the write-down of software intangibles that were retired. As at March 31, 2020, a provision of 2,218 remains [December 31, 2019 – $6,485].
As at March 31, 2020, a provision of nil remains for the restructuring, integration and legal costs related to the acquisition of Sentry and BBS [December 31, 2019 – $2,400].
REMEDIATION
In 2015, CI discovered an administrative error and recorded a provision of $10,750, net of recoveries for the cost to remediate. As at March 31, 2020, a net recovery of $3,934 remains [December 31, 2019 – $3,793].
5. | LEASES |
The following shows the carrying amounts of CI’s right-of-use assets and lease liabilities and the movements during the three months ended March 31, 2020:
Right-of-use assets | ||||||||||||||||
Property
leases |
Equipment
leases |
Total |
Lease
liabilities |
|||||||||||||
$ | $ | $ | $ | |||||||||||||
As at January 1, 2020 | 43,711 | 1,171 | 44,882 | 72,519 | ||||||||||||
Additions & modifications | 520 | 30 | 550 | 58 | ||||||||||||
Depreciation expense | (2,101 | ) | (242 | ) | (2,343 | ) | — | |||||||||
Interest expense | — | — | — | 715 | ||||||||||||
Payments | — | — | — | (3,447 | ) | |||||||||||
Translation | 32 | — | 32 | 23 | ||||||||||||
As at March 31, 2020 | 42,162 | 959 | 43,121 | 69,868 |
During the three months ended March 31, 2020, CI recognized a rent recovery of $40 for short-term leases, expenses of $7 for leases of low-value assets and variable lease payments of $3,352 [three months ended ended March 31, 2019 – expenses of $256, $60 and $3,151, respectively].
Included in other income for the three months ended March 31, 2020, is finance income of $24 received from sub-leasing right-of-use assets [three months ended March 31, 2019 – $24].
Q1 Financial Report | 11 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts]
6. | SHARE CAPITAL |
A summary of the changes to CI’s share capital for the period is as follows:
[A] AUTHORIZED AND ISSUED
Number of shares | Stated value | |||||||
[in thousands] | $ | |||||||
Authorized | ||||||||
An unlimited number of common shares of CI | ||||||||
Issued | ||||||||
Common shares, balance, December 31, 2018 | 243,721 | 2,125,130 | ||||||
Issuance of share capital on vesting of restricted share units | 711 | 12,751 | ||||||
Share repurchases, net of tax | (22,640 | ) | (193,570 | ) | ||||
Common shares, balance, December 31, 2019 | 221,792 | 1,944,311 | ||||||
Issuance of share capital on vesting of restricted share units | 85 | 1,459 | ||||||
Share repurchases, net of tax | (5,244 | ) | (43,624 | ) | ||||
Common shares, balance, March 31, 2020 | 216,633 | 1,902,146 |
[B] EMPLOYEE INCENTIVE SHARE OPTION PLAN
CI has an employee incentive share option plan [the “Share Option Plan”], as amended and restated, for the executives and key employees of CI.
No options were granted during the three months ended March 31, 2020. During the year ended December 31, 2019, CI granted 743 thousand options to employees. The fair value method of accounting is used for the valuation of the 2019 share option grants. Compensation expense is recognized over the applicable vesting periods, assuming an estimated average forfeiture rate of 12.7%, with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well as any consideration paid by the option holder are credited to share capital.
Q1 Financial Report | 12 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts]
The fair value of the 2019 option grants was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
Year of grant | 2019 | 2019 | ||||||
# of options granted [in thousands] | 213 | 530 | ||||||
Vesting terms | At end of year 5 | 1/3 at end of years 3, 4 and 5 | ||||||
Dividend yield | 3.792% | 3.792% | ||||||
Expected volatility (*) | 17% | 17% | ||||||
Risk-free interest rate | 2.238% | 2.182% – 2.238% | ||||||
Expected life [years] | 6.8 | 5.2 – 6.8 | ||||||
Forfeiture rate | 0% | 13% | ||||||
Fair value per stock option | $2.48 | $2.23 – $2.48 | ||||||
Exercise price | $18.99 | $18.99 | ||||||
(*) Based on historical volatility of CI’s share price. |
A summary of the changes in the Share Option Plan is as follows:
Number of options |
Weighted average
exercise price |
|||||||
[in thousands] | $ | |||||||
Options outstanding, December 31, 2018 | 6,958 | 32.18 | ||||||
Options exercisable, December 31, 2018 | 5,789 | 32.97 | ||||||
Options granted | 743 | 18.99 | ||||||
Options cancelled | (2,117 | ) | 34.28 | |||||
Options outstanding, December 31, 2019 | 5,584 | 29.63 | ||||||
Options exercisable, December 31, 2019 | 4,758 | 31.26 | ||||||
Options cancelled | (2,275 | ) | 33.37 | |||||
Options outstanding, March 31, 2020 | 3,309 | 27.06 | ||||||
Options exercisable, March 31, 2020 | 2,644 | 29.03 |
Options outstanding and exercisable as at March 31, 2020 are as follows:
Exercise price |
Number of
options outstanding |
Weighted average remaining
contractual life |
Number of options
exercisable |
|||||||||
$ | [in thousands] | [years] | [in thousands] | |||||||||
18.99 | 648 | 8.9 | — | |||||||||
27.44 | 448 | 1.9 | 448 | |||||||||
28.63 | 1,942 | 0.9 | 1,942 | |||||||||
28.67 | 51 | 2.9 | 34 | |||||||||
35.88 | 220 | — | 220 | |||||||||
18.99 to 35.88 | 3,309 | 2.6 | 2,644 |
Q1 Financial Report | 13 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts]
[C] RESTRICTED SHARE UNITS
CI has an employee restricted share unit plan [the “RSU Plan”] for senior executives and other key employees. Compensation expense is recognized and recorded as contributed surplus based upon the market value of the restricted share units [“RSUs”] at the grant date. Forfeitures of RSUs reduce compensation expense to the extent contributed surplus was previously recorded for such awards. On vesting of RSUs, share capital is credited for the amounts initially recorded as contributed surplus to reflect the issuance of share capital.
During the three months ended March 31, 2020, CI granted 356 thousand RSUs [three months ended March 31, 2019 – 499 thousand RSUs], including 5 thousand RSUs granted to reflect dividends declared on the common shares [three months ended March 31, 2019 – 7 thousand]. Also, during the three months ended March 31, 2020, 85 thousand RSUs were exercised, and 5 thousand RSUs were forfeited [three months ended March 31, 2019 – 6 thousand exercised and 15 thousand RSUs forfeited]. During the three months ended March 31, 2020, CI credited contributed surplus for $2,670, related to compensation expense recognized for the RSUs [three months ended March 31, 2019 – 2,926]. As at March 31, 2020, 923 thousand RSUs are outstanding [December 31, 2019 – 657 thousand RSUs].
CI uses a Trust to hold CI’s common shares, to fulfil obligations to employees arising from the RSU Plan. The common shares held by the Trust are not considered to be outstanding for the purposes of basic and diluted earnings per share calculations.
[D] DEFERRED SHARE UNITS
The deferred share unit plan [the “DSU Plan”] was established in March 2017, whereby directors may elect to receive all or a portion of their quarterly compensation in either cash or deferred share units [“DSUs”]. The DSUs fully vest on the grant date and an expense is recorded based upon the market value of the DSUs at the grant date with an offset included in accounts payable and accrued liabilities. At the end of each period, the change in the fair value of the DSUs is recorded as an expense with an offset recorded to the liability. DSUs can only be redeemed for cash once the holder ceases to be a director of CI.
During the three months ended March 31, 2020, 3 thousand DSUs were granted, and nil DSUs were exercised [three months ended March 31, 2019 – nil DSUs granted, and nil exercised]. An expense recovery of $121 was recorded during the three months ended March 31, 2020 [three months ended March 31, 2019 – $18]. As at March 31, 2020, included in accounts payable and accrued liabilities, is an accrual of $343 for amounts to be paid under the DSU Plan [December 31, 2019 – $464].
Q1 Financial Report | 14 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts]
[E] BASIC AND DILUTED EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share for the three months ended March 31:
[in thousands] |
3 months ended
March 31, 2020 |
3 months ended
March 31, 2019 |
||||||
Numerator: | ||||||||
Net income attributable to shareholders of the Company basic and diluted | $ | 120,215 | $ | 140,035 | ||||
Denominator: | ||||||||
Weighted average number of common shares - basic | 219,551 | 241,947 | ||||||
Weighted average effect of dilutive stock options and RSU awards (*) | 1,476 | 653 | ||||||
Weighted average number of common shares - diluted | 221,027 | 242,600 | ||||||
Net earnings per common share attributable to shareholders | ||||||||
Basic | $ | 0.55 | $ | 0.58 | ||||
Diluted | $ | 0.54 | $ | 0.58 |
(*) The determination of the weighted average number of common shares - diluted excludes 2,661 thousand shares related to stock options that were anti-dilutive for the three months ended March 31, 2020 [three months ended March 31, 2019 - 6,037 thousand shares].
[F] MAXIMUM SHARE DILUTION
The following table presents the maximum number of shares that would be outstanding if all the outstanding options were exercised and if all RSU awards vested as at April 30, 2020:
[in thousands] | ||||
Shares outstanding at April 30, 2020 | 216,634 | |||
Options to purchase shares | 3,011 | |||
RSU awards | 935 | |||
220,580 |
Q1 Financial Report | 15 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts]
7. | DIVIDENDS |
The following dividends were paid by CI during the three months ended March 31, 2020:
Cash dividend per share |
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2019 | January 15, 2020 | 0.18 | 39,971 | |||||||
Paid during the three months ended March 31, 2020 | 39,971 |
The following dividends were declared but not paid during the three months ended March 31, 2020:
Cash dividend per share |
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
March 31, 2020 | April 15, 2020 | 0.18 | 38,994 | |||||||
June 30, 2020 | July 15, 2020 | 0.18 | 38,994 | |||||||
Declared and accrued as at March 31, 2020 | 77,988 |
The following dividends were paid by CI during the three months ended March 31, 2019:
Cash dividend per share |
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2018 | January 15, 2019 | 0.18 | 43,899 | |||||||
Paid during the three months ended March 31, 2019 | 43,899 |
The following dividends were declared but not paid during the three months ended March 31, 2019:
Cash dividend per share |
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
March 31, 2019 | April 15, 2019 | 0.18 | 43,268 | |||||||
June 30, 2019 | July 15, 2019 | 0.18 | 43,268 | |||||||
September 30, 2019 | October 15, 2019 | 0.18 | 43,267 | |||||||
December 31, 2019 | January 15, 2020 | 0.18 | 43,267 | |||||||
Declared and accrued as at March 31, 2019 | 173,070 |
Q1 Financial Report | 16 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
8. | FINANCIAL INSTRUMENTS |
The carrying amounts of the financial instruments are presented in the tables below and are classified according to the following categories:
As at | As at | |||||||
March 31, 2020 | December 31, 2019 | |||||||
$ | $ | |||||||
Financial assets | ||||||||
Fair value through profit or loss | ||||||||
Cash and cash equivalents | 182,723 | 118,360 | ||||||
Investments | 147,001 | 138,412 | ||||||
Other assets | 27,224 | 26,856 | ||||||
Amortized cost | ||||||||
Client and trust funds on deposit | 490,765 | 364,964 | ||||||
Accounts receivable | 150,902 | 159,760 | ||||||
Other assets | 37,304 | 39,564 | ||||||
Total financial assets | 1,035,919 | 847,916 | ||||||
Financial liabilities | ||||||||
Fair value through profit or loss | ||||||||
Provisions for other liabilities | 12,902 | 8,650 | ||||||
Amortized cost | ||||||||
Accounts payable and accrued liabilities | 195,438 | 242,176 | ||||||
Provisions for other liabilities | 18,076 | 24,486 | ||||||
Dividends payable | 77,988 | 79,845 | ||||||
Client and trust funds payable | 514,486 | 368,348 | ||||||
Long-term debt | 1,744,881 | 1,604,494 | ||||||
Total financial liabilities | 2,563,771 | 2,327,999 |
CI’s investments as at March 31, 2020 and December 31, 2019, include CI’s marketable securities which are comprised of seed capital investments in CI’s mutual funds and strategic investments. Mutual fund securities are valued using the net asset value per unit of each fund, which represents the underlying net assets at fair values determined using closing market prices. CI’s mutual fund securities that are valued daily are classified as Level 1 in the fair value hierarchy. Mutual fund securities and strategic investments that are valued less frequently are classified as Level 2 in the fair value hierarchy. CI’s investments as at March 31, 2020, also include securities owned, at market, consisting of money market, equity securities and bonds. Money market and equity securities are valued based on quoted prices and are classified as Level 1 in the fair value hierarchy. Bonds are valued using a market comparison technique to fair value these instruments using observable broker quotes and are classified as Level 2 in the fair value hierarchy. There have been no transfers between Level 1 and Level 2 during the period.
Q1 Financial Report | 17 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
Investments consist of the following as at March 31, 2020:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 116,755 | 46,363 | 66,739 | 3,653 | ||||||||||||
Securities owned, at market | 30,246 | 30,246 | — | — | ||||||||||||
Total investments | 147,001 | 76,609 | 66,739 | 3,653 |
Investments consist of the following as at December 31, 2019:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 118,243 | 40,587 | 74,003 | 3,653 | ||||||||||||
Securities owned, at market | 20,169 | 20,169 | — | — | ||||||||||||
Total investments | 138,412 | 60,756 | 74,003 | 3,653 |
Included in other assets are long-term private equity strategic investments of $27,224 [December 31, 2019 – $26,856] valued using Level 3 inputs.
Included in provision for other liabilities, as at March 31, 2020, is put option payable on non-controlling interest of $7,193 [December 31, 2019 – $7,573] carried at fair value and classified as Level 3 in the fair value hierarchy. Long-term debt as at March 31, 2020, includes debentures with a fair value of $1,547,586 [December 31, 2019 – $1,586,136], as determined by quoted market prices that have been classified as Level 2 in the fair value hierarchy.
9. | CAPITAL MANAGEMENT |
CI’s objectives in managing capital are to maintain a capital structure that allows CI to meet its growth strategies and build long-term shareholder value, while satisfying its financial obligations and meeting its long-term debt covenants. CI’s capital comprise shareholders’ equity and long-term debt (including the current portion of long-term debt).
CI and its subsidiaries are subject to minimum regulatory capital requirements whereby sufficient cash and other liquid assets must be on hand to maintain capital requirements rather than using them in connection with its business. As at March 31, 2020, cash and cash equivalents of $15,951 [2019 - $12,810] were required to be on hand for regulatory capital maintenance. Failure to maintain required regulatory capital by CI may result in fines, suspension or revocation of registration by the relevant securities regulator. CI from time to time provides loans to its subsidiaries for operating purposes and may choose to subordinate these loans in favour of general creditors. The repayment of subordinated loans is subject to regulatory approval. As at March 31, 2020 and December 31, 2019, CI met its capital requirements.
Q1 Financial Report | 18 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
CI’s capital consists of the following:
As at | As at | |||||||
March 31, 2020 | December 31, 2019 | |||||||
$ | $ | |||||||
Shareholders’ equity | 1,476,580 | 1,493,988 | ||||||
Long-term debt | 1,744,881 | 1,604,494 | ||||||
Total capital | 3,221,461 | 3,098,482 |
10. | SEGMENTED INFORMATION |
CI has two reportable segments: asset management and wealth management (formerly asset management and asset administration). These segments reflect CI’s current internal financial reporting, performance measurement and strategic priorities. Prior periods have been restated for comparative purposes.
The asset management segment includes the operating results and financial position of CI Investments, GSFM, Marret, and CI ETF, which derive their revenues principally from the fees earned on the management of several families of mutual funds, segregated funds and exchange-traded funds. The operating results of CI Private Counsel LP are now included in the wealth management segment.
The wealth management segment includes the operating results and financial position of CI Private Counsel LP, Surevest, WealthBar, BBS and AWM and its subsidiaries, including Assante Capital Management Ltd. and Assante Financial Management Ltd. These companies derive their revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients.
Q1 Financial Report | 19 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
Segmented information as at and for the three-month period ended March 31, 2020 is as follows:
Asset
management |
Wealth
management |
Intersegment
eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 426,296 | — | (3,717 | ) | 422,579 | |||||||||||
Administration fees | — | 121,469 | (45,268 | ) | 76,201 | |||||||||||
Other revenue | (9,797 | ) | 10,309 | — | 512 | |||||||||||
Total revenue | 416,499 | 131,778 | (48,985 | ) | 499,292 | |||||||||||
Selling, general and administrative | 84,872 | 33,839 | (3,717 | ) | 114,994 | |||||||||||
Trailer fees | 138,225 | — | (7,872 | ) | 130,353 | |||||||||||
Investment dealer fees | — | 90,348 | (37,193 | ) | 53,155 | |||||||||||
Deferred sales commissions | 3,448 | — | (203 | ) | 3,245 | |||||||||||
Amortization and depreciation | 5,851 | 2,743 | — | 8,594 | ||||||||||||
Other expenses | 9,223 | 1,761 | — | 10,984 | ||||||||||||
Total expenses | 241,619 | 128,691 | (48,985 | ) | 321,325 | |||||||||||
Income before income taxes and non-segmented items | 174,880 | 3,087 | — | 177,967 | ||||||||||||
Interest and lease finance | (14,612 | ) | ||||||||||||||
Provision for income taxes | (43,461 | ) | ||||||||||||||
Net income for the period | 119,894 | |||||||||||||||
Identifiable assets | 508,892 | 749,698 | — | 1,258,590 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,308,420 | 223,932 | — | 1,532,352 | ||||||||||||
Fund contracts | 1,781,710 | — | — | 1,781,710 | ||||||||||||
Total assets | 3,599,022 | 973,630 | — | 4,572,652 |
Q1 Financial Report | 20 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
Segmented information for the three-month period ended March 31, 2019 is as follows:
Asset
management |
Wealth
management |
Intersegment
eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 445,412 | — | (2,985 | ) | 442,427 | |||||||||||
Administration fees | — | 112,035 | (42,569 | ) | 69,466 | |||||||||||
Other revenue | 6,737 | 8,139 | — | 14,876 | ||||||||||||
Total revenue | 452,149 | 120,174 | (45,554 | ) | 526,769 | |||||||||||
Selling, general and administrative | 96,640 | 32,406 | (2,985 | ) | 126,061 | |||||||||||
Trailer fees | 143,744 | — | (7,381 | ) | 136,363 | |||||||||||
Investment dealer fees | — | 84,023 | (34,942 | ) | 49,081 | |||||||||||
Deferred sales commissions | 4,851 | — | (246 | ) | 4,605 | |||||||||||
Amortization and depreciation | 5,383 | 2,776 | — | 8,159 | ||||||||||||
Other expenses | 1,479 | 153 | — | 1,632 | ||||||||||||
Total expenses | 252,097 | 119,358 | (45,554 | ) | 325,901 | |||||||||||
Income before income taxes and non-segmented items | 200,052 | 816 | — | 200,868 | ||||||||||||
Interest | (13,715 | ) | ||||||||||||||
Provision for income taxes | (47,193 | ) | ||||||||||||||
Net income for the period | 139,960 | |||||||||||||||
As at December 31, 2019 | ||||||||||||||||
Identifiable assets | 463,377 | 593,199 | — | 1,056,576 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,309,008 | 222,265 | — | 1,531,273 | ||||||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||||||
Total assets | 3,552,342 | 815,464 | — | 4,367,806 |
11. | SELLING, GENERAL AND ADMINISTRATIVE |
Included in selling, general and administrative expenses [“SG&A”] are salaries and benefits of $62,063 for the three months ended March 31, 2020 [three months ended March 31, 2019 – $70,641]. Other SG&A of $52,931 for the three months ended March 31, 2020, primarily includes marketing and information technology expenses as well as professional and regulatory fees [three months ended March 31, 2019 – $55,420].
Q1 Financial Report | 21 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
12. AMORTIZATION AND DEPRECIATION
The following table provides details of amortization and depreciation:
3
months ended
March 31, 2020 |
3
months ended
March 31, 2019 |
|||||||
$ | $ | |||||||
Depreciation of capital assets | 2,966 | 2,766 | ||||||
Depreciation of right-of-use assets | 2,353 | 2,177 | ||||||
Amortization of intangibles | 2,888 | 2,926 | ||||||
Amortization of debenture transaction costs | 387 | 290 | ||||||
Total amortization and depreciation | 8,594 | 8,159 |
13. UPDATE ON COVID-19
COVID-19, which has been recognized by the World Health Organization as a pandemic, has spread rapidly and extensively across the globe. Efforts by governments to control the further spread of COVID-19 have disrupted normal economic activity both domestically and globally. Uncertainty related to the extent, duration and severity of the pandemic has contributed to significant volatility in the financial markets, resulting in a general decline in equity and certain commodity prices and lower interest rates and a corresponding decline in CI’s assets under management and administration.
CI is monitoring the impact of the pandemic and managing expenses accordingly. Immediate steps have been taken to suspend share repurchases through the issuer bid program and to pay down amounts drawn on its credit facility. CI believes it is well positioned to meet its financial obligations and to support planned business operations throughout this pandemic. The extent to which CI’s business, financial condition and results of operations will be impacted by the COVID-19 pandemic, is uncertain and will depend on future developments, which are unpredictable and rapidly evolving. Accordingly, there is a higher level of uncertainty with respect to management’s judgments and estimates.
14. | ACCOUNTING STANDARD AMENDMENT |
IFRS 3 Business Combinations
Effective January 1, 2020, CI adopted prospectively, the amendment to IFRS 3, Business Combinations, which clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarifies that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the interim condensed consolidated financial statements of CI, but may impact future periods should CI enter into additional business combinations.
Q1 Financial Report | 22 | March 31, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
March 31, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
15. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform to the interim condensed consolidated financial statement presentation in the current year.
This Report contains forward-looking statements with respect to CI, including its business operations and strategy and financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things, general economic and market factors, including interest rates, business competition, changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time.
Q1 Financial Report | 23 | March 31, 2020 |
Exhibit 99.14
MANAGEMENT’S DISCUSSION & ANALYSIS | March 31, 2020
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This Management’s Discussion and Analysis (“MD&A”) dated May 6, 2020 presents an analysis of the financial position of CI Financial Corp. and its subsidiaries (“CI”) as at March 31, 2020, compared with December 31, 2019, and the results of operations for the quarter ended March 31, 2020, compared with the quarter ended March 31, 2019 and the quarter ended December 31, 2019.
CI’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Amounts are expressed in Canadian dollars. The principal subsidiaries referenced herein include CI Investments Inc. (“CI Investments”) and Assante Wealth Management (Canada) Ltd. (“AWM” or “Assante”). CI has two reportable segments: Asset Management and Wealth Management (formerly Asset Administration). These segments reflect CI’s current internal financial reporting, performance measurement, and strategic priorities. The Asset Management segment of the business includes the operating results and financial position of CI Investments and its subsidiaries, as well as the operating results and financial position of GSFM Pty Limited (“GSFM”). First Asset Investment Management Inc., formerly a subsidiary of CI Investments, was amalgamated on July 1, 2019. The Wealth Management segment includes the operating results and financial position of AWM and its subsidiaries, including Assante Capital Management Ltd. (“ACM”) and Assante Financial Management Ltd. (“AFM”), as well as the operating results and financial position of BBS Securities Inc. (“BBS”), WealthBar Financial Services Inc. (“WealthBar”), and Surevest LLC (“Surevest”). CI Private Counsel LP (“CIPC”), previously included in the Asset Management segment, is included in the Wealth Management segment effective January 1, 2020. The impact of this change was to move revenue of approximately $18.0 million and related expenses to the Wealth Management segment in the three months ended March 31, 2020. The operating results of prior periods have been restated for comparative purposes.
This MD&A contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp. and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, the impact of the coronavirus pandemic, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time.
Q1 Financial Report | 2 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward-looking statement after the date on which it is made, whether to reflect new information, future events or otherwise.
This MD&A includes several non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full year results from period to period. Descriptions of these non-IFRS measures and reconciliations to the nearest IFRS measure, where necessary, are provided in the “Non-IFRS Measures” section of this MD&A. Note that figures in tables may not add due to rounding.
Q1 Financial Report | 3 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
BUSINESS OVERVIEW
CI is a diversified wealth management firm and one of Canada’s largest independent asset management companies.CI’s principal business is the management, marketing, distribution and administration of investment products for Canadian investors. CI also provides financial advice, tax, retirement, estate and wealth planning services in Canada through Assante, CIPC, WealthBar, and in the United States through Surevest. In addition, CI has asset management operations in Australia through its subsidiary GSFM. CI’s products are distributed primarily through brokers, independent financial planners and insurance advisors, including ACM and AFM financial advisors. CI operates through two business segments, Asset Management and Wealth Management.
The Asset Management segment provides the majority of CI’s income and derives its revenue principally from the fees earned on the management of investment funds and other fee-earning investment products. CI uses in-house teams and external investment managers to provide portfolio management services. These investment managers typically have long careers in the industry as well as extensive track records with CI. This lineup of investment managers provides a wide selection of styles and areas of expertise for CI’s funds.
The Wealth Management segment (previously called Asset Administration) was renamed to better reflect CI’s performance measurement and business strategy, and now includes the results of operations of CIPC (previously in Asset Management). The Wealth Management segment derives its revenue principally from fees and commissions from ongoing service, financial planning and advice, and on the sale of investment funds and other financial products. Prior results have been restated for comparative purposes.
BUSINESS STRATEGY
In the fourth quarter of 2019, CI Financial announced a new strategic direction for the company, with the introduction of three strategic priorities:
• | Modernize the asset management business |
• | Expand the wealth management platform |
• | Globalize the company |
In establishing these priorities, CI sought input from a series of critical sources, including employees, clients, shareholders and industry analysts, and incorporated insights from observing market dynamics and industry trends. Each strategic priority builds on CI’s existing extensive capabilities to take advantage of opportunities in the marketplace.
A key factor in CI’s focus on modernizing its asset management business is that the rate and pace of change in the industry is at an all-time high, due to changes in demographics and investor preferences, changing client expectations for service and support, and ongoing regulatory change. This environment requires new services, new products and new approaches to meet investors’ changing needs.
Q1 Financial Report | 4 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI also believes that that the role of the advisor is more important than ever. As consumers' lives become increasingly complex and digital, CI’s breadth of capabilities uniquely positions the firm to be Canada's market leader; this is why expanding its wealth management platform is a strategic priority.
With scale becoming increasingly important in the industry and difficult to achieve in Canada alone, CI is globalizing the company. This strategic priority will also help the firm secure access to global talent to complement its existing capabilities.
In executing its strategy, the firm is leveraging its strategic foundation comprised of people, technology, speed and financial strength. By deploying its human capital and capabilities, driving advanced technology into everything the firm does, embedding new ways of working to be faster and more nimble, and maximizing the benefits of its financial strength, CI intends to maintain and grow its leadership in the asset management and wealth management industries.
As CI evolves to meet the challenges of a rapidly changing investment industry, it continues to make significant investments in key areas of the business to drive growth and broaden revenue opportunities, while prudently controlling expenditures.
COVID-19 IMPACT
The COVID-19 pandemic has contributed to significant disruption in the financial markets, resulting in a decline in CI’s assets under management. CI has activated its business continuity plan in response to the pandemic to mitigate risks, maintain operational efficiency and service levels, and address the health and safety concerns of our employees, clients and advisors. The extent to which CI’s business, financial condition and results of operations will be impacted by the COVID-19 pandemic, including attempts to mitigate its effects, is uncertain and will depend on future developments, which are unpredictable and rapidly evolving. A more detailed discussion can be found in “Business Continuity Risk” of the “Risk Management” section of this report.
KEY PERFORMANCE DRIVERS
The key performance indicator for the Asset Management segment is the level of Assets Under Management (“AUM”), and for the Wealth Management segment, the level of Assets Under Administration (“AUA”). Total assets are comprised of AUM and AUA. CI’s AUM and AUA are primarily driven by fund performance, as well as gross sales and redemptions of investment products. As most of CI’s revenues and expenses are based on daily asset levels throughout the year, average assets for a particular period are critical to the analysis of CI’s financial results. While some expenses, such as trailer fees, vary directly with the level of AUM, a portion of CI’s expenses do not, such as a portion of overhead, discretionary spend, and deferred sales commissions. Over the long term, CI manages the level of its discretionary spend to be consistent with, or below, the growth in its revenue. In any given period, CI may choose to make investments in people or technology that benefit the long-term growth of the company.
CI uses several performance indicators to assess its results. These indicators are described throughout the results of operations and the discussion of the two operating segments and include the following measures prescribed by IFRS: net income and earnings per share; and measures not prescribed by IFRS: adjusted net income, adjusted earnings per share, operating cash flow, free cash flow, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, dealer gross margin, net debt, asset management margin, and SG&A efficiency margin. Descriptions of these non-IFRS measures and reconciliations to IFRS are provided below.
Q1 Financial Report | 5 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NON-IFRS MEASURES
CI reports certain financial information using non-IFRS measures as CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full-year results from period to period.
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
CI defines adjusted net income as net income, net of non-controlling interest, and net of other provisions and adjustments. CI uses adjusted net income and adjusted earnings per share to compare underlying profitability for different periods.
TABLE 1: ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE | ||||||||||||
[millions of dollars, except per share amounts] |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Mar. 31, 2019 |
|||||||||
Net Income | 119.9 | 147.3 | 140.0 | |||||||||
Add: | ||||||||||||
Restructuring provision | 6.2 | — | — | |||||||||
Less: | ||||||||||||
Non-controlling interest | (0.3 | ) | (0.3 | ) | (0.1 | ) | ||||||
Adjusted net income | 126.5 | 147.5 | 140.0 | |||||||||
Adjusted earnings per share | 0.58 | 0.66 | 0.58 |
OPERATING CASH FLOW AND FREE CASH FLOW
CI measures its operating cash flow before the change in operating assets and liabilities, and the actual cash amount paid for interest and income taxes, as these items often distort the cash flow generated during the period. Operating assets and liabilities are affected by seasonality, the timing of interest payments depends on terms in specific debt instruments, and tax installments paid may differ materially from the cash tax accrual.
Free cash flow is calculated as operating cash flow adjusted for provisions. CI uses this measure, among others, when determining how to deploy capital.
Q1 Financial Report | 6 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 2: OPERATING CASH FLOW AND FREE CASH FLOW | ||||||||||||
[millions of dollars] |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Mar. 31, 2019 |
|||||||||
Cash provided by operating activities | 115.9 | 157.0 | 120.9 | |||||||||
Add: | ||||||||||||
Income taxes paid | 21.0 | 43.0 | 40.5 | |||||||||
Interest paid | 17.9 | 10.8 | 13.4 | |||||||||
Less: | ||||||||||||
Net change in non-cash working capital | 13.3 | 42.5 | 31.3 | |||||||||
Operating cash flow | 141.5 | 168.3 | 143.5 | |||||||||
Add: | ||||||||||||
Restructuring provision | 2.2 | — | — | |||||||||
Free cash flow | 143.7 | 168.3 | 143.5 |
EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
CI uses EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA, which it defines as EBITDA, net of non-controlling interest and other provisions and adjustments, to assess its underlying profitability prior to the impact of its financing structure, income taxes and amortization and depreciation. This permits comparisons of companies within the industry, normalizing for different financing methods and levels of taxation. Adjusted EBITDA is a measure of operating performance, a facilitator for valuation and a proxy for cash flow. Adjusted EBITDA margin expresses adjusted EBITDA as a percentage of total revenue.
TABLE 3: EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN | ||||||||||||
[millions of dollars, except per share amounts] |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Mar. 31, 2019 |
|||||||||
Net Income | 119.9 | 147.3 | 140.0 | |||||||||
Add: | ||||||||||||
Interest and lease finance | 14.6 | 14.2 | 13.7 | |||||||||
Provision for income taxes | 43.5 | 53.8 | 47.2 | |||||||||
Amortization and depreciation | 8.6 | 8.2 | 8.2 | |||||||||
EBITDA | 186.6 | 223.5 | 209.0 | |||||||||
EBITDA per share | 0.85 | 0.99 | 0.86 | |||||||||
Add: | ||||||||||||
Restructuring provision | 8.5 | — | — | |||||||||
Less: | ||||||||||||
Non-controlling interest | (0.2 | ) | (0.2 | ) | — | |||||||
Adjusted EBITDA | 195.2 | 223.7 | 209.0 | |||||||||
Adjusted EBITDA per share | 0.89 | 0.99 | 0.86 | |||||||||
Total revenue | 499.3 | 534.7 | 526.8 | |||||||||
Adjusted EBITDA Margin | 39.1 | % | 41.8 | % | 39.7 | % |
Q1 Financial Report | 7 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NET DEBT
CI calculates net debt as long-term debt (including the current portion) less cash and marketable securities, net of cash required for regulatory purposes and non-controlling interests. Net debt is a measure of leverage and CI uses this measure to assess its financial flexibility.
TABLE 4: NET DEBT | ||||||||
As at | As at | |||||||
[millions of dollars] | Mar. 31, 2020 | Dec. 31, 2019 | ||||||
Current portion of long-term debt | 449.6 | 449.5 | ||||||
Long-term debt | 1,295.2 | 1,155.0 | ||||||
1,744.9 | 1,604.5 | |||||||
Less: | ||||||||
Cash and short-term investments | 182.7 | 118.4 | ||||||
Marketable securities, excluding BBS’ securities owned, at market | 116.8 | 118.2 | ||||||
Add: | ||||||||
Regulatory capital and non-controlling interests | 18.1 | 14.7 | ||||||
Net Debt | 1,463.6 | 1,382.6 |
DEALER GROSS MARGIN
CI monitors its operating profitability on the revenues earned within its Wealth Management segment by measuring its dealer gross margin, which is calculated as administration fee revenue less investment dealer fees, divided by administration fee revenue (all figures before inter-segment eliminations). CI uses this measure to assess the profitability of the Wealth Management segment before SG&A expenses.
TABLE 5: DEALER GROSS MARGIN | ||||||||||||
[millions of dollars] |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Mar. 31, 2019 |
|||||||||
Administration fees | 121.5 | 122.0 | 112.0 | |||||||||
Less: | ||||||||||||
Investment dealer fees | 90.3 | 91.8 | 84.0 | |||||||||
31.1 | 30.2 | 28.0 | ||||||||||
Dealer gross margin | 25.6 | % | 24.8 | % | 25.0 | % |
ASSET MANAGEMENT MARGIN
CI assesses the overall performance of the asset management segment using a trailing 12-month asset management margin, where deferred sales commissions, trailer fees, and SG&A expenses are deducted from management fees and measured as a percentage of management fees (all figures are before inter-segment eliminations). This removes distortion caused by other revenues and expenses, eliminates the financing impact of back-end load funds, and eliminates revenue mix variances because it is measured as a percentage of management fees and not average AUM. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
Q1 Financial Report | 8 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 6: ASSET MANAGEMENT MARGIN | ||||||||||||
[millions of dollars - trailing 12 months] |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Mar. 31, 2019 |
|||||||||
Management fees | 1,783.1 | 1,802.3 | 1,892.0 | |||||||||
Less: | ||||||||||||
Deferred sales commissions paid | 12.1 | 13.5 | 19.1 | |||||||||
Trailer fees | 578.2 | 583.7 | 610.5 | |||||||||
Net management fees | 1,192.9 | 1,205.0 | 1,262.5 | |||||||||
Less: | ||||||||||||
SG&A expenses | 358.9 | 370.6 | 390.9 | |||||||||
834.0 | 834.4 | 871.5 | ||||||||||
Asset management margin | 46.8 | % | 46.3 | % | 46.1 | % |
SG&A EFFICIENCY MARGIN
CI uses a trailing 12-month SG&A efficiency margin to assess its costs relative to management fees earned, net of deferred sales commissions and trailer fees, which are not directly controllable by CI. SG&A expenses are subtracted from these net management fees and the remainder is measured as a percentage of net management fees. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
TABLE 7: SG&A EFFICIENCY MARGIN | ||||||||||||
[millions of dollars - trailing 12 months] |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Mar. 31, 2019 |
|||||||||
Management fees | 1,783.1 | 1,802.3 | 1,892.0 | |||||||||
Less: | ||||||||||||
Deferred sales commissions paid | 12.1 | 13.5 | 19.1 | |||||||||
Trailer fees | 578.2 | 583.7 | 610.5 | |||||||||
Net management fees | 1,192.9 | 1,205.0 | 1,262.5 | |||||||||
Less: | ||||||||||||
SG&A expenses | 358.9 | 370.6 | 390.9 | |||||||||
834.0 | 834.4 | 871.5 | ||||||||||
SG&A efficiency margin | 69.9 | % | 69.2 | % | 69.0 | % |
ASSETS AND SALES
CI is one of Canada’s largest independent investment fund companies with assets under management of $111.1 billion and assets under administration of $44.6 billion at March 31, 2020, as shown in Table 8. The operating results of CIPC, previously included in the Asset Management segment, are included in the Wealth Management segment effective January 1, 2020. Assets and sales for the prior periods have been restated, in the respective segments, for comparative purposes.
Q1 Financial Report | 9 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Assets under management decreased 15% year over year due to fund performance and net redemptions of funds, partially offset by the acquisition of WisdomTree Asset Management Canada, Inc. (“WisdomTree Canada”). The 4% decrease in assets under administration from last year was due to fund performance, partially offset by the acquisition of Surevest. Total assets, which include mutual, segregated, separately managed accounts, structured products, exchange-traded funds, pooled funds and assets under administration, were $155.7 billion at March 31, 2020, down $21.7 billion from $177.3 billion at March 31, 2019.
TABLE 8: TOTAL ASSETS | ||||||||||||
As at | As at | |||||||||||
[billions of dollars] | March 31, 2020 | March 31, 2019 | % change | |||||||||
Assets under management | 111.1 | 130.9 | (15 | ) | ||||||||
Assets under administration1 | 44.6 | 46.4 | (4 | ) | ||||||||
Total assets | 155.7 | 177.3 | (12 | ) |
1Includes $25.4 billion and $27.0 billion of assets managed by CI and held by clients of advisors with Assante and CIPC in 2020 and 2019, respectively.
In response to the COVID-19 pandemic and resulting social distancing and lockdown measures affecting much of the world, capital markets across the globe sold off during the first quarter of 2020, with the MSCI World Index falling 13.6%, in Canadian dollars, including dividends. Energy prices also weakened significantly as a result of a price war between Russia and Saudi Arabia, further adding to the general atmosphere of anxiety in the markets.
As businesses were ordered closed to help stem the spread of the virus, central banks moved quickly to respond to the downturn with policies aimed at stabilizing the financial system, while the G7 countries announced measures to support their economies during the COVID-19 outbreak. Amidst surging unemployment numbers in both Canada and the U.S., the U.S. unveiled a $2-trillion (in US dollars) stimulus package, while the Canadian government’s commitment to fiscal support reached $176 billion. The U.S. Federal Reserve made two emergency cuts to its policy rate, bringing it to a range of 0-0.25%, while the Bank of Canada made three rate cuts to reduce its overnight lending rate to 0.25%.
Amidst all the uncertainty, the S&P 500 Index, a broad measure of U.S. equities, had the worst start to a year in history, down 19.6% in US dollars (down 12.1% in Canadian dollars) over the three months ending March 31. Meanwhile, the S&P/TSX Composite Index posted its worst quarter since the financial crisis, declining 20.9%, including dividends. Government bonds benefited from investors moving to safe havens, and yields moved lower as prices rose. The Canadian dollar declined 7.7% in value over the quarter, helping to mitigate losses for Canadians invested in U.S. markets.
The change in AUM during each of the past five quarters is detailed in Table 9 and a breakdown of CI’s sales is provided in Table 10.
Q1 Financial Report | 10 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 9: CHANGE IN ASSETS UNDER MANAGEMENT | ||||||||||||||||||||
[billions of dollars] |
Quarter ended
Mar. 31, 2020 |
Quarter ended
Dec. 31, 2019 |
Quarter ended
Sep. 30, 2019 |
Quarter ended
Jun. 30, 2019 |
Quarter ended
Mar. 31, 2019 |
|||||||||||||||
Assets under management, beginning | 131.741 | 129.615 | 129.827 | 130.944 | 123.991 | |||||||||||||||
Gross sales | 5.103 | 4.430 | 3.505 | 2.867 | 3.603 | |||||||||||||||
Redemptions | 7.824 | 6.324 | 5.057 | 5.323 | 5.833 | |||||||||||||||
Net sales | (2.721 | ) | (1.894 | ) | (1.553 | ) | (2.456 | ) | (2.230 | ) | ||||||||||
Acquisitions (divestitures) | 1.033 | — | — | (0.560 | ) | — | ||||||||||||||
Fund performance | (18.988 | ) | 4.020 | 1.341 | 1.899 | 9.183 | ||||||||||||||
Assets under management, ending | 111.065 | 131.741 | 129.615 | 129.827 | 130.944 | |||||||||||||||
Average assets under management | 127.163 | 130.542 | 129.426 | 130.770 | 128.521 |
CI reported $2.7 billion in overall net redemptions for the first quarter of 2020. CI’s Canadian retail business, excluding products closed to new investors, had $1.3 billion in net redemptions, representing an improvement of $0.4 billion over the first quarter of 2019. CI’s Canadian institutional business had net redemptions of $0.8 billion, representing an improvement of $0.7 billion from the fourth quarter of 2019. CI’s international business had net redemptions of $0.4 billion for the first quarter of 2020, and CI’s closed business, comprised primarily of segregated fund contracts that are no longer available for sale, had $0.3 billion in net redemptions for the quarter.
TABLE 10: SALES BREAKDOWN | ||||||||||||||||||||||||
Quarter ended March 31, 2020 | Quarter ended March 31, 2019 | |||||||||||||||||||||||
[millions of dollars] | Gross Sales | Redemptions | Net Sales | Gross Sales | Redemptions | Net Sales | ||||||||||||||||||
Canadian Business | ||||||||||||||||||||||||
Retail | 4,295 | 5,550 | (1,255 | ) | 2,865 | 4,473 | (1,608 | ) | ||||||||||||||||
Institutional | 497 | 1,262 | (765 | ) | 468 | 679 | (211 | ) | ||||||||||||||||
4,792 | 6,812 | (2,020 | ) | 3,333 | 5,152 | (1,819 | ) | |||||||||||||||||
International Business | ||||||||||||||||||||||||
Retail | 48 | 45 | 3 | 55 | 57 | (2 | ) | |||||||||||||||||
Institutional | 246 | 669 | (424 | ) | 199 | 313 | (115 | ) | ||||||||||||||||
294 | 714 | (420 | ) | 253 | 370 | (117 | ) | |||||||||||||||||
Closed Business | 17 | 298 | (281 | ) | 17 | 311 | (294 | ) | ||||||||||||||||
Total | 5,103 | 7,824 | (2,721 | ) | 3,603 | 5,833 | (2,230 | ) |
Q1 Financial Report | 11 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RESULTS OF OPERATIONS
The table below presents the consolidated results of operations of CI.
TABLE 11: SUMMARY OF QUARTERLY RESULTS | ||||||||||||||||||||||||||||||||
[millions of dollars, except per share amounts] | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||
Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | |||||||||||||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||||||||||||||
Management fees | 422.6 | 447.3 | 448.4 | 451.0 | 442.4 | 456.4 | 492.1 | 488.7 | ||||||||||||||||||||||||
Administration fees | 76.2 | 76.6 | 72.1 | 71.1 | 69.5 | 69.5 | 68.0 | 65.1 | ||||||||||||||||||||||||
Other revenues | 0.5 | 10.8 | 7.0 | 8.2 | 14.9 | 3.2 | 8.9 | 10.8 | ||||||||||||||||||||||||
Total revenues | 499.3 | 534.7 | 527.5 | 530.3 | 526.8 | 529.2 | 569.0 | 564.6 | ||||||||||||||||||||||||
Selling, general & administrative | 115.0 | 113.8 | 124.6 | 124.8 | 126.1 | 123.5 | 128.9 | 127.3 | ||||||||||||||||||||||||
Trailer fees | 130.4 | 138.1 | 138.5 | 139.8 | 136.4 | 140.4 | 151.7 | 151.1 | ||||||||||||||||||||||||
Investment dealer fees | 53.2 | 54.5 | 51.2 | 50.7 | 49.1 | 49.1 | 49.0 | 46.1 | ||||||||||||||||||||||||
Deferred sales commissions paid | 3.2 | 2.4 | 2.6 | 3.1 | 4.6 | 3.9 | 4.1 | 5.6 | ||||||||||||||||||||||||
Interest and lease finance | 14.6 | 14.2 | 13.8 | 13.7 | 13.7 | 12.4 | 11.6 | 9.9 | ||||||||||||||||||||||||
Amortization and depreciation | 8.6 | 8.2 | 8.2 | 8.3 | 8.2 | 5.4 | 5.2 | 5.1 | ||||||||||||||||||||||||
Other expenses | 11.0 | 2.3 | 2.4 | 37.4 | 1.6 | 3.1 | 0.8 | 1.6 | ||||||||||||||||||||||||
Total expenses | 335.9 | 333.6 | 341.3 | 377.9 | 339.6 | 337.8 | 351.2 | 346.7 | ||||||||||||||||||||||||
Income before income taxes | 163.4 | 201.1 | 186.2 | 152.4 | 187.2 | 191.4 | 217.8 | 218.0 | ||||||||||||||||||||||||
Income taxes | 43.5 | 53.8 | 47.4 | 40.9 | 47.2 | 51.0 | 59.5 | 58.0 | ||||||||||||||||||||||||
Non-controlling interest | (0.3 | ) | (0.3 | ) | (0.2 | ) | (0.3 | ) | (0.1 | ) | — | 0.1 | 0.1 | |||||||||||||||||||
Net income attributable to shareholders | 120.2 | 147.5 | 139.0 | 111.9 | 140.0 | 140.3 | 158.2 | 159.9 | ||||||||||||||||||||||||
Earnings per share | 0.55 | 0.66 | 0.60 | 0.47 | 0.58 | 0.57 | 0.62 | 0.61 | ||||||||||||||||||||||||
Diluted earnings per share | 0.54 | 0.65 | 0.60 | 0.47 | 0.58 | 0.57 | 0.62 | 0.60 | ||||||||||||||||||||||||
Dividends paid per share | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.2350 | 0.3525 |
For the quarter ended March 31, 2020, CI reported net income attributable to shareholders of $120.2 million ($0.55 per share) down from $140.0 million ($0.58 per share) for the quarter ended March 31, 2019 and from $147.5 million ($0.66 per share) for the quarter ended December 31, 2019 as seen in Table 11 above. The decrease from both comparable periods was mainly due to unrealized losses on the value of investments and a restructuring provision, as well as lower management fees resulting from lower average asset levels. This restructuring provision in the first quarter of 2020 was $8.5 million ($6.2 million after-tax), all of which was related to the Asset Management segment. Excluding this provision, net income for the quarter ended March 31, 2020 was $126.5 million, compared with $140.0 million in the same quarter of 2019, and $147.5 million in the prior quarter. Net income for the first quarter of 2020 also included a $12.6 million unrealized loss on the value of investments ($11.0 million after-tax), compared to a gain of $8.4 million ($7.3 million after-tax) in the first quarter of 2019 and a gain of $3.0 million ($2.6 million after-tax) in the fourth quarter of 2019. Excluding the restructuring provision and gains and losses on investments, CI’s earnings per share were $0.63 for the quarter ended March 31, 2020, $0.55 per share for the quarter ended March 31, 2019, and $0.64 per share for the quarter ended December 31, 2019.
Q1 Financial Report | 12 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI’s total revenue was $499.3 million in the first quarter of 2020, a decrease of 5.2% when compared to total revenue of $526.8 million in the same period in 2019. On a consecutive quarter basis, total revenue decreased 6.6%. The decrease for both periods was due to lower management fees from lower average AUM and losses on investments. The decrease from the prior quarter was also due to the difference in the number of days in the quarter (91 vs 92), as the majority of management fees are based on daily asset levels.
For the quarter ended March 31, 2020, SG&A expenses were $115.0 million, down 8.8% from $126.1 million in the same quarter of 2019 and up 1.0% from $113.8 million in the prior quarter. The change in SG&A from last year was primarily a result of lower variable SG&A resulting from lower average AUM and prudent expense management. The increase from the fourth quarter of last year was primarily due to the addition of WisdomTree Canada and Surevest, seasonally higher payroll taxes and annual compensation increases. As an annualized percentage of average AUM, SG&A expenses were 0.364%, down from 0.398% for the first quarter of last year and up slightly from 0.346% for the prior quarter.
In the first quarter of 2020, CI paid $3.2 million in deferred sales commissions, compared with $4.6 million in the same quarter of 2019 and $2.4 million in the prior quarter. Consistent with the Canadian mutual fund industry, CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Interest expense of $14.6 million was recorded for the quarter ended March 31, 2020 compared with $13.7 million for the quarter ended March 31, 2019 and $14.2 million for the quarter ended December 31, 2019. The change in interest expense reflects the changes in average debt levels and interest rates, as discussed under the Liquidity and Capital Resources section.
For the first quarter of 2020, CI recorded $43.5 million in income tax expense for an effective tax rate of 26.6% compared to $47.2 million, or 25.2%, in the first quarter of 2019, and $53.8 million, or 26.8%, in the prior quarter.
ASSET MANAGEMENT SEGMENT
The Asset Management segment is CI’s principal business segment and its operating results are presented in Table 12. The operating results of CI Private Counsel LP (previously included in the Asset Management segment) are now included in the Wealth Management segment and operating results in the prior periods have been restated for comparative purposes.
Q1 Financial Report | 13 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 12: RESULTS OF OPERATIONS - ASSET MANAGEMENT SEGMENT | ||||||||||||
[millions of dollars] |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Mar. 31, 2019 |
|||||||||
Management fees | 426.3 | 450.7 | 445.4 | |||||||||
Other revenue | (9.8 | ) | 1.6 | 6.7 | ||||||||
Total revenue | 416.5 | 452.4 | 452.1 | |||||||||
Selling, general and administrative | 84.9 | 84.4 | 96.6 | |||||||||
Trailer fees | 138.2 | 146.1 | 143.7 | |||||||||
Deferred sales commissions paid | 3.4 | 2.6 | 4.9 | |||||||||
Amortization and depreciation | 5.9 | 5.4 | 5.4 | |||||||||
Other expenses | 9.2 | 1.0 | 1.5 | |||||||||
Total expenses | 241.6 | 239.6 | 252.1 | |||||||||
Non-controlling interest | 0.1 | 0.3 | 0.2 | |||||||||
Income before taxes and non-segmented items | 174.8 | 212.5 | 199.9 |
Revenues
Revenues from management fees were $426.3 million for the quarter ended March 31, 2020, a decrease of 4.3% from $445.4 million for the quarter ended March 31, 2019 and a decrease of 5.4% from $450.7 million for the quarter ended December 31, 2019. Net of inter-segment amounts, management fees were $422.6 million for the first quarter of 2020, versus $442.4 million for the first quarter of 2019, and $447.3 million for the fourth quarter of 2019. The decrease in management fees from both quarters was due to a decline in average AUM and the management fee rate. The decrease from the prior quarter was also due to the difference in the number of days in the quarter (91 vs 92), as the majority of management fees are based on daily asset levels. Net management fees (management fees less trailer fees and deferred sales commissions) as a percentage of average AUM were 0.900%, down from 0.937% for the first quarter last year and from 0.918% for the prior quarter.
For the quarter ended March 31, 2020, other revenue was $(9.8) million versus $6.7 million for the quarter ended March 31, 2019 and $1.6 million for the quarter ended December 31, 2019. The decrease in other revenue from the comparable quarters was mainly due to $12.6 million in unrealized losses on the value of investments.
Expenses
SG&A expenses for the Asset Management segment were $84.9 million for the quarter ended March 31, 2020, compared with $96.6 million for the first quarter in 2019 and $84.4 million for the prior quarter. The decrease from the same quarter last year was primarily due to lower variable SG&A and management’s efforts to contain costs in this segment. CI’s SG&A increased from the fourth quarter of 2019, primarily as a result of seasonally higher payroll taxes and annual compensation increases, and the inclusion of WisdomTree Canada, in February. As a percentage of average AUM, SG&A expenses were 0.268% for the quarter ended March 31, 2020, down from 0.305% for the quarter ended March 31, 2019, and up slightly from 0.256% the quarter ended December 31, 2019.
Q1 Financial Report | 14 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Trailer fees were $138.2 million for the quarter ended March 31, 2020, down 3.8% from $143.7 million for the quarter ended March 31, 2019 and down 5.4% from $146.1 million for the quarter ended December 31, 2019. Net of inter-segment amounts, this expense was $130.4 million for the quarter ended March 31, 2020 versus $136.4 million for the first quarter of 2019 and $138.1 million for the fourth quarter of 2019. The decrease from both comparable periods was related to the decrease in average AUM.
In the first quarter of 2020, before inter-segment eliminations, CI paid $3.4 million in deferred sales commissions, compared with $4.9 million in the same quarter of 2019 and $2.6 million in the prior quarter. CI’s sales into deferred load funds have been steadily decreasing over the past decade, but generally increase from the fourth quarter to the first quarter due to increased gross sales during the RSP season.
Other expenses for the quarter ended March 31, 2020 were $9.2 million, compared to $1.5 million for the quarter ended March 31, 2019 and $1.0 million for the quarter ended December 31, 2019. As discussed earlier, the first quarter of 2020 included a restructuring provision of $8.5 million, $6.3 million of which has been paid.
On a trailing 12-month basis, CI’s asset management margin was 46.8%, relatively steady when compared with 46.1% for the same period last year. CI’s current quarter SG&A efficiency margin was 70.2%, up from 67.4% in the first quarter of last year and down from 72.1% in the prior quarter. The calculations and definitions of asset management margin and SG&A efficiency margin can be found in the “Non-IFRS Measures” section. The asset management margin for the first quarter of 2020 was 46.9% compared to 44.9% in the first quarter of 2019 and 48.3% in the prior quarter. The year-over-year improvement in CI’s quarterly asset management margin was mainly due to prudent expense management and the modernization of its asset management business.
Income before taxes and non-segmented items for CI’s principal segment was $174.8 million for the quarter ended March 31, 2020, down 12.6% from $199.9 million in the same period in 2019 and down 17.7% from $212.5 million in the previous quarter. Excluding the restructuring provision, income before taxes and non-segmented items was $183.3 million for the first quarter of 2020.
WEALTH MANAGEMENT SEGMENT
The Wealth Management segment operating results are presented in Table 13. The operating results of CI Private Counsel LP (previously included in the Asset Management segment) are now included in the Wealth Management segment and operating results in the prior periods have been restated for comparative purposes.
Q1 Financial Report | 15 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 13: RESULTS OF OPERATIONS - WEALTH MANAGEMENT SEGMENT | ||||||||||||
[millions of dollars] |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Dec. 31, 2019 |
Quarter
ended Mar. 31, 2019 |
|||||||||
Administration fees | 121.5 | 122.0 | 112.0 | |||||||||
Other revenue | 10.3 | 9.2 | 8.1 | |||||||||
Total revenue | 131.8 | 131.2 | 120.2 | |||||||||
Selling, general and administrative | 33.8 | 32.9 | 32.4 | |||||||||
Investment dealer fees | 90.3 | 91.8 | 84.0 | |||||||||
Amortization and depreciation | 2.7 | 2.8 | 2.8 | |||||||||
Other expenses | 1.8 | 1.3 | 0.2 | |||||||||
Total expenses | 128.7 | 128.7 | 119.4 | |||||||||
Non-controlling interest | (0.5 | ) | (0.9 | ) | (0.3 | ) | ||||||
Income before taxes and non-segmented items | 3.6 | 3.4 | 1.1 |
Revenues
Administration fees were $121.5 million for the quarter ended March 31, 2020, an increase of 8.5% from $112.0 million for the same period a year ago and a decrease of 0.4% from $122.0 million for the prior quarter. The year-over-year increase was related to higher average AUA, the inclusion of WealthBar for a full quarter, and the addition of Surevest in January of this year. Net of inter-segment amounts, administration fee revenue was $76.2 million for the quarter ended March 31, 2020, up from $69.5 million for the quarter ended March 31, 2019 and down slightly from $76.6 million for the quarter ended December 31, 2019.
For the quarter ended March 31, 2020, other revenue was $10.3 million, up from $8.1 million for the quarter ended March 31, 2019 and up from $9.2 million for the prior quarter. Other revenue consists mainly of non-advisor-related activities.
Expenses
Investment dealer fees were $90.3 million for the quarter ended March 31, 2020 compared to $84.0 million for the first quarter of 2019 and $91.8 million for the quarter ended December 31, 2019. Net of inter-segment amounts, investment dealer fees were $53.2 million, up from $49.1 million for the same quarter last year and down from $54.5 million for the prior quarter.
As discussed in the “Non-IFRS Measures” section of this MD&A and as set out in Table 5, dealer gross margin was $31.1 million or 25.6% of administration fee revenue for the quarter ended March 31, 2020 compared to $28.0 million or 25.0% for the first quarter of 2019 and $30.2 million or 24.8% for the previous quarter.
SG&A expenses for the segment were $33.8 million for the quarter ended March 31, 2020 compared to $32.4 million in the first quarter of 2019 and $32.9 million in the fourth quarter of 2019. Net of inter-segment amounts, SG&A was $30.1 million for the first quarter of 2020, compared with $29.4 million for the first quarter of 2019 and $29.4 million for the fourth quarter of 2019. The increase in SG&A from both comparable periods was related to the addition of Surevest and spend on strategic initiatives in this segment of CI’s business.
Q1 Financial Report | 16 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Other expenses were $1.8 million for the quarter ended March 31, 2020, up from $0.2 million in the same quarter of 2019 and from $1.3 million in the fourth quarter of 2019.
The Wealth Management segment had income before taxes and non-segmented items of $3.6 million for the quarter ended March 31, 2020, compared to $1.1 million for the first quarter of 2019 and $3.4 million for the prior quarter.
LIQUIDITY AND CAPITAL RESOURCES
CI generated $143.7 million of free cash flow in the first quarter of 2020, compared to $143.5 million for the same period in 2019. Reconciliations of free cash flow to cash provided by operating activities are provided in the “Non-IFRS Measures” section and set out in Table 2.
CI primarily uses cash flow to fund capital expenditures, fund acquisitions, pay down debt, pay dividends on its shares, and repurchase shares through its normal course issuer bid. At current levels of cash flow and anticipated dividend payout rates, CI expects to meet its obligations and support planned business operations.
CI’s cash flows may fluctuate, primarily in the first quarter, as a result of the balance of cash income taxes and incentive compensation related to the prior year being paid at the end of February.
TABLE 14: SUMMARY OF CASH FLOWS | ||||||||
[millions of dollars] |
Quarter ended
Mar. 31, 2020 |
Quarter ended
Mar. 31, 2019 |
||||||
Free cash flow | 143.7 | 143.5 | ||||||
Less: | ||||||||
Investments in marketable securities, net of marketable securities sold | 10.4 | 1.5 | ||||||
Capital expenditures | 5.9 | 5.3 | ||||||
Share repurchases, net of shares issued | 103.9 | 60.8 | ||||||
Dividends paid | 40.0 | 43.9 | ||||||
Debt repaid / (drawn) | (140.0 | ) | (24.5 | ) | ||||
Working capital and other items | 59.2 | 56.9 | ||||||
79.4 | 143.9 | |||||||
Net change in cash | 64.4 | (0.4 | ) | |||||
Cash at January 1 | 118.4 | 137.2 | ||||||
Cash at March 31 | 182.7 | 136.7 |
During the first quarter of 2020, CI invested $10.4 million in marketable securities and received nil proceeds from the disposition of marketable securities. Excluding BBS’ securities owned, at market, the fair value of CI’s investments as of March 31, 2020 was $116.8 million. This was comprised of seed capital investments in CI funds and strategic investments.
During the three months ended March 31, 2020, CI invested $5.9 million in capital assets, up from $5.3 million in the three months ended March 31, 2019. These investments related primarily to leasehold improvements and technology.
Q1 Financial Report | 17 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
During the three months ended March 31, 2020, CI repurchased 5.3 million shares under its normal course issuer bid at a total cost of $103.9 million, or $19.74 per share. CI had 216,633,319 shares outstanding at the end of March, which differs from CI’s TSX-listed shares outstanding of 217,569,337, by the amount of restricted employee shares held in trust.
CI paid dividends of $40.0 million during the quarter. The Board of Directors declared a quarterly dividend of $0.18 per share, payable on October 15, 2020, to shareholders of record on September 30, 2020.
The statement of financial position for CI at March 31, 2020 reflected total assets of $4.573 billion, an increase of $204.8 million from $4.368 billion at December 31, 2019. This change was primarily due to the additions of WisdomTree Canada and Surevest.
CI’s cash and cash equivalents increased by $64.4 million in the first quarter to $182.7 million as of March 31, 2020. CI’s cash balance was increased in March to ensure sufficient short-term liquidity during a period of funding uncertainty. Accounts receivable and prepaid expenses increased by $4.9 million to $175.1 million as of March 31, 2020. Capital assets increased by $3.0 million during the three months ended March 31, 2020 as a result of $5.9 million in capital additions less $3.0 million in amortization.
Total liabilities increased by $220.4 million during the quarter to $3.089 billion at March 31, 2020. The largest factors impacting liabilities were an increase in debt and the additions of WisdomTree Canada and Surevest.
At March 31, 2020, CI had $1,575.0 million in outstanding debentures with a weighted average interest rate of 3.17% and a carrying value of $1,569.9 million. On March 31, 2020, CI had drawn $175.0 million against its $700 million credit facility. Principal repayments on any drawn amounts are only required at the maturity of the facility, which is December 11, 2021. At April 30, 2020 the amount drawn on the facility had declined to $56 million.
Net debt, as discussed in the “Non-IFRS Measures” section and as set out in Table 4, was $1,463.6 million at March 31, 2020, up from $1,382.6 million at December 31, 2019. The average gross debt level for the three months ended March 31, 2020 was $1,681.7 million, compared to $1,573.4 million for the same period last year.
At March 31, 2020, CI was in a positive working capital position. This, in addition to the availability of its credit facility, reflects the ability of CI to meet its cash flow requirements.
CI’s ratios of debt to adjusted EBITDA and net debt to adjusted EBITDA were 2.2 to 1 and 1.9 to 1, respectively. CI was within its financial covenants with respect to its credit facility, which required that the debt to EBITDA ratio remain below 3.0 to 1, and assets under management not fall below $85 billion, based on a rolling 30-day average.
Shareholders’ equity was $1.477 billion at March 31, 2020, an decrease of $17.4 million from December 31, 2019.
Q1 Financial Report | 18 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RISK MANAGEMENT
CI is exposed to a number of risks that are inherent in the wealth management business. Some factors which introduce or exacerbate risk are within the control of management and others are, by their nature, outside of CI’s direct control but must still be managed. Effective risk management is a key component to achieving CI’s business objectives and protecting company and client assets. It is an ongoing process involving the Board of Directors and the Company’s Risk Management Committee, comprising senior executives from CI’s core business and operating units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board of Directors.
The Risk Management Committee monitors, evaluates and manages risk to provide reasonable assurance to the Board that CI’s business strategies and activities are consistent with its risk appetite. Risk updates are regularly provided to the Audit and Risk Committee of CI’s Board.
CI has developed an enterprise-wide approach to identifying, measuring, monitoring and managing risk. The members of the Risk Management Committee identify and evaluate specific and material risks, applying both a quantitative and a qualitative analysis to assess the likelihood and impact of occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize, transfer or avoid negative consequences. These risk mitigation processes are implemented and monitored with each business unit.
The risks described below are not the only risks facing CI. The risks set out below are risks and uncertainties that the Risk Management Committee currently believe could materially affect CI’s future financial performance. The reader should carefully consider the risks described below, and the other information contained in this MD&A, including under the heading “Forward-Looking Statements” before making an investment decision.
MARKET RISK
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates, foreign exchange rates, and equity and commodity prices. A description of each component of market risk is described below:
– | Interest rate risk is the risk of gain or loss due to the volatility of interest rates. |
– | Foreign exchange rate risk is the risk of gain or loss due to volatility of foreign exchange rates. |
– | Equity risk is the risk of gain or loss due to the changes in prices and volatility of individual equity instruments and equity indexes. |
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in the performance of CI’s investment funds and may adversely affect CI’s assets under management, management fees and revenues, which would reduce cash flow to CI and ultimately impact CI’s ability to meet its financial obligations.
Q1 Financial Report | 19 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
MARKET RISK FOR THE ASSET MANAGEMENT SEGMENT
At March 31, 2020, approximately 30% of CI’s assets under management were held in fixed-income securities, which are exposed to interest rate risk. An increase in interest rates causes market prices of fixed-income securities to fall, while a decrease in interest rates causes market prices to rise. CI’s fund managers invest in a well-diversified portfolio of securities across issuers, durations and maturities, which reduces risk. CI estimates that a 100 basis point change in interest rates across the yield curve would cause a change of approximately $25 million to $35 million in annual pre-tax earnings in the Asset Management segment.
At March 31, 2020, about 42% of CI’s assets under management were based in Canadian currency. While CI’s concentration in Canadian currency assets reduces its exposure to foreign exchange risk, approximately 43% of CI’s assets under management were based in U.S. currency. Any change in the value of the Canadian dollar relative to U.S. currency will cause fluctuations in CI’s assets under management. CI estimates that a 10% change in Canadian/U.S. exchange rates would cause a change of approximately $20 million to $30 million in the Asset Management segment’s annual pre-tax earnings.
About 65% of CI’s assets under management were held in equity securities at March 31, 2020, which are subject to equity risk. Equity risk is classified into two categories: general equity risk and issuer-specific risk. CI employs internal and external fund managers to take advantage of their expertise in particular market niches, sectors and products and to reduce issuer-specific risk through diversification. CI estimates that a 10% change in the value of equities would cause a change of approximately $60 million to $70 million in annual pre-tax earnings.
Please note that exposures and sensitivities do not account for currency hedging that portfolio managers may employ. There are risks and limitations with relying on models and it is possible that actual results may differ from those presented above.
CI has a control environment that ensures market risks are reviewed regularly. CI’s compliance group reviews and monitors CI’s fund and portfolio investments for compliance with investment policies and regulations. CI also reviews investment processes, portfolio positioning and attribution of results of its investment teams on a regular basis.
MARKET RISK FOR THE WEALTH MANAGEMENT SEGMENT
CI’s operating results are not materially exposed to market risk impacting the wealth management segment given that this segment usually generates approximately 2% of the total income before non-segmented items (this segment reported a gain of $3.6 million before income taxes and non-segmented items for the quarter ended March 31, 2020). Investment advisors regularly review their client portfolios to assess market risk and consult with clients to make appropriate changes to mitigate it.
POLITICAL AND MACRO-ECONOMIC RISK
CI’s performance is directly affected by the performance of the financial markets which may be influenced by various political, demographic and macro-economic conditions or events, including any political change and uncertainty in the United States and globally. These changes may cause significant volatility and decline in the global economy or specific international, regional and domestic financial markets which are beyond the control of CI. There can be no assurance that financial market performance will be favourable in the future. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in performance, which could negatively impact CI’s business and impede the growth of CI’s assets under management and revenue.
Q1 Financial Report | 20 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
STRATEGIC RISK
Strategic risks are risks that directly impact the overall direction of CI and the ability of CI to successfully identify growth opportunities and implement proposed solutions. The key strategic risk is the risk that management fails to anticipate, and respond to, changes in the business environment, including demographic, regulatory and competitive changes. CI’s performance is directly affected by the financial market and business conditions, including the legislation and policies of the governments and regulatory authorities having jurisdiction over CI’s operations. These are beyond the control of CI; however, an important part of the risk management process is the ongoing review and assessment of industry and economic trends and changes. Strategies are then designed to effectively respond to any anticipated changes, including identifying acquisition opportunities, developing new business lines, introducing new products, and implementing cost control strategies.
Part of CI’s strategy includes strategic acquisitions and investments in growth opportunities. Strategic acquisitions may benefit CI through increasing fee earning assets, broadening CI’s distribution relationships, enhancing CI’s business capabilities and capturing cost synergies. CI embarks on a thorough due diligence process prior to any acquisition; however, there can be no assurances that the anticipated benefits of any acquisition will be achieved. The success of an acquisition is contingent upon many factors, including retaining key employees, securing assets acquired, obtaining legal and regulatory approvals, integrating operations and vendor relationships, and having favourable economic conditions.
COMPETITION RISK
CI operates in a highly competitive environment, with competition based on a variety of factors, including the range of products offered, brand recognition, investment performance, business reputation, financing strength, management and sales relationships, quality of service, level of fees charged and level of commissions and other compensation paid. CI competes with a large number of mutual fund companies and other providers of investment products, investment management firms, broker-dealers, banks, insurance companies and other financial institutions. Some of these competitors have, and potential future competitors may have, greater technical, financial, marketing, distribution or other resources than CI. The trend toward greater consolidation within the investment management industry has increased the strength of a number of CI’s competitors. CI’s competitors seek to expand market share by offering different products and services and more competitive pricing than those offered by CI. While CI continues to develop and market new products and services and remains competitive with respect to fees, there can be no assurance that CI will maintain its current standing or market share or investment performance relative to its competitors, which may adversely affect the business, financial condition or operating results of CI.
In addition, there are uncertainties involved in the introduction of new products and services, including technical requirements, operational controls and procedures, compliance with regulatory requirements and shifting market preferences. The development and introduction of new products and services may require ongoing support and investment. A failure to manage the risks involved in the implementation of new products and services may lead to operational lapses, increased capital requirements, and competitive alternatives, which could adversely affect CI’s standing, market share or investment performance relative to its competitors and negatively impact the business, financial condition or operating results of CI.
Q1 Financial Report | 21 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
DISTRIBUTION RISK
CI distributes its investment products through a number of distribution channels, including brokers, independent financial planners and insurance advisors. CI’s access to these distribution channels is impacted by the strength of the relationship with certain business partners and the level of competition faced from the financial institutions that own those channels. While CI continues to develop and enhance existing relationships, there can be no assurance that CI will, in the future, enjoy the level of access that it has in the past, which would adversely affect its sales of investment products.
REDEMPTION RISK
CI earns revenue primarily from management fees earned for advising and managing investment fund assets. The level of these assets is dependent on (i) sales; (ii) redemptions; and (iii) investment performance. Sales and redemptions may fluctuate depending on market and economic conditions, investment preference, or other factors.
Significant redemptions could adversely affect investor fund returns by impacting market values and increasing transaction costs or taxable distributions, which could negatively impact the prospects and operating results of CI.
A rapid and sustained increase in redemptions, particularly in the face of severe market volatility, may also adversely affect fund liquidity, which in turn could negatively affect CI’s reputation and/or result in further declines in assets under management, all of which could have an unfavourable impact on our business, financial condition or operating results.
BUSINESS CONTINUITY RISKS
CI's business, operations and financial results may be adversely affected by its ability to mitigate the effect of natural and man-made disasters, including floods, earthquakes, tornadoes, fires, civil unrest, wars, epidemics, and pandemics. The occurrence of any of these events may pose significant challenges to CI’s business continuity, either by exacerbating one or more of the other risks described in this section, or by introducing new risks. CI has a comprehensive and stress-tested business continuity plan in place to deal with any disaster-related scenario, however there can be no assurance that such plan will be effective to mitigate any adverse effects on CI’s business, financial condition or operating results as a result of any natural or man-made disasters or other similar events, including the recent COVID-19 pandemic.
COVID-19, which has been recognized by the World Health Organization as a pandemic, has spread rapidly and extensively across the globe. Efforts by governments to control the further spread of COVID-19 have disrupted normal economic activity both domestically and globally and uncertainty related to the extent, duration and severity of the pandemic has contributed to significant volatility in the financial markets, resulting in a general decline in equity and certain commodity prices and lower interest rates and a corresponding decline in CI’s assets under management. In addition, CI may face further declines in its assets under management as a result of client redemptions related to a variety of COVID-19 related factors including general market pessimism, poor fund performance, or clients’ needs for immediate cash.
To control the spread of COVID-19, many governments at all levels have imposed severe restrictions on business activity and travel. There can be no certainty when these restrictions will be lifted or that they will not be expanded. CI has activated its business continuity plan in response to the COVID-19 pandemic to mitigate risks, maintain operational efficiency and service levels, and address the health and safety concerns of our employees, clients and advisors. With few exceptions, all of CI’s business operations are being carried out remotely. The extensive use of remote communication tools and third party services may lead to heightened cybersecurity and privacy risks. Market volatility, increased trading volumes and the requirement to work remotely may result in the deterioration in service levels of certain key service providers. Stress on technology resources, new workplace constraints, personal stress and health concerns may all lead to higher operational risks across all of CI’s businesses. With the emergence of several new services as business critical, key supplier risk may also increase significantly. As part of the plan, CI has implemented enhanced monitoring of network assets and management oversight of business processes, active employee engagement and client communication, and built redundancy for critical services and infrastructure, however there can be no guarantee that this will be effective to mitigate these risks.
Q1 Financial Report | 22 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Ultimately, the extent to which CI’s business, financial condition and results of operations will be impacted by the COVID-19 pandemic, including the extensive attempts to mitigate its effects, is uncertain and will depend on future developments, which are unpredictable and rapidly evolving.
REGULATORY AND LEGAL RISK
CI’s business is dependent upon compliance with and continued registration under securities laws in all jurisdictions in which CI and its subsidiaries carry on business. Laws and regulations applied at the national and provincial or state level generally grant governmental agencies and self-regulatory bodies broad administrative discretion over the activities of CI, including the power to limit or restrict business activities as well as impose additional disclosure requirements on CI products and services. Possible sanctions include the revocation or imposition of conditions on licenses to operate certain businesses, the suspension or expulsion from a particular market or jurisdiction of any of CI’s business segments or its key personnel or financial advisors, and the imposition of fines and censures. It is also possible that the laws and regulations governing a subsidiary’s operations or particular investment products or services could be amended or interpreted in a manner that is adverse to CI. To the extent that existing or future regulations affecting the sale or offering of CI’s product or services or CI’s investment strategies cause or contribute to reduced sales of CI’s products or lower margins or impair the investment performance of CI’s products, CI’s aggregate assets under management and its revenues may be adversely affected. In addition, the ongoing change in the securities regulatory environment governing CI’s business may require additional human resources and operations which will increase costs.
Given the nature of CI’s business, CI may from time to time be subject to claims or complaints from investors or others in the normal course of business. The legal risks facing CI, its directors, officers, employees or agents in this respect include potential liability for violations of corporate laws, securities laws, stock exchange rules and misuse of investors’ funds. Some violations of corporate laws, securities laws or stock exchange rules could result in civil liability, fines, sanctions, or expulsion from a self- regulatory organization or the suspension or revocation of CI’s right to carry on an existing business. CI may incur significant costs in connection with such potential liabilities.
Q1 Financial Report | 23 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
INFORMATION TECHNOLOGY RISK
CI uses information technology and the internet to streamline business operations and to improve the client and advisor experience. CI has, more recently, been expanding its online footprint by automating its product and service delivery systems and acquiring digital platforms. The use of information technology and the internet, email messaging and other online capabilities, however, exposes CI to information security risk that could have an adverse impact on its business. CI is dependent on its information security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that it stores on or transmits through its information technology systems. Any information technology event, such as a cybersecurity breach or intrusion into CI’s information technology systems, or failure to implement sufficient controls, could result in unauthorized access to sensitive or confidential information, loss or theft of data, operational disruption, regulatory actions, legal liability or reputational harm.
CI actively monitors this risk and continues to develop and implement technology-enabled controls to protect against cyber threats that are becoming increasingly sophisticated and pervasive. In addition, CI has and will continue to implement safeguards to control access to sensitive information, through password protection, encryption of confidential information and other means. Notwithstanding these measures, CI cannot fully mitigate the risk associated with information technology security. CI is dependent on the efficiency and effectiveness of the technology it uses to secure its information technology environment and keeping pace with a continuously evolving information technology landscape. Malfunction of any technology used by CI or inability to keep pace with evolving cybersecurity advancements may increase CI’s exposure to cybersecurity risk.
CI’s business is also dependent on the physical integrity of its infrastructure, including its office space, storage centers and other facilities. CI has taken precautions to protect the physical security of its infrastructure, and the sensitive information contained therein, through passkey protection, limited after-hours access and clean desk policies. However, a breach of the physical integrity of CI infrastructure may leave sensitive information vulnerable to unauthorized access and use, increasing a possible security risk, which could negatively impact CI’s business and reputation.
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequate or failed internal processes or systems. The operational risk that CI is exposed to may arise from, technology failures, business disruption, theft and fraud, failure of key third parties, employee errors, processing and execution errors, and inaccurate or incomplete client information. Operational risk may result in a financial loss but can also lead to regulatory sanctions and harm to CI’s reputation. Operational risk driven by people and processes are mitigated through human resources policies and practices, and a strong internal control environment. Operational risks driven by systems and services are managed through controls over technology development and change management as well as enhanced procedures for oversight of third-party service providers. While CI continuously monitors its operational risks, there can be no assurances that CI’s internal control procedures can mitigate all operational risks.
Q1 Financial Report | 24 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
REPUTATION RISK
Reputation risk is the potential negative impact of a deterioration of CI’s image or lower public confidence in the CI brand, its senior management or its products and services. Operational errors, poor performance, regulatory investigation or sanctions, litigation or employee misconduct could result in reputational harm to CI. Through its Codes of Conduct, governance practices, risk management programs, policies, procedures and training, CI attempts to prevent and detect any activities by CI officers, directors, and employees that would harm CI’s reputation. While all employees, directors and officers are expected to protect the reputation of CI, there can be no assurances that unauthorized or unsuccessful activities may result in damage to CI’s reputation, which could adversely affect CI’s business and profitability.
KEY PERSONNEL RISK
The success of CI is dependent to a significant degree upon the contributions of senior management. The loss of any of these individuals, or an inability to attract, retain and motivate sufficient numbers of qualified senior management personnel, could adversely affect CI’s business. The retention of these key managers and the identification and development of the next generation of managers is an area of focus for CI. CI has not purchased any “key person” insurance with respect to any of its directors, officers or key employees and has no current plans to do so.
The success of CI is also dependent upon, among other things, the skills and expertise of its human resources, including the management and investment personnel with specialized skills related to, among other things, marketing, risk management, credit, information technology, accounting, administrative operations and legal affairs. These highly skilled and often highly specialized individuals play an important role in developing, implementing, operating, managing and distributing CI’s products and services. Accordingly, the recruitment and retention of skilled personnel, continuous training and transfer of knowledge are key activities that are essential to CI’s performance. CI has taken, and will continue to take, steps to encourage our key employees to remain employed at CI, including the implementation of long-service awards, employee engagement strategies and enhanced transparency measures with respect to compensation. In addition, the focus on asset growth and the reliance on investment performance to sell financial products has increased the demand for experienced and high- performing portfolio managers. Compensation packages for these managers may increase at a rate well in excess of inflation and well above the rates of increase observed in other industries and the rest of the labour market. The loss of these individuals or an inability to attract, retain and motivate a sufficient number of qualified personnel could result in a loss of clients and a decline in sales and adversely affect CI’s business.
The market for financial advisors is extremely competitive and is increasingly characterized by frequent movement by financial advisors among different firms. Individual financial advisors of AWM have regular direct contact with clients, which can lead to a strong and personal client relationship based on the client’s trust in the individual financial advisor. The loss of a significant number of financial advisors could lead to the loss of client accounts which could have a material adverse effect on the results of operations and prospects of AWM and, in turn, CI. Although AWM uses or has used a combination of competitive compensation structures and equity with vesting provisions as a means of seeking to retain financial advisors, there can be no assurance that financial advisors will remain with AWM.
Q1 Financial Report | 25 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
INSURANCE RISK
CI maintains various types of insurance which include financial institution bonds, errors and omissions insurance, directors’, trustees’ and officers’ liability insurance, agents’ insurance, general commercial liability insurance, and cyber liability insurance. Management evaluates the adequacy of CI’s insurance coverage on an ongoing basis. However, there can be no assurance that a claim or claims will not exceed the limits of available insurance coverage, that any insurer will remain solvent or willing to continue providing insurance coverage with sufficient limits or at a reasonable cost or that any insurer will not dispute coverage of certain claims due to ambiguities in the relevant policies. A judgment against CI in excess of available coverage could have a material adverse effect on CI both in terms of damages awarded and the impact on the reputation of CI.
CREDIT RISK
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed to the risk that third parties that owe it money, securities or other assets will not perform their obligations. These parties include trading counterparties, customers, clearing agents, exchanges, clearing houses and other financial intermediaries, as well as issuers whose securities are held by CI. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. CI does not have significant exposure to any individual counterparty. Credit risk is mitigated by regularly monitoring the credit performance of individual counterparties and holding collateral where appropriate.
One of the primary sources of credit risk arises when CI extends credit to clients to purchase securities by way of margin lending. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory requirements and by CI’s internal credit policy.
LIQUIDITY RISK
Liquidity risk is the risk that CI may not be able to generate sufficient funds and within the time required in order to meet its obligations as they come due. While CI currently has access to financing, unfavourable market conditions may affect the ability of CI to obtain loans or make other arrangements on terms acceptable to CI.
Q1 Financial Report | 26 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
LIQUIDITY RISK FOR THE ASSET MANAGEMENT SEGMENT
CI is also exposed to the risk of its investment funds not being able to meet their redemption obligations due to an inability to liquidate the underlying assets in a timely manner. This could be caused by insufficient liquid assets in the fund, an unexpected spike in redemptions triggered by negative market information, sentiment or contagion, adverse liquidity conditions in the financial markets, procedural issues that may delay the liquidation of securities or other factors. Inability to meet its redemption obligations may lead to legal liability, regulatory action and reputational damage. CI has robust mechanisms in place to monitor and maintain adequate liquidity in its investment fund portfolios at all times. However, CI has no control over extreme market events that may result in the sudden loss of liquidity or trigger a run on the funds.
CAPITAL RISK
Certain subsidiaries of CI are subject to minimum regulatory capital requirements. This may require CI to keep sufficient cash and other liquid assets on hand to maintain capital requirements rather than using them in connection with its business. Failure to maintain required regulatory capital by CI may subject it to fines, suspension or revocation of registration by the relevant securities regulator. A significant operating loss by a registrant subsidiary or an unusually large charge against regulatory capital could adversely affect the ability of CI to expand or even maintain its present level of business, which could have a material adverse effect on CI’s business, results of operations, financial condition and prospects.
TAXATION RISK
CI is subject to various uncertainties concerning the interpretation and application of Canadian tax laws. CI Investments is considered a large case file by the Canada Revenue Agency and, as such, is subject to audit each year. There is a significant lag between the end of a fiscal year and when such audits are completed. Therefore, at any given time, several years may be open for audit and/or adjustments. While CI regularly assesses the likely outcome of these audits in order to determine the appropriateness of its tax provision, there can be no assurance that CI will accurately predict the outcomes of these audits. If tax authorities disagree with CI’s application of such tax laws, CI’s profitability and cash flows could be adversely affected.
SHARE CAPITAL
As at March 31, 2020, CI had 216,633,319 shares outstanding.
Employee Incentive Share Option Plan: At March 31, 2020, 3.3 million options to purchase shares were outstanding, of which 2.6 million options were exercisable at prices ranging from $27.44 to $35.88.
Restricted Share Unit (“RSU”) Plan: 922,891 RSUs were outstanding as at March 31, 2020.
Deferred Share Unit (“DSU”) Plan: 24,553 DSUs were outstanding as at March 31, 2020.
Additional details about the above Plans can be found in Note 6 to the Interim Condensed Consolidated Financial Statements.
Q1 Financial Report | 27 | March 31, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CONTRACTUAL OBLIGATIONS
The table that follows summarizes CI’s contractual obligations at March 31, 2020.
TABLE 15: PAYMENTS DUE BY YEAR | ||||||||||||||||||||||||||||
[millions of dollars] | Total |
1 year or less |
2 | 3 | 4 | 5 |
More than 5 years |
|||||||||||||||||||||
Long-term debt | 1,750.0 | 450.0 | 375.0 | — | 325.0 | 350.0 | 250.0 | |||||||||||||||||||||
Leases | 81.4 | 15.4 | 13.7 | 12.9 | 13.0 | 12.7 | 13.7 | |||||||||||||||||||||
Total | 1,831.4 | 465.4 | 388.7 | 12.9 | 338.0 | 362.7 | 263.7 |
SIGNIFICANT ACCOUNTING ESTIMATES
The March 31, 2020 Consolidated Financial Statements have been prepared in accordance with IFRS. For a discussion of all significant accounting policies, refer to Note 1 of the Notes to Interim Condensed Consolidated Financial Statements. Note 2 provides a discussion regarding the methodology used for business acquisitions. Note 4 provides a discussion regarding the recoverable amount of CI’s provision for other liabilities and contingencies.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with management, are responsible for the design of CI’s disclosure controls and procedures as defined in National Instrument 52-109 (NI 52-109). Management evaluated, with participation of the CEO and CFO, the effectiveness of the disclosure controls and procedures as at March 31, 2020. Based on this evaluation, the CEO and CFO have concluded that they are reasonably assured these disclosure controls and procedures were effective as at March 31, 2020 and that material information relating to CI was made known to them within the time periods specified under applicable securities legislation. Management, under the supervision of the CEO and CFO, is responsible for the design and maintenance of adequate internal controls over financial reporting as defined in NI 52-109 for the purposes of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However, due to its inherent limitations, internal controls over financial reporting can only provide reasonable, not absolute, assurance that the financial statements are free of misstatements. The COSO framework was used to assist management, along with the CEO and CFO, in the evaluation of these internal control systems. Management, under the direction of the CEO and CFO, concluded that the internal controls over financial reporting were effective as at March 31, 2020. Management used various tools to evaluate internal controls over financial reporting which included interaction with key control systems, review of policy and procedure documentation, observation or reperformance of control procedures to evaluate the effectiveness of controls and concluded that these controls are effective. For the quarter ended March 31, 2020, there have been no changes to the internal controls that have materially affected, or are reasonably likely to affect, internal controls over financial reporting.
Additional information relating to CI, including the most recent audited annual financial statements, management information circular and annual information form, is available on SEDAR at www.sedar.com and on CI’s website at www.cifinancial.com. Information contained in or otherwise accessible through the websites mentioned in this MD&A does not form part of, and is not incorporated by reference into, this MD&A.
Q1 Financial Report | 28 | March 31, 2020 |
Exhibit 99.15
INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
June 30, 2020
Q2 Financial Report | 1 | June 30, 2020 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited)
As at | As at | |||||||
June 30, 2020 | December 31, 2019 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | 530,297 | 118,360 | ||||||
Client and trust funds on deposit | 468,670 | 364,964 | ||||||
Investments [note 8] | 118,502 | 138,412 | ||||||
Accounts receivable and prepaid expenses | 179,910 | 170,156 | ||||||
Income taxes receivable | — | 25,841 | ||||||
Total current assets | 1,297,379 | 817,733 | ||||||
Capital assets, net | 49,784 | 45,954 | ||||||
Right-of-use assets [note 5] | 46,562 | 44,882 | ||||||
Intangibles [note 2] | 3,478,565 | 3,388,482 | ||||||
Other assets [note 8] | 76,667 | 70,755 | ||||||
Total assets | 4,948,957 | 4,367,806 | ||||||
LIABILITIES AND EQUITY | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities | 241,783 | 245,267 | ||||||
Current portion of provision for other liabilities [note 4] | 6,214 | 14,643 | ||||||
Dividends payable [note 7] | 77,004 | 79,845 | ||||||
Client and trust funds payable | 480,624 | 368,348 | ||||||
Income taxes payable | 39,663 | — | ||||||
Current portion of long-term debt [note 3] | 419,755 | 449,509 | ||||||
Current portion of lease liabilities [note 5] | 12,290 | 11,348 | ||||||
Total current liabilities | 1,277,333 | 1,168,960 | ||||||
Long-term debt [note 3] | 1,568,144 | 1,154,985 | ||||||
Provision for other liabilities [note 4] | 38,739 | 18,493 | ||||||
Deferred income taxes [note 2] | 456,234 | 464,841 | ||||||
Lease liabilities [note 5] | 61,211 | 61,171 | ||||||
Total liabilities | 3,401,661 | 2,868,450 | ||||||
Equity | ||||||||
Share capital [note 6(a)] | 1,878,229 | 1,944,311 | ||||||
Contributed surplus | 26,112 | 23,435 | ||||||
Deficit | (393,689 | ) | (474,013 | ) | ||||
Accumulated other comprehensive income | 388 | 255 | ||||||
Total equity attributable to the shareholders of the Company | 1,511,040 | 1,493,988 | ||||||
Non-controlling interests [note 2] | 36,256 | 5,368 | ||||||
Total equity | 1,547,296 | 1,499,356 | ||||||
Total liabilities and equity | 4,948,957 | 4,367,806 |
(see accompanying notes)
On behalf of the Board of Directors: |
|
|
|
William T. Holland Director |
Tom P. Muir Director |
Q2 Financial Report | 2 | June 30, 2020 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
AND COMPREHENSIVE INCOME (unaudited)
For the three-month period ended June 30
2020 | 2019 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 386,876 | 450,976 | ||||||
Administration fees | 75,851 | 71,677 | ||||||
Redemption fees | 1,748 | 2,857 | ||||||
Realized and unrealized gain on investments | 5,162 | 597 | ||||||
Other income | 5,806 | 4,752 | ||||||
475,443 | 530,859 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 11] | 108,953 | 124,835 | ||||||
Trailer fees | 121,002 | 140,412 | ||||||
Investment dealer fees | 53,610 | 50,641 | ||||||
Deferred sales commissions | 1,443 | 3,134 | ||||||
Amortization and depreciation [note 12] | 10,039 | 8,328 | ||||||
Interest and lease finance [notes 3 and 5] | 15,764 | 13,691 | ||||||
Other [note 4] | 3,795 | 37,423 | ||||||
314,606 | 378,464 | |||||||
Income before income taxes | 160,837 | 152,395 | ||||||
Provision for income taxes | ||||||||
Current | 40,200 | 45,235 | ||||||
Deferred | 873 | (4,354 | ) | |||||
41,073 | 40,881 | |||||||
Net income for the period | 119,764 | 111,514 | ||||||
Net loss attributable to non-controlling interests | (399 | ) | (338 | ) | ||||
Net income attributable to shareholders | 120,163 | 111,852 | ||||||
Other comprehensive income (loss), net of tax | ||||||||
Exchange differences on translation of foreign operations | 95 | (31 | ) | |||||
Total other comprehensive income (loss), net of tax | 95 | (31 | ) | |||||
Comprehensive income for the period | 119,859 | 111,483 | ||||||
Comprehensive loss attributable to non-controlling interests | (399 | ) | (338 | ) | ||||
Comprehensive income attributable to shareholders | 120,258 | 111,821 | ||||||
Basic earnings per share attributable to shareholders [note 6(e)] | $ | 0.56 | $ | 0.47 | ||||
Diluted earnings per share attributable to shareholders [note 6(e)] | $ | 0.55 | $ | 0.47 |
(see accompanying notes)
Q2 Financial Report | 3 | June 30, 2020 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
AND COMPREHENSIVE INCOME (unaudited)
For the six-month period ended June 30
2020 | 2019 | |||||||
[in thousands of Canadian dollars, except per share amounts] | $ | $ | ||||||
REVENUE | ||||||||
Management fees | 809,455 | 893,403 | ||||||
Administration fees | 152,052 | 141,142 | ||||||
Redemption fees | 4,603 | 6,162 | ||||||
Realized and unrealized gain (loss) on investments | (7,463 | ) | 9,001 | |||||
Other income | 16,088 | 7,919 | ||||||
974,735 | 1,057,627 | |||||||
EXPENSES | ||||||||
Selling, general and administrative [note 11] | 223,947 | 250,895 | ||||||
Trailer fees | 252,056 | 277,320 | ||||||
Investment dealer fees | 106,064 | 99,176 | ||||||
Deferred sales commissions | 4,688 | 7,739 | ||||||
Amortization and depreciation [note 12] | 18,633 | 16,487 | ||||||
Interest and lease finance [notes 3 and 5] | 30,376 | 27,406 | ||||||
Other [note 4] | 14,779 | 39,056 | ||||||
650,543 | 718,079 | |||||||
Income before income taxes | 324,192 | 339,548 | ||||||
Provision for income taxes | ||||||||
Current | 86,029 | 91,661 | ||||||
Deferred | (1,495 | ) | (3,587 | ) | ||||
84,534 | 88,074 | |||||||
Net income for the period | 239,658 | 251,474 | ||||||
Net loss attributable to non-controlling interests | (720 | ) | (413 | ) | ||||
Net income attributable to shareholders | 240,378 | 251,887 | ||||||
Other comprehensive income (loss), net of tax | ||||||||
Exchange differences on translation of foreign operations | 133 | (29 | ) | |||||
Total other comprehensive income (loss), net of tax | 133 | (29 | ) | |||||
Comprehensive income for the period | 239,791 | 251,445 | ||||||
Comprehensive loss attributable to non-controlling interests | (720 | ) | (413 | ) | ||||
Comprehensive income attributable to shareholders | 240,511 | 251,858 | ||||||
Basic earnings per share attributable to shareholders [note 6(e)] | $ | 1.10 | $ | 1.05 | ||||
Diluted earnings per share attributable to shareholders [note 6(e)] | $ | 1.10 | $ | 1.05 |
(see accompanying notes)
Q2 Financial Report | 4 | June 30, 2020 |
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY (unaudited)
For the six-month period ended June 30
Share
capital [note 6(a)] |
Contributed
surplus |
Deficit |
Accumulated
other comprehensive income |
Total
shareholders’ equity |
Non-
controlling interests |
Total
equity |
||||||||||||||||||||||
[in thousands of Canadian dollars] | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Balance, January 1, 2020 | 1,944,311 | 23,435 | (474,013 | ) | 255 | 1,493,988 | 5,368 | 1,499,356 | ||||||||||||||||||||
Comprehensive income | — | — | 240,378 | 133 | 240,511 | (720 | ) | 239,791 | ||||||||||||||||||||
Dividends declared [note 7] | — | — | (76,124 | ) | — | (76,124 | ) | — | (76,124 | ) | ||||||||||||||||||
Shares repurchased, net of tax | (67,576 | ) | — | (80,557 | ) | — | (148,133 | ) | — | (148,133 | ) | |||||||||||||||||
Business combination [note 2] | — | — | (3,373 | ) | — | (3,373 | ) | 31,608 | 28,235 | |||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 1,494 | (1,494 | ) | — | — | — | — | — | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 4,171 | — | — | 4,171 | — | 4,171 | |||||||||||||||||||||
Change during the period | (66,082 | ) | 2,677 | 80,324 | 133 | 17,052 | 30,888 | 47,940 | ||||||||||||||||||||
Balance, June 30, 2020 | 1,878,229 | 26,112 | (393,689 | ) | 388 | 1,511,040 | 36,256 | 1,547,296 | ||||||||||||||||||||
Balance, January 1, 2019 | 2,125,130 | 25,270 | (730,663 | ) | 277 | 1,420,014 | 2,849 | 1,422,863 | ||||||||||||||||||||
Comprehensive income | — | — | 251,887 | (29 | ) | 251,858 | (413 | ) | 251,445 | |||||||||||||||||||
Dividends declared [note 7] | — | — | 4,655 | — | 4,655 | (875 | ) | 3,780 | ||||||||||||||||||||
Shares repurchased, net of tax | (67,526 | ) | — | (85,611 | ) | — | (153,137 | ) | — | (153,137 | ) | |||||||||||||||||
Business combination [note 2] | — | — | — | — | — | 4,266 | 4,266 | |||||||||||||||||||||
Issuance of share capital for equity-based plans, net of tax | 234 | (234 | ) | — | — | — | — | — | ||||||||||||||||||||
Compensation expense for equity-based plans, net of tax | — | 4,771 | — | — | 4,771 | — | 4,771 | |||||||||||||||||||||
Change during the period | (67,292 | ) | 4,537 | 170,931 | (29 | ) | 108,147 | 2,978 | 111,125 | |||||||||||||||||||
Balance, June 30, 2019 | 2,057,838 | 29,807 | (559,732 | ) | 248 | 1,528,161 | 5,827 | 1,533,988 | ||||||||||||||||||||
(see accompanying notes) |
Q2 Financial Report | 5 | June 30, 2020 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the three-month period ended June 30
2020 | 2019 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
OPERATING ACTIVITIES (*) | ||||||||
Net income for the period | 119,764 | 111,514 | ||||||
Add (deduct) items not involving cash | ||||||||
Realized and unrealized gain on investments | (5,162 | ) | (597 | ) | ||||
Equity-based compensation | 2,841 | 3,357 | ||||||
Amortization and depreciation | 10,039 | 8,328 | ||||||
Deferred income taxes | 873 | (4,354 | ) | |||||
Impairment loss on intangibles [note 4] | — | 6,442 | ||||||
Loss on repurchase of long-term debt | 194 | — | ||||||
Cash provided by operating activities before net change in operating assets and liabilities | 128,549 | 124,690 | ||||||
Net change in operating assets and liabilities | 80,145 | 27,721 | ||||||
Cash provided by operating activities | 208,694 | 152,411 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (4,515 | ) | (1,968 | ) | ||||
Proceeds on sale of investments | 21,043 | 11,225 | ||||||
Additions to capital assets | (3,291 | ) | (2,976 | ) | ||||
Decrease (increase) in other assets | 7,968 | (12,740 | ) | |||||
Additions to intangibles | (4,862 | ) | (536 | ) | ||||
Acquisition of subsidiaries, net of cash acquired [note 2} | (31,349 | ) | — | |||||
Cash used in investing activities | (15,006 | ) | (6,995 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Repayment of long-term debt | (35,000 | ) | (3,500 | ) | ||||
Issuance of long-term debt | 307,597 | — | ||||||
Repurchase of long-term debt | (30,000 | ) | — | |||||
Repurchase of share capital | (46,524 | ) | (94,804 | ) | ||||
Payment of lease liabilities | (3,192 | ) | (2,778 | ) | ||||
Dividends paid to shareholders [note 7] | (38,995 | ) | (43,285 | ) | ||||
Dividends paid to non-controlling interests | — | (875 | ) | |||||
Cash provided by (used) in financing activities | 153,886 | (145,242 | ) | |||||
Net increase in cash and cash equivalents during the period | 347,574 | 174 | ||||||
Cash and cash equivalents, beginning of period | 182,723 | 136,720 | ||||||
Cash and cash equivalents, end of period | 530,297 | 136,894 | ||||||
(*) Included in operating activities are the following: | ||||||||
Interest paid | 10,861 | 12,973 | ||||||
Income taxes paid | (413 | ) | 52,427 | |||||
(see accompanying notes) |
Q2 Financial Report | 6 | June 30, 2020 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the six-month period ended June 30
2020 | 2019 | |||||||
[in thousands of Canadian dollars] | $ | $ | ||||||
OPERATING ACTIVITIES (*) | ||||||||
Net income for the period | 239,658 | 251,474 | ||||||
Add (deduct) items not involving cash | ||||||||
Realized and unrealized (gain) loss on investments | 7,463 | (9,001 | ) | |||||
Equity-based compensation | 5,614 | 6,413 | ||||||
Amortization and depreciation | 18,633 | 16,487 | ||||||
Deferred income taxes | (1,495 | ) | (3,587 | ) | ||||
Impairment loss on intangibles [note 4] | — | 6,442 | ||||||
Loss on repurchase of long-term debt | 194 | — | ||||||
Cash provided by operating activities before net change in operating assets and liabilities | 270,067 | 268,228 | ||||||
Net change in operating assets and liabilities | 54,514 | 5,085 | ||||||
Cash provided by operating activities | 324,581 | 273,313 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (14,911 | ) | (7,362 | ) | ||||
Proceeds on sale of investments | 21,069 | 15,072 | ||||||
Additions to capital assets | (9,241 | ) | (8,284 | ) | ||||
Increase in other assets | (7,049 | ) | (19,681 | ) | ||||
Additions to intangibles | (8,100 | ) | (1,643 | ) | ||||
Acquisition of subsidiaries, net of cash acquired [note 2] | (41,731 | ) | (23,572 | ) | ||||
Cash used in investing activities | (59,963 | ) | (45,470 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Repayment of long-term debt | (35,000 | ) | (287,000 | ) | ||||
Issuance of long-term debt | 447,597 | 308,000 | ||||||
Repurchase of long-term debt | (30,000 | ) | — | |||||
Repurchase of share capital | (150,388 | ) | (155,582 | ) | ||||
Payment of lease liabilities | (5,924 | ) | (5,468 | ) | ||||
Dividends paid to shareholders [note 7] | (78,966 | ) | (87,184 | ) | ||||
Dividends paid to non-controlling interests | — | (875 | ) | |||||
Cash provided by (used) in financing activities | 147,319 | (228,109 | ) | |||||
Net increase (decrease) in cash and cash equivalents during the period | 411,937 | (266 | ) | |||||
Cash and cash equivalents, beginning of period | 118,360 | 137,160 | ||||||
Cash and cash equivalents, end of period | 530,297 | 136,894 | ||||||
(*) Included in operating activities are the following: | ||||||||
Interest paid | 28,795 | 26,352 | ||||||
Income taxes paid | 20,544 | 92,973 |
(see accompanying notes)
Q2 Financial Report | 7 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
CI Financial Corp. [“CI”] is a publicly listed company (TSX: CIX) incorporated under the laws of the Province of Ontario and has its registered office and principal place of business located at 2 Queen Street East, Toronto, Ontario.
CI’s primary business is the management and distribution of a broad range of financial products and services, including mutual funds, segregated funds, exchange-traded funds, financial planning, insurance, investment advice, wealth management and estate and succession planning.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These unaudited interim condensed consolidated financial statements of CI have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting [“IAS 34”] as issued by the International Accounting Standards Board [“IASB”] and on a basis consistent with the accounting policies disclosed in the annual audited consolidated financial statements for the year ended December 31, 2019.
These unaudited interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of CI on August 5, 2020.
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of CI have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The unaudited interim condensed consolidated financial statements have been prepared on a going concern basis. CI’s presentation currency is the Canadian dollar, which is CI’s functional currency. The notes presented in these unaudited interim condensed consolidated financial statements include, in general, only significant changes and transactions occurring since CI’s last year-end, and are not fully inclusive of all disclosures required by International Financial Reporting Standards [“IFRS”] for annual financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2019.
BASIS OF CONSOLIDATION
The unaudited interim condensed consolidated financial statements include the accounts of CI and all its subsidiaries on a consolidated basis after elimination of intercompany transactions and balances. Subsidiaries are entities over which CI has control, when CI has the power, directly or indirectly, to govern the financial and operating policies of an entity, is exposed to variable returns from its activities, and is able to use its power to affect such variable returns to which it is exposed.
CI’s principal subsidiaries are as follows:
• | CI Investments Inc. [“CI Investments”], Assante Wealth Management (Canada) Ltd. [“AWM”], BBS Securities Inc. [“BBS”] and their respective subsidiaries. Effective July 1, 2019, First Asset Investment Management Inc. amalgamated with CI Investments. |
Q2 Financial Report | 8 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
• | CI holds a controlling interest in GSFM Pty Limited [“GSFM”] with put and call options over the remaining minority interest. CI considers the non-controlling interest in GSFM to have already been acquired and consolidates 100% of the income and comprehensive income in the unaudited interim condensed consolidated statements of income and comprehensive income. GSFM has an interest in a joint arrangement classified as a joint operation. The unaudited interim condensed consolidated financial statements include GSFM’s recognition of its share of the joint operation’s assets, liabilities, income and comprehensive income. |
• | For subsidiaries where CI holds a controlling interest, a non-controlling interest is recorded in the unaudited interim condensed consolidated statements of income and comprehensive income to reflect the non-controlling interest’s share of the income and comprehensive income, and a non-controlling interest is recorded within equity in the interim condensed consolidated statements of financial position to reflect the non-controlling interest’s share of the net assets. |
Hereinafter, CI and its subsidiaries are referred to as CI.
2. | BUSINESS ACQUISITION |
WealthBar Financial Services Inc.
On January 23, 2019, CI acquired 75% of the outstanding shares and debt obligations of WealthBar Financial Services Inc. [“WealthBar”] and on May 14, 2020, acquired the remaining 25% of the outstanding shares, for all cash consideration. WealthBar provides a leading Canadian online wealth management and financial planning platform. The acquisition was accounted for using the acquisition method of accounting. The fair values of the assets acquired and liabilities assumed and the results of operations have been consolidated from the date of the transaction and are included in the wealth management segment.
Snap Projections Inc.
On October 16, 2019, WealthBar acquired 100% of the outstanding shares of Snap Projections Inc., a Canadian financial and retirement software provider. The acquisition was accounted for using the acquisition method of accounting. The estimated fair values of the assets acquired and liabilities assumed and the results of operations have been consolidated from the date of the transaction.
Surevest LLC
On January 24, 2020, CI acquired a majority stake in Surevest LLC, an Arizona-based registered investment advisory firm. The acquisition was accounted for using the acquisition method of accounting. The estimated fair values of the assets acquired and liabilities assumed and the results of operations have been consolidated from the date of the transaction and are included in the wealth management segment.
Q2 Financial Report | 9 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
WisdomTree
On February 19, 2020, CI acquired 100% of the outstanding shares and debt obligations of CI ETF Investment Management Inc. [“CI ETF”], formerly WisdomTree Asset Management Canada, Inc., an investment fund manager of Canadian exchange-traded funds. The acquisition was accounted for using the acquisition method of accounting. The estimated fair values of the assets acquired and liabilities assumed and the results of operations have been consolidated from the date of the transaction and are included in the asset management segment.
OCM Capital Partners LLC
On May 6, 2020, CI acquired a majority stake in OCM Capital Partners LLC [“One Capital”], a California-based registered investment advisory firm. The acquisition was accounted for using the acquisition method of accounting. The estimated fair values of the assets acquired and liabilities assumed and the results of operations have been consolidated from the date of the transaction and included in the wealth management segment.
Balasa Dinverno Foltz LLC
On August 4, 2020, CI reached an agreement to acquire full ownership of Balasa Dinverno Foltz LLC, an Illinois-based registered investment advisory firm. The details of the acquisition are being finalized and is expected to close before September 30, 2020.
Aligned Capital Partners Inc.
On August 5, 2020, CI reached an agreement to acquire a majority stake in Aligned Capital Partners Inc., a Canadian full-service investment advisory firm. The details of the acquisition are being finalized and is expected to close before September 30, 2020.
Other strategic interests
On June 16, 2020, CI acquired an interest in The Cabana Group, LLC, an Arkansas-based registered investment advisory firm, the parent company of Cabana Asset Management [together “Cabana”].
On May 26, 2020, CI reached an agreement to acquire an interest in Congress Wealth Management LLC [“Congress”], a Massachusetts-based investment advisor firm. The transaction with Congress closed on July 2, 2020.
Q2 Financial Report | 10 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
3. | LONG-TERM DEBT |
Long-term debt consists of the following:
As at | As at | |||||||||||||||
June 30, 2020 | December 31, 2019 | |||||||||||||||
$ | $ | |||||||||||||||
Credit facility | ||||||||||||||||
Banker’s acceptances | — | 35,000 | ||||||||||||||
— | 35,000 | |||||||||||||||
Debenture principal amount | Interest rate | Issued date | Maturity date | |||||||||||||
$420 million [2019 - $450 million] | 2.645 | % | December 7, 2015 | December 7, 2020 | 419,755 | 449,509 | ||||||||||
$200 million | 2.775 | % | November 25, 2016 | November 25, 2021 | 199,632 | 199,512 | ||||||||||
$325 million | 3.520 | % | July 20, 2018 | July 20, 2023 | 323,780 | 323,616 | ||||||||||
$350 million | 3.215 | % | July 22, 2019 | July 22, 2024 | 348,276 | 348,101 | ||||||||||
$450 million | 3.759 | % | May 26, 2020 | May 26, 2025 | 447,633 | — | ||||||||||
$250 million | 3.904 | % | September 27, 2017 | September 27, 2027 | 248,823 | 248,756 | ||||||||||
1,987,899 | 1,569,494 | |||||||||||||||
Long-term debt | 1,987,899 | 1,604,494 | ||||||||||||||
Current portion of long-term debt | 419,755 | 449,509 |
Credit facility
CI has a $700,000 revolving credit facility with three Canadian chartered banks. Loans are made by the banks under a three-year revolving credit facility, with the outstanding principal balance due upon maturity on December 11, 2021. CI is within its financial covenants with respect to its credit facility, which requires that the funded debt to annualized EBITDA ratio remains below 3:1 and that CI’s assets under management not fall below $85 billion, calculated based on a rolling 30-day average. There can be no assurance that future borrowings or equity financing will be available to CI or available on acceptable terms.
Debentures
During the quarter, CI repurchased $30,000 principal amount of debentures due December 7, 2020 at an average price of 100.645 and recorded a loss of $194, included in other income.
On May 26, 2020, CI completed an offering pursuant to which it issued $450,000 principal amount of debentures due May 26, 2025 at par [the “2025 Debentures”]. Interest on the 2025 Debentures is paid semi-annually in arrears at a rate of 3.759%. The proceeds, net of transaction costs, were used to repay outstanding indebtedness under the credit facility.
On July 22, 2019, CI completed an offering pursuant to which it issued $350,000 principal amount of debentures due July 22, 2024 at par [the “2024 Debentures”]. Interest on the 2024 Debentures is paid semi-annually in arrears at a rate of 3.215%. The proceeds, net of transaction costs, were used to repay outstanding indebtedness under the credit facility.
Q2 Financial Report | 11 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
On February 2, 2017, CI entered into an interest rate swap agreement with a Canadian chartered bank to swap the semi-annual fixed rate payments on the debentures due November 25, 2021 for floating rate payments. As at June 30, 2020, the fair value of the interest rate swap agreement was an unrealized gain of $2,507 and is included in long-term debt in the unaudited interim condensed consolidated statements of financial position.
4. | PROVISION FOR OTHER LIABILITIES AND CONTINGENCIES |
CI is a party to a number of claims, proceedings and investigations, including legal, regulatory and tax, in the ordinary course of its business. Due to the inherent uncertainty involved in these matters, it is difficult to predict the final outcome or the amount and timing of any outflow related to such matters. Based on current information and consultations with advisors, CI does not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on its financial position or on its ability to continue normal business operations.
CI has made provisions based on current information and the probable resolution of such contingent consideration, claims, proceedings and investigations as well as for amounts payable in connection with business acquisitions and severance. The movement in amounts provided for contingent liabilities and related expenses during the six months ended June 30, 2020 and the year ended December 31, 2019, are as follows:
6 months ended | Year ended | |||||||
June 30, 2020 | December 31, 2019 | |||||||
$ | $ | |||||||
Provision for other liabilities, beginning of period | 33,136 | 34,768 | ||||||
Additions | 23,537 | 35,214 | ||||||
Amounts used | (11,690 | ) | (36,504 | ) | ||||
Amounts reversed | (30 | ) | (342 | ) | ||||
Provision for other liabilities, end of period | 44,953 | 33,136 | ||||||
Current portion of provision for other liabilities | 6,214 | 14,643 |
Provision for other liabilities primarily includes the following:
LITIGATION
CI is a defendant to certain lawsuits of which two are class action lawsuits related to events and transactions that gave rise to a settlement agreement with the Ontario Securities Commission [“OSC”] in 2004. Although CI continues to believe that this settlement fully compensated investors affected by frequent trading activity, a provision has been made based on the probable resolution of these claims and related expenses.
CI maintains insurance policies that may provide coverage against certain claims. Amounts receivable under these policies are not accrued for unless the realization of income is virtually certain. During the three and six months ended June 30, 2020, no insurance proceeds were received related to the settlement of legal claims.
Q2 Financial Report | 12 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
PUT OPTION AND CONTINGENT CONSIDERATION
Included in provision for other liabilities as at June 30, 2020, is a provision for the fair value of the put option granted to minority interest shareholders for the acquisition of GSFM of $7,787, including foreign exchange translation adjustments [December 31, 2019 – $7,573].
RESTRUCTURING
During the three months ended March 31, 2020, CI recorded an additional provision of $8,500 related to severance. During the three months ended June 30, 2019, CI recorded an initial provision of $35,000 related to severance and the write-down of software intangibles that were retired. As at June 30, 2020, a provision of nil remains [December 31, 2019 – $6,485].
As at June 30, 2020, a provision of nil remains for the restructuring, integration and legal costs related to the acquisition of Sentry and BBS [December 31, 2019 – $2,400].
REMEDIATION
In 2015, CI discovered an administrative error and recorded a provision of $10,750, net of recoveries for the cost to remediate. As at June 30, 2020, a net recovery of $3,934 remains [December 31, 2019 – $3,793].
Q2 Financial Report | 13 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
5. | LEASES |
The following shows the carrying amounts of CI’s right-of-use assets and lease liabilities and the movements during the six-month period ended June 30, 2020:
Right-of-use assets | ||||||||||||||||
Property leases |
Equipment leases |
Total |
Lease liabilities |
|||||||||||||
$ | $ | $ | $ | |||||||||||||
As at January 1, 2020 | 43,711 | 1,171 | 44,882 | 72,519 | ||||||||||||
Additions & modifications | 6,381 | 158 | 6,539 | 7,058 | ||||||||||||
Depreciation expense | (4,262 | ) | (478 | ) | (4,740 | ) | — | |||||||||
Interest expense | — | — | — | 1,454 | ||||||||||||
Payments | — | — | — | (7,378 | ) | |||||||||||
Translation | (120 | ) | 1 | (119 | ) | (152 | ) | |||||||||
As at June 30, 2020 | 45,710 | 852 | 46,562 | 73,501 |
During the six-month period ended June 30, 2020, CI recognized rent expenses of $87 for short-term leases, expenses of $21 for leases of low-value assets and variable lease payments of $6,410 [six-month period ended June 30, 2019 – expenses of $455, $100 and $6,218, respectively].
Included in other income for the six-month period ended June 30, 2020, is finance income of $47 received from sub-leasing right-of-use assets [six-month period ended June 30, 2019 – $47].
Q2 Financial Report | 14 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
6. | SHARE CAPITAL |
A summary of the changes to CI’s share capital for the period is as follows:
[A] AUTHORIZED AND ISSUED
Number of shares | Stated value | |||||||
[in thousands] | $ | |||||||
Authorized | ||||||||
An unlimited number of common shares of CI | ||||||||
Issued | ||||||||
Common shares, balance, December 31, 2018 | 243,721 | 2,125,130 | ||||||
Issuance of share capital on vesting of restricted share units | 711 | 12,751 | ||||||
Share repurchases, net of tax | (22,640 | ) | (193,570 | ) | ||||
Common shares, balance, December 31, 2019 | 221,792 | 1,944,311 | ||||||
Issuance of share capital on vesting of restricted share units | 85 | 1,459 | ||||||
Share repurchases, net of tax | (5,244 | ) | (43,624 | ) | ||||
Common shares, balance, March 31, 2020 | 216,633 | 1,902,146 | ||||||
Issuance of share capital on vesting of restricted share units | 2 | 35 | ||||||
Share repurchases, net of tax | (2,736 | ) | (23,952 | ) | ||||
Common shares, balance, June 30, 2020 | 213,899 | 1,878,229 |
[B] EMPLOYEE INCENTIVE SHARE OPTION PLAN
CI has an employee incentive share option plan [the “Share Option Plan”], as amended and restated, for the executives and key employees of CI.
No options were granted during the three and six months ended June 30, 2020. During the year ended December 31, 2019, CI granted 743 thousand options to employees. The fair value method of accounting is used for the valuation of the 2019 share option grants. Compensation expense is recognized over the applicable vesting periods, assuming an estimated average forfeiture rate of 12.7%, with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well as any consideration paid by the option holder are credited to share capital.
Q2 Financial Report | 15 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
The fair value of the 2019 option grants was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
A summary of the changes in the Share Option Plan is as follows:
Number of options |
Weighted average exercise price |
|||||||
[in thousands] | $ | |||||||
Options outstanding, December 31, 2018 | 6,958 | 32.18 | ||||||
Options exercisable, December 31, 2018 | 5,789 | 32.97 | ||||||
Options granted | 743 | 18.99 | ||||||
Options cancelled | (2,117 | ) | 34.28 | |||||
Options outstanding, December 31, 2019 | 5,584 | 29.63 | ||||||
Options exercisable, December 31, 2019 | 4,758 | 31.26 | ||||||
Options cancelled | (2,275 | ) | 33.37 | |||||
Options outstanding, March 31, 2020 | 3,309 | 27.06 | ||||||
Options exercisable, March 31, 2020 | 2,644 | 29.03 | ||||||
Options cancelled | (443 | ) | 31.88 | |||||
Options outstanding, June 30, 2020 | 2,866 | 26.32 | ||||||
Options exercisable, June 30, 2020 | 2,208 | 28.43 |
Options outstanding and exercisable as at June 30, 2020 are as follows:
Exercise price |
Number of options outstanding |
Weighted average remaining contractual life |
Number of options exercisable |
|||||||||
$ | [in thousands] | [years] | [in thousands] | |||||||||
18.99 | 641 | 8.7 | — | |||||||||
27.44 | 375 | 1.7 | 375 | |||||||||
28.63 | 1,799 | 0.6 | 1,799 | |||||||||
28.67 | 51 | 2.7 | 34 | |||||||||
18.99 to 28.67 | 2,866 | 2.6 | 2,208 |
Q2 Financial Report | 16 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
[C] RESTRICTED SHARE UNITS
CI has an employee restricted share unit plan [the “RSU Plan”] for senior executives and other key employees. Compensation expense is recognized and recorded as contributed surplus based upon the market value of the restricted share units [“RSUs”] at the grant date. Forfeitures of RSUs reduce compensation expense to the extent contributed surplus was previously recorded for such awards. On vesting of RSUs, share capital is credited for the amounts initially recorded as contributed surplus to reflect the issuance of share capital.
During the three and six months ended June 30, 2020, CI granted 13 and 368 thousand RSUs, respectively [three and six months ended June 30, 2019 – 12 and 511 thousand RSUs, respectively], including 13 and 18 thousand RSUs granted to reflect dividends declared on the common shares, respectively [three and six months ended June 30, 2019 – 12 and 9 thousand, respectively]. Also during the three and six months ended June 30, 2020, 2 and 87 thousand RSUs were exercised, and 6 and 11 thousand RSUs were forfeited, respectively [three and six months ended June 30, 2019 – 10 and 16 thousand exercised, and 6 and 21 thousand RSUs forfeited, respectively]. During the three and six months ended June 30, 2020, CI credited contributed surplus for $2,738 and $5,408, respectively, related to compensation expense recognized for the RSUs [three and six months ended June 30, 2019 – S3,229 and 6,155, respectively]. As at June 30, 2020, 927 thousand RSUs are outstanding [December 31, 2019 – 657 thousand RSUs].
CI uses a Trust to hold CI’s common shares, to fulfil obligations to employees arising from the RSU Plan. The common shares held by the Trust are not considered to be outstanding for the purposes of basic and diluted earnings per share calculations.
[D] DEFERRED SHARE UNITS
The deferred share unit plan [the “DSU Plan”] was established in March 2017, whereby directors may elect to receive all or a portion of their quarterly compensation in either cash or deferred share units [“DSUs”]. The DSUs fully vest on the grant date and an expense is recorded based upon the market value of the DSUs at the grant date with an offset included in accounts payable and accrued liabilities. At the end of each period, the change in the fair value of the DSUs is recorded as an expense with an offset recorded to the liability. DSUs can only be redeemed for cash once the holder ceases to be a director of CI.
During the three and six months ended June 30, 2020, 2.7 and 5.9 thousand DSUs were granted, respectively, and nil DSUs were exercised [three and six months ended June 30, 2019 – 1.9 and 2.1 thousand DSUs granted, and nil exercised, respectively]. An expense of $127 and $7 was recorded during the three and six months ended June 30, 2020, respectively [three and six months ended June 30, 2019 – $89 and $107, respectively]. As at June 30, 2020, included in accounts payable and accrued liabilities, is an accrual of $470 for amounts to be paid under the DSU Plan [December 31, 2019 – $464].
Q2 Financial Report | 17 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
[E] BASIC AND DILUTED EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share for the three and six months ended June 30:
3 months ended | 6 months ended | 3 months ended | 6 months ended | |||||||||||||
[in thousands] | June 30, 2020 | June 30, 2020 | June 30, 2019 | June 30, 2019 | ||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to shareholders of the Company basic and diluted | $ | 120,163 | $ | 240,378 | $ | 111,852 | $ | 251,887 | ||||||||
Denominator: | ||||||||||||||||
Weighted average number of common shares - basic | 216,203 | 217,877 | 238,255 | 240,091 | ||||||||||||
Weighted average effect of dilutive stock options and RSU awards (*) | 1,456 | 1,456 | 889 | 776 | ||||||||||||
Weighted average number of common shares - diluted | 217,659 | 219,333 | 239,144 | 240,867 | ||||||||||||
Net earnings per common share attributable to shareholders | ||||||||||||||||
Basic | $ | 0.56 | $ | 1.10 | $ | 0.47 | $ | 1.05 | ||||||||
Diluted | $ | 0.55 | $ | 1.10 | $ | 0.47 | $ | 1.05 |
(*) The determination of the weighted average number of common shares - diluted excludes 2,866 thousand shares related to stock options that were anti-dilutive for the three and six months ended June 30, 2020 [three and six months ended June 30, 2019 - 5,710 thousand shares].
[F] MAXIMUM SHARE DILUTION
The following table presents the maximum number of shares that would be outstanding if all the outstanding options were exercised and if all RSU awards vested as at July 31, 2020:
[in thousands] | ||||
Shares outstanding at July 31, 2020 | 211,666 | |||
Options to purchase shares | 2,853 | |||
RSU awards | 936 | |||
215,455 |
Q2 Financial Report | 18 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
7. | DIVIDENDS |
The following dividends were paid by CI during the three and six months ended June 30, 2020:
Cash dividend
per share |
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2019 | January 15, 2020 | 0.18 | 39,971 | |||||||
Paid during the three months ended March 31, 2020 | 39,971 | |||||||||
March 31, 2020 | April 15, 2020 | 0.18 | 38,995 | |||||||
Paid during the three months ended June 30, 2020 | 38,995 | |||||||||
Paid during the six months ended June 30, 2020 | 78,966 |
The following dividends were declared but not paid during the three months ended June 30, 2020:
Cash dividend
per share |
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
June 30, 2020 | July 15, 2020 | 0.18 | 38,502 | |||||||
September 30, 2020 | October 15, 2020 | 0.18 | 38,502 | |||||||
Declared and accrued as at June 30, 2020 | 77,004 |
The following dividends were paid by CI during the three and six months ended June 30, 2019:
Cash dividend
per share |
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
December 31, 2018 | January 15, 2019 | 0.18 | 43,899 | |||||||
Paid during the three months ended March 31, 2019 | 43,899 | |||||||||
March 31, 2019 | April 15, 2019 | 0.1800 | 43,285 | |||||||
Paid during the three months ended June 30, 2019 | 43,285 | |||||||||
Paid during the six months ended June 30, 2019 | 87,184 |
The following dividends were declared but not paid during the three months ended June 30, 2019:
Cash dividend
per share |
Total dividend
amount |
|||||||||
Record date | Payment date | $ | $ | |||||||
June 30, 2019 | July 15, 2019 | 0.18 | 42,424 | |||||||
September 30, 2019 | October 15, 2019 | 0.18 | 42,424 | |||||||
December 31, 2019 | January 15, 2020 | 0.18 | 42,425 | |||||||
Declared and accrued as at June 30, 2019 | 127,273 |
Q2 Financial Report | 19 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
8. | FINANCIAL INSTRUMENTS |
The carrying amounts of the financial instruments are presented in the tables below and are classified according to the following categories:
As at | As at | |||||||
June 30, 2020 | December 31, 2019 | |||||||
$ | $ | |||||||
Financial assets | ||||||||
Fair value through profit or loss | ||||||||
Cash and cash equivalents | 530,297 | 118,360 | ||||||
Investments | 118,502 | 138,412 | ||||||
Other assets | 14,007 | 14,507 | ||||||
Amortized cost | ||||||||
Client and trust funds on deposit | 468,670 | 364,964 | ||||||
Accounts receivable | 151,784 | 159,760 | ||||||
Other assets | 30,730 | 28,863 | ||||||
Total financial assets | 1,313,990 | 824,866 | ||||||
Financial liabilities | ||||||||
Fair value through profit or loss | ||||||||
Provisions for other liabilities | 29,428 | 8,650 | ||||||
Amortized cost | ||||||||
Accounts payable and accrued liabilities | 238,037 | 242,176 | ||||||
Provisions for other liabilities | 15,525 | 24,486 | ||||||
Dividends payable | 77,004 | 79,845 | ||||||
Client and trust funds payable | 480,624 | 368,348 | ||||||
Long-term debt | 1,987,899 | 1,604,494 | ||||||
Total financial liabilities | 2,828,517 | 2,327,999 |
CI’s investments as at June 30, 2020 and December 31, 2019, include CI’s marketable securities which are comprised of seed capital investments in CI’s mutual funds and strategic investments. Mutual fund securities are valued using the net asset value per unit of each fund, which represents the underlying net assets at fair values determined using closing market prices. CI’s mutual fund securities that are valued daily are classified as Level 1 in the fair value hierarchy. Mutual fund securities and strategic investments that are valued less frequently are classified as Level 2 in the fair value hierarchy. CI’s investments as at June 30, 2020, also include securities owned, at market, consisting of money market, equity securities and bonds. Money market and equity securities are valued based on quoted prices and are classified as Level 1 in the fair value hierarchy. Bonds are valued using a market comparison technique to fair value these instruments using observable broker quotes and are classified as Level 2 in the fair value hierarchy. There have been no transfers between Level 1 and Level 2 during the period.
Q2 Financial Report | 20 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
Investments consist of the following as at June 30, 2020:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 103,256 | 31,904 | 67,696 | 3,656 | ||||||||||||
Securities owned, at market | 15,246 | 15,246 | — | — | ||||||||||||
Total investments | 118,502 | 47,150 | 67,696 | 3,656 |
Investments consist of the following as at December 31, 2019:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Marketable securities | 118,243 | 40,587 | 74,003 | 3,653 | ||||||||||||
Securities owned, at market | 20,169 | 20,169 | — | — | ||||||||||||
Total investments | 138,412 | 60,756 | 74,003 | 3,653 |
Included in other assets are long-term private equity strategic investments of $14,007 [December 31, 2019 – $14,507] valued using Level 3 inputs.
Included in provision for other liabilities, as at June 30, 2020, is put option payable on non-controlling interest of $7,787 [December 31, 2019 – $7,573] carried at fair value and classified as Level 3 in the fair value hierarchy. Long-term debt as at June 30, 2020, includes debentures with a fair value of $2,030,390 [December 31, 2019 – $1,586,136], as determined by quoted market prices that have been classified as Level 2 in the fair value hierarchy.
9. | CAPITAL MANAGEMENT |
CI’s objectives in managing capital are to maintain a capital structure that allows CI to meet its growth strategies and build long-term shareholder value, while satisfying its financial obligations and meeting its long-term debt covenants. CI’s capital comprise shareholders’ equity and long-term debt (including the current portion of long-term debt).
CI and its subsidiaries are subject to minimum regulatory capital requirements whereby sufficient cash and other liquid assets must be on hand to maintain capital requirements rather than using them in connection with its business. As at June 30, 2020, cash and cash equivalents of $18,170 [2019 – $12,810] were required to be on hand for regulatory capital maintenance. Failure to maintain required regulatory capital by CI may result in fines, suspension or revocation of registration by the relevant securities regulator. CI from time to time provides loans to its subsidiaries for operating purposes and may choose to subordinate these loans in favour of general creditors. The repayment of subordinated loans is subject to regulatory approval. As at June 30, 2020 and December 31, 2019, CI met its capital requirements.
Q2 Financial Report | 21 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
CI’s capital consists of the following:
As at | As at | |||||||
June 30, 2020 | December 31, 2019 | |||||||
$ | $ | |||||||
Shareholders’ equity | 1,511,040 | 1,493,988 | ||||||
Long-term debt | 1,987,899 | 1,604,494 | ||||||
Total capital | 3,498,939 | 3,098,482 |
Q2 Financial Report | 22 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts]
10. | SEGMENTED INFORMATION |
CI has two reportable segments: asset management and wealth management (formerly asset management and asset administration). These segments reflect CI’s current internal financial reporting, performance measurement and strategic priorities. Prior periods have been restated for comparative purposes.
The asset management segment includes the operating results and financial position of CI Investments, GSFM, Marret, and CI ETF, which derive their revenues principally from the fees earned on the management of several families of mutual funds, segregated funds and exchange-traded funds. The operating results of CI Private Counsel LP are now included in the wealth management segment.
The wealth management segment includes the operating results and financial position of CI Private Counsel LP, Surevest, One Capital, Cabana, WealthBar, BBS and AWM and its subsidiaries, including Assante Capital Management Ltd. and Assante Financial Management Ltd. These companies derive their revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients.
Segmented information as at and for the three-month period ended June 30, 2020 is as follows:
Asset
management |
Wealth
management |
Intersegment
eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 390,080 | — | (3,204 | ) | 386,876 | |||||||||||
Administration fees | — | 113,875 | (38,024 | ) | 75,851 | |||||||||||
Other revenue | 2,327 | 10,389 | — | 12,716 | ||||||||||||
Total revenue | 392,407 | 124,264 | (41,228 | ) | 475,443 | |||||||||||
Selling, general and administrative | 79,455 | 32,702 | (3,204 | ) | 108,953 | |||||||||||
Trailer fees | 127,731 | — | (6,729 | ) | 121,002 | |||||||||||
Investment dealer fees | — | 84,819 | (31,209 | ) | 53,610 | |||||||||||
Deferred sales commissions | 1,529 | — | (86 | ) | 1,443 | |||||||||||
Amortization and depreciation | 6,174 | 3,865 | — | 10,039 | ||||||||||||
Other expenses | 3,225 | 570 | — | 3,795 | ||||||||||||
Total expenses | 218,114 | 121,956 | (41,228 | ) | 298,842 | |||||||||||
Income before income taxes and non-segmented items | 174,293 | 2,308 | — | 176,601 | ||||||||||||
Interest and lease finance | (15,764 | ) | ||||||||||||||
Provision for income taxes | (41,073 | ) | ||||||||||||||
Net income for the period | 119,764 |
Q2 Financial Report | 23 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
Segmented information for the three-month period ended June 30, 2019 is as follows:
Asset
management |
Wealth management |
Intersegment eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 454,288 | — | (3,312 | ) | 450,976 | |||||||||||
Administration fees | — | 112,741 | (41,064 | ) | 71,677 | |||||||||||
Other revenue | (1,707 | ) | 9,913 | — | 8,206 | |||||||||||
Total revenue | 452,581 | 122,654 | (44,376 | ) | 530,859 | |||||||||||
Selling, general and administrative | 95,120 | 33,027 | (3,312 | ) | 124,835 | |||||||||||
Trailer fees | 147,512 | — | (7,100 | ) | 140,412 | |||||||||||
Investment dealer fees | — | 84,449 | (33,808 | ) | 50,641 | |||||||||||
Deferred sales commissions | 3,290 | — | (156 | ) | 3,134 | |||||||||||
Amortization and depreciation | 5,540 | 2,788 | — | 8,328 | ||||||||||||
Other expenses | 34,346 | 3,077 | — | 37,423 | ||||||||||||
Total expenses | 285,808 | 123,341 | (44,376 | ) | 364,773 | |||||||||||
Income before income taxes and non-segmented items |
166,773 | (687 | ) | — | 166,086 | |||||||||||
Interest | (13,691 | ) | ||||||||||||||
Provision for income taxes | (40,881 | ) | ||||||||||||||
Net income for the period | 111,514 |
Q2 Financial Report | 24 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
Segmented information as at and for the six-month period ended June 30, 2020 is as follows:
Asset
management |
Wealth management |
Intersegment eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 816,376 | — | (6,921 | ) | 809,455 | |||||||||||
Administration fees | — | 233,935 | (81,883 | ) | 152,052 | |||||||||||
Other revenue | (7,470 | ) | 20,698 | — | 13,228 | |||||||||||
Total revenue | 808,906 | 254,633 | (88,804 | ) | 974,735 | |||||||||||
Selling, general and administrative | 164,327 | 66,541 | (6,921 | ) | 223,947 | |||||||||||
Trailer fees | 265,956 | — | (13,900 | ) | 252,056 | |||||||||||
Investment dealer fees | — | 173,758 | (67,694 | ) | 106,064 | |||||||||||
Deferred sales commissions | 4,977 | — | (289 | ) | 4,688 | |||||||||||
Amortization and depreciation | 12,025 | 6,608 | — | 18,633 | ||||||||||||
Other expenses | 12,448 | 2,331 | — | 14,779 | ||||||||||||
Total expenses | 459,733 | 249,238 | (88,804 | ) | 620,167 | |||||||||||
Income before income taxes and non-segmented items |
349,173 | 5,395 | — | 354,568 | ||||||||||||
Interest and lease finance | (30,376 | ) | ||||||||||||||
Provision for income taxes | (84,534 | ) | ||||||||||||||
Net income for the period | 239,658 | |||||||||||||||
Identifiable assets | 851,717 | 769,143 | — | 1,620,860 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,310,536 | 235,851 | — | 1,546,387 | ||||||||||||
Fund contracts | 1,781,710 | — | — | 1,781,710 | ||||||||||||
Total assets | 3,943,963 | 1,004,994 | — | 4,948,957 |
Q2 Financial Report | 25 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
Segmented information for the six-month period ended June 30, 2019 is as follows:
Asset management |
Wealth management |
Intersegment eliminations |
Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management fees | 899,700 | — | (6,297 | ) | 893,403 | |||||||||||
Administration fees | — | 222,047 | (80,905 | ) | 141,142 | |||||||||||
Other revenue | 5,030 | 18,052 | — | 23,082 | ||||||||||||
Total revenue | 904,730 | 240,099 | (87,202 | ) | 1,057,627 | |||||||||||
Selling, general and administrative | 191,759 | 65,433 | (6,297 | ) | 250,895 | |||||||||||
Trailer fees | 291,256 | — | (13,936 | ) | 277,320 | |||||||||||
Investment dealer fees | — | 165,743 | (66,567 | ) | 99,176 | |||||||||||
Deferred sales commissions | 8,141 | — | (402 | ) | 7,739 | |||||||||||
Amortization and depreciation | 10,923 | 5,564 | — | 16,487 | ||||||||||||
Other expenses | 35,826 | 3,230 | — | 39,056 | ||||||||||||
Total expenses | 537,905 | 239,970 | (87,202 | ) | 690,673 | |||||||||||
Income before income taxes and non-segmented items |
366,825 | 129 | — | 366,954 | ||||||||||||
Interest | (27,406 | ) | ||||||||||||||
Provision for income taxes | (88,074 | ) | ||||||||||||||
Net income for the period | 251,474 | |||||||||||||||
As at December 31, 2019 | ||||||||||||||||
Identifiable assets | 463,377 | 593,199 | — | 1,056,576 | ||||||||||||
Indefinite life intangibles | ||||||||||||||||
Goodwill | 1,309,008 | 222,265 | — | 1,531,273 | ||||||||||||
Fund contracts | 1,779,957 | — | — | 1,779,957 | ||||||||||||
Total assets | 3,552,342 | 815,464 | — | 4,367,806 |
11. | SELLING, GENERAL AND ADMINISTRATIVE |
Included in selling, general and administrative expenses [“SG&A”] are salaries and benefits of $60,823 and $122,886 for the three and six months ended June 30, 2020, respectively [three and six months ended June 30, 2019 – $67,858 and $138,499, respectively]. Other SG&A of $48,130 and $101,061 for the three and six months ended June 30, 2020, respectively, primarily includes marketing and information technology expenses as well as professional and regulatory fees [three and six months ended June 30, 2019 – $56,977 and $112,396, respectively].
Q2 Financial Report | 26 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
12. AMORTIZATION AND DEPRECIATION
The following table provides details of amortization and depreciation:
3 months ended | 6 months ended | 3 months ended | 6 months ended | |||||||||||||
June 30, 2020 | June 30, 2020 | June 30, 2019 | June 30, 2019 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Depreciation of capital assets | 3,039 | 6,005 | 2,900 | 5,666 | ||||||||||||
Depreciation of right-of-use assets | 2,388 | 4,741 | 2,203 | 4,380 | ||||||||||||
Amortization of intangibles | 4,191 | 7,079 | 2,935 | 5,862 | ||||||||||||
Amortization of debenture transaction costs | 421 | 808 | 290 | 579 | ||||||||||||
Total amortization and depreciation | 10,039 | 18,633 | 8,328 | 16,487 |
13. UPDATE ON COVID-19
COVID-19, which has been recognized by the World Health Organization as a pandemic, has spread rapidly and extensively across the globe. Efforts by governments to control the further spread of COVID-19 have disrupted normal economic activity both domestically and globally. Uncertainty related to the extent, duration and severity of the pandemic has contributed to significant volatility in the financial markets, resulting in a decline in certain equity and commodity prices and lower interest rates and a corresponding decline in CI’s assets under management. In addition, CI may face declines in its assets under management as a result of client redemptions related to a variety of COVID-19 related factors including general market pessimism, poor fund performance, or clients’ needs for immediate cash.
CI is monitoring the impact of the pandemic and managing expenses accordingly. CI believes it is well positioned to meet its financial obligations and to support planned business operations throughout this pandemic. The extent to which CI’s business, financial condition and results of operations will be impacted by the COVID-19 pandemic, is uncertain and will depend on future developments, which are unpredictable and rapidly evolving. Accordingly, there is a higher level of uncertainty with respect to management’s judgments and estimates.
14. | ACCOUNTING STANDARD AMENDMENT |
IFRS 3 Business Combinations
Effective January 1, 2020, CI adopted prospectively, the amendment to IFRS 3, Business Combinations, which clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarifies that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the interim condensed consolidated financial statements of CI, but may impact future periods should CI enter into additional business combinations.
Q2 Financial Report | 27 | June 30, 2020 |
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
June 30, 2020 and 2019 • [in thousands of dollars, except per share amounts] |
15. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform to the interim condensed consolidated financial statement presentation in the current year.
This Report contains forward-looking statements with respect to CI, including its business operations and strategy and financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things, general economic and market factors, including interest rates, business competition, changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time. |
Q2 Financial Report | 28 | June 30, 2020 |
Exhibit 99.16
MANAGEMENT’S DISCUSSION & ANALYSIS | June 30, 2020
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This Management’s Discussion and Analysis (“MD&A”) dated August 6, 2020 presents an analysis of the financial position of CI Financial Corp. and its subsidiaries (“CI”) as at June 30, 2020, compared with December 31, 2019, and the results of operations for the quarter ended June 30, 2020, compared with the quarter ended June 30, 2019 and the quarter ended March 31, 2020.
CI’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Amounts are expressed in Canadian dollars. The principal subsidiaries referenced herein include CI Investments Inc. (“CI Investments”) and Assante Wealth Management (Canada) Ltd. (“AWM” or “Assante”). CI has two reportable segments: Asset Management and Wealth Management (formerly Asset Administration). These segments reflect CI’s current internal financial reporting, performance measurement, and strategic priorities. The Asset Management segment of the business includes the operating results and financial position of CI Investments and its subsidiaries, as well as the operating results and financial position of GSFM Pty Limited (“GSFM”). First Asset Investment Management Inc., formerly a subsidiary of CI Investments, was amalgamated on July 1, 2019. The Wealth Management segment includes the operating results and financial position of AWM and its subsidiaries, including Assante Capital Management Ltd. (“ACM”) and Assante Financial Management Ltd. (“AFM”), as well as the operating results and financial position of BBS Securities Inc. (“BBS”), WealthBar Financial Services Inc. (“WealthBar”), Surevest LLC (“Surevest”), OCM Capital Partners LLC (“One Capital”), and The Cabana Group LLC (“Cabana”). CI Private Counsel LP (“CIPC”), previously included in the Asset Management segment, is included in the Wealth Management segment effective January 1, 2020. The impact of this change was to move revenue of approximately $34.0 million and related expenses to the Wealth Management segment in the six months ended June 30, 2020. The operating results of prior periods have been restated for comparative purposes.
This MD&A contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp. and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, the impact of the coronavirus pandemic, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time.
The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward-looking statement after the date on which it is made, whether to reflect new information, future events or otherwise.
Q2 Financial Report | 2 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
This MD&A includes several non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full year results from period to period. Descriptions of these non-IFRS measures and reconciliations to the nearest IFRS measure, where necessary, are provided in the “Non-IFRS Measures” section of this MD&A. Note that figures in tables may not add due to rounding.
Q2 Financial Report | 3 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
BUSINESS OVERVIEW
CI is a diversified wealth management firm and one of Canada’s largest independent asset management companies. CI’s principal business is the management, marketing, distribution and administration of investment products for Canadian investors. CI also provides financial advice, tax, retirement, estate and wealth planning services in Canada through Assante, CIPC, WealthBar, and in the United States through Surevest, One Capital, and Cabana. In addition, CI has asset management operations in Australia through its subsidiary GSFM. CI’s products are distributed primarily through brokers, independent financial planners and insurance advisors, including ACM and AFM financial advisors. CI operates through two business segments, Asset Management and Wealth Management.
The Asset Management segment provides the majority of CI’s income and derives its revenue principally from the fees earned on the management of investment funds and other fee-earning investment products. CI uses in-house teams and external investment managers to provide portfolio management services. These investment managers typically have long careers in the industry as well as extensive track records with CI. This lineup of investment managers provides a wide selection of styles and areas of expertise for CI’s funds.
The Wealth Management segment (previously called Asset Administration) was renamed to better reflect CI’s performance measurement and business strategy, and now includes the results of operations of CIPC (previously in Asset Management). The Wealth Management segment derives its revenue principally from fees and commissions from ongoing service, financial planning and advice (which may include investment management services), and on the sale of investment funds and other financial products. Prior results have been restated for comparative purposes.
BUSINESS STRATEGY
In the fourth quarter of 2019, CI Financial announced a new strategic direction for the company, with the introduction of three strategic priorities:
• | Modernize the asset management business |
• | Expand the wealth management platform |
• | Globalize the company |
In establishing these priorities, CI sought input from a series of critical sources, including employees, clients, shareholders and industry analysts, and incorporated insights from observing market dynamics and industry trends. Each strategic priority builds on CI’s existing extensive capabilities to take advantage of opportunities in the marketplace.
A key factor in CI’s focus on modernizing its asset management business is that the rate and pace of change in the industry is at an all-time high, due to changes in demographics and investor preferences, changing client expectations for service and support, and ongoing regulatory change. This environment requires new services, new products and new approaches to meet investors’ changing needs.
Q2 Financial Report | 4 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI also believes that the role of the advisor is more important than ever. As consumers' lives become increasingly complex and digital, CI’s breadth of capabilities uniquely positions the firm to be Canada's market leader; this is why expanding its wealth management platform is a strategic priority.
With scale becoming increasingly important in the industry and difficult to achieve in Canada alone, CI is globalizing the company. This strategic priority will also help the firm secure access to global talent to complement its existing capabilities.
In executing its strategy, the firm is leveraging its strategic foundation comprised of people, technology, speed and financial strength. By deploying its human capital and capabilities, driving advanced technology into everything the firm does, embedding new ways of working to be faster and more nimble, and maximizing the benefits of its financial strength, CI intends to maintain and grow its leadership in the asset management and wealth management industries.
As CI evolves to meet the challenges of a rapidly changing investment industry, it continues to make significant investments in key areas of the business to drive growth and broaden revenue opportunities, while prudently controlling expenditures.
COVID-19 IMPACT
The COVID-19 pandemic has contributed to significant disruption in the financial markets, resulting in a decline in CI’s assets under management. Markets remained volatile, even as many equity indexes around the world, and CI’s assets, recovered somewhat during the second quarter. CI activated its business continuity plan in early March to mitigate risks, maintain operational efficiency and service levels, and address the health and safety concerns of our employees, clients and advisors. The extent to which CI’s business, financial condition and results of operations will be impacted by the COVID-19 pandemic, including attempts to mitigate its effects, is uncertain and will depend on future developments, which continues to be unpredictable and rapidly evolving. A more detailed discussion can be found in “Business Continuity Risk” of the “Risk Management” section of this report.
KEY PERFORMANCE DRIVERS
Total assets under management (“total AUM”) includes core assets under management (“core AUM”) and U.S. assets under management. The key performance indicator for the Asset Management segment is the level of core AUM, and for the Wealth Management segment, the level of wealth management assets. CI’s total AUM and wealth management assets are primarily driven by fund performance, gross sales and redemptions of investment products, attracting new clients and the addition of new assets from current clients. As most of CI’s revenues and expenses are based on daily asset levels throughout the year, average assets for a particular period are critical to the analysis of CI’s financial results. While some expenses, such as trailer fees, vary directly with the level of AUM, a portion of CI’s expenses do not, such as a portion of overhead, discretionary spend, and deferred sales commissions. Over the long term, CI manages the level of its discretionary spend to be consistent with, or below, the growth in its revenue. In any given period, CI may choose to make investments in people or technology that benefit the long-term growth of the company.
Q2 Financial Report | 5 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI uses several performance indicators to assess its results. These indicators are described throughout the results of operations and the discussion of the two operating segments and include the following measures prescribed by IFRS: net income and earnings per share; and measures not prescribed by IFRS: adjusted net income, adjusted earnings per share, operating cash flow, free cash flow, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, dealer gross margin, net debt, asset management margin, and SG&A efficiency margin. Descriptions of these non-IFRS measures and reconciliations to IFRS are provided below.
Q2 Financial Report | 6 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NON-IFRS MEASURES
CI reports certain financial information using non-IFRS measures as CI believes that these financial measures provide information that is useful to investors in understanding CI’s performance and facilitate a comparison of quarterly and full-year results from period to period.
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
CI defines adjusted net income as net income, net of non-controlling interest, and net of other provisions and adjustments. CI uses adjusted net income and adjusted earnings per share to compare underlying profitability for different periods.
TABLE 1: ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE | ||||||||||||
[millions of dollars, except per share amounts] |
Quarter
ended Jun. 30, 2020 |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Jun. 30, 2019 |
|||||||||
Net Income | 119.8 | 119.9 | 111.5 | |||||||||
Add: | ||||||||||||
Restructuring provision | — | 6.2 | 26.6 | |||||||||
Less: | ||||||||||||
Non-controlling interest | (0.4 | ) | (0.3 | ) | (0.3 | ) | ||||||
Adjusted net income | 120.2 | 126.5 | 138.5 | |||||||||
Adjusted earnings per share | 0.56 | 0.58 | 0.58 |
OPERATING CASH FLOW AND FREE CASH FLOW
CI measures its operating cash flow before the change in operating assets and liabilities, and the actual cash amount paid for interest and income taxes, as these items often distort the cash flow generated during the period. Operating assets and liabilities are affected by seasonality, the timing of interest payments depends on terms in specific debt instruments, and tax installments paid may differ materially from the cash tax accrual.
Free cash flow is calculated as operating cash flow, net of non-controlling interest, and net of other provisions and adjustments. CI uses this measure, among others, when determining how to deploy capital.
Q2 Financial Report | 7 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 2: OPERATING CASH FLOW AND FREE CASH FLOW | ||||||||||||
[millions of dollars] |
Quarter
ended Jun. 30, 2020 |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Jun. 30, 2019 |
|||||||||
Cash provided by operating activities | 208.7 | 115.9 | 152.4 | |||||||||
Add: | ||||||||||||
Income taxes paid | (0.4 | ) | 21.0 | 52.4 | ||||||||
Interest paid | 10.9 | 17.9 | 13.0 | |||||||||
Less: | ||||||||||||
Net change in non-cash working capital | 90.6 | 13.3 | 93.1 | |||||||||
Operating cash flow | 128.5 | 141.5 | 124.7 | |||||||||
Add: | ||||||||||||
Restructuring provision | — | 2.2 | 21.9 | |||||||||
Less: | ||||||||||||
Non-controlling interest | 0.2 | — | — | |||||||||
Free cash flow | 128.3 | 143.7 | 146.5 |
EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
CI uses EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA, which it defines as EBITDA, net of non-controlling interest and other provisions and adjustments, to assess its underlying profitability prior to the impact of its financing structure, income taxes and amortization and depreciation. This permits comparisons of companies within the industry, normalizing for different financing methods and levels of taxation. Adjusted EBITDA is a measure of operating performance, a facilitator for valuation and a proxy for cash flow. Adjusted EBITDA margin expresses adjusted EBITDA as a percentage of total revenue.
TABLE 3: EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN | ||||||||||||
[millions of dollars, except per share amounts] |
Quarter
ended Jun. 30, 2020 |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Jun. 30, 2019 |
|||||||||
Net Income | 119.8 | 119.9 | 111.5 | |||||||||
Add: | ||||||||||||
Interest and lease finance | 15.8 | 14.6 | 13.7 | |||||||||
Provision for income taxes | 41.1 | 43.5 | 40.9 | |||||||||
Amortization and depreciation | 10.0 | 8.6 | 8.3 | |||||||||
EBITDA | 186.6 | 186.6 | 174.4 | |||||||||
EBITDA per share | 0.86 | 0.85 | 0.73 | |||||||||
Add: | ||||||||||||
Restructuring provision | — | 8.5 | 35.0 | |||||||||
Less: | ||||||||||||
Non-controlling interest | 0.4 | (0.2 | ) | (0.3 | ) | |||||||
Adjusted EBITDA | 186.3 | 195.2 | 209.7 | |||||||||
Adjusted EBITDA per share | 0.86 | 0.89 | 0.88 | |||||||||
Total revenue | 475.4 | 499.3 | 530.9 | |||||||||
Adjusted EBITDA Margin | 39.2 | % | 39.1 | % | 39.5 | % |
Q2 Financial Report | 8 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
NET DEBT
CI calculates net debt as long-term debt (including the current portion) less cash and marketable securities, net of cash required for regulatory purposes and non-controlling interests. Net debt is a measure of leverage and CI uses this measure to assess its financial flexibility.
TABLE 4: NET DEBT | ||||||||
As at | As at | |||||||
[millions of dollars] | Jun. 30, 2020 | Dec. 31, 2019 | ||||||
Current portion of long-term debt | 419.8 | 449.5 | ||||||
Long-term debt | 1,568.1 | 1,155.0 | ||||||
1,987.9 | 1,604.5 | |||||||
Less: | ||||||||
Cash and short-term investments | 530.3 | 118.4 | ||||||
Marketable securities, excluding BBS’ securities owned, at market | 103.3 | 118.2 | ||||||
Add: | ||||||||
Regulatory capital and non-controlling interests | 19.4 | 14.7 | ||||||
Net Debt | 1,373.8 | 1,382.6 |
DEALER GROSS MARGIN
CI monitors its operating profitability on the revenues earned within its Wealth Management segment by measuring its dealer gross margin, which is calculated as administration fee revenue less investment dealer fees, divided by administration fee revenue (all figures before inter-segment eliminations). CI uses this measure to assess the profitability of the Wealth Management segment before SG&A expenses.
TABLE 5: DEALER GROSS MARGIN | ||||||||||||
[millions of dollars] |
Quarter
ended Jun. 30, 2020 |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Jun. 30, 2019 |
|||||||||
Administration fees | 113.9 | 120.1 | 112.7 | |||||||||
Less: | ||||||||||||
Investment dealer fees | 84.8 | 88.9 | 84.4 | |||||||||
29.1 | 31.1 | 28.3 | ||||||||||
Dealer gross margin | 25.5 | % | 25.9 | % | 25.1 | % |
ASSET MANAGEMENT MARGIN
CI assesses the overall performance of the asset management segment using a trailing 12-month asset management margin, where deferred sales commissions, trailer fees, and SG&A expenses are deducted from management fees and measured as a percentage of management fees (all figures are before inter-segment eliminations). This removes distortion caused by other revenues and expenses, eliminates the financing impact of back-end load funds, and eliminates revenue mix variances because it is measured as a percentage of management fees and not average AUM. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
Q2 Financial Report | 9 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 6: ASSET MANAGEMENT MARGIN | ||||||||||||
[millions of dollars - trailing 12 months] |
Quarter
ended Jun. 30, 2020 |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Jun. 30, 2019 |
|||||||||
Management fees | 1,718.9 | 1,783.1 | 1,854.6 | |||||||||
Less: | ||||||||||||
Deferred sales commissions paid | 10.4 | 12.1 | 16.5 | |||||||||
Trailer fees | 558.4 | 578.2 | 598.8 | |||||||||
Net management fees | 1,150.2 | 1,192.9 | 1,239.3 | |||||||||
Less: | ||||||||||||
SG&A expenses | 343.2 | 358.9 | 387.2 | |||||||||
807.0 | 834.0 | 852.1 | ||||||||||
Asset management margin | 46.9 | % | 46.8 | % | 45.9 | % |
SG&A EFFICIENCY MARGIN
CI uses a trailing 12-month SG&A efficiency margin to assess its costs relative to management fees earned, net of deferred sales commissions and trailer fees, which are not directly controllable by CI. SG&A expenses are subtracted from these net management fees and the remainder is measured as a percentage of net management fees. Using a trailing 12-month margin eliminates any seasonality associated with SG&A expenses.
TABLE 7: SG&A EFFICIENCY MARGIN | ||||||||||||
[millions of dollars - trailing 12 months] |
Quarter
ended Jun. 30, 2020 |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Jun. 30, 2019 |
|||||||||
Management fees | 1,718.9 | 1,783.1 | 1,854.6 | |||||||||
Less: | ||||||||||||
Deferred sales commissions paid | 10.4 | 12.1 | 16.5 | |||||||||
Trailer fees | 558.4 | 578.2 | 598.8 | |||||||||
Net management fees | 1,150.2 | 1,192.9 | 1,239.3 | |||||||||
Less: | ||||||||||||
SG&A expenses | 343.2 | 358.9 | 387.2 | |||||||||
807.0 | 834.0 | 852.1 | ||||||||||
SG&A efficiency margin | 70.2 | % | 69.9 | % | 68.8 | % |
ASSETS AND SALES
CI is one of Canada’s largest independent investment fund companies with total assets under management of $125.6 billion and wealth management assets of $53.9 billion at June 30, 2020, as shown in Table 8. Core assets under management represents assets managed by CI Investments and GSFM. Operating results related to core assets under management are included in the Asset Management segment. U.S. assets under management are included in the Wealth Management segment as the related revenues are part of a holistic fee charged to clients for providing wealth management services. The operating results of CIPC, previously included in the Asset Management segment, are included in the Wealth Management segment effective January 1, 2020. Assets and sales for the prior periods have been restated, in the respective segments, for comparative purposes.
Q2 Financial Report | 10 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Assets under management decreased 3% year over year due to fund performance and net redemptions of funds, partially offset by the acquisition of WisdomTree Asset Management Canada, Inc. (“WisdomTree Canada”), One Capital, and Cabana. The 14% increase in wealth management assets from last year was due to fund performance, and the acquisition of Surevest, One Capital, and Cabana. Total assets, which include mutual, segregated, separately managed accounts, structured products, exchange-traded funds, pooled funds and wealth management assets, were $179.4 billion at June 30, 2020, up $2.3 billion from $177.2 billion at June 30, 2019.
TABLE 8: TOTAL ASSETS | ||||||||||||
As at | As at | |||||||||||
[billions of dollars] | June 30, 2020 | June 30, 2019 | % change | |||||||||
Core assets under management1 | 121.3 | 129.8 | (7 | ) | ||||||||
U.S. assets under management | 4.3 | — | nmf | |||||||||
Total assets under management | 125.6 | 129.8 | (3 | ) | ||||||||
Canadian wealth management | 49.0 | 47.3 | 4 | |||||||||
U.S. wealth management | 4.9 | — | nmf | |||||||||
Total wealth management assets | 53.9 | 47.3 | 14 | |||||||||
Total assets | 179.4 | 177.2 | 1 |
1 Includes $27.9 billion of assets managed by CI and held by clients of advisors with Assante and CIPC as at June 30, 2020 ($27.2 billion at June 30, 2019).
While the first quarter of 2020 was dominated by anxiety surrounding the initial outbreak of COVID-19 and the ensuing lockdowns and capital market declines, the second quarter demonstrated a remarkable recovery in those markets – even with a resurgence of the virus in the U.S. and renewed lockdown measures.
Energy prices rose as the economy began slowly re-opening and production cuts trimmed inventory, while virus data, economic numbers and other headlines seemed bearish, markets remained optimistic and continued to climb.
Much of the market’s enthusiasm has been attributed to government and central bank intervention designed to support global economies. Headlines concerning vaccine progress and phased economic re-openings also seemed to support market moves to the upside.
The S&P 500 Index, a broad measure of U.S. equities, had its best quarter in over 20 years, gaining 20% (in U.S. dollars), while the Canadian S&P/TSX Composite Index gained almost 16% (in Canadian dollars) in the three months ending June 30 and represents a remarkable recovery from the sharp declines witnessed in Q1, bringing year-to-date returns in the S&P 500 to -4% (in U.S. dollars) and S&P/TSX to -9%. Government bonds declined as both the Federal Reserve and Bank of Canada indicated rates would remain low for a lengthy period.
The change in AUM during each of the past five quarters is detailed in Table 9 and a breakdown of CI’s sales is provided in Table 10.
Q2 Financial Report | 11 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 9: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT | ||||||||||||||||||||
[billions of dollars] |
Quarter
ended
Jun. 30, 2020 |
Quarter
ended
Mar. 31, 2020 |
Quarter
ended
Dec. 31, 2019 |
Quarter
ended
Sep. 30, 2019 |
Quarter
ended
Jun. 30, 2019 |
|||||||||||||||
Assets under management, beginning | 111.065 | 131.741 | 129.615 | 129.827 | 130.944 | |||||||||||||||
Gross sales | 3.998 | 5.103 | 4.430 | 3.505 | 2.867 | |||||||||||||||
Redemptions | 5.910 | 7.824 | 6.324 | 5.057 | 5.323 | |||||||||||||||
Net sales | (1.911 | ) | (2.721 | ) | (1.894 | ) | (1.553 | ) | (2.456 | ) | ||||||||||
Acquisitions (divestitures) | 3.957 | 1.033 | — | — | (0.560 | ) | ||||||||||||||
Fund performance | 12.452 | (18.988 | ) | 4.020 | 1.341 | 1.899 | ||||||||||||||
Assets under management, ending | 125.563 | 111.065 | 131.741 | 129.615 | 129.827 | |||||||||||||||
Average assets under management | 120.104 | 127.163 | 130.542 | 129.426 | 130.770 | |||||||||||||||
Core assets under management, ending | 121.286 | 111.065 | 131.741 | 129.615 | 129.827 | |||||||||||||||
Core average assets under management | 118.413 | 127.163 | 130.542 | 129.426 | 130.770 |
CI reported $1.9 billion in overall net redemptions for the second quarter of 2020. CI’s Canadian retail business, excluding products closed to new investors, had $1.0 billion in net redemptions, representing an improvement of $0.9 billion over the second quarter of 2019. CI’s Canadian institutional business had net redemptions of $0.8 billion, which was driven by one institution transitioning a $0.6 billion mandate to its in-house investment team. CI’s international business (which excludes U.S. assets under management) had flat net sales for the second quarter of 2020, while CI’s closed business, comprised primarily of segregated fund contracts that are no longer available for sale, had $0.2 billion in net redemptions for the quarter.
TABLE 10: SALES BREAKDOWN | ||||||||||||||||||||||||
Quarter ended June 30, 2020 | Quarter ended June 30, 2019 | |||||||||||||||||||||||
[millions of dollars] | Gross Sales | Redemptions | Net Sales | Gross Sales | Redemptions | Net Sales | ||||||||||||||||||
Canadian Business | ||||||||||||||||||||||||
Retail | 3,277 | 4,272 | (995 | ) | 2,244 | 4,149 | (1,905 | ) | ||||||||||||||||
Institutional | 410 | 1,166 | (756 | ) | 424 | 732 | (308 | ) | ||||||||||||||||
3,687 | 5,438 | (1,751 | ) | 2,668 | 4,882 | (2,213 | ) | |||||||||||||||||
International Business1 | ||||||||||||||||||||||||
Retail | 119 | 64 | 55 | 137 | 36 | 101 | ||||||||||||||||||
Institutional | 175 | 230 | (55 | ) | 50 | 98 | (48 | ) | ||||||||||||||||
293 | 293 | — | 187 | 134 | 53 | |||||||||||||||||||
Closed Business | 18 | 178 | (161 | ) | 11 | 307 | (296 | ) | ||||||||||||||||
Total | 3,998 | 5,910 | (1,911 | ) | 2,867 | 5,323 | (2,456 | ) |
1 Does not include sales and redemptions of U.S. assets under management.
Q2 Financial Report | 12 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RESULTS OF OPERATIONS
The table below presents the consolidated results of operations of CI.
TABLE 11: SUMMARY OF QUARTERLY RESULTS | ||||||||||||||||||||||||||||||||
[millions of dollars, except per share amounts] | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||
Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | |||||||||||||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||||||||||||||
Management fees | 386.9 | 422.6 | 447.3 | 448.4 | 451.0 | 442.4 | 456.4 | 492.1 | ||||||||||||||||||||||||
Administration fees | 75.9 | 76.2 | 78.2 | 73.2 | 71.7 | 69.5 | 69.5 | 68.0 | ||||||||||||||||||||||||
Other revenues | 12.7 | 0.5 | 10.8 | 7.0 | 8.2 | 14.9 | 3.2 | 8.9 | ||||||||||||||||||||||||
Total revenues | 475.4 | 499.3 | 536.3 | 528.6 | 530.9 | 526.8 | 529.2 | 569.0 | ||||||||||||||||||||||||
Selling, general & administrative | 109.0 | 115.0 | 113.8 | 124.6 | 124.8 | 126.1 | 123.5 | 128.9 | ||||||||||||||||||||||||
Trailer fees | 121.0 | 131.1 | 138.7 | 139.1 | 140.4 | 136.9 | 141.0 | 152.3 | ||||||||||||||||||||||||
Investment dealer fees | 53.6 | 52.5 | 55.4 | 51.7 | 50.6 | 48.5 | 48.5 | 48.4 | ||||||||||||||||||||||||
Deferred sales commissions paid | 1.4 | 3.2 | 2.4 | 2.6 | 3.1 | 4.6 | 3.9 | 4.1 | ||||||||||||||||||||||||
Interest and lease finance | 15.8 | 14.6 | 14.2 | 13.8 | 13.7 | 13.7 | 12.4 | 11.6 | ||||||||||||||||||||||||
Amortization and depreciation | 10.0 | 8.6 | 8.2 | 8.2 | 8.3 | 8.2 | 5.4 | 5.2 | ||||||||||||||||||||||||
Other expenses | 3.8 | 11.0 | 2.3 | 2.4 | 37.4 | 1.6 | 3.1 | 0.8 | ||||||||||||||||||||||||
Total expenses | 314.6 | 335.9 | 335.2 | 342.4 | 378.5 | 339.6 | 337.8 | 351.2 | ||||||||||||||||||||||||
Income before income taxes | 160.8 | 163.4 | 201.1 | 186.2 | 152.4 | 187.2 | 191.4 | 217.8 | ||||||||||||||||||||||||
Income taxes | 41.1 | 43.5 | 53.8 | 47.4 | 40.9 | 47.2 | 51.0 | 59.5 | ||||||||||||||||||||||||
Non-controlling interest | (0.4 | ) | (0.3 | ) | (0.3 | ) | (0.2 | ) | (0.3 | ) | (0.1 | ) | — | 0.1 | ||||||||||||||||||
Net income attributable to shareholders | 120.2 | 120.2 | 147.5 | 139.0 | 111.9 | 140.0 | 140.3 | 158.2 | ||||||||||||||||||||||||
Earnings per share | 0.56 | 0.55 | 0.66 | 0.60 | 0.47 | 0.58 | 0.57 | 0.62 | ||||||||||||||||||||||||
Diluted earnings per share | 0.55 | 0.54 | 0.65 | 0.60 | 0.47 | 0.58 | 0.57 | 0.62 | ||||||||||||||||||||||||
Dividends paid per share | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.1800 | 0.2350 |
For the quarter ended June 30, 2020, CI reported net income attributable to shareholders of $120.2 million ($0.56 per share) up from $111.9 million ($0.47 per share) for the quarter ended June 30, 2019 and unchanged from $120.2 million ($0.55 per share) for the quarter ended March 31, 2020 as seen in Table 11 above. The change was mainly due to gains on the value of investments this quarter, and restructuring provisions recognized in both prior periods, offsetting the change in management fees resulting from lower average asset levels. The restructuring provision was $35.0 million ($26.6 million after-tax) in the second quarter of 2019 and $8.5 million ($6.2 million after-tax) in the first quarter of 2020, all of which was related to the Asset Management segment. Excluding these provisions, net income for the quarter ended June 30, 2019 was $138.5 million and $126.5 million in the prior quarter.
Q2 Financial Report | 13 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
CI’s total revenue was $475.4 million in the second quarter of 2020, a decrease of 10.4% when compared to total revenue of $530.9 million in the same period in 2019. On a consecutive quarter basis, total revenue decreased 4.8%. The decrease from both periods was due to lower management fees from lower average AUM.
For the quarter ended June 30, 2020, SG&A expenses were $109.0 million, down 12.7% from $124.8 million in the same quarter of 2019 and down 5.3% from $115.0 million in the prior quarter. The change in SG&A from last year was primarily a result of lower variable SG&A resulting from lower average AUM and prudent expense management, offsetting the increase from the addition of One Capital and Cabana. As an annualized percentage of average core AUM, SG&A expenses were 0.370%, down from 0.383% for the second quarter of last year and up from 0.364% for the prior quarter.
In the second quarter of 2020, CI paid $1.4 million in deferred sales commissions, compared with $3.1 million in the same quarter of 2019 and $3.2 million in the prior quarter. Consistent with the Canadian mutual fund industry, CI’s sales into deferred load funds have been steadily decreasing over the past decade.
Interest expense of $15.8 million was recorded for the quarter ended June 30, 2020 compared with $13.7 million for the quarter ended June 30, 2019 and $14.6 million for the quarter ended March 31, 2020. The change in interest expense reflects the changes in average debt levels and interest rates, as discussed under the Liquidity and Capital Resources section.
For the second quarter of 2020, CI recorded $41.1 million in income tax expense for an effective tax rate of 25.5% compared to $40.9 million, or 26.8%, in the second quarter of 2019, and $43.5 million, or 26.6%, in the prior quarter.
ASSET MANAGEMENT SEGMENT
The Asset Management segment is CI’s principal business segment and its operating results are presented in Table 12. This segment excludes U.S. assets under management, as the related revenues are part of a holistic fee charged to clients for providing wealth management services. Accordingly, the key performance indicator for the asset management segment is the level of core AUM. As of January 1, 2020, the operating results of CI Private Counsel LP (previously included in the Asset Management segment) are included in the Wealth Management segment and operating results in the prior periods have been restated for comparative purposes.
Q2 Financial Report | 14 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 12: RESULTS OF OPERATIONS - ASSET MANAGEMENT SEGMENT | ||||||||||||
[millions of dollars] |
Quarter
ended Jun. 30, 2020 |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Jun. 30, 2019 |
|||||||||
Management fees | 390.1 | 426.3 | 454.3 | |||||||||
Other revenue | 2.3 | (9.8 | ) | (1.7 | ) | |||||||
Total revenue | 392.4 | 416.5 | 452.6 | |||||||||
Selling, general and administrative | 79.5 | 84.9 | 95.1 | |||||||||
Trailer fees | 127.7 | 138.2 | 147.5 | |||||||||
Deferred sales commissions paid | 1.5 | 3.4 | 3.3 | |||||||||
Amortization and depreciation | 6.2 | 5.9 | 5.5 | |||||||||
Other expenses | 3.2 | 9.2 | 34.3 | |||||||||
Total expenses | 218.1 | 241.6 | 285.8 | |||||||||
Non-controlling interest | 0.2 | 0.1 | — | |||||||||
Income before taxes and non-segmented items | 174.0 | 174.8 | 166.7 |
Revenues
Revenues from management fees were $390.1 million for the quarter ended June 30, 2020, a decrease of 14.1% from $454.3 million for the quarter ended June 30, 2019 and a decrease of 8.5% from $426.3 million for the quarter ended March 31, 2020. Net of inter-segment amounts, management fees were $386.9 million for the second quarter of 2020, versus $451.0 million for the second quarter of 2019, and $422.6 million for the first quarter of 2020. The decrease in management fees from both quarters was due to a decline in core average AUM and the management fee rate. Net management fees (management fees less trailer fees and deferred sales commissions) as a percentage of core average AUM were 0.886%, down from 0.931% for the second quarter last year and from 0.900% for the prior quarter.
For the quarter ended June 30, 2020, other revenue was $2.3 million versus $(1.7) million for the quarter ended June 30, 2019 and $(9.8) million for the quarter ended March 31, 2020. The increase in other revenue from the comparable quarters was mainly due to $5.2 million of gains on the value of investments recognized this quarter versus gains of $0.6 million in the second quarter of 2019 and losses of $12.6 million in the prior quarter.
Expenses
SG&A expenses for the Asset Management segment were $79.5 million for the quarter ended June 30, 2020, compared with $95.1 million for the second quarter in 2019 and $84.9 million for the prior quarter. The decrease from both quarters was primarily due to lower variable SG&A and management’s efforts to contain costs in this segment. As a percentage of core average AUM, SG&A expenses were 0.270% for the quarter ended June 30, 2020, down from 0.292% for the quarter ended June 30, 2019, and up from 0.268% for the quarter ended March 31, 2020.
Q2 Financial Report | 15 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Trailer fees were $127.7 million for the quarter ended June 30, 2020, down 13.4% from $147.5 million for the quarter ended June 30, 2019 and down 7.6% from $138.2 million for the quarter ended March 31, 2020. Net of inter-segment amounts, this expense was $121.0 million for the quarter ended June 30, 2020 versus $140.4 million for the second quarter of 2019 and $131.1 million for the first quarter of 2020. The decrease from both comparable periods was related to the decrease in core average AUM.
In the second quarter of 2020, before inter-segment eliminations, CI paid $1.5 million in deferred sales commissions, compared with $3.3 million in the same quarter of 2019 and $3.4 million in the prior quarter. CI’s sales into deferred load funds have been steadily decreasing over the past decade, but are generally higher in the first quarter due to increased gross sales during the RSP season.
Other expenses for the quarter ended June 30, 2020 were $3.2 million, compared to $34.3 million for the quarter ended June 30, 2019 and $9.2 million for the quarter ended March 31, 2020. As discussed earlier, prior periods included restructuring provisions of $35.0 million and $8.5 million in the second quarter of 2019 and first quarter of 2020, respectively.
On a trailing 12-month basis, CI’s asset management margin was 46.9%, up from 45.9% for the same period last year. CI’s current quarter SG&A efficiency margin was 69.5%, up from 68.7% in the second quarter of last year and down from 70.2% in the prior quarter. The calculations and definitions of asset management margin and SG&A efficiency margin can be found in the “Non-IFRS Measures” section. The asset management margin for the second quarter of 2020 was 46.5% compared to 45.9% in the second quarter of 2019 and 46.9% in the prior quarter. The year-over-year improvement in CI’s quarterly asset management margin was mainly due to prudent expense management and the modernization of its asset management business.
Income before taxes and non-segmented items for the segment was $174.0 million for the quarter ended June 30, 2020, up 4.4% from $166.7 million in the same period in 2019 and down 0.5% from $174.8 million in the previous quarter. Excluding the restructuring provisions, income before taxes and non-segmented items was $201.7 for the second quarter of 2019 and $183.3 million for the first quarter of 2020.
Q2 Financial Report | 16 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
WEALTH MANAGEMENT SEGMENT
The Wealth Management segment operating results are presented in Table 13. As of January 1, 2020, the operating results of CI Private Counsel LP (previously included in the Asset Management segment) are included in the Wealth Management segment and operating results in the prior periods have been restated for comparative purposes. The results also comprise all revenues and expenses from U.S. wealth management companies, including those derived from the management of investment products.
TABLE 13: RESULTS OF OPERATIONS - WEALTH MANAGEMENT SEGMENT | ||||||||||||
[millions of dollars] |
Quarter
ended Jun. 30, 2020 |
Quarter
ended Mar. 31, 2020 |
Quarter
ended Jun. 30, 2019 |
|||||||||
Administration fees | 113.9 | 120.1 | 112.7 | |||||||||
Other revenue | 10.4 | 10.3 | 9.9 | |||||||||
Total revenue | 124.3 | 130.4 | 122.7 | |||||||||
Selling, general and administrative | 32.7 | 33.8 | 33.0 | |||||||||
Investment dealer fees | 84.8 | 88.9 | 84.4 | |||||||||
Amortization and depreciation | 3.9 | 2.7 | 2.8 | |||||||||
Other expenses | 0.6 | 1.8 | 3.1 | |||||||||
Total expenses | 122.0 | 127.3 | 123.3 | |||||||||
Non-controlling interest | (0.6 | ) | (0.5 | ) | (0.5 | ) | ||||||
Income before taxes and non-segmented items | 2.9 | 3.6 | (0.2 | ) |
Revenues
Administration fees were $113.9 million for the quarter ended June 30, 2020, an increase of 1.1% from $112.7 million for the same period a year ago and a decrease of 5.2% from $120.1 million for the prior quarter. The year-over-year increase was related to higher average wealth management assets, the addition of One Capital in May of this year, and the addition of Cabana in June of this year. Net of inter-segment amounts, administration fee revenue was $75.9 million for the quarter ended June 30, 2020, up from $71.7 million for the quarter ended June 30, 2019 and down slightly from $76.2 million for the quarter ended March 31, 2020.
For the quarter ended June 30, 2020, other revenue was $10.4 million, up from $9.9 million for the quarter ended June 30, 2019 and up from $10.3 million for the prior quarter. Other revenue consists mainly of non-advisor-related activities.
Expenses
Investment dealer fees were $84.8 million for the quarter ended June 30, 2020 compared to $84.4 million for the second quarter of 2019 and $88.9 million for the quarter ended March 31, 2020. Net of inter-segment amounts, investment dealer fees were $53.6 million, up from $50.6 million for the same quarter last year and up from $52.5 million for the prior quarter.
Q2 Financial Report | 17 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
As discussed in the “Non-IFRS Measures” section of this MD&A and as set out in Table 5, dealer gross margin was $29.1 million or 25.5% of administration fee revenue for the quarter ended June 30, 2020 compared to $28.3 million or 25.1% for the second quarter of 2019 and $31.1 million or 25.9% for the previous quarter.
SG&A expenses for the segment were $32.7 million for the quarter ended June 30, 2020 compared to $33.0 million in the second quarter of 2019 and $33.8 million in the first quarter of 2020. Net of inter-segment amounts, SG&A was $29.5 million for the second quarter of 2020, compared with $29.7 million for the second quarter of 2019 and $30.1 million for the first quarter of 2020. The decrease in SG&A from both comparable periods was attributable to prudent expense management, offsetting increases in costs related to the addition of One Capital and Cabana.
Other expenses were $0.6 million for the quarter ended June 30, 2020, down from $3.1 million in the same quarter of 2019 and from $1.8 million in the first quarter of 2020. Depreciation and amortization expenses were $3.9 million for the quarter ended June 30, 2020, up from $2.8 million for the quarter ended June 30, 2019 and from $2.7 million for the prior quarter. The increase from both prior periods was related to the depreciation of right-of-use assets and amortization of intangibles due to the acquisitions of One Capital and Cabana.
The Wealth Management segment had income before taxes and non-segmented items of $2.9 million for the quarter ended June 30, 2020, compared to $(0.2) million for the second quarter of 2019 and $3.6 million for the prior quarter.
LIQUIDITY AND CAPITAL RESOURCES
CI generated $272.0 million of free cash flow in the first half of 2020, compared to $290.1 million for the same period in 2019. Reconciliations of free cash flow to cash provided by operating activities are provided in the “Non-IFRS Measures” section and set out in Table 2.
CI primarily uses cash flow to fund capital expenditures, fund acquisitions, pay down debt, pay dividends on its shares, and repurchase shares through its normal course issuer bid. At current levels of cash flow and anticipated dividend payout rates, CI expects to meet its obligations and support planned business operations.
CI’s cash flows may fluctuate, primarily in the first quarter, as a result of the balance of cash income taxes and incentive compensation related to the prior year being paid at the end of February.
Q2 Financial Report | 18 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
TABLE 14: SUMMARY OF CASH FLOWS | ||||||||
Six months ended | Six months ended | |||||||
[millions of dollars] | June 30, 2020 | June 30, 2019 | ||||||
Free cash flow | 272.0 | 290.1 | ||||||
Less: | ||||||||
Investments in marketable securities, net of marketable securities sold | (6.2 | ) | (7.7 | ) | ||||
Capital expenditures | 9.2 | 8.3 | ||||||
Share repurchases, net of shares issued | 150.4 | 155.6 | ||||||
Dividends paid | 79.0 | 87.2 | ||||||
Debt repaid / (drawn) | (412.6 | ) | (21.0 | ) | ||||
Working capital and other items | 40.3 | 68.0 | ||||||
(139.9 | ) | 290.4 | ||||||
Net change in cash | 411.9 | (0.3 | ) | |||||
Cash at January 1 | 118.4 | 137.2 | ||||||
Cash at June 30 | 530.3 | 136.9 |
During the first half of 2020, CI invested $14.9 million in marketable securities and received $21.1 million in proceeds from the disposition of marketable securities. Excluding BBS’ securities owned, at market, the fair value of CI’s investments as of June 30, 2020 was $103.3 million. This was comprised of seed capital investments in CI funds and strategic investments.
During the six months ended June 30, 2020, CI invested $9.2 million in capital assets, up from $8.3 million in the six months ended June 30, 2019. These investments related primarily to leasehold improvements and technology.
During the six months ended June 30, 2020, CI repurchased 8.0 million shares under its normal course issuer bid at a total cost of $150.4 million, or $18.81 per share. CI had 213,899,471 shares outstanding at the end of June, which differs from CI’s TSX-listed shares outstanding of 214,833,525, by the amount of restricted employee shares held in trust.
CI paid dividends of $79.0 million during the quarter. The Board of Directors declared a quarterly dividend of $0.18 per share, payable on January 15, 2021, to shareholders of record on December 31, 2020.
The statement of financial position for CI at June 30, 2020 reflected total assets of $4.949 billion, an increase of $581.1 million from $4.368 billion at December 31, 2019. This change was primarily due to the additions of WisdomTree Canada, Surevest, One Capital, and Cabana.
CI’s cash and cash equivalents increased by $411.9 million in the first half of 2020 to $530.3 million. The increase is mainly driven by the issuance of a $450 million debenture, to ensure sufficient liquidity during a period of market uncertainty in anticipation of an upcoming maturity in December. Accounts receivable and prepaid expenses increased by $9.8 million to $179.9 million as of June 30, 2020. Capital assets increased by $3.8 million during the six months ended June 30, 2020 as a result of $9.2 million in capital additions less $6.0 million in amortization.
Total liabilities increased by $533.2 million during the first half of 2020 to $3.402 billion at June 30, 2020. The largest factors impacting liabilities were the increase in debt, discussed above, and the acquisitions made in the first six months of the year.
Q2 Financial Report | 19 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
At June 30, 2020, CI had $1,995.0 million in outstanding debentures with a weighted average interest rate of 3.31% and a carrying value of $1,987.9 million. On June 30, 2020, CI had drawn nil against its $700.0 million credit facility. Principal repayments on any drawn amounts are only required at the maturity of the facility, which is December 11, 2021.
Net debt, as discussed in the “Non-IFRS Measures” section and as set out in Table 4, was $1,373.8 million at June 30, 2020, down from $1,382.6 million at December 31, 2019. The average gross debt level for the six months ended June 30, 2020 was $1,750.0 million, compared to $1,575.6 million for the same period last year.
At June 30, 2020, CI was in a positive working capital position. This, in addition to the availability of its credit facility, reflects the ability of CI to meet its cash flow requirements.
CI’s ratios of debt to adjusted EBITDA and net debt to adjusted EBITDA were 2.7 to 1 and 1.8 to 1, respectively. CI was within its financial covenants with respect to its credit facility, which required that the debt to EBITDA ratio remain below 3.0 to 1, and assets under management not fall below $85 billion, based on a rolling 30-day average.
Shareholders’ equity was $1.511 billion at June 30, 2020, an increase of $17.1 million from December 31, 2019.
Q2 Financial Report | 20 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
RISK MANAGEMENT
CI is exposed to a number of risks that are inherent in the wealth management business. Some factors which introduce or exacerbate risk are within the control of management and others are, by their nature, outside of CI’s direct control but must still be managed. Effective risk management is a key component to achieving CI’s business objectives and protecting company and client assets. It is an ongoing process involving the Board of Directors and the Company’s Risk Management Committee, comprising senior executives from CI’s core business and operating units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board of Directors.
The Risk Management Committee monitors, evaluates and manages risk to provide reasonable assurance to the Board that CI’s business strategies and activities are consistent with its risk appetite. Risk updates are regularly provided to the Audit and Risk Committee of CI’s Board.
CI has developed an enterprise-wide approach to identifying, measuring, monitoring and managing risk. The members of the Risk Management Committee identify and evaluate specific and material risks, applying both a quantitative and a qualitative analysis to assess the likelihood and impact of occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize, transfer or avoid negative consequences. These risk mitigation processes are implemented and monitored with each business unit.
The risks described below are not the only risks facing CI. The risks set out below are risks and uncertainties that the Risk Management Committee currently believe could materially affect CI’s future financial performance. The reader should carefully consider the risks described below, and the other information contained in this MD&A, including under the heading “Forward-Looking Statements” before making an investment decision.
MARKET RISK
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates, foreign exchange rates, and equity and commodity prices. A description of each component of market risk is described below:
– | Interest rate risk is the risk of gain or loss due to the volatility of interest rates. |
– | Foreign exchange rate risk is the risk of gain or loss due to volatility of foreign exchange rates. |
– | Equity risk is the risk of gain or loss due to the changes in prices and volatility of individual equity instruments and equity indexes. |
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in the performance of CI’s investment funds and may adversely affect CI’s assets under management, management fees and revenues, which would reduce cash flow to CI and ultimately impact CI’s ability to meet its financial obligations.
Q2 Financial Report | 21 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
MARKET RISK FOR THE ASSET MANAGEMENT SEGMENT
At June 30, 2020, approximately 29% of CI’s assets under management were held in fixed-income securities, which are exposed to interest rate risk. An increase in interest rates causes market prices of fixed-income securities to fall, while a decrease in interest rates causes market prices to rise. CI’s fund managers invest in a well-diversified portfolio of securities across issuers, durations and maturities, which reduces risk. CI estimates that a 100 basis point change in interest rates across the yield curve would cause a change of approximately $30 million to $40 million in annual pre-tax earnings in the Asset Management segment.
At June 30, 2020, about 41% of CI’s assets under management were based in Canadian currency. While CI’s concentration in Canadian currency assets reduces its exposure to foreign exchange risk, approximately 45% of CI’s assets under management were based in U.S. currency. Any change in the value of the Canadian dollar relative to U.S. currency will cause fluctuations in CI’s assets under management. CI estimates that a 10% change in Canadian/U.S. exchange rates would cause a change of approximately $20 million to $30 million in the Asset Management segment’s annual pre-tax earnings.
About 65% of CI’s assets under management were held in equity securities at June 30, 2020, which are subject to equity risk. Equity risk is classified into two categories: general equity risk and issuer-specific risk. CI employs internal and external fund managers to take advantage of their expertise in particular market niches, sectors and products and to reduce issuer-specific risk through diversification. CI estimates that a 10% change in the value of equities would cause a change of approximately $60 million to $70 million in annual pre-tax earnings.
Please note that exposures and sensitivities do not account for currency hedging that portfolio managers may employ. There are risks and limitations with relying on models and it is possible that actual results may differ from those presented above.
CI has a control environment that ensures market risks are reviewed regularly. CI’s compliance group reviews and monitors CI’s fund and portfolio investments for compliance with investment policies and regulations. CI also reviews investment processes, portfolio positioning and attribution of results of its investment teams on a regular basis.
MARKET RISK FOR THE WEALTH MANAGEMENT SEGMENT
CI’s operating results are not materially exposed to market risk impacting the wealth management segment given that this segment usually generates approximately 2% of the total income before non-segmented items (this segment reported a gain of $2.9 million before income taxes and non-segmented items for the quarter ended June 30, 2020). Investment advisors regularly review their client portfolios to assess market risk and consult with clients to make appropriate changes to mitigate it.
Q2 Financial Report | 22 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
POLITICAL AND MACRO-ECONOMIC RISK
CI’s performance is directly affected by the performance of the financial markets which may be influenced by various political, demographic and macro-economic conditions or events, including any political change and uncertainty in the United States and globally. These changes may cause significant volatility and decline in the global economy or specific international, regional and domestic financial markets which are beyond the control of CI. There can be no assurance that financial market performance will be favourable in the future. Any decline in financial markets or lack of sustained growth in such markets may result in a corresponding decline in performance, which could negatively impact CI’s business and impede the growth of CI’s assets under management and revenue.
STRATEGIC RISK
Strategic risks are risks that directly impact the overall direction of CI and the ability of CI to successfully identify growth opportunities and implement proposed solutions. The key strategic risk is the risk that management fails to anticipate, and respond to, changes in the business environment, including demographic, regulatory and competitive changes. CI’s performance is directly affected by the financial market and business conditions, including the legislation and policies of the governments and regulatory authorities having jurisdiction over CI’s operations. These are beyond the control of CI; however, an important part of the risk management process is the ongoing review and assessment of industry and economic trends and changes. Strategies are then designed to effectively respond to any anticipated changes, including identifying acquisition opportunities, developing new business lines, introducing new products, and implementing cost control strategies.
Part of CI’s strategy includes strategic acquisitions and investments in growth opportunities. Strategic acquisitions may benefit CI through increasing fee earning assets, broadening CI’s distribution relationships, enhancing CI’s business capabilities and capturing cost synergies. CI embarks on a thorough due diligence process prior to any acquisition; however, there can be no assurances that the anticipated benefits of any acquisition will be achieved. The success of an acquisition is contingent upon many factors, including retaining key employees, securing assets acquired, obtaining legal and regulatory approvals, integrating operations and vendor relationships, and having favourable economic conditions.
COMPETITION RISK
CI operates in a highly competitive environment, with competition based on a variety of factors, including the range of products offered, brand recognition, investment performance, business reputation, financing strength, management and sales relationships, quality of service, level of fees charged and level of commissions and other compensation paid. CI competes with a large number of mutual fund companies and other providers of investment products, investment management firms, broker-dealers, banks, insurance companies and other financial institutions. Some of these competitors have, and potential future competitors may have, greater technical, financial, marketing, distribution or other resources than CI. The trend toward greater consolidation within the investment management industry has increased the strength of a number of CI’s competitors. CI’s competitors seek to expand market share by offering different products and services and more competitive pricing than those offered by CI. While CI continues to develop and market new products and services and remains competitive with respect to fees, there can be no assurance that CI will maintain its current standing or market share or investment performance relative to its competitors, which may adversely affect the business, financial condition or operating results of CI.
Q2 Financial Report | 23 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
In addition, there are uncertainties involved in the introduction of new products and services, including technical requirements, operational controls and procedures, compliance with regulatory requirements and shifting market preferences. The development and introduction of new products and services may require ongoing support and investment. A failure to manage the risks involved in the implementation of new products and services may lead to operational lapses, increased capital requirements, and competitive alternatives, which could adversely affect CI’s standing, market share or investment performance relative to its competitors and negatively impact the business, financial condition or operating results of CI.
DISTRIBUTION RISK
CI distributes its investment products through a number of distribution channels, including brokers, independent financial planners and insurance advisors. CI’s access to these distribution channels is impacted by the strength of the relationship with certain business partners and the level of competition faced from the financial institutions that own those channels. While CI continues to develop and enhance existing relationships, there can be no assurance that CI will, in the future, enjoy the level of access that it has in the past, which would adversely affect its sales of investment products.
REDEMPTION RISK
CI earns revenue primarily from management fees earned for advising and managing investment fund assets. The level of these assets is dependent on (i) sales; (ii) redemptions; and (iii) investment performance. Sales and redemptions may fluctuate depending on market and economic conditions, investment preference, or other factors.
Significant redemptions could adversely affect investor fund returns by impacting market values and increasing transaction costs or taxable distributions, which could negatively impact the prospects and operating results of CI.
A rapid and sustained increase in redemptions, particularly in the face of severe market volatility, may also adversely affect fund liquidity, which in turn could negatively affect CI’s reputation and/or result in further declines in assets under management, all of which could have an unfavourable impact on our business, financial condition or operating results.
BUSINESS CONTINUITY RISKS
CI's business, operations and financial results may be adversely affected by its ability to mitigate the effect of natural and man-made disasters, including floods, earthquakes, tornadoes, fires, civil unrest, wars, epidemics, and pandemics. The occurrence of any of these events may pose significant challenges to CI’s business continuity, either by exacerbating one or more of the other risks described in this section, or by introducing new risks. CI has a comprehensive and stress-tested business continuity plan in place to deal with any disaster-related scenario, however there can be no assurance that such plan will be effective to mitigate any adverse effects on CI’s business, financial condition or operating results as a result of any natural or man-made disasters or other similar events, including the recent COVID-19 pandemic.
Q2 Financial Report | 24 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
COVID-19, which has been recognized by the World Health Organization as a pandemic, has spread rapidly and extensively across the globe. Efforts by governments to control the spread of COVID-19 have disrupted normal economic activity both domestically and globally and uncertainty related to the extent, duration and severity of the pandemic has contributed to significant volatility in the financial markets, resulting in a decline in certain equity and commodity prices and lower interest rates and a corresponding decline in CI’s assets under management. In addition, CI may face declines in its assets under management as a result of client redemptions related to a variety of COVID-19 related factors including general market pessimism, poor fund performance, or clients’ needs for immediate cash.
To control the spread of COVID-19, many governments at all levels have imposed severe restrictions on business activity and travel. Although certain of these restrictions have subsequently been eased, there can be no certainty when these restrictions will be fully lifted or that they will not be expanded. CI activated its business continuity plan in response to the COVID-19 pandemic to mitigate risks, maintain operational efficiency and service levels, and address the health and safety concerns of our employees, clients and advisors. With few exceptions, all of CI’s business operations are being carried out remotely. The extensive use of remote communication tools and third party services may lead to heightened cybersecurity and privacy risks. Market volatility, increased trading volumes and the requirement to work remotely may result in the deterioration in service levels of certain key service providers. Stress on technology resources, new workplace constraints, personal stress and health concerns may all lead to higher operational risks across all of CI’s businesses. With the emergence of several new services as business critical, key supplier risk may also increase significantly. As part of the plan, CI has implemented enhanced monitoring of network assets and management oversight of business processes, active employee engagement and client communication, and built redundancy for critical services and infrastructure, however there can be no guarantee that this will be effective to mitigate these risks.
Ultimately, the extent to which CI’s business, financial condition and results of operations will be impacted by the COVID-19 pandemic, including the extensive attempts to mitigate its effects, is uncertain and will depend on future developments, which are unpredictable and rapidly evolving.
REGULATORY AND LEGAL RISK
CI’s business is dependent upon compliance with and continued registration under securities laws in all jurisdictions in which CI and its subsidiaries carry on business. Laws and regulations applied at the national and provincial or state level generally grant governmental agencies and self-regulatory bodies broad administrative discretion over the activities of CI, including the power to limit or restrict business activities as well as impose additional disclosure requirements on CI products and services. Possible sanctions include the revocation or imposition of conditions on licenses to operate certain businesses, the suspension or expulsion from a particular market or jurisdiction of any of CI’s business segments or its key personnel or financial advisors, and the imposition of fines and censures. It is also possible that the laws and regulations governing a subsidiary’s operations or particular investment products or services could be amended or interpreted in a manner that is adverse to CI. To the extent that existing or future regulations affecting the sale or offering of CI’s product or services or CI’s investment strategies cause or contribute to reduced sales of CI’s products or lower margins or impair the investment performance of CI’s products, CI’s aggregate assets under management and its revenues may be adversely affected. In addition, the ongoing change in the securities regulatory environment governing CI’s business may require additional human resources and operations which will increase costs.
Q2 Financial Report | 25 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
Given the nature of CI’s business, CI may from time to time be subject to claims or complaints from investors or others in the normal course of business. The legal risks facing CI, its directors, officers, employees or agents in this respect include potential liability for violations of corporate laws, securities laws, stock exchange rules and misuse of investors’ funds. Some violations of corporate laws, securities laws or stock exchange rules could result in civil liability, fines, sanctions, or expulsion from a self- regulatory organization or the suspension or revocation of CI’s right to carry on an existing business. CI may incur significant costs in connection with such potential liabilities.
INFORMATION TECHNOLOGY RISK
CI uses information technology and the internet to streamline business operations and to improve the client and advisor experience. CI has, more recently, been expanding its online footprint by automating its product and service delivery systems and acquiring digital platforms. The use of information technology and the internet, email messaging and other online capabilities, however, exposes CI to information security risk that could have an adverse impact on its business. CI is dependent on its information security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that it stores on or transmits through its information technology systems. Any information technology event, such as a cybersecurity breach or intrusion into CI’s information technology systems, or failure to implement sufficient controls, could result in unauthorized access to sensitive or confidential information, loss or theft of data, operational disruption, regulatory actions, legal liability or reputational harm.
CI actively monitors this risk and continues to develop and implement technology-enabled controls to protect against cyber threats that are becoming increasingly sophisticated and pervasive. In addition, CI has and will continue to implement safeguards to control access to sensitive information, through password protection, encryption of confidential information and other means. Notwithstanding these measures, CI cannot fully mitigate the risk associated with information technology security. CI is dependent on the efficiency and effectiveness of the technology it uses to secure its information technology environment and keeping pace with a continuously evolving information technology landscape. Malfunction of any technology used by CI or inability to keep pace with evolving cybersecurity advancements may increase CI’s exposure to cybersecurity risk.
CI’s business is also dependent on the physical integrity of its infrastructure, including its office space, storage centers and other facilities. CI has taken precautions to protect the physical security of its infrastructure, and the sensitive information contained therein, through passkey protection, limited after-hours access and clean desk policies. However, a breach of the physical integrity of CI infrastructure may leave sensitive information vulnerable to unauthorized access and use, increasing a possible security risk, which could negatively impact CI’s business and reputation.
Q2 Financial Report | 26 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequate or failed internal processes or systems. The operational risk that CI is exposed to may arise from, technology failures, business disruption, theft and fraud, failure of key third parties, employee errors, processing and execution errors, and inaccurate or incomplete client information. Operational risk may result in a financial loss but can also lead to regulatory sanctions and harm to CI’s reputation. Operational risk driven by people and processes are mitigated through human resources policies and practices, and a strong internal control environment. Operational risks driven by systems and services are managed through controls over technology development and change management as well as enhanced procedures for oversight of third-party service providers. While CI continuously monitors its operational risks, there can be no assurances that CI’s internal control procedures can mitigate all operational risks.
REPUTATION RISK
Reputation risk is the potential negative impact of a deterioration of CI’s image or lower public confidence in the CI brand, its senior management or its products and services. Operational errors, poor performance, regulatory investigation or sanctions, litigation or employee misconduct could result in reputational harm to CI. Through its Codes of Conduct, governance practices, risk management programs, policies, procedures and training, CI attempts to prevent and detect any activities by CI officers, directors, and employees that would harm CI’s reputation. While all employees, directors and officers are expected to protect the reputation of CI, there can be no assurances that unauthorized or unsuccessful activities may result in damage to CI’s reputation, which could adversely affect CI’s business and profitability.
KEY PERSONNEL RISK
The success of CI is dependent to a significant degree upon the contributions of senior management. The loss of any of these individuals, or an inability to attract, retain and motivate sufficient numbers of qualified senior management personnel, could adversely affect CI’s business. The retention of these key managers and the identification and development of the next generation of managers is an area of focus for CI. CI has not purchased any “key person” insurance with respect to any of its directors, officers or key employees and has no current plans to do so.
The success of CI is also dependent upon, among other things, the skills and expertise of its human resources, including the management and investment personnel with specialized skills related to, among other things, marketing, risk management, credit, information technology, accounting, administrative operations and legal affairs. These highly skilled and often highly specialized individuals play an important role in developing, implementing, operating, managing and distributing CI’s products and services. Accordingly, the recruitment and retention of skilled personnel, continuous training and transfer of knowledge are key activities that are essential to CI’s performance. CI has taken, and will continue to take, steps to encourage our key employees to remain employed at CI, including the implementation of long-service awards, employee engagement strategies and enhanced transparency measures with respect to compensation. In addition, the focus on asset growth and the reliance on investment performance to sell financial products has increased the demand for experienced and high- performing portfolio managers. Compensation packages for these managers may increase at a rate well in excess of inflation and well above the rates of increase observed in other industries and the rest of the labour market. The loss of these individuals or an inability to attract, retain and motivate a sufficient number of qualified personnel could result in a loss of clients and a decline in sales and adversely affect CI’s business.
Q2 Financial Report | 27 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
The market for financial advisors is extremely competitive and is increasingly characterized by frequent movement by financial advisors among different firms. Individual financial advisors of AWM have regular direct contact with clients, which can lead to a strong and personal client relationship based on the client’s trust in the individual financial advisor. The loss of a significant number of financial advisors could lead to the loss of client accounts which could have a material adverse effect on the results of operations and prospects of AWM and, in turn, CI. Although AWM uses or has used a combination of competitive compensation structures and equity with vesting provisions as a means of seeking to retain financial advisors, there can be no assurance that financial advisors will remain with AWM.
INSURANCE RISK
CI maintains various types of insurance which include financial institution bonds, errors and omissions insurance, directors’, trustees’ and officers’ liability insurance, agents’ insurance, general commercial liability insurance, and cyber liability insurance. Management evaluates the adequacy of CI’s insurance coverage on an ongoing basis. However, there can be no assurance that a claim or claims will not exceed the limits of available insurance coverage, that any insurer will remain solvent or willing to continue providing insurance coverage with sufficient limits or at a reasonable cost or that any insurer will not dispute coverage of certain claims due to ambiguities in the relevant policies. A judgment against CI in excess of available coverage could have a material adverse effect on CI both in terms of damages awarded and the impact on the reputation of CI.
CREDIT RISK
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed to the risk that third parties that owe it money, securities or other assets will not perform their obligations. These parties include trading counterparties, customers, clearing agents, exchanges, clearing houses and other financial intermediaries, as well as issuers whose securities are held by CI. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. CI does not have significant exposure to any individual counterparty. Credit risk is mitigated by regularly monitoring the credit performance of individual counterparties and holding collateral where appropriate.
One of the primary sources of credit risk arises when CI extends credit to clients to purchase securities by way of margin lending. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory requirements and by CI’s internal credit policy.
Q2 Financial Report | 28 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
LIQUIDITY RISK
Liquidity risk is the risk that CI may not be able to generate sufficient funds and within the time required in order to meet its obligations as they come due. While CI currently has access to financing, unfavourable market conditions may affect the ability of CI to obtain loans or make other arrangements on terms acceptable to CI.
LIQUIDITY RISK FOR THE ASSET MANAGEMENT SEGMENT
CI is also exposed to the risk of its investment funds not being able to meet their redemption obligations due to an inability to liquidate the underlying assets in a timely manner. This could be caused by insufficient liquid assets in the fund, an unexpected spike in redemptions triggered by negative market information, sentiment or contagion, adverse liquidity conditions in the financial markets, procedural issues that may delay the liquidation of securities or other factors. Inability to meet its redemption obligations may lead to legal liability, regulatory action and reputational damage. CI has robust mechanisms in place to monitor and maintain adequate liquidity in its investment fund portfolios at all times. However, CI has no control over extreme market events that may result in the sudden loss of liquidity or trigger a run on the funds.
CAPITAL RISK
Certain subsidiaries of CI are subject to minimum regulatory capital requirements. This may require CI to keep sufficient cash and other liquid assets on hand to maintain capital requirements rather than using them in connection with its business. Failure to maintain required regulatory capital by CI may subject it to fines, suspension or revocation of registration by the relevant securities regulator. A significant operating loss by a registrant subsidiary or an unusually large charge against regulatory capital could adversely affect the ability of CI to expand or even maintain its present level of business, which could have a material adverse effect on CI’s business, results of operations, financial condition and prospects.
TAXATION RISK
CI is subject to various uncertainties concerning the interpretation and application of Canadian tax laws. CI Investments is considered a large case file by the Canada Revenue Agency and, as such, is subject to audit each year. There is a significant lag between the end of a fiscal year and when such audits are completed. Therefore, at any given time, several years may be open for audit and/or adjustments. While CI regularly assesses the likely outcome of these audits in order to determine the appropriateness of its tax provision, there can be no assurance that CI will accurately predict the outcomes of these audits. If tax authorities disagree with CI’s application of such tax laws, CI’s profitability and cash flows could be adversely affected.
Q2 Financial Report | 29 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
SHARE CAPITAL
As at June 30, 2020, CI had 213,899,471 shares outstanding.
Employee Incentive Share Option Plan: At June 30, 2020, 2.9 million options to purchase shares were outstanding, of which 2.2 million options were exercisable at prices ranging from $18.99 to $28.67.
Restricted Share Unit (“RSU”) Plan: 927,231 RSUs were outstanding as at June 30, 2020.
Deferred Share Unit (“DSU”) Plan: 27,239 DSUs were outstanding as at June 30, 2020.
Additional details about the above Plans can be found in Note 6 to the Interim Condensed Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
The table that follows summarizes CI’s contractual obligations at June 30, 2020.
TABLE 15: PAYMENTS DUE BY YEAR | ||||||||||||||||||||||||||||
[millions of dollars] | Total |
1 year or less |
2 | 3 | 4 | 5 |
More than 5 years |
|||||||||||||||||||||
Long-term debt | 1,995.0 | 420.0 | 200.0 | — | 325.0 | 800.0 | 250.0 | |||||||||||||||||||||
Leases | 84.5 | 15.9 | 14.2 | 13.7 | 13.8 | 13.3 | 13.6 | |||||||||||||||||||||
Total | 2,079.5 | 435.9 | 214.2 | 13.7 | 338.8 | 813.3 | 263.6 |
SIGNIFICANT ACCOUNTING ESTIMATES
The June 30, 2020 Consolidated Financial Statements have been prepared in accordance with IFRS. For a discussion of all significant accounting policies, refer to Note 1 of the Notes to Interim Condensed Consolidated Financial Statements. Note 2 provides a discussion regarding the methodology used for business acquisitions. Note 4 provides a discussion regarding the recoverable amount of CI’s provision for other liabilities and contingencies.
Q2 Financial Report | 30 | June 30, 2020 |
| MANAGEMENT’S DISCUSSION & ANALYSIS |
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with management, are responsible for the design of CI’s disclosure controls and procedures as defined in National Instrument 52-109 (NI 52-109). Management evaluated, with participation of the CEO and CFO, the effectiveness of the disclosure controls and procedures as at June 30, 2020. Based on this evaluation, the CEO and CFO have concluded that they are reasonably assured these disclosure controls and procedures were effective as at June 30, 2020 and that material information relating to CI was made known to them within the time periods specified under applicable securities legislation. Management, under the supervision of the CEO and CFO, is responsible for the design and maintenance of adequate internal controls over financial reporting as defined in NI 52-109 for the purposes of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However, due to its inherent limitations, internal controls over financial reporting can only provide reasonable, not absolute, assurance that the financial statements are free of misstatements. The COSO framework was used to assist management, along with the CEO and CFO, in the evaluation of these internal control systems. Management, under the direction of the CEO and CFO, concluded that the internal controls over financial reporting were effective as at June 30, 2020. Management used various tools to evaluate internal controls over financial reporting which included interaction with key control systems, review of policy and procedure documentation, observation or reperformance of control procedures to evaluate the effectiveness of controls and concluded that these controls are effective. For the quarter ended June 30, 2020, there have been no changes to the internal controls that have materially affected, or are reasonably likely to affect, internal controls over financial reporting
Additional information relating to CI, including the most recent audited annual financial statements, management information circular and annual information form, is available on SEDAR at www.sedar.com and on CI’s website at www.cifinancial.com. Information contained in or otherwise accessible through the websites mentioned in this MD&A does not form part of, and is not incorporated by reference into, this MD&A. |
Q2 Financial Report | 31 | June 30, 2020 |
Exhibit 99.17
CI FINANCIAL CORP.
NOTICE OF MEETING
AND
MANAGEMENT INFORMATION CIRCULAR
for the
ANNUAL MEETING OF SHAREHOLDERS
to be held on June 24, 2019
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the annual meeting of holders (“Shareholders”) of common shares (the “Shares”) of CI Financial Corp. (the “Corporation” or “CI”) will be held on Monday June 24, 2019 at 2:00 p.m. (Toronto time) at 15 York Street, 2nd Floor, Toronto, Ontario (the “Meeting”) for the following purposes:
1. | To receive the consolidated financial statements of CI for the fiscal year ended December 31, 2018, together with the auditors’ report thereon; |
2. | To elect directors of CI (the “Directors”) for the ensuing year; |
3. | To appoint auditors for the ensuing year and authorize the Directors to fix the auditors’ remuneration; |
4. | To consider and provide an advisory vote on the board of director’s (the “Board”) approach to and report on Executive Compensation; and |
5. | To transact such other business as may properly be brought before the Meeting or any adjournment thereof. |
The Management Information Circular dated May 8, 2019 (the “Information Circular”) provides additional information relating to matters to be dealt with at the Meeting. Shareholders are reminded to review the Information Circular before voting.
The Corporation is utilizing the notice and access mechanism under National Instrument 54-101 - Communications with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”). Notice and access allows CI to post electronic versions of proxy-related materials online, rather than mailing paper copies of such materials to Shareholders.
Electronic copies of this Notice of Meeting, the Information Circular and the Corporation’s 2018 Annual Report (containing the audited consolidated financial statements of the Corporation for the year ended December 31, 2018 and Management’s Discussion and Analysis thereon) (the “Annual Report”) may be found on the Corporation’s pages on SEDAR at www.sedar.com and also on the Corporation’s website at www.cifinancial.com.
Shareholders will receive paper copies of a notice package (the “Notice Package”) via prepaid mail containing the information prescribed by NI 54-101 and a form of proxy (if you are a registered Shareholder) or a voting instruction form (if you are a non-registered Shareholder).
Shareholders may obtain paper copies of the Information Circular, the Annual Report and the Corporation’s Annual Information Form dated March 1, 2019 free of charge, or more information about notice and access, by contacting the Corporation’s transfer agent, Computershare Investor Services Inc., at 1-866-962-0498 within North America or direct, from outside North America, at 514-982-8716. In order to receive paper copies of these meeting materials in time to vote before the Meeting, your request must be received by June 14, 2019.
ii
The Corporation’s Board has fixed the close of business on May 1, 2019 as the record date for determining Shareholders entitled to receive notice of, and to vote at, the Meeting and any postponement or adjournment of the Meeting. No Shareholders becoming Shareholders of record after that time will be entitled to vote at the Meeting, or any adjournment or postponement thereof.
Registered Shareholders are requested to complete, date, sign and return (in the return envelope provided for that purpose) the form of proxy included in the Notice Package. You may also vote your Shares by proxy by appointing another person to attend the Meeting and vote your Shares for you. To be valid, the form of proxy must be signed and received by the proxy department of the Corporation’s transfer agent, Computershare Investor Services Inc., by mail at Proxy Tabulation, 100 University Avenue, 8th Floor, Toronto Ontario, M5J 2Y1, on the internet at www.investorvote.com or by facsimile at 1-866-249-7775 / 416-263-9524, or instructions must be received by phone at 1-866-732-8683, in each case no later than 5:00 p.m. (Toronto time) on June 20, 2019 or if the Meeting is adjourned or postponed, prior to 5:00 p.m. (Toronto time) on the second business day before any adjournment or postponement of the Meeting. Failure to properly complete or deposit a proxy may result in its invalidation.
You are a Non-Registered Shareholder if your bank, trust company, securities dealer, broker or other intermediary holds your Shares for you. In that case, you will likely not receive a proxy form. Only proxies deposited by registered Shareholders can be recognized and acted upon at the Meeting. Please return your voting instructions as specified in the voting instruction form delivered to you in the Notice Package.
May 8, 2019
By Order of the Board of Directors of CI Financial Corp.
PETER W. ANDERSON
President and Chief Executive Officer
CI Financial Corp.
Your vote is important. Whether or not you expect to attend the Meeting, please exercise your right to vote. Shareholders who have voted by proxy may still attend the Meeting.
iii
Contents
MANAGEMENT INFORMATION CIRCULAR | 1 | |
How to Vote Your Shares | 1 | |
Notice and Access | 1 | |
How to Vote if you are a Registered Shareholder | 2 | |
How to Vote if you are a Non-Registered Shareholder | 3 | |
Completing the Proxy Form | 3 | |
Changing your Vote/Revocation of Proxies | 4 | |
Voting Securities and Principal Holders | 5 | |
How the Votes are Counted | 5 | |
Business of the Meeting | 6 | |
1. | Financial Statements | 6 |
2. | Election of Directors | 6 |
Nominations for Election as Directors | 6 | |
Board and Committee Meetings Held and Attendance of Directors | 14 | |
Corporate Cease Trade Orders or Bankruptcies | 15 | |
Penalties and Sanctions | 15 | |
Our Policy on Majority Voting | 15 | |
3. | Appointment of Auditors | 16 |
4. | Say on Pay | 16 |
Letter from the GOVERNANCE, Human Resources and Compensation Committee | 17 | |
Statement of Executive Compensation | 19 | |
Objectives of the Compensation Program | 19 | |
Rewarding Demonstrated Performance | 19 | |
Components of Compensation | 21 | |
Determination of Amount of Compensation | 29 | |
Risk Management | 33 | |
Chief Executive Officer and President Compensation | 33 | |
Performance Graphs | 37 | |
Summary Compensation Table | 39 | |
Equity Compensation Plan Information | 40 | |
Incentive Plan Awards | 41 |
iv
Termination and Change of Control Benefits | 42 | |
Director Compensation | 43 | |
Indebtedness of Directors and Executive Officers | 46 | |
Statement of Governance Practices | 47 | |
The Role of the Board of Directors | 47 | |
Enterprise Risk Management | 47 | |
Integrity of Financial Information and Internal Controls | 48 | |
Strategic Planning | 48 | |
Succession Planning | 48 | |
Securityholder Relations and Communications | 49 | |
Board Composition and Independence | 50 | |
Size and Composition | 50 | |
Independence | 51 | |
Board Expertise Matrix | 52 | |
Term Limits | 54 | |
Directorships and Board Interlocks | 54 | |
Lead Director | 55 | |
Director Attendance | 55 | |
Ethical Business Conduct | 56 | |
Complaint and Grievance System | 57 | |
Committees of the Board | 57 | |
Board, Committee and Director Assessment | 59 | |
Position Descriptions | 60 | |
Orientation and Education | 63 | |
Board Diversity | 64 | |
Executive Officer Diversity | 65 | |
Compensation | 66 | |
Share Ownership by Executive Officers and Directors | 67 | |
Restrictions on Trading and Hedging Shares of the Corporation | 67 | |
Normal course issuer bid | 68 | |
Additional information | 68 | |
Other business | 68 | |
Directors’ approval | 69 | |
SCHEDULE A | 1 | |
SCHEDULE B | 1 |
v
CI FINANCIAL CORP.
MANAGEMENT INFORMATION CIRCULAR
This management information circular (the “Information Circular”) is furnished in connection with the solicitation of proxies for use at the annual meeting (the “Meeting”) of holders (the “Shareholders”) of common shares (the “Shares”) of CI Financial Corp. (the “Corporation” or “CI”) to be held on Monday June 24, 2019 at the time and place and for the purposes set forth in the Notice of the Meeting.
The management of CI is soliciting the proxy of Shareholders for use at the Meeting. It is expected that the solicitation will be made primarily by mail, but proxies may also be solicited personally or by telephone by employees of CI. The cost of solicitation will be borne by CI. CI will reimburse intermediaries such as clearing agencies, securities dealers, banks, trust companies or their nominees for reasonable expenses incurred in sending proxy material to beneficial Shareholders and obtaining your proxies.
In this document, you and your refer to the Shareholders of CI. We, us, our, the Corporation and CI each refer to CI Financial Corp. Except as otherwise stated, the information contained in this Information Circular is given as of May 8, 2019 and references to CI’s fiscal year are to the calendar year ended December 31, 2018.
How to Vote Your Shares
Notice and Access
The Corporation is utilizing the notice and access mechanism under National Instrument 54-101 – Communications with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”). Notice and access allows issuers to post electronic versions of proxy-related materials (such as information circulars and annual financial statements) online, via the System for Electronic Document Analysis and Retrieval (“SEDAR”) and the Corporation’s website, rather than mailing paper copies of such materials to Shareholders. Notice and access benefits the Corporation through the reduction in both postage and material costs and the promotion of environmental responsibility by decreasing the large volume of paper documents generated by printing proxy-related materials.
Electronic copies of the Notice of Meeting, the Information Circular and the Corporation’s 2018 Annual Report (containing the audited consolidated financial statements of the Corporation for the year ended December 31, 2018 and Management’s Discussion and Analysis thereon) (the “Annual Report”) may be found on the Corporation’s pages on SEDAR at www.sedar.com and also on the Corporation’s website at www.cifinancial.com. The Corporation’s Annual Information Form dated March 1, 2019 (the “Annual Information Form”) can also be found on SEDAR and the CI website. All references to websites are for your information only. The information contained or linked through any website is not part of, and is not incorporated by reference into, this Information Circular. Shareholders are reminded to review the Information Circular before voting.
1
Shareholders may obtain paper copies of the Information Circular, the Annual Report and the Annual Information Form free of charge, or more information about notice and access, by contacting the Corporation’s transfer agent, Computershare Investor Services Inc. (“Computershare”), at 1-866-962-0498 within North America or direct, from outside North America, at 514-982-8716. In order to receive paper copies of these meeting materials in time to vote before the Meeting, your request must be received by June 14, 2019.
Shareholders will receive paper copies of a notice package (the “Notice Package”) via prepaid mail containing the information prescribed by NI 54-101 and a form of proxy (if you are a registered Shareholder) or a voting instruction form (if you are a non-registered Shareholder), in each case with a supplemental mail list return box for Shareholders to request they be included in the Corporation’s supplementary mailing list for receipt of the Corporation’s annual and interim financial statements for the 2019 fiscal year.
How to Vote if you are a Registered Shareholder
You are a registered Shareholder if your name appears on your Share certificate or if you are registered as the holder of the Shares in book-entry form. Your proxy form will indicate whether you are a registered Shareholder. Voting by proxy is the easiest way to vote. Voting by proxy means that you are giving the person or people named on your proxy form (the “Proxyholder”) the authority to vote your Shares for you at the Meeting or any adjournment. If you are a registered Shareholder, the applicable proxy form(s) are included in the Notice Package.
If you are a registered Shareholder you can attend the Meeting in person or, if you are not able to attend, you may vote by submitting your proxy before 5:00 p.m. (Toronto time) on June 20, 2019, or if the Meeting is adjourned or postponed, prior to 5:00 p.m. (Toronto time) on the second business day before any adjournment or postponement of the Meeting, in any of the following ways:
By Telephone | By Internet | By Mail | By Fax |
By
Appointing Another
Person to Attend and Vote |
Call 1-866-732-8683 (toll free in Canada or the United States) |
Go to www.investorvote.com |
Complete, sign and date the proxy and return it in the envelope provided or otherwise to:
Computershare Investor Services Inc., Proxy Tabulation, 100 University Avenue, 8th Floor, Toronto Ontario, M5J 2Y1 |
Complete, sign and date the proxy and fax it to:
1-866-249-7775 (toll free in Canada or the United States) or 416-263-9524 (outside Canada and the United States) |
Strike out the two names that are printed on the proxy form and write the name of the person you are appointing in the space provided. Complete your voting instructions date, sign the proxy and use one of the methods outlined here to return it to Computershare.
The person does not have to be a Shareholder but please ensure that he or she knows that you have appointed them and they are available to attend the Meeting on your behalf. |
2
The persons named in the proxy form included in the Notice Package are representatives of CI. These persons will vote your Shares for you, unless you appoint someone else to be your Proxyholder. If you appoint someone else, he or she must be present at the Meeting to vote your Shares and the proxy appointing this individual must be received by our transfer agent by 5:00 p.m. (Toronto time) on June 20, 2019, as described in more detail above.
How to Vote if you are a Non-Registered Shareholder
You are a non-registered (or beneficial) Shareholder if your bank, trust company, securities broker or other financial institution (your “Nominee”) holds your Shares for you.
If you are a non-registered Shareholder we will not have any record of your ownership and so the only way that you can vote your Shares is by instructing your Nominee. Your Nominee is required to ask for your voting instructions before the Meeting. In most cases, you will receive a voting instruction form from your Nominee as part of your Notice Package that allows you to provide your voting instructions by telephone, on the Internet or by mail. You should complete the voting instruction form and sign and return it in accordance with the directions on that form. Please contact your Nominee if you did not receive a voting instruction form or a proxy form. Less frequently, you may receive from your Nominee a proxy form that has already been signed by the Nominee, which is restricted to the number of Shares beneficially owned by you, but is otherwise not completed. If you have received this proxy form, you should complete it and return it to Computershare before 5:00 p.m. (Toronto time) on June 20, 2019, using one of the methods set out above.
If you would like to attend the Meeting and vote in person, it will be necessary for you to appoint yourself as proxyholder of your Shares. You can do this by printing your name in the space provided on the voting instruction form and submitting it as directed. You will be asked to register your attendance at the Meeting.
If you are not sure whether you are a registered Shareholder, please contact Computershare:
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, Ontario
M5J 2Y1
Telephone | AnswerLine: 514-982-7555 or 1-800-564-6253 (toll free in Canada and the United States) |
Fax |
1-888-453-0330 (toll free
in Canada and the United States) or
416-263-9394 (outside Canada and the United States) |
service@computershare.com |
Completing the Proxy Form
You can choose to vote “FOR” or “WITHHOLD” your vote in respect of the election of each person nominated as a director and the appointment of auditors, and “FOR” or “AGAINST” the Shareholder advisory vote on executive compensation. The Shares represented by proxy will be voted or withheld from voting in accordance with your instructions on any ballot that may be called and if you specify a choice with respect to any matter to be acted upon, the Shares will be voted accordingly.
3
When you sign the proxy form, you authorize William T. Holland, the Chairman, or Peter W. Anderson, the President and Chief Executive Officer, to vote your Shares for you at the Meeting according to your instructions. If you return your proxy form and do not tell us how you want to vote your Shares, your Shares will be voted:
· | FOR electing each of the nominated directors who are listed in this circular; and |
· | FOR appointing Ernst & Young LLP as auditors and authorizing the directors of the Corporation (the “Directors”) to fix the auditor’s remuneration. |
IF YOU HAVE NOT INDICATED HOW YOU WOULD LIKE YOUR SHARES VOTED IN RESPECT OF THE SAY ON PAY ADVISORY RESOLUTION THESE SHARES WILL NOT BE VOTED.
Your Proxyholder will also be entitled to vote your Shares as he or she sees fit on any other item of business that may properly come before the Meeting.
You have the right to appoint a person other than the persons designated in the proxy form to represent you at the Meeting. If you are appointing someone else to vote your Shares for you at the Meeting, strike out the two names that are printed on the proxy form and write the name of the person you are appointing in the space provided. If you do not specify how you want your Shares voted, your Proxyholder will vote your Shares as he or she sees fit on any matter that may properly come before the Meeting.
If you are an individual, you or your authorized attorney must sign the proxy form. If you are a corporation or other legal entity, an authorized officer or attorney must sign the proxy form. A proxy form signed by a person acting as attorney or in some other representative capacity (including a representative of a corporate Shareholder) should indicate that person’s capacity (following their signature) and should be accompanied by the appropriate instrument evidencing qualification and authority to act (unless such instrument has previously been filed with CI).
If you need help completing your proxy form, please contact Computershare at 514-982-7555 or at 1-800-564-6253 (toll free in Canada and the United States) or by e-mail at service@computershare.com.
Changing your Vote/Revocation of Proxies
You can revoke a vote you made by proxy by:
· | Voting again by telephone or on the Internet before 5:00 p.m. (Toronto time) on June 20, 2019; |
· | Completing a proxy form that is dated later than the proxy form you are changing, and sending it to Computershare so that it is received before 5:00 p.m. (Toronto time) on June 20, 2019; |
· | Sending a notice in writing from you or your authorized attorney (or, if the Shareholder is a corporation, by a duly authorized officer) revoking your proxy to the Chief Legal Officer of CI so that it is received before 5:00 p.m. (Toronto time) on June 20, 2019; |
4
· | Giving a notice in writing from you or your authorized attorney (or, if the Shareholder is a corporation, by a duly authorized officer) revoking your proxy to the chair of the Meeting, at the Meeting or any adjournment; or |
· | Attending the Meeting in person and voting the Shares. |
Voting Securities and Principal Holders
CI is authorized to issue an unlimited number of Shares. As at May 8, 2019, 239,935,042 Shares were issued and outstanding. Each Share entitles the Shareholder to one vote in respect of each matter to be voted on at the Meeting. Only persons who were registered as holders of Shares as of the close of business on May 1, 2019 (the “Record Date”) are entitled to receive notice of, and attend and vote at, the Meeting.
The Directors and executive officers of CI are not aware of any person who directly or indirectly beneficially owns, or exercises control or direction over, 10% or more of the outstanding Shares of the Corporation, other than Fidelity Investments Canada ULC which, through separate investment funds that it manages, exercises control or direction over approximately 25,178,492 Shares, representing approximately 10.5% of the outstanding Shares of the Corporation.
How the Votes are Counted
Only persons who were registered as holders of Shares as of the close of business on the Record Date are entitled to receive notice of, and attend and vote at, the Meeting. CI has prepared or caused to be prepared a list of the registered holders of Shares as of the close of business on the Record Date. At the Meeting, each holder of Shares named on that list will be entitled to vote the Shares shown opposite the holder’s name on the list.
Computershare counts and tabulates the votes. It does this independently of CI. Computershare refers proxy forms to management only when (i) it is clear that a Shareholder wants to communicate with management; (ii) the validity of the form is in question; or (iii) the law requires it.
All resolutions that are scheduled to be voted upon at the Meeting are ordinary resolutions. A simple majority of the votes cast by proxy and in person will constitute approval by ordinary resolution of each matter voted on at the Meeting.
5
Business of the Meeting
1. Financial Statements
The consolidated financial statements of CI for the year ended December 31, 2018 have been sent to Shareholders who have requested that they receive a copy. The financial statements are also available on the SEDAR website at www.sedar.com.
2. Election of Directors
The following pages include a profile of each nominated Director with an explanation of his or her experience, qualifications, top areas of expertise, participation on the board of directors (the “Board of Directors” or the “Board”) and its committees, ownership, value of equity securities of CI and extent of fulfillment of the CI share ownership requirements, as well as participation on the boards of other public companies. A more detailed description of our Directors’ skills can be found in the section of this Information Circular entitled “Statement of Governance Practices – Board Composition and Independence – Board Expertise Matrix”. For information on the compensation paid to non-management Directors, please refer to the section of this Information Circular entitled “Statement of Executive Compensation – Director Compensation”. In addition, a description of the role of the Board is included in the section of this Information Circular entitled “Statement of Governance Practices – The Role of the Board of Directors” and the Mandate of the Board of Directors (the “Board Mandate”) is attached as Schedule “B” to this Information Circular.
The Board believes that share ownership is an important criteria for aligning the interests of Directors with those of the Corporation’s other Shareholders. The Board Mandate requires each non-employee Director to acquire, within a three-year period, beneficial ownership of a number of Shares and/or Deferred Share Units (“DSUs”), the market value of which is at least three times the annual retainer paid to the Director. Each Director who is a member of management of the Corporation is required to beneficially own the number of Shares and/or Restricted Share Units (“RSUs”), the market value of which is at least five times his or her current base salary. The profiles below indicate fulfillment of the ownership requirement. In aggregate, the nominated Directors own 19,346,991 Shares, DSUs and/or RSUs, representing approximately 8% of the outstanding Shares as of the date of this Information Circular, and aligning their interests with yours. For more information, please refer to the section of this Information Circular entitled “Statement of Governance Practices – Share Ownership by Executive Officers and Directors”.
Nominations for Election as Directors
The Board currently consists of nine Directors, each of whom was duly elected at the last Annual and Special Meeting of Shareholders held on June 18, 2018, with the exception of Mr. Butt who was appointed on March 26, 2019. The term of office of each of the nine Directors will expire at the close of the Meeting.
The Board assesses its effectiveness and optimal size regularly, taking into account its responsibilities, the collective skills, expertise, experience and attributes of its members, and the risks and strategic direction of the Corporation. At its meeting held on March 26, 2019, the Board passed a resolution fixing the number of Directors at eight effective as of the close of the Meeting.
6
The twelve-year term of Mr. Moore, who has served as a Director since 2007, expires at the Meeting and, accordingly, Mr. Moore will not be standing for reelection at the Meeting. The Board thanks Mr. Moore for his years of service and guidance.
Each of the other eight current Directors has agreed to be nominated and stand for reelection at the Meeting. Each of the eight nominated Directors is proposed to be elected as a Director to serve until the termination of the next annual meeting of Shareholders or until his or her successor is elected or appointed.
The Board believes that a diversity of views, skills and business experience enhances the ability of the Board as a whole to fulfil its responsibilities to the Corporation. The Board is comprised of individuals who bring the right mix of knowledge, interest, skill and experience relevant to the Corporation and required on the Board to fulfill its mandate. In broad terms, the following areas of expertise are the core competencies of the Board:
§ | Accounting and Finance | § | Mutual Funds / | § | CEO Experience / |
Financial Services | Strategic Leadership | ||||
§ | Risk Management | ||||
§ | Regulatory Affairs | § | Human Resources / | ||
Compensation | |||||
§ | Governance / Legal | ||||
§ | IT / Fintech |
We are satisfied that each of the nominees for election as Directors possesses the necessary skills and experience to guide your company. The competencies of the nominated Directors are also described in the section of this Information Circular entitled “Statement of Governance Practices – Board Composition and Independence – Board Expertise Matrix”.
In addition, when assessing nominees for Director, the Board will expect the nominee to demonstrate:
§ | Sound business judgment | § | High ethical standards | § | Commitment to CI |
§ | Good communication skills and the ability to influence decision-making | § | Proven track record | § | Team player mentality |
We expect each Director to devote the time and resources necessary to properly fulfill his or her responsibilities. For that reason, each Director is expected to attend all meetings of the Board and any committee of which he or she is a member. Directors are expected to adequately prepare for all meetings of the Board, which requires each Director, at a minimum, to have read and considered the materials sent to them in advance of each meeting, and to actively participate in the meetings. In addition, to ensure our Directors have sufficient time and energy to devote to their responsibilities at CI, we limit the number of public company boards that they can serve on and consideration is also given to private company and not-for-profit directorships, as described in greater detail under “Statement of Governance Practices – Board Composition and Independence – Directorships and Board Interlocks”.
7
The Board has determined that five of the eight individuals nominated for election at the Meeting are independent. The nominees who are not independent are Mr. Anderson, due to the executive position he holds at CI, Ms. Murray, who was President of the Corporation until March 31, 2019, and Mr. Holland, who was Chief Executive Officer of the Corporation for more than ten years until September 2010. All of the members of each of the Audit and Risk Committee and the Governance, Human Resources and Compensation Committee (the “GHRC Committee”) of the Board are independent Directors. For more information about the Corporation’s independence standards and assessment, see the section of this Information Circular entitled “Statement of Governance Practices – Independence”.
The following table sets out important information regarding each of the Director nominees:
8
9
William T. Holland Toronto, Ontario Canada Director Since 1994 Not Independent Age: 60 Areas of Expertise:
Mutual Funds / Financial
2018 votes in favour: 87.89% |
Mr. Holland is the Chairman of the Corporation. After holding increasingly senior positions with the Corporation or its predecessors since 1989, Mr. Holland served as Chief Executive Officer of the Corporation for more than ten years until September 2010.
|
|
CI Shares/DSUs/RSUs owned or controlled
8,150,589
|
||
($ value based on closing price of CI
shares on May 8, 2019) |
Total Value as a Multiple of
Share Ownership Target |
|
$156,898,838 | 69.73 | |
Other Public Board Directorships
Mr. Holland is a director of Infor Acquisition Corp., a public special purpose acquisition corporation organized for the purpose of effecting an acquisition of one or more business assets, and Real Matters Inc., a public company providing mortgage lending and insurance industry services.
|
10
Tom P. Muir FCPA, FCA, FCBV Toronto, Ontario Canada Director Since 2011 Independent Age: 63 Areas of Expertise:
Accounting and Finance; Mutual
2018 votes in favour: 98.51% |
Mr. Muir has over 35 years of experience in various accounting, investment banking and senior executive positions. Mr. Muir was Co-Managing Director of Muir Detlefsen & Associates Limited from 2007 through 2017. His prior positions include Executive Vice-President and Chief Financial Officer of Maple Leaf Foods Inc. and Co-Head of the Investment Banking Group and Member of the Executive Committee at RBC Dominion Securities Inc. Mr. Muir is a Fellow, Chartered Professional Accountant and a Fellow, Chartered Business Valuator. Mr. Muir has a BComm from the University of Toronto.
|
|
CI Shares/DSUs owned or controlled
20,392
|
||
($ value based on closing price of CI
shares on May 8, 2019) |
Total Value as a Multiple of
Share Ownership Target |
|
$392,546 | 0.82 | |
Board Committees
Audit and Risk Committee (Chair)
GHRC Committee (ex officio)
|
11
Sheila A. Murray Toronto, Ontario Canada Director Since 2018 Not Independent Age: 63 Areas of Expertise:
Mutual Funds / Financial Services;
2018 votes in favour: 96.81% |
Until March 31, 2019, Ms. Murray was the President of CI Financial. She first joined the Corporation in 2008 as Executive Vice-President, General Counsel and Secretary, and was President of the Corporation since 2016. Ms. Murray holds a B.Comm and LLB from Queen’s University.
|
|
CI Shares/RSUs owned or controlled
197,802
|
||
($ value based on closing price of CI
shares on May 8, 2019) |
Total Value as a Multiple of
|
|
$3,807,689 | 9.07 | |
Other Public Board Directorships
Ms. Murray is a director of Teck Resources Limited.
|
12
Toronto, Ontario Canada Director Since 2018 Independent Age: 55 Areas of Expertise:
Mutual Funds / Financial Services;
2018 votes in favour: 99.74% |
Mr. Perrow has over 30 years of valuable experience in the asset management industry. Mr. Perrow was Senior Vice President, Director of Sales and Marketing with CI Investments Inc. until December 1996. He has held a number of other senior industry positions including Managing Partner of Red Sky Capital, Co-Head and Managing Director of Merrill Lynch Investment Managers Canada, Co-Founder and President of Fairway Capital and President and CEO of BluMont Capital.
|
|
CI Shares/DSUs owned or controlled
385,000
|
||
($ value based on closing price of CI
shares on May 8, 2019) |
Total Value as a Multiple of
|
|
$7,411,250 | 17.65 | |
Board Committees
GHRC Committee
|
Notes:
(1) | Ms. Chang-Addorisio has 100% beneficial interest in respect of 360,000 Shares, 50% beneficial interest and 47% voting rights in respect of 9,746,240 Shares owned by G. Raymond Chang Ltd., and is a trustee of the Chang Family Trust and the Chang-Addorisio Family Trust which control 177,000 Shares and 4,000 Shares, respectively. |
(2) | Messrs. Miller and Muir satisfied the Share ownership threshold prior to a recent decline in the Share price. Pursuant to the Share Ownership Guidelines as discussed in the section of this Information Circular entitled “Statement of Governance Practices – Share Ownership of Executive Officers and Directors”, Messrs. Miller and Muir remain in compliance with the Share Ownership Guidelines and will not be permitted to sell or transfer any Shares until the threshold has again been achieved. |
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Board and Committee Meetings Held and Attendance of Directors
Each Director is expected to attend all meetings of the Board and any committee of which he or she is a member. The chart below illustrates the number of Board and committee meetings held during the fiscal year ended December 31, 2018 and the meeting attendance record for each Director (committee meeting attendance is based on meetings held while the Director was a member of such committee). In June 2018, the committees of the Board were reorganized from three standing committees into two standing committees, the Audit and Risk Committee and the GHRC Committee, which the Directors believe enhanced the efficiency and performance of the Board as a whole given its relatively small size.
Board and Committee Meetings Held During
the Fiscal Year Ended December 31, 2018 |
|
Board Meetings | |
Regularly Scheduled | 4 |
Special | 2 |
Committee Meetings Prior to June 2018 Reorganization | |
Audit | 2 |
Governance and Risk | 2 |
Human Resources and Compensation | 2 |
Committee Meetings Following June 2018 Reorganization | |
Audit and Risk | 2 |
Governance, Human Resources and Compensation | 2 |
Attendance of Directors | |||
Director | Regular Board Meetings | Special Board Meetings | Committee Meetings |
Peter W. Anderson | 4 of 4 | 2 of 2 | - |
Brigette Chang-Addorisio | 2 of 2 | 2 of 2 | 2 of 2 |
William T. Holland | 4 of 4 | 2 of 2 | - |
David P. Miller | 4 of 4 | 2 of 2 | 4 of 4 |
Stephen T. Moore | 4 of 4 | 2 of 2 | 8 of 8 |
Tom P. Muir | 4 of 4 | 2 of 2 | 6 of 6 |
Sheila A. Murray | 2 of 2 | 2 of 2 | - |
Paul J. Perrow | 2 of 2 | 2 of 2 | 2 of 2 |
To date in 2019, there have been three regularly scheduled Board meetings. The Audit and Risk Committee has met twice and the GHRC Committee has met six times in 2019. All Directors and applicable committee members attended all applicable meetings, with the exception of Mr. Butt who attended all applicable meetings following his appointment to the Board on March 26, 2019.
Where a Director is unavoidably unable to attend a meeting, he or she will, if at all possible, provide his or her views prior to the meeting in a discussion with the Lead Director or Chairman and this will be shared with the Board. During fiscal 2018, each Director attended all of the regularly scheduled meetings of the Board, as well as all special meetings of the Board and all committee meetings of which he or she was a member.
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Corporate Cease Trade Orders or Bankruptcies
To the knowledge of CI, except as set forth below, none of the persons proposed for election as Directors (a) are, as at the date hereof, or have been, within the 10 years before the date of this Information Circular, a director, chief executive officer or chief financial officer of any company that, (i) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation that was in effect for a period of more than 30 consecutive days (an “Order”) that was issued while the person was acting in the capacity as director, chief executive officer or chief financial officer; or (ii) was subject to an Order that was issued after the person ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer, (b) are, as at the date of this Information Circular, or have been within 10 years before the date of this Information Circular, a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, or (c) have, within the 10 years before the date of this Information Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that person.
Penalties and Sanctions
To the knowledge of CI, none of the persons proposed for election as Directors nor any personal holding company owned or controlled by any of them (i) has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or (ii) has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to vote for a proposed Director.
Our Policy on Majority Voting
You are being asked to vote for each nominee for Director separately and not as part of a slate. Under our Majority Voting Policy, in an uncontested election of Directors, if a Director receives more withheld votes than for votes, he or she will promptly offer to resign as a Director. Our Governance and Risk Committee will review the matter and then recommend to the Board whether to accept the resignation. The Board will accept the resignation absent extraordinary circumstances. The affected Director will not participate in any Board or committee deliberations on the matter. If the affected Director is also an employee of the Corporation, the Board will take into consideration the impact of its decision on the employment relationship.
The Board will announce by press release its decision within 90 days of the Meeting. If it rejects the Director’s offer to resign, the Board will disclose the reasons why. If the Board accepts the Director’s offer to resign, it may appoint a new Director to fill the vacancy.
* * * * *
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It is the intention of the individuals named in the enclosed form of proxy to vote FOR the election of each of the nominated individuals listed above, as Directors, to hold office until the close of the next annual meeting of Shareholders or until their successors are duly elected or appointed, unless specifically instructed in the proxy to withhold such vote.
Management does not contemplate that any of the nominees will be unable to serve as a Director, but should that occur for any reason prior to the Meeting, the persons named in the enclosed proxy form reserve the right to vote in their discretion for other nominees.
3. | Appointment of Auditors |
It is proposed that Ernst & Young LLP, the present auditors of CI, be reappointed as the auditors of CI, to hold office until the termination of the next annual meeting of Shareholders, and that the Directors be authorized to fix the auditors’ remuneration. The Audit and Risk Committee has recommended to the Board of Directors, and the Board has approved, the nomination of Ernst & Young LLP for such reappointment. Ernst & Young LLP have been the auditors of CI since it first offered securities to the public in 1994.
See the heading “Audit and Risk Committee Information” in the Annual Information Form available on SEDAR at www.sedar.com for further details regarding the services of the auditors provided to CI, the fees paid to the auditors for those services and information regarding the Audit and Risk Committee of CI.
* * * * *
It is the intention of the individuals named in the enclosed form of proxy to vote FOR the reappointment of Ernst & Young LLP as auditors of CI to hold office until the close of the next annual meeting of Shareholders and in favour of authorizing the Directors to fix the remuneration of the auditors, unless specifically instructed in the proxy to withhold such vote.
4. | Say on Pay |
In 2011 the Board adopted Say on Pay, an advisory vote which permits Shareholders to register their views on the Board’s approach to executive compensation. Each year since then, the Board has received overwhelming support for CI’s executive compensation philosophy. In 2018, 89.74% of Shareholders voted in favour of the Board’s approach to executive compensation. Once again, the Board is asking Shareholders to participate in an advisory vote on the Report on Executive Compensation set out below in this Information Circular. The purpose of the Say on Pay advisory vote is to provide the Board with Shareholder reaction to the Board’s decisions regarding executive compensation. The results are not binding on the Board; however, the Board and the GHRC Committee intend to pay close attention to the results when considering future compensation decisions. CI will disclose the results of the Shareholder advisory vote as part of its report on voting results for the Meeting. A copy of the resolution to be considered by Shareholders is included as Schedule “A” to this Information Circular.
* * * * *
If you have not indicated how you would like to vote your Shares on the Say on Pay vote, those Shares will NOT be voted on this resolution.
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Letter from the GOVERNANCE, Human Resources and Compensation Committee
Dear Shareholders,
The Governance, Human Resources and Compensation Committee of the Board is pleased to provide you with this report on the Corporation’s overall executive compensation philosophy and the process that we have undertaken in determining the appropriate manner and level of compensation for the Chief Executive Officer and President and the Corporation’s other senior executives.
Compensation Philosophy
CI wants to attract and retain high caliber individuals and to reward them fairly for their contribution to the growth and success of the Corporation. The Corporation’s compensation plan has been designed to appropriately award individuals for their contribution during a financial year as well incentivize key employees to focus not only on the achievement of near-term objectives but also on the future of the enterprise.
Pay for Performance
The Board believes that the executive team should be rewarded for successfully executing on strategic initiatives including growing the business. Accordingly, a substantial component of executive compensation is discretionary and is awarded on the basis of execution of corporate and business unit objectives, achieved financial and operating results, as well as each individual’s personal performance and contribution to the success of the Corporation. Between 61% and 73% of the total compensation for each Named Executive Officer (defined below under the heading “Summary Compensation Table”) is in the form of bonuses which are only awarded once the annual financial results of the Corporation have been determined. The compensation described on the following pages is the only compensation provided to your executives. They are not entitled to pension benefits and do not receive any significant perquisites.
Compensation Aligns with Long-Term Shareholder Interests
The Board believes that it is important that the executive team focus on the long-term growth and success of the Corporation. For that reason, at least 40% of each senior executive’s bonus compensation is in the form of securities, comprised of Restricted Share Units (RSUs) and, at the election of the executive, Options.
The Board has adopted share ownership guidelines requiring each executive officer of the Corporation to hold Shares of the Corporation representing a prescribed multiple of their annual salary, further ensuring that the interests of the executives are aligned with those of the Shareholders and promoting the Corporation’s commitment to corporate governance. Units held under the RSU Plan may be used to satisfy this ownership requirement.
Compensation Consistent with Effective Risk Management
The Board ensures that the Corporation’s compensation policies do not encourage executives to expose the business to inappropriate risk. This is accomplished by rewarding individuals only for demonstrated success and granting a significant portion of compensation in the form of long-term incentives.
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Compensation Attracts and Retains Talented Individuals
The Board believes that it is crucial that CI retain its high potential executives and employees. The Board has set compensation policies and practices that provide fair compensation and, through the bonus program, reward each executive for the achievement of corporate and business unit objectives and personal performance, as well as motivate them to continue to build on the long-term success of CI.
We believe that CI’s compensation philosophy will achieve its intended goals. The Governance, Human Resources and Compensation Committee will continue to consider and evaluate new developments in compensation practices and refine our practices where necessary.
On behalf of the members of the Governance, Human Resources and Compensation Committee and the Board,
D.P. Miller
Chair, Governance, Human Resources and Compensation Committee
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Statement of Executive Compensation
Unless otherwise stated, the information in this Statement of Executive Compensation is stated as of December 31, 2018 and all references to CI’s fiscal year are to the fiscal year of CI ended December 31, 2018. All dollar amounts in this Statement of Executive Compensation are expressed in Canadian dollars.
On March 31, 2019, Sheila A. Murray retired as President of CI, at which time Peter A. Anderson assumed the role of President in addition to his role as Chief Executive Officer. Consequently, references in this Statement of Executive Compensation to Chief Executive Officer should be read to refer to Mr. Anderson as President and Chief Executive Officer with respect to periods following Ms. Murray’s retirement.
COMPENSATION DISCUSSION AND ANALYSIS
Objectives of the Compensation Program
The Corporation wants to attract and retain executives of the highest calibre and reward those executives for demonstrated success in achieving corporate and business unit objectives, as well as personal performance. The compensation program is designed to accomplish this and incentivize the executives to focus on profitability, free cash flow and the Corporation’s long-term prospects.
The Corporation’s compensation philosophy for executive officers is based on four fundamental objectives:
(1) | to encourage the executives to focus on profitability, free cash flow and the Corporation’s long-term prospects, by providing compensation packages that encourage, motivate and reward performance; |
(2) | to be and to be perceived to be fair and transparent; |
(3) | to be competitive with other companies in the same industry and facing the same challenges, in order to attract and retain talented executives; and |
(4) | to align the interests of its executive officers with the long-term interests of the Corporation and its Shareholders, in accordance with sound risk management principles, through an emphasis on share-based deferred compensation. |
Rewarding Demonstrated Performance
The Board takes a conservative approach to compensation with a significant component of executive compensation awarded on the basis of execution of corporate and business unit objectives, achieved financial and operating results as well as the individual`s personal performance and contributions to the success of the Corporation.
The compensation program for executives is designed to reward the executive for his or her contribution to the success of the Corporation during the fiscal year and to the achievement of strategic value-enhancing goals and objectives. These value-enhancing corporate goals and objectives include:
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(1) | increasing corporate growth and enhancing CI’s reputation by growing the business organically and, through strategic acquisitions and diversifying our sources of revenue to maximize long-term shareholder value, increasing fee generating assets; |
(2) | improving the client experience by making it easier for clients to do business with CI, creating brand loyalty, client value and business growth through client service excellence; |
(3) | achieving operational excellence through our secure operational framework and utilization of emerging technologies; |
(4) | strengthening portfolio management by broadening and deepening CI’s investment capability; and |
(5) | cultivating the employee experience by fostering a culture where employees feel supported, empowered and motivated. |
The GHRC Committee makes bonus recommendations for the Chief Executive Officer and President largely based on corporate performance, measured by key financial metrics, such as AUM, net sales, EBITDA, earnings per share and SG&A control. The GHRC Committee also looks at the strategic leadership of the Chief Executive Officer and President, including with respect to the pursuit of value enhancing strategies and contribution to the achievement of business unit objectives by senior management. For other senior executives for whom it makes bonus recommendations, the GHRC Committee also receives a report regarding individual goals and business unit specific objectives and compensation recommendations for these individuals is based on the achievement of stated objectives as well as corporate performance and demonstrated leadership.
The Board is aware that the financial performance of the Corporation in any given year is significantly tied to developments in the capital markets. For that reason, the Board will evaluate the performance of the Corporation in light of prevailing market and economic influences and the individual’s contribution to that performance. The GHRC Committee also looks at the performance of the Corporation relative to the performance of its competitors in terms of growth in assets under management and sales. Fiscal 2018 was a very difficult year for the asset management industry with increasing regulatory challenges and competitive fee pressure among other factors. Notwithstanding industry and market pressures, the Corporation delivered solid financial performance by maintaining net income and free cash flow essentially flat to 2017 and continuing to control expenses.
This year in particular, the GHRC Committee considered and rewarded management for increasing corporate growth by growing the business organically and integration of recently acquired businesses. BBS Securities Inc (“BBS”) and its Virtual Broker technology are important additions to the Corporation which will help diversify revenue and introduce new clients. The December 2018 decision to purchase a majority stake in WealthBar Financial Services Inc. (“WealthBar”) and use WealthBar’s industry-leading online tools and services will fuel the development of CI’s own comprehensive digital strategy, including its robo-advisor business. The GHRC Committee also considered the continued commitment of senior management to succession planning and executive development, the enhancement of the employee experience through a number of initiatives. It also considered business unit and departmental performance in achieving strategic and operational objectives. These factors have been used to determine what bonus to award the executive and whether any adjustments should be made to the executive’s salary.
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When determining compensation, the GHRC Committee has the full benefit of information, not only about the financial performance of the Corporation but also about the impact that capital market developments, international disruptions, the economy and other recognized performance variables have had on performance. The GHRC Committee considers the Corporation’s realized financial results in the context of market, industry and competitive comparisons. The GHRC Committee then looks at how the executives have managed the business of the Corporation in light of and, at times, in spite of market conditions. Each executive’s compensation is directly impacted by the financial performance of the Corporation and the ability of the officer to execute on key strategic initiatives and position the Corporation for future success.
The percentage of variable, or at risk, compensation ranges from approximately 40% to 60% of the total compensation paid to a senior executive with the precise percentage dependent on the officer’s level of seniority, level of expertise and responsibility.
Components of Compensation
Each executive’s total 2018 compensation has three elements - base salary, cash bonus and equity compensation. Share based deferred compensation is awarded under the RSU Plan (as defined below), which replaced the deferred cash bonus awarded in 2016 and prior years, and, at the election of the executive, the Option Plan. Bonuses and equity compensation are awarded at the discretion of the GHRC Committee. This “at risk” element of compensation represented between 40% and 60% of the total compensation of the Named Executive Officers in 2018. The Board believes that it is important that the executive team focus on the long-term growth and success of the Corporation. For that reason, at least 40% of each senior executive’s bonus compensation is in the form of securities.
In keeping with CI’s compensation philosophy, 2018 executive compensation has the following three key components:
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Notes:
(1) | With respect to compensation for years prior to 2016, a portion of the executive officer’s cash bonus was deferred and payable over two years and was considered a long-term incentive under the Corporation’s 2011 deferred bonus plan. See “Deferred Bonus Plan” below for a description of this plan. |
(2) | Issued under the RSU Plan. Beginning with compensation for 2016, the award of share-based deferred compensation under the RSU Plan replaced the deferred cash bonus awarded in prior years. See “Restricted Share Unit Plan” below for a description of the plan. |
(3) | While the Corporation had reduced the use of Options as a form of compensation in recent years, a decision was made this year to permit certain employees the opportunity to take a portion of their equity compensation in the form of Options. For 2018, employees receiving RSUs as a component of their bonus compensation were invited to elect to receive up to 25% of the value of those RSUs in the form of Options under the Option Plan (as defined below). In addition, senior sales representatives were invited to elect to receive all or a portion of their fourth quarter 2018 sales commission in the form of Options. Finally, the Board also authorized an extraordinary grant of Options in connection with retention arrangements with certain employees identified by the Chief Executive Officer. See “Option Plan” below for a description of the plan. |
(4) | The Corporation also has an Employee Savings Plan (as defined below) which is available to all employees and described below. See “Employee Savings Plan” below for a description of the plan. |
This is the only compensation paid to executive officers of CI, other than standard employment benefits. CI does not fund pensions for any of its employees, including the executives, nor do the executives receive any significant perquisites. All employees are entitled to participate in the Employee Savings Plan. Each component of the compensation program is described in detail below.
Base Salary
Base salaries are established with reference to the individual’s position and responsibilities, as well as his or her experience and seniority. The Corporation’s compensation policy is to pay its senior executives relatively modest base salaries and reward corporate, business unit and personal performance through the payment of cash bonuses and non-cash long-term incentives. Base salaries represent approximately 27% of the total compensation of each of the Chief Executive Officer and the President, and between approximately 33% and 39% of the total compensation of the other Named Executive Officers. Base salaries are reviewed annually and adjusted, if appropriate.
Annual Cash Bonus
The purpose of this component of compensation is to reward the executives for their contribution to the success of the business. CI’s operations, financial results, net sales, assets under management and equity performance are assessed in determining the aggregate amount to be distributed as bonuses. Each senior executive’s contribution to the success of the business is then considered, including achievement of value-enhancing goals such as increasing corporate growth and enhancing CI’s reputation, diversifying sources of revenue, cost containment, operating and client service excellence, risk management and strengthening CI’s investment capability. From time to time special bonuses may be paid for performance in connection with significant projects or acquisitions.
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The cash component of the annual bonus will generally be not more than 50% of the total bonus awarded to a senior officer. For 2018, the cash bonus represented approximately 29% of the total compensation of the Chief Executive Officer and 44% of the total compensation of the President. The percentage of total compensation of the other Named Executive Officers of the Corporation represented by the annual cash bonus was between 30% and 33% in 2018.
Equity Bonus
The Board believes that it is important that the executive team focus on the long-term growth and success of the Corporation. For that reason, 60% of the Chief Executive Officer’s bonus compensation, 40% of the President’s bonus compensation, and 50% of all other senior executive’s bonus compensation is in the form of securities. Long-term equity incentives constituted approximately 44% of total compensation paid to the Chief Executive Officer, 29% of total compensation paid to the President, and between 30% and 33% of total compensation paid to the other Named Executive Officers in 2018.
The Corporation has two long-term incentive plans which are designed to reward executives and key employees for their contribution to the financial and strategic success of CI, align compensation with the risk time horizon and to encourage and motivate them to remain employed with the Corporation and create longer-term Shareholder value. The first is the restricted share unit plan (the “RSU Plan”). Participation in the RSU Plan is limited to executives and employees in management positions whose roles and responsibilities directly influence the success of the Corporation, as well as those people who management have identified as having long-term potential. The second long-term incentive plan is the employee incentive stock option plan (the “Option Plan”). For 2018, employees receiving RSUs as a component of their bonus compensation were invited to elect to receive up to 25% of the value of those RSUs in the form of Options under the Option Plan. In addition, senior sales representatives were invited to elect to receive all or a portion of their fourth quarter 2018 sales commission in the form of Options. Finally, the Board also authorized an extraordinary grant of Options in connection with retention arrangements with certain employees identified by the Chief Executive Officer. Each of the current long-term equity incentive plans is described below.
The Corporation has two security-based compensation arrangements pursuant to which Shares may be issued from treasury, as follows:
1. | The Option Plan pursuant to which a maximum of 14,000,000 Shares may be issued from treasury, representing approximately 5.8% of the issued and outstanding Shares as of the date hereof; and |
2. | The RSU Plan pursuant to which a maximum of 6,000,000 Shares may be issued from treasury, representing approximately 2.5% of the issued and outstanding Shares as of the date hereof. |
Accordingly, an aggregate of 20,000,000 Shares are currently issuable from treasury under all security-based compensation arrangements of the Corporation, representing approximately 8.3% of the issued and outstanding Shares as of the date hereof. Vested RSUs may also be settled, in the absolute discretion of the Board, with Shares purchased on the Toronto Stock Exchange (the “TSX”) or in cash, as described below.
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While the Corporation had reduced the use of Options as a form of compensation in recent years, a decision was made this year to permit certain employees the opportunity to take a portion of their equity compensation in the form of Options.
The Corporation introduced an Employee Savings Plan in 2012 to offer long-term incentives to all employees including those who do not otherwise qualify for deferred equity compensation. The Employee Savings Plan, which is described below, is modest but at lower levels of the Corporation can be a meaningful component of retention.
Restricted Share Unit Plan
The Corporation has an RSU Plan which was approved by the Shareholders at the Annual and Special Meeting of Shareholders held on April 20, 2017. Under the RSU Plan, RSUs may be granted to Eligible Persons by the Board and, in administering the RSU Plan, the Board may consider the advice or recommendation of the GHRC Committee on particular matters or with respect to particular Eligible Persons or Participants (as such terms are defined in the RSU Plan) as may be determined by the Board from time to time. Eligible Persons under the RSU Plan are individuals employed by CI or its subsidiaries who are designated as an “Eligible Person”. The Board has the sole and absolute discretion to administer the RSU Plan and to exercise all powers and authorities granted to it under the RSU Plan, or that are necessary and advisable in the administration of the RSU Plan. The Board may, in its discretion, delegate such of its powers, rights and duties under the RSU Plan, in whole or in part, to the GHRC Committee or as otherwise permitted under the terms of the RSU Plan.
RSUs will vest in a period specified by the Board, which shall not be later than December 17th of the third year following the year in which the Eligible Person performed the services to which the grant related. The RSU Plan provides that the Board may make appropriate adjustments to the RSUs in the event of certain changes in the capital of CI.
On the vesting date, the Board, in its absolute discretion, can elect one or any combination of the following payment methods for the RSUs credited to an Eligible Person’s account: (a) pay cash, equal to the volume weighted average trading price of the Shares on the TSX for the five trading days preceding the relevant date (“Fair Market Value”) multiplied by the number of vested RSUs credited to the Eligible Person’s account being settled in cash as of such date (less any applicable withholding taxes) to the Eligible Person or the Eligible Person’s legal representative, as the case may be; or (b) settlement in Shares, made by way of issuance by CI or delivery by CI (or by the trustee of a trust fund for the RSU Plan, if one has been established), of one Share for each vested RSU being settled in Shares to the Eligible Person or the Eligible Person’s legal representative, as the case may be (less any applicable withholding taxes). No fractional Shares will be issued and any fractional vested RSUs will be settled in cash based on the Fair Market Value on the relevant settlement date.
Except as otherwise provided in a grant agreement relating to a grant of RSUs, if and when cash dividends (other than extraordinary or special dividends) are paid with respect to Shares during the term of a grant, an Eligible Person will be granted a number of dividend equivalent RSUs in an amount equal to the aggregate amount of dividends that would have been paid on the RSUs credited to the Eligible Person’s account had they been Shares at the time of the dividend divided by the Fair Market Value at the time of the dividend.
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The maximum number of Shares which may be issued by the Corporation from treasury under the RSU Plan is 6,000,000 Shares (representing approximately 2.5% of outstanding Shares as of the date hereof). As of December 31, 2018, 1,073,819 Shares had been awarded under the RSU Plan, representing approximately 0.4% of the outstanding Shares as at that date.
As of the date of this Information Circular, the Corporation has not issued any Shares from treasury under the RSU Plan since the date of its approval by Shareholders and has met the requirement to deliver Shares under the RSU Plan through Shares acquired under the Corporation’s normal course issuer bid. See “Normal Course Issuer Bid” for a description.
The number of Shares issued or issuable by the Corporation under all security-based compensation arrangements shall not in the aggregate exceed 10% of the issued and outstanding Shares. The maximum number of Shares which may be issued to insiders under the RSU Plan within a one year period or which may be issuable to insiders at any time, under all security based compensation arrangements of the Corporation, is 10% of the issued and outstanding Shares. Any increase in the Shares reserved for issuance under the RSU Plan shall be subject to the approval of the Shareholders in accordance with the rules of the TSX.
The Board may, without Shareholder approval, make any amendments to the RSU Plan including, but not limited to, (i) amendments to the terms and conditions of the RSU Plan necessary to ensure that it complies with applicable law and regulatory requirements, including the requirements of any applicable stock exchange, in place from time to time; (ii) amendments to the provisions of the RSU Plan respecting administration of, and eligibility for participation under, the RSU Plan; (iii) amendments to the provisions of the RSU Plan respecting the terms and conditions on which RSUs may be granted (including the vesting schedule); (iv) amendments to the RSU Plan that are of a “housekeeping” nature; (v) amendments to the provisions of the RSU Plan relating to a change of control; and (vi) any other amendments not requiring Shareholder approval under applicable laws or the requirements of an applicable stock exchange (such as the TSX). Amendments to the RSU Plan or RSUs that are not subject to Shareholder approval may be implemented by CI without Shareholder approval, but are subject to any approval required by the rules of the TSX and other requirements of applicable law. The Board also has the right to amend, suspend or terminate the RSU Plan or any portion of it at any time in accordance with applicable law and subject to any required regulatory, applicable exchange or Shareholder approval.
Notwithstanding the foregoing, the following changes to the RSU Plan will require Shareholder approval in accordance with the requirements of the TSX: (i) an increase to the maximum number or percentage of securities issuable by CI pursuant to the RSU Plan; (ii) changes to the amendment provisions to grant additional powers to the Board to amend the RSU Plan or entitlements thereunder; (iii) any change to the categories of individuals eligible for grants of RSUs where such change would permit the participation of non-employee Directors in the RSU Plan; (iv) any changes to the insider participation limits set forth in the RSU Plan; (v) an amendment to the prohibition on assignment or transfer of RSUs; and (vi) an amendment to the amending provisions in the RSU Plan. The Board is not permitted to make any amendments to the RSU Plan or grants made pursuant to the RSU Plan without the consent of an Eligible Person if it adversely alters or impairs the rights of the Eligible Person in respect of any grant previously made to such Eligible Person under the RSU Plan. Consent will not be required where the amendment is required for purposes of compliance with applicable laws or regulatory requirements.
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If an Eligible Person has engaged in Misconduct, subject to the terms of any written employment agreement and the relevant grant agreement, no RSUs that have not yet vested prior to the date of such determination of Misconduct, including dividend equivalent RSUs, shall vest, and all such RSUs shall be forfeited and cancelled immediately. For this purpose the following will be considered Misconduct: (i) serious misconduct, including conduct which has a significant negative impact on the reputation or operations of the Corporation or its subsidiaries; (ii) fraud; (iii) a material breach of the terms of employment; (iv) willful breach of the provisions of the Corporation’s code of conduct; or (v) failure or willful refusal to substantially perform the employee’s duties and responsibilities.
In the case of termination of employment of any Eligible Person for cause, or resignation of an Eligible Person, subject to the terms of any written employment agreement and the relevant grant agreement, and unless otherwise determined by the Board, no RSUs that have not yet vested prior to the date of such termination or resignation, as the case may be, including dividend equivalent RSUs shall vest, and all such RSUs shall be forfeited and cancelled immediately.
In the case of termination of an Eligible Person without cause, subject to the terms of any written employment agreement and the relevant grant agreement, a pro-rated portion of RSUs that have not previously vested shall vest on the effective date of such termination.
In the case of retirement, death or disability, subject to the terms of an Eligible Person’s written employment agreement and the relevant grant agreement, all of the RSUs that have not previously vested shall vest as of the date of such event.
In the event of a change of control of CI, subject to the terms of any written employment agreement and the relevant grant agreement, the Board may in its sole discretion determine that all RSUs that have not previously vested shall vest on the effective date of the change of control. RSUs that vest pursuant to a change of control shall be settled by a lump sum cash payment based on the price attributed to Shares in connection with the transaction giving rise to the change of control (or the Fair Market Value of a Share at the time of such transaction as determined by the Board in good faith if no Share price was in fact established).
Except as required by law, and in accordance with the provisions of the RSU Plan allowing for the designation of a beneficiary, the assignment or transfer of the RSUs or any other benefits under the plan shall not be permitted other than by operation of law.
On February 8, 2019, the Board of Directors authorized up to $12 million in RSUs to be granted under the RSU Plan to 273 employees (representing approximately 15% of all employees and less than 1% of outstanding Shares) as bonuses for the fiscal year ended December 31, 2018 and as incentives for retention and continued service. On February 26, 2019, the Corporation granted 494,292 RSUs. These RSUs were granted at a price of $18.99, pursuant to the February 8th Board authorization. All of the RSUs granted in February 2019 vest as to 1/3rd on each of December 17, 2019, December 17, 2020 and December 17, 2021.
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Option Plan
The Option Plan was approved by the Shareholders at a meeting held on March 25, 2010, and amended and restated as of February 11, 2016, and February 16, 2017 to amend the definition of “Fair Market Value” as that term is used in determining the exercise price of the Options (“Options”). For 2018, employees receiving RSUs as a component of their bonus compensation were invited to elect to receive up to 25% of the value of those RSUs in the form of Options under the Option Plan. In addition, senior sales representatives were invited to elect to receive all or a portion of their fourth quarter 2018 sales commission in the form of Options. Finally, the Board also authorized an extraordinary grant of Options in connection with retention arrangements with certain employees identified by the Chief Executive Officer.
A maximum of 14,000,000 Shares (representing less than 5% of the outstanding Shares as of the date of approval by Shareholders on May 17, 2007 and approximately 5.8% of the outstanding Shares as of the date hereof) may be issued upon exercise of Options granted under the Option Plan. As of December 31, 2018, 10,944,677 Shares had been awarded under the Option Plan, representing approximately 4.5% of the outstanding Shares as at that date.
The Option Plan was designed to promote the long-term interests of the Corporation and its Shareholders by fostering a proprietary interest in the Corporation among the executives and employees of CI. The Option Plan has been used to attract and retain qualified executives and key employees. CI considers equity ownership by management to be an integral component of its compensation scheme and for that reason Option grants under the Option Plan have been an important element of overall compensation prior to the approval of the RSU Plan.
Full time employees of the Corporation or its subsidiaries are eligible to receive Options under the Option Plan. Approximately 33% of the Corporation’s full-time employees hold Options, following the election of certain employees to receive up to 25% of their equity bonus or 100% of their sales commission, as applicable, in the form of Options in lieu of RSUs. For several years, CI has granted Options with terms of five years, but the Options granted as part of 2018 compensation, as well as the Options granted as part of the retention arrangements, have a term of 10 years to encourage longer-term thinking and more closely align employee interests with those of Shareholders. The exercise price of the Options is fixed at the date of grant and may not be less than the volume weighted average trading price of the Shares on the TSX on the five trading days preceding and ending on the date of the grant. Other key terms of the Options such as vesting dates, forfeiture events and conditions to exercise are established at the date of grant. Generally, Options granted vest in equal annual amounts following the end of each of the first, second and third fiscal year following the date of the grant. The Options granted as part of the special retention bonus cliff vest at the end of the fifth fiscal year following the date of the grant. Options are not transferable. During the lifetime of the optionee, an Option may be exercisable only by the optionee or, if the optionee is incapacitated, by the optionee’s guardian, committee or other authorized legal representative, and except upon death of an optionee, an Option may not be assigned or transferred in any way or otherwise disposed of (whether by operation of law or otherwise) except where the Board permits a transfer of the Option in compliance with applicable securities regulation and the rules or policies of the TSX. If the holder of the Option ceases to be a full-time employee of the Corporation or its subsidiaries, any unvested Options will generally be terminated and the former employee will have only a limited period of time to exercise vested Options. The Option Plan includes a cashless exercise alternative under which, on exercise of an Option, the holder receives Shares for the in-the-money value of the Option (less applicable taxes).
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Employees are not permitted to purchase financial instruments to hedge or offset a decrease in the market value of the underlying Shares.
The Board may at any time suspend or terminate the Option Plan without the consent of the individuals who are holding unexercised Options, provided that no such suspension or termination adversely affects the rights under any outstanding Options. The Board may at any time and from time to time amend the Option Plan, without Shareholder approval, to make amendments, including amendments which are of a “housekeeping” nature; to amend the definition of “Fair Market Value” used in determining the exercise price; to amend the vesting provisions of any Option; or, to change the termination provisions of any Option as long as the change does not entail an extension beyond the original expiration date. Shareholder approval is required for any amendment other than the ones listed above.
The Option Plan is subject to the following restrictions with respect to grants of Options and the issuance of Shares to insiders of the Corporation:
(a) | the number of Shares that may, at any time, be reserved for issuance pursuant to Options granted to insiders shall not in the aggregate exceed 10% of the then issued and outstanding Shares; |
(b) | the number of Shares that may, within a one year period, be issued to insiders on the exercise of Options or pursuant to other security based compensation arrangements of the Corporation shall not exceed 10% of the then issued and outstanding Shares; |
(c) | the number of Shares that may, within any one year period, be issued to any one insider (including associates of the insider) on the exercise of Options or issued pursuant to other security based compensation arrangements of the Corporation shall not exceed 5% of the issued and outstanding Shares on the date of grant; and |
(d) | the number of Shares that may be reserved for issue to any one person pursuant to Options granted under the Plan shall not exceed 5% of the issued and outstanding Shares on the date of grant. |
Copies of the Option Plan are available for inspection by Shareholders at the Corporation’s head office.
On February 8, 2019, the Board of Directors authorized the grant of Options, with a grant date of February 26, 2019. 120 employees elected to receive Options entitling them to purchase an aggregate of 743,027 Shares (representing less than 1% of outstanding Shares) at an exercise price of $18.99 per Share.
All of the Options granted in February 2019 have a ten-year term. The Options granted as part of 2018 compensation vest as to 33 1/3% of the Shares under option on January 1, 2022, a further 33 1/3% of the Shares under option on January 1, 2023 and the remainder on January 1, 2024. The Options granted under the retention arrangements referred to above vest as to 100% of the Shares under option on January 1, 2024.
Deferred Bonus Plan
The Corporation adopted a deferred bonus plan in February 2011 (the “Deferred Bonus Plan”). Under the Deferred Bonus Plan, a portion of the executive officer’s cash bonus was deferred and payable over two years and was considered a long-term incentive. A deferred cash bonus was not a component of long-term compensation for 2018 or 2017. Rather, deferred equity compensation was awarded under the RSU Plan and the Option Plan, as described in greater detail above.
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The Deferred Bonus Plan provided for a grant of cash bonuses with payment to be deferred and, in most cases, paid over two years from the date of grant, on certain terms. The objective of the plan was to promote the long-term profitability of the Corporation by retaining qualified officers and key employees and providing a long-term incentive element in overall compensation for officers and key employees.
In most circumstances, the deferred cash bonus will not be paid unless the employee is still an employee of the Corporation at the date on which the deferred payment is to be made. Furthermore, if an employee has engaged in Misconduct prior to the date on which the deferred cash bonus is to be paid, the employee may be required to forfeit all or a portion of the deferred bonus. For this purpose the following will be considered Misconduct: (i) serious misconduct, including conduct which has a significant negative impact on the reputation or operations of the Corporation or its subsidiaries; (ii) fraud; (iii) a material breach of the terms of employment; (iv) willful breach of the provisions of the Corporation’s code of conduct; or (v) failure or willful refusal to substantially perform the employee’s duties and responsibilities.
Employee Savings Plan
In December 2012, the Corporation introduced an employee savings plan which is available to all employees. The plan encourages employees to save and invest for their retirement. Contributions made to the plan through payroll deductions will be matched by the Corporation. The plan was amended in January 2014 and now permits payroll deductions and a corporate match of up to a maximum annual contribution of the lesser of $7,500 and 5% of the annual base salary of the employee. Employee payroll deductions and Corporation matching contributions are invested in CI mutual funds chosen by the employee. Participation in the plan is voluntary. There are currently 1459 employees enrolled in the plan, representing over 84% of the Corporation’s eligible work force. This plan is important for retention and helps enhance our employee offering for potential new employees. The Corporation does not have any pension plan for employees or officers.
Determination of Amount of Compensation
The GHRC Committee determines the appropriate base salary, cash bonus and long-term incentives for the Chief Executive Officer and any individual who reports directly to the Chief Executive Officer, including the Named Executive Officers (the “CEO Direct Reports”). This determination is based on an individual’s success in achieving corporate and business unit objectives, as well as personal performance. The GHRC Committee takes into account industry and competitive compensation and other data for benchmarking purposes.
The process for determining the base salaries and the amount of variable compensation is based on an analysis of the following factors:
(a) | the overall financial and operating performance of the Corporation; |
(b) | the economic, competitive and capital markets environment and the Corporation’s performance relative to industry metrics; |
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(c) | the individual performance and contribution made by the Chief Executive Officer and the CEO Direct Reports to the success of the Corporation, with specific reference to the annual financial performance of the Corporation and to the achievement of business unit and departmental strategic and operational objectives; |
(d) | the individual contribution of the Chief Executive Officer and the CEO Direct Reports to the Corporation’s achievement of value-enhancing corporate goals and objectives, including increasing corporate growth and enhancing CI’s reputation, diversifying sources of revenue, improving the client experience, achieving operational excellence, strengthening portfolio management, cultivating the employee experience, management leadership and succession planning and cost containment; |
(e) | the free cash flow and total assets under management and administration during the financial year, as well as sales and the containment of selling, general and administrative (SG&A) expenses; |
(f) | maintaining and strengthening the Corporation’s principal distribution relationships; |
(g) | the Corporation’s share of the mutual fund market and the broader wealth management industry, taking into account the impact that capital market developments, international disruptions, the economy and other recognized performance variables have had on performance; |
(h) | the success of the Corporation’s funds as measured by ratings and awards; |
(i) | the achievement of stated corporate objectives, including those related to positioning the Corporation for future success and improving operational and client service excellence; |
(j) | the responsibilities of the Chief Executive Officer and each CEO Direct Report, including leadership, risk management and mentoring; and |
(k) | the expertise and length of service of the Chief Executive Officer and each CEO Direct Report. |
A comprehensive annual report is prepared by the Chief Executive Officer and President for the GHRC Committee, providing an overview of the Corporation’s financial and operating performance during the year and outlining priorities for the year to come (the “Compensation Report”). The Compensation Report highlights the accomplishments and challenges of the business units or operations and includes a description of significant actions or events that occurred during the year and key milestones with respect to that action or event, with reference to the Corporation’s strategic plan.
The Compensation Report includes an overview of the Corporation’s operations, comparative performance statistics and competitive information. The Compensation Report includes an analysis of business unit success in meeting business unit objectives and contributing to corporate performance. The Compensation Report provides the GHRC Committee with perspectives from the Chief Executive Officer and President on challenges and accomplishments, along with conclusions and recommendations regarding the appropriate compensation for the senior officers of the Corporation and its subsidiaries, as well as a recommendation regarding the overall approach to compensation. The chair of the GHRC Committee reviews the Compensation Report with the Chief Executive Officer and President, particularly with respect to meaningful changes in respect of the compensation of any senior officer. The GHRC Committee reviews this report and then, using information contained in the report, determines recommended compensation for the Chief Executive Officer and the CEO Direct Reports, taking into consideration the above-listed factors and other relevant information.
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The Chief Executive Officer and President provide the GHRC Committee with recommended compensation ranges available to individuals at different seniority levels, as well as the recommended breakdown between base salary and bonus and cash and long-term incentives. The Chief Executive Officer and President also provide the GHRC Committee with comparative total compensation of senior officers for each of the last two years, as well as historical aggregate bonus information per employee group over the last three years and historical bonus pools as a percentage of key financial metrics, such as net income, earnings before interest, taxes, depreciation and amortization (EBITDA) and selling, general and administrative (SG&A) expenses.
This year, in considering the use of Options as a larger component of the Corporation’s long-term incentive compensation, the GHRC Committee considered the key terms of option grants at the Corporation’s competitors.
The GHRC Committee also takes into account the compensation paid to executive officers of certain of the Corporation’s public company competitors.
Competitive Market Review
The Compensation Report included comparative financial performance and compensation data for the following publicly traded asset management companies and financial institutions:
§ IGM Financial Inc. | § Invesco Ltd. | § Gluskin + Sheff Associates Inc. |
§ Sprott Inc. | § AGF Management Limited | § Guardian Capital Group Limited |
§ Legg Mason, Inc. | § T. Rowe Price Group, Inc. | § Canaccord Genuity Group Inc. |
§ Franklin Resources, Inc. | § TMX Group Limited | § Affiliated Managers Group, Inc. |
§ Fiera Capital Corporation | § Janus Henderson Group plc |
The Compensation Report includes a comparison of the total compensation paid to the Chief Executive Officers and Named Executive Officers of those companies and the total compensation paid to our Chief Executive Officer and Named Executive Officers. The compensation information regarding the other companies is obtained from the most recent proxy circulars filed by them with the securities regulators. This information is considered in determining the appropriate compensation for the Chief Executive Officer and other Named Executive Officers but is not determinative.
Other Relevant Information Considered
The GHRC Committee also considered the following:
(a) | management’s commitment to strategy development for the growth and success of the Corporation, and the enterprise-wide rollout of strategic pathways and key projects and objectives aligned with these pathways; |
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(b) | the continued growth and diversification of the Corporation’s business, including the integration of the Sentry sales and operations team following the 2017 acquisition and the continued build out of BBS and its Virtual Broker technology in the Corporation’s legacy businesses; |
(c) | the focus on CI’s distribution strategy and the decision in December 2018 to purchase a majority stake in WealthBar and use WealthBar’s industry-leading online tools and services to fuel the development of CI’s own comprehensive digital strategy, including its robo-advisor business; |
(d) | the successful execution of the capital management strategy through the renegotiation of the credit facility and the issuance of public debentures in the summer of 2018, as well as the dividend strategy and share repurchase program; |
(e) | the achievement of operating and client service excellence, including the performance of Assante Wealth Management and Stonegate Private Counsel relative to industry competitors; |
(f) | management’s continued focus on building CI brand awareness, including the introduction of the new “Trusted Partner in Wealth™” advertising campaign and the launch of a new website for CI Financial; |
(g) | management’s continued focus on enhancing product solutions and sales effectiveness, including the introduction and refinement of preferred pricing and a number of new alternative and pooled products with competitive pricing; |
(h) | the enrichment of the employee experience through enhanced internal communications including webcasts, employee messaging regarding the strategic pathways; townhalls and a web-based suggestion portal; |
(i) | the role of the Named Executive Officers in effective enterprise risk management; |
(j) | the extensive involvement of the Named Executive Officers in managing legal, regulatory and market-driven challenges and new developments; |
(k) | management’s continued focus on cost containment and controlling expenses; |
(l) | notwithstanding industry and market pressures in 2018, the Corporation maintained its net income and free cash flow essentially flat to the prior year and continues to contain SG&A; |
(m) | a comparison of the Chief Executive Officer and Named Executive Officer compensation relative to a number of the Corporation’s publicly traded competitors; and |
(n) | historical compensation for senior executives at the Corporation for the preceding three years. |
The GHRC Committee meets to consider these recommendations and also to review and recommend compensation for the Chief Executive Officer and CEO Direct Reports, including the Named Executive Officers. The GHRC Committee then makes its recommendations to the Board with respect to the annual cash bonus and equity compensation grant as the variable elements of total compensation to be paid to the Chief Executive Officer and CEO Direct Reports, including the Named Executive Officers, for the fiscal year that has just been completed and to set salaries for the current year. The Board considers these recommendations and meeting in executive session makes its determination with respect to these matters.
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Risk Management
The compensation program of the Corporation does not encourage or financially incentivize executives to expose the business, operations or organization to inappropriate risks.
The Board is keenly aware of the fact that compensation practices can have unintended risk consequences. The GHRC Committee is responsible for risk oversight of the Corporation’s compensation policies and practices and in that regard, works to identify and stop any compensation practice that might encourage an employee to expose the Corporation to unacceptable risk. At the present time, the GHRC Committee is satisfied that the current executive compensation program will not encourage the executives to expose the business to inappropriate risk. In fact, the GHRC Committee believes that current compensation practices encourage a conservative approach to managing the business of the Corporation. The Board rewards individuals for the success of the Corporation once that success has been demonstrated. In addition, a significant portion of each executive’s total compensation is equity-based in order to incent the executives to focus on longer-term results.
The Corporation’s compensation risk management practices include, but are not limited to:
(a) | Share Ownership Requirements – As discussed in greater detail under “Statement of Governance Practices – Share Ownership by Executive Officers and Directors” in this Information Circular, the Share ownership requirement is designed to align the interests of executives to those of the Shareholders. |
(b) | Chief Executive Officer and President Recoupment (Claw Back) – There will be a claw back of the Chief Executive Officer’s and President’s annual cash bonuses within two years in the event of a material financial restatement due to gross negligence, intentional misconduct or fraud. |
(c) | Anti-Hedging Policy – As discussed in greater detail under “Statement of Governance Practices – Restrictions on Trading and Hedging Shares of the Corporation” in this Information Circular, the Corporation prohibits its employees, officers and Directors from speculating purchasing financial instruments to hedge or offset a decrease in the market value of Shares owned, short selling Shares and buying or selling a call or a put in Shares. |
Chief Executive Officer and President Compensation
The components of the compensation awarded to the Chief Executive Officer and President (which, during 2018 were separate offices) are the same as those which apply to the other senior executive officers of the Corporation, namely base salary, cash bonus and equity bonus in the form of RSUs and Options. The GHRC Committee presents its recommendations, with respect to the Chief Executive Officer and President compensation to the Board of Directors. Compensation for the Chief Executive Officer and President is based on set targets of corporate performance, measured by key financial metrics, such as AUM, net sales, EBITDA, earnings per share and SG&A control. The financial performance of the Corporation in any given year is significantly tied to developments in the capital markets. For that reason, at the end of each year the GHRC Committee looks at the performance of the Corporation in light of prevailing market and economic influences and the individual’s contribution to that performance. The GHRC Committee also looks at the strategic leadership of the Chief Executive Officer and President, including pursuit of value enhancing strategies and contribution to the achievement of business unit objectives by senior management. The performance of the Corporation is evaluated relative to the performance of its competitors in terms of growth in assets under management and sales. This year in particular, the GHRC Committee considered and rewarded management, including the Chief Executive Officer and President, for commitment to continued strategy development for the growth and success of the Corporation. This included the enterprise-wide rollout of strategic pathways and key projects and objectives aligned with these pathways, the integration of the Sentry sales and operations team following the 2017 acquisition and the continued build out of BBS and its Virtual Broker technology in the Corporation’s legacy businesses and the continued focus on CI’s distribution strategy including the decision in December 2018 to purchase a majority stake in WealthBar and use WealthBar’s industry-leading online tools and services to fuel the development of CI’s own comprehensive digital strategy, including its robo-advisor business.
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Chief Executive Officer Compensation
In setting the recommended salary of the Chief Executive Officer, the GHRC Committee takes into consideration Mr. Anderson’s responsibilities and experience as well as his performance in leading the executive team and directing the strategic initiatives of the Corporation. The GHRC Committee assesses the Chief Executive Officer’s ability to lead the organization to optimize opportunities to take advantage of favourable market conditions or to mitigate the impact of unfavourable conditions. In addition, the Chief Executive Officer is expected to take the leading role in grooming the executive team for succession and his success in this regard is considered by the GHRC Committee in setting his total compensation.
Mr. Anderson re-joined the Corporation on February 29, 2016 after a four-year absence and became Chief Executive Officer effective June 1, 2016. Upon assuming leadership of the Corporation, Mr. Anderson quickly identified and implemented a number of shareholder value enhancing strategic initiatives. Mr. Anderson was integral to the Corporation’s successful acquisitions of Grant Samuel in 2016, Sentry and BBS in 2017 and WealthBar in 2019. He has improved the role and responsibilities of the Executive Committee and introduced an enhanced collaborative approach to decision-making. Mr. Anderson has played a leading role in building the Corporation’s foundation for continued growth and future success through leadership across CI’s business units, including the introduction of new products and competitive pricing, the development of CI’s branding strategy, the Corporation’s accelerated pace of technological advancement, the enhancement of the employee experience and the focus on coaching and mentoring high potential employees with a view to succession planning. Upon Ms. Murray’s retirement from the office of President on March 31, 2019, Mr. Anderson assumed the role of President in addition to that of Chief Executive Officer. The GHRC Committee and the Board are confident that Mr. Anderson’s leadership of the senior management team, engagement with key business partners and commitment to further developing and executing the Corporation’s strategic plan has positioned the Corporation for continued success in 2019.
In recognition of Mr. Anderson’s responsibilities, leadership of and contribution to this success in 2018, the GHRC Committee recommended to the Board the payment of a cash bonus of $720,000 and the award of 42,655 RSUs pursuant to the RSU Plan and the award of 114,407 Options under the Option Plan. The RSUs and the Options have a value as at the date of grant of $1,080,019, based on a value of $18.99 per Share for the RSU award and a strike price of $18.99 per Share for the Options award, bringing Mr. Anderson’s total compensation to $2,450,019 for 2018.
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President Compensation
In setting the recommended salary of the President, Sheila A. Murray, the GHRC Committee took into consideration Ms. Murray’s responsibilities and experience as well as her performance in leading the Corporation in the adoption of key measures and milestones to enhance corporate growth, operational excellence and the client experience.
Ms. Murray joined the Corporation in January 2008 as General Counsel and was appointed to the office of President in February 2016. As President, Ms. Murray took on significant and complex new operating responsibilities while, until June 2018, maintaining her position as General Counsel of the Corporation and leading the legal team. As President, Ms. Murray lead and oversaw the administrative and operating business units including Operations, Information Technology, Human Resources, Compliance and others. The GHRC Committee and the Board recognized Ms. Murray’s leadership in the pursuit of value enhancing strategic initiatives, including the enhancement of the employee experience, the focus on coaching and mentoring high potential employees with a view to succession planning, the enhancement of operational excellence and client experience, and the broadening and deepening of the investment capability of the portfolio management teams. The GHRC Committee also recognized Ms. Murray’s extensive involvement in managing legal, regulatory and compliance matters in an increasingly regulated industry. Ms. Murray also played a critical role in completing the Sentry, BBS and WealthBar acquisitions and integrating their operations with those of the Corporation. The GHRC Committee and the Board are confident that Ms. Murray’s efforts in 2018 have helped to position the Corporation for future success.
In recognition of Ms. Murray’s responsibilities, leadership and contribution to this success in 2018, the GHRC Committee recommended to the Board the payment of a cash bonus of $915,000 and the award of 32,123 RSUs pursuant to the RSU Plan. The RSUs have a value as at the date of grant of $610,000, based on a value of $18.99 per Share, bringing Ms. Murray’s total compensation to $2,075,000 for 2018.
Chief Executive Officer and President Compensation Considerations
In setting the bonus and long-term compensation for Mr. Anderson and Ms. Murray for 2018, the GHRC Committee and the Board, in accordance with CI’s compensation policy, considered a number of factors in addition to those listed on page 29, including:
(a) | Mr. Anderson and Ms. Murray’s commitment to strategy development for the growth and success of the Corporation, and the enterprise-wide rollout of strategic pathways and key projects and objectives aligned with the Corporation’s core strategic pathways. |
(b) | Mr. Anderson’s and Ms. Murray’s leadership, engagement and continued development of the senior management team and engagement between the business units. |
(c) | Mr. Anderson and Ms. Murray’s leadership in the continued growth and diversification of the Corporation’s business, including the integration of the Sentry sales and operations team following the 2017 acquisition and the continued build out of BBS and its Virtual Broker technology in the Corporation’s legacy businesses. |
(d) | Mr. Anderson and Ms. Murray’s leadership in building out CI’s distribution strategy including the December 2018 decision to purchase a majority stake in WealthBar and use WealthBar’s industry-leading online tools and services to fuel the development of CI’s own comprehensive digital strategy, including its robo-advisor business. |
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(e) | Mr. Anderson’s work in developing and growing the Corporation’s relationship with key business partners. |
(f) | Mr. Anderson’s leadership in the introduction of new products and competitive pricing, the development of CI’s branding strategy and the Corporation’s accelerated pace of technological advancement. |
(g) | The extensive involvement of Ms. Murray in managing legal, regulatory and compliance matters in an increasingly regulated industry. |
(h) | Ms. Murray’s role in the further development and improvement of the Corporation’s operation and administration, including the enhancement of the employee experience, the focus on coaching and mentoring high potential employees with a view to succession planning, the enhancement of the client experience, and the broadening and deepening of the investment capability of the portfolio management team. |
Members of the Governance, Human Resources and Compensation Committee
The members of the GHRC Committee during 2018 were Mr. D.P. Miller (Chair), Mr. P. Perrow, Mr. S.T. Moore and Mr. T.P. Miller (ex officio), all of whom were independent Directors. For a description of the committee members’ direct experience and skills relevant to their responsibilities in executive compensation and enabling the committee to make decisions on the suitability of CI’s compensation policies and practices, please see “Board Composition and Independence – Board Expertise Matrix”.
* * * * *
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Performance Graphs
The first graph compares the yearly percentage change in the cumulative total return on the Shares and voting securities of its predecessors, with the cumulative total return of the S&P/TSX Composite Index (the “S&P/TSX Index”) and the S&P/TSX Financials Index over the period from December 31, 2013 to December 31, 2018. The graph illustrates the cumulative return on a $100 investment in Shares made on December 31, 2013 as compared with the cumulative return on a $100 investment in the S&P/TSX Index or in the S&P/TSX Financials Index on December 31, 2013. Distributions and dividends are assumed to be reinvested.
The second graph compares the cumulative total return on the Shares from the date on which the Shares were first publicly traded on the TSX in June 1994 to December 31, 2018, with the cumulative total return of the S&P/TSX Index and the S&P/TSX Financials Index for the same period.
The performance as set out in the graphs does not necessarily indicate future price performance.
Cumulative Total Return for 5 year period
31-Dec-13 | 31-Dec-14 | 31-Dec-15 | 31-Dec-16 | 31-Dec-17 |
31-Dec-18 |
|
CI Financial Corp. | 100 | 95 | 93 | 92 | 100 | 61 |
S&P/TSX Index | 100 | 111 | 101 | 123 | 134 | 122 |
S&P/TSX Financials Index | 100 | 114 | 112 | 139 | 157 | 143 |
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Cumulative Total Return since CI became a Public Company in 1994
1-Jun-94 |
31-Dec-03 | 31-Dec-06 | 31-Dec-09 | 31-Dec-12 | 31-Dec-15 | 31-Dec-18 | |
CI Financial Corp. | 100 | 1,135 | 2,425 | 2,445 | 3,125 | 4,275 | 2,795 |
S&P/TSX Index | 100 | 237 | 395 | 392 | 451 | 517 | 622 |
S&P/TSX Financials Index | 100 | 583 | 1,032 | 939 | 1,185 | 1,638 | 2,089 |
The graph below sets out the trend in aggregate total compensation, which includes base salary, annual cash bonus and equity bonus, awarded to the Named Executive Officers for each of the last five fiscal years compared to the total return on the Shares over that same period.
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Summary Compensation Table
The following table sets out information concerning the compensation earned from the Corporation and the Corporation’s subsidiaries during the financial year ended December 31, 2018 and two previous years by the Corporation’s Chief Executive Officer(1), Chief Financial Officer, and the Corporation’s other three most highly compensated executive officers (collectively, the “Named Executive Officers”).
Name
and principal
|
Year
|
Salary ($)
|
Equity
incentive plan
($) |
Non-equity
incentive plan
($) |
Pension
($)
|
All
other
($)
|
Total
($)
|
|||||||||||||||||||||||||||||
Share-based
|
Option-based
|
Annual
|
Long-term
|
|||||||||||||||||||||||||||||||||
Peter W. Anderson(1)
Chief Executive Officer |
2018 2017 2016
|
650,000 650,000 544,167
|
810,018 1,365,000 1,430,000
|
270,001 -- -- |
720,000 910,000 953,333
|
-- -- --
|
-- -- --
|
-- -- --
|
2,450,019 2,925,000 2,927,500
|
|||||||||||||||||||||||||||
Douglas J. Jamieson Executive Vice-President and Chief Financial Officer |
2018 2017 2016
|
350,000 315,000 315,000
|
210,000 257,500 262,000
|
70,002 72,488 65,500
|
280,000 327,500 327,500
|
-- -- --
|
-- -- --
|
-- -- --
|
910,000 972,488 970,000 |
|||||||||||||||||||||||||||
Sheila A. Murray(1)
President |
2018 2017 2016
|
550,000 550,000 527,273
|
610,000 1,155,000 1,320,000
|
-- -- --
|
915,000 770,000 880,000
|
-- -- --
|
-- -- --
|
-- -- --
|
2,075,000 2,475,000 2,727,273
|
|||||||||||||||||||||||||||
Steven J. Donald
Executive Vice-President and Chief Risk Officer
|
2018 2017 2016
|
350,000 350,000 350,000
|
262,500 425,000 455,000
|
87,502 -- -- |
350,000 425,000 455,000
|
-- -- --
|
-- -- --
|
-- -- --
|
1,050,000 1,200,000 1,260,000
|
|||||||||||||||||||||||||||
Neal A. Kerr(4)
Executive Vice-President |
2018 2017 2016
|
350,000 325,000 325,000
|
275,000 240,000 222,000
|
-- 62,134 55,500
|
275,000 300,000 277,500
|
-- -- --
|
-- -- --
|
-- -- --
|
900,000 927,134 880,000
|
__________________________________
Notes to the Summary Compensation Table:
(1) | Following the retirement announcement by the Corporation on December 10, 2018, Sheila Murray retired as President of the Corporation effective March 31, 2019. Ms. Murray has remained a member of the board of directors of the Corporation following her retirement and is standing for re-election at the Meeting. Peter Anderson assumed the role of President of the Corporation effective upon Ms. Murray’s departure, in addition to maintaining his position as Chief Executive Officer. |
(2) | Equity-based awards reflect aggregate amounts awarded in respect of the relevant year. |
(3) | (i) With respect to 2018 equity compensation, Options were granted to Messrs. Anderson, Jamieson and Donald upon their election to receive Options in lieu of up to 25% of the RSUs that would otherwise have been awarded to each of them under the RSU Plan. |
(ii) With respect to 2016 and 2017 equity compensation, Options were granted to Messrs. Jamieson and Kerr upon their election to receive Options in lieu of up to 20% of the RSUs that would otherwise have been awarded to each of them under the RSU Plan.
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(iii) The following assumptions were made for purposes of calculating the value of Options granted to Messrs. Anderson, Jamieson and Donald on February 26, 2019: an expected average option term of 6.0 years to exercise; a dividend projected to grow on average 0% per annum; projected stock price volatility of 17%; and an average risk-free interest rate of 2.21% over the expected life of the Options. These Options have been valued using Black-Scholes methodology and on that basis ascribed average value of $2.36 per Option.
(iv) The following assumptions were made for purposes of calculating the value of Options granted to Messrs. Jamieson and Kerr on February 27, 2018: an expected average option term of 3.3 years to exercise; a dividend projected to grow on average 2.0% per annum; projected stock price volatility of 16.0%; and an average risk-free interest rate of 2.32% over the expected life of the Options. These Options have been valued using Black-Scholes methodology and on that basis ascribed average value of $2.33 per Option.
(v) The following assumptions were made for purposes of calculating the value of Options granted to Messrs. Jamieson and Kerr on February 28, 2017: an expected average option term of 3.1 years to exercise; a dividend projected to grow on average 3.6% per annum; projected stock price volatility of 16.0%; and an average risk-free interest rate of 1.24% over the expected life of the Options. These Options have been valued using Black-Scholes methodology and on that basis ascribed average value of $1.95 per Option.
(vi) The actual value realized, if any, on Options exercises will be dependent on overall market conditions and the future performance of the Corporation and its Shares. The Corporation cannot be certain that the actual value realized will approximate the amount calculated under the valuation model.
(4) | The Board awarded Mr. Kerr a bonus of $550,000, to be payable in cash and RSUs on February 26, 2019. Mr. Kerr’s last day at the Corporation was February 15, 2019. Accordingly, Mr. Kerr’s 2018 bonus, while earned and awarded, was not paid out. |
Equity Compensation Plan Information
The following table sets out information concerning the number and price of securities to be issued under equity compensation plans to employees and others as at December 31, 2018.
Plan Category |
Number of Securities
(a) |
Price
(Weighted - Average
($) |
Number
of Securities
|
|||||||||
Option Plan | 6,957,788 | 32.18 | 3,055,323 | |||||||||
RSU Plan | 670,511 | 17.28 | 4,926,181 |
_________________________________________
Note:
(1) | The number of securities remaining available to be issued as a percentage of outstanding Shares as at December 31, 2018 was approximately 1% in respect of the Option Plan and approximately 2%, in respect of the RSU Plan. |
The following table sets out the approximate annual burn rate, calculated in accordance with the rules of the Toronto Stock Exchange, in respect of each of the equity compensation plans for each of the three most recently completed years.
Annual Burn Rate(1) | ||||||||||||
Plan Category | 2018 | 2017 | 2016 | |||||||||
Option Plan | 0.03 | % | 0.2 | % | 1.0 | % | ||||||
RSU Plan(2) | -- | -- | -- |
_________________________________________
Notes:
(1) | The annual burn rate is calculated as follows and expressed as a percentage: |
Number of securities granted under
the specific plan during the applicable fiscal year
-----------------------------------------------------------------------------------------------------------------------------
Weighted average number of securities outstanding for the applicable fiscal year
(2) | The RSU Plan was approved by Shareholders at the Annual and Special Meeting of Shareholders held on April 20, 2017. The Corporation has not issued any Shares from treasury under the RSU Plan since the date of its approval by Shareholders and has met the requirement to deliver Shares under the RSU Plan through Shares acquired under the Corporation’s normal course issuer bid. See “Normal Course Issuer Bid” for a description. |
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Incentive Plan Awards
Outstanding Option-Based and Share-Based Awards
The following table sets out, for each Named Executive Officer, information concerning all option-based and share-based awards outstanding as of December 31, 2018.
Option-based Awards | Share-based Awards | |||||||||||||||||||||||
Name |
Number of
(#) |
Option
($) |
Option
expiration date |
Value of
($) |
Number of shares
(#) |
Market or
($) |
||||||||||||||||||
Peter W. Anderson
Chief Executive Officer |
-- | -- | -- | 0 | 106,114 | 1,833,650 | ||||||||||||||||||
Douglas J. Jamieson
Executive Vice-President and Chief Financial Officer |
30,000 40,000 50,000 62,750 31,111 |
35.60 33.96 28.63 27.44 28.67 |
Feb. 14, 2019 Feb. 12, 2020 Feb. 19, 2021 Feb. 28, 2022 Feb. 27, 2023 |
0 0 0 0 0 |
16,641 | 287,556 | ||||||||||||||||||
Sheila A. Murray
President |
40,000 50,000 50,000 |
35.60 33.96 28.63 |
Feb. 14, 2019 Feb. 12, 2020 Feb. 19, 2021 |
0 0 0 |
94,167 | 1,627,206 | ||||||||||||||||||
Steven J. Donald
Executive Vice President and Chief Risk Officer |
35,000 60,000 75,000 35,000 |
35.60 33.96 28.63 27.44 |
Feb. 14, 2019 Feb. 12, 2020 Feb. 19, 2021 Feb. 28, 2022 |
0 0 0 0 |
28,361 | 490,078 | ||||||||||||||||||
Neal A. Kerr
|
35,000 60,000 25,000 56,000 26,667 |
35.60 33.96 28.63 27.44 28.67 |
Feb. 14, 2019 Feb. 12, 2020 Feb. 19, 2021 Feb. 28, 2022 Feb. 27, 2023 |
0 0 0 0 0 |
14,626 | 252,737 |
Value Vested or Earned During the Year
The following table sets out for each Named Executive Officer, information concerning the value of incentive plan awards—option-based and share-based awards as well as non-equity incentive plan compensation—vested or earned during the financial year ended December 31, 2018.
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Name |
Option-based awards -
($) |
Share-based awards -
($) |
Non-equity incentive plan
($) |
|||||||||
Peter W. Anderson
Chief Executive Officer |
0 | 0 | 720,000 | |||||||||
Douglas J. Jamieson
Executive Vice-President and Chief Financial Officer |
72,997 | 53,950 | 280,000 | |||||||||
Sheila A. Murray
President |
16,500 | 0 | 915,000 | |||||||||
Steven J. Donald
Executive Vice-President and Chief Risk Officer |
62,900 | 89,052 | 350,000 | |||||||||
Neal A. Kerr
Executive Vice-President |
126,665 | 50,292 | 275,000 | (2) |
_________________________________________
Notes:
(1) | The amounts shown represent the dollar value that would have been realized if all Options that vested during the fiscal year ending December 31, 2018 had been exercised on the vesting date, calculated as the difference between the exercise price of such Options and the TSX closing price of the Shares on the vesting date. |
(2) | The Board awarded Mr. Kerr a cash bonus of $275,000 for 2018, to be payable on February 26, 2019. Mr. Kerr’s last day at the Corporation was February 15, 2019. Accordingly, Mr. Kerr’s 2018 bonus was not paid out. |
Termination and Change of Control Benefits
Peter W. Anderson
It is the Board’s expectation that Mr. Anderson will be part of any succession process for the Chief Executive Officer role. Accordingly, Mr. Anderson is entitled to salary continuance together with a bonus to the date which is six months after the date on which his successor commences his or her role. In the event that Mr. Anderson’s employment is terminated without cause prior to June 30, 2020, Mr. Anderson will be entitled to receive accrued salary, unpaid vacation pay, benefits and bonus up to the termination date. Mr. Anderson is entitled to post-employment health benefits at the executive employee level for a period of 24 months thereafter. No further amounts will be payable to Mr. Anderson in the event of his termination without cause prior to the termination date.
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Mr. Anderson’s employment agreement contains a covenant not to compete directly or indirectly with the Corporation for a period ending three months following the completion of employment or solicit employees of the Corporation for a period ending twelve months following the completion of employment.
Sheila A. Murray
In connection with Ms. Murray’s previously announced retirement from the Corporation, the Corporation and Ms. Murray entered into an amendment to her employment agreement regarding her continuing obligations and entitlements. In recognition of Ms. Murray’s long service to the Corporation culminating in three years as President, and her assistance and ongoing cooperation in her succession, including her consulting role to senior management through December 31, 2019, the Corporation has paid Ms. Murray a lump sum retirement payment of $1,937,500 (less applicable deductions). The Corporation does not have a pension plan and accordingly Ms. Murray is not entitled to any pension benefits upon her retirement.
Pursuant to the RSU Plan and her employment agreement, Ms. Murray’s RSUs will vest at her discretion at any time prior to the ultimate vesting date of the particular RSU grant.
Ms. Murray is entitled to post-employment health benefits at the executive employee level for a period of twenty-four months following her retirement.
Ms. Murray’s employment agreement contains standard confidentiality provisions and an agreement not to compete directly or indirectly with the Corporation for a period ending three months following the date of retirement or solicit employees of the Corporation for a period ending twelve months following the date of retirement.
Director Compensation
The GHRC Committee is responsible for the compensation of Directors and annually reviews the form and amount of Director compensation and makes a recommendation to the Board for approval. The GHRC Committee takes into account the time commitment expected of Directors, the complexity and scope of any Director’s responsibilities, the need to attract and retain qualified Directors and the alignment of interests between securityholders and the board.
During the financial year ended December 31, 2018 Directors other than the Chairman who were not officers or employees of the Corporation were paid an annual fee of $140,000. The Lead Director of the Board of Directors was paid $165,000 in recognition of the additional responsibilities which this position entails. Directors’ fees are payable in quarterly installments. Directors are entitled to be reimbursed for expenses incurred by them in their capacity as Directors.
Directors who are also officers or employees of the Corporation are not paid any amount as a result of their serving as Directors.
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Director Compensation Table
Name |
Cash-based
($) |
Share-based
($) |
Option-based
($) |
Non-equity
($) |
Pension
($) |
All
other
compensation ($) |
Total ($) |
|||||||||||||||||||||
Peter W. Anderson | -- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||
Brigette Chang-Addorisio | 70,000 | -- | -- | -- | -- | -- | 70,000 | |||||||||||||||||||||
William T. Holland(2) | 750,000 | -- | -- | -- | -- | -- | 750,000 | |||||||||||||||||||||
David P. Miller | 105,000 | 35,000 | -- | -- | -- | -- | 140,000 | |||||||||||||||||||||
Stephen T. Moore | 140,000 | -- | -- | -- | -- | -- | 140,000 | |||||||||||||||||||||
Tom P. Muir | 152,500 | -- | -- | -- | -- | -- | 152,500 | |||||||||||||||||||||
Sheila A. Murray | -- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||
Paul Perrow | 70,000 | -- | -- | -- | -- | -- | 70,000 |
_________________________________________
Notes:
(1) As described in more detail below, any non-employee Director may elect to receive all or any portion of his or her Director’s fees in the form of DSUs, and a Director’s fees will be paid in the form of DSUs until satisfaction of his or her share ownership requirement.
(2) The Chairman’s compensation is reflective of Mr. Holland’s important role in steering the Corporation through a period of transition. See the section of this Information Circular entitled “Statement of Governance Practices – Board Composition and Independence – Position Descriptions”.
Directors’ Deferred Share Unit Plan
To encourage Directors to align their interests with Shareholders, the Board adopted the Director Deferred Share Unit Plan (the “Director DSU Plan”), effective February 16, 2017, applicable to the fiscal year commencing January 1, 2017 and subsequent fiscal years. Under the Director DSU Plan, Directors may receive some or all of the Director’s fees in the form of DSUs, each of which has a market value equal to the five-day volume weighted average price of the Shares on the TSX for the five trading days preceding the date DSUs are credited to the Director. A DSU is a bookkeeping entry credited to the account of an individual Director, which cannot be converted to cash until the Director ceases to be a member of the Board. The value of a DSU, when converted to cash, will be equivalent to the five-day volume weighted average price of the Shares on the TSX for the five trading days preceding the date that conversion takes place. DSUs will attract dividend equivalents in the form of additional DSUs at the same rate as dividends on the Shares. All non-employee Directors may elect to receive all or any portion of such Director’s fee in the form of DSUs.
The Board has a policy requiring each Director of the Corporation to hold Shares representing a prescribed multiple of the annual Director’s fee ensuring that the interests of the Directors are aligned with those of the Shareholders. Units held under the Director DSU Plan may be used to satisfy this ownership requirement. Effective with respect to Director compensation payable on or after March 31, 2017, Directors have received Directors’ fees in the form of DSUs until satisfaction of the share ownership requirements for Directors described under “Statement of Governance Practices – Share Ownership by Executive Officers and Directors” in this Information Circular. Upon satisfaction of such ownership requirements, Directors may elect to receive all or any portion of their Director compensation in the form of DSUs.
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Outstanding Option-Based and Share-Based Awards for Directors
The following table sets out information concerning the Directors’ outstanding share-based awards and option-based awards as of the date of this Information Circular. All share-based awards are in the form of DSUs, other than Mr. Anderson and Mr. Holland who also have unvested RSUs. None of the Directors, with the exception of Mr. Anderson and Ms. Murray, has any outstanding option-based awards. As of the date of this Information Circular, no Director has any other share-based or option-based awards.
Share Based Awards | Option Based Awards | |||||||||||||||
Name |
Number of shares or units that have not vested (#) |
Market or payout value of DSUs / RSUs that have not vested ($) |
Number of shares or units that have not vested (#) |
Market or payout value of Options that have not vested ($) |
||||||||||||
Peter W. Anderson | 148,769 | $ | 2,863,803 | 114,407 | $ | 29,746 | ||||||||||
William E. Butt | -- | -- | -- | -- | ||||||||||||
Brigette Chang-Addorisio | -- | -- | -- | -- | ||||||||||||
William T. Holland | 13,432 | (1) | $ | 258,566 | -- | -- | ||||||||||
David P. Miller | 6,428 | $ | 123,739 | -- | -- | |||||||||||
Stephen T. Moore | -- | -- | -- | -- | ||||||||||||
Tom P. Muir | -- | -- | -- | -- | ||||||||||||
Sheila A. Murray | 126,290 | $ | 2,431,083 | -- | -- | |||||||||||
Paul J. Perrow | -- | -- | -- | -- |
Note:
(1) Mr. Holland has 4,972 RSUs relating to his tenure as Executive Chairman, and 8,460 DSUs relating to his tenure as Chairman.
Directors’ and Officers’ Liability Insurance and Indemnification
CI has purchased directors’ and officers’ liability insurance for the benefit of the Directors and officers of CI and its subsidiaries. The policy has an aggregate limit of $50 million per policy year plus excess $5 million “Side A” coverage for non-indemnifiable circumstances. A premium of $214,900 was paid by CI for the 12-month term which began on June 15, 2018. No part of this premium was paid by the Directors or officers of CI. Any deductible payable by any Director or officer making a claim under the policy is payable by CI and a $500,000 deductible is also payable by CI.
CI will indemnify Directors and officers in accordance with its specific indemnification agreements and to the maximum extent permitted under applicable law.
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Indebtedness of Directors and Executive Officers
The following table summarizes the aggregate indebtedness to CI, as of the date of this Information Circular, of any executive officers, Directors, employees and former executive officers, Directors, trustees and employees of CI:
Aggregate Indebtedness | ||||
Purpose | To CI or its Subsidiaries | |||
Security Purchases | $ | 5,187,834 | ||
Other | $ | 500,544 |
CI has in the past maintained an Employee Share Purchase Loan Program (the “Program”) pursuant to which CI lent money to qualified key employees to purchase Shares in the market. The Program is no longer available and no new loans have been advanced for several years; however, a number of loans remain outstanding. The loans are on market terms and bear interest at the greater of CI’s average borrowing cost and prescribed rates. The Shares purchased with the loan are pledged as security for the loan. Interest payments are made out of participants’ salaries, and principal payments are generally made from the proceeds of any sale of such Shares. Each participant has agreed that his or her loan is to be repaid in accordance with its terms without exception.
Note:
(1) | The Program does not permit loan forgiveness. |
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Statement of Governance Practices
Good governance is essential to the effective and efficient operation of the Corporation. For that reason, the Board and management are committed to maintaining a high standard of governance, including through consideration of the governance guidelines of the Canadian securities administrators and best practices recommendations of the Canadian Coalition for Good Governance.
The Role of the Board of Directors
The Board is responsible for the stewardship of the Corporation and in that regard has the duty to supervise the management of the business and affairs of CI. In addition to overseeing and approving major transactions and matters legally requiring Board involvement, the Board is consulted regularly by the executive management team on significant developments affecting or likely to affect the business and affairs of CI and its subsidiaries as well as any regulatory changes, new initiatives or circumstances in the asset management industry that may impact the business. The Board has delegated day-to-day management of the business to senior management; however certain matters exceeding a particular dollar threshold require Board approval, pursuant to CI’s Delegation of Authority policy.
The specific duties and Board functions are set out in detail in the Board Mandate, which is attached as Schedule “B” to this Information Circular. The Board Mandate is reviewed each year and changes will be made when necessary to reflect evolving best practices in governance and management oversight. Some of the Board’s most important oversight functions are:
Enterprise Risk Management
Effective enterprise risk management and continual assessment of the risks confronting our business are necessary in order to ensure that the Corporation is positioned to achieve its business objectives and to protect the Corporation and client assets. The Board is responsible for risk management oversight, which includes understanding the material risks of the Corporation’s business and mitigation strategies, and taking reasonable steps to ensure that management has an effective risk management structure in place. It is an ongoing process involving the Board, the Chief Risk Officer, and CI’s Risk Management Committee, comprised of senior executives representing the Corporation’s business units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee of the Board. The Risk Management Committee and Risk Management Team work together to manage risk and ensure that business strategies and activities are consistent with the Corporation’s risk appetite. The Risk Management Committee generally meets each month and will meet more often as necessary to discuss and identify emerging risks that have the potential to impact the Corporation’s business. Each year the Chief Risk Officer engages in a formal process which includes a broad canvass of business unit leaders to identify and evaluate specific and material risks. A quantitative and qualitative analysis is done in order to rate the significance of each identified risk and then an assessment is prepared regarding the likelihood of the occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize or avoid negative consequences and these risk mitigation processes are implemented and monitored with each business unit to bring risks to an acceptable risk level.
The Audit and Risk Committee reviews with management the Corporation’s systems to monitor and manage major business risks and legal and ethical compliance programs, including through regular reports on compliance systems and procedures, cybersecurity and other information technology systems, and the Corporation’s risk management policies and procedures. Each year, the Chief Risk Officer presents a detailed report on identified risks and mitigation strategies to the Audit and Risk Committee for discussion and comments. The Audit and Risk Committee receives regular updates on risk management at its quarterly meetings, including from the Corporation’s Chief Risk Officer, Chief Technology Officer, and Chief Compliance Officer.
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A discussion of the risks affecting the Corporation appears in the Corporation’s Management Discussion and Analysis for the year ended December 31, 2018 available on the Corporation’s website (www.cifinancial.com) and on SEDAR (www.sedar.com).
Integrity of Financial Information and Internal Controls
The Board oversees financial reporting and compliance with the disclosure obligations imposed by corporate and securities laws. It is the responsibility of the Board to approve the annual and interim financial statements. The Board, through the Audit and Risk Committee, monitors the integrity of the Corporation’s management information systems and the effectiveness of internal controls through regular reporting by management and others. The Chief Internal Auditor reports on a quarterly basis directly to the chair of the Audit and Risk Committee.
Strategic Planning
The Board oversees the strategic direction of the business and offers guidance on strategic issues confronting the Corporation. The Board is responsible for developing a depth of knowledge of the Corporation’s operations and business to assess the assumptions on which the Corporation’s strategic plans are based. A quarterly report is provided to the Board by the Chief Executive Officer with respect to the development of CI’s strategy for future growth and success. In addition, senior management in each of the Corporation’s core business units report to the Board quarterly on strategic initiatives. The Board assesses the strategic plan of the Corporation, taking into account the risks and industry environment confronting the Corporation, and, on an annual basis, management provides an updated or revised strategic plan.
Succession Planning
The Board is responsible for overseeing the Corporation’s succession plan for the Chief Executive Officer, including the recruitment, appointment and evaluation and, if necessary, termination of the Chief Executive Officer. The Board has delegated primary responsibility for oversight of succession planning to the GHRC Committee. Through quarterly reports from the Corporation’s management, the GHRC Committee reviews the design and competitiveness of the Corporation’s overall compensation plan and strategies for the attraction, retention and motivation of executive officers and oversees and monitors employee engagement, talent development and retention strategies. These quarterly updates are also used by the Chief Executive Officer to identify members of the Corporation’s senior management capable of taking on additional responsibilities and developing into the Corporation’s next generation of leaders. The GHRC Committee monitors the progress and development of senior management in accordance with succession plans. In addition to quarterly meetings providing updates on executive officer succession planning and other human resources matters, the GHRC Committee receives a formal talent management report at least annually.
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While the GHRC Committee has primary responsibility for executive officer succession planning, the matter of Chief Executive Officer succession is discussed at least annually by all independent members of the Board. In addition, all members of the Board have regular opportunities to meet with executive management during and in connection with Board meetings. Board members are also encouraged to meet with the executive team members individually and outside of Board meetings in order to be able to directly assess an officer’s capabilities and succession potential.
The Corporation is committed to promoting professional learning and development at all levels of the organization through programs to create senior leader personal development plans, sessions targeting professional development as well as cost effective training, corporate-wide training events and other opportunities for leadership development.
On March 31, 2019, Sheila A. Murray retired as President of the Corporation, at which time Peter W. Anderson assumed the role of President in addition to Chief Executive Officer. Consequently, references in this Statement of Governance Practices to the Chief Executive Officer should be read to refer to Mr. Anderson as President and Chief Executive Officer with respect to periods following Ms. Murray’s retirement.
On April 16, 2019, the Corporation announced that Mr. Anderson had provided notice that he plans to retire no later than the end of his employment contract which terminates on June 30, 2020. The Board has established the CEO Search Committee comprised of Mr. Holland, Mr. Miller and Mr. Muir, with a mandate to provide the Board with a recommendation on the appointment of the Corporation’s next Chief Executive Officer. The Board also intends to take this opportunity to complete a review of executive management required for the future growth of the Corporation. The Board has asked Mr. Anderson to participate in this evaluation and to continue the executive transition which commenced under his leadership.
Securityholder Relations and Communications
The Board approves all of the disclosures which CI is required to make pursuant to securities laws, including annual and quarterly financial statements, the Annual Information Form and management information circulars.
Securityholders can provide feedback to CI in a variety of ways, including by contacting the Corporation’s Investor Relations staff by email, telephone or mail as indicated on the back of this Information Circular. The Corporation’s annual and quarterly earnings calls with analysts are broadcast live and are archived on our Investor Relations website.
The Chief Executive Officer is responsible for receiving and addressing securityholder inquiries and concerns and referring securityholder issues, where appropriate, to the Board. It is CI’s policy for management to respond to securityholder’s questions and concerns on a prompt basis, subject to limitations imposed by law or as a result of the confidential nature of certain information. In addition, Shareholders may communicate directly with CI’s independent Directors through the Lead Director by email or mail as indicated at the back of this Information Circular.
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Board Composition and Independence
The Board believes that it is important that a majority of our Directors be independent. The Board currently has nine members and following the Meeting, if all Director nominees are elected, will have eight members, five of whom will be independent.
Size and Composition
The GHRC Committee works with the Board to develop and update a long-term plan for the composition of the Board that takes into consideration the current strengths, competencies, skills, experience, personal attributes and any anticipated retirement dates of the Board members as well as the strategic direction of the Corporation and the skills, expertise, experience, competencies and attributes necessary for the Board. The GHRC Committee undertakes, on an annual basis, an examination of the size of the Board, with a view to determining the impact of the number of Directors on the effectiveness of the Board and the full engagement of each Director, and then recommends to the Board, if necessary, a reduction or increase in the size of the Board.
As part of the annual Board evaluation process, the Committee assesses each Director’s contribution to the Board and makes a recommendation to the Board regarding whether or not each Director will be invited to stand for re-election at the next annual meeting of the Corporation’s shareholders. This process also will allow each Director the opportunity to confirm his or her desire to continue as a member of the Board.
The Board of Directors is currently comprised of nine members. The twelve-year term limit of Mr. Moore, who has served as a Director since 2007, expires at the Meeting. The Board thanks Mr. Moore for his years of service and guidance. At its meeting held on March 26, 2019, the Board passed a resolution fixing the number of Directors at eight effective as of the close of the Meeting.
Each of the other eight current Directors has agreed to be nominated and stand for election or re-election at the Meeting.
The Board has determined that the proposed size and composition of the Board, including the collective skills, expertise, experience and attributes of the eight Director nominees, are appropriate to facilitate effective debate and decision-making. This relatively small number of Directors permits the Board to operate in an efficient and cohesive manner and encourages interactive decision-making. The Board believes that a diversity of views and experience enhances decision-making and enables the Board as a whole to fulfill its core responsibilities to the Corporation and help shape strategic direction. The members of the Board collectively possess a broad range of skills, expertise, industry and other knowledge, and business and other experience which contribute to the effective oversight of CI’s business. See “Board Expertise Matrix” below. Directors are not required to be specialists in the business of CI but rather to provide the benefit of their business experience, judgment and vision. See “Board Diversity” below for further information on the Board’s approach to diversity.
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Independence
At each meeting, the independent Directors have the opportunity to meet without non-independent Directors and members of management.
The Board believes that it is important that a majority of our Directors be independent. The Board is responsible for determining whether a Director is independent, using the standards set out in applicable legal and regulatory requirements and recommended guidance, including the definition and guidance in the Canadian Securities Administrators’ National Instrument 52-110 - Audit Committees (“NI 52-110”). In particular, the Board considers an individual to be independent if he or she has no direct or indirect relationship with CI which could, in the view of the Board, be reasonably expected to interfere with the exercise of that individual’s independent judgment.
Each year the Directors are asked to provide the Corporation with information necessary for completion of this Information Circular, including information concerning any other directorships or business or other relationships which could affect an assessment of independence. The GHRC Committee and the Board consider this information when determining whether a Director is independent. Directors are also required to let the Chairman of the Board and the chair of the GHRC Committee know if there are any material changes in their circumstances or relationships which could affect an assessment of independence.
Based upon information provided by each of the Directors, the GHRC Committee and the Board have determined that the following five of eight Directors standing for re-election or standing for election for the first time are independent: Brigette Chang-Addorisio, William E. Butt, David P. Miller, Tom P. Muir and Paul J. Perrow. The GHRC Committee and the Board have determined that Peter W. Anderson, William T. Holland and Sheila A. Murray are not independent.
The Board of Directors believes that the fact that five of the eight Directors of the Corporation are independent under applicable legal and regulatory requirements and interpretative best practices is an important factor in assuring the ability of the Board to act independently of management.
Mr. Holland has been the Chairman of the Board since September 1, 2010. Prior to this date, Mr. Holland was the Chief Executive Officer of the Corporation. In order to address any governance concerns that may arise as a result of having Mr. Holland serve as Chairman, whether in an Executive or non-Executive capacity, the Board decided to continue the appointment of an independent Director to the position of Lead Director. This is discussed in greater detail under “Lead Director” below.
The Board has instituted certain processes to ensure that the Board can exercise independent oversight. For instance, each meeting is chaired by the Lead Director and in order to facilitate candid discussions among the independent Directors, at each meeting the independent Directors meet without the non-independent Directors present. In addition, the Board of Directors or any committee thereof is authorized to engage independent counsel and other advisors it determines necessary to carry out its duties and responsibilities, and require CI to pay the compensation and charged expenses for any such advisors. Except in unusual circumstances, the Board will consult with the Chief Executive Officer prior to appointing external advisors.
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Board Expertise Matrix
The Board believes that a diversity of views and experience enhances decision-making and enables the Board as a whole to fulfill its core responsibilities to the Corporation and help shape strategic direction. The members of the Board collectively possess a broad range of skills, expertise, industry and other knowledge, and business and other experience which contribute to the effective oversight of CI’s business. Directors are not required to be specialists in the business of CI but rather to provide the benefit of their business experience, judgment and vision.
In making its Director nominee recommendations, the GHRC Committee and the Board consider the competencies, skills and attributes that the Board considers to be necessary for the Board as a whole to possess, the competencies, skills and attributes that the Board considers each existing director to possess, and the competencies, skills and attributes any new nominee will bring to the boardroom.
The Board is comprised of individuals who bring the right mix of knowledge, interest, skills and experience relevant to the Corporation and required on the Board to fulfill its mandate. The following areas of expertise are the core competencies of the Board:
§ Accounting and Finance | § Mutual Funds / Financial Services | § CEO Experience / Strategic Leadership |
§ Risk Management | § Regulatory Affairs | § Human Resources / Compensation |
§ Governance / Legal | § IT / Fintech |
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The following table provides more detailed information with respect to the core areas of expertise of each nominated Director:
DIRECTOR
|
Independent |
Accounting
and Finance |
Mutual
Funds / Financial Services |
Regulatory
Affairs |
CEO
Experience / Strategic Leadership |
Risk
Management |
Governance
/ Legal |
Human
Resources / Compensation |
IT /
Fintech |
|||||||||||
Peter W. Anderson | X | X | X | X | ||||||||||||||||
William E. Butt | X | X | X | X | ||||||||||||||||
Brigette Chang-Addorisio | X | X | X | X | X | |||||||||||||||
William T. Holland | X | X | X | X | ||||||||||||||||
David P. Miller | X | X | X | X | X | X | ||||||||||||||
Tom P. Muir | X | X | X | X | X | X | X | |||||||||||||
Sheila A. Murray | X | X | X | X | X | X | X | |||||||||||||
Paul J. Perrow | X | X | X |
In addition, when assessing a nominee for Director, the Board will expect the nominee to demonstrate:
§ Sound business judgment | § High ethical standards | § Commitment to CI |
§ Good communication skills and the ability to influence decision-making | § Proven track record | § Team player mentality |
The Board and the GHRC Committee will consider the extent to which the interplay of the individual’s expertise, skills, knowledge, experience and personal attributes with that of other members of the Board will build a high-performance Board that is effective, collegial and responsive to the needs of the Corporation and its subsidiaries.
In making its recommendations, the Board and the GHRC Committee’s assessment is also based on the following criteria
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· | diversity of viewpoints, backgrounds, experiences, gender and other demographics; |
· | current or previous experience on other boards; and |
· | the appropriate level of representation on the Board by directors who are independent of management and who are neither officers nor employees of the Company or any of its subsidiaries. |
Term Limits
Effective May 10, 2018, the Board adopted a twelve-year term limit for all Directors, applicable to Directors who have served on the Board less than twelve years as of that date.
The Board believes that a Director’s effectiveness is enhanced by experience on the Board and also recognizes the importance and value of adding new Directors who bring a diversity of views and a fresh outlook. Effective May 10, 2018, the Board adopted a twelve-year term limit for all Directors, applicable to Directors who have served on the Board less than twelve years as of that date. The term limit does not apply to the Chief Executive Officer. This replaced the term limit introduced on August 4, 2016 for all Directors other than the Chief Executive Officer and Chairman, of nine years for Directors who had served less than nine years as of such date and an outside limit of 20 years.
Term limits are not intended to discourage the full and frank assessment of each Director’s contribution to the Board on an annual basis. The term limits are not intended to and do not in any way assure each Director of a twelve-year term. Board composition and the continued nomination of Directors are considered each year and assessments are made on a case by case basis, taking into account the skills and contribution of each Director. The Board has not adopted a mandatory retirement age for Directors.
The average tenure of the eight Director nominees is approximately 5.6 years, and the average tenure of the seven Director nominees standing for re-election is approximately 6.4 years. The average tenure of the five independent Director nominees is 3.2 years.
Directorships and Board Interlocks
To ensure that each Director is able to commit sufficient time and energy to fulfill his or her duties as a member of the Board, and to avoid circumstances that may impact independence, CI limits service by Directors on outside public company boards of directors and committees:
(a) | Directors who are chief executive officers or other senior executives of public companies may hold at most two outside public company directorships and other Directors may hold no more than four outside public company directorships. |
(b) | No Director that is a member of the Audit and Risk Committee may sit on more than three outside public company audit committees. |
(c) | The Corporation’s Chief Executive Officer may not sit on the board of directors of an outside public company. |
(d) | No Director may serve on the board of a competitor or of a regulatory body with oversight of the Corporation or its subsidiaries or any other board which the GHRC Committee reasonably determines is inadvisable. |
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CI also limits the number of other boards its Directors can serve on together. No more than two Directors may sit on the same outside public company board of directors. Exceptions to the above guidelines may be granted with the consent of the Board.
Directors are required to advise the Chairman of the Board and the chair of the GHRC Committee before accepting a directorship on an additional public, private or not-for-profit board (or similar body) or membership on an additional board committee in order to provide an opportunity to verify that a Director continues to have the time and commitment to fulfil his or her obligations to the Board and to be satisfied that the Director is in compliance with the above guidelines and no real or apparent conflict of interest would result.
In addition, Directors must notify the Chairman of the Board and the chair of the GHRC Committee before establishing other significant relationships with businesses, institutions, governmental units or regulatory entities, particularly those that may result in significant time commitments or a change in the Director’s relationship to the Corporation or its affiliate or potentially impact the reputation of CI.
Lead Director
An independent Director, Tom P. Muir, is the Lead Director and chairs each meeting of the Board and Shareholders. The Lead Director is the Chair of the Audit and Risk Committee and an ex officio member of the GHRC Committee.
Mr. Muir, an independent Director, has been on the Board since 2011 and assumed the role of Lead Director at the close of the annual meeting of Shareholders held on June 18, 2018.
The Lead Director facilitates the functioning of the Board independently of management and provides independent leadership to the Board. The Lead Director, together with the Chairman, sets the agenda for each Board meeting with a view to the Board’s role in the stewardship of CI and the provision of oversight and guidance with respect to CI’s strategic plan. The Lead Director assists the Chairman, as well as the Board’s GHRC Committee, in the promotion of a high-performance Board culture that is conducive to the full engagement by all Board members and promotes challenging and constructive debate and effective decision-making.
The Lead Director serves as a liaison between management and the Board, where necessary. The Lead Director also chairs each Board meeting and the annual meetings of the Shareholders. The Lead Director is the Chair of the Audit and Risk Committee and an ex officio member of the GHRC Committee. Further information on the role of the Lead Director is included in the section of this Information Circular entitled “Statement of Governance Practices – Position Descriptions – Lead Director.”
Director Attendance
Each of the Corporation’s Director nominees standing for re-election attended 100% of all regularly scheduled and special Board meetings and all applicable committee meetings. The meeting attendance record for each Director is disclosed on page 14 of this Information Circular.
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Four quarterly meetings of the Board are scheduled for each fiscal year, and special meetings are called as necessary. The frequency of meetings and the nature of agenda items depend on the state of CI’s affairs and particular opportunities or risks that CI faces. During the fiscal year ended December 31, 2018, the Board met six times.
As part of each Board meeting, the independent Directors meet in the absence of management to independently assess the performance of senior management and to discuss issues involving CI.
Ethical Business Conduct
The Board takes its responsibility for setting the moral tone of the Corporation seriously. The Board receives quarterly reports regarding compliance with the Code of Business Conduct and Ethics and other policies which are designed to foster a culture of integrity.
In November 2006, the Board adopted a written code of business conduct and ethics (the “Code”), which constitutes written standards designed to promote integrity and to deter wrongdoing. The Code applies to the Corporation’s Directors and to the officers and employees of the Corporation and its subsidiaries. The Code is reviewed annually and updated, when necessary. The Code addresses, among other things, the following issues:
(a) | compliance with laws, rules, regulations and CI policies and procedures; |
(b) | conflicts of interest; |
(c) | protection of confidential information; |
(d) | protection of opportunities belonging to CI; |
(e) | anti-money laundering legislation and regulations; |
(f) | protection and proper use of CI assets; |
(g) | competition and fair dealing, including with CI’s competitors; |
(h) | gifts and entertainment and payments to government personnel, including conduct which the Corporation considers foreign corrupt practices; |
(i) | political donations and activities; |
(j) | discrimination and harassment; |
(k) | health and safety; |
(l) | accuracy of CI records and reporting; |
(m) | use of phone, fax, email and internet services; and |
(n) | disclosure requirements and CI disclosure policy. |
Personnel are expected and encouraged to talk to supervisors, department heads or other appropriate personnel if they have breached the Code or have observed a breach of the Code by others or observed a deficiency in the Corporation’s policies, procedures or controls which might enable a breach to occur or go undetected. CI does not permit any acts of retaliation for reports of misconduct by others. The Code also outlines compliance procedures to be followed to report any such breaches of the Code or other questionable conduct, including with respect to accounting and auditing matters, on a confidential and anonymous basis. The compliance department of CI monitors compliance with the Code and requires each employee to certify annually that they have read the Code and agree to comply with it.
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To ensure that the Directors exercise independent judgment in considering transactions, agreements or decisions in respect of which a Director or executive officer has declared a material personal interest (in accordance with relevant provisions of corporate law), the Board follows a practice whereby any such Board member must be absent during any Board discussion pertaining thereto and not cast a vote on any such matter.
Under the Code, any waivers from the requirements in the Code that are to be granted for the benefit of Directors or executive officers may only be granted by the Board (or a committee of the Board to whom that authority has been delegated) and will be promptly disclosed as required by law or regulation. No waivers of the Code have been granted to date.
The Code can be viewed on CI’s website at www.cifinancial.com or at www.sedar.com.
CI has adopted formal policies to further ensure ethical business conduct, including an Anti-Bribery and Anti-Corruption Policy, Anti-Money-Laundering Policy and Procedures, a Sales Practices Policy and a Conflict of Interest Policy and Procedures.
Complaint and Grievance System
CI has adopted a formal Complaint and Grievance System to assist employees, supervisors and managers in conflict resolution. In cases of conflict, employees may submit complaints to their supervisor or the Chief Talent Officer. CI’s Human Resources Department is available to provide direction and counsel to employees, supervisors and managers in conflict situations.
Committees of the Board
There are currently two standing committees of the Board — the Audit and Risk Committee and the GHRC Committee. The Board has delegated certain authority and responsibilities to each of these committees and has mandated that each of them perform certain advisory functions and make recommendations to the Board. Only independent Directors can serve on these committees. The Lead Director serves as an ex officio member of each of the Board’s standing committees and is currently the Chair of the Audit and Risk Committee.
Each committee of the Board has a written charter. A copy of the Audit and Risk Committee Charter is contained in Appendix “A” in the Annual Information Form available on SEDAR at www.sedar.com. The GHRC Committee Charter is available on the Corporation’s website at www.cifinancial.com. Each committee is required to review and reassess its charter at least annually.
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Audit and Risk Committee
The Audit and Risk Committee currently has four independent Directors as its members: Mr. W.E. Butt, Mr. T.P. Muir (Chair), Mr. S.T. Moore and Ms. B. Chang-Addorisio. Each member of the Audit Committee is independent and financially literate (as such terms are defined under NI 52-110). The Audit and Risk Committee is responsible for reviewing quarterly financial statements, annual financial statements and other financial disclosure documents prior to their approval by the full Board. The committee is also responsible for selecting and recommending to the Board the appointment and compensation of the external auditors, reviewing CI’s financial reporting process, internal controls and the performance of CI’s external auditors, and approving non-audit services by the external auditors. The external auditors and CI’s Chief Internal Auditor report directly to the Audit Committee. CI’s Chief Internal Auditor and external auditors meet quarterly with the Audit and Risk Committee and with the external auditors without management present.
In addition, the Audit and Risk Committee is responsible for the oversight of the Corporation’s systems to monitor and manage major business risks and legal and ethical compliance programs, including through regular reports on compliance systems and procedures and reports on the Corporation’s risk management policies and procedures. The Audit and Risk Committee meets quarterly with the Corporation’s management. The Audit and Risk Committee reviews and recommends to the Board for approval the risk related disclosure in the Corporation’s Annual Information Form and management’s discussion and analysis. Additional information regarding the Audit and Risk Committee, including its written charter, composition, and the relevant education and experience of its members is included in the Annual Information Form available on SEDAR at www.sedar.com.
GHRC Committee
The GHRC Committee currently has four independent Directors as its members: Messrs. D.P. Miller (Chair), S.T. Moore, P. Perrow and T.P. Muir (ex officio). The GHRC Committee assists the Board in overseeing CI’s compensation policies and practices, as well as assisting the Board in the strategic oversight of CI’s human capital, including with respect to organizational effectiveness, succession planning and talent management. The Committee is also responsible for developing CI’s approach to governance issues and overseeing the corporate governance process.
With respect to the Corporation’s compensation policies and practices, the GHRC Committee oversees management’s development of compensation policies and practices to provide fair and competitive compensation to CI’s employees, including senior management, and that CI’s compensation policies do not have unintended risk consequences. The GHRC Committee is responsible for evaluating the Chief Executive Officer’s performance and contribution to the success of the Corporation and making compensation recommendations. The GHRC Committee also reviews an annual compensation report prepared by management and recommends to the Board the compensation of any officers of the Corporation who report directly to the Chief Executive Officer, including the Named Executive Officers. The GHRC Committee also recommends to the Board for approval the terms of the compensation of Directors, the Chairman of the Board and those acting as Committee Chairs and Committee members.
The GHRC Committee assists the Board in its strategic oversight of the Corporation’s employee matters, and is responsible for reviewing the Corporation’s senior management succession plan and monitoring the progress and development of senior management in accordance with succession plans, overseeing and monitoring talent development and retention strategies and assessing the “tone at the top” set by the Chief Executive Officer and other senior management through the promotion of integrity, ethics and corporate diversity. In addition, the GHRC Committee is responsible for reviewing the Corporation’s executive compensation disclosure and reporting to securityholders on remuneration.
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The GHRC Committee is also responsible for overseeing CI’s corporate governance program and processes, including ensuring that the Board functions independently of management and promoting a Board culture that optimizes Board effectiveness. The GHRC Committee conducts an annual review of Board and Director effectiveness and engagement of each Director. Based upon this review, the GHRC Committee makes recommendations aimed at enhancing Board and committee effectiveness, including in connection with director succession planning and the nomination of Director candidates. The GHRC Committee also makes recommendations to the Board with respect to Director compensation and share ownership guidelines. The GHRC Committee is also responsible for Director orientation and education.
Board, Committee and Director Assessment
The GHRC Committee ensures that an appropriate system is in place to annually evaluate the effectiveness of the Board as a whole, as well as the committees of the Board, with a view to ensuring that they are fulfilling their respective responsibilities and duties. In connection with these evaluations, each year every Director is requested to provide his or her assessment of the effectiveness of the Board and each committee, as well as the contribution and performance of the individual Directors, including the Chairman, Lead Director and committee chairs. Each Director also completes a self-evaluation form. The process is designed primarily to provide constructive input for the improvement of the Board. These evaluations consider the competencies and skills each Director is expected to bring to his or her particular role on the Board or a committee and the contribution of each Director to the effectiveness of the Board, as well as any other relevant facts. For fiscal 2018, the Directors completed a written Board effectiveness assessment and self-evaluation form, which is summarized on a confidential basis by the chair of the GHRC Committee in a report that is presented to the Board for discussion. The GHRC Committee chair is available should any Director wish to discuss his or her written responses to the questionnaire or otherwise provide input on Board effectiveness.
The written Director assessment is not intended to stifle comment and the Directors are invited to raise any matters of concern with the chair of the GHRC Committee. The topics included in the Director assessment questionnaire include:
§ Board Composition, including Diversity | § Risk Management | |
§ Duties and Responsibilities | § Leadership | |
§ Management Performance and Compensation | § Board Succession | |
§ Committee Structure and Effectiveness | § Relationship with Management | |
§ Management / Organization Compliance | § Planning and Appraisal |
In addition, each Director is asked to compare the Board with other boards of directors on which he or she serves in areas such as quality of leadership, culture and effectiveness, among others. Directors are also asked to rank the relative strength of the Board in a number of areas, including industry-specific knowledge, relationship with management, commitment to the Corporation and effective decision-making and to rank the relative strength of the Board’s oversight function in each of the Board’s core areas of responsibility, as set out in the Board Mandate.
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The objective of the confidential Director self-evaluation form is to improve the overall performance of the Board by assisting individual Directors to build on their strengths and identify areas for continuing development. Each Director is asked to self-evaluate with respect to his or her individual goals, objectives, participation and contribution.
Position Descriptions
The Board has approved written position descriptions for the Chairman of the Board, the Lead Director and the Chairs of the Board Committees.
Chairman
The Chairman’s role is to provide broad-based leadership and direction to the Board in its stewardship of the Corporation and oversee, guide and support the Board in fulfilling its duties and responsibilities in an effective and independent manner. The Chairman also serves as a strategic advisor to senior management with respect to the Corporation’s business and the industry. The Chairman’s primary responsibilities include, but are not limited to:
(a) | Ensuring that the structure and composition of the Board, including Board size and the mix of Directors’ knowledge, interests, skills and experience, facilitate effective and interactive decision-making. |
(b) | Promoting a high-performance Board culture that is conducive to the full engagement by all Board members and encourages challenging and constructive debate. |
(c) | Together with the Lead Director, calling and organizing meetings of the Board, including setting the agenda for each Board meeting with a view to CI’s long-term strategic priorities. |
(d) | Ensuing that the Board is provided with the necessary resources, training and development with respect to the industry and CI’s business to enable each Director to fulfill his or her duty to act in the best interests of the Corporation. |
(e) | Fostering a constructive and effective working relationship between the Board and the Chief Executive Officer. |
(f) | Collaborating with the Chief Executive Officer to recruit and mentor top executives and monitor and evaluate senior managerial and corporate performance. |
(g) | Advising senior management in its consideration of strategic opportunities and transactions, including in the areas of capital allocation, technology and growth strategies. |
(h) | Providing strategic support and counsel to senior management with respect to the business in which the Corporation operates and its business development, growth trajectory and strategic direction. |
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(i) | Ensuring the effective communication of the Corporation’s culture, values and objectives to the Shareholders and other stakeholders. |
(j) | Acting, together with the Chief Executive Officer, as a liaison with the Corporation’s various stakeholders. |
Lead Director
The Lead Director’s role is to facilitate the functioning of the Board independently of management and provide independent leadership to the Board. The Lead Director’s duties include, but are not limited to, the following:
(a) | Ensuring that the Board functions independently from management in carrying out the Mandate of the Board and fulfilling its fiduciary obligations to the Corporation. |
(b) | Guiding the views, concerns and issues of the independent Directors and keeping the Chairman of the Board fully informed of any concerns raised by the Board. |
(c) | Advocating, in consultation with the Chairman, and enforcing a strong governance framework for the Board. |
(d) | Encouraging Directors to stay informed about the Corporation’s business and industry, including by working with the Chairman to provide access to an effective architecture of information designed to inform Directors of the key activities undertaken by the Corporation and the central issues facing the Corporation. |
(e) | Together with the Chairman, setting the agenda for each Board meeting with a view to the Board’s role in the stewardship of the Corporation and the provision of oversight and guidance with respect to the Corporation’s strategic plan. |
(f) | Chairing each meeting of the Board, including any meetings or portions of meetings of the independent Directors in the absence of management. |
(g) | Assisting the Chairman, as well as the Board’s GHRC Committee, in the promotion of a high-performance Board culture that is conducive to the full engagement by all Board members and promotes challenging and constructive debate and effective decision-making. |
(h) | Serving as a member of each of the Board’s standing Committees and acting as a liaison between the independent Directors and executive Directors. |
(i) | Leading the Directors in providing independent oversight and guidance with respect to the Corporation’s strategic plan, including by challenging management to maintain a long-term view of the Corporation’s objectives and approving the Corporation’s overall strategic framework. |
(j) | Actively participating, in consultation with the GHRC Committee, in management succession planning, including the recruitment, appointment and monitoring of the Chief Executive Officer. |
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Committee Chairs
The Board has delegated certain responsibilities to its committees and requires that each of them perform certain advisory functions and make recommendations to the Board in accordance with written charters. See “Committees of the Board” above.
The most important responsibility of the chair of each committee of the Board is to ensure that the responsibilities of the committee as set out in the committee’s Charter are carried out in an effective manner independently from management. Each committee is required to reassess its Charter at least annually and report to the Board thereon. The Charter may also assign specific additional responsibilities to the chair of the committee. The responsibilities of the Chair of each committee include, but are not limited to, the following:
(a) | Ensuring that the committee is effectively organized to carry out its duties and responsibilities. |
(b) | Promoting a committee culture that is conducive to the full engagement by all committee members and encourages challenging and constructive debate and effective decision-making. |
(c) | Working with the Secretary of the Corporation to develop and refine the committee’s annual forward agenda to capture long-term issues and evolving priorities, as well as regular business items. |
(d) | Chairing each meeting of the committee and setting the agenda for committee meetings, with a view towards the committee’s responsibilities as enumerated in the committee’s Charter. |
(e) | Retaining outside advisors or experts as may be required. |
(f) | Reporting to the Board on the work of the committee and material matters discussed or considered by the committee at least quarterly, or more frequently as necessary, building an environment of open communication and robust discussion at the Board level. |
(g) | Maintaining regular communication with the Chairman, Lead Director, and Chief Executive Officer, as well as other members of senior management. |
The Directors review the performance of the individuals who occupy these positions on at least an annual basis and use this opportunity to assess and update the responsibilities of each committee and its chair as described above under “Board, Committee and Director Assessment”.
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Orientation and Education
CI provides an orientation program for newly elected Directors and provides information for all Directors on the activities of CI and its subsidiaries on an ongoing basis. Board members are also provided with opportunities to attend continuing education programs run by third parties.
The GHRC Committee oversees director orientation to assist new Directors in understanding the operation of the business and the affairs of the Corporation and the role of, and expectations as to contributions to be made by, the Board and its committees. New Directors meet with senior management, including the Chief Executive Officer, for comprehensive sessions on the Corporation’s financial performance, including key value metrics and risk management, the Corporation’s business lines and the role of operations, governance and compliance. As well, new Directors receive a Director Orientation Manual, which, along with other material, contains a summary of CI’s structure and key policies and procedures, including the Code.
Directors are offered the opportunity on a regular basis, and new Directors are required, to tour CI’s head office operations and to meet and make inquiries of CI and its subsidiaries’ senior managers. Between meetings of the Board, senior management keeps Board members up to date on the business of the Corporation. CI encourages its Directors to maintain the skills and knowledge necessary to meet their obligations as Directors and as members of key Board committees. Management arranges for speakers from inside and outside the Corporation who are knowledgeable about the industry and the economy to meet with the Board, without management present, to discuss matters of interest to the Board and answer questions.
In addition, as summarized in the table below, during 2018, Directors participated in information and education sessions on a variety of topics as part of the Corporation’s regularly scheduled or special Board and Committee meetings. Members of the Board and Committees, as applicable, participated in such sessions at the Board and Committee meetings held in February, May, June, August, and November.
TOPIC | FORUM |
Business Development & Strategy Quarterly reports concerning sales and marketing of retail products as well as updates on institutional business and portfolio management led by responsible executives of the Corporation and its affiliates, as applicable.
|
All regularly scheduled Board meetings.
|
Corporate Strategy Information and education session led by William Priest, Chief Executive Officer, Epoch Investment Partners, Inc. and Neil Selfe, Chief Executive Officer, INFOR Financial Inc.
|
Board meeting. |
Corporate Development and Strategy Quarterly update focusing on opportunities, challenges and strategies led by Chief Executive Officer and President.
|
All regularly scheduled Board meetings. |
Human Resources Information and education sessions on human resources and employment considerations led by head of human resources.
|
All regularly scheduled GHRC Committee meetings. |
Industry Update Information and education session on investment strategy and developments led by Richard Jenkins, Chairman and Managing Director of Black Creek Investment Management Inc.
Information and education session and investment update led by President of BBS Securities.
|
Board meeting.
Board meeting.
|
Information Technology Information and education sessions on information technology and security led by Chief Operating Officer and head of technology.
|
All regularly scheduled Audit and Risk Committee meetings. |
Risk Management Information and education sessions on the Corporation’s risk management structure, function and process led by Chief Risk Officer. |
All regularly scheduled Audit and Risk Committee meetings. |
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To date in 2019, Directors have participated in the following information and education sessions as part of the regularly scheduled meetings of the Board or committees, as indicated, which were held in February and May 2019.
TOPIC | FORUM |
Corporate Development and Strategy Quarterly updates focusing on opportunities, challenges and strategies led by Chief Executive Officer and President.
|
All regularly scheduled Board meetings |
Business Development & Strategy Quarterly reports concerning sales and marketing of registered products as well as updates on institutional business and portfolio management led by responsible executives of the Corporation and its affiliates.
|
All regularly scheduled Board meetings |
Human Resources Information and education sessions on human resources and employment considerations led by head of human resources.
|
All regularly scheduled GHRC Committee meetings |
Industry Update Information and education on investment strategy and developments led by Capital Markets Strategist.
|
All regularly scheduled Board meetings |
Risk Management Information and education session on the Corporation’s risk management structure, function and process led by Chief Risk Officer. |
All regularly scheduled Audit and Risk Committee meetings |
Board Diversity
CI believes in diversity and values the benefits that diversity can bring to the Board. Diversity enhances decision-making and can enable the Board to function more effectively in fulfilling its core responsibilities. CI has an inclusive culture which respects and encourages diversity at all levels of the organization.
CI and the Board believe that diversity of thought, problem solving approaches and views enhances decision-making and provides for more effective management of the Corporation. For purposes of Board composition, diversity includes, but is not limited to, differences in age, ethnicity, religion, business experience, education, skills or gender. As noted above, your Board members collectively possess a broad range of skills, experience and business knowledge.
The Board does not have a specific policy regarding diversity or a target for gender diversity; however the GHRC Committee is required to and does consider gender diversity when recruiting and making recommendations regarding new Directors. The Corporation and the Board are committed to a merit-based system for Board composition within a diverse and inclusive culture which solicits multiple perspectives and views and is free of conscious or unconscious bias and discrimination. When assessing Board composition or identifying suitable candidates for appointment or re-election to the Board, the GHRC Committee and the Board will consider candidates on merit against objective criteria having due regard to the benefits of diversity and the needs of the Board.
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When filling vacancies on the Board, the Board directs the GHRC Committee to ensure that female candidates are given serious, appropriate consideration, taking into account the importance of diversity on our Board. The objective of the GHRC Committee in recruiting new Directors is to ensure that the Board as a whole possesses diverse characteristics. At any particular time, the Board will be looking for candidates with the right mix of age, skills, experience and industry knowledge to fill a vacancy. Female candidates for director will be included in the list of potential Board nominees. When considering new candidates to fill vacancies on the Board, the GHRC Committee considers both male and female candidates.
Two of the Corporation’s four newest Directors are female. The Board currently has two female Directors and seven male Directors for a proportionate representation by women on the Board of 22%. Following the close of the Meeting, assuming all Directors are elected, the Board will have two female Directors and six male Directors for a proportionate representation by women on the Board of 25%.
Time Period |
Percentage of
Female Directors |
|||
Prior to 2013 | 0 | % | ||
2013-2017 | 14 | % | ||
2018 – March 2019 | 25 | % | ||
March 2019 – Present | 22 | % | ||
June 2019 (prospective) | 25 | % |
Executive Officer Diversity
Diversity is integrated into our approach to talent management. The Corporation recognizes that diversity of thought enhances decision-making. Management also believes that diversity of thought is more likely to occur in an inclusive culture that respects differences, whether these differences are on the basis of age, ethnicity, religion, skills, experience, education or gender.
The Corporation has a very diverse employee population. The Corporation hires from the largest possible pool of talent on the basis of merit and then takes steps to ensure that the employees are supported and encouraged to achieve their career potential. Management is not aware of any institutional barriers to career advancement based on gender or other differences.
CI launched a Women’s Mentorship Program (the “Women in Leadership Program”) in 2012 and the Program has been extremely successful for the past seven years. The Women in Leadership Program was revamped in 2019 to provide an extended twelve to eighteen-month mentorship period and a more in-depth approach to the matching process to ensure the most successful match of high-potential individuals with a seasoned mentor from CI’s leadership team. The Women in Leadership Program helps mentees manage the delicacies of relationships and the increasing complexity of leadership roles, preparing them for a greater breadth of accountability as the organization changes and evolves. The Women in Leadership Program is entering its eighth year as a resounding success and has now been recognized as a leader in both its structure and results. Since the inception of the Women in Leadership Program, almost 100 women have participated.
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In addition, CI’s Mentee Alumni Group was initiated two years ago by two graduates of the Women in Leadership Program and allows for another form of female peer support and mentoring outside of the formal program. This program fosters a culture in which women can continue to support one another and facilitates peer mentoring in an environment of continuous learning.
CI also has a Mentor City program that is web-based and allows for broader matching across all areas of the organization. This program is non-gender specific and follows the same principles and methodology used in the Women in Leadership Program. This mentoring methodology is now being applied to support other initiatives in the organization, such as the “buddy” program for new hires, which is another form of peer mentoring.
Diversity and the objective of ensuring that all employees, officers and Directors are treated with integrity, honesty, fairness and respect, is a fundamental value that underlies CI’s policies and procedures. The consideration of the representation of women in senior officer positions is governed under these practices. Management is required to and does consider diversity in the hiring and advancement of executives and senior management. Management is concerned that the imposition of a target for women in executive officer positions could frustrate the ability of management to choose the person that they have determined is the best for the job and could be perceived by employees and potential employees as unfair. For that reason, CI does not establish targets for gender diversity.
Until her retirement on March 31, 2019, Sheila A. Murray served as President of the Corporation and of the Corporation’s major subsidiary since February 2016. Ms. Murray held positions of increasing responsibility and accountability since joining CI as General Counsel in January 2008. As President, Ms. Murray was central to the leadership of the Corporation through the creation, communication and implementation of our core mission, the development of strategy and the management of performance.
The Corporation, including its major subsidiary, has six female executive officers representing 27% of the total number of executive officers.
Compensation
The Board, acting on the recommendation of the GHRC Committee, reviews the adequacy and form of the compensation paid to the Chief Executive Officer, as well as any individual that reports to the Chief Executive Officer, and approves such compensation, as described in the Compensation Discussion and Analysis. The GHRC Committee or the Board may retain a compensation consultant to assist them in determining Board compensation but has chosen not to do so.
The Board, acting on the recommendation of the GHRC Committee, also reviews and approves the amount and form of annual compensation to be paid to the Directors and ensures that it reflects the workload and responsibilities of the Directors as well as the risks to which they are exposed.
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Share Ownership by Executive Officers and Directors
The Board has adopted the following share ownership guidelines to further align the interests of the Corporation’s executive officers and non-employee Directors of the Board with the interests of the shareholders and to promote the Corporation’s commitment to corporate governance (the “Share Ownership Guidelines”). The Share Ownership Guidelines for executive officers are determined as a multiple of the officer’s base salary. The Share Ownership Guidelines for non-employee Directors are determined as a multiple of the regular annual cash retainer paid to directors for service on the Board.
Position | Ownership Requirement | |
Chief Executive Officer | 5 times base salary | |
President (to the extent held separately from CEO) | 5 times base salary | |
Executive Officers | 3 times base salary | |
Other executives designated by the Board | To be determined by the Board | |
Chairman of the Board | 5 times annual retainer |
The thresholds set out in the Share Ownership Guidelines may be satisfied by Shares deliverable upon settlement of RSUs or DSUs, but does not include Shares underlying stock options.
Individuals subject to the Share Ownership Guidelines are required to achieve the applicable ownership threshold within three years after first becoming subject to the Share Ownership Guidelines. If an individual becomes subject to a greater ownership amount, due to promotion or an increase in base salary or annual Director’s fees, the individual is expected to meet the higher ownership threshold within two years.
Share prices of all companies are subject to market volatility. The Board believes that it would be unfair to require an executive officer or Director to buy more Shares simply because the Corporation’s share price drops temporarily. In the event there is a significant decline in the Corporation’s Share price that causes a Director’s or executive officer’s holdings to fall below the applicable threshold, the Director or executive officer shall not sell or transfer any Shares until the threshold has again been achieved.
As of the date hereof, each Director standing for re-election or election for the first time holds Shares that have, or previously during their tenure as a Director had, a market value at or above the minimum requirement. In aggregate, the nominated Directors own or control 19,346,991 Shares, DSUs and/or RSUs, representing approximately 8% of the outstanding Shares as of the date of this Information Circular, and aligning their interests with yours.
Restrictions on Trading and Hedging Shares of the Corporation
Under our Insider Trading Policy, employees, officers and directors are prohibited from speculating in Shares, purchasing financial instruments to hedge or offset a decrease in the market value of Shares owned, short selling Shares and buying or selling a call or a put in Shares.
67
Normal course issuer bid
Effective June 18, 2018, the TSX accepted CI’s notice of intention to commence a normal course issuer bid through the facilities of the TSX (the “Notice”) and effective December 13, 2018, the TSX accepted CI’s notice of intention to amend the Notice. Under the amended bid CI may purchase up to 25,356,405 Shares at the prevailing market price. Purchases under the bid will terminate no later than June 17, 2019. As of May 8, 2019, CI has acquired an aggregate of 23,188,900 Shares under the normal course issuer bid at an average price of $20.16 per Share. In February 2017, the TSX accepted notice from CI that Shares may be purchased under the Corporation’s normal course issuer bid by a trustee and used to settle vested RSUs under the RSU Plan, subject to certain of the TSX’s rules relating to normal course issuer bids and with such Shares counted towards the Share maximum that may be purchased under the Corporation’s normal course issuer bid. Shares purchased by CI under the normal course issuer bid will be cancelled, and Shares purchased by a trustee as described above will remain outstanding and be delivered to settle vested RSUs. Shareholders may obtain a copy of the Notice, without charge, by contacting the Corporate Secretary of CI. The Corporation intends to renew its normal course issuer bid effective June 18, 2019, subject to receipt of approval from the TSX.
Additional information
Additional information relating to CI is available on SEDAR at www.sedar.com and on CI’s website at www.cifinancial.com under the “CI Financial” section. Detailed financial information is provided in CI’s comparative financial statements and management’s discussion and analysis (“MD&A”) for its most recently completed financial year.
Securityholders may request copies of CI’s financial statements, MD&A, Annual Information Form and Annual Report for the most recent fiscal year upon request to the Corporate Secretary of CI at the head office of CI, or obtain them on CI’s website at www.cifinancial.com.
Other business
Management of CI currently knows of no matter to come before the Meeting other than the matters referred to in the Notice of the Meeting.
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Directors’ approval
The contents and sending of this circular have been approved by the Board of Directors of CI.
Toronto, Ontario | By Order of the Board of CI Financial Corp. |
May 8, 2019 | |
|
|
PETER W. ANDERSON | |
Director and President and Chief Executive Officer | |
CI Financial Corp. |
69
SCHEDULE A
ADVISORY VOTE ON APPROACH TO EXECUTIVE COMPENSATION
RESOLVED THAT, on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, the shareholders accept the approach to executive compensation disclosed in the Corporation’s management information circular delivered in advance of the 2018 Annual Meeting of the shareholders of CI Financial Corp.
* * * * *
If you have not indicated how you would like to vote your Shares on the Say on Pay vote, those Shares will NOT be voted on this resolution.
A-1
SCHEDULE B
CI FINANCIAL CORP.
BOARD OF DIRECTORS’ MANDATE
As of February 8, 2019
The Board of Directors (the “Board”) of CI Financial Corp. (the “Company”) is responsible for the stewardship of the Company and in that regard has the duty to manage or supervise the management of the business and affairs of the Company.
Composition
The Board is elected annually by shareholders. The articles of incorporation of the Company stipulate that the Board shall consist of a minimum of three and no more than fifteen Directors, with the number of Directors from time to time within such range being fixed by resolution of the Directors.
A majority of Directors shall be “independent”. “Independent” shall have the meaning, as the context requires, given to it in National Policy 58-101 – Disclosure of Corporate Governance Practices, as may be amended from time to time. All committees of the Board shall be composed solely of independent Directors.
The Board shall consider its size and composition on a regular basis, taking into account its responsibilities, the collective skills, expertise, experience and attributes of its members and the risks and strategic direction of the Company.
Term Limits
Effective May 10, 2018, the Board adopted a twelve-year term limit for all Directors, applicable to Directors who have served on the Board less than twelve years as of that date. Term limits are not intended to discourage the full and frank assessment of each Director’s contribution to the Board on an annual basis. Term limits do not apply to the Chief Executive Officer.
Duties and Responsibilities
The Board is responsible for the supervision of the business and affairs of the Company. Each member of the Board must act honestly and in good faith with a view to the best interests of the Company, and must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In fulfilling its mandate, the Board’s oversight and monitoring responsibilities include:
1. | Strategic Planning |
§ | Developing a depth of knowledge of the Company’s operations and business to assess the assumptions on which the Company’s strategic plans are based. |
§ | Providing oversight and guidance on the strategic issues facing the Company and the development of the strategic plan. |
§ | Approving significant business decisions not specifically delegated to management. |
§ | Approving, on at least an annual basis, a strategic plan of the Company, taking into account the risks and strategic direction of the Company. |
B-1
2. | Financial Information and Internal Controls |
§ | Overseeing the financial reporting and disclosure obligations of the Company imposed pursuant to laws, regulations, rules or policies. |
§ | Monitoring the integrity of the Company’s management information systems and the effectiveness of its internal controls through regular reporting by management and others. |
§ | Overseeing the processes underlying management’s certification and attestations with respect to the Company’s internal control and disclosure control procedures. |
§ | Approving the Company’s financial statements, management’s discussion and analysis (MD&A) and press releases disclosing financial information and overseeing the Company’s compliance with audit, accounting and reporting requirements. |
§ | Overseeing management of taxation issues. |
3. | Identification and Management of Risks |
§ | Reviewing reports of and receiving presentations related to processes in place to identify, manage and mitigate the principal risks inherent in the Company’s business and operations. |
§ | Overseeing and monitoring processes to provide reasonable assurance that the business of the Company is being operated in compliance with all applicable legal and regulatory requirements. |
4. | Human Resource Management and Executive Compensation |
§ | Reviewing and approving compensation policies and practices to enable the Company to attract, develop and retain skilled senior executives. |
§ | Overseeing the Company’s executive compensation and the compensation philosophy used in determining the compensation awarded to non-executive employees. |
§ | Overseeing succession planning for senior management, including recruiting, appointment and evaluation and, if necessary, termination of the Chief Executive Officer, and oversight of appointment and performance of other senior executive officers. |
5. | Governance |
§ | Developing, approving and monitoring the Company’s approach to corporate governance. |
§ | Establishing and maintaining formal processes for annual assessment of the effectiveness of the Board, individual directors and the Board committees. |
§ | Monitoring the size and composition of the Board and, at least annually, assessing the skills, expertise, experience, competencies and attributes of each Board member. |
§ | Examining, at least annually, the role and responsibilities of each of the Board committees to improve the effectiveness and efficiency of the Board. |
§ | Promoting a Board culture that optimizes Board effectiveness. |
§ | Taking reasonable steps to ensure that the Company has procedures in place to permit the Board to function independently. |
B-2
6. | Integrity and Ethics |
§ | Approving and monitoring compliance with the Company’s Code of Business Conduct and Ethics and other policies which foster a culture of integrity. |
§ | Obtaining reasonable assurance that the senior management strives to create a culture of integrity. |
§ | Establishing and overseeing a whistleblower process. |
7. | Corporate Communications |
§ | Satisfying itself that appropriate procedures and policies are in place regarding accurate and timely public disclosure, including reviewing and approving the Company’s Disclosure Policy. |
§ | Monitoring compliance with applicable corporate and securities law requirements regarding the accuracy and timeliness of disclosure. |
Committees
Subject to applicable laws and the Articles and By-laws of the Company, the Board shall delegate certain authority and responsibilities to its committees and require that each of them perform certain advisory functions and make recommendations to the Board in accordance with written charters. The Board has approved charters for each Board committee and shall approve charters for each new Board committee. The Board had established the following standing committees: the Audit and Risk Committee and the Governance, Human Resources and Compensation Committee. The Board may establish other Board committees or merge or disband any Board committee. Each committee is required to reassess its written charter at least annually and report to the Board thereon. The Board has also approved position descriptions for the Committee Chairs, the Lead Director and the Chairman of the Board. To facilitate communication between the Board and each Board committee, each Committee Chair shall provide a report to the Board on material matters considered by the committee at the first Board meeting after the committee’s meeting. The Lead Director shall be an ex officio member of each of the Board’s standing committees.
Meetings
The Board shall schedule four regular meetings annually and special meetings shall be called as necessary. The frequency of meetings and the nature of agenda items shall depend on the state of the Company’s affairs and particular opportunities or risks that the Company faces. In its discretion, the Board may elect to conduct all or any part of its meetings in the absence of management and/or the non-independent Directors.
(a) | Secretary and Minutes |
The Corporate Secretary, his or her designate or any other person the Board requests shall act as Secretary of Board meetings. Minutes of Board meetings shall be recorded and maintained by the Corporate Secretary and subsequently presented to the Board for approval.
B-3
(b) | Meetings Without Management |
The independent members of the Board shall hold regularly scheduled meetings, or portions of regularly scheduled meetings, at which non-independent Directors and members of management are not present.
The Lead Director, or his or her designate or any other person that the Board requests, shall act as Secretary for any regularly scheduled meetings, or portions of regularly scheduled meetings, at which members of management are not present. The Lead Director will inform the Secretary of any action items during an in camera meeting and the Secretary will include such action items in the minutes of the meeting.
(c) | Directors’ Responsibilities |
Each Director is expected to commit the time and resources necessary to properly carry out his or her duties. Each Director is expected to attend all meetings of the Board and any committee of which he or she is a member. Directors are expected to adequately prepare for all meetings of the Board, which requires each Director, at a minimum, to have read and considered the materials sent to them in advance of each meeting, and to actively participate in the meetings. New Directors are expected to understand fully the role of the Board and its committees and the expected contribution of individual Directors.
The Lead Director and the Chairman of the Board are responsible for setting a carefully crafted agenda, as well as fulfilling all other responsibilities enumerated in their respective position descriptions. Directors may propose agenda items through communication with the Lead Director.
Service on Other Boards and Committees
To ensure that each Director is able to commit sufficient time and energy to fulfill his or her duties as a member of the Board, and to avoid circumstances that may impact independence, the Board has established guidelines with respect to service by Directors on outside public company boards of directors and committees. Exceptions to the below guidelines may be granted with the consent of the Board.
(a) | Service on Other Public Company Boards |
Directors who are chief executive officers or other senior executives of public companies may hold at most two outside public company directorships and other Directors may hold no more than four outside public company directorships.
(b) | Service on Other Public Company Audit Committees |
No Director that is a member of the Audit and Risk Committee may sit on more than three outside public company audit committees.
(c) | Board Interlocks |
No more than two Directors may sit on the same outside public company board of directors.
(d) | Chief Executive Officer Service on Other Public Company Boards |
The Company’s Chief Executive Officer may not sit on the board of directors of an outside public company.
B-4
(e) | Other Conflicts of Interest |
No Director may serve on the board of a competitor or of a regulatory body with oversight of the Company or its subsidiaries or any other board which the Governance, Human Resources and Compensation Committee reasonably determines is inadvisable.
Directors are required to advise the Chairman of the Board and the Chair of the Governance, Human Resources and Compensation Committee before accepting a directorship on an additional public, private or not-for-profit board (or similar body) or membership on an additional board committee in order to provide an opportunity to verify that a Director continues to have the time and commitment to fulfil his or her obligations to the Board and to be satisfied that the Director is in compliance with the above guidelines and no real or apparent conflict of interest would result.
In addition, Directors must notify the Chairman of the Board and the Chair of the Governance, Human Resources and Compensation Committee before establishing other significant relationships with businesses, institutions, governmental units or regulatory entities, particularly those that may result in significant time commitments or a change in the Director’s relationship to the Company or its affiliate or potentially impact the reputation of the Company.
Continuation of Board Members
When a Director’s principal occupation or business association changes substantially from the position he or she held when originally invited to join the Board (determined by reference to factors such as country of principal residence, principal occupation, industry affiliation, other boards on which the Director serves etc.), the Board shall, considering the recommendation of the Governance, Human Resources and Compensation Committee and in light of all the circumstances, determine whether to request that the Director resign.
Authority of the Board
The Board shall have unrestricted access to management and employees of the Company. The Board requires timely and accurate reporting from management and shall regularly review the quality of management’s reports.
Subject to prior consultation with the Chief Executive Officer (except in unusual circumstances), the Board is authorized to:
1. | retain and terminate external legal counsel, consultants and other advisors it determines necessary to carry out the Board’s duties and responsibilities; and |
2. | set and require the Company to pay the compensation and charged expenses for any advisors engaged by the Board. |
Security Ownership by Directors
Effective February 16, 2017, each Director (except Directors who are officers of the Company) is required to beneficially own that number of securities of the Company the market value of which is at least three times the annual Directors’ fees paid to such Director. Directors will be given three years to meet this ownership requirement. New Directors will be given three years following their appointment to meet this ownership requirement. Each Director who is a member of management of the Company is required to beneficially own that number of securities of the Company the market value of which is at least five times his current base salary.
B-5
Annual Review of the Mandate
In connection with the preparation of the Company’s management information circular for the annual meeting of shareholders, the Board shall review and reassess the Mandate for adequacy and make changes as it deems necessary.
No Rights Created
This Mandate is a statement of broad policies and is intended as a component of the governance framework within which the Board, assisted by its committees, directs the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and listing requirements, as well as in the context of the Company’s Articles and By-laws, it is not intended to establish any legally binding obligations.
B-6
2 Queen Street East
Twentieth Floor
Toronto, Ontario
M5C 3G7
Phone: (416) 364-1145
Toll Free: 1-800-268-9374
E-mail: investorrelations@ci.com
Email (independent director): ci@muir99.com
Website: www.cifinancial.com
Exhibit 99.18
CI FINANCIAL CORP.
Report on Voting Results
Section 11.3 of National Instrument 51-102
The following discloses the voting results of the annual and general meeting of the shareholders of CI Financial Corp. (the “Corporation”) held on June 24, 2019. Shareholders holding an aggregate of 190,339,337 common shares (79.17% of outstanding shares) were present or represented by proxy at the meeting.
1. | Election of Directors |
Each of the following nominees was elected as a director of the Corporation to serve until the close of the next annual meeting of the shareholders:
Nominee | Votes For | % For | Votes Withheld | % Withheld | ||||||||||||
Peter W. Anderson | 187,402,529 | 99.08 | % | 1,745,961 | 0.92 | % | ||||||||||
William E. Butt | 183,207,433 | 96.86 | % | 5,941,057 | 3.14 | % | ||||||||||
Brigette Chang-Addorisio | 182,274,088 | 96.37 | % | 6,874,402 | 3.63 | % | ||||||||||
William T. Holland | 184,444,265 | 97.51 | % | 4,704,225 | 2.49 | % | ||||||||||
David P. Miller | 159,008,696 | 84.07 | % | 30,139,794 | 15.93 | % | ||||||||||
Tom P. Muir | 187,933,559 | 99.36 | % | 1,214,931 | 0.64 | % | ||||||||||
Sheila A. Murray | 159,264,881 | 84.20 | % | 29,883,609 | 15.80 | % | ||||||||||
Paul J. Perrow | 187,711,303 | 99.24 | % | 1,437,187 | 0.76 | % |
2. | Appointment of Auditors |
Shareholders re-appointed Ernst & Young LLP as the auditors of the Corporation to hold office until the close of the next annual meeting of the shareholders.
Outcome | Votes FOR | % | Votes WITHHELD | % | ||||||||||||
Carried | 185,032,254 | 97.37 | % | 5,007,520 | 2.63 | % |
- 2 -
3. | Say on Executive Compensation |
On an advisory basis, Shareholders accepted the approach to executive compensation disclosed in the Management Information Circular dated May 8, 2019.
Outcome | Votes FOR | % | Votes AGAINST | % | ||||||||||||
Carried | 139,198,512 | 73.61 | % | 49,907,888 | 26.39 | % |
For additional information, please see the Management Information Circular.
DATED the 25th day of June, 2019.
“Bradley R. Howard” | |
Bradley R. Howard | |
Corporate Secretary | |
CI Financial Corp. |
Exhibit 99.19
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the annual meeting of holders (“Shareholders”) of common shares (the “Shares”) of CI Financial Corp. (the “Corporation” or “CI”) will be held on Thursday, June 18, 2020 at 2:00 p.m. (Toronto time) solely as a virtual (online) meeting by way of live audio webcast at https://web.lumiagm.com/138936939 (the “Meeting”) for the following purposes:
1. | To receive the consolidated financial statements of CI for the fiscal year ended December 31, 2019, together with the auditors’ report thereon; |
2. | To elect directors of CI (the “Directors”) for the ensuing year; |
3. | To appoint auditors of CI for the ensuing year and authorize the Directors to fix the auditors’ remuneration; |
4. | To consider and provide an advisory vote on the board of Directors’ (the “Board”) approach to executive compensation; and |
5. | To transact such other business as may properly be brought before the Meeting or any adjournment thereof. |
The Management Information Circular dated May 5, 2020 (the “Information Circular”) provides additional information relating to matters to be dealt with at the Meeting. Shareholders are reminded to review the Information Circular before voting.
The Board has fixed the close of business on May 1, 2020 as the record date for determining Shareholders entitled to receive notice of, and to vote at, the Meeting and any postponement or adjournment of the Meeting. No Shareholders becoming Shareholders of record after that time will be entitled to vote at the Meeting, or any adjournment or postponement thereof.
Attending the Online Meeting
In light of the dangers associated with the COVID-19 pandemic, commonly known as the coronavirus, the Corporation wishes to mitigate risk to the health and safety of communities, Shareholders, employees and other stakeholders. For that reason, the Corporation is holding the Meeting solely as a virtual (online) meeting which will be conducted by way of live audio webcast.
Shareholders, regardless of geographic location and equity ownership, will have an equal opportunity to participate at the Meeting and engage with Directors and management of the Corporation as well as other Shareholders in real time. Shareholders will not be able to attend the Meeting in person, but virtual participation is encouraged.
Participants will need an Internet-connected device such as a laptop, computer, tablet or cellphone in order to access the virtual Meeting platform. The virtual Meeting platform will be fully supported across popular web browsers and devices running the most current version of applicable software plugins.
Registered Shareholders and duly appointed proxyholders will be able to participate in and vote online in real time at the Meeting at https://web.lumiagm.com/138936939 in accordance with instructions given in this Information Circular.
Non-registered Shareholders (being Shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as proxyholder will be able to attend the Meeting as guests but will not be able to participate or vote at the Meeting.
Voting – General Information
Registered Shareholders are requested to complete and return the form of proxy included in the Notice Package (as defined below). You may also vote your Shares by proxy by appointing another person to attend the virtual Meeting and vote your Shares for you. To be valid, the form of proxy must be completed, signed and dated and received by the proxy department of the Corporation’s transfer agent, Computershare Investor Services Inc., by mail (a return envelope is provided for that purpose) at Proxy Tabulation, 100 University Avenue, 8th Floor, Toronto Ontario, M5J 2Y1, on the internet at www.investorvote.com or by facsimile at 1-866-249-7775 / 416-263-9524, or instructions must be received by phone at 1-866-732-8683, in each case no later than 5:00 p.m. (Toronto time) on June 16, 2020 or if the Meeting is adjourned or postponed, no later than 5:00 p.m. (Toronto time) on the second business day before any adjourned or postponed Meeting. Failure to properly complete or deposit a proxy may result in its invalidation.
You are a non-registered Shareholder if your bank, trust company, securities dealer, broker or other intermediary holds your Shares for you. In that case, you will likely not receive a proxy form. Only proxies deposited by registered Shareholders can be recognized and acted upon at the Meeting. Please return your voting instructions as specified in the voting instruction form delivered to you in the Notice Package.
If a registered or non-registered Shareholder appoints a proxyholder other than the management nominees, that registered or non-registered Shareholder must also take the additional step of registering the proxyholder with the Corporation’s transfer agent, Computershare Investor Services Inc., at https://www.computershare.com/CIFinancial by 5:00 p.m. (Toronto time) on June 16, 2020, or the second business day before any adjourned or postponed meeting, after submitting their form of proxy or voting instruction form.
Failure to register the proxyholder with the Corporation’s transfer agent will result in the proxyholder not receiving a Username to participate in the Meeting and only being able to attend the Meeting as a guest.
Notice and Access Information
The Corporation is utilizing the notice and access mechanism under National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”) and National Instrument 54-101 - Communications with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”). Notice and access allows CI to post electronic versions of proxy-related materials online, rather than mailing paper copies of such materials to Shareholders.
Electronic copies of this Notice of Meeting, the Information Circular and the Corporation’s 2019 Annual Report (containing the audited consolidated financial statements of the Corporation for the year ended December 31, 2019 and Management’s Discussion and Analysis thereon) (the “Annual Report”) may be found on the Corporation’s pages on SEDAR at www.sedar.com and also on the Corporation’s website at www.cifinancial.com.
ii
Shareholders will receive paper copies of a notice package (the “Notice Package”) via prepaid mail containing the information prescribed by NI 51-102 and NI 54-101 and a form of proxy (if you are a registered Shareholder) or a voting instruction form (if you are a non-registered Shareholder), in each case with a supplemental mail list return box for Shareholders to request they be included in the Corporation’s supplementary mailing list for receipt of the Corporation’s annual and interim financial statements for the 2020 fiscal year.
Shareholders may obtain paper copies of the Information Circular and the Annual Report free of charge, or more information about notice and access, by contacting the Corporation’s transfer agent, Computershare Investor Services Inc., at 1-866-962-0498 within North America or direct, from outside North America, at 514-982-8716. In order to receive paper copies of these materials in time to vote before the Meeting, your request must be received by June 8, 2020.
May 5, 2020
By Order of the Board of Directors of CI Financial Corp.
KURT
MACALPINE
Director and Chief Executive Officer
CI Financial Corp.
Your vote is important. Whether or not you expect to attend the virtual Meeting, please exercise your right to vote. Shareholders who have voted by proxy may still attend the virtual Meeting and ask questions.
iii
Contents
MANAGEMENT INFORMATION CIRCULAR | 1 |
Notice and Access | 2 |
How to Vote your Shares | 2 |
How to Vote if you are a Registered Shareholder | 2 |
How to Vote if you are a Non-Registered Shareholder | 3 |
Completing the Proxy Form | 4 |
Participating at the Meeting | 5 |
Changing Your Vote/Revoking Your Proxy | 6 |
Voting Securities and Principal Holders | 7 |
How the Votes are Counted | 7 |
Business of the Meeting | 8 |
1. Financial Statements | 8 |
2. Election of Directors | 8 |
Nominations for Election as Directors | 8 |
Board and Committee Meetings Held and Attendance of Directors | 18 |
Corporate Cease Trade Orders or Bankruptcies | 20 |
Penalties and Sanctions | 20 |
Our Policy on Majority Voting | 20 |
3. Appointment of Auditors | 21 |
4. Say on Pay | 21 |
Letter from the GOVERNANCE, Human Resources, and Compensation Committee | 22 |
Statement of Executive Compensation | 24 |
COMPENSATION DISCUSSION AND ANALYSIS | 24 |
Objectives of the Compensation Program | 24 |
Rewarding Demonstrated Performance | 25 |
Components of Compensation | 26 |
Determination of Amount of Compensation | 32 |
Competitive Market Review | 34 |
Other Relevant Information Considered | 34 |
Risk Management | 35 |
Chief Executive Officer Compensation | 36 |
Performance Graphs | 38 |
Summary Compensation Table | 40 |
Equity Compensation Plan Information | 42 |
Incentive Plan Awards | 43 |
Termination and Change of Control Benefits | 44 |
ii
CI FINANCIAL CORP.
MANAGEMENT INFORMATION CIRCULAR
This management information circular (the “Information Circular”) is furnished in connection with the solicitation of proxies for use at the annual meeting (the “Meeting”) of holders (the “Shareholders”) of common shares (the “Shares”) of CI Financial Corp. (the “Corporation” or “CI”) to be held on Thursday, June 18, 2020 at the time, in the manner and for the purposes set forth in the Notice of the Meeting.
In light of the dangers associated with the COVID-19 pandemic, commonly known as the coronavirus, the Corporation wishes to mitigate risk to the health and safety of communities, Shareholders, employees and other stakeholders. For that reason, the Corporation is holding the Meeting solely as a virtual (online) meeting which will be conducted by way of live webcast.
Shareholders, regardless of geographic location and equity ownership, will have an equal opportunity to participate at the Meeting and engage with Directors (as defined below) and management of the Corporation as well as other Shareholders in real time. Shareholders will not be able to attend the Meeting in person.
Participants will need an Internet-connected device such as a laptop, computer, tablet or cellphone in order to access the webcast Meeting platform. The webcast Meeting platform will be fully supported across popular web browsers and devices running the most current version of applicable software plugins.
Registered Shareholders and duly appointed Proxyholders will be able to attend, participate and vote online in real time at the Meeting at https://web.lumiagm.com/138936939 in accordance with instructions given in this Information Circular.
Non-registered Shareholders (being Shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as Proxyholder will be able to attend the Meeting as guests but will not be able to vote at the Meeting.
The management of CI is soliciting the proxy of Shareholders for use at the Meeting. It is expected that the solicitation will be made primarily by mail, but proxies may also be solicited personally or by telephone by employees of CI. The cost of solicitation will be borne by CI. CI will reimburse intermediaries such as clearing agencies, securities dealers, banks, trust companies or their nominees for reasonable expenses incurred in sending proxy material to beneficial Shareholders and obtaining your proxies.
In this document, you and your refer to the Shareholders of CI. We, us, our, the Corporation and CI each refer to CI Financial Corp. Except as otherwise stated, the information contained in this Information Circular is given as of May 5, 2020 and references to CI’s fiscal year are to the year ended December 31, 2019.
Notice and Access
The Corporation is utilizing the notice and access mechanism under National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”) and National Instrument 54-101 – Communications with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”). Notice and access allows issuers to post electronic versions of proxy-related materials (such as information circulars and annual financial statements) online, via the System for Electronic Document Analysis and Retrieval (“SEDAR”) and the Corporation’s website, rather than mailing paper copies of such materials to Shareholders. Notice and access benefits the Corporation through the reduction in both postage and material costs and the promotion of environmental responsibility by decreasing the large volume of paper documents generated by printing proxy-related materials.
Electronic copies of the Notice of Meeting, the Information Circular and the Corporation’s 2019 Annual Report (containing the audited consolidated financial statements of the Corporation for the year ended December 31, 2019 and Management’s Discussion and Analysis thereon) (the “Annual Report”) may be found on the Corporation’s pages on SEDAR at www.sedar.com and also on the Corporation’s website at www.cifinancial.com. The Corporation’s Annual Information Form dated March 1, 2020 (the “Annual Information Form”) can also be found on SEDAR and the CI website. All references to websites are for your information only. The information contained or linked through any website is not part of, and is not incorporated by reference into, this Information Circular. Shareholders are reminded to review the Information Circular before voting.
Shareholders may obtain paper copies of the Information Circular and the Annual Report free of charge, or more information about notice and access, by contacting the Corporation’s transfer agent, Computershare Investor Services Inc. (“Computershare”), at 1-866-962-0498 within North America or direct, from outside North America, at 514-982-8716. In order to receive paper copies of these materials in time to vote before the Meeting, your request must be received by June 8, 2020.
Shareholders will receive paper copies of a notice package (the “Notice Package”) via prepaid mail containing the information prescribed by NI 51-102 and NI 54-101 and a form of proxy (if you are a registered Shareholder) or a voting instruction form (if you are a non-registered Shareholder), in each case with a supplemental mail list return box for Shareholders to request they be included in the Corporation’s supplementary mailing list for receipt of the Corporation’s annual and interim financial statements for the 2020 fiscal year.
HOW TO VOTE YOUR SHARES
How to Vote if you are a Registered Shareholder
You are a registered Shareholder if your name appears on your share certificate or if you are registered as the holder of Shares in the Corporation’s share register maintained by its transfer agent, Computershare. Your proxy form will indicate whether you are a registered Shareholder. Voting by proxy is the easiest way to vote. Voting by proxy means that you are giving the person or people named on your proxy form (the “Proxyholder”) the authority to vote your Shares for you at the Meeting or any adjournment. If you are a registered Shareholder, the applicable proxy form(s) are included in the Notice Package.
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If you are a registered Shareholder you can attend the Meeting online or, if you are not able to attend, you may vote by submitting your proxy no later than 5:00 p.m. (Toronto time) on June 16, 2020, or if the Meeting is adjourned or postponed, no later than 5:00 p.m. (Toronto time) on the second business day before any adjourned or postponed Meeting, in any of the following ways:
BY TELEPHONE | Call 1-866-732-8683 (toll free in Canada or the United States) |
BY INTERNET | Go to www.investorvote.com |
BY MAIL |
Complete, sign and date the proxy and return it in the envelope provided or otherwise to: Computershare Investor Services Inc., Proxy Tabulation, 100 University Avenue, 8th Floor, Toronto Ontario, M5J 2Y1 |
BY FAX |
Complete, sign and date the proxy and fax it to: 1-866-249-7775 (toll free in Canada or the United States) or 416-263-9524 (outside Canada and the United States) |
BY APPOINTING ANOTHER PERSON TO ATTEND AND VOTE | Strike out the two names of the representatives of CI that are printed on the proxy form and write the name of the person you are appointing in the space provided. Complete your voting instructions, date and sign the proxy and use one of the methods outlined here to return it to Computershare. The person does not have to be a Shareholder but please ensure that he or she knows that you have appointed them and they are available to attend the Meeting on your behalf. |
The persons named in the proxy form included in the Notice Package are representatives of CI. These persons will vote your Shares for you, unless you appoint someone else to be your Proxyholder.
If you wish that a person other than the representatives of CI identified on the form of proxy attend and participate at the Meeting as your proxy and vote your Shares, you MUST register such Proxyholder with Computershare after having submitted your form of proxy identifying such Proxyholder.
Failure to register the Proxyholder will result in the Proxyholder not receiving a Username to participate in the Meeting. Without a Username, Proxyholders will not be able to attend, participate or vote at the Meeting. To register a Proxyholder, Shareholders MUST visit https://www.computershare.com/CIFinancial and provide Computershare with their Proxyholder’s contact information, so that Computershare may provide the Proxyholder with a Username by way of email.
If you appoint someone else as your Proxyholder, he or she must be present at the virtual Meeting to vote your Shares and the proxy appointing this individual must be received by our transfer agent, Computershare, no later than 5:00 p.m. (Toronto time) on June 16, 2020 (or if the Meeting is adjourned or postponed, no later than 5:00 p.m. (Toronto time) on the second business day before any adjourned or postponed Meeting) and the Proxyholder must be registered with Computershare, as described in more detail above.
How to Vote if you are a Non-Registered Shareholder
You are a non-registered (or beneficial) Shareholder if your broker, investment dealer, bank, trust company, custodian, nominee or other intermediary (your “Nominee”) holds your Shares for you.
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If you are a non-registered Shareholder we will not have any record of your ownership, so the only way that you can vote your Shares is by instructing your Nominee. Your Nominee is required to ask for your voting instructions before the Meeting. In most cases, you will receive a voting instruction form from your Nominee as part of your Notice Package that allows you to provide your voting instructions by telephone, on the Internet or by mail. You should complete the voting instruction form and sign and return it in accordance with the directions on that form. Less frequently, you may receive from your Nominee a proxy form that has already been signed by the Nominee, which is restricted to the number of Shares beneficially owned by you but is otherwise not completed. If you have received this proxy form, you should complete it and return it to Computershare no later than 5:00 p.m. (Toronto time) on June 16, 2020, using one of the methods set out above. Please contact your Nominee if you did not receive a voting instruction form or a proxy form.
If you wish that a person other than the representatives of CI identified on the form of proxy or voting instruction form to attend online and participate at the Meeting as your proxy and vote your Shares, including if you are a non-registered Shareholder and wish to appoint yourself as Proxyholder to attend, participate, and vote at the Meeting, you MUST register such Proxyholder with Computershare after having submitted your form of proxy or voting instruction form identifying such Proxyholder.
Failure to register the Proxyholder will result in the Proxyholder not receiving a Username to participate in the Meeting. Without a Username, Proxyholders will not be able to attend, participate or vote at the Meeting. To register a Proxyholder, Shareholders MUST visit https://www.computershare.com/CIFinancial and provide Computershare with their Proxyholder’s contact information, so that Computershare may provide the Proxyholder with a Username by way of email.
If you appoint someone else as your Proxyholder, he or she must be present at the virtual Meeting to vote your Shares, the proxy appointing this individual must be received by our transfer agent, Computershare, no later than 5:00 p.m. (Toronto time) on June 16, 2020 (or if the Meeting is adjourned or postponed, no later than 5:00 p.m. (Toronto time) on the second business day before any adjourned or postponed Meeting) and the Proxyholder must be registered with Computershare, as described in more detail above.
If you are not sure whether you are a registered Shareholder, please contact Computershare:
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Telephone | AnswerLine: 514-982-7555 or 1-800-564-6253 |
(toll free in Canada and the United States) | |
Fax | 1-888-453-0330 (toll free in Canada and the United States) or |
416-263-9394 (outside Canada and the United States) | |
service@computershare.com |
Completing the Proxy Form
You can choose to vote “FOR” or “WITHHOLD” your vote in respect of the election of each person nominated as a director and the appointment of auditors, and “FOR” or “AGAINST” the Shareholder advisory vote on executive compensation. The Shares represented by proxy will be voted or withheld from voting in accordance with your instructions on any ballot that may be called and if you specify a choice with respect to any matter to be acted upon, the Shares will be voted accordingly.
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When you submit your completed proxy form, you authorize Kurt MacAlpine, the Chief Executive Officer of CI, or William T. Holland, the Chairman of CI, to vote your Shares for you at the Meeting according to your instructions. If you return your proxy form and do not tell us how you want to vote your Shares, your Shares will be voted:
· | FOR electing each of the nominated directors who are listed in this Information Circular; and | |
· | FOR appointing Ernst & Young LLP as auditors and authorizing the directors of the Corporation (the “Directors”) to fix the auditors’ remuneration. |
YOUR SHARES WILL NOT BE VOTED IN RESPECT OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION IF YOU HAVE NOT INDICATED HOW YOU WOULD LIKE YOUR SHARES VOTED ON THAT RESOLUTION.
Your Proxyholder will also be entitled to vote your Shares as he or she sees fit on any other item of business that may properly come before the Meeting.
You have the right to appoint a person other than the persons designated in the proxy form to represent you at the Meeting. If you are appointing someone else to vote your Shares for you at the Meeting, strike out the two names of the representatives of CI that are printed on the proxy form and write the name of the person you are appointing in the space provided. If you do not specify how you want your Shares voted, your Proxyholder will vote your Shares as he or she sees fit on any matter that may properly come before the Meeting.
If you are an individual, you or your authorized attorney must sign the proxy form. If you are a corporation or other legal entity, an authorized officer or attorney must sign the proxy form. A proxy form signed by a person acting as attorney or in some other representative capacity (including a representative of a corporate Shareholder) should indicate that person’s capacity (following their signature) and should be accompanied by the appropriate instrument evidencing qualification and authority to act (unless such instrument has previously been filed with CI).
If you need help completing your proxy form, please contact Computershare at 514-982-7555 or at 1-800-564-6253 (toll free in Canada and the United States) or by e-mail at service@computershare.com.
Participating at the Meeting
The Meeting will be hosted online by way of a live audio webcast. Shareholders will not be able to attend the Meeting in person. Voting at the Meeting will only be available for registered Shareholders and duly appointed Proxyholders. Non-registered Shareholders who have not appointed themselves as a Proxyholder may attend the Meeting by clicking “I am a guest” and completing the online form.
Registered Shareholders and duly appointed Proxyholders can participate in the Meeting by clicking “I have a login” and entering a Username and Password before the start of the Meeting.
o | Registered Shareholders – The 15-digit control number located on the form of proxy or in the email notification you received is the Username and the Password is “ci2020”. |
o | Proxyholders – Computershare will provide the Proxyholder with a Username after the voting deadline has passed. The Password to the meeting is “ci2020”. Without a Username, Proxyholders will not be able to vote at the Meeting. |
o | Non-Registered Shareholders – if you do not have a 15-digit control number or Username you will only be able to attend as a guest which allows you listen to the Meeting; however, you will not be able to vote or submit questions. |
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United States Non-Registered Shareholders: To attend and vote at the virtual Meeting, you must first obtain a valid legal proxy from your broker, bank or other agent and then register in advance to attend the Meeting. Follow the instructions from your broker or bank included with these proxy materials or contact your broker or bank to request a legal proxy form. After first obtaining a valid legal proxy from your broker, bank or other agent, to then register to attend the Meeting, you must submit a copy of your legal proxy to Computershare. Requests for registration should be directed to:
Computershare Investor Services Inc.
100 University Avenue
8th Floor
Toronto, Ontario
M5J 2Y1
OR
By email at uslegalproxy@computershare.com
Requests for registration must be labeled as “Legal Proxy” and must be received no later than 5:00 p.m. (Toronto time) on June 16, 2020. You will receive a confirmation of your registration by email following receipt of your registration materials. You may attend the Meeting and vote your Shares at https://web.lumiagm.com/138936939 during the Meeting. Please note that you are required to register your appointment at www.computershare.com/CIFinancial.
To have your Shares voted at the Meeting, each registered Shareholder or Proxyholder will be required to enter the control number or Username provided by Computershare at https://web.lumiagm.com/138936939 prior to the start of the Meeting.
If a Shareholder who has submitted a proxy attends the Meeting via the webcast and has accepted the terms and conditions when entering the Meeting online, any votes cast by such Shareholder on a ballot will be counted and the submitted proxy will be disregarded.
It is important that you are connected to the internet at all times during the Meeting in order to vote when balloting commences. It is your responsibility to ensure connectivity for the duration of the Meeting.
In order to participate online, Shareholders must have a valid 15-digit control number and Proxyholders must have received an email from Computershare containing a Username.
Changing Your Vote/Revoking Your Proxy
You can revoke a vote you made by proxy by:
· | Voting again by telephone or on the Internet before 5:00 p.m. (Toronto time) on June 16, 2020; | |
· | Completing a proxy form that is dated later than the proxy form you are changing, and sending it to Computershare so that it is received no later than 5:00 p.m. (Toronto time) on June 16, 2020; |
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· | Sending a notice in writing from you or your authorized attorney (or, if the Shareholder is a corporation, by a duly authorized officer) revoking your proxy to the Corporate Secretary of CI so that it is received no later than the last business day before the date of the Meeting or any adjournment thereof; | |
· | Giving a notice in writing from you or your authorized attorney (or, if the Shareholder is a corporation, by a duly authorized officer) revoking your proxy to the chair of the Meeting, at the Meeting or any adjournment; or | |
· | If you are using a 15-digit control number to login to the virtual Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies. However, in such a case, you will be provided the opportunity to vote by ballot on the matters put forth at the Meeting. If you DO NOT wish to revoke all previously submitted proxies, do not accept the terms and conditions, in which case you can only enter the Meeting as a guest. |
Voting Securities and Principal Holders
CI is authorized to issue an unlimited number of Shares. As at May 5, 2020, 217,569,337 Shares were issued and outstanding. Each Share entitles the Shareholder to one vote in respect of each matter to be voted on at the Meeting. Only persons who were registered as holders of Shares as of the close of business on May 1, 2020 (the “Record Date”) are entitled to receive notice of, and attend and vote at, the Meeting.
The Directors and executive officers of CI are not aware of any person who directly or indirectly beneficially owns, or exercises control or direction over, 10% or more of the outstanding Shares.
How the Votes are Counted
Only persons who were registered as holders of Shares as of the close of business on the Record Date are entitled to receive notice of, attend and vote at the Meeting. CI has prepared or caused to be prepared a list of the registered holders of Shares as of the close of business on the Record Date. At the Meeting, each holder of Shares named on that list will be entitled to vote the Shares shown opposite the holder’s name on the list.
Computershare counts and tabulates the votes. It does this independently of CI. Computershare refers proxy forms to management only when (i) it is clear that a Shareholder wants to communicate with management; (ii) the validity of the form is in question; or (iii) the law requires it.
All resolutions that are scheduled to be voted upon at the Meeting are ordinary resolutions. A simple majority of the votes cast by proxy and in person will constitute approval by ordinary resolution of each matter voted on at the Meeting.
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Business of the Meeting
1. Financial Statements
The consolidated financial statements of CI for the year ended December 31, 2019 have been sent to Shareholders who have requested that they receive a copy and will be placed before the Meeting. The financial statements are also available on the SEDAR website at www.sedar.com.
2. Election of Directors
The following pages include a profile of each nominated Director with an explanation of his or her experience, qualifications, top areas of expertise, participation on the board of directors (the “Board of Directors” or the “Board”) and its committees, ownership, value of equity securities of CI and extent of fulfillment of the CI share ownership requirements, as well as participation on the boards of other public companies. A more detailed description of our Directors’ skills can be found in the section of this Information Circular entitled “Statement of Governance Practices – Board Composition and Independence – Board Expertise Matrix”. For information on the compensation paid to non-management Directors, please refer to the section of this Information Circular entitled “Statement of Executive Compensation – Director Compensation”. In addition, a description of the role of the Board is included in the section of this Information Circular entitled “Statement of Governance Practices – The Role of the Board of Directors” and the Mandate of the Board of Directors (the “Board Mandate”) is attached as Schedule “B” to this Information Circular.
The Board believes that share ownership is an important criterion for aligning the interests of Directors with those of the Corporation’s other Shareholders. The Board Mandate requires each non-employee Director to acquire, within a three-year period, beneficial ownership of a number of Shares and/or Deferred Share Units (“DSUs”), the market value of which is at least three times the annual retainer paid to the Director. Each Director who is a member of management of the Corporation is required to beneficially own the number of Shares and/or Restricted Share Units (“RSUs”), the market value of which is at least five times his or her current base salary. The profiles below indicate fulfillment of the ownership requirement. In aggregate, the nominated Directors own 19,144,997 Shares, DSUs and/or RSUs, representing approximately 8.8% of the outstanding Shares as of the date of this Information Circular, and aligning their interests with yours. For more information, please refer to the section of this Information Circular entitled “Statement of Governance Practices – Share Ownership by Executive Officers and Directors”.
Nominations for Election as Directors
The Board currently consists of eight Directors, each of whom was duly elected at the last annual meeting of Shareholders held on June 24, 2019, with the exception of Mr. MacAlpine who was appointed on September 1, 2019.
The Board assesses its effectiveness and optimal size regularly, taking into account its responsibilities, the collective skills, expertise, experience and attributes of its members, and the risks and strategic direction of the Corporation.
Each of the eight current Directors has agreed to be nominated and stand for election or reelection at the Meeting. Each of the eight nominated Directors is proposed to be elected as a Director to serve until the termination of the next annual meeting of Shareholders or until his or her earlier resignation or removal or his or her successor is elected or appointed.
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The Board believes that a diversity of views, skills and business experience enhances the ability of the Board as a whole to fulfil its responsibilities to the Corporation. The Board is comprised of individuals who bring the right mix of knowledge, interest, skill and experience relevant to the Corporation and required by the Board to fulfill its mandate. In broad terms, the following areas of expertise are the core competencies of the Board:
Accounting and Finance | Mutual Funds / Financial Services | CEO Experience / Strategic Leadership |
Risk Management | Regulatory Affairs | Human Resources / Compensation |
Governance / Legal | IT / Fintech |
We are satisfied that each of the nominees for election as Directors possesses the necessary skills and experience to guide your company. The competencies of the nominated Directors are also described in the section of this Information Circular entitled “Statement of Governance Practices – Board Composition and Independence – Board Expertise Matrix”.
In addition, when assessing nominees for Director, the Board will expect the nominee to demonstrate:
Sound business judgment | High ethical standards | Commitment to CI |
Good communication skills and the ability to influence decision-making | Proven track record | Team player mentality |
We expect each Director to devote the time and resources necessary to properly fulfill his or her responsibilities. For that reason, each Director is expected to attend all meetings of the Board and any committee of which he or she is a member. Directors are expected to adequately prepare for all meetings of the Board, which requires each Director, at a minimum, to have read and considered the materials sent to them in advance of each meeting, and to actively participate in the meetings. In addition, to ensure our Directors have sufficient time and energy to devote to their responsibilities at CI, we limit the number of public company boards on which they can serve and consideration is also given to private company and not-for-profit directorships, as described in greater detail under “Statement of Governance Practices – Board Composition and Independence – Directorships and Board Interlocks”.
The Board has determined that five of the eight individuals nominated for election at the Meeting are independent. The nominees who are not independent are Mr. MacAlpine, due to the executive position he holds at CI, Ms. Murray, who was President of the Corporation until March 31, 2019, and Mr. Holland, who was Chief Executive Officer of the Corporation for more than ten years until September 2010. All of the members of each of the Audit and Risk Committee and the Governance, Human Resources, and Compensation Committee (the “GHRC Committee”) of the Board are independent Directors. For more information about the Corporation’s independence standards and assessment, see the section of this Information Circular entitled “Statement of Governance Practices – Board Composition and Independence - Independence”.
The following table sets out important information regarding each of the Director nominees:
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TORONTO, ONTARIO CANADA
DIRECTOR SINCE 2019
TERM LIMIT: 2031
Independent
Age: 57
Areas of Expertise:
Accounting and Finance;
Mutual Funds / Financial
Services; Strategic Leadership;
Risk Management
2019 VOTES IN FAVOUR:
96.86%
William E. Butt
Mr. Butt spent many years with BMO Financial Group (“BMO”), most recently as Global Head of Investment and Corporate Banking, a role in which he was responsible for BMO’s business with major corporations worldwide encompassing equity and debt financing, corporate lending, mergers and acquisition advisory services, merchant banking, trade finance and global treasury management. Mr. Butt sat on BMO's Management Committee and BMO Capital Markets' Executive Operating and Management Committees. He currently serves on the Board of Directors of OMERS Administration Corporation and acts as Chair of its Investment Committee.
He holds a Bachelor of Commerce from the University of Windsor, an MBA from the Ivey Business School, and the ICD.D designation from the Institute of Corporate Directors.
CI SHARES/DSUS OWNED OR CONTROLLED
33,384
($ VALUE BASED ON | TOTAL VALUE AS A | ||||
CLOSING PRICE OF CI SHARES | MULTIPLE OF SHARE | ||||
ON MAY 5, 2020) | OWNERSHIP TARGET | ||||
$462,702 | 1.10 |
BOARD COMMITTEES
Audit and Risk Committee (Chair)
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TORONTO, ONTARIO CANADA
DIRECTOR SINCE 2018
TERM LIMIT: 2030
Independent
Age: 43
Areas
of Expertise:
Accounting and Finance;
Strategic Leadership;
Risk Management; Human
Resources / Compensation
2019 VOTES IN FAVOUR:
96.37%
Brigette Chang-Addorisio
Ms. Chang-Addorisio is President of the Raymond Chang Foundation, a charitable foundation established by the late G. Raymond Chang, one of the Corporation’s founders and its CEO from 1996 to 1999. Ms. Chang-Addorisio is Treasurer of G. Raymond Chang Ltd., a privately held investment holding company. From 1999 until 2003 she worked in Ernst & Young’s Audit and Business Advisory group.
Ms. Chang-Addorisio holds a Bachelor of Commerce from Queen’s University and a Bachelor of Education from the University of Toronto.
CI SHARES OWNED OR CONTROLLED
10,217,497(1)
($ VALUE BASED ON | TOTAL VALUE AS A | ||||
CLOSING PRICE OF CI SHARES | MULTIPLE OF SHARE | ||||
ON MAY 5, 2020) | OWNERSHIP TARGET | ||||
$141,614,508 | 337.18 |
BOARD COMMITTEES
Audit and Risk Committee
GHRC Committee
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TORONTO,
ONTARIO CANADA
DIRECTOR SINCE 1994
TERM LIMIT: N/A
Not Independent
Age: 61
Areas of Expertise:
Mutual Funds / Financial
Services; CEO Experience /
Strategic Leadership; Risk
Management; Governance
2019 VOTES IN FAVOUR:
97.51%
William T. Holland
Mr. Holland is the Chairman of the Corporation. After holding increasingly senior positions with the Corporation and its predecessors since 1989, Mr. Holland served as Chief Executive Officer of the Corporation for more than ten years until September 2010.
CI SHARES/DSUS OWNED OR CONTROLLED
8,116,760
($ VALUE BASED ON | TOTAL VALUE AS A | ||||
CLOSING PRICE OF CI SHARES | MULTIPLE OF SHARE | ||||
ON MAY 5, 2020) | OWNERSHIP TARGET | ||||
$112,492,514 | 30.00 |
OTHER PUBLIC BOARD DIRECTORSHIPS
Mr. Holland is a director of Real Matters Inc., a public company providing mortgage lending and insurance industry services.
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CHICAGO,
ILLINOIS USA
DIRECTOR SINCE 2019
TERM LIMIT: N/A
Not Independent
Age: 38
Areas of Expertise:
Mutual Funds / Financial
Services; Strategic Leadership;
Risk Management; Human
Resources / Compensation; IT /
Fintech
2019 VOTES IN FAVOUR:
N/A
Kurt MacAlpine
Mr. MacAlpine was appointed Chief Executive Officer and Director of the Corporation in September 2019. He has extensive experience in the global asset and wealth management industry, having previously served as Executive Vice-President and Head of Global Distribution for WisdomTree Asset Management and as a Partner and Leader of the North American Asset Management Practice at McKinsey & Company.
At WisdomTree, a global asset manager and exchange-traded fund sponsor based in New York, Mr. MacAlpine was responsible for all client-facing functions globally, including distribution, marketing, data intelligence and strategy, business development, and client solutions. He also oversaw the majority of the firm’s international businesses. He was a member of the company’s global executive management committee and sat on the boards of several of its international entities.
Prior to joining WisdomTree in July 2015, Mr. MacAlpine was a Partner at McKinsey, a global management consulting firm, based in its New York office. In his role as a Partner, he managed global consulting teams working with some of the largest asset and wealth managers in the world on topics related to strategy, distribution, marketing, international expansion, mergers and acquisitions, and product development.
Mr. MacAlpine holds a Bachelor of Commerce degree from Saint Mary’s University and an MBA from Queen’s University.
CI SHARES/RSUS OWNED OR CONTROLLED
250,660
($ VALUE BASED ON | TOTAL VALUE AS A | ||||
CLOSING PRICE OF CI SHARES | MULTIPLE OF SHARE | ||||
ON MAY 5, 2020) | OWNERSHIP TARGET | ||||
$3,474,148 | 0.87(2) |
OTHER PUBLIC BOARD DIRECTORSHIPS
The Chief Executive Officer is not permitted to sit on other public company boards.
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TORONTO, ONTARIO CANADA
DIRECTOR SINCE 2013
TERM LIMIT: 2025
Independent
Age: 70
Areas of Expertise:
Regulatory Affairs; Strategic
Leadership; Risk Management;
Governance / Legal; Human
Resources / Compensation
2019 VOTES IN FAVOUR:
84.07%
David P. Miller
Until December 2018, Mr. Miller was the Chief Legal and Corporate Affairs Officer and Secretary of Rogers Communications Inc. He had been with Rogers for over 30 years in increasingly senior roles and has extensive experience in acquisitions and public and private financing. Since 2018, Mr. Miller has been a Distinguished Fellow at the Ted Rogers School of Management at Ryerson University.
Mr. Miller holds a BCL and LLB from McGill University.
CI SHARES/DSUs OWNED OR CONTROLLED
15,620
($ VALUE BASED ON
CLOSING PRICE OF CI SHARES ON MAY 5, 2020) |
TOTAL VALUE AS A
MULTIPLE OF SHARE OWNERSHIP TARGET |
|
$216,493 |
0.52(2) |
BOARD COMMITTEES
GHRC Committee (Chair)
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TORONTO, ONTARIO CANADA
DIRECTOR SINCE 2011
TERM LIMIT: 2023
Independent
Age: 64
Areas of Expertise:
Accounting and Finance;
Mutual Funds / Financial
Services; Regulatory Affairs;
Strategic Leadership;
Governance / Legal; IT / Fintech
2019 VOTES IN FAVOUR:
99.36%
Tom P. Muir | FCPA, FCA. FCBV
Mr. Muir has over 35 years of experience in various accounting, investment banking and senior executive positions. Mr. Muir was Co-Managing Director of Muir Detlefsen & Associates Limited from 2007 through 2017. His prior positions include Executive Vice-President and Chief Financial Officer of Maple Leaf Foods Inc. and Co-Head of the Investment Banking Group and Member of the Executive Committee at RBC Dominion Securities Inc. Mr. Muir is a Fellow, Chartered Professional Accountant and a Fellow, Chartered Business Valuator.
Mr. Muir has a BComm from the University of Toronto.
CI SHARES OWNED OR CONTROLLED
40,392
($ VALUE BASED ON
CLOSING PRICE OF CI SHARES ON MAY 5, 2020) |
TOTAL VALUE AS A
MULTIPLE OF SHARE OWNERSHIP TARGET |
$559,833 | 1.33 |
BOARD COMMITTEES | |
Audit and Risk Committee
GHRC Committee |
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TORONTO,
ONTARIO CANADA
DIRECTOR SINCE 2018
TERM LIMIT: 2030
Not Independent
Age: 64
Areas of Expertise:
Mutual Funds / Financial
Services; Regulatory Affairs;
Strategic Leadership; Risk
Management; Governance /
Legal; Human Resources /
Compensation; Fintech
2019 VOTES IN FAVOUR:
84.20%
Sheila A. Murray
Until March 31, 2019, Ms. Murray was the President of the Corporation. She first joined the Corporation in 2008 as Executive Vice-President, General Counsel and Secretary, and was President of the Corporation from 2016 to 2019. Prior to joining the Corporation Ms. Murray was a partner at Blake, Cassels & Graydon LLP specializing in public company financing and mergers and acquisitions. Ms. Murray is currently teaching securities regulation at Queen’s University.
Ms. Murray holds a Bachelor of Commerce and LLB from Queen’s University.
CI SHARES/RSUS OWNED OR CONTROLLED
85,684
($ VALUE BASED ON
CLOSING PRICE OF CI SHARES ON MAY 5, 2020) |
TOTAL VALUE AS A
MULTIPLE OF SHARE OWNERSHIP TARGET |
$1,187,580 | 2.83 |
OTHER PUBLIC BOARD DIRECTORSHIPS | |
Ms. Murray is Chair of the board of Teck Resources Limited, a trustee of Granite Real Estate Investment Trust and a director of Granite REIT Inc. |
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TORONTO, ONTARIO CANADA
DIRECTOR SINCE 2018
TERM LIMIT: 2030
Independent
Age: 56
Areas of Expertise:
Mutual Funds / Financial Services;
Strategic Leadership; Accounting
and Finance; Human Resources /
Compensation
2019 VOTES IN FAVOUR:
99.24%
Paul J. Perrow
Mr. Perrow has over 30 years of experience in the asset management industry. Mr. Perrow was Senior Vice President, Director of Sales and Marketing with CI Investments Inc. until December 1996. From 1996 to 2013 he held a number of other senior industry positions including Managing Partner of Red Sky Capital, Co-Head and Managing Director of Merrill Lynch Investment Managers Canada, Co-Founder and President of Fairway Capital and President and CEO of BluMont Capital.
CI SHARES/DSUS OWNED OR CONTROLLED
385,000
($ VALUE BASED ON
CLOSING PRICE OF CI SHARES ON MAY 5, 2020) |
TOTAL VALUE AS A
MULTIPLE OF SHARE OWNERSHIP TARGET |
$5,336,100 | 12.71 |
BOARD COMMITTEES | |
Audit and Risk Committee
GHRC Committee |
Notes:
(1) | Ms. Chang-Addorisio has 100% beneficial interest in respect of 290,000 Shares, 50% beneficial interest and 47% voting rights in respect of 9,746,240 Shares owned by G. Raymond Chang Ltd., and is a trustee of the Chang Family Trust and the Chang-Addorisio Family Trust which control 177,000 Shares and 4,257 Shares, respectively. |
(2) | Messrs. MacAlpine and Miller satisfied the Share ownership threshold prior to a recent decline in the Share price. Mr. MacAlpine had until 2022 to satisfy the Share ownership threshold. Pursuant to the Share Ownership Guidelines which is defined and discussed in the section of this Information Circular entitled “Statement of Governance Practices – Share Ownership of Executive Officers and Directors”, Messrs. MacAlpine and Miller remain in compliance with the Share Ownership Guidelines and will not be permitted to sell or transfer any Shares until the threshold has again been achieved. |
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Board and Committee Meetings Held and Attendance of Directors
Each Director is expected to attend all meetings of the Board and any committee of which he or she is a member. The chart below illustrates the number of Board and committee meetings held during the fiscal year ended December 31, 2019 and the meeting attendance record for each Director (committee meeting attendance is based on meetings held while the Director was a member of such committee). The Board formed a special committee called the CEO search committee (the “CEO Search Committee”) to assist with recruitment and appointment of the Chief Executive Officer.
BOARD AND COMMITTEE MEETINGS HELD DURING THE FISCAL YEAR ENDED DECEMBER 31, 2019
Board Meetings | ||
Regularly Scheduled | 5 | |
Special | 4 | |
Committee Meetings | ||
Audit and Risk Committee | ||
Regularly Scheduled | 4 | |
Special | 0 | |
Governance, Human Resources, and Compensation Committee | ||
Regularly Scheduled | 4 | |
Special | 4 | |
CEO Search Committee | ||
Special | 7 |
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ATTENDANCE OF DIRECTORS
Director | Regular Board Meetings | Special Board Meetings | Committee Meetings | |||
Peter W. Anderson(1) | 4 of 4 | 3 of 3 | – | |||
William E. Butt(2) | 4 of 4 | 3 of 3 | 3 of 3 | |||
Brigette Chang-Addorisio(3) | 5 of 5 | 4 of 4 | 4 of 4 | |||
William T. Holland | 5 of 5 | 4 of 4 | 7 of 7 | |||
Kurt MacAlpine(4) | 1 of 1 | 1 of 1 | – | |||
David P. Miller | 5 of 5 | 4 of 4 | 15 of 15 | |||
Stephen T. Moore(5) | 2 of 2 | 2 of 2 | 8 of 8 | |||
Tom P. Muir | 5 of 5 | 4 of 4 | 18 of 19 | |||
Sheila A. Murray(6) | 5 of 5 | 4 of 4 | – | |||
Paul J. Perrow | 5 of 5 | 4 of 4 | 8 of 8 |
Notes:
(1) | Mr. Anderson stepped down from the Board on September 1, 2019 following his retirement as Chief Executive Officer of the Corporation. Mr. Anderson’s attendance record includes only those meetings held prior to his retirement. |
(2) | Mr. Butt was appointed to the Board and Audit and Risk Committee on March 26, 2019 and appointed as Chair of the Audit and Risk Committee on November 9, 2019. Mr. Butt has attended all meetings of the Board that were held subsequent to the commencement of his term as Director and all meetings of the Audit and Risk Committee subsequent to his appointment thereon. |
(3) | Ms. Chang-Addorisio was appointed to the GHRCC on December 2, 2019. There were no meetings of the GHRCC in 2019 on or subsequent to December 2, 2019. |
(4) | Mr. MacAlpine was appointed as Chief Executive Officer and to the Board on September 1, 2019 and has attended all meetings held subsequent to his appointment. |
(5) | Pursuant to the Board’s twelve-year term limit for Directors, Mr. Moore did not stand for reelection at the Corporation’s 2019 annual meeting. Mr. Moore’s attendance record includes only those meetings held prior to June 24, 2019. |
(6) | Ms. Murray is not a member of any Board committees, as she is a non-independent director; however, subsequent to Ms. Murray’s retirement as President, at the invitation of each committee Chair, she has attended all regularly scheduled committee meetings. |
To date in 2020, there have been two regularly scheduled Board meetings and seven special Board meetings. The special Board meetings have been held in order for the Board to receive an update on the impact of the COVID-19 pandemic on the business and operations of the Corporation. At these meetings the Board received reports from management on emergency planning and systems permitting operations to continue remotely as well as regular updates on liquidity. The Audit and Risk Committee has met twice and the GHRC Committee has met four times in 2020.
During fiscal 2019, each Director attended all of the regularly scheduled meetings of the Board as well as all special meetings of the Board and all committee meetings of which he or she was a member, with the exception of Mr. Muir who was unable to attend a GHRC Committee special meeting held January 14, 2019. Where a Director is unavoidably unable to attend a meeting, he or she will, if possible, provide his or her views prior to the meeting in a discussion with the lead Director of the Board (the “Lead Director”), the Chairman, or the Chair of the relevant committee, as appropriate, which will be shared with the Board or the respective committee.
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Corporate Cease Trade Orders or Bankruptcies
To the knowledge of CI, none of the persons proposed for election as Directors (a) are, as at the date hereof, or have been, within the 10 years before the date of this Information Circular, a director, chief executive officer or chief financial officer of any company that, (i) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation that was in effect for a period of more than 30 consecutive days (an “Order”) that was issued while the person was acting in the capacity as director, chief executive officer or chief financial officer; or (ii) was subject to an Order that was issued after the person ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer, (b) are, as at the date of this Information Circular, or have been within 10 years before the date of this Information Circular, a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, or (c) have, within the 10 years before the date of this Information Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that person.
Penalties and Sanctions
To the knowledge of CI, none of the persons proposed for election as Directors nor any personal holding company owned or controlled by any of them (a) has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or (b) has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to vote for a proposed Director.
Our Policy on Majority Voting
You are being asked to vote for each nominee for Director separately and not as part of a slate. Under our Majority Voting Policy, in an uncontested election of Directors, if a Director receives more withheld votes than for votes, he or she will promptly offer to resign as a Director. Our GHRC Committee will review the matter and then recommend to the Board whether to accept the resignation. The Board will accept the resignation absent extraordinary circumstances. The affected Director will not participate in any Board or committee deliberations on the matter. If the affected Director is also an employee of the Corporation, the Board will take into consideration the impact of its decision on the employment relationship.
The Board will announce by press release its decision within 90 days of the Meeting. If it rejects the Director’s offer to resign, the Board will disclose the reasons why. If the Board accepts the Director’s offer to resign, it may appoint a new Director to fill the vacancy.
* * * * *
It is the intention of the individuals named in the enclosed form of proxy to vote FOR the election of each of the nominated individuals listed above, as Directors, to hold office until the close of the next annual meeting of Shareholders or until their earlier resignation or removal or their successors are duly elected or appointed, unless specifically instructed in the proxy to withhold such vote.
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Management does not contemplate that any of the nominees will be unable to serve as a Director, but should that occur for any reason prior to the Meeting the persons named in the enclosed proxy form reserve the right to vote in their discretion for other nominees.
3. Appointment of Auditors
It is proposed that Ernst & Young LLP, the present auditors of CI, be reappointed as the auditors of CI, to hold office until the termination of the next annual meeting of Shareholders, and that the Directors be authorized to fix the auditors’ remuneration. The Audit and Risk Committee has recommended to the Board of Directors, and the Board has approved, the nomination of Ernst & Young LLP for such reappointment. In 2019, 97.37% of votes cast by Shareholders were in favour of the appointment of Ernst & Young LLP as the auditors of CI. Ernst & Young LLP have been the auditors of CI since it first offered securities to the public in 1994.
See the heading “Audit and Risk Committee Information” in the Annual Information Form available on SEDAR at www.sedar.com for further details regarding the services of the auditors provided to CI, the fees paid to the auditors for those services and information regarding the Audit and Risk Committee of CI.
* * * * *
It is the intention of the individuals named in the enclosed form of proxy to vote FOR the reappointment of Ernst & Young LLP as auditors of CI to hold office until the close of the next annual meeting of Shareholders and in favour of authorizing the Directors to fix the remuneration of the auditors, unless specifically instructed in the proxy to withhold such vote.
4. Say on Pay
In 2011 the Board adopted Say on Pay, an advisory vote which permits Shareholders to register their views on the Board’s approach to executive compensation. Each year since then, the Board has received overwhelming support for CI’s executive compensation philosophy. In 2019, 73.61% of votes cast by Shareholders were in favour of the Board’s approach to executive compensation. Once again, the Board is asking Shareholders to participate in an advisory vote on the Board’s approach to executive compensation as set out in the Statement of Executive Compensation contained below in this Information Circular. The purpose of the Say on Pay advisory vote is to provide the Board with Shareholder reaction to the Board’s decisions regarding executive compensation. The results are not binding on the Board; however, the Board and the GHRC Committee intend to consider the results of the advisory vote in future compensation decisions. CI will disclose the results of the Shareholder advisory vote as part of its report on voting results for the Meeting. A copy of the resolution to be considered by Shareholders is included as Schedule “A” to this Information Circular.
* * * * *
If you have not indicated how you would like to vote your Shares on the Say on Pay vote, those Shares will NOT be voted on this resolution.
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Letter from the GOVERNANCE, Human Resources, and Compensation Committee
Dear Shareholders,
The Governance, Human Resources, and Compensation Committee of the Board is pleased to provide you with this report on the Corporation’s overall executive compensation philosophy and the process we have undertaken in determining the appropriate manner and level of compensation for the Chief Executive Officer and the Corporation’s other senior executives.
Compensation Philosophy
CI wants to attract and retain executives and employees of a high caliber and to reward them fairly for their contribution to the growth and success of the Corporation. The Corporation’s compensation plan has been designed to appropriately award individuals for their contribution during a financial year as well incentivize key employees to focus not only on the achievement of near-term objectives but also on the future of the enterprise.
Pay for Performance
The Board believes that the executive team should be rewarded for successfully executing on strategic initiatives including growing the business. Accordingly, a substantial component of executive compensation is discretionary and is awarded on the basis of execution of corporate and business unit objectives, achieved financial and operating results, as well as each individual’s personal performance and contribution to the success of the Corporation. With the exception of Mr. Holland (who only receives a Chairman’s Retainer) and Mr. Anderson (who retired in 2019), between 53% and 80% of the total compensation for each Named Executive Officer (defined below under the heading “Summary Compensation Table”) is in the form of bonuses, which are only awarded once the annual financial results of the Corporation have been determined. The compensation described on the following pages is the only compensation provided to our Named Executive Officers. They are not entitled to pension benefits and do not receive any significant perquisites.
Compensation Aligns with Long-Term Shareholder Interests
The Board believes it is important that the executive team focus on the long-term growth and success of the Corporation. For that reason, for the year-ended December 31, 2019, 75% of the Chief Executive Officer’s bonus compensation, 60% of the President’s bonus compensation, and 55% of the other Named Executive Officer’s (except Messrs. Holland and Anderson) bonus compensation is in the form of securities.
The Board has adopted share ownership guidelines requiring each executive officer of the Corporation to hold Shares of the Corporation representing a prescribed multiple of their annual salary, further ensuring that the interests of the executives are aligned with those of the Shareholders and promoting the Corporation’s commitment to corporate governance. Units held under the RSU Plan or Director DSU Plan may be used to satisfy this ownership requirement.
Compensation Consistent with Effective Risk Management
The Board ensures that the Corporation’s compensation policies do not encourage executives to expose the business to inappropriate risk. This is accomplished by rewarding individuals only for demonstrated success and granting a significant portion of executive compensation in the form of long-term incentives.
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Compensation Attracts and Retains Talented Individuals
The Board believes that it is crucial that CI retain its high potential executives and employees. The Board has set compensation policies and practices that provide fair compensation and, through the bonus program, reward each executive for the achievement of corporate and business unit objectives and personal performance, as well as motivate them to continue to build on the long-term success of CI.
We believe that CI’s compensation philosophy will achieve its intended goals. The Governance, Human Resources, and Compensation Committee will continue to consider and evaluate new developments in compensation practices and refine our practices where necessary.
On behalf of the members of the Governance, Human Resources, and Compensation Committee and the Board,
D.P.
Miller
Chair, Governance, Human Resources, and Compensation Committee
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Statement of Executive Compensation
Unless otherwise stated, the information in this Statement of Executive Compensation is stated as of December 31, 2019 and all references to CI’s fiscal year are to the fiscal year of CI ended December 31, 2019. All dollar amounts in this Statement of Executive Compensation are expressed in Canadian dollars.
On March 31, 2019, Sheila A. Murray retired as President of CI, at which time Peter W. Anderson assumed the role of President in addition to his role as Chief Executive Officer. On June 24, 2019, Mr. Anderson resigned as President and was succeeded by Darie Urbanky, in addition to his role as Chief Operating Officer. On September 1, 2019, Mr. Anderson retired from CI and Kurt MacAlpine was appointed as Chief Executive Officer. The below chart summarizes the role changes of President and Chief Executive Officer during 2019.
1-Jan-19
31-Mar-19 |
31-Mar-19
24-Jun-19 |
24-Jun-19
1-Sept-19 |
1-Sept-19
31-Dec-19 |
|||||
Peter Anderson | CEO | CEO & President | CEO | |||||
Sheila Murray | President | |||||||
Darie Urbanky | EVP & COO | EVP & COO | President & COO | President & COO | ||||
Kurt MacAlpine | CEO |
COMPENSATION DISCUSSION AND ANALYSIS
Objectives of the Compensation Program
The Corporation wants to attract and retain executives of the highest caliber and reward those executives for demonstrated success in achieving corporate and business unit objectives, as well as personal performance. The compensation program is designed to accomplish this and incentivize the executives to focus on profitability, free cash flow and the Corporation’s long-term prospects.
The Corporation’s compensation philosophy for executive officers is based on four fundamental objectives:
(1) | to encourage the executives to focus on profitability, free cash flow and the Corporation’s long-term prospects, by providing compensation packages that encourage, motivate and reward performance; |
(2) | to be, and to be perceived to be, fair and transparent; |
(3) | to be competitive with other companies in the same industry, who are facing the same challenges, in order to attract and retain talented executives; and |
(4) | to align the interests of its executive officers with the long-term interests of the Corporation and its Shareholders, in accordance with sound risk management principles, through an emphasis on share-based deferred compensation. |
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Rewarding Demonstrated Performance
The Board takes a conservative approach to compensation with a significant component of executive compensation awarded on the basis of execution of corporate and business unit objectives, and achieved financial and operating results, as well as the individual’s personal performance and contributions to the success of the Corporation.
The compensation program for executives is designed to reward the executive for his or her contribution to the success of the Corporation during the fiscal year and to the achievement of strategic value-enhancing goals and objectives. These value-enhancing corporate goals and objectives include:
(1) | modernizing CI’s asset management business; |
(2) | expanding CI’s wealth management platform; |
(3) | globalizing the Corporation; |
(4) | increasing corporate growth and enhancing CI’s reputation by growing the business organically and, through strategic acquisitions and diversifying our sources of revenue to maximize long-term shareholder value, increasing fee generating assets; |
(5) | improving the client experience by making it easier for clients to do business with CI, creating brand loyalty, client value and business growth through client service excellence; |
(6) | achieving operational excellence through our secure operational framework and utilization of emerging technologies; |
(7) | strengthening portfolio management by broadening and deepening CI’s investment capability; and |
(8) | cultivating the employee experience by fostering a culture where employees feel supported, empowered and motivated. |
The GHRC Committee makes bonus recommendations for the Chief Executive Officer largely based on corporate performance, measured by key financial metrics, such as assets under management (“AUM”), net sales, earnings before interest, taxes, depreciation and amortization (“EBITDA”), earnings per share and selling, general and administrative (“SG&A”) cost control. The GHRC Committee also looks at the strategic leadership of the Chief Executive Officer, including the pursuit of value enhancing strategies and contribution to the achievement of business unit objectives by senior management. For other senior executives for whom it approves bonuses, the GHRC Committee receives a report from the Chief Executive Officer regarding individual goals, business unit specific objectives and compensation recommendations which are based on the achievement of stated objectives as well as corporate performance and demonstrated leadership.
The Board is aware that the financial performance of the Corporation in any given year is significantly tied to developments in the capital markets. For that reason, the Board will evaluate the performance of the Corporation in light of prevailing market and economic influences and the individual’s contribution to that performance. The GHRC Committee also looks at the performance of the Corporation relative to the performance of its competitors in terms of growth in AUM and sales. 2019 was a year of transition for senior leadership. The GHRC Committee was required to consider compensation recommendations for the new persons assuming the role of President and Chief Executive Officer during the year. For further information on the recruitment and hiring process for the Chief Executive Officer please see the section titled “Statement of Governance Practices - Board Composition and Independence – Committees of the Board”.
The GHRC Committee considered the enhancement of the employee experience through a number of initiatives. It also considered business unit and departmental performance in achieving strategic and operational objectives. These factors have been used to determine the value of bonuses to award the executives and whether any adjustments should be made to the executive’s salary.
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When determining compensation, the GHRC Committee has the full benefit of information, not only about the financial performance of the Corporation but also about the impact that capital market developments, international disruptions, the economy and other recognized performance variables have had on performance. The GHRC Committee considers the Corporation’s realized financial results in the context of market, industry and competitive comparisons. The GHRC Committee then looks at how the executives have managed the business of the Corporation in light of and, at times, in spite of market conditions. Each executive’s compensation is directly impacted by the financial performance of the Corporation and the ability of the officer to execute on key strategic initiatives and position the Corporation for future success. Notwithstanding the foregoing, pursuant to Mr. MacAlpine’s employment agreement, he was entitled to a minimum compensation amount and signing bonus upon being appointed Chief Executive Officer.
The percentage of variable, or at risk, compensation ranges from approximately 40-60% of the total compensation paid to other senior management with the precise percentage dependent on the officer’s level of seniority, level of expertise and responsibility.
Components of Compensation
Each executive’s total 2019 compensation has three elements – base salary, cash bonus and equity bonus compensation. Share based deferred compensation for 2019 was awarded under the RSU Plan (as defined below). Bonuses, including equity compensation, are awarded at the discretion of the GHRC Committee. This “at risk” element of compensation represented between 53% to 80% of the total compensation of the Named Executive Officers in 2019, except Messrs. Holland and Anderson. The Board believes that it is important that the executive team focus on the long-term growth and success of the Corporation. For that reason, at least 40% of each senior management’s bonus compensation and at least 55% of each Named Executive Officer’s (except Messrs. Holland and Anderson) is in the form of securities.
In keeping with CI’s compensation philosophy, 2019 executive compensation has the following three key components:
Base Salary | Annual Cash Bonus | Equity Bonus in the form of RSUs (1) |
· Conservative approach to compensation
· Not based on corporate performance
· To attract and retain talented executives
· Reflects skill and level of responsibility
|
· Performance based
· Rewards contribution to achievement of financial and non-financial corporate and business unit goals
|
· Performance based
· Designed to encourage, motivate, retain and reward executives for achieving long-term results
· More closely aligns compensation with risk management principles
· More closely aligns interests of executive officers to Shareholder long-term interests
· No Options were granted for fiscal 2019 |
Notes:
(1) | The Corporation also has an Employee Savings Plan (as defined below) which is available to all employees and described below. See “Employee Savings Plan” below for a description of the plan. |
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This is the only compensation paid to executive officers of CI, other than standard employment benefits. CI does not fund pensions for any of its employees, including the executives, nor do the executives receive any significant perquisites. All employees are entitled to participate in the Employee Savings Plan. Each component of the compensation program is described in detail below.
Base Salary
Base salaries are established with reference to the individual’s position and responsibilities, as well as his or her experience and seniority. The Corporation’s compensation policy is to pay its senior executives relatively modest base salaries and reward corporate, business unit and personal performance through the payment of cash bonuses and non-cash long-term incentives. Base salaries represent approximately 20% of the Chief Executive Officer’s total compensation, and between approximately 35% to 47% of the total compensation of the other Named Executive Officers, except Messrs. Holland and Anderson. Base salaries are reviewed annually and adjusted, if appropriate.
Annual Cash Bonus
The purpose of this component of compensation is to reward the executives for their contribution to the success of the business. CI’s operations, financial results, net sales, assets under management and equity performance are assessed in determining the aggregate amount to be distributed as bonuses. Each senior executive’s contribution to the success of the business is then considered, including achievement of value-enhancing goals such as increasing corporate growth and enhancing CI’s reputation, diversifying sources of revenue, cost containment, operating and client service excellence, risk management and strengthening CI’s investment capability, modernizing the asset management business, expanding the wealth management platform, and globalizing the Corporation. From time to time special bonuses may be paid for performance in connection with significant projects or acquisitions.
The cash component of the annual bonus will generally be not more than 50% of the total bonus awarded to a senior officer. For 2019, the cash bonus represented 20% of the total compensation of Mr. MacAlpine, as Chief Executive Officer, excluding his signing bonus. In connection with Mr. Anderson’s retirement as Chief Executive Officer in 2019, the Corporation continued to compensate him through 2019 in the amount of $2,575,000. The percentage of total compensation of the other Named Executive Officers of the Corporation represented by the annual cash bonus was between 24% and 26% in 2019.
Equity Bonus
The Board believes that it is important that the executive team focus on the long-term growth and success of the Corporation. For that reason, 75% of the Chief Executive Officer’s bonus compensation, and 55-60% of the other Named Executive Officer’s (except Messrs. Holland and Anderson) bonus compensation is in the form of securities. Long-term equity incentives constituted approximately 60% of total compensation paid to Mr. MacAlpine in his role as Chief Executive Officer (excluding his signing bonus) and approximately 29% and 39% of total compensation paid to the other Named Executive Officers in 2019 (except Messrs. Holland and Anderson).
The Corporation has two long-term incentive plans which are designed to reward executives and key employees for their contribution to the financial and strategic success of CI, align compensation with the risk time horizon and to encourage and motivate them to remain employed with the Corporation and create longer-term Shareholder value. The first is the restricted share unit plan (the “RSU Plan”). Participation in the RSU Plan is limited to executives and employees in management positions whose roles and responsibilities directly influence the success of the Corporation, as well as those people who management have identified as having long-term potential. The second long-term incentive plan is the employee incentive stock option plan (the “Option Plan”). A decision was made to not award any Options (as defined below) under the Option Plan for 2019 related compensation. Each of the current long-term equity incentive plans is described below.
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Shares may be issued from treasury under the RSU Plan and Option Plan, as follows:
1. | The RSU Plan pursuant to which a maximum of 6,000,000 Shares may be issued from treasury, representing approximately 2.8% of the issued and outstanding Shares as of the date hereof; and |
2. | The Option Plan pursuant to which a maximum of 14,000,000 Shares may be issued from treasury, representing approximately 6.4% of the issued and outstanding Shares as of the date hereof. |
Accordingly, an aggregate of 20,000,000 Shares are issuable from treasury under all security-based compensation arrangements of the Corporation, representing approximately 9.2% of the issued and outstanding Shares as of the date hereof. Vested RSUs may also be settled, in the absolute discretion of the Board, with Shares purchased on the Toronto Stock Exchange (the “TSX”) or in cash, as described below.
The Corporation introduced an Employee Savings Plan in 2012 to offer long-term incentives to all employees, including those who would not otherwise qualify for deferred equity compensation. The Employee Savings Plan, which is described below, is modest but at lower levels of the Corporation can be a meaningful component of retention.
Restricted Share Unit Plan
The Corporation has an RSU Plan which was approved by the Shareholders at the annual and special meeting of Shareholders held on April 20, 2017. Under the RSU Plan, RSUs may be granted to Eligible Persons by the Board and, in administering the RSU Plan, the Board may consider the advice or recommendation of the GHRC Committee on particular matters or with respect to particular Eligible Persons or Participants (as such terms are defined in the RSU Plan) as may be determined by the Board from time to time. Eligible Persons under the RSU Plan are individuals employed by CI or its subsidiaries who are designated as an “Eligible Person”. The Board has the sole and absolute discretion to administer the RSU Plan and to exercise all powers and authorities granted to it under the RSU Plan, or that are necessary and advisable in the administration of the RSU Plan. The Board may, in its discretion, delegate such of its powers, rights and duties under the RSU Plan, in whole or in part, to the GHRC Committee or as otherwise permitted under the terms of the RSU Plan.
RSUs will vest in a period specified by the Board, which shall not be later than December 17th of the third year following the year in which the Eligible Person performed the services to which the grant related. The RSU Plan provides that the Board may make appropriate adjustments to the RSUs in the event of certain changes in the capital of CI.
On the vesting date, the Board, in its absolute discretion, can elect one or any combination of the following payment methods for the RSUs credited to an Eligible Person’s account: (a) pay cash, equal to the volume weighted average trading price of the Shares on the TSX for the five trading days preceding the relevant date (“Fair Market Value”) multiplied by the number of vested RSUs credited to the Eligible Person’s account being settled in cash as of such date (less any applicable withholding taxes) to the Eligible Person or the Eligible Person’s legal representative, as the case may be; or (b) settlement in Shares, made by way of issuance by CI or delivery by CI (or by the trustee of a trust fund for the RSU Plan, if one has been established), of one Share for each vested RSU being settled in Shares to the Eligible Person or the Eligible Person’s legal representative, as the case may be (less any applicable withholding taxes). No fractional Shares will be issued and any fractional vested RSUs will be settled in cash based on the Fair Market Value on the relevant settlement date.
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Except as otherwise provided in a grant agreement relating to a grant of RSUs, if and when cash dividends (other than extraordinary or special dividends) are paid with respect to Shares during the term of a grant, an Eligible Person will be granted a number of dividend equivalent RSUs in an amount equal to the aggregate amount of dividends that would have been paid on the RSUs credited to the Eligible Person’s account had they been Shares at the time of the dividend divided by the Fair Market Value at the time of the dividend.
The maximum number of Shares which may be issued by the Corporation from treasury under the RSU Plan is 6,000,000 Shares (representing approximately 2.8% of outstanding Shares as of the date hereof). As of December 31, 2019, 1,771,408 Shares had been awarded under the RSU Plan, representing approximately 0.8% of the outstanding Shares as at that date.
As of the date of this Information Circular, the Corporation has not issued any Shares from treasury under the RSU Plan since the date of its approval by Shareholders and has met the requirement to deliver Shares under the RSU Plan through Shares acquired under the Corporation’s normal course issuer bid. See “Normal Course Issuer Bid” for a description.
The number of Shares issued or issuable by the Corporation under all security-based compensation arrangements shall not in the aggregate exceed 10% of the issued and outstanding Shares. The maximum number of Shares which may be issued to insiders under the RSU Plan within a one-year period or which may be issuable to insiders at any time, under all security-based compensation arrangements of the Corporation, is 10% of the issued and outstanding Shares. Any increase in the Shares reserved for issuance under the RSU Plan shall be subject to the approval of the Shareholders in accordance with the rules of the TSX.
The Board may, without Shareholder approval, make any amendments to the RSU Plan including, but not limited to, (i) amendments to the terms and conditions of the RSU Plan necessary to ensure that it complies with applicable law and regulatory requirements, including the requirements of any applicable stock exchange, in place from time to time; (ii) amendments to the provisions of the RSU Plan respecting administration of, and eligibility for participation under, the RSU Plan; (iii) amendments to the provisions of the RSU Plan respecting the terms and conditions on which RSUs may be granted (including the vesting schedule); (iv) amendments to the RSU Plan that are of a “housekeeping” nature; (v) amendments to the provisions of the RSU Plan relating to a change of control; and (vi) any other amendments not requiring Shareholder approval under applicable laws or the requirements of an applicable stock exchange (such as the TSX). Amendments to the RSU Plan or RSUs that are not subject to Shareholder approval may be implemented by CI without Shareholder approval, but are subject to any approval required by the rules of the TSX and other requirements of applicable law. The Board also has the right to amend, suspend or terminate the RSU Plan or any portion of it at any time in accordance with applicable law and subject to any required regulatory, applicable exchange or Shareholder approval.
Notwithstanding the foregoing, the following changes to the RSU Plan will require Shareholder approval in accordance with the requirements of the TSX: (i) an increase to the maximum number or percentage of securities issuable by CI pursuant to the RSU Plan; (ii) changes to the amendment provisions to grant additional powers to the Board to amend the RSU Plan or entitlements thereunder; (iii) any change to the categories of individuals eligible for grants of RSUs where such change would permit the participation of non-employee Directors in the RSU Plan; (iv) any changes to the insider participation limits set forth in the RSU Plan; (v) an amendment to the prohibition on assignment or transfer of RSUs; and (vi) an amendment to the amending provisions in the RSU Plan. The Board is not permitted to make any amendments to the RSU Plan or grants made pursuant to the RSU Plan without the consent of an Eligible Person if it adversely alters or impairs the rights of the Eligible Person in respect of any grant previously made to such Eligible Person under the RSU Plan. Consent will not be required where the amendment is required for purposes of compliance with applicable laws or regulatory requirements.
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If an Eligible Person has engaged in Misconduct (as defined in the RSU Plan), subject to the terms of any written employment agreement and the relevant grant agreement, no RSUs that have not yet vested prior to the date of such determination of Misconduct, including dividend equivalent RSUs, shall vest, and all such RSUs shall be forfeited and cancelled immediately. For this purpose the following will be considered Misconduct: (i) serious misconduct, including conduct which has a significant negative impact on the reputation or operations of the Corporation or its subsidiaries; (ii) fraud; (iii) a material breach of the terms of employment; (iv) willful breach of the provisions of the Corporation’s code of conduct; or (v) failure or willful refusal to substantially perform the employee’s duties and responsibilities.
In the case of termination of employment of any Eligible Person for cause, or resignation of an Eligible Person, subject to the terms of any written employment agreement and the relevant grant agreement, and unless otherwise determined by the Board, no RSUs that have not yet vested prior to the date of such termination or resignation, as the case may be, including dividend equivalent RSUs shall vest, and all such RSUs shall be forfeited and cancelled immediately.
In the case of termination of an Eligible Person without cause, subject to the terms of any written employment agreement and the relevant grant agreement, a pro-rated portion of RSUs that have not previously vested shall vest on the effective date of such termination.
In the case of retirement, death or disability, subject to the terms of an Eligible Person’s written employment agreement and the relevant grant agreement, all of the RSUs that have not previously vested shall vest as of the date of such event.
In the event of a change of control of CI, subject to the terms of any written employment agreement and the relevant grant agreement, the Board may in its sole discretion determine that all RSUs that have not previously vested shall vest on the effective date of the change of control. RSUs that vest pursuant to a change of control shall be settled by a lump sum cash payment based on the price attributed to Shares in connection with the transaction giving rise to the change of control (or the Fair Market Value of a Share at the time of such transaction as determined by the Board in good faith if no Share price was in fact established).
Except as required by law, and in accordance with the provisions of the RSU Plan allowing for the designation of a beneficiary, the assignment or transfer of the RSUs or any other benefits under the plan shall not be permitted other than by operation of law.
On February 13, 2020, the Board of Directors authorized up to $14,925,000 in RSUs to be granted under the RSU Plan to 274 employees (representing approximately 16.2% of all employees and less than 1% of outstanding Shares) as bonuses for the fiscal year ended December 31, 2019 and as incentives for retention and continued service. On February 28, 2020, the Corporation granted 350,320 RSUs. These RSUs were granted at a price of $24.08, pursuant to the February 13, 2020 Board authorization. All of the RSUs granted in February 2020 vest as to 1/3rd on each of December 17, 2020, December 17, 2021 and December 17, 2022.
Option Plan
The Option Plan was first approved by the Shareholders at a meeting held on May 17, 2007, and most recently amended and restated on February 16, 2017, to amend the definition of “Fair Market Value” as that term is used in determining the exercise price of the options issued thereunder (the “Options”).
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A maximum of 14,000,000 Shares (representing less than 5% of the outstanding Shares as of the date of approval by Shareholders on May 17, 2007 and approximately 6.4% of the outstanding Shares as of the date hereof) may be issued upon exercise of Options granted under the Option Plan. As of December 31, 2019, 9,571,262 Shares had been awarded under the Option Plan, representing approximately 4.3% of the outstanding Shares as at that date.
The Option Plan was designed to promote the long-term interests of the Corporation and its Shareholders by fostering a proprietary interest in the Corporation among the executives and employees of CI. The Option Plan has been used to attract and retain qualified executives and key employees. CI considers equity ownership by management to be an integral component of its compensation scheme and for that reason Option grants under the Option Plan have been an important element of overall compensation prior to the approval of the RSU Plan.
Full time employees of the Corporation or its subsidiaries are eligible to receive Options under the Option Plan; however, no Options were granted for 2019 related compensation. Approximately 31% of the Corporation’s full-time employees hold Options. The exercise price of the Options is fixed at the date of grant and may not be less than the volume weighted average trading price of the Shares on the TSX on the five trading days preceding and ending on the date of the grant. Other key terms of the Options such as vesting dates, forfeiture events and conditions to exercise are established at the date of grant. Generally, Options granted vest in equal annual amounts following the end of each of the first, second and third fiscal year following the date of the grant. Certain Options granted as part of a special 2018 retention bonus cliff vest at the end of the fifth fiscal year following the date of the grant. The Options granted in 2019, as earned bonus for 2018, have a 10-year term and begin vesting in equal tranches over three years beginning on January 1, 2022. Options are not transferable. During the lifetime of the optionee, an Option may be exercisable only by the optionee or, if the optionee is incapacitated, by the optionee’s guardian, committee or other authorized legal representative, and except upon death of an optionee, an Option may not be assigned or transferred in any way or otherwise disposed of (whether by operation of law or otherwise) except where the Board permits a transfer of the Option in compliance with applicable securities regulation and the rules or policies of the TSX. If the holder of the Option ceases to be a full-time employee of the Corporation or its subsidiaries, any unvested Options will generally be terminated and the former employee will have only a limited period of time to exercise vested Options. The Option Plan includes a cashless exercise alternative under which, on exercise of an Option, the holder receives Shares for the in-the-money value of the Option (less applicable taxes).
Employees are not permitted to purchase financial instruments to hedge or offset a decrease in the market value of the underlying Shares.
The Board may at any time suspend or terminate the Option Plan without the consent of the individuals who are holding unexercised Options, provided that no such suspension or termination adversely affects the rights under any outstanding Options. The Board may at any time and from time to time amend the Option Plan, without Shareholder approval, to make amendments, including amendments which are of a “housekeeping” nature; to amend the definition of “Fair Market Value” used in determining the exercise price; to amend the vesting provisions of any Option; or, to change the termination provisions of any Option as long as the change does not entail an extension beyond the original expiration date. Shareholder approval is required for any amendment other than the ones listed above.
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The Option Plan is subject to the following restrictions with respect to grants of Options and the issuance of Shares to insiders of the Corporation:
(a) | the number of Shares that may, at any time, be reserved for issuance pursuant to Options granted to insiders shall not in the aggregate exceed 10% of the then issued and outstanding Shares; |
(b) | the number of Shares that may, within a one-year period, be issued to insiders on the exercise of Options or pursuant to other security-based compensation arrangements of the Corporation shall not exceed 10% of the then issued and outstanding Shares; |
(c) | the number of Shares that may, within any one year period, be issued to any one insider (including associates of the insider) on the exercise of Options or issued pursuant to other security based compensation arrangements of the Corporation shall not exceed 5% of the issued and outstanding Shares on the date of grant; and |
(d) | the number of Shares that may be reserved for issue to any one person pursuant to Options granted under the Option Plan shall not exceed 5% of the issued and outstanding Shares on the date of grant. |
Copies of the Option Plan are available for inspection by Shareholders at the Corporation’s head office.
No Options were granted in 2020 in respect of compensation for the year-ended December 31, 2019.
Employee Savings Plan
In December 2012, the Corporation introduced an employee savings plan which is available to all employees (the “Employee Savings Plan”). The plan encourages employees to save and invest for their retirement. Contributions made to the plan through payroll deductions will be matched by the Corporation. The plan was amended in January 2014 and now permits payroll deductions and a corporate match of up to a maximum annual contribution of the lesser of $7,500 and 5% of the annual base salary of the employee. Employee payroll deductions and Corporation matching contributions are invested in CI mutual funds chosen by the employee. Participation in the plan is voluntary. There are currently 1,330 employees enrolled in the plan, representing over 86% of the Corporation’s eligible work force. This plan is important for retention and helps enhance our employee offering for potential new employees. The Corporation does not have any pension plan for employees or officers.
Determination of Amount of Compensation
The GHRC Committee determines the appropriate base salary, cash bonus and long-term incentives for the Chief Executive Officer and Chairman and approves the same for any individual who reports directly to the Chief Executive Officer, including the other Named Executive Officers (the “CEO Direct Reports”). This determination is based on an individual’s success in achieving corporate and business unit objectives, as well as personal performance. The GHRC Committee takes into account industry and competitive compensation and other data for benchmarking purposes.
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2019 was a unique year for CI with significant changes to executive personnel and required the GHRC Committee to consider many unique factors in its approach to compensation. The process for determining the base salaries and the amount of variable compensation for the Chief Executive Officer and the CEO Direct Reports was also based on an analysis of the following factors:
(a) | the overall financial and operating performance of the Corporation; |
(b) | the economic, competitive and capital markets environment and the Corporation’s performance relative to industry metrics; |
(c) | the success in achieving the value-enhancing corporate goals and objectives, outlined above under the heading “Rewarding Demonstrated Performance”; |
(d) | the individual performance and contribution to the success of the Corporation, with specific reference to the annual financial performance of the Corporation, the achievement of business unit, departmental strategic and operational objectives, value-enhancing corporate goals and objectives, including increasing corporate growth and enhancing CI’s reputation, diversifying sources of revenue, improving the client experience, achieving operational excellence, strengthening portfolio management, cultivating the employee experience, modernizing the asset management business, expanding the wealth management platform, globalizing the Corporation, succession planning, cost containment, and the success of the Corporation’s funds as measured by ratings and awards; |
(e) | the free cash flow and total assets under management and administration during the financial year, as well as sales and the containment of SG&A expenses, the Corporation’s share of the mutual fund market and the broader wealth management industry, taking into account the impact that capital market developments, international disruptions, the economy and other recognized performance variables have had on performance; |
(f) | the responsibilities of the Chief Executive Officer and each CEO Direct Report, including leadership, risk management and mentoring; and |
(g) | the expertise and length of service of each CEO Direct Report. |
A comprehensive annual report is prepared by the Chief Executive Officer for the GHRC Committee, providing an overview of the Corporation’s financial and operating performance during the year and outlining priorities for the year to come (the “Compensation Report”). The Compensation Report highlights the accomplishments and challenges of the business units or operations and includes a description of significant actions or events that occurred during the year and key milestones with respect to such actions or events, with reference to the Corporation’s strategic plan.
The Compensation Report includes an overview of the Corporation’s operations, comparative performance statistics and competitive information. The Compensation Report includes an analysis of business unit success in meeting business unit objectives and contributing to corporate performance. The Compensation Report provides the GHRC Committee with perspectives from the Chief Executive Officer on challenges and accomplishments, along with conclusions and recommendations regarding the appropriate compensation for the senior officers of the Corporation and its subsidiaries, as well as a recommendation regarding the overall approach to compensation. The Chair of the GHRC Committee reviews the Compensation Report with the Chief Executive Officer, particularly with respect to meaningful changes in respect of the compensation of any senior officer. The GHRC Committee reviews this report and then, using information contained in the report, determines recommended compensation for the Chief Executive Officer and the CEO Direct Reports, taking into consideration the above-listed factors and other relevant information.
The Chief Executive Officer provides the GHRC Committee with recommended compensation ranges available to individuals at different seniority levels, as well as the recommended breakdown between base salary and bonus, including the split between cash and equity bonus incentives. The Chief Executive Officer also provides the GHRC Committee with historical bonus pools as a percentage of key financial metrics, such as net income, EBITDA, and SG&A expenses.
The GHRC Committee also takes into account the compensation paid to executive officers of certain of the Corporation’s public company competitors.
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Competitive Market Review
The Compensation Report included comparative financial performance and compensation data for the following publicly traded asset management companies and financial institutions:
IGM Financial Inc. | Invesco Ltd. | Guardian Capital Group Limited |
Sprott Inc. | Janus Henderson Group plc | Canaccord Genuity Group Inc. |
Legg Mason, Inc. | T. Rowe Price Group, Inc. | Affiliated Managers Group, Inc. |
Franklin Resources, Inc. | TMX Group Limited | Fiera Capital Corporation |
Ares Management Corporation | Victory Capital Management Inc. | AllianceBernstein Holding LP |
The Compensation Report for 2019 includes a comparison of the total compensation paid to the Chief Executive Officers and Named Executive Officers of those companies and the total compensation paid to our Chief Executive Officer and Named Executive Officers. The compensation information regarding the other companies is obtained from the most recent proxy circulars filed by them with the securities regulators. This information is considered in determining the appropriate compensation for the Chief Executive Officer and other Named Executive Officers but is not determinative.
Other Relevant Information Considered
The GHRC Committee also considered the following:
(a) | management’s commitment to strategy development for the growth and success of the Corporation, and the enterprise-wide rollout of strategic priorities and key projects and objectives aligned with these priorities; |
(b) | the continued growth and diversification of the Corporation’s business, including the integration of the acquisitions and economies of scale achieved; |
(c) | the focus on CI’s distribution strategy and the decision in December 2019 to purchase WisdomTree Asset Management Canada, Inc. and its suite of exchange-traded funds; |
(d) | the execution of the strategy of investing in and acquiring registered investment advisors (“RIA”) in the United States; |
(e) | the successful execution of the capital management strategy through share buybacks and the issuance of public debentures in the summer of 2019, as well as the dividend strategy; |
(f) | the achievement of operating and client service excellence, including the performance of Assante Wealth Management and Stonegate Private Counsel relative to industry competitors; |
(g) | management’s continued focus on building CI brand awareness, including the modernization of the current brand; |
(h) | management’s continued focus on expanding CI’s demographic reach, including the decision in December 2019 to form an advisory relationship with a retirement expert, to advise CI and financial advisors on how to better serve aging and retired clients; |
(i) | management’s continued focus on enhancing product solutions, including the launch of CI Mosaic ETF Portfolios, a family of mutual funds of ETFs, and the signing of a strategic partnership with fintech firm d1g1t, whose technology platform CI will deploy across the firm’s advisory businesses. This also includes multiple other initiatives launched in late 2019, such as the development of a sub-advisory relationship with DoubleLine Capital, which will see DoubleLine sub-advise new fixed-income mandates to be offered by CI, and a strategic partnership with Adams Street Partners, which will see CI offer private market investment solutions to high-net-worth and ultra-high-net-worth clients; |
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(j) | the enrichment of the employee experience through enhanced internal communications including webcasts, employee messaging regarding the strategic priorities, including CEO communications in the form of video communication updates and town hall forums; |
(k) | management’s continued focus on cost containment and controlling expenses; |
(l) | the Corporation’s net income and free cash flow was lower than in 2018, but management was successful in executing cost containment measures to reduce SG&A accordingly; |
(m) | a comparison of the Chief Executive Officer and Named Executive Officer compensation relative to a number of the Corporation’s publicly traded competitors; and |
(n) | historical compensation for senior executives at the Corporation for the preceding three years. |
The GHRC Committee meets to consider these recommendations and also to review and recommend compensation for the Chief Executive Officer and approve recommendations for the CEO Direct Reports. The GHRC Committee then makes its recommendations to the Board with respect to the annual cash bonus and equity compensation grant as the variable elements of total compensation to be paid to the Chief Executive Officer and CEO Direct Reports, including, as applicable, the Named Executive Officers, for the fiscal year that has just been completed and to set salaries for the current year. The Board considers these recommendations when it makes its determination with respect to these matters.
Risk Management
The compensation program of the Corporation does not encourage or financially incentivize executives to expose the business, operations or organization to inappropriate risks.
The Board is keenly aware of the fact that compensation practices can have unintended risk consequences. The GHRC Committee is responsible for risk oversight of the Corporation’s compensation policies and practices and in that regard, works to identify and stop any compensation practice that might encourage an employee to expose the Corporation to unacceptable risk. At the present time, the GHRC Committee is satisfied that the current executive compensation program will not encourage the executives to expose the business to inappropriate risk. In fact, the GHRC Committee believes that current compensation practices encourage a conservative approach to managing the business of the Corporation. The Board rewards individuals for the success of the Corporation once that success has been demonstrated. In addition, a significant portion of each executive’s total compensation is equity-based in order to incent the executives to focus on longer-term results.
The Corporation’s compensation risk management practices include, but are not limited to:
(a) | Share Ownership Requirements – As discussed in greater detail under “Statement of Governance Practices – Share Ownership by Executive Officers and Directors” in this Information Circular, the Share ownership requirement is designed to align the interests of executives to those of the Shareholders. |
(b) | Chief Executive Officer and President – There will be a claw back of the Chief Executive Officer’s and President’s annual cash bonuses within two years in the event of a material financial restatement due to gross negligence, intentional misconduct or fraud that triggered or partially triggered the material restatement. |
(c) | Anti-Hedging Policy – As discussed in greater detail under “Statement of Governance Practices – Restrictions on Trading and Hedging Shares of the Corporation” in this Information Circular, the Corporation prohibits its employees, officers and Directors from speculating or purchasing financial instruments to hedge or offset a decrease in the market value of Shares owned, short selling Shares, selling a call option on Shares, or buying a put option on Shares. |
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Chief Executive Officer Compensation
Mr. MacAlpine was appointed Chief Executive Officer with only four months remaining in fiscal 2019, accordingly, the compensation for Mr. MacAlpine was determined based on an assessment of his skills and the competitive market during the recruitment process, with the benefit of assistance from an outside employment consultant as further described in the section titled “Statement of Governance Practices – Board Composition and Independence - Executive Compensation-Related Fees”.
The components of the compensation awarded to the Chief Executive Officer are the same as those which apply to the other senior executive officers of the Corporation, namely base salary, cash bonus and equity bonus in the form of RSUs. The GHRC Committee presents its recommendations with respect to the Chief Executive Officer compensation to the Board of Directors. Compensation for the Chief Executive Officer is based on set targets of corporate performance, measured by key financial metrics, such as AUM, net sales, EBITDA, earnings per share and SG&A control. The financial performance of the Corporation in any given year is significantly tied to developments in the capital markets. For that reason, at the end of each year the GHRC Committee looks at the performance of the Corporation in light of, or in spite of, prevailing market and economic influences and the individual’s contribution to that performance.
The GHRC Committee also looks at the strategic leadership of the Chief Executive Officer, including pursuit of value enhancing strategies and contribution to the achievement of business unit objectives by senior management. The performance of the Corporation is evaluated relative to the performance of its competitors in terms of growth in assets under management and sales. The GHRC Committee considered the enterprise-wide rollout of strategic priorities and key projects and objectives aligned with these priorities, the integration of acquisitions and the continued build out of BBS and its Virtual Broker technology in the Corporation’s legacy businesses, and the continued focus on CI’s distribution strategy including the decision in December 2019 to purchase WisdomTree Asset Management Canada, Inc. and its suite of exchange-traded funds to add to the line-up of exchange-traded funds managed by CI. Mr. MacAlpine has also been actively moving to globalize the Corporation by acquiring RIA businesses in the United States to increase the distribution presence and brand of the Corporation.
Mr. Anderson, the former President and Chief Executive Officer of the Corporation, resigned as President on June 24, 2019 and retired as Chief Executive Officer on September 1, 2019. His retirement entitlement is described below under “Termination and Change of Control Benefits”.
Mr. Kurt MacAlpine became Chief Executive Officer of the Corporation on September 1, 2019, having previously served as Executive Vice-President and Head of Global Distribution for WisdomTree Asset Management and as a Partner and Leader of the North American Asset Management Practice at McKinsey & Company. With the support of the Board of Directors, Mr. MacAlpine outlined his strategic priorities for CI: modernize CI’s asset management business, expand CI’s wealth management platform and globalize the Corporation. Mr. MacAlpine also named the four key elements that would serve as CI’s strategic foundation, namely: People, Technology, Speed and Financial Strength.
In setting the recommended salary of the current Chief Executive Officer, the GHRC Committee took into consideration Mr. MacAlpine’s responsibilities and experience as well as his performance in leading the executive team and directing the strategic initiatives of the Corporation. The GHRC Committee assesses the Chief Executive Officer’s ability to lead the organization to optimize opportunities to take advantage of favourable market conditions or to mitigate the impact of unfavourable conditions. Following Mr. MacAlpine’s appointment as Chief Executive Officer and his announcement of strategic priorities, the Corporation’s Share price rose 13.8% from September 1, 2019 to the year-ended December 31, 2019.
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In consultation with the CEO Search Committee, the GHRC Committee recommended to the Board of Directors that Mr. MacAlpine be awarded $3,875,835 worth of RSUs as a signing bonus representing the approximate value of restricted share units and stock in WisdomTree Asset Management that he was otherwise entitled to but forfeited upon his departure. Furthermore, in consideration of Mr. MacAlpine’s experience, leadership capabilities, market rates for similar positions, and relocation from the United States to Canada, the Board of Directors, upon the recommendation from the aforementioned committees, set his annual salary at $800,000 for 2019 (paid pro rata, being $266,667 for September 1, 2019 to December 31, 2019) and for 2020.
In recognition of Mr. MacAlpine’s responsibilities, leadership of and contribution to success in the fourth quarter of 2019, the GHRC Committee recommended to the Board the payment of a cash bonus of $266,667 and the award of 33,223 RSUs pursuant to the RSU Plan. The RSUs have an approximate value as at the date of grant of $800,000 based on a value of $24.08 per Share for the RSUs, bringing Mr. MacAlpine’s total compensation, including his signing bonus, to $5,209,169 for 2019.
Chief Executive Officer Compensation Considerations
In setting the bonus and long-term compensation for Mr. MacAlpine 2019, the GHRC Committee and the Board, in accordance with CI’s compensation policy, considered a number of factors in addition to those listed on page 25, including Mr. MacAlpine’s:
(a) | commitment to strategy development for the growth and success of the Corporation, and the enterprise-wide rollout of strategic priorities and key projects and objectives aligned with the Corporation’s core strategic priorities; |
(b) | leadership, engagement and continued development of the senior management team and engagement between the business units; |
(c) | important role in the continued growth and diversification of the Corporation’s business, including the expansion into the United States through the acquisitions of RIAs; |
(d) | leadership in building out CI’s distribution strategy including the December 2019 decision to purchase WisdomTree Asset Management Canada, Inc. and its suite of exchange-traded funds; |
(e) | work in developing and growing the Corporation’s relationship with key business partners; and |
(f) | leadership in the introduction of new products and competitive pricing, the development of CI’s branding strategy. |
Members of the Governance, Human Resources, and Compensation Committee
The members of the GHRC Committee during 2019 were Mr. Miller (Chair), Mr. Perrow, Mr. Muir, and Ms. Chang-Addorisio (appointed December 2, 2019) all of whom were independent Directors. Mr. Moore was a member of the GHRC Committee until June 24, 2019 when he did not stand for re-election at the Corporation’s annual meeting of Shareholders. For a description of the committee members’ direct experience and skills relevant to their responsibilities in executive compensation and enabling the committee to make decisions on the suitability of CI’s compensation policies and practices, please see “Statement of Governance Practices - Board Composition and Independence – Board Expertise Matrix”.
* * * * *
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Performance Graphs
The first graph compares the yearly percentage change in the cumulative total return on the Shares and voting securities of CI’s predecessors, with the cumulative total return of the S&P/TSX Composite Index (the “S&P/TSX Index”) and the S&P/TSX Financials Index over the period from December 31, 2014 to December 31, 2019. The graph illustrates the cumulative return on a $100 investment in Shares made on December 31, 2014 as compared with the cumulative return on a $100 investment in the S&P/TSX Index or in the S&P/TSX Financials Index on December 31, 2014. Distributions and dividends are assumed to be reinvested.
The second graph compares the cumulative total return on the Shares from the date on which the Shares were first publicly traded on the TSX in June 1994 to December 31, 2019, with the cumulative total return of the S&P/TSX Index and the S&P/TSX Financials Index for the same period.
The performance as set out in the graphs does not necessarily indicate future price performance.
Cumulative Total Return for 5-year period
31-Dec-14 | 31-Dec-15 | 31-Dec-16 | 31-Dec-17 | 31-Dec-18 | 31-Dec-19 | |||||||||||||||||||
CI Financial Corp. | 100 | 99 | 98 | 106 | 64 | 84 | ||||||||||||||||||
S&P/TSX Index | 100 | 92 | 111 | 121 | 110 | 136 | ||||||||||||||||||
S&P/TSX
Financials Index |
100 | 98 | 122 | 138 | 125 | 152 |
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Cumulative Total Return since CI became a Public Company in 1994
1-Jun-94 | 31-Dec-01 | 31-Dec-04 | 31-Dec-07 | 31-Dec-10 | 31-Dec-13 | 31-Dec-16 | 31-Dec-19 | |||||||||||||||||||||||||
CI Financial Corp. | 100 | 912 | 1,506 | 2,760 | 2,595 | 4,586 | 4,241 | 3,645 | ||||||||||||||||||||||||
S&P/TSX Index | 100 | 213 | 271 | 434 | 461 | 510 | 625 | 765 | ||||||||||||||||||||||||
S&P/TSX
Financials Index |
100 | 471 | 699 | 1,016 | 1,038 | 1,465 | 2,033 | 2,535 |
The graph below sets out the trend in aggregate total compensation, which includes base salary, annual cash bonus and equity bonus, awarded to the Named Executive Officers for each of the last five fiscal years compared to the total return on the Shares over that same period.
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Summary Compensation Table
The following table sets out information concerning the compensation earned from the Corporation and the Corporation’s subsidiaries during the financial year ended December 31, 2019 and two previous years by the Corporation’s Chief Executive Officer and former Chief Executive Officer, Chief Financial Officer, and the Corporation’s other three most highly compensated executive officers who were serving as such at December 31, 2019 (collectively, the “Named Executive Officers”).
Equity
incentive plan
compensation(1) ($) |
Non-equity incentive
plan compensation ($) |
||||||||||||||||||||||||||||||
Name and principal position | Year |
Salary
($) |
Share-based
awards |
Option-
based awards(2) |
Annual
incentive plans |
Long-term
incentive plans |
All other
compensation ($) |
Total
compensation ($) |
|||||||||||||||||||||||
Kurt MacAlpine(3) | |||||||||||||||||||||||||||||||
Chief Executive Officer and Director | 2019 | 266,667 | 800,000 | - | 266,667 | - | 3,875,835 | 5,209,169 | |||||||||||||||||||||||
2018 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
2017 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Peter W. Anderson(4) | |||||||||||||||||||||||||||||||
Chief Executive Officer and Director (prior to retirement) | 2019 | 487,500 | - | - | - | - | 2,575,000 | 3,062,500 | |||||||||||||||||||||||
2018 | 650,000 | 810,018 | 270,001 | 720,000 | - | - | 2,450,019 | ||||||||||||||||||||||||
2017 | 650,000 | 1,365,000 | - | 910,000 | - | - | 2,925,000 | ||||||||||||||||||||||||
William T. Holland(5) | |||||||||||||||||||||||||||||||
Chairman | 2019 | 750,000 | - | - | - | - | - | 750,000 | |||||||||||||||||||||||
2018 | 750,000 | - | - | - | - | - | 750,000 | ||||||||||||||||||||||||
2017 | 375,000 | 250,000 | - | - | - | 93,730 | 718,730 | ||||||||||||||||||||||||
Douglas J. Jamieson | |||||||||||||||||||||||||||||||
Executive Vice-President and Chief Financial Officer | 2019 | 350,000 | 220,000 | - | 180,000 | - | - | 750,000 | |||||||||||||||||||||||
2018 | 350,000 | 210,000 | 70,000 | 280,000 | - | - | 910,000 | ||||||||||||||||||||||||
2017 | 315,000 | 257,500 | 72,488 | 327,500 | - | - | 972,488 | ||||||||||||||||||||||||
Darie Urbanky(6) | |||||||||||||||||||||||||||||||
President and Chief Operating Officer | 2019 | 425,000 | 480,000 | - | 320,000 | - | - | 1,225,000 | |||||||||||||||||||||||
2018 | 300,000 | 200,000 | - | 200,000 | - | 44,640 | 744,640 | ||||||||||||||||||||||||
2017 | 235,000 | 157,500 | - | 192,500 | - | - | 585,000 | ||||||||||||||||||||||||
Ratnavel, Roy | |||||||||||||||||||||||||||||||
Executive Vice-President and Head of Sales | 2019 | 300,000 | 220,000 | - | 180,000 | - | - | 700,000 | |||||||||||||||||||||||
2018 | 300,000 | 150,000 | 50,000 | 200,000 | - | 44,640 | 744,640 | ||||||||||||||||||||||||
2017 | 240,000 | 180,000 | 45,000 | 225,000 | - | - | 690,000 |
Notes to the Summary Compensation Table:
(1) | Equity-based awards reflect aggregate amounts awarded in respect of the relevant year. |
(2) | (i) With respect to 2018 equity compensation, Options were granted to Messrs. Anderson, Jamieson, and Ratnavel upon their election to receive Options in lieu of up to 25% of the RSUs that would otherwise have been awarded to each of them under the RSU Plan. |
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(ii) With respect to 2017 equity compensation, Options were granted to Mr. Jamieson and Mr. Ratnavel upon their election to receive Options in lieu of up to 20% of the RSUs that would otherwise have been awarded to them under the RSU Plan. |
(iii) The following assumptions were made for purposes of calculating the value of Options granted to Messrs. Anderson, Jamieson and Ratnavel on February 26, 2019: an expected average option term of 6.0 years to exercise; a dividend projected to grow on average 0% per annum; projected stock price volatility of 17%; and an average risk-free interest rate of 2.21% over the expected life of the Options. These Options have been valued using Black-Scholes methodology and on that basis ascribed average value of $2.36 per Option. |
(iv) The following assumptions were made for purposes of calculating the value of Options granted to Messrs. Jamieson and Ratnavel on February 27, 2018: an expected average option term of 3.3 years to exercise; a dividend projected to grow on average 2.0% per annum; projected stock price volatility of 16.0%; and an average risk-free interest rate of 2.32% over the expected life of the Options. These Options have been valued using Black-Scholes methodology and on that basis ascribed average value of $2.33 per Option. |
(v) The actual value realized, if any, on Options exercises will be dependent on overall market conditions and the future performance of the Corporation and its Shares. The Corporation cannot be certain that the actual value realized will approximate the amount calculated under the valuation model. |
(3) | Mr. MacAlpine was appointed as Chief Executive Officer of the Corporation on September 1, 2019. He received a one-time award of $3,875,835 in the form of 203,136 RSUs upon his appointment as Chief Executive Officer in September 2019 which is noted in the All Other Compensation column. The RSU award reflects the approximate value of restricted share units and stock in WisdomTree Asset Management that he was otherwise entitled to but forfeited upon his departure. His annualized salary as Chief Executive Officer for 2019 is $800,000. He does not earn any fees for his role as a Director. |
(4) | Mr. Anderson resigned his position as President of the Corporation on June 24, 2019 and his position as Chief Executive Officer of the Corporation on September 1, 2019. Mr. Anderson received $2,575,000 in 2019 upon his retirement, of which $1,250,000 was for his 2019 earned bonus. |
(5) | Mr. Holland earns an annual retainer for his role as Chairman of the Board (the “Chairman’s Retainer”). Effective January 1, 2020, Mr. Holland’s Chairman’s Retainer was reduced from $750,000 to $250,000. In 2017 Mr. Holland was paid a salary as Executive Chairman until May 11, 2017, at which time he became Chairman and thereafter his compensation was in the form of the Chairman’s Retainer. |
(6) | Mr. Urbanky was appointed as Chief Operating Officer of the Corporation on September 6, 2018 and as President of the Corporation on June 24, 2019. Mr. Urbanky's annual base salary increased from $300,000 to $550,000 July 1, 2019 as a result of his promotion to President of the Corporation on June 24, 2019. |
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Equity Compensation Plan Information
The following table sets out information concerning the number and price of securities to be issued under equity compensation plans to employees and others as at December 31, 2019.
Plan
Category |
Number
of Securities
(a) |
Price
(Weighted
– Average
($) |
Number of Securities
(excluding
securities
|
|||||||||
Equity compensation plans approved by Shareholders | ||||||||||||
Option Plan | 5,584,373 | 29.63 | 4,428,738 | |||||||||
RSU Plan | 657,304 | 21.71 | 4,228,592 |
Note:
(1) | The number of securities remaining available to be issued as a percentage of outstanding Shares as at December 31, 2019 was approximately 2% in respect of the Option Plan and approximately 2% in respect of the RSU Plan. |
The following table sets out the approximate annual burn rate, calculated in accordance with the rules of the Toronto Stock Exchange, in respect of each of the equity compensation plans for each of the three most recently completed years.
Annual Burn Rate (1) | ||||||||||||
Plan
Category |
2019 | 2018 | 2017 | |||||||||
Option Plan | 0.3 | % | 0.03 | % | 0.2 | % | ||||||
RSU Plan (2) | — | — | — |
Notes:
(1) | The annual burn rate is calculated as follows and expressed as a percentage: |
Number of securities granted under the specific plan during the applicable fiscal year
Weighted average number of securities outstanding for the applicable fiscal year
(2) | The RSU Plan was approved by Shareholders at the annual and special meeting of Shareholders held on April 20, 2017. The Corporation has not issued any Shares from treasury under the RSU Plan since the date of its approval by Shareholders and has met the requirement to deliver Shares under the RSU Plan through Shares acquired under the Corporation’s normal course issuer bid. See “Normal Course Issuer Bid” for a description. |
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Incentive Plan Awards
Outstanding Option-Based and Share-Based Awards
The following table sets out, for each Named Executive Officer, information concerning all Option-based and share-based awards outstanding as of December 31, 2019.
Option-based Awards | Share-based Awards | |||||||||||||||||||||||
Name |
Number
of
securities underlying unexercised Options (#) |
Option
exercise price ($) |
Option
expiration date |
Value
of
unexercised in-the- money options ($) |
Number
of
shares or units that have not vested (#) |
Market
or
payout value of share- based awards that have not vested ($) |
||||||||||||||||||
Kurt MacAlpine | -- | -- | -- | -- | 236,359 | 5,131,354 | ||||||||||||||||||
Chief Executive Officer and Director | ||||||||||||||||||||||||
Peter W. Anderson | 114,407 | $ | 18.99 | Feb 26, 2029 | 311,187 | -- | -- | |||||||||||||||||
Chief Executive Officer (prior to retirement) | ||||||||||||||||||||||||
William T. Holland | -- | -- | -- | -- | 9,192 | 199,558 | ||||||||||||||||||
Chairman | ||||||||||||||||||||||||
Douglas J. Jamieson | 40,000 | 33.96 | Feb. 20, 2020 | 0 | 20,607 | 447,378 | ||||||||||||||||||
Executive Vice-President and Chief Financial Officer | 50,000 | 28.63 | Feb. 19, 2021 | 0 | ||||||||||||||||||||
62,750 | 27.44 | Feb. 28, 2022 | 0 | |||||||||||||||||||||
31,111 | 28.67 | Feb. 27, 2023 | 0 | |||||||||||||||||||||
29,662 | 18.99 | Feb. 26, 2029 | 80,681 | |||||||||||||||||||||
Darie Urbanky | 10,000 | 33.96 | Feb. 20, 2020 | 0 | 29,052 | 630,719 | ||||||||||||||||||
President and Chief Operating Officer | 11,000 | 28.63 | Feb. 19, 2021 | 0 | ||||||||||||||||||||
18,000 | 18.99 | Feb. 26, 2029 | 48,960 | |||||||||||||||||||||
Roy Ratnavel | 15,000 | 33.96 | Feb. 20, 2020 | 0 | 17,310 | 375,800 | ||||||||||||||||||
Executive Vice-President and Head of Sales | 15,000 | 28.63 | Feb. 19, 2021 | 0 | ||||||||||||||||||||
88,000 | 27.44 | Feb. 28, 2022 | 0 | |||||||||||||||||||||
20,000 | 28.67 | Feb. 27, 2023 | 0 | |||||||||||||||||||||
39,187 | 18.99 | Feb. 26, 2029 | 106,589 |
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Value Vested or Earned During the Year
The following table sets out for each Named Executive Officer, information concerning the value of incentive plan awards—Option-based and Share-based awards as well as non-equity incentive plan compensation—vested or earned during the financial year ended December 31, 2019.
Name |
Option-based
awards –
($)
|
Share-based
awards –
Value vested during the year ($) |
Non-equity
incentive
plan compensation – Value earned during the year ($) |
|||||||||
Kurt MacAlpine
Chief Executive Officer
|
-- | 0 | 266,667 | |||||||||
Peter W. Anderson
Chief Executive Officer (prior to retirement)
|
0 | 2,976,322 | (2) | 0 | ||||||||
William T. Holland
Chairman
|
-- | 99,800 | -- | |||||||||
Douglas J. Jamieson
Executive Vice-President and Chief Financial Officer
|
0 | 355,599 | 180,000 | |||||||||
Darie Urbanky
President and Chief Operating Officer
|
0 | 147,586 | 320,000 | |||||||||
Roy Ratnavel
Executive Vice-President and Head of Sales |
0 | 218,530 | 180,000 |
Notes:
(1) | The amounts shown represent the dollar value that would have been realized if all Options that vested during the fiscal year ending December 31, 2019 had been exercised on the vesting date, calculated as the difference between the exercise price of such Options and the TSX closing price of the Shares on the vesting date. |
(2) | In connection with his retirement, all of Mr. Anderson’s RSUs vested in 2019. |
Termination and Change of Control Benefits
Peter W. Anderson
In recognition of Mr. Anderson’s contributions as Chief Executive Officer and President during 2019, as well as his assistance with hiring a successor Chief Executive Officer and transition services, the Board awarded Mr. Anderson a lump sum retirement payment of $1,325,000 in addition to his earned bonus of $1,250,000 (less applicable deductions). Further, the vesting schedule of his outstanding RSUs was accelerated so they came due upon his retirement. Mr. Anderson was instrumental in developing and rolling out the strategic priorities of the Corporation. He successfully executed on a number of strategic initiatives during his tenure as Chief Executive Officer, including the acquisition of Sentry Investments and GSFM Funds Management. The Corporation does not have a pension plan and accordingly Mr. Anderson is not entitled to any pension benefits on retirement. The Board thanks Mr. Anderson for his years of service and stewardship of the Corporation.
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Mr. Anderson is entitled to post-employment health benefits at the executive employee level for a period of 24 months after his retirement.
Mr. Anderson’s employment agreement contains a covenant not to compete directly or indirectly with the Corporation for a period ending three months following the completion of employment or solicit employees of the Corporation for a period ending 12 months following the completion of employment.
Kurt MacAlpine
In the event Mr. MacAlpine is terminated without cause or good reason, he is entitled to 12 consecutive months pay from the last day of work, equal to the 12 months of pay immediately prior to termination, including a pro-rated annual bonus, unpaid vacation pay, and benefits. Any unvested RSUs will be eligible for continued vesting during the 12 months post termination date, subject to the terms of the RSU Plan. He will remain entitled to post-employment health benefits at the executive employee level for a period of 12 months post termination.
Upon a change of control, if Mr. MacAlpine is terminated without cause or resigns for good reason within one year, his employment agreement entitles him to a monthly payment equal to the total compensation paid to him in the previous 12 months, up to the date of the change of control, divided by 12, for a period of 18 months. Any RSUs that remain unvested during the 18-month period shall continue vesting in accordance with the terms of the RSU Plan. He will remain entitled to post-employment health benefits at the executive employee level for a period of 18 months post termination.
Mr. MacAlpine’s employment agreement contains a covenant not to compete directly or indirectly with the Corporation for a period ending 12 months following the completion of employment or solicit employees of the Corporation for a period ending 12 months following the completion of employment.
Darie Urbanky
In the event Mr. Urbanky is terminated without cause or good reason, he is entitled to 24 consecutive months pay from the last day of work, equal to base salary plus annual incentives paid or granted in the 12 months preceding the termination date, divided by 12, for 24 consecutive months.
Mr. Urbanky’s employment agreement contains a covenant not to compete directly or indirectly with the Corporation for a period ending 12 months following the completion of employment or solicit employees of the Corporation for a period ending 12 months following the completion of employment.
Sheila A. Murray
In recognition of Ms. Murray’s long service to the Corporation culminating in three years as President, and her assistance and ongoing cooperation in her succession, including her consulting role to senior management through December 31, 2019, the Corporation has paid Ms. Murray a lump sum retirement payment of $2,000,962 (less applicable deductions). The GHRC Committee took into consideration the responsibilities and experience of Ms. Murray as well as her performance in leading the Corporation in the adoption of key measures and milestones to enhance corporate growth, operational excellence and the client experience. The GHRC Committee considered these factors in determining Ms. Murray’s retirement entitlement and her valuable contributions to the Corporation.
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The Corporation does not have a pension plan and accordingly Ms. Murray is not entitled to any pension benefits upon her retirement.
Pursuant to the RSU Plan and her employment agreement, Ms. Murray exercised her discretion to accelerate the vesting of her RSUs on January 28, 2020, for total proceeds of $1,770,585 (less applicable deductions).
Ms. Murray is entitled to post-employment health benefits at the executive employee level for a period of twenty-four months following her retirement.
Ms. Murray’s employment agreement contains standard confidentiality provisions and an agreement not to compete directly or indirectly with the Corporation for a period ending three months following the date of retirement or solicit employees of the Corporation for a period ending 12 months following the date of retirement.
Ms. Murray has remained a member of the Board following her retirement and is standing for re-election at the Meeting.
Director Compensation
The GHRC Committee is responsible for the compensation of Directors and annually reviews the form and amount of Director compensation and makes a recommendation to the Board for approval. The GHRC Committee takes into account the time commitment expected of Directors, the complexity and scope of any Director’s responsibilities, the need to attract and retain qualified Directors and the alignment of interests between securityholders and the Board.
During the financial year ended December 31, 2019, non-employee Directors other than the Chairman were paid an annual fee of $140,000. The Lead Director of the Board of Directors was paid $165,000 in recognition of the additional responsibilities which this position entails. Directors’ fees are payable in quarterly installments. Directors are entitled to be reimbursed for expenses incurred by them in their capacity as a Director.
Effective January 1, 2020, upon the recommendation of the GHRC Committee, the Board agreed it was in the best interests of the Corporation to: maintain the annual salary of each non-employee Director, who was not an officer or employee of the Corporation, at $140,000; compensate the Chair of each committee an additional $20,000; compensate the Lead Director an additional $25,000; and reduce the Chairman’s Retainer from $750,000 to $250,000.
On May 8, 2019, to assist with the recruitment and hiring of a successor Chief Executive Officer, the Corporation formed a special advisory committee known as the CEO Search Committee which was comprised of Messrs. Holland, Miller (Chair) and Muir. As a result of the significant increase in workload and responsibility of the members of the CEO Search Committee, the Board agreed to remunerate each member a one-time fee of $30,000. Mr. Holland forewent his compensation entitlement. Ms. Murray was actively involved in the CEO Search Committee, attending committee meetings, reviewing candidate resumes, interviewing certain candidates, and assisting in the negotiation of the terms of employment of the ultimate Chief Executive Officer. Accordingly, the Board also agreed to pay Ms. Murray a one-time fee of $30,000.
Directors who are also officers or employees of the Corporation are not paid any amount as a result of their serving as Directors, except Mr. Holland who earns a Chairman Retainer.
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The following table sets out the compensation earned by Directors in the year ended December 31, 2019:
Directors Compensation Table
Name(1) |
Fees earned (cash)
($) |
Share-based awards(2)
($)
|
Option-based awards
($) |
Non-equity incentive plan compensation
($) |
All other compensation
($) |
Total
($) |
||||||||||||||||||
William E. Butt | — | 105,000 | — | — | — | 105,000 | ||||||||||||||||||
Brigette Chang-Addorisio | 140,000 | — | — | — | — | 140,000 | ||||||||||||||||||
David P. Miller | 140,000 | — | — | — | 30,000 | (3) | 170,000 | |||||||||||||||||
Stephen T. Moore(4) | 70,000 | — | — | — | — | 70,000 | ||||||||||||||||||
Tom P. Muir | 165,000 | — | — | — | 30,000 | (3) | 195,000 | |||||||||||||||||
Sheila A. Murray | 105,000 | — | — | — | 2,168,462 | (5) | 135,000 | |||||||||||||||||
Paul Perrow | 140,000 | — | — | — | — | 140,000 |
Notes:
(1) | Messrs. Holland, MacAlpine, and Anderson have been omitted from this table, as they are Named Executive Officers and their compensation is disclosed in the above Summary Compensation Table. |
(2) | As described in more detail below, any non-employee Director may elect to receive all or any portion of his or her Director’s fees in the form of DSUs, and a Director’s fees will be paid in the form of DSUs until satisfaction of his or her share ownership requirement. |
(3) | Other compensation awarded for additional work in recruiting the Chief Executive Officer. |
(4) | Pursuant to the Board’s twelve-year term limit for Directors, Mr. Moore did not stand for reelection at the Corporation’s 2019 annual meeting. Mr. Moore’s compensation was pro-rated to June 24, 2019. |
(5) | Ms. Murray received the pro rata portion of her salary as President from January 1, 2019 to March 31, 2019, being $137,500, plus an additional $2,000,962 as a retirement payment as further described above under the heading “Termination and Change of Control Benefits”, plus $30,000 for her role as a Director in recruiting the Chief Executive Officer. |
Directors’ Deferred Share Unit Plan
To encourage Directors to align their interests with Shareholders, the Board adopted the Director Deferred Share Unit Plan (the “Director DSU Plan”), effective February 16, 2017, applicable to the fiscal year commencing January 1, 2017 and subsequent fiscal years. Under the Director DSU Plan, Directors may receive some or all of the Director’s fees in the form of DSUs, each of which has a market value equal to the five-day volume weighted average price of the Shares on the TSX for the five trading days preceding the date DSUs are credited to the Director. A DSU is a bookkeeping entry credited to the account of an individual Director, which cannot be converted to cash until the Director ceases to be a member of the Board. The value of a DSU, when converted to cash, will be equivalent to the five-day volume weighted average price of the Shares on the TSX for the five trading days preceding the date that conversion takes place. DSUs will attract dividend equivalents in the form of additional DSUs at the same rate as dividends on the Shares. All non-employee Directors may elect to receive all or any portion of such Director’s fee in the form of DSUs.
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The Board has a policy requiring each Director of the Corporation to hold Shares representing a prescribed multiple of the annual Director’s fee ensuring that the interests of the Directors are aligned with those of the Shareholders. Units held under the Director DSU Plan or RSU Plan may be used to satisfy this ownership requirement. Effective with respect to Director compensation payable on or after March 31, 2017, Directors have received Directors’ fees in the form of DSUs until satisfaction of the share ownership requirements for Directors described under “Statement of Governance Practices – Share Ownership by Executive Officers and Directors” in this Information Circular. Upon satisfaction of such ownership requirements, Directors may elect to receive all or any portion of their Director compensation in the form of DSUs.
Outstanding Option-Based and Share-Based Awards for Directors
The following table sets out information concerning the Directors’ outstanding Share-based awards and Option-based awards as of the date of this Information Circular. All Share-based awards are in the form of DSUs, other than Mr. MacAlpine whose Share-based awards are in the form of RSUs. None of the Directors, with the exception of Ms. Murray, have any outstanding Option-based awards. As of the date of this Information Circular, no Director has any other Share-based or Option-based awards.
Share Based Awards | Option Based Awards | |||||||||||||||
Name |
Number
of
shares or units that have not vested (#) |
Market
or payout
value of DSUs / RSUs that have not vested ($) |
Number
of
shares or units that have not vested (#) |
Market
or
payout value of Options that have not vested ($) |
||||||||||||
William E. Butt | 8,384 | 116,202 | 0 | -- | ||||||||||||
Brigette Chang-Addorisio | 0 | -- | 0 | -- | ||||||||||||
William T. Holland | 9,393 | 130,187 | 0 | -- | ||||||||||||
Kurt MacAlpine | 243,260 | 3,371,584 | 0 | -- | ||||||||||||
David P. Miller | 7,120 | 98,683 | 0 | -- | ||||||||||||
Tom P. Muir | 0 | -- | 0 | -- | ||||||||||||
Sheila A. Murray | 0 | -- | 50,000 | 0 | ||||||||||||
Paul J. Perrow | 0 | -- | 0 | -- |
Directors’ and Officers’ Liability Insurance and Indemnification
CI has purchased directors’ and officers’ liability insurance for the benefit of the Directors and officers of CI and its subsidiaries. The policy has an aggregate limit of $50 million per policy year plus excess $5 million “Side A” coverage for non-indemnifiable circumstances. A premium of $231,790 was paid by CI for the 12-month term which began on June 15, 2019. No part of this premium was paid by the Directors or officers of CI. Any deductible payable by any Director or officer making a claim under the policy is payable by CI and a $500,000 deductible is also payable by CI.
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CI will indemnify Directors and officers in accordance with its specific indemnification agreements and to the maximum extent permitted under applicable law.
Indebtedness of Directors and Executive Officers
The following table summarizes the aggregate indebtedness to CI, as of the date of this Information Circular, of any executive officers, Directors, employees and former executive officers, Directors, trustees and employees of CI:
AGGREGATE INDEBTEDNESS | ||||
Purpose | To CI or its Subsidiaries | |||
Share Purchases | $ | 2,447,945 | ||
Other | $ | 1,074,202 |
CI has in the past maintained an Employee Share Purchase Loan Program (the “Program”) pursuant to which CI lent money to qualified key employees to purchase Shares in the market. The Program is no longer available and no new loans have been advanced for several years; however, a number of loans remain outstanding. The loans are on market terms and bear interest at the greater of CI’s average borrowing cost and prescribed rates. The Shares purchased with the loan are pledged as security for the loan. Interest payments are made from participants’ salaries, and principal payments are generally made from the proceeds of any sale of such Shares. Each participant has agreed that his or her loan is to be repaid in accordance with its terms without exception.
Note:
(1) | The Program does not permit loan forgiveness. |
49
Statement of Governance Practices
Good governance is essential to the effective and efficient operation of the Corporation. For that reason, the Board and management are committed to maintaining a high standard of governance, including through consideration of the governance guidelines of the Canadian securities administrators and best practices recommendations of the Canadian Coalition for Good Governance.
The Role of the Board of Directors
The Board is responsible for the stewardship of the Corporation and in that regard has the duty to supervise the management of the business and affairs of CI. In addition to overseeing and approving major transactions and matters legally requiring Board involvement, the Board is consulted regularly by the executive management team on significant developments affecting or likely to affect the business and affairs of CI and its subsidiaries as well as any regulatory changes, new initiatives or circumstances in the asset management industry that may impact the business. The Board has delegated day-to-day management of the business to senior management; however certain matters exceeding a particular dollar threshold require Board approval, pursuant to CI’s Delegation of Authority policy.
The specific duties and Board functions are set out in detail in the Board Mandate, which is attached as Schedule “B” to this Information Circular. The Board Mandate is reviewed each year and changes will be made when necessary to reflect evolving best practices in governance and management oversight. Some of the Board’s most important oversight functions are:
Enterprise Risk Management
Effective enterprise risk management and continual assessment of the risks confronting our business are necessary in order to ensure that the Corporation is positioned to achieve its business objectives and to protect the Corporation and client assets. The Board is responsible for risk management oversight, which includes understanding the material risks of the Corporation’s business and mitigation strategies, and taking reasonable steps to ensure that management has an effective risk management structure in place. It is an ongoing process involving the Board, the Chief Risk Officer, and CI’s Risk Management Committee, comprised of senior executives representing the Corporation’s business units. The Board has delegated primary responsibility for oversight of risk management to the Audit and Risk Committee. The Risk Management Committee works together with CI’s Risk Management Team to manage risk and ensure that business strategies and activities are consistent with the Corporation’s risk appetite. The Risk Management Committee generally meets each month and will meet more often as necessary to discuss and identify emerging risks that have the potential to impact the Corporation’s business. Each year the Risk Management Committee, led by the Chief Risk Officer, engages in a formal process which includes a broad canvass of business unit leaders to identify and evaluate specific and material risks. A quantitative and qualitative analysis is done in order to rate the significance of each identified risk and then an assessment is prepared regarding the likelihood of the occurrence of a particular risk event. Once risks have been identified and rated, strategies and procedures are developed to minimize or avoid negative consequences and these risk mitigation processes are implemented and monitored with each business unit to bring risks to an acceptable risk level.
The Audit and Risk Committee reviews with management the Corporation’s systems to monitor and manage major business risks and legal and ethical compliance programs, including through regular reports on compliance systems and procedures, cybersecurity and other information technology systems, and the Corporation’s risk management policies and procedures. Each year, the Chief Risk Officer presents a detailed report on identified risks and mitigation strategies to the Audit and Risk Committee for discussion and comments. The Audit and Risk Committee receives regular updates on risk management at its quarterly meetings, including from the Corporation’s Chief Risk Officer, Chief Technology Officer, Chief Information Security Officer, and Chief Compliance Officer.
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A discussion of the risks affecting the Corporation appears in the Corporation’s Management Discussion and Analysis for the year-ended December 31, 2019 and quarter-ended March 31, 2020, available on the Corporation’s website (www.cifinancial.com) and on SEDAR (www.sedar.com).
Integrity of Financial Information and Internal Controls
The Board oversees financial reporting and compliance with the disclosure obligations imposed by corporate and securities laws. It is the responsibility of the Board to approve the annual and interim financial statements. The Board, through the Audit and Risk Committee, monitors the integrity of the Corporation’s management information systems and the effectiveness of internal controls through regular reporting by management and others. The Chief Internal Auditor reports on a quarterly basis directly to the Chair of the Audit and Risk Committee.
Strategic Planning
The Board oversees the strategic direction of the business and offers guidance on strategic issues confronting the Corporation. The Board is responsible for developing a depth of knowledge of the Corporation’s operations and business to assess the assumptions on which the Corporation’s strategic plans are based. A quarterly report is provided to the Board by the Chief Executive Officer with respect to the development of CI’s strategy for future growth and success. In addition, senior management in each of the Corporation’s core business units report to the Board quarterly on strategic initiatives. The Board assesses the strategic plan of the Corporation, taking into account the risks and industry environment confronting the Corporation, and, on an annual basis, management provides an updated or revised strategic plan.
Succession Planning
The Board is responsible for overseeing the Corporation’s succession plan for the Chief Executive Officer, including the recruitment, appointment and evaluation and, if necessary, termination of the Chief Executive Officer. The Board has delegated primary responsibility for oversight of succession planning to the GHRC Committee. Through quarterly reports from the Corporation’s management, the GHRC Committee reviews the design and competitiveness of the Corporation’s overall compensation plan and strategies for the attraction, retention and motivation of executive officers and oversees and monitors employee engagement, talent development and retention strategies. These quarterly updates are also used by the Chief Executive Officer to identify members of the Corporation’s senior management capable of taking on additional responsibilities and developing into the Corporation’s next generation of leaders. The GHRC Committee monitors the progress and development of senior management in accordance with succession plans. In addition to quarterly meetings providing updates on executive officer succession planning and other human resources matters, the GHRC Committee receives a formal talent management report at least annually.
While the GHRC Committee has primary responsibility for executive officer succession planning, the matter of Chief Executive Officer succession is discussed at least annually by all independent members of the Board. In addition, all members of the Board have regular opportunities to meet with executive management during and in connection with Board meetings. Board members are also encouraged to meet with the executive team members individually and outside of Board meetings in order to be able to directly assess an officer’s capabilities and succession potential.
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The Corporation is committed to promoting professional learning and development at all levels of the organization through programs to create senior leader personal development plans, sessions targeting professional development as well as cost effective training, corporate-wide training events and other opportunities for leadership development.
On March 31, 2019, Sheila A. Murray retired as President of the Corporation, at which time Peter W. Anderson assumed the role of President in addition to Chief Executive Officer. On June 24, 2019, Mr. Anderson resigned as President and was succeeded by Darie Urbanky, in addition to his role as Chief Operating Officer.
On April 16, 2019, the Corporation announced that Mr. Anderson had provided notice that he planned to retire no later than the end of his employment contract which would have otherwise terminated on June 30, 2020. To assist with the recruitment and hiring of a successor Chief Executive Officer, the Corporation formed a special advisory committee known as the CEO Search Committee in May 2019. The mandate of the CEO Search Committee was to facilitate the process of selecting and recommending to the Board a Chief Executive Officer from internal and external candidates. The CEO Search Committee and GHRC Committee were jointly responsible for reviewing the terms of employment of the Chief Executive Officer. The CEO Search Committee engaged the services of a third-party executive search firm to assist with the Chief Executive Officer search and compensation negotiation, as further described in the section entitled “Executive Compensation-Related Fees”.
The Board also took this opportunity to complete a review of executive management required for the future growth of the Corporation. The Board asked Mr. Anderson to participate in this evaluation and to continue the executive transition which commenced under his leadership. The CEO Search Committee identified Mr. MacAlpine as the successful candidate, and Mr. MacAlpine was appointed Chief Executive Officer of the Corporation on September 1, 2019.
Securityholder Relations and Communications
The Board approves all of the disclosures which CI is required to make pursuant to securities laws, including annual and quarterly financial statements, the Annual Information Form and management information circulars.
Securityholders can provide feedback to CI in a variety of ways, including by contacting the Corporation’s Investor Relations staff by email, telephone or mail as indicated on the back of this Information Circular. The Corporation’s annual and quarterly earnings calls with analysts are broadcast live and are archived on our Investor Relations website.
The Chief Executive Officer is responsible for receiving and addressing securityholder inquiries and concerns and referring securityholder issues, where appropriate, to the Board. It is CI’s policy for management to respond to securityholder’s questions and concerns on a prompt basis, subject to limitations imposed by law or as a result of the confidential nature of certain information. In addition, Shareholders may communicate directly with CI’s independent Directors through the Lead Director by email or mail as indicated at the back of this Information Circular.
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Board Composition and Independence
The Board believes that it is important that a majority of our Directors be independent. The Board currently has eight members and following the Meeting, if all Director nominees are elected, will continue have eight members, five of whom will be independent.
Size and Composition
The GHRC Committee works with the Board to develop and update a long-term plan for the composition of the Board that takes into consideration the current strengths, competencies, skills, experience, personal attributes and any anticipated retirement dates of the Board members as well as the strategic direction of the Corporation and the skills, expertise, experience, competencies and attributes necessary for the Board. The GHRC Committee undertakes, on an annual basis, an examination of the size of the Board, with a view to determining the impact of the number of Directors on the effectiveness of the Board and the full engagement of each Director, and then recommends to the Board, if necessary, a reduction or increase in the size of the Board.
As part of the annual Board evaluation process, the GHRC Committee assesses each Director’s contribution to the Board and makes a recommendation to the Board regarding whether or not each Director will be invited to stand for re-election at the next annual meeting of the Corporation’s shareholders. This process also will allow each Director the opportunity to confirm his or her desire to continue as a member of the Board.
The Board of Directors is currently comprised of eight members.
Each of the eight current Directors has agreed to be nominated and stand for election or re-election at the Meeting.
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The Board has determined that the proposed size and composition of the Board, including the collective skills, expertise, experience and attributes of the eight Director nominees, are appropriate to facilitate effective debate and decision-making. This relatively small number of Directors permits the Board to operate in an efficient and cohesive manner and encourages interactive decision-making. The Board believes that a diversity of views and experience enhances decision-making and enables the Board as a whole to fulfill its core responsibilities to the Corporation and help shape strategic direction. The members of the Board collectively possess a broad range of skills, expertise, industry and other knowledge, and business and other experience which contribute to the effective oversight of CI’s business. See “Board Expertise Matrix” below. Directors are not required to be specialists in the business of CI but rather to provide the benefit of their business experience, judgment and vision. See “Board Diversity” below for further information on the Board’s approach to diversity.
Independence
At each meeting, the independent Directors have the opportunity to meet without non-independent Directors and members of management.
The Board believes that it is important that a majority of our Directors be independent. The Board is responsible for determining whether a Director is independent, using the standards set out in applicable legal and regulatory requirements and recommended guidance, including the definition and guidance in National Instrument 52-110 – Audit Committees (“NI 52-110”). In particular, the Board considers an individual to be independent if he or she has no direct or indirect relationship with CI which could, in the view of the Board, be reasonably expected to interfere with the exercise of that individual’s independent judgment.
Each year the Directors are asked to provide the Corporation with information necessary for completion of this Information Circular, including information concerning any other directorships or business or other relationships which could affect an assessment of independence. The GHRC Committee and the Board consider this information when determining whether a Director is independent. Directors are also required to let the Chairman of the Board and the Chair of the GHRC Committee know if there are any material changes in their circumstances or relationships which could affect an assessment of independence.
Based upon information provided by each of the Directors, the GHRC Committee and the Board have determined that the following five of eight Directors standing for re-election are independent: William E. Butt, Brigette Chang-Addorisio, David P. Miller, Tom P. Muir and Paul J. Perrow. The GHRC Committee and the Board have determined that William T. Holland, Kurt MacAlpine and Sheila A. Murray are not independent.
The Board of Directors believes that the fact that five of the eight Directors of the Corporation are independent under applicable legal and regulatory requirements and interpretative best practices is an important factor in assuring the ability of the Board to act independently of management.
Mr. Holland has been the Chairman of the Board since September 1, 2010. Prior to this date, Mr. Holland was the Chief Executive Officer of the Corporation. In order to address any governance concerns that may arise as a result of having Mr. Holland serve as Chairman, whether in an Executive or non-Executive capacity, the Board decided to continue the appointment of an independent Director to the position of Lead Director. This is discussed in greater detail under “Lead Director” below.
The Board has instituted certain processes to ensure that the Board can exercise independent oversight. For instance, each meeting is chaired by the Lead Director and in order to facilitate candid discussions among the independent Directors, at each meeting the independent Directors meet without the non-independent Directors present. In addition, the Board of Directors or any committee thereof is authorized to engage independent counsel and other advisors it determines necessary to carry out its duties and responsibilities and require CI to pay the compensation and charged expenses for any such advisors. Except in unusual circumstances, the Board will consult with the Chief Executive Officer prior to appointing external advisors.
Board Expertise Matrix
The Board believes that a diversity of views and experience enhances decision-making and enables the Board as a whole to fulfill its core responsibilities to the Corporation and help shape strategic direction. The members of the Board collectively possess a broad range of skills, expertise, industry and other knowledge, and business and other experience which contribute to the effective oversight of CI’s business. Directors are not required to be specialists in the business of CI but rather to provide the benefit of their business experience, judgment and vision.
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In making its Director nominee recommendations, the GHRC Committee and the Board consider the competencies, skills and attributes that the Board considers to be necessary for the Board as a whole to possess, the competencies, skills and attributes that the Board considers each existing Director to possess, and the competencies, skills and attributes any new nominee will bring to the boardroom.
The Board is comprised of individuals who bring the right mix of knowledge, interest, skills and experience relevant to the Corporation and required on the Board to fulfill its mandate. The following areas of expertise are the core competencies of the Board:
Accounting and Finance | Mutual Funds / Financial Services | CEO Experience / Strategic Leadership |
Risk Management | Regulatory Affairs | Human Resources / Compensation |
Governance / Legal | IT / Fintech |
The following table provides more detailed information with respect to the core areas of expertise of each nominated Director:
DIRECTOR | Independent |
Accounting
and Finance |
Mutual Funds
/ Financial Services |
Regulatory
Affairs |
CEO
Experience / Strategic Leadership |
Risk
Management |
Governance /
Legal |
Human
Resources / Compensation |
IT / Fintech | |||||||||
William E. Butt | X | X | X | X | X | |||||||||||||
Brigette Chang-Addorisio | X | X | X | X | X | |||||||||||||
William T. Holland | X | X | X | X | ||||||||||||||
Kurt MacAlpine | X | X | X | X | X | |||||||||||||
David P. Miller | X | X | X | X | X | X | ||||||||||||
Tom P. Muir | X | X | X | X | X | X | X | |||||||||||
Sheila A. Murray | X | X | X | X | X | X | X | |||||||||||
Paul J. Perrow | X | X | X | X | X |
In addition, when assessing a nominee for Director, the Board will expect the nominee to demonstrate:
Sound business judgment | High ethical standards | Commitment to CI |
Good communication skills and the ability to influence decision-making | Proven track record | Team player mentality |
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The Board and the GHRC Committee will consider the extent to which the interplay of the individual’s expertise, skills, knowledge, experience and personal attributes with that of other members of the Board will build a high-performance Board that is effective, collegial and responsive to the needs of the Corporation and its subsidiaries.
In making its recommendations, the Board and the GHRC Committee’s assessment is also based on the following criteria
· | diversity of viewpoints, backgrounds, experiences, gender and other demographics; | |
· | current or previous experience on other boards; and | |
· | the appropriate level of representation on the Board by Directors who are independent of management and who are neither officers nor employees of the Corporation or any of its subsidiaries. |
Term Limits
Effective May 10, 2018, the Board adopted a twelve-year term limit for all Directors, applicable to Directors who have served on the Board less than twelve years as of that date.
The Board believes that a Director’s effectiveness is enhanced by experience on the Board and also recognizes the importance and value of adding new Directors who bring a diversity of views and a fresh outlook. Effective May 10, 2018, the Board adopted a twelve-year term limit for all Directors, applicable to Directors who have served on the Board less than twelve years as of that date. The term limit does not apply to the Chief Executive Officer.
Term limits are not intended to discourage the full and frank assessment of each Director’s contribution to the Board on an annual basis and are not intended to and do not in any way assure each Director of a twelve-year term. Board composition and the continued nomination of Directors are considered each year and assessments are made on a case by case basis, taking into account the skills and contribution of each Director. The Board has not adopted a mandatory retirement age for Directors.
On February 13, 2020, the Board adopted a term limit of up to four years for the position of Lead Director. Upon the appointment of the next duly appointed Chairman, the Board adopted a term limit of up to five years for such position. Furthermore, the GHRC Committee and Audit and Risk Committee each adopted a term limit of up to four years for the Chair of each respective committee.
The average tenure of the eight Director nominees is approximately 4.3 years. The average tenure of the five independent Director nominees is 4.0 years.
Directorships and Board Interlocks
To ensure that each Director is able to commit sufficient time and energy to fulfill his or her duties as a member of the Board, and to avoid circumstances that may impact independence, CI limits service by Directors on outside public company boards of directors and committees:
(a) | Directors who are chief executive officers or other senior executives of public companies may hold at most two outside public company directorships and other Directors may hold no more than four outside public company directorships. | |
(b) | No Director that is a member of the Audit and Risk Committee may sit on more than three outside public company audit committees. | |
(c) | The Corporation’s Chief Executive Officer may not sit on the board of directors of an outside public company. | |
(d) | No Director may serve on the board of a competitor or of a regulatory body with oversight of the Corporation or its subsidiaries or any other board which the GHRC Committee reasonably determines is inadvisable. |
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CI also limits the number of other boards its Directors can serve on together. No more than two Directors may sit on the same outside public company board of directors. Exceptions to the above guidelines may be granted with the consent of the Board.
Directors are required to advise the Chairman of the Board and the Chair of the GHRC Committee before accepting a directorship on an additional public, private or not-for-profit board (or similar body) or membership on an additional board committee in order to provide an opportunity to verify that a Director continues to have the time and commitment to fulfil his or her obligations to the Board and to be satisfied that the Director is in compliance with the above guidelines and no real or apparent conflict of interest would result.
In addition, Directors must notify the Chairman of the Board and the Chair of the GHRC Committee before establishing other significant relationships with businesses, institutions, governmental units or regulatory entities, particularly those that may result in significant time commitments or a change in the Director’s relationship to the Corporation or its affiliates or potentially impact the reputation of CI.
Lead Director
An independent Director, Tom P. Muir, is the Lead Director and chairs each meeting of the Board and Shareholders. The Lead Director is a member of the Audit and Risk Committee and the GHRC Committee.
Mr. Muir, an independent Director, has been on the Board since 2011 and assumed the role of Lead Director at the close of the annual meeting of Shareholders held on June 18, 2018.
The Lead Director facilitates the functioning of the Board independently of management and provides independent leadership to the Board. The Lead Director, together with the Chairman, sets the agenda for each Board meeting with a view to the Board’s role in the stewardship of CI and the provision of oversight and guidance with respect to CI’s strategic plan. The Lead Director assists the Chairman, as well as the Board’s GHRC Committee, in the promotion of a high-performance Board culture that is conducive to the full engagement by all Board members and promotes challenging and constructive debate and effective decision-making.
The Lead Director serves as a liaison between management and the Board, where necessary. The Lead Director also chairs each Board meeting and the annual meetings of the Shareholders. The Lead Director is the Chair of the Audit and Risk Committee and a member of the GHRC Committee. Further information on the role of the Lead Director is discussed below under “Position Descriptions”.
Director Attendance
Each of the Corporation’s Director nominees standing for election or re-election attended 100% of all regularly scheduled and special Board meetings while such individual was a Director. The meeting attendance record for each Director is disclosed on pages 18 and 19 of this Information Circular.
Four quarterly meetings of the Board are scheduled for each fiscal year, and special meetings are called as necessary. The meeting of the Board immediately following the Meeting is considered a regular meeting. The frequency of meetings and the nature of agenda items depend on the state of CI’s affairs and particular opportunities or risks that CI faces. During the fiscal year ended December 31, 2019, the Board met nine times.
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As part of each Board meeting, the independent Directors meet in the absence of management to independently assess the performance of senior management and to discuss issues involving CI.
Ethical Business Conduct
The Board takes its responsibility for setting the moral tone of the Corporation seriously. The Board receives quarterly reports regarding compliance with the Code of Business Conduct and Ethics (defined below) and other policies which are designed to foster a culture of integrity.
In November 2006, the Board adopted a written code of business conduct and ethics (the “Code”), which constitutes written standards designed to promote integrity and to deter wrongdoing. The Code applies to the Corporation’s Directors and to the officers and employees of the Corporation and its subsidiaries. The Code is reviewed annually and updated, when necessary. The Code addresses, among other things, the following issues:
(a) | compliance with laws, rules, regulations and CI policies and procedures; | |
(b) | conflicts of interest; | |
(c) | protection of confidential information; | |
(d) | protection of opportunities belonging to CI; | |
(e) | anti-money laundering legislation and regulations; | |
(f) | protection and proper use of CI assets; | |
(g) | competition and fair dealing, including with CI’s competitors; | |
(h) | gifts and entertainment and payments to government personnel, including conduct which the Corporation considers foreign corrupt practices; | |
(i) | political donations and activities; | |
(j) | discrimination and harassment; | |
(k) | health and safety; | |
(l) | accuracy of CI records and reporting; | |
(m) | use of phone, fax, email and internet services; and | |
(n) | disclosure requirements and CI disclosure policy. |
Personnel are expected and encouraged to talk to supervisors, department heads or other appropriate personnel if they have breached the Code or have observed a breach of the Code by others or observed a deficiency in the Corporation’s policies, procedures or controls which might enable a breach to occur or go undetected. CI does not permit any acts of retaliation for reports of misconduct by others. The Code also outlines compliance procedures to be followed to report any such breaches of the Code or other questionable conduct, including with respect to accounting and auditing matters, on a confidential and anonymous basis. The compliance department of CI monitors compliance with the Code and requires each employee to certify annually that they have read the Code and agree to comply with it.
To ensure that the Directors exercise independent judgment in considering transactions, agreements or decisions in respect of which a Director or executive officer has declared a material personal interest (in accordance with relevant provisions of corporate law), the Board follows a practice whereby any such Board member must be absent during any Board discussion pertaining thereto and not cast a vote on any such matter.
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Under the Code, any waivers from the requirements in the Code that are to be granted for the benefit of Directors or executive officers may only be granted by the Board (or a committee of the Board to whom that authority has been delegated) and will be promptly disclosed as required by law or regulation. No waivers of the Code have been granted to date.
The Code can be viewed on CI’s website at www.cifinancial.com or at www.sedar.com.
CI has adopted formal policies to further ensure ethical business conduct, including an Anti-Bribery and Anti-Corruption Policy, Anti-Money-Laundering Policy and Procedures, a Sales Practices Policy and a Conflict of Interest Policy and Procedures.
Complaint and Grievance System
CI has adopted a formal Complaint and Grievance System to assist employees, supervisors and managers in conflict resolution. In cases of conflict, employees may submit complaints to their supervisor or the Chief Talent Officer. CI’s Human Resources Department is available to provide direction and counsel to employees, supervisors and managers in conflict situations.
Committees of the Board
There are currently two standing committees of the Board — the Audit and Risk Committee and the GHRC Committee. The Board has delegated certain authority and responsibilities to each of these committees and has mandated that each of them perform certain advisory functions and make recommendations to the Board. Only independent Directors can serve on these committees. The Lead Director serves as an ex officio member of each of the Board’s standing committees, if not otherwise an appointed member, and is currently a member of both the Audit and Risk Committee and the GHRC Committee.
Each committee of the Board has a written charter. A copy of the Audit and Risk Committee charter is contained in Appendix “A” in the Annual Information Form available on SEDAR at www.sedar.com and the Corporation’s website. The GHRC Committee charter is available on the Corporation’s website at www.cifinancial.com. Each committee is required to review and reassess its charter at least annually.
Audit and Risk Committee
The Audit and Risk Committee currently has four independent Directors as its members: Messrs. Butt (Chair), Muir, Perrow and Ms. Chang-Addorisio. Each member of the Audit and Risk Committee is independent and financially literate (as such terms are defined under NI 52-110). The Audit and Risk Committee is responsible for reviewing quarterly financial statements, annual financial statements and other financial disclosure documents prior to their approval by the full Board. The committee is also responsible for selecting and recommending to the Board the appointment and compensation of the external auditors, reviewing CI’s financial reporting process, internal controls and the performance of CI’s external auditors, and approving non-audit services by the external auditors. The external auditors and CI’s Chief Internal Auditor report directly to the Audit and Risk Committee. CI’s Chief Internal Auditor and external auditors meet quarterly with the Audit and Risk Committee and with the external auditors without management present.
In addition, the Audit and Risk Committee is responsible for the oversight of the Corporation’s systems to monitor and manage major business risks and legal and ethical compliance programs, including through regular reports on compliance systems and procedures and reports on the Corporation’s risk management policies and procedures. The Audit and Risk Committee meets quarterly with the Corporation’s management. The Audit and Risk Committee reviews and recommends to the Board for approval the risk related disclosure in the Corporation’s Annual Information Form and management’s discussion and analysis. Additional information regarding the Audit and Risk Committee, including its written charter, composition, and the relevant education and experience of its members is included in the Annual Information Form available on SEDAR at www.sedar.com.
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GHRC Committee
The GHRC Committee currently has four independent Directors as its members: Messrs. Miller (Chair), Perrow, Muir, and Ms. Chang-Addorisio. The GHRC Committee assists the Board in overseeing CI’s compensation policies and practices, as well as assisting the Board in the strategic oversight of CI’s human capital, including with respect to organizational effectiveness, succession planning and talent management. The GHRC Committee is also responsible for developing CI’s approach to governance issues and overseeing the corporate governance process.
With respect to the Corporation’s compensation policies and practices, the GHRC Committee oversees management’s development of compensation policies and practices to provide fair and competitive compensation to CI’s employees, including senior management, and that CI’s compensation policies do not have unintended risk consequences. The GHRC Committee is responsible for evaluating the Chief Executive Officer’s performance and contribution to the success of the Corporation and making compensation recommendations. The GHRC Committee also reviews an annual Compensation Report prepared by management and recommends to the Board the compensation of any officers of the Corporation who report directly to the Chief Executive Officer, including the Named Executive Officers. The GHRC Committee also recommends to the Board for approval the terms of the compensation of Directors, the Chairman of the Board and those acting as committee Chairs and committee members, and Share Ownership Guidelines.
The GHRC Committee assists the Board in its strategic oversight of the Corporation’s employee matters, and is responsible for reviewing the Corporation’s senior management succession plan and monitoring the progress and development of senior management in accordance with succession plans, overseeing and monitoring talent development and retention strategies and assessing the “tone at the top” set by the Chief Executive Officer and other senior management through the promotion of integrity, ethics and corporate diversity. In addition, the GHRC Committee is responsible for reviewing the Corporation’s executive compensation disclosure and reporting to securityholders on remuneration.
The GHRC Committee is also responsible for overseeing CI’s corporate governance program and processes, including ensuring that the Board functions independently of management and promoting a Board culture that optimizes Board effectiveness. The GHRC Committee conducts an annual review of Board and Director effectiveness and engagement of each Director. Based upon this review, the GHRC Committee makes recommendations aimed at enhancing Board and committee effectiveness, including in connection with Director succession planning and the nomination of Director candidates. The GHRC Committee is also responsible for Director orientation and education.
CEO Search Committee
On May 8, 2019, to assist with the recruitment and hiring of a successor Chief Executive Officer, the Corporation formed a special advisory committee known as the CEO Search Committee which was comprised of Messrs. Holland, Miller (Chair) and Muir. The mandate of the CEO Search Committee was to i) work with an external search firm to identify candidates to introduce to the Board for consideration for appointment as Chief Executive Officer of the Corporation from internal and external candidates with the benefit of advice from executive search firms, compensation consultants and legal, financial or other advisers that the CEO Search Committee determined to retain to assist it; ii) to negotiate on behalf of the Corporation and in consultation with the GHRC Committee, the terms of employment of the candidate to be recommended to the Board as Chief Executive Officer, subject to final approval by the Board of Directors; and iii) to take such other action as the CEO Search Committee determined to be necessary or appropriate in connection with its mandate and to fulfill its authorities and responsibilities set forth above.
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Executive Compensation-Related Fees
After interviewing numerous executive search firms, the CEO Search Committee, on behalf of the Board, engaged the services of Spencer Stuart on May 13, 2019 to assist with the recruitment of a successor Chief Executive Officer to Mr. Anderson. Spencer Stuart was responsible for candidate development, interviews, written materials, referencing, negotiations, and follow-up, and received an aggregate fee of $500,000 for these services.
Board, Committee and Director Assessment
The GHRC Committee ensures that an appropriate system is in place to annually evaluate the effectiveness of the Board as a whole, as well as the committees of the Board, with a view to ensuring that they are fulfilling their respective responsibilities and duties. In connection with these evaluations, each year every Director is requested to provide his or her assessment of the effectiveness of the Board and each committee, as well as the contribution and performance of the individual Directors, including the Chairman, Lead Director and each committee Chair. Each Director also completes a self-evaluation form. The process is designed primarily to provide constructive input for the improvement of the Board. These evaluations consider the competencies and skills each Director is expected to bring to his or her particular role on the Board or a committee and the contribution of each Director to the effectiveness of the Board, as well as any other relevant facts. For fiscal 2019, the Directors completed a written Board effectiveness assessment and self-evaluation form, which is summarized on a confidential basis by the Chair of the GHRC Committee in a report that is presented to the Board for discussion. The GHRC Committee Chair is available should any Director wish to discuss his or her written responses to the questionnaire or otherwise provide input on Board effectiveness.
The written Director assessment is not intended to stifle comment and the Directors are invited to raise any matters of concern with the Chair of the GHRC Committee. The topics included in the Director assessment questionnaire include:
Board Composition, including Diversity | Risk Management |
Duties and Responsibilities | Leadership |
Management Performance and Compensation | Board Succession |
Committee Structure and Effectiveness | Relationship with Management |
Management / Organization Compliance | Planning and Appraisal |
In addition, each Director is asked to compare the Board with other boards of directors on which he or she serves in areas such as quality of leadership, culture and effectiveness, among others. Directors are also asked to rank the relative strength of the Board in a number of areas, including industry-specific knowledge, relationship with management, commitment to the Corporation and effective decision-making and to rank the relative strength of the Board’s oversight function in each of the Board’s core areas of responsibility, as set out in the Board Mandate.
The objective of the confidential Director self-evaluation form is to improve the overall performance of the Board by assisting individual Directors to build on their strengths and identify areas for continuing development. Each Director is asked to self-evaluate with respect to his or her individual goals, objectives, participation and contribution.
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Position Descriptions
The Board has approved written position descriptions for the Chairman of the Board, the Lead Director, the Chairs of the Board committees, and the Chief Executive Officer.
Chairman
The Chairman’s role is to provide broad-based leadership and direction to the Board in its stewardship of the Corporation and oversee, guide and support the Board in fulfilling its duties and responsibilities in an effective and independent manner. The Chairman also serves as a strategic advisor to senior management with respect to the Corporation’s business and the industry. The Chairman’s primary responsibilities include, but are not limited to:
(a) | Ensuring that the structure and composition of the Board, including Board size and the mix of Directors’ knowledge, interests, skills and experience, facilitate effective and interactive decision-making; |
(b) | Promoting a high-performance Board culture that is conducive to the full engagement by all Board members and encourages challenging and constructive debate; |
(c) | Together with the Lead Director, calling and organizing meetings of the Board, including setting the agenda for each Board meeting with a view to CI’s long-term strategic priorities; |
(d) | Ensuring that the Board is provided with the necessary resources, training and development with respect to the industry and CI’s business to enable each Director to fulfill his or her duty to act in the best interests of the Corporation; |
(e) | Fostering a constructive and effective working relationship between the Board and the Chief Executive Officer; |
(f) | Collaborating with the Chief Executive Officer to recruit and mentor top executives and monitor and evaluate senior managerial and corporate performance; |
(g) | Advising senior management in its consideration of strategic opportunities and transactions, including in the areas of capital allocation, technology and growth strategies; |
(h) | Providing strategic support and counsel to senior management with respect to the business in which the Corporation operates and its business development, growth trajectory and strategic direction; |
(i) | Ensuring the effective communication of the Corporation’s culture, values and objectives to the Shareholders and other stakeholders; and |
(j) | Acting, together with the Chief Executive Officer, as a liaison with the Corporation’s various stakeholders. |
Lead Director
The Lead Director’s role is to facilitate the functioning of the Board independently of management and provide independent leadership to the Board. The Lead Director’s duties include, but are not limited to, the following:
(a) | Ensuring that the Board functions independently from management in carrying out the Board Mandate and fulfilling its fiduciary obligations to the Corporation; |
(b) | Guiding the views, concerns and issues of the independent Directors and keeping the Chairman of the Board fully informed of any concerns raised by the Board; |
(c) | Advocating, in consultation with the Chairman, and enforcing a strong governance framework for the Board; |
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(d) | Encouraging Directors to stay informed about the Corporation’s business and industry, including by working with the Chairman to provide access to an effective architecture of information designed to inform Directors of the key activities undertaken by the Corporation and the central issues facing the Corporation; |
(e) | Together with the Chairman, setting the agenda for each Board meeting with a view to the Board’s role in the stewardship of the Corporation and the provision of oversight and guidance with respect to the Corporation’s strategic plan; |
(f) | Chairing each meeting of the Board, including any meetings or portions of meetings of the independent Directors in the absence of management; |
(g) | Assisting the Chairman, as well as the Board’s GHRC Committee, in the promotion of a high-performance Board culture that is conducive to the full engagement by all Board members and promotes challenging and constructive debate and effective decision-making; |
(h) | Serving as a member of each of the Board’s standing committees and acting as a liaison between the independent Directors and executive Directors; |
(i) | Leading the Directors in providing independent oversight and guidance with respect to the Corporation’s strategic plan, including by challenging management to maintain a long-term view of the Corporation’s objectives and approving the Corporation’s overall strategic framework; and |
(j) | Actively participating, in consultation with the GHRC Committee, in management succession planning, including the recruitment, appointment and monitoring of the Chief Executive Officer. |
Committee Chairs
The Board has delegated certain responsibilities to its committees and requires that each of them perform certain advisory functions and make recommendations to the Board in accordance with written charters. See “Committees of the Board” above.
The most important responsibility of the Chair of each committee of the Board is to ensure that the responsibilities of the committee as set out in the committee’s charter are carried out in an effective manner independently from management. Each committee is required to reassess its charter at least annually and report to the Board thereon. The charter may also assign specific additional responsibilities to the chair of the committee. The responsibilities of the chair of each committee include, but are not limited to, the following:
(a) | Ensuring that the committee is effectively organized to carry out its duties and responsibilities; |
(b) | Promoting a committee culture that is conducive to the full engagement by all committee members and encourages challenging and constructive debate and effective decision-making; |
(c) | Working with the Secretary of the Corporation to develop and refine the committee’s annual forward agenda to capture long-term issues and evolving priorities, as well as regular business items; |
(d) | Chairing each meeting of the committee and setting the agenda for committee meetings, with a view towards the committee’s responsibilities as enumerated in the committee’s charter; |
(e) | Retaining outside advisors or experts as may be required; |
(f) | Reporting to the Board on the work of the committee and material matters discussed or considered by the committee at least quarterly, or more frequently as necessary, building an environment of open communication and robust discussion at the Board level; and |
(g) | Maintaining regular communication with the Chairman, Lead Director, and Chief Executive Officer, as well as other members of senior management. |
Chief Executive Officer
The role of the Chief Executive Officer of CI is to maximize the value of the business of CI through the development and execution of strategic decisions, aligned with the short and long-term objectives of the Corporation and its shareholders. The CEO is responsible for management of the Corporation’s operations, resources and performance in a manner that strengthens and enhances the Corporation’s position as a leading wealth management firm. The CEO is also responsible for leading and developing key management personnel.
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The key responsibilities of the CEO include, but are not limited to, the following:
(a) | Lead the development and execution and communication of a formal strategic plan to drive organizational performance, grow the Corporation and enhance the profile and reputation of the business; |
(b) | Appropriately allocate the Corporation’s capital, people and other resources according to the Corporation’s goals and manage the Corporation’s overall financial soundness; |
(c) | Identify and pursue valuable growth opportunities, both organically and through strategic transactions; |
(d) | Ensure the Corporation’s continued focus on developing products that are responsive to the needs of investors as well as innovative investment products to create and develop new demand in order to increase assets under management and maintain and grow the Corporation’s competitive position within the industry; |
(e) | Serve on the Board as a Director of the Corporation; |
(f) | Cultivate a productive working relationship with the Board and effectively communicate with the Board with respect to the Corporation’s business, items of importance for consideration and developments that may have material strategic or other implications for the Corporation; |
(g) | Build and lead an effective management team and develop, strengthen and leverage the skills of senior executives; |
(h) | Evaluate the performance of the senior officers of the Corporation and establish and implement an appropriate compensation plan for the senior officers; |
(i) | Develop a succession plan designed to ensure the continued effective management of the Corporation; |
(j) | Set the “tone at the top” and foster a corporate culture that promotes openness, integrity, ethics, trust and corporate diversity and ensures that all decisions are conducive to enhancing shareholder value and promoting the profile and reputation of CI; |
(k) | Ensure the design and implementation of reliable internal control systems and disclosure controls and procedures within the Corporation; |
(l) | Ensure the design and implementation of effective enterprise risk management systems to monitor, evaluate and manage key business risks; |
(m) | Foster partnerships with financial institutions that will enhance our business offering; |
(n) | Manage legal, regulatory and market-driven challenges and assess how such changes affect the strategic direction of the Corporation; and |
(o) | Act as the principal spokesperson for the Corporation, lead and nurture open communication and promote and maintain positive and effective relationships with the Corporation’s shareholders, employees, investors and analysts, as well as government authorities, regulators, other stakeholders and the public. |
The Directors review the performance of the individuals who occupy these positions on at least an annual basis and use this opportunity to assess and update the responsibilities of each committee and its chair as described above under “Board, Committee and Director Assessment”.
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Orientation and Education
CI provides an orientation program for newly elected Directors and provides information for all Directors on the activities of CI and its subsidiaries on an ongoing basis. Board members are also provided with opportunities to attend continuing education programs run by third parties.
The GHRC Committee oversees Director orientation to assist new Directors in understanding the operation of the business and the affairs of the Corporation and the role of, and expectations as to contributions to be made by, the Board and its committees. New Directors meet with senior management, including the Chief Executive Officer, for comprehensive sessions on the Corporation’s financial performance, including key value metrics and risk management, the Corporation’s business lines and the role of operations, governance and compliance. New Directors also receive a Director Orientation Manual, which, along with other material, contains a summary of CI’s structure and key policies and procedures, including the Code.
Directors are offered the opportunity on a regular basis, and new Directors are required, to tour CI’s head office operations and to meet and make inquiries of CI and its subsidiaries’ senior managers. Between meetings of the Board, senior management keeps Board members up to date on the business of the Corporation. CI encourages its Directors to maintain the skills and knowledge necessary to meet their obligations as Directors and as members of Board committees. Management arranges for speakers both internal and external to the Corporation, who are knowledgeable about the industry and the economy, to meet with the Board, without management present, to discuss matters of interest to the Board and answer questions.
In addition, as summarized in the table below, during 2019, Directors participated in information and education sessions on a variety of topics as part of the Corporation’s regularly scheduled or special Board and committee meetings. Members of the Board and committees, as applicable, participated in such sessions at the Board and committee meetings held in February, May, August, and November.
TOPIC | FORUM | |
Business Development & Strategy | ||
Quarterly reports concerning sales and marketing of retail products as well as updates on institutional business and portfolio management led by responsible executives of the Corporation and its affiliates, as applicable. |
|
All regularly scheduled Board meetings. |
Corporate Development and Strategy | ||
Quarterly update focusing on opportunities, challenges and strategies led by Chief Executive Officer and President and appropriate executives responsible for operating areas of the Corporation. | All regularly scheduled Board meetings. | |
Human Resources | ||
Information and education sessions on human resources and employment considerations led by head of human resources. | All regularly scheduled GHRC Committee meetings. | |
Industry Update | ||
Information and education session on investment strategy and developments led by Sandy McIntyre, former Chief Investment Officer of Sentry Investment Management. | Board meeting. February 8, 2019. | |
Information and education session and investment management update led by Geraldo Ferreira, Vice-President, Investment Management. |
Board meeting. May 8, 2019.
|
|
Information and education session on regulatory affairs affecting CI and the industry led by Tim Currie, formerly Vice-President, Regulatory Affairs. | Board meeting. August 7, 2019. | |
Information and education session on shareholder activism led by Jeff Lloyd and John Wilkin of Blake, Cassels & Graydon LLP. | Board meeting. November 6, 2019. | |
Risk Management | ||
Information and education sessions on the Corporation’s risk management structure, function and process provided by the Chief Risk Officer, Chief Compliance Officer, Chief Technology Officer and Chief Information Security Officer. | All regularly scheduled Audit and Risk Committee meetings. |
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To date in 2020, Directors have participated in the following information and education sessions as part of the regularly scheduled meetings of the Board or committees, as indicated, which were held in February and May 2020.
TOPIC | FORUM | |
CORPORATE DEVELOPMENT AND STRATEGY | ||
Quarterly updates focusing on opportunities, challenges and strategies led by Chief Executive Officer and President. | All regularly scheduled Board meetings. | |
BUSINESS DEVELOPMENT & STRATEGY | ||
Quarterly reports concerning sales and marketing of registered products as well as updates on institutional business and portfolio management led by responsible executives of the Corporation and its affiliates. | All regularly scheduled Board meetings. | |
HUMAN RESOURCES | ||
Information and education sessions on human resources and employment considerations led by head of human resources. | All regularly scheduled GHRC Committee meetings. | |
INDUSTRY UPDATE | ||
Information and education session on advanced analytics and distribution prediction by Boston Consulting Group | Board meeting. February 13, 2020. | |
INFORMATION TECHNOLOGY | ||
Information and education sessions on information technology and security led by the Chief Technology Officer and Chief Information Security Officer. | All regularly scheduled Audit and Risk Committee meetings. | |
RISK MANAGEMENT | ||
Information and education session on the Corporation’s risk management structure, function and process led by Chief Risk Officer. | All regularly scheduled Audit and Risk Committee meetings. |
Board Diversity
CI believes in diversity and values the benefits that diversity can bring to the Board. Diversity enhances decision-making and can enable the Board to function more effectively in fulfilling its core responsibilities. CI has an inclusive culture which respects and encourages diversity at all levels of the organization.
CI and the Board believe that diversity of thought, problem solving approaches and views enhances decision-making and provides for more effective management of the Corporation. For purposes of Board composition, diversity includes, but is not limited to, differences in age, ethnicity, religion, business experience, education, skills or gender. As noted above, your Board members collectively possess a broad range of skills, experience and business knowledge.
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The Board does not have a specific policy regarding diversity or a target for gender diversity; however, the GHRC Committee is required to and does consider gender diversity when recruiting and making recommendations regarding new Directors. The Corporation and the Board are committed to a merit-based system for Board composition within a diverse and inclusive culture which solicits multiple perspectives and views and is free of conscious or unconscious bias and discrimination. When assessing Board composition or identifying suitable candidates for appointment or re-election to the Board, the GHRC Committee and the Board will consider candidates on merit against objective criteria having due regard to the benefits of diversity and the needs of the Board.
When filling vacancies on the Board, the Board directs the GHRC Committee to ensure that female candidates are given serious, appropriate consideration, taking into account the importance of diversity on our Board. The objective of the GHRC Committee in recruiting new Directors is to ensure that the Board as a whole possesses diverse characteristics. At any particular time, the Board will be looking for candidates with the right mix of age, skills, experience and industry knowledge to fill a vacancy. Female candidates for Director will be included in the list of potential Board nominees. When considering new candidates to fill vacancies on the Board, the GHRC Committee considers both male and female candidates.
The Board currently has two female Directors and six male Directors for a proportionate representation by women on the Board of 25%. Following the close of the Meeting, assuming all Directors are elected, the Board will have two female Directors and six male Directors for a proportionate representation by women on the Board of 25%.
Time Period | Percentage of Female Directors | |
Prior to 2013 | 0% | |
2013-2017 | 14% | |
2018 – March 2019 | 25% | |
March 2019 – June 2019 | 22% | |
June 2019 – Present | 25% |
Executive Officer Diversity
Diversity is integrated into our approach to talent management. The Corporation recognizes that diversity of thought enhances decision-making. Management also believes that diversity of thought is more likely to occur in an inclusive culture that respects differences, whether these differences are on the basis of age, ethnicity, religion, skills, experience, education or gender.
The Corporation has a very diverse employee population. The Corporation hires from the largest possible pool of talent on the basis of merit and then takes steps to ensure that the employees are supported and encouraged to achieve their career potential. Management is not aware of any institutional barriers to career advancement based on gender or other differences.
CI launched a Women’s Mentorship Program (the “Women in Leadership Program”) in 2012 and the Program has been extremely successful for the past eight years. The Women in Leadership Program was revamped in 2019 to provide an extended twelve to eighteen-month mentorship period and a more in-depth approach to the matching process to ensure the most successful match of high-potential individuals with a seasoned mentor from CI’s leadership team. The Women in Leadership Program helps mentees manage the delicacies of relationships and the increasing complexity of leadership roles, preparing them for a greater breadth of accountability as the organization changes and evolves. The Women in Leadership Program is entering its eighth year as a resounding success and has now been recognized as a leader in both its structure and results. Since the inception of the Women in Leadership Program, over 100 women have participated.
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In addition, CI’s Mentee Alumni Group was initiated two years ago by two graduates of the Women in Leadership Program and allows for another form of female peer support and mentoring outside of the formal program. This program fosters a culture in which women can continue to support one another and facilitates peer mentoring in an environment of continuous learning.
CI also has a Mentor City program that is web-based and allows for broader matching across all areas of the organization. This program is non-gender specific and follows the same principles and methodology used in the Women in Leadership Program. This mentoring methodology is now being applied to support other initiatives in the organization, such as the “buddy” program for new hires, which is another form of peer mentoring.
Diversity and the objective of ensuring that all employees, officers and Directors are treated with integrity, honesty, fairness and respect, is a fundamental value that underlies CI’s policies and procedures. The consideration of the representation of women in senior officer positions is governed under these practices. Management is required to and does consider diversity in the hiring and advancement of executives and senior management. Management is concerned that the imposition of a target for women in executive officer positions could frustrate the ability of management to choose the person that they have determined is the best for the job and could be perceived by employees and potential employees as unfair. For that reason, CI does not establish targets for gender diversity.
Until her retirement on March 31, 2019, Sheila A. Murray served as President of the Corporation and of the Corporation’s major subsidiary, CI Investments Inc., since February 2016. Ms. Murray held positions of increasing responsibility and accountability since joining CI as General Counsel in January 2008. As President, Ms. Murray was central to the leadership of the Corporation through the creation, communication and implementation of our core mission, the development of strategy and the management of performance.
The Corporation, including CI Investments Inc., has eight female executive officers representing 26% of the total number of executive officers.
Compensation
The Board, acting on the recommendation of the GHRC Committee, reviews the adequacy and form of the compensation paid to the Chief Executive Officer, as well as any individual that reports to the Chief Executive Officer, and approves such compensation, as described in the Compensation Discussion and Analysis. The GHRC Committee or the Board may retain a compensation consultant to assist them in determining compensation but has chosen not to do so, with the exception of the engagement of a third-party executive search firm to assist with the compensation agreement with Mr. MacAlpine, as described in “Committees of the Board” above.
The Board, acting on the recommendation of the GHRC Committee, also reviews and approves the amount and form of annual compensation to be paid to the Directors and ensures that it reflects the workload and responsibilities of the Directors as well as the risks to which they are exposed.
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Share Ownership by Executive Officers and Directors
The Board has adopted the following Share Ownership Guidelines to further align the interests of the Corporation’s executive officers and non-employee Directors of the Board with the interests of the Shareholders and to promote the Corporation’s commitment to corporate governance (the “Share Ownership Guidelines”). The Share Ownership Guidelines for executive officers are determined as a multiple of the officer’s base salary. The Share Ownership Guidelines for non-employee Directors are determined as a multiple of the regular annual retainer paid to Directors for service on the Board.
Position | Ownership Requirement | |
Chief Executive Officer | 5 times base salary | |
President | 5 times base salary | |
Executive Officers | 3 times base salary | |
Other executives designated by the Board | To be determined by the Board | |
Chairman of the Board | 5 times annual retainer | |
Non-employee Directors of the Board | 3 times annual retainer |
The thresholds set out in the Share Ownership Guidelines may be satisfied by Shares deliverable upon settlement of RSUs or DSUs but does not include Shares underlying stock options.
Individuals subject to the Share Ownership Guidelines are required to achieve the applicable ownership threshold within three years after first becoming subject to the Share Ownership Guidelines. If an individual becomes subject to a greater ownership amount, due to promotion or an increase in base salary or annual Director’s fees, the individual is expected to meet the higher ownership threshold within two years.
Share prices of all companies are subject to market volatility. The Board believes that it would be unfair to require an executive officer or Director to buy more Shares simply because the Corporation’s share price drops temporarily. In the event there is a significant decline in the Corporation’s Share price that causes a Director’s or executive officer’s holdings to fall below the applicable threshold, the Director or executive officer shall not sell or transfer any Shares until the threshold has again been achieved.
As of the date hereof, each Director standing for re-election or election for the first time holds Shares that have, or previously during their tenure as a Director had, a market value at or above the minimum requirement. In aggregate, the nominated Directors own or control 19,144,997 Shares, DSUs and/or RSUs, representing approximately 8.8% of the outstanding Shares as of the date of this Information Circular, and aligning their interests with yours.
Restrictions on Trading and Hedging Shares of the Corporation
Under our Insider Trading Policy, employees, officers and Directors are prohibited from speculating in Shares, purchasing financial instruments to hedge or offset a decrease in the market value of Shares owned, short selling Shares, selling a call option in Shares, or buying a put option in Shares.
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Normal course issuer bid
Effective June 18, 2019, the TSX accepted CI’s notice of intention to commence a normal course issuer bid through the facilities of the TSX (the “Notice”). Under the bid CI may purchase up to 21,728,299 Shares at the prevailing market price. Purchases under the bid will terminate no later than June 17, 2020. As of April 30, 2020, CI has acquired an aggregate of 20,792,487 Shares under the normal course issuer bid at an average price of $20.00 per Share. In February 2017, the TSX accepted notice from CI that Shares may be purchased under the Corporation’s normal course issuer bid by a trustee and used to settle vested RSUs under the RSU Plan, subject to certain of the TSX’s rules relating to normal course issuer bids and with such Shares counted towards the Share maximum that may be purchased under the Corporation’s normal course issuer bid. Shares purchased by CI under the normal course issuer bid will be cancelled, and Shares purchased by a trustee as described above will remain outstanding and be delivered to settle vested RSUs. Shareholders may obtain a copy of the Notice, without charge, by contacting the Corporate Secretary of CI. The Corporation intends to renew its normal course issuer bid effective June 18, 2020, subject to receipt of approval from the TSX.
Additional information
Additional information relating to CI is available on SEDAR at www.sedar.com and on CI’s website at www.cifinancial.com under the “CI Financial” section. Detailed financial information is provided in CI’s comparative financial statements and management’s discussion and analysis (“MD&A”) for its most recently completed financial year.
Securityholders may request copies of CI’s financial statements, MD&A, Annual Information Form and Annual Report for the most recent fiscal year upon request to the Corporate Secretary of CI at the head office of CI or obtain them on CI’s website at www.cifinancial.com.
Other business
Management of CI currently knows of no
matter to come before the Meeting other than the matters referred to in the Notice of the Meeting.
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Directors’ approval
The Board of Directors of CI have approved the contents of this Information Circular and have authorized us to send it to our Shareholders. A copy of the Information Circular has also been sent to each Director and our auditor.
Toronto, Ontario
May 5, 2020 |
By Order of the Board of CI Financial Corp. | |
|
||
KURT MACALPINE
Director and Chief Executive Officer CI Financial Corp. |
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SCHEDULE A
ADVISORY VOTE ON APPROACH TO EXECUTIVE COMPENSATION
RESOLVED THAT, on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, the Shareholders accept the approach to executive compensation disclosed in the Corporation’s management information circular delivered in advance of the meeting of the shareholders of CI Financial Corp. in respect of the year-ended December 31, 2019.
* * * * *
If you have not indicated how you would like to vote your Shares on the Say on Pay vote, those Shares will NOT be voted on this resolution.
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SCHEDULE B
CI FINANCIAL CORP.
BOARD OF DIRECTORS’ MANDATE
As of February 13, 2020
The Board of Directors (the “Board”) of CI Financial Corp. (the “Company”) is responsible for the stewardship of the Company and in that regard has the duty to manage or supervise the management of the business and affairs of the Company.
Composition
The Board is elected annually by shareholders. The articles of incorporation of the Company stipulate that the Board shall consist of a minimum of three and no more than fifteen Directors, with the number of Directors from time to time within such range being fixed by resolution of the Directors.
A majority of Directors shall be “independent”. “Independent” shall have the meaning, as the context requires, given to it in National Policy 58-101 – Disclosure of Corporate Governance Practices, as may be amended from time to time. All committees of the Board shall be composed solely of independent Directors.
The Board shall consider its size and composition on a regular basis, taking into account its responsibilities, the collective skills, expertise, experience and attributes of its members and the risks and strategic direction of the Company.
Term Limits
Effective May 10, 2018, the Board adopted a twelve-year term limit for all Directors, applicable to Directors who have served on the Board less than twelve years as of that date. Term limits are not intended to discourage the full and frank assessment of each Director’s contribution to the Board on an annual basis. Term limits do not apply to the Chief Executive Officer.
Effective February 13, 2020, the Board adopted a term limit of up to four years for the position of Lead Director.
Effective upon the appointment of the next duly appointed Chairman of the Board, the Board adopted a term limit of up to five years for such position.
Duties and Responsibilities
The Board is responsible for the supervision of the business and affairs of the Company. Each member of the Board must act honestly and in good faith with a view to the best interests of the Company, and must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In fulfilling its mandate, the Board’s oversight and monitoring responsibilities include:
1. | Strategic Planning |
§ | Developing a depth of knowledge of the Company’s operations and business to assess the assumptions on which the Company’s strategic plans are based. |
§ | Providing oversight and guidance on the strategic issues facing the Company and the development of the strategic plan. |
§ | Approving significant business decisions not specifically delegated to management. |
§ | Approving, on at least an annual basis, a strategic plan of the Company, taking into account the risks and strategic direction of the Company. |
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2. | Financial Information and Internal Controls |
§ | Overseeing the financial reporting and disclosure obligations of the Company imposed pursuant to laws, regulations, rules or policies. |
§ | Monitoring the integrity of the Company’s management information systems and the effectiveness of its internal controls through regular reporting by management and others. |
§ | Overseeing the processes underlying management’s certification and attestations with respect to the Company’s internal control and disclosure control procedures. |
§ | Approving the Company’s financial statements, management’s discussion and analysis (MD&A) and press releases disclosing financial information and overseeing the Company’s compliance with audit, accounting and reporting requirements. |
§ | Overseeing management of taxation issues. |
3. | Identification and Management of Risks |
§ | Reviewing reports of and receiving presentations related to processes in place to identify, manage and mitigate the principal risks inherent in the Company’s business and operations. |
§ | Overseeing and monitoring processes to provide reasonable assurance that the business of the Company is being operated in compliance with all applicable legal and regulatory requirements. |
4. | Human Resource Management and Executive Compensation |
§ | Reviewing and approving compensation policies and practices to enable the Company to attract, develop and retain skilled senior executives. |
§ | Overseeing the Company’s executive compensation and the compensation philosophy used in determining the compensation awarded to non-executive employees. |
§ | Overseeing succession planning for senior management, including recruiting, appointment and evaluation and, if necessary, termination of the Chief Executive Officer, and oversight of appointment and performance of other senior executive officers. |
5. | Governance |
§ | Developing, approving and monitoring the Company’s approach to corporate governance. |
§ | Establishing and maintaining formal processes for annual assessment of the effectiveness of the Board, individual directors and the Board committees. |
§ | Monitoring the size and composition of the Board and, at least annually, assessing the skills, expertise, experience, competencies and attributes of each Board member. |
§ | Examining, at least annually, the role and responsibilities of each of the Board committees to improve the effectiveness and efficiency of the Board. |
§ | Promoting a Board culture that optimizes Board effectiveness. |
§ | Taking reasonable steps to ensure that the Company has procedures in place to permit the Board to function independently. |
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6. | Integrity and Ethics |
§ | Approving and monitoring compliance with the Company’s Code of Business Conduct and Ethics and other policies which foster a culture of integrity. |
§ | Obtaining reasonable assurance that the senior management strives to create a culture of integrity. |
§ | Establishing and overseeing a whistleblower process. |
7. | Corporate Communications |
§ | Satisfying itself that appropriate procedures and policies are in place regarding accurate and timely public disclosure, including reviewing and approving the Company’s Disclosure Policy. |
§ | Monitoring compliance with applicable corporate and securities law requirements regarding the accuracy and timeliness of disclosure. |
Committees
Subject to applicable laws and the Articles and By-laws of the Company, the Board shall delegate certain authority and responsibilities to its committees and require that each of them perform certain advisory functions and make recommendations to the Board in accordance with written charters. The Board has approved charters for each Board committee and shall approve charters for each new Board committee. The Board had established the following standing committees: The Audit and Risk Committee and the Governance, Human Resources, and Compensation Committee. The Board may establish other Board committees or merge or disband any Board committee. Each committee is required to reassess its written charter at least annually and report to the Board thereon. The Board has also approved position descriptions for the Committee Chairs, the Lead Director and the Chairman of the Board. To facilitate communication between the Board and each Board committee, each Committee Chair shall provide a report to the Board on material matters considered by the committee at the first Board meeting after the committee’s meeting. The Lead Director shall be an ex officio member of each of the Board’s standing committees, unless otherwise appointed to be a member of such committee.
Meetings
The Board shall schedule four regular meetings annually and special meetings shall be called as necessary. The frequency of meetings and the nature of agenda items shall depend on the state of the Company’s affairs and particular opportunities or risks that the Company faces. In its discretion, the Board may elect to conduct all or any part of its meetings in the absence of management and/or the non-independent Directors.
(a) | Secretary and Minutes |
The Corporate Secretary, his or her designate or any other person the Board requests shall act as Secretary of Board meetings. Minutes of Board meetings shall be recorded and maintained by the Corporate Secretary and subsequently presented to the Board for approval.
(b) | Meetings Without Management |
The independent members of the Board shall hold regularly scheduled meetings, or portions of regularly scheduled meetings, at which non-independent Directors and members of management are not present.
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The Lead Director, or his or her designate or any other person that the Board requests, shall act as Secretary for any regularly scheduled meetings, or portions of regularly scheduled meetings, at which members of management are not present. The Lead Director will inform the Secretary of any action items during an in camera meeting and the Secretary will include such action items in the minutes of the meeting.
(c) | Directors’ Responsibilities |
Each Director is expected to commit the time and resources necessary to properly carry out his or her duties. Each Director is expected to attend all meetings of the Board and any committee of which he or she is a member. Directors are expected to adequately prepare for all meetings of the Board, which requires each Director, at a minimum, to have read and considered the materials sent to them in advance of each meeting, and to actively participate in the meetings. New Directors are expected to understand fully the role of the Board and its committees and the expected contribution of individual Directors.
The Lead Director and the Chairman of the Board are responsible for setting a carefully crafted agenda, as well as fulfilling all other responsibilities enumerated in their respective position descriptions. Directors may propose agenda items through communication with the Lead Director.
Service on Other Boards and Committees
To ensure that each Director is able to commit sufficient time and energy to fulfill his or her duties as a member of the Board, and to avoid circumstances that may impact independence, the Board has established guidelines with respect to service by Directors on outside public company boards of directors and committees. Exceptions to the below guidelines may be granted with the consent of the Board.
(a) | Service on Other Public Company Boards |
Directors who are chief executive officers or other senior executives of public companies may hold at most two outside public company directorships and other Directors may hold no more than four outside public company directorships.
(b) | Service on Other Public Company Audit Committees |
No Director that is a member of the Audit and Risk Committee may sit on more than three outside public company audit committees.
(c) | Board Interlocks |
No more than two Directors may sit on the same outside public company board of directors.
(d) | Chief Executive Officer Service on Other Public Company Boards |
The Company’s Chief Executive Officer may not sit on the board of directors of an outside public company.
(e) | Other Conflicts of Interest |
No Director may serve on the board of a competitor or of a regulatory body with oversight of the Company or its subsidiaries or any other board which the Governance, Human Resources, and Compensation Committee reasonably determines is inadvisable.
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Directors are required to advise the Chairman of the Board and the Chair of the Governance, Human Resources, and Compensation Committee before accepting a directorship on an additional public, private or not-for-profit board (or similar body) or membership on an additional board committee in order to provide an opportunity to verify that a Director continues to have the time and commitment to fulfil his or her obligations to the Board and to be satisfied that the Director is in compliance with the above guidelines and no real or apparent conflict of interest would result.
In addition, Directors must notify the Chairman of the Board and the Chair of the Governance, Human Resources, and Compensation Committee before establishing other significant relationships with businesses, institutions, governmental units or regulatory entities, particularly those that may result in significant time commitments or a change in the Director’s relationship to the Company or its affiliate or potentially impact the reputation of the Company.
Continuation of Board Members
When a Director’s principal occupation or business association changes substantially from the position he or she held when originally invited to join the Board (determined by reference to factors such as country of principal residence, principal occupation, industry affiliation, other boards on which the Director serves etc.), the Board shall, considering the recommendation of the Governance, Human Resources, and Compensation Committee and in light of all the circumstances, determine whether to request that the Director resign.
Authority of the Board
The Board shall have unrestricted access to management and employees of the Company. The Board requires timely and accurate reporting from management and shall regularly review the quality of management’s reports.
Subject to prior consultation with the Chief Executive Officer (except in unusual circumstances), the Board is authorized to:
1. | retain and terminate external legal counsel, consultants and other advisors it determines necessary to carry out the Board’s duties and responsibilities; and |
2. | set and require the Company to pay the compensation and charged expenses for any advisors engaged by the Board. |
Security Ownership by Directors
Effective February 16, 2017, each Director (except Directors who are officers of the Company) is required to beneficially own that number of securities of the Company the market value of which is at least three times the annual Directors’ fees paid to such Director. Directors will be given three years to meet this ownership requirement. New Directors will be given three years following their appointment to meet this ownership requirement. Each Director who is a member of management of the Company is required to beneficially own that number of securities of the Company the market value of which is at least five times his current base salary.
Annual Review of the Mandate
In connection with the preparation of the Company’s management information circular for the annual meeting of shareholders, the Board shall review and reassess the Mandate for adequacy and make changes as it deems necessary.
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No Rights Created
This Mandate is a statement of broad policies and is intended as a component of the governance framework within which the Board, assisted by its committees, directs the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and listing requirements, as well as in the context of the Company’s Articles and By-laws, it is not intended to establish any legally binding obligations.
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2 QUEEN STREET EAST, TWENTIETH FLOOR, TORONTO, ONTARIO M5C 3G7
Phone: (416) 364-1145 | Toll Free: 1 800 268-9374
E-mail: investorrelations@ci.com
Email (independent director): ci@muir99.com
Website: www.cifinancial.com
Exhibit 99.20
CI FINANCIAL CORP.
Report on Voting Results
Section 11.3 of National Instrument 51-102
The following discloses the voting results of the annual and general meeting of the shareholders of CI Financial Corp. (the “Corporation”) held on June 18, 2020. Shareholders holding an aggregate of 168,137,803 common shares (77.28% of outstanding shares) were present or represented by proxy at the meeting.
1. Election of Directors
Each of the following nominees was elected as a director of the Corporation to serve until the close of the next annual meeting of the shareholders:
Nominee | Votes For | % For | Votes Withheld | % Withheld | ||||||||||||
William E. Butt | 166,651,806 | 99.31 | % | 1,150,983 | 0.69 | % | ||||||||||
Brigette Chang-Addorisio | 165,631,827 | 98.71 | % | 2,170,962 | 1.29 | % | ||||||||||
William T. Holland | 159,579,256 | 95.10 | % | 8,223,533 | 4.90 | % | ||||||||||
Kurt MacAlpine | 166,322,826 | 99.12 | % | 1,479,963 | 0.88 | % | ||||||||||
David P. Miller | 148,469,964 | 88.48 | % | 19,332,825 | 11.52 | % | ||||||||||
Tom P. Muir | 164,942,813 | 98.30 | % | 2,859,976 | 1.70 | % | ||||||||||
Sheila A. Murray | 153,174,578 | 91.28 | % | 14,627,511 | 8.72 | % | ||||||||||
Paul J. Perrow | 165,497,041 | 98.63 | % | 2,305,748 | 1.37 | % |
2. Appointment of Auditors
Shareholders re-appointed Ernst & Young LLP as the auditors of the Corporation to hold office until the close of the next annual meeting of the shareholders.
Outcome | Votes FOR | % | Votes WITHHELD | % | ||||||||||||
Carried | 159,799,953 | 95.04 | % | 8,337,684 | 4.96 | % |
- 2 -
3. Say on Executive Compensation
On an advisory basis, Shareholders accepted the approach to executive compensation disclosed in the Management Information Circular dated May 5, 2020.
Outcome | Votes FOR | % | Votes AGAINST | % | ||||||||||||
Carried | 121,871,794 | 72.63 | % | 45,924,749 | 27.37 | % |
For additional information, please see the Management Information Circular.
DATED the 18th day of June, 2020.
“Bradley R. Howard” | |
Bradley R. Howard | |
Corporate Secretary | |
CI Financial Corp. |
Exhibit 99.21
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1. | Name and Address of Company |
CI Financial Corp. (the “Company”)
2 Queen Street East Twentieth Floor Toronto, Ontario M5C 3G7 |
|
Item 2. | Date of Material Change |
April 16, 2019 | |
Item 3. | News Release |
The Company issued a news release on April 16, 2019, through the newswire services of Canada NewsWire. A copy of the news release is attached as Schedule “A” hereto and is available on SEDAR at www.sedar.com. | |
Item 4. | Summary of Material Change |
The Company announced that Peter Anderson, Chief Executive Officer of the Company, has made the decision to retire no later than June 30, 2020. The Board intends to take this opportunity for a complete review of executive management required for the future growth of the Company. The Board has asked Mr. Anderson to participate with the Board in this evaluation and to continue the executive transition which commenced under his leadership. | |
Item 5. | Full Description of Material Change |
A full description of the material change is provided in the news release attached as Schedule “A”. | |
Item 6. | Reliance on subsection 7.1(2) of National Instrument 51-102 |
The material change report is not being filed on a confidential basis. | |
Item 7. | Omitted Information |
No information has been omitted. | |
Item 8. | Executive Officer |
The following senior officer of the Company is knowledgeable about the material change described in this report:
Edward Kelterborn, Chief Legal Officer
|
|
Item 9. | Date of Report |
April 18, 2019 |
SCHEDULE “A”
PRESS RELEASE
2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 | |
Telephone: 416-364-1145 Toll Free: 1-800-268-9374 | |
www.ci.com |
News Release
For Immediate Release | TSX:CIX |
Peter Anderson Announces Plan to Step Down as CEO of CI Financial by mid-2020
TORONTO (April 16, 2019)- CI Financial Corp. (“CI Financial”) today announced that the Board of directors has been advised by CEO, Peter Anderson that he plans to retire no later than the end of his employment contract.
Mr. Anderson has been the CEO of CI Financial since mid-2016. He returned to CI Financial that year to assume the position, after a 3-year absence during which he served as a director of a number of companies. At the time of his appointment as CEO, Mr. Anderson and the Board entered into an employment agreement, which has been extended once and now terminates June 30, 2020. Mr. Anderson has told the Board that it is his intention to retire no later than the end of this contract. The Board intends to take this opportunity for a complete review of executive management required for the future growth of the company. The Board has asked Mr. Anderson to participate with the Board in this evaluation and to continue the executive transition which commenced under his leadership.
Mr. Anderson said “We have accomplished a lot at CI Financial since my return, and I think this is the perfect time to transition the company to younger leadership with a longer time horizon. We have excellent senior management throughout the company and I am confident CI is in a strong position to compete in this fast-moving environment. I will work with the Board and the management team to successfully transition the company.”
Chairman of the Board Bill Holland said “On behalf of the Board, I want to thank Peter for his superb leadership of the company through what has been the most difficult period in the history of this industry.”
CI Financial Corp. (TSX: CIX) is an independent, Canadian-owned wealth management company. CI offers a broad range of investment products and services, including an industry-leading selection of investment funds. CI is on the Web at www.ci.com/cix.
For further information:
William T. Holland
Chairman of the Board
CI Financial Corp.
(416) 364-1145
Exhibit 99.22
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1. | Name and Address of Company |
CI Financial Corp. (the “Company”)
2 Queen Street East
Twentieth Floor
Toronto, Ontario
M5C 3G7
Item 2. | Date of Material Change |
June 24, 2019
Item 3. | News Release |
The Company issued a news release on June 25, 2019, through the newswire services of Canada NewsWire. A copy of the news release is attached as Schedule “A” hereto and is available on SEDAR at www.sedar.com.
Item 4. | Summary of Material Change |
The Board of Directors of the Company announced the appointment of Darie Urbanky as President of the Company, effective immediately. Mr. Urbanky also serves as the Chief Operating Officer of the Company.
Full Description of Material Change
Item 5. | A full description of the material change is provided in the news release attached as Schedule “A”. |
Reliance on subsection 7.1(2) of National Instrument 51-102
Item 6. | The material change report is not being filed on a confidential basis. |
Omitted Information
Item 7. | No information has been omitted. |
Executive Officer
Item 8. | The following senior officer of the Company is knowledgeable about the material change described in this report: |
Edward Kelterborn, Chief Legal Officer
416-681-8170
Item 9. | Date of Report |
June 26, 2019
SCHEDULE “A”
PRESS RELEASE
|
2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7
Telephone: 416-364-1145 Toll Free: 1-800-268-9374 www.cifinancial.com |
News Release |
FOR IMMEDIATE RELEASE
CI Financial appoints Darie Urbanky as President
and Chief Operating Officer
TORONTO (June 25, 2019) – The Board of Directors of CI Financial Corp. (“CI”) (TSX: CIX) today announced the appointment of Darie Urbanky as President of the corporation, effective immediately. Mr. Urbanky also serves as CI’s Chief Operating Officer.
“Darie brings a unique and essential combination of experience in management, technology and operations to his new role,” said Peter Anderson, CI Chief Executive Officer.
“He has successfully led the transformation of key parts of our operations through technology and innovation. Darie has been instrumental in developing and integrating CI’s digital strategy, including BBS Securities, Virtual Brokers and WealthBar, into our business. He has a strong understanding of our business today and where it is going in the future.”
Mr. Urbanky has 23 years’ experience at CI, serving in progressively more senior roles in technology and operations in which he supported departments across CI, including investment management, advisory and wealth management operations, sales and marketing, and corporate systems.
He was Chief Technology Officer of CI Investments Inc. prior to being named Executive Vice-President and Chief Operating Officer of CI in 2018. In those positions, he was a member of CI’s executive team, and played a key role in developing CI’s digital strategy, including the acquisition of BBS Securities Inc., Virtual Brokers and WealthBar Financial Services Inc., and leveraging their technology throughout CI’s operations.
Mr. Urbanky is on the boards of BBS, WealthBar and Fundserv. He holds an MBA from the Rotman School of Management at the University of Toronto, a master’s degree in computer science from University of Toronto and has attended leadership and management programs at the Smith School of Business at Queen’s University.
Mr. Urbanky is replacing Sheila Murray, who retired as President in March and now serves on the CI Board of Directors.
|
News Release |
About CI Financial
CI Financial Corp. (TSX: CIX) is an independent Canadian company offering global asset management and wealth management advisory services. CI held approximately $174 billion in fee-earning assets as of May 31, 2019. Its primary operating businesses are CI Investments Inc., Assante Wealth Management (Canada) Ltd., CI Private Counsel LP, GSFM Pty Ltd., First Asset Investment Management Inc., WealthBar Financial Services Inc., and BBS Securities Inc. Further information is available at www.cifinancial.com.
For further information:
Peter W. Anderson
Chief Executive Officer
CI Financial Corp.
(416) 364-1145
Exhibit 99.23
FORM 51-102F3
MATERIAL CHANGE REPORT
Item 1. |
Name and Address of Company |
CI Financial Corp. (the “Company”) 2 Queen Street East Twentieth Floor Toronto, Ontario M5C 3G7 |
|
Item 2. |
Date of Material Change |
August 6, 2019 |
|
Item 3. | News Release |
The Company issued a news release on August 6, 2019, through the newswire services of Cision. A copy of the news release is attached as Schedule “A” hereto and is available on SEDAR at www.sedar.com. |
|
Item 4. | Summary of Material Change |
The Board of Directors of the Company announced that Kurt MacAlpine would be appointed Chief Executive Officer and a Director of the Company, effective September 1, 2019. He is replacing Peter Anderson, who announced in April 2019 that he would retire as Chief Executive Officer no later than mid-2020. Mr. Anderson has committed to remaining at the Company in the short term to assist with the transition of responsibilities. |
|
Item 5. | Full Description of Material Change |
A full description of the material change is provided in the news release attached as Schedule “A”. |
|
Item 6. | Reliance on subsection 7.1(2) of National Instrument 51-102 |
The material change report is not being filed on a confidential basis. |
|
Item 7. | Omitted Information |
No information has been omitted. |
|
Item 8. | Executive Officer |
The following senior officer of the Company is knowledgeable about the material change described in this report:
Edward Kelterborn, Chief Legal Officer 416-681-8170 |
Item 9. | Date of Report |
August 6, 2019 |
SCHEDULE “A”
PRESS RELEASE
|
2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 Telephone: 416-364-1145 Toll Free: 1-800-268-9374 www.ci.com |
News Release
FOR IMMEDIATE RELEASE
Kurt MacAlpine appointed Chief Executive Officer of CI Financial
TORONTO (August 6, 2019) – The Board of Directors of CI Financial Corp. (“CI”) (TSX:CIX), a diversified asset and wealth management company, today announced the appointment of Kurt MacAlpine as Chief Executive Officer and a Director of the corporation, effective September 1, 2019.
Mr. MacAlpine has valuable experience and exceptional insight into the North American and global wealth and asset management sectors, having served as Executive Vice-President and Head of Global Distribution for WisdomTree Asset Management and as Leader of the North American Asset Management Practice at McKinsey & Company.
“Kurt brings to CI a powerful combination of strategic thinking, innovation, and operational experience across diverse aspects of the wealth and asset management business, both in North America and globally,” said David Miller, Director of CI and Chairman of the Board’s Governance, Human Resources, and Compensation Committee.
“The Board is confident that his deep industry knowledge, proven leadership and experience in developing and executing growth-oriented strategic initiatives will ensure that CI remains a leader in a rapidly changing business environment.”
At WisdomTree, a global asset manager and exchange-traded fund sponsor based in New York, Mr. MacAlpine was responsible for all client-facing functions globally, including distribution, marketing, data intelligence and strategy, business development, and client solutions. He also oversaw the majority of the firm’s international businesses, which during his tenure included employees in Canada, Europe, Japan, Israel and Latin America and strategic partnerships in Asia and Australia and New Zealand. He was a member of the company’s global executive management committee and sat on the boards of several of its international entities and AdvisorEngine, a digital wealth platform.
Mr. MacAlpine helped diversify and globalize WisdomTree’s business and led the development and execution of its global distribution strategy. This included transforming its data intelligence function, which involved partnering with IBM Watson for predictive analytics, building an award-winning Advisor Solutions program, establishing several new strategic partnerships, and redesigning client coverage. Clients who have adopted these new strategic initiatives have generated organic growth rates for WisdomTree of approximately 20%, multiples higher than the legacy approach.
Prior to joining WisdomTree in July 2015, Mr. MacAlpine was a Partner at McKinsey, a global management consulting firm, based in its New York office. In his role as a Partner, he managed global consulting teams in the asset and wealth management industries on topics related to strategy, distribution, marketing, international expansion, mergers and acquisitions, and product development.
“Kurt has worked with some of the largest asset managers in the world and has a thorough understanding of the industry, best practices and new developments,” Mr. Miller said. “In particular, Kurt is familiar with using digital strategies to enhance efficiencies and build new services and businesses, a key plank in CI’s strategic plans.”
“CI Financial is an iconic and unique company in this market,” Mr. MacAlpine said. “As a large and independent firm with global reach, CI is well positioned to take advantage of the many opportunities in asset and wealth management. CI holds a strong and diverse portfolio of businesses and I look forward to working with the CI team to lead the company through the next stage of growth and development.”
Mr. MacAlpine will join a seasoned executive team that leads CI’s diverse operations. The team includes Darie Urbanky, who was recently appointed President and Chief Operating Officer of CI. Mr. Urbanky had been named Executive Vice-President and Chief Operating Officer in 2018 and, prior to that, served as Chief Technology Officer of subsidiary CI Investments Inc.
Mr. MacAlpine is originally from Saint John, New Brunswick. He holds a bachelor of commerce degree from Saint Mary’s University in Halifax, Nova Scotia, and an MBA from Queen’s University in Kingston, Ontario.
He is replacing Peter Anderson, who announced in April 2019 that he would retire as CEO no later than mid-2020. Mr. Anderson has committed to remaining at CI in the short term to assist with the transition of responsibilities.
“Over the past three years, Peter has provided exceptional leadership during a difficult period in which the global asset management business has undergone dramatic changes,” said William T. Holland, CI Chairman. “He has spearheaded a number of initiatives to grow the company and position it for continued success. The Board thanks Peter for his guidance and extensive contributions to CI.”
About CI Financial
CI Financial Corp. (TSX: CIX) is an independent Canadian company offering global asset management and wealth management advisory services. CI held approximately $177 billion in fee-earning assets as of July 31, 2019. Its primary operating businesses are CI Investments Inc., Assante Wealth Management (Canada) Ltd., CI Private Counsel LP, GSFM Pty Ltd., First Asset Investment Management Inc., WealthBar Financial Services Inc., and BBS Securities Inc. Further information is available at www.cifinancial.com.
For further information:
Murray Oxby
Vice-President, Communications
(416) 681-3254
moxby@ci.com
Exhibit 99.24
FORM 13-502F1
CLASS 1 AND CLASS 3B REPORTING ISSUERS – PARTICIPATION FEE
MANAGEMENT CERTIFICATION |
I, Douglas J. Jamieson, an officer of the reporting issuer noted below have examined this Form 13-502F1 (the Form) being submitted hereunder to the Ontario Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. |
(s) | “Douglas J. Jamieson” | February 8, 2019 |
Name: | Douglas J. Jamieson | Date: | |
Title: | Executive Vice-President and Chief Financial Officer | ||
Reporting Issuer Name: | Cl Financial Corp. | |
End date of previous financial year: | December 31, 2018 | |
Type of Reporting Issuer: | þ Class 1 reporting issuer | ¨ Class 3B reporting issuer |
Highest Trading Marketplace: | Toronto Stock Exchange |
(refer to the definition of “highest trading marketplace” under OSC Rule 13-502 Fees)
Market value of listed or quoted equity securities:
(in Canadian Dollars - refer to section 7.1 of OSC Rule 13-502 Fees)
Equity Symbol
Exhibit 99.25
Note: [01 Mar 2017] – The following is a consolidation of 13-501 F1. It incorporates amendments to this document that came into effect on March 1, 2017. This consolidation is provided for your convenience and should not be relied on as authoritative.
FORM 13-501F1
CLASS 1 REPORTING ISSUERS AND CLASS 3B REPORTING ISSUERS – PARTICIPATION FEE
MANAGEMENT CERTIFICATION
I, Douglas J. Jamieson, an officer of the reporting issuer noted below have examined this Form 13-501F1 (the Form) being submitted hereunder to the Alberta Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. | ||||||
“Douglas J. Jamieson” | February 8, 2019 | |||||
Name: | Douglas J. Jamieson | Date: | ||||
Title: | Executive Vice-President & Chief Financial Officer |
Reporting Issuer Name: | Cl Financial Corp. | ||||
End date of previous financial year: | December 31, 2018 | ||||
Type of Reporting Issuer: | x Class 1 reportingting | ¨ Class 3B reporting | |||
issuer | issuer | ||||
Highest Trading Marketplace: | Toronto Stock Exchange | ||||
Market value of listed or quoted equity securities: | |||||
Equity Symbol | CIX | ||||
1st Specified Trading Period (dd/mm/yy) | 01/01/2018 | to | 31/03/2018 | ||
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 27.6000 | |||
(i) |
4th Specified Trading Period (dd/mm/yy) | 01/10/2018 | to | 31/12/2018 | |
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 17.2800 | ||
(vii) | ||||
Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 244,388,342 | |||
(viii) | ||||
Market value of class or series | (vii) x (viii) | $ | 4,223,030,549.76 | |
(D) | ||||
5th Specified Trading Period (dd/mm/yy) | to | |||
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | |||
(ix) | ||||
Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | ||||
(x) | ||||
Market value of class or series | (ix) x (x) | $ | ||
(E) | ||||
Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) | $ | 5,741,613,878.71 | ||
(1) |
(Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year)
Exhibit 99.26
FORM 52-109Fl
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Peter W. Anderson, the Chief Executive Officer of CI Financial Corp., certify the following:
l. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of CI Financial Corp. (the “Issuer”) for the financial year ended December 31, 2018. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the annual filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the financial year end |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A |
- 2 -
6. | Evaluation: The Issuer’s other certifying officer(s) and I have |
(a) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the Issuer’s DC&P at the financial year end and the Issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and |
(b) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the Issuer’s ICFR at the financial year end and the Issuer has disclosed in its annual MD&A |
(i) our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and
(ii) N/A.
7. | Reporting changes in ICFR: The Issuer has disclosed in its annual MD&A any change in the Issuer’s ICFR that occurred during the period beginning on January 1, 2018 and ended on December 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
8. | Reporting to the Issuer’s auditors and board of directors or audit committee: The Issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the Issuer’s auditors, and the Board of Directors or the Audit Committee of the Board of Directors any fraud that involves management or other employees who have a significant role in the Issuer’s ICFR. |
Date: March 7, 2019.
“Peter W. Anderson” | |
Peter W. Anderson | |
Chief Executive Officer | |
CI Financial Corp. |
Exhibit 99.27
FORM 52-109Fl
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Douglas J. Jamieson, the Executive Vice-President and Chief Financial Officer of CI Financial Corp., certify the following:
l. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of CI Financial Corp. (the “Issuer”) for the financial year ended December 31, 2018. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance .and cash flows of the Issuer, as of the date of and for the periods presented in the annual filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the financial year end |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A |
- 2 -
6. | Evaluation: The Issuer’s other certifying officer(s) and I have |
(a) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the Issuer’s DC&P at the financial year end and the Issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and |
(b) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the Issuer’s ICFR at the financial year end and the Issuer has disclosed in its annual MD&A |
(i) | our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and |
(ii) | N/A. |
7. | Reporting changes in ICFR: The Issuer has disclosed in its annual MD&A any change in the Issuer’s ICFR that occurred during the period beginning on January 1, 2018 and ended on December 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
8. | Reporting to the Issuer’s auditors and board of directors or audit committee: The Issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the Issuer’s auditors, and the Board of Directors or the Audit Committee of the Board of Directors any fraud that involves management or other employees who have a significant role in the Issuer’s ICFR. |
Date: March 7, 2019.
“Douglas J. Jamieson” | |
Douglas J. Jamieson | |
Executive Vice-President and Chief Financial Officer | |
CI Financial Corp. |
Exhibit 99.28
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Peter W. Anderson, the President and Chief Executive Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended March 31, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
- 2 -
6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on January 1, 2019 and ended on March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: May 9, 2019.
“Peter W. Anderson” | |
Peter W. Anderson | |
President and Chief Executive Officer | |
CI Financial Corp. |
Exhibit 99.29
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Douglas J. Jamieson, the Executive Vice-President and Chief Financial Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended March 31, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
- 2 -
6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on January 1, 2019 and ended on March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: May 9, 2019.
“Douglas J. Jamieson” | |
Douglas J. Jamieson | |
Executive Vice-President and Chief Financial Officer | |
CI Financial Corp. |
Exhibit 99.30
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Peter W. Anderson, the Chief Executive Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended June 30, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
- 2 -
6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on April 1, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: August 8, 2019.
“Peter W. Anderson” | |
Peter W. Anderson | |
Chief Executive Officer | |
CI Financial Corp. |
Exhibit 99.31
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Douglas J. Jamieson, the Executive Vice-President and Chief Financial Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended June 30, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
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6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on April 1, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: August 8, 2019.
“Douglas J. Jamieson” | |
Douglas J. Jamieson | |
Executive Vice-President and Chief Financial Officer | |
CI Financial Corp. |
Exhibit 99.32
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Kurt MacAlpine, the Chief Executive Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended September 30, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
- 2 -
6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on July 1, 2019 and ended on September 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: November 7, 2019.
“Kurt MacAlpine” | |
Kurt MacAlpine | |
Chief Executive Officer | |
CI Financial Corp. |
Exhibit 99.33
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Douglas J. Jamieson, the Executive Vice-President and Chief Financial Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended September 30, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
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6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on July 1, 2019 and ended on September 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: November 7, 2019.
“Douglas J. Jamieson” | |
Douglas J. Jamieson | |
Executive Vice-President and Chief Financial Officer | |
CI Financial Corp. |
Exhibit 99.34
FORM 13-502F1
CLASS 1 AND CLASS 3B REPORTING ISSUERS – PARTICIPATION FEE
MANAGEMENT CERTIFICATION
I, Douglas J. Jamieson, an officer of the reporting issuer noted below have examined this Form 13-502F1 (the Form) being submitted hereunder to the Ontario Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate.
(s) “Douglas J. Jamieson” | February14, 2020 | ||
Name: | Douglas J. Jamieson | Date: | |
Title: | Executive Vice-President and Chief | ||
Financial Officer |
|
Reporting Issuer Name: | CI Financial Corp. | |
End date of previous financial year: | December 31, 2019 | |
Type of Reporting Issuer: | þ Class 1 reporting issuer | ¨ Class 3B reporting issuer |
Highest Trading Marketplace: | Toronto Stock Exchange |
Exhibit 99.35
Note: [01 Mar 2017] – The following is a consolidation of 13-501F1. It incorporates amendments to this document that came into effect on March 1, 2017. This consolidation is provided for your convenience and should not be relied on as authoritative.
FORM 13-501F1
CLASS 1 REPORTING ISSUERS AND CLASS
3B REPORTING ISSUERS –
PARTICIPATION FEE
MANAGEMENT CERTIFICATION
I, Douglas J. Jamieson, an officer of the reporting issuer noted below have examined this Form 13-501F1 (the Form) being submitted hereunder to the Alberta Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate.
“Douglas J. Jamieson” | February14, 2020 | ||
Name: | Douglas J. Jamieson | Date: | |
Title: |
Executive Vice-President & Chief Financial Officer
|
Reporting Issuer Name: | CI Financial Corp. | |
End date of previous financial year: | December 31, 2019 |
Type of Reporting Issuer: |
x Class 1 reporting
issuer |
¨ Class 3B reporting
issuer |
Highest Trading Marketplace: | Toronto Stock Exchange |
Market value of listed or quoted equity securities: | ||
Equity Symbol | CIX |
1st Specified Trading Period (dd/mm/yy) | 01/01/2019 | to | 31/03/2019 |
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 18.2400 |
(i) |
Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 241,526,542 | ||
(ii) | |||
(i) x (ii) | $ | 4,405,444,126.08 | |
Market value of class or series | (A) |
2nd Specified Trading Period (dd/mm/yy) | 01/04/2019 | to | 30/06/2019 |
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 21.3400 | |
(iii) | |||
Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 236,835,037 | ||
(iv) | |||
(iii) x (iv) | $ | 5,054,059,689.58 | |
Market value of class or series | (B) |
3rd Specified Trading Period (dd/mm/yy) | 01/07/2019 | to | 30/09/2019 |
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 19.3300 | |
(v) | |||
Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 229,159,837 | ||
(vi) | |||
(v) x (vi) | $ | 4,429,659,649.21 | |
Market value of class or series | (C) |
4th Specified Trading Period (dd/mm/yy) | 01/10/2019 | to | 31/12/2019 |
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 21.7100 | |
(vii) | |||
Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 222,438,437 | ||
(viii) | |||
(vii) x (viii) | $ | 4,829,138,467.27 | |
Market value of class or series | (D) |
5th Specified Trading Period (dd/mm/yy) | to |
Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | ||
(ix) | |||
Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | |||
(x) | |||
(ix) x (x) | $ | ||
Market value of class or series | (E) | ||
Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) | $ | 4,679,575,483.04 | |
(1) |
(Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year)
Exhibit 99.36
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Kurt MacAlpine, the Chief Executive Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of CI Financial Corp. (the “Issuer”) for the financial year ended December 31, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the annual filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the financial year end |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A |
- 2 -
6. | Evaluation: The Issuer’s other certifying officer(s) and I have |
(a) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the Issuer’s DC&P at the financial year end and the Issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and |
(b) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the Issuer’s ICFR at the financial year end and the Issuer has disclosed in its annual MD&A |
(i) | our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and |
(ii) | N/A. |
7. | Reporting changes in ICFR: The Issuer has disclosed in its annual MD&A any change in the Issuer’s ICFR that occurred during the period beginning on January 1, 2019 and ended on December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
8. | Reporting to the Issuer’s auditors and board of directors or audit committee: The Issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the Issuer’s auditors, and the Board of Directors or the Audit Committee of the Board of Directors any fraud that involves management or other employees who have a significant role in the Issuer’s ICFR. |
Date: March 9, 2020.
/s/ “Kurt MacAlpine” | |
Kurt MacAlpine | |
Chief Executive Officer | |
CI Financial Corp. |
Exhibit 99.37
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Douglas J. Jamieson, the Executive Vice-President and Chief Financial Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of CI Financial Corp. (the “Issuer”) for the financial year ended December 31, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the annual filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the financial year end |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A |
- 2 -
6. | Evaluation: The Issuer’s other certifying officer(s) and I have |
(a) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the Issuer’s DC&P at the financial year end and the Issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and |
(b) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the Issuer’s ICFR at the financial year end and the Issuer has disclosed in its annual MD&A |
(i) | our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and |
(ii) | N/A. |
7. | Reporting changes in ICFR: The Issuer has disclosed in its annual MD&A any change in the Issuer’s ICFR that occurred during the period beginning on January 1, 2019 and ended on December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
8. | Reporting to the Issuer’s auditors and board of directors or audit committee: The Issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the Issuer’s auditors, and the Board of Directors or the Audit Committee of the Board of Directors any fraud that involves management or other employees who have a significant role in the Issuer’s ICFR. |
Date: March 9, 2020.
/s/ “Douglas J. Jamieson” | |
Douglas J. Jamieson | |
Executive Vice-President and Chief Financial Officer | |
CI Financial Corp. |
Exhibit 99.38
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Kurt MacAlpine, the Chief Executive Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended March 31, 2020. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
- 2 -
6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: May 6, 2020.
“Kurt MacAlpine” | |
Kurt MacAlpine | |
Chief Executive Officer | |
CI Financial Corp. |
Exhibit 99.39
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Douglas J. Jamieson, the Executive Vice-President and Chief Financial Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended March 31, 2020. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
- 2 -
6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: May 6, 2020.
“Douglas J. Jamieson” | |
Douglas J. Jamieson | |
Executive Vice-President and Chief Financial Officer | |
CI Financial Corp. |
Exhibit 99.40
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Kurt MacAlpine, the Chief Executive Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended June 30, 2020. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
- 2 -
6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on April 1, 2020 and ended on June 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: August 6, 2020.
“Kurt MacAlpine” | |
Kurt MacAlpine | |
Chief Executive Officer | |
CI Financial Corp. |
Exhibit 99.41
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Douglas J. Jamieson, the Executive Vice-President and Chief Financial Officer of CI Financial Corp., certify the following:
1. | Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of CI Financial Corp. (the “Issuer”) for the interim period ended June 30, 2020. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP. |
5.1 | Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is COSO (Committee of Sponsoring Organizations) Framework. |
5.2 | N/A. |
5.3 | N/A. |
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6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on April 1, 2020 and ended on June 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR. |
Date: August 6th, 2020.
“Douglas J. Jamieson” | |
Douglas J. Jamieson | |
Executive Vice-President and Chief Financial Officer | |
CI Financial Corp. |
Exhibit 99.42
EARLY WARNING REPORT UNDER
THE ALTERNATIVE MONTHLY REPORTING SYSTEM
OF NATIONAL INSTRUMENT 62-103F3
Item 1 – Security and Reporting Issuer
1.1 Designation of securities to which this report relates:
Common Shares
1.2 Name and address of the head office of the issuer of the securities:
CI Financial Corp.
2 Queen Street East
Twentieth Floor
Toronto, Ontario
M5C 3G7
1.3 Name of the market in which the transaction or other occurrence that triggered the requirement to file this report took place:
Toronto Stock Exchange
Item 2 – Identity of the Eligible Institutional Investor
2.1 State the name and address of the eligible institutional investor:
“Fidelity” which may include the following:
Fidelity Management & Research Company (“FMR Co.”)
245 Summer Street
Boston, MA, 02210
FMR Co., Inc. (“FMR Co., Inc.”)
245 Summer Street
Boston, MA, 02210
Fidelity Management Trust Company (“FMTC”)
245 Summer Street
Boston, MA, 02210
FIAM LLC (“FIAM LLC”)
900 Salem Street
Smithfield, RI, 02917
Fidelity Institutional Asset Management Trust Company (“FIAMTC”)
900 Salem Street
Smithfield, RI, 02917
Strategic Advisers LLC (“Strategic Advisers”)
245 Summer Street
Boston, MA 02210
FIL Limited (“FIL”)
42 Crow Lane, Pembroke, Bermuda
Crosby Advisors LLC (“Crosby”)
11 Keewaydin Drive, Suite 200
Salem, New Hampshire 03079
Fidelity SelectCo, LLC (“SelectCo”)
6501 S. Fiddler’s Green Circle, Suite 600
Greenwood Village, Colorado 80111
Fidelity (Canada) Asset Management ULC (“FCAM”)
#100, 407- 2nd Street SW
Calgary, A0 T2P 2Y3
FMR Co., FMR Co., Inc., FMTC, FIAM LLC, FIAMTC, Strategic Advisers, Crosby, and
SelectCo (hereinafter collectively referred to as “FMR”), and FIL and certain of its
affiliates (“FIL”, and together with FMR and FCAM, “Fidelity”).
The foregoing entities are not currently claiming the ability to disaggregate their respective beneficial ownership from each other pursuant to Part 5 of National Instrument 62-103 and are consequently submitting a single report; however, this report is not an admission that any entity named in this report owns or controls any securities or is a joint actor with another named entity. Fidelity is relying on aggregation relief as provided for in Part 5 of National Instrument 62-103 with respect to securities controlled by other business units that are affiliates or associates of the entities listed above and such securities have not been disclosed in this report.
2.2 State the date of the transaction or other occurrence that triggered the requirement to file this report and briefly describe the transaction or other occurrence:
The transaction that triggered the requirement to file this report was a purchase of 313,400 Common Shares of CI Financial Corp. that occurred on December 20, 2018.
2.3 State the name of any joint actors:
N/A
2.4 State that the eligible institutional investor is eligible to file reports under Part 4 in respect of the reporting issuer:
FMR and FCAM are eligible to file this report under the alternative monthly reporting system of National Instrument 62-103, and FIL is able to file this report pursuant to MRRS Decision Document dated April 4th, 2005 granted to FIL.
Item 3 – Interest in Securities of the Reporting Issuer
3.1 State the designation and the net increase or decrease in the number or principal amount of securities, and in the eligible institutional investor’s security holding percentage in the class of securities, since the last report filed by the eligible institutional investor under Part 4 or the early warning requirements:
N/A. This is Fidelity’s initial filing above 10% or Fidelity’s security holding percentage, as at the end of the month, increased to 10% or more.
3.2 State the designation and number or principal amount of securities and the eligible institutional investor’s security holding percentage in the class of securities at the end of the month for which the report is made:
Fidelity holds 25,178,492 Common Shares representing approximately 10.24% of the outstanding shares of that class.
3.3 If the transaction involved a securities lending arrangement, state that fact:
N/A
3.4 State the designation and number or principal amount of securities and the percentage of outstanding securities of the class of securities to which this report relates and over which:
(a) | the eligible institutional investor, either alone or together with any joint actors, has ownership and control: |
N/A
(b) | the eligible institutional investor, either alone or together with any joint actors, has ownership but control is held by persons or companies other than the eligible institutional investor or any joint actor: |
N/A
(c) | the eligible institutional investor, either alone or together with any joint actors, has exclusive or shared control but does not have ownership: |
Fidelity holds 25,178,492 Common Shares representing approximately 10.24% of the outstanding shares of that class. Such securities are owned by funds and accounts for which Fidelity exercises investment discretion.
3.5 If the eligible institutional investor or any of its joint actors has an interest in, or right or obligation associated with, a related financial instrument involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the related financial instrument and its impact on the eligible institutional investor’s security holdings:
N/A
3.6 If the eligible institutional investor or any of its joint actors is a party to a securities lending arrangement involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the arrangement including the duration of the arrangement, the number or principal amount of securities involved and any right to recall the securities or identical securities that have been transferred or lent under the arrangement:
The funds and accounts managed by Fidelity that hold the securities referenced herein may, from time-to-time, lend some or all of such securities pursuant to securities lending arrangements for such periods of time as may be agreed upon with the relevant borrower(s). Such securities lending arrangements are subject to the exception provided in Section 5.7 of NI 62-104 and the securities loans made pursuant thereto are generally terminable upon notice to the borrower.
3.7 If the eligible institutional investor or any of its joint actors is a party to an agreement, arrangement or understanding that has the effect of altering, directly or indirectly, the eligible institutional investor’s economic exposure to the security of the class of securities to which this report relates, describe the material terms of the agreement, arrangement or understanding:
N/A
Item 4 – Purpose of the Transaction
The Common Shares of CI Financial Corp. were acquired in the ordinary course of business, for investment purposes only and not with the purpose of exercising control or direction over CI Financial Corp. Fidelity may from time to time, on behalf of funds or accounts it manages, acquire additional Common Shares or related financial instruments, dispose of some or all of the Common Shares or related financial instruments, if any, they hold or continue to hold Common Shares or such related financial instruments, if any.
Item 5 – Agreements, Arrangements, Commitments or Understandings With Respect to Securities of the Reporting Issuer
N/A
Item 6 – Change in Material Fact
If applicable, describe any change in a material fact set out in a previous report filed by the eligible institutional investor under the early warning requirements or Part 4 in respect of the reporting issuer’s securities:
N/A
Item 7 – Certification
I, as the eligible institutional investor, certify, or I, as the agent filing the report on behalf of the eligible institutional investor, certify to the best of my knowledge, information and belief, that the statements made in this report are true and complete in every respect.
DATE: January 8, 2019
Fidelity Management & Research Company; FMR Co., Inc.; Fidelity Management Trust Company; Strategic Advisers LLC; Crosby Advisors LLC;
Fidelity SelectCo, LLC; FIAM LLC; Fidelity Institutional Asset Management Trust Company; Fidelity (Canada) Asset Management ULC; and FIL Limited
By: /s/ Kevin M. Meagher
Name: Kevin M. Meagher
Title: Chief Compliance Officer of Fidelity Management & Research Company
Duly authorized under Powers of Attorney by and on behalf of FMR Co., FMR Co., Inc., FMTC, Strategic Advisers, Crosby, SelectCo., FIAM LLC, FIAMTC, FCAM and FIL and its direct and indirect subsidiaries
Exhibit 99.43
CI FINANCIAL CORP.
(the “Company”)
CODE OF BUSINESS CONDUCT AND ETHICS
As of February 8, 2019
1. | Introduction |
The Company is committed to conducting its business ethically and legally. In keeping with that commitment, this Code of Business Conduct and Ethics (the “Code”) covers a wide range of business practices and procedures. The Code has been approved by our Board of Directors, senior management and business unit leaders to summarize the standards of business conduct that must guide our actions. It does not cover every issue that may arise, but sets out basic principles to guide all directors, officers and employees of the Company and its subsidiaries and affiliates (collectively, “CI Personnel”). All CI Personnel must conduct themselves accordingly and seek to avoid even the appearance of improper behaviour. This Code also must be provided to and followed by the agents and representatives, including advisors, of the Company and its subsidiaries and affiliates (collectively, the “CI Group”).
If a law conflicts with a policy in this Code, CI Personnel must comply with the law. If a local custom or policy conflicts with this Code, CI Personnel must comply with this Code. In some instances, there may be a conflict between the laws of different jurisdictions that apply to the operations of the CI Group. If you have any questions about these conflicts, you should ask your supervisor or department head how to handle the situation.
Some subsidiaries, departments and specialized areas within the CI Group have specific codes of conduct or ethics or the like in place that cover conduct (such as personal trading) or regulatory issues that only apply to that area or field. If CI Personnel work for one of these subsidiaries or specialized areas, such specific codes of conduct of ethics apply in addition to this Code.
CI Personnel who violate the standards in this Code will be subject to disciplinary action, up to and including the termination of their employment or other relationship with the Company. If you are involved in or have become aware of suspected misconduct, illegal activities, fraud, abuse of the CI Group’s assets or a situation that you believe may violate or lead to a violation of this Code, follow the guidelines described below under “Compliance Procedures”.
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2. | The Code |
Compliance with Laws, Rules, Regulations and CI Policies & Procedures
Obeying the law, both in letter and in spirit, is the foundation on which the CI Group’s ethical standards are built and is critical to our reputation and continued success. All CI Personnel must respect and obey the laws (including the requirements of applicable securities commissions, regulatory authorities and stock exchanges)) of the various jurisdictions in which the CI Group operates and avoid even the appearance of impropriety. You have a duty to know, understand and comply with any of those laws, rules and regulations which apply to your employment duties and responsibilities. To fulfill this duty, you have an obligation to seek advice from supervisors, department heads or other appropriate personnel as necessary. The CI Group’s Legal Department (“Legal”) is always available to assist CI Personnel in determining applicable legal and regulatory requirements. You may contact Legal via an e-mail to legal@ci.com.
All CI Personnel must also abide by CI Group’s policies and procedures. This includes corporate policies and procedures and those of our wholly-owned entities. Failure to abide by the laws, rules, regulations and CI’s policies and procedures may result in sanctions against either/both CI Personnel and CI Group. Individuals who fail to comply may be disciplined, up to and including termination of employment.
Conflicts of Interest
The Company expects CI Personnel to avoid situations where personal interests could conflict, or appear to conflict, with their duties and responsibilities or the interests of the Company. A conflict of interest may exist when a person’s private interests have an adverse effect on the employee’s motivation or the proper performance of their job or affects a person’s judgement or ability to act in the best interests of the Company. CI Personnel may also find it difficult to perform their work for the CI Group objectively and effectively if they or members of their families have received improper personal benefits through their position within the CI Group.
It is almost always a conflict of interest for CI Personnel to work at the same time for a competitor or a person with whom the CI Group has a business relationship. CI Personnel are not allowed to work for a competitor as a consultant or board member. The best policy is to avoid any direct or indirect business relationship (except on behalf of the CI Group) with competitors of the CI Group or persons with whom the CI Group has business relationships. Other examples of conflicts could include, but are not limited to: accepting personal payments from any organization which does business with the CI Group or is a competitor of the CI Group; accepting or giving gifts of more than modest value to or from vendors or clients of the CI Group; competing with the CI Group for the purchase or sale of property, services or other interests or taking personal advantage of an opportunity in which the CI Group has an interest; personally having immediate family members who have a financial interest in a firm which does business with the CI Group; and having an interest in a transaction involving the CI Group or a customer, business partner or supplier (not including routine investments in publicly traded companies). CI Personnel must abide by all compliance policies that relate to personal trading.
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Conflicts of interest are prohibited as a matter of CI Group policy, except under guidelines approved by the Board of Directors of the Company, if any. Conflicts of interest may not always be clear-cut. If you have a question, you should consult with your supervisor or department head. Any CI Personnel who become aware of a conflict or potential conflict should bring it to the attention of a supervisor or department head and consult the procedures described below under “Compliance Procedures”.
If the CI Group determines that an employee’s outside work interferes with performance or the ability to meet the requirements of the CI Group, as they are modified from time to time, the employee may be asked to terminate the outside employment if he or she wishes to remain employed by the CI Group. To protect the interests of both the employees and the CI Group, any such outside work or other activity that involves potential or apparent conflict of interest may be undertaken only after disclosure to the CI Group by the employee and review and approval by management.
Confidentiality
CI Personnel must maintain the confidentiality of confidential information entrusted to them by the CI Group and persons with whom the CI Group does business, except when disclosure is authorized by the President, the Chief Executive Officer or the Chief Legal Officer (or other senior legal officer) or is required by applicable laws or regulations. Confidential information includes all non-public information that might be of use to competitors or harmful to the CI Group, its stakeholders or the person to whom it relates if disclosed. The obligation to preserve confidential information continues even after CI Personnel cease to have a relationship with the CI Group. The Company’s Information Technology Acceptable Use Policy has been developed to ensure that all CI Personnel are aware of their responsibilities with respect to confidential information and includes a list of appropriate procedures that should be observed by CI Personnel to protect confidential information.
The CI Group is committed to protecting the privacy of personal information collected, used and disclosed in the conduct of its business. CI personnel must abide by CI’s Privacy Policy.
CI Personnel who have access to confidential information are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of the CI Group’s business. The Company has established an Insider Trading Policy and all CI Personnel must read and abide by this policy.
Knowledge of confidential information about another party gained in the course of work duties for CI Group is protected in the same manner as confidential information about CI Group.
Company Opportunities
CI Personnel are prohibited from taking for themselves personally and/or sharing with third parties opportunities that are discovered through the use of Company property, information or positions without the consent of the President, the Chief Executive Officer or the Chief Legal Officer (or other senior legal officer) and from using Company property, information, or position for improper personal gain. No CI Personnel may compete with the CI Group directly or indirectly. CI Personnel owe a duty to the CI Group to advance its legitimate interests, before their own, when the opportunity to do so arises.
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Anti-Money Laundering (AML)
CI Personnel are required to abide by federal Anti-Money Laundering legislation and regulations. All occurrences of (attempted) suspicious transactions must be immediately reported to the respective entity’s compliance department or Chief AML Officer. Please contact your entity’s Compliance department and/or Chief AML Officer for further information.
Protection and Proper Use of Company Assets
All CI Personnel must endeavour to protect the CI Group’s assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the CI Group’s profitability. Any suspected incident of fraud, theft or other irregularity should be reported immediately to your department head for investigation. CI Group equipment should not be used for non-CI Group business, other than incidental personal use; other use requires pre-approval by an immediate supervisor.
The obligation of CI Personnel to protect the CI Group’s assets includes the CI Group’s proprietary information. Proprietary information includes any information that is not known generally to the public or would be helpful to the CI Group’s competitors. Examples of proprietary information include intellectual property (such as trade secrets, patents, trademarks, and copyrights), business, marketing and service plans, designs, databases, company guides, manuals, client information, salary information and any unpublished financial data and reports. Unauthorized use or distribution of this information violates CI Group policy and could be illegal and result in civil or criminal penalties. The obligation to preserve the confidentiality of proprietary information continues even after CI Personnel cease to have a relationship with the CI Group.
CI Group assets (such as funds, products, corporate information, information system assets, digital communications, internet access, office equipment, tools, supplies, facilities and services) may be used only for legitimate business purposes. CI Group assets may never be used for illegal purposes.
Competition and Fair Dealing
CI Personnel must respect the rights of, and deal fairly with, the CI Group’s investors, suppliers, business partners, competitors, employees and other persons with whom the CI Group has a business relationship. No CI Personnel may take unfair advantage of anyone through illegal conduct, manipulation, concealment, abuse of proprietary information, misrepresentation of material facts or any other intentional unfair-dealing practice. The CI Group seeks to excel and to outperform competitors fairly and honestly through superior performance and not through unethical or illegal business practices or behaviour.
Nor should any CI Personnel act in a manner that may be anti-competitive under competition or anti-trust laws. The CI Group’s Legal Department can assist CI Personnel in determining the application of competition and anti-trust laws to the business activities of CI Personnel.
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Gifts and Entertainment
Offering or receiving any gift, gratuity or entertainment that might reasonably be perceived to unfairly influence a business relationship, or that might be outside of a customary course of business relationship, is a conflict of interest and must be avoided. These guidelines apply at all times and do not change during traditional gift-giving seasons.
No gift or entertainment should ever be offered, given, provided, authorized or accepted by any CI Personnel or their family members unless it is not a cash gift or a gift in securities, is consistent with customary business practices, is not excessive in value, cannot be construed as a bribe or payoff, and does not violate any laws. Strict rules apply when the CI Group does business with governmental agencies and officials, as discussed in more detail below. CI Personnel should discuss with the applicable department head and with their clients or business partners any gifts or proposed gifts about which they have any questions.
Payments to Government Personnel
All CI Personnel must comply with all laws prohibiting improper payments to domestic and foreign officials, as set out in the Company’s Anti-Bribery and Anti-Corruption Policy.
Certain governments have laws regarding business gifts that may be made in connection with government personnel. The promise, offer or delivery to a foreign public official or to any person for the benefit of a foreign public official, either directly or indirectly of a gift, favour, loan, reward or other gratuity/benefit in violation of anti-corruption laws is prohibited. Such an action violates both CI Group policy and is a criminal offence in a number of foreign jurisdictions. Illegal payments must not be made to government officials of any country. The CI Group’s Legal Department can provide guidance to CI Personnel in this area.
Political Donations and Activities
In no circumstances shall any CI Personnel be permitted to use or associate their position or office with the CI Group with any personal political activity or donation or in any circumstances in which any such association could be reasonably inferred.
CI Personnel may choose to become involved in political activities as long as they undertake these activities on their own behalf and may, on a personal level, give to any political party or candidate, but reimbursement by CI Group is prohibited.
Discrimination and Harassment
The diversity of CI Personnel is a tremendous asset. The CI Group is firmly committed to providing equal opportunity in all aspects of employment and ensuring that all stakeholders are treated with respect and dignity. The CI Group will not tolerate any illegal discrimination or harassment of any kind. Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances. CI Personnel are encouraged to speak with their supervisor or the CI Group’s Human Resources Department when a co-worker’s conduct makes them uncomfortable and to report harassment when it occurs, consistent with written policies published by the Human Resources Department.
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Health and Safety
The CI Group strives to provide all CI Personnel with a safe and healthy work environment. All CI Personnel are responsible for maintaining a safe and healthy workplace by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions to an immediate supervisor. Violence and threatening behaviour are not permitted. CI Personnel should refer to the CI Workplace Harassment Policy and the CI Workplace Violence Policy for further information. The use of illegal drugs in the workplace will not be tolerated. CI Personnel should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol.
Accuracy of Company Records and Reporting
All business transactions that CI Personnel have participated in must be properly authorized, properly recorded and supported by accurate documentation in reasonable detail. Books and records must be kept and maintained to fulfill relevant legal requirements. The CI Group requires honest and accurate recording and reporting of information.
The CI Group’s accounting records are relied upon to produce reports for our management, directors, securityholders, governmental agencies and persons with whom the CI Group does business. All of the CI Group’s financial statements and the books, records and accounts on which they are based must appropriately reflect the CI Group’s activities and conform to applicable legal and accounting requirements and to the CI Group’s system of internal controls. Unrecorded or “off the books” funds or assets should not be maintained unless required by applicable law or regulation.
All CI Personnel have a responsibility, within the scope of their positions, to ensure that the CI Group’s accounting records do not contain any false or intentionally misleading entries. The CI Group does not permit intentional misclassification of transaction as to accounts, departments or accounting records. All transactions must be supported by accurate documentation in reasonable detail and recorded in the proper accounts and in the proper accounting period.
Many CI Personnel use business expense accounts, which must be documented and recorded accurately. If CI Personnel are not sure whether a certain expense is legitimate, an immediate supervisor can provide advice.
Business records and communications often become public through legal or regulatory proceedings or the media. CI Personnel should avoid exaggeration, derogatory remarks, guesswork or inappropriate characterizations that can be misunderstood. This requirement applies equally to communications of all kinds, including e-mail, informal notes, internal memos, and formal reports.
Use of Phone, Fax, E-mail and Internet Services
Phone, fax, e-mail and internet services are provided by the CI Group to assist CI Personnel in carrying out their work. Incidental and occasional personal use is permitted, but never for personal gain or any improper purpose. CI Personnel may not access, send or download any information that could be insulting or offensive to another person, such as sexually explicit messages, cartoons, jokes, unwelcome propositions, derogatory messages based on racial or ethnic characteristics or any other messages that could reasonably be viewed as harassment. Activities that require significant system resources, in terms of bandwidth/memory, such as watching of video files, listening to audio files, downloading of large data files and/or any excessive use of system resources for personal use impairs the ability of the CI Group’s system to handle legitimate CI Group business and is prohibited.
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Messages (including voicemail) and computer information sent, received or created by CI Personnel are CI Group property and CI Personnel should recognize that these messages and information are not “private”. Unless prohibited by law, the CI Group reserves the right to access and disclose those messages and information as necessary for its business purposes. CI Personnel should use good judgment and not access or send messages or store any information that they would not want to be seen or heard by others.
CI Personnel are also referred to the CI Group’s internet/e-mail policies published from time to time.
Disclosure
The CI Group is committed to providing timely, factual, accurate, complete and broadly disseminated information, consistent with disclosure requirements under applicable securities laws. The Company has adopted a Disclosure Policy to promote this commitment and a consistent approach to the Company’s disclosure practices. For further details, please consult the Company Disclosure Policy.
No Rights Created
This Code is a statement of the fundamental principles and key policies and procedures that govern the conduct of our business. It is not intended to and does not, in any way, constitute an employment contract or an assurance of continued employment or create any rights in any employee, director, client, supplier, competitor, stockholder or any other person or entity.
3. | Compliance Procedures |
All CI Personnel must work to ensure prompt and consistent action against real or suspected violations of this Code. It is your personal responsibility to (i) become familiar with, and conduct CI Group business in compliance with, applicable laws, rules and regulations and this Code; (ii) treat all CI Group employees, customers and business partners in an honest and fair manner; (iii) avoid situations where your personal interests are, or appear to be, in conflict with the CI Group interests; and (iv) safeguard and properly use the CI Group’s proprietary and confidential information, assets and resources, as well as those of the CI Group’s customers and business partners.
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However, in some situations it is difficult to know right from wrong. Since we cannot anticipate every situation that will arise, it is important that the CI Group has a way to approach a new question or problem. These are the steps to keep in mind:
· | Make sure you have all the facts. In order to reach the right solutions, we must be as fully informed as possible. |
· | Ask yourself: What specifically am I being asked to do? Does it seem unethical or improper? This will help you to focus on the specific question you are faced with and the alternatives you have. Use your judgment and common sense - if something seems unethical or improper, it probably is. |
· | Clarify your responsibility and role. Are you qualified to do what is being asked? In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem. |
· | Discuss the problem with your supervisor or department head. This is the basic guidance for all situations. In many cases, your supervisor or department head will be more knowledgeable about the question, and will appreciate being brought into the decision-making process. Remember that it is their responsibility to help solve problems. |
· | You may report ethical violations in confidence and without fear of retaliation. As described in more detail below, if your situation requires that your identity be kept secret, your anonymity will be protected. The CI Group does not permit retaliation of any kind against employees for good faith reports of ethical violations or breaches of rules, policies, regulations or laws. |
· | Always ask first, act later: If you are unsure of what to do in any situation, seek guidance before you act. |
· | Sources of assistance: If you need any further guidance, please contact Head Office at (416) 364-1145 or 1-800-268-9374 to consult any of the following as you believe appropriate: |
· |
Chief Talent Officer
CI Financial Corp. 15 York Street, Second Floor Toronto, Ontario M5J 0A3 |
· |
President
CI Financial Corp. 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 |
· | Chief Executive Officer |
CI Financial Corp.
2 Queen Street East, Twentieth Floor
Toronto, Ontario M5C 3G7
· |
Chairman of the Board
CI Financial Corp. 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 |
· |
Lead Director of the Board of Directors
CI Financial Corp. c/o 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 |
ci@muir99.com
(The Lead Director’s email is not associated with CI’s email or IT infrastructure)
· | Chief Legal Officer |
CI Financial Corp.
2 Queen Street East, Nineteenth Floor
Toronto, Ontario M5C 3G7
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4. | Reporting any Illegal or Unethical Behaviour |
The CI Group has a strong commitment to the conduct of its business in a lawful and ethical manner. As described above under “Compliance Procedures”, CI Personnel are expected to talk to supervisors, department heads or other appropriate personnel about observed illegal or unethical behaviour and when in doubt about the best course of action in a particular situation. It is the policy of the CI Group not to allow retaliation for reports of misconduct by others made in good faith. It is, at the same time, unacceptable to file a report knowing that it is false. CI Personnel will be protected from retaliation or reprisal if they, in good faith, report actual, suspected or perceived breaches of this Code, or problems with CI Group policies, procedures or controls. CI Personnel are required to cooperate in internal investigations of misconduct. Any individual who has been found to have engaged in retaliation against any CI Personnel for raising, in good faith, a conduct concern or for participating in the investigation of such a concern may be subject to discipline, up to and including termination of employment or other business relationships. If any individual believes that he or she has been subjected to such retaliation, that person is encouraged to report the situation as soon as possible to one of the people detailed in the “Compliance Procedures” section above.
Generally
If you believe that you may have breached this Code or have observed:
· | a breach of this Code by any CI Personnel; or |
· | a serious weakness or deficiency in the CI Group’s policies, procedures or controls which might enable breaches to occur or go undetected, |
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you have a responsibility to the CI Group, your fellow employees and yourself to report it to your supervisor, that employee’s supervisor or to the Head of the Human Resources Department.
Failure to report a known breach of this Code may result in serious consequences. If a problem or irregularity under this Code has been referred to you, you must resolve the issue or refer it appropriately using the chain of communication referred to in this Code.
The CI Group recognizes that, from time to time, you may be uncertain about an appropriate course of action. In all such cases, immediately seek the advice of your supervisor or department head.
Reportable Matters
The CI Group is committed to complying with all applicable legal and regulatory requirements relating to accounting and auditing controls and procedures. CI Personnel are encouraged to report complaints or concerns regarding accounting or auditing matters through any available channels described in this subsection.
In order to facilitate the reporting of complaints and concerns regarding accounting or auditing matters by CI Personnel, the Company’s Audit and Risk Committee (the “Audit Committee”) has established the following procedures for:
(1) | the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, or auditing matters (“Accounting Matters”); and |
(2) | the confidential, anonymous submission by CI Personnel of concerns regarding questionable Accounting Matters, free from discrimination, retaliation or harassment. |
The Company’s Audit Committee is responsible for the oversight of the receipt and treatment of employee complaints and concerns in this area.
This subsection relates to employee complaints and concerns relating to Accounting Matters, including the following:
· | fraud or deliberate error in the preparation, evaluation, review or audit of any financial statement of the CI Group; |
· | fraud or deliberate error in the recording and maintaining of financial records of the CI Group; |
· | deficiencies in or non-compliance with the CI Group’s internal accounting controls; |
· | misrepresentation or false statement to or by a senior officer or accountant of the CI Group regarding a matter contained in the financial records, financial reports or audit reports of the CI Group; |
· | fraud by management or other employees who have a significant role in the CI Group’s internal control over financial reporting; and |
· | deviation from full and fair reporting of the CI Group’s financial condition. |
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CI Personnel may submit complaints or concerns regarding an Accounting Matter to the Chief Legal Officer of the Company, or to the Lead Director, as described in more detail below under “Reporting Procedures”. Contact information for the Chief Legal Officer and Lead Director appears above.
The Company’s Audit Committee is also responsible for the oversight of the receipt and treatment of employee complaints and concerns or other questionable conduct not regarding Accounting Matters (“Non-Accounting Matters” and, together with Accounting Matters, “Reportable Matters”).
Reporting Procedures
CI Personnel may submit complaints or concerns regarding a Reportable Matter to the Chief Legal Officer of the Company or the Lead Director.
CI Personnel wishing to report a complaint or concern on an anonymous basis to the Chief Legal Officer, may do so by regular mail or by delivery marked “CONFIDENTIAL – TO BE OPENED BY ADDRESSEE ONLY”.
CI Personnel making an anonymous report are guaranteed anonymity in the event of self-identification. However, if a complainant fails to identify himself or herself in his or her complaint and the information provided is insufficient, the Company may not be able to adequately investigate and resolve the complaint.
Further information may be required depending on the nature of the issue and the clarity of the information provided. Allegations made anonymously should contain sufficient detail and information so that, if necessary, a meaningful investigation can be conducted.
Reporting to the Lead Director or Others
If any CI Personnel is not comfortable contacting the Chief Legal Officer or believes that the Chief Legal Officer may have a conflict of interest in handling a complaint or concern, or if the Chief Legal Officer is unavailable and the matter is urgent, the CI Personnel may submit his or her complaint or concern by regular mail, by delivery or by email marked “CONFIDENTIAL – TO BE OPENED BY ADDRESSEE ONLY” directly to the Company’s Lead Director whose contact information appears above.
If any CI Personnel would like to contact the Lead Director anonymously, he or she may do so by regular mail, by delivery or by email marked “CONFIDENTIAL – TO BE OPENED BY ADDRESSEE ONLY” to the contact information listed above.
If the matter concerns the CI Group’s investment funds, CI Personnel may submit his or her complaint or concern marked “CONFIDENTIAL – TO BE OPENED BY ADDRESSEE ONLY” directly to the Chairman of the Board of Governors of the investment funds, Mr. James Werry, at James Werry, Chairman of the Board of Governors, CI Investments Inc., c/o 360 Bloor Street East, #804, Toronto, Ontario, M4W 3M3.
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Complaint Handling Procedures
Employee complaints and concerns initially received by the Chief Legal Officer will, as a general matter, be copied (or, if received verbally, summarized) and promptly forwarded to the Lead Director (or, in the absence of the Lead Director, to the Chair of the Audit Committee) unless, in the judgment of the Chief Legal Officer, the complaint or concern, upon initial review, (i) is frivolous or not credible, or (ii) even if valid, would not be material to the Company, its financial statements or its internal controls (collectively “Non-Reportable Matter”).
As soon as reasonably practicable following receipt and initial review of an employee complaint or concern, the Chief Legal Officer or, if applicable, the Lead Director will acknowledge receipt of the complaint or concern to the sender, unless sent anonymously. If a determination has been made that the complaint or concern is a Non-Reportable Matter, the complaint or concern will be acknowledged and such determination may be set forth in such acknowledgement.
Complaints and concerns that are determined to not be a Non-Reportable Matter will be investigated, subject to Audit Committee direction and oversight, as applicable, by the Chief Legal Officer or such other persons, which may include outside counsel, as the appropriate committee determines to be appropriate. Confidentiality will be maintained with respect to all employee complaints to the fullest extent reasonably practicable, consistent with the need to conduct an adequate investigation.
Responsive action to an investigated complaint or concern will be determined in the judgment of the Lead Director or the applicable committee. Any action taken (or the decision not to take any action) shall promptly be communicated to the sender of the complaint or concern, if sent on other than anonymous terms.
The Chief Legal Officer and, as applicable, the Lead Director will maintain a written record of all reported complaints and concerns, including their receipt, acknowledgement, investigation and resolution and shall together prepare or cause to be prepared a periodic (but not less than quarterly) summary report of Reportable Matter complaints for the Audit Committee. Copies of the complaints and concerns (and any summary or written record reflecting them) will be maintained for a period of at least five years from receipt. Any member of the applicable committee shall at any time, upon request, be given prompt access to the complete underlying complaint or concern reflected in any written record.
In accordance with the Company’s policies, retaliation of any kind against any CI Personnel who submits in good faith a complaint or concern regarding a Reportable Matter or who assists in good faith in the investigation (whether by the CI Group or any regulatory authority or law enforcement agency) of any alleged wrongdoing involving a Reportable Matter is strictly prohibited.
Any acts of retaliation should be reported immediately to your supervisor who, in turn, should report the act of retaliation to any of the persons named above. If the employee is uncomfortable reporting to his or her supervisor, believes that his or her supervisor may have a conflict of interest in responding to the retaliation, or the supervisor is unavailable and the matter is urgent, the employee is encouraged to report any act of retaliation to any of the persons named above. Acts of retaliation may result in severe disciplinary action against the individual(s) causing such retaliation, including termination of employment.
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5. | Waivers of the Code |
From time to time, the CI Group may waive certain provisions of this Code. Any waiver of this Code for directors or executive officers of the Company may be made only by the Board of Directors of the Company (or a committee of the Board to whom that authority has been delegated) and will be disclosed promptly as required by law or stock exchange regulation, and may include the filing of a material change report describing the date of the waiver, the parties involved, the reasons of the Board of Directors for approving the waiver or not sanctioning the respective departure and any measures taken by the Board of Directors to address the situation.
Last updated: February 8, 2019
Exhibit 99.44
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CIFinancial July 8, 2019 A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinces of Canada. A copy of the final base shelf prospectus, any amendment to the final base shelf prospectus and any applicable shelf prospectus supplement that has been filed, is required to be delivered with this document. This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final base shelf prospectus, any amendment and any applicable shelf prospectus supplement for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision. |
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Important Information This presentation contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp. (“CI”) and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time. The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward-looking statement after the date on which it is made, whether to reflect new information, future events or otherwise. This presentation contains non-IFRS financial measures, such as free cash flow, net debt, and adjusted EBITDA, that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. However, management uses these financial measures and also believes that most shareholders, creditors, other stakeholders and investment analysts prefer to include the use of these financial measures in analyzing CI’s results. These non-IFRS measures are described and/ or reconciled to the nearest IFRS measure in CI’s Management’s Discussion and Analysis available at www.cifinancial.com. Figures exclude non-controlling interest, where applicable. |
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Agenda •Highlights •Financial results •Business updates: – Sales (retail and institutional) – Wealth management (Assante and Stonegate) – Investment management – Digital strategy •Strategic priorities [ 1 ] |
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S&P 500 & TSX Composite (Total Index Returns, October 1, 2018 - March 31, 2019) •Worst RSP season in more than a decade •~60% decline in industry net sales (Q1-19 vs. Q1-18) •Significant growth in other products TSX S&P 500 Sep ‘18Oct ‘18Nov ‘18Dec ‘18Jan ‘19Feb ‘19Mar ‘19 Source: Bloomberg and IFIC [ 2 ] |
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CI Financial •Executing on long-term strategy •Business continues to operate well •Highest priority is to return to positive net sales •Maintaining strict control over discretionary expenses [ 3 ] |
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Financial Highlights Change [millions, except per share] Q1-2019 Q4-2018 Q1-2018QoQ YoY Average AUM$128,887$129,316$141,8700%-9% Ending AUM$131,309$124,360$139,2236%-6% Assets under advisement $45,644 $41,813 $42,6589% 7% Net income$140.0$140.3$159.00%-12% per share$0.58$0.57$0.592%-2% Free cash flow$143.5$156.5$166.9-8%-14% [ 4 ] |
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SG&A (in $millions) •Reducing spend on mature business and reinvesting in growing lines of business 140 135 132.9 130 125 120 115 128.9 127.3 123.5 126.1 110 Q1-2018Q2-2018Q3-2018Q4-2018Q1-2019 [ 5 ] |
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Free Cash Flow & Return to Shareholders (in $millions) 300 250 200 150 156 153189 100 50 – 167 95 163169 94 61 160 15714461 4544 Q1-18 Q2-18Q3-18Q4-18Q1-19 Free Cash FlowDividendsBuybacks [ 6 ] |
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Debt (in $millions) 1,800 1,500 Gross Debt to EBITDA* 1,4291,444 1,366 1,5041,529 3.00 2.50 1,200 900 600 300 1,053 1,126 Net Debt to EBITDA* 1,2091,255 1,268 2.00 Debt to EBITDA* ratio 1.00 0.50 – Q1-2018 – Q2-2018Q3-2018Q4-2018Q1-2019 Net Debt Gross Debt *Reflects EBITDA adjusted for provisions, where applicable [ 7 ] |
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CI Financial [ 8 ] |
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Canadian Retail Sales (in $millions, excludes closed business) •Industry slowdown •Performance •Asset mix 6,000 4,000 2,000 Redemptions Gross Sales •High sales activity •Product launches positively received – (2,000) (4,000) Q1-2018 Net Sales Q2-2018Q3-2018Q4-2018Q1-2019 [ 9 ] |
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Canadian Institutional Sales (in $millions) •Investment management •Integration of institutional platforms •Shift in asset allocation 1,500 1,000 500 – (500) Q1-2018 Redemptions Gross Sales Net Sales Q2-2018Q3-2018Q4-2018Q1-2019 [ 10 ] |
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GSFM •Shift of assets to retail •Cambridge launched in Australia •Munro successful in Australia and Canada [ 11 ] |
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Assante & Stonegate •Delivering sales results well ahead of industry •High net worth – continued strong growth •Strategic priority: double size of business in five years [ 12 ] |
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Investment Management •Improved 1-year and 3-year performance •Long-term performance remained strong •Conservative positioning reduced volatility for clients over past two quarters [ 13 ] |
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Digital Strategy Core strategy: fully integrated distribution platform No adviceAdvice Supporting technology: [ 14 ] |
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Strategy & Priorities 1)Intend to return to positive net sales 2)Continued expansion of CI’s distribution platform 3)Invest in business, where appropriate 4)Reduce complexity 5)Financial prudence [ 15 ] |
Exhibit 99.45
EXECUTION VERSION
AGENCY AGREEMENT
July 18, 2019
CI Financial Corp.
2 Queen Street East, 20th Floor
Toronto, ON
M5C 3G7
Attention: Darie Urbanky, President and Chief Operating Officer
Dear Sirs/Mesdames:
CIBC World Markets Inc. and National Bank Financial Inc. (collectively, the “Lead Agents”), BMO Nesbitt Burns Inc., Manulife Securities Incorporated, Scotia Capital Inc., TD Securities Inc., Casgrain & Company Limited and GMP Securities L.P. (collectively with the Lead Agents, the “Agents”, and each individually an “Agent”) understand that CI Financial Corp. (the “Corporation”) proposes to issue and sell up to $350,000,000 aggregate principal amount of 3.215% debentures due 2024 (the “Debentures”) of the Corporation. Upon and subject to the terms and conditions contained in this Agreement, the Corporation hereby appoints the Agents, acting severally, as its exclusive agents to solicit offers to purchase Debentures. The Agents hereby severally accept their appointment to act as the Corporation’s exclusive agents in the solicitation of offers to purchase Debentures, and each Agent agrees to use its reasonable best efforts to attempt to sell the Debentures in accordance with the terms and conditions of this Agreement.
We understand that the Corporation has prepared and filed with the Ontario Securities Commission (the “Reviewing Authority”) and the other Securities Commissions in accordance with National Instrument 44-101 – Short Form Prospectus Distributions (“NI 44-101”) and National Instrument 44-102 – Shelf Distributions (“NI 44-102”, and, collectively with NI 44-101, the “Shelf Procedures”), a (final) unallocated short form base shelf prospectus dated December 22, 2017 relating to the offering of up to $2,000,000,000 aggregate initial offering price of unsecured debt securities, subscription receipts, preference shares and common shares of the Corporation (in the English and French languages, as applicable, the “Base Prospectus”) and has obtained from the Reviewing Authority a Decision Document for the Base Prospectus for and on behalf of itself and each of the other Securities Commissions pursuant to National Policy 11-202 – Process for Prospectus Reviews in Multiple Jurisdictions (“NP 11-202”).
The Agents will solicit offers in each of the provinces of Canada (collectively, the “Qualifying Jurisdictions”). Offers to purchase the Debentures solicited by any Agent will be subject to acceptance by the Corporation and to the requirements of applicable Securities Laws or other applicable Laws. The Corporation will have the sole right to accept offers to purchase Debentures and reserves the right to withdraw, cancel or modify the offer made pursuant to the Prospectus Supplement and may, in its absolute discretion, reject any proposed purchase of Debentures, in whole or in part. For greater certainty, the Agents are under no obligation to purchase any Debentures.
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In consideration of the Agents’ services, the Corporation hereby agrees to pay or cause to be paid to the Agents at the Time of Closing, an aggregate fee equal to 0.35% of the aggregate principal amount of the Debentures (the “Agency Fee”).
1. Interpretation
(a) In this Agreement, the following terms shall have the following meanings:
“affiliate” has the meaning given to such term under the Securities Act (Ontario);
“Agency Fee” has the meaning given to that term in the fourth paragraph of this Agreement;
“Agents” has the meaning given to that term in the first paragraph of this Agreement;
“Agreement” means the agreement resulting from the appointment by the Corporation of the Agents and the Agents’ acceptance hereunder, and the terms “hereof”, “hereunder” and similar expressions refer to this Agreement and not to any particular Section or other portion hereof, as the same may be amended, restated, supplemented or otherwise modified from time to time;
“Authorization” means any certificate, consent, order, permit, approval, consent, waiver, licence, qualification, registration or similar authorization of any Governmental Body having jurisdiction over a person or property;
“Base Prospectus” has the meaning given to that term in the second paragraph of this Agreement;
“Beneficiaries” has the meaning given to that term in Section 12(f);
“Business” means the business carried on by the Corporate Entities taken as a whole on a consolidated basis;
“business day” means a day, other than a Saturday, Sunday or a day on which chartered banks are not open for business in Toronto, Ontario;
“Claim” has the meaning given to that term in Section 12(a);
“Closing Date” means July 22, 2019;
“Contract” means any agreement, indenture, mortgage, charge, contract, lease, offer to lease, agreement to lease, deed of trust, licence, option, warrant, note agreement, loan agreement, instrument, collective agreement, or other binding commitment or understanding, whether written or oral;
“Corporate Entities” means the Corporation and the Principal Subsidiaries;
“Corporation” has the meaning given to that term in the first paragraph of this Agreement and includes any successors or assigns;
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“DBRS” has the meaning given to that term in Section 4(f);
“Debenture Marketing Materials” means the following written documents that constitute the Template Version of Marketing Materials that are required to be filed with the Securities Commissions in accordance with the Shelf Procedures: (i) CI Financial Corp. Indicative Term Sheet dated July 18, 2019, (ii) CI Financial Corp. Final Term Sheet dated July 18, 2019 and (iii) the investor presentation entitled “CI Financial” dated July 8, 2019;
“Debentures” has the meaning given to that term in the first paragraph of this Agreement;
“Decision Document” means a receipt for the Base Prospectus issued by or on behalf of the Securities Commissions in accordance with the Passport System;
“distribution” means “distribution” or “distribution to the public”, as the case may be, for the purposes of applicable Securities Laws;
“Documents Incorporated by Reference” means the documents incorporated by reference in the Prospectus;
“Financial Data” has the meaning given to that term in Section 4(c)(iv)(A);
“Financial Information” means the following information set forth in the Prospectus or the Documents Incorporated by Reference (and corresponding information in other Offering Documents):
(i) | the audited comparative consolidated financial statements of the Corporation for the year ended December 31, 2018, together with the notes thereto and the auditors’ report thereon; |
(ii) | the management’s discussion and analysis of operating results and financial position of the Corporation for the year ended December 31, 2018; |
(iii) | the unaudited condensed consolidated financial statements of the Corporation for the three months ended March 31, 2019, together with the notes thereto; |
(iv) | the management’s discussion and analysis of operating results and financial position of the Corporation for the three months ended March 31, 2019; and |
(v) | the sections “Earnings Interest Coverage” and “Consolidated Capitalization” appearing in the Prospectus; |
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“Governmental Body” means any:
(i) | multinational, federal, provincial, municipal, local or other governmental or public department, regulatory authority, central bank, court, commission, board, bureau, agency or instrumentality, domestic or foreign; |
(ii) | subdivision or authority of any of the foregoing; or |
(iii) | quasi-governmental, or self-regulatory organization; |
“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board, which were adopted by the Canadian Accounting Board as Canadian generally accepted accounting principles applicable to publicly accountable enterprises;
“Indemnified Parties” has the meaning given to that term in Section 12(a);
“Indemnifying Party” has the meaning given to that term in Section 12(a);
“Laws” means any and all applicable laws, including all statutes, codes, ordinances, decrees, rules, regulations, municipal by-laws, judicial or arbitral or administrative or ministerial or departmental or regulatory judgments, orders, decisions, rulings or awards, or policies or guidelines of (or issued by) Governmental Bodies, or Authorizations binding on or affecting the person referred to in the context in which the word is used;
“Lead Agents” has the meaning given to the term in the first paragraph of this Agreement;
“Marketing Materials” has the meaning given to that term in NI 41-101;
“Material Adverse Change” means a material adverse change (whether actual, anticipated, contemplated, proposed, or threatened), financial or otherwise, in the operating, financial or physical condition of the Business, or capital of the Corporate Entities, taken as a whole on a consolidated basis, in each case from that in effect at the time of filing the Prospectus;
“material change”, “material fact” and “misrepresentation” have the respective meanings given to them under applicable Securities Laws of the Qualifying Jurisdictions;
“NI 41-101” means National Instrument 41-101 – General Prospectus Requirements;
“NI 44-101” has the meaning given to that term in the second paragraph of this Agreement;
“NI 44-102” has the meaning given to that term in the second paragraph of this Agreement;
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“NP 11-202” has the meaning given to that term in the second paragraph of this Agreement;
“Offering” means the offering of the Debentures under the Prospectus;
“Offering Documents” means, collectively, the Prospectus and any Supplementary Material;
“Passport System” means the prospectus review procedures provided for under NP 11-202;
“person” means and includes any individual, general partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation (with or without share capital), joint stock company, association, trust, trust company, bank, pension fund, trustee, executor, administrator or other legal personal representative, Governmental Body or other organization or entity, whether or not a legal entity, however designated or constituted;
“Principal Subsidiaries” means, collectively, CI Investments Inc. and Assante Wealth Management (Canada) Ltd. and “Principal Subsidiary” means any one of them;
“Prospectus” means, collectively, the Base Prospectus and the Prospectus Supplement, including the Documents Incorporated by Reference;
“Prospectus Supplement” means the prospectus supplement dated July 18, 2019 relating to the issuance of the Debentures;
“Qualifying Jurisdictions” has the meaning given to that term in the third paragraph of this Agreement;
“Reviewing Authority” has the meaning given to that term in the second paragraph of this Agreement;
“S&P” has the meaning given to that term in Section 4(f);
“Securities Commissions” means, collectively, the securities commission or securities regulatory authority in each of the Qualifying Jurisdictions;
“Securities Laws” means, collectively, the securities Laws of each of the Qualifying Jurisdictions and the respective regulations and rules made under those securities Laws together with all published policy statements, instruments, blanket orders and rulings of the Securities Commissions and all discretionary orders or rulings, if any, of the Securities Commissions made in connection with the transactions contemplated by this Agreement and the Prospectus, together with the policy statements of the Canadian Securities Administrators;
“Selling Group” has the meaning given to that term in Section 3(a);
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“Series Supplement” means the supplement to the Trust Indenture creating the Debentures;
“Shelf Procedures” has the meaning given to that term in the second paragraph of this Agreement;
“Supplementary Material” means, collectively, any amendment or supplement to the Prospectus;
“Tax Act” means the Income Tax Act (Canada) and the regulations thereunder, as amended;
“Template Version” has the meaning given to that term in NI 41-101;
“Time of Closing” means 8:00 a.m. (Toronto time) on the Closing Date, or any other time on the Closing Date as may be agreed to by the Corporation and the Agents;
“Trustee” means Computershare Trust Company of Canada, a corporation duly registered to carry on the business of a trust corporation in each of the provinces and territories of Canada; and
“Trust Indenture” means the trust indenture to be dated on or about the Closing Date, as supplemented from time to time, between the Corporation and the Trustee pursuant to which the Debentures are to be issued.
(b) All dollar amounts in this Agreement are expressed in Canadian currency.
(c) The division of this Agreement into Sections and the insertion of headings is for convenience of reference only and shall not affect the construction or interpretation hereof. Except as expressly provided herein, references to a Section or Schedule are references to a Section of or Schedule to this Agreement.
(d) Words importing the singular number shall include the plural and vice versa, and words importing any gender shall include all genders. The term “including” means “including without limitation”.
2. Filing of Prospectus Supplement
(a) The Corporation shall as soon as possible and in any event not later than 11:00 p.m. (Toronto time) on July 18, 2019 comply with the Shelf Procedures to prepare and file the Prospectus Supplement with the Securities Commissions in each of the Qualifying Jurisdictions.
(b) Until the distribution of the Debentures has been completed, the Corporation will promptly take, or cause to be taken, all additional steps and proceedings that are in its power to take or cause to be taken and which may from time to time be required under the Securities Laws to continue to qualify the distribution of the Debentures in the Qualifying Jurisdictions or, if the Debentures have, for any reason, ceased to so qualify, to again qualify the Debentures, as applicable, for distribution in each of the Qualifying Jurisdictions.
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(c) Prior to the filing of the Prospectus Supplement and any Supplementary Material, the Corporation shall have permitted the Agents to review each of the Prospectus Supplement and such Supplementary Material and shall have allowed the Agents to conduct any due diligence investigations which each of them reasonably requires in order to fulfil its obligations as an agent under Securities Laws and in order to enable it to responsibly execute the certificate in the Prospectus Supplement and such Supplementary Material required to be executed by it where applicable. Following the filing of the Prospectus Supplement and prior to the completion of the distribution of the Debentures, the Corporation shall allow each of the Agents to conduct any due diligence investigations which any of them reasonably requires to confirm as at any date that it continues to have reasonable grounds for the belief that the Prospectus does not contain a misrepresentation as at such date.
3. Distribution and Certain Obligations of Agents
(a) During the course of the distribution of the Debentures to the public by or through the Agents, the Agents will solicit offers for the Debentures from the public only in those jurisdictions where they may be lawfully offered for sale or sold. The Agents will comply with applicable Securities Laws in connection with the distribution of the Debentures. The Agents will not, directly or indirectly, solicit offers to purchase the Debentures or deliver any Offering Document in any jurisdiction other than the Qualifying Jurisdictions. Each Agent will cause similar undertakings to be contained in any agreements entered into among the members of the banking, selling or other groups formed for the distribution of the Debentures (collectively, the “Selling Group”), if any, and will cause each member of such Selling Group to comply with applicable Securities Laws.
(b) The Agents will complete and will use their reasonable best efforts to cause members of their Selling Group, if any, to complete the distribution of the Debentures as soon as practicable after the Time of Closing. The Agents will notify the Corporation as soon as practicable and in any event within 10 days following the date when, in the Agents’ opinion, the Agents and the members of their Selling Group, if any, have ceased the distribution of the Debentures and will provide the Corporation with a written breakdown of the number of Debentures distributed in each of the Qualifying Jurisdictions where that breakdown is required by the relevant Securities Commission for the purpose of calculating fees payable to that Securities Commission.
(c) For the purposes of this Section 3, the Agents will be entitled to assume that the Debentures are qualified for distribution in each Qualifying Jurisdiction in respect of which the Decision Document has been obtained unless the Agents receive written notice to the contrary from the Corporation.
(d) Each of the Agents hereby severally represents, warrants and covenants and will require each member of the Selling Group to represent, warrant and covenant to the Agents that: (a) other than the Prospectus and the Debenture Marketing Materials (modified as permitted by sections 9A.3(2) and 9A.3(3) of NI 44-102), it has not provided, and will not without the prior written approval of the Corporation and the Lead Agents, on behalf of the Agents, provide, any information in respect of the Debentures to any potential investors including, without limitation: (i) Marketing Materials in respect of the Debentures; and (ii) a standard term sheet in respect of the Debentures; and (b) it will provide a copy of the Base Prospectus and any Supplementary Material that has been filed with any Marketing Materials (including the Debenture Marketing Materials) that are provided to a potential investor.
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(e) Each of the Agents hereby severally represents and warrants that the Corporation is not a “related issuer” or “connected issuer” of it; except that each of CIBC World Markets Inc., National Bank Financial Inc. and TD Securities Inc. is the subsidiary of a Canadian chartered bank or other financial institution that is a lender to the Corporation. For the purposes of this Section 3(e), “related issuer” and “connected issuer” have the meanings ascribed thereto in National Instrument 33-105 – Underwriting Conflicts.
(f) No Agent will be liable to the Corporation under this Section 3 with respect to a default by any of the other Agents.
4. Delivery of Prospectus and Related Matters
(a) The Corporation shall deliver promptly to the Agents copies of the Prospectus Supplement and the Base Prospectus in the English and French languages, signed and certified as required by Securities Laws. The Corporation shall prepare and deliver promptly to the Agents copies of all Supplementary Material in the English and French languages, as applicable, signed and certified as required under Securities Laws and accompanied by documents corresponding to those referred to in Section 4(c).
(b) Each delivery of an Offering Document by the Corporation to the Agents shall constitute the consent of the Corporation to the use by the Agents and the members of their Selling Group, if any, of such Offering Document in connection with the Offering of the Debentures and shall constitute the representation and warranty of the Corporation to the Agents that, at the respective times of such delivery:
(i) | all information and statements (except information and statements relating solely to the Agents and provided by the Agents in writing expressly for inclusion therein) contained therein: |
(A) | are true and correct in all material respects and contain no misrepresentation; and |
(B) | constitute full, true and plain disclosure of all material facts relating to the Debentures and to the Corporate Entities considered as a whole; |
(ii) | such document does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made; and |
(iii) | such document complies in all material respects with Securities Laws at the time filed. |
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(c) Prior to or concurrently with the filing of the Prospectus Supplement, the Corporation shall deliver to the Agents, without charge:
(i) | a copy of any other document required to be filed by the Corporation under the Securities Laws in connection with the Offering; |
(ii) | a translation opinion from Québec counsel to the Corporation dated the date of this Agreement, in form and substance satisfactory to the Agents, addressed to the Agents, the Corporation and their respective counsel, to the effect that (A) except for the Financial Information contained in the English language version of the Prospectus (as to which no opinion need be expressed by Québec counsel), the French language version of the Prospectus is in all material respects a complete and proper translation of the English language version thereof, and (B) at the Closing Date, all Laws of the Province of Québec relating to the use of the French language will have been complied with in connection with the Prospectus, and the sale of the Debentures to purchasers in the Province of Québec if such purchasers receive copies of the French language version or French and English language versions of the Prospectus and forms of order and confirmation of sale in the French language only or in the French and English languages, provided that the English language version of the Prospectus and such forms of order and confirmation in the English language may be delivered, without delivery of the French language versions thereof, if expressly requested by the purchaser in writing; |
(iii) | an opinion from the auditors of the Corporation, dated the date of this Agreement, in form and substance satisfactory to the Agents, addressed to the Agents, the Corporation and their respective counsel, to the effect that the Financial Information contained in the French language version of the Prospectus includes the same information and in all material respects carries the same meaning as the English language version of the Financial Information; and |
(iv) | a “long-form” comfort letter of the auditors of the Corporation dated the date of this Agreement, in form and substance satisfactory to the Agents and their counsel and addressed to the Agents, based on a review completed not more than two business days prior to the date of the letter, verifying certain financial and accounting information relating to the Corporation in the Prospectus, including all Documents Incorporated by Reference, and any Supplementary Material, including: |
(A) | relating to the verification of the financial information and statistical and accounting data (other than industry data derived from industry sources) (collectively, the “Financial Data”) contained in the “circle up” of the Prospectus, the Documents Incorporated by Reference and any Supplementary Material and matters involving changes or developments since the respective dates as of which such Financial Data is given in the Prospectus, the Documents Incorporated by Reference or the Supplementary Material, as the case may be; and |
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(B) | to the effect that the auditors are independent public accountants as required by Securities Laws, which letter will be in addition to the consent letters addressed by the auditors to the Securities Commissions in the Qualifying Jurisdictions or contained in the Prospectus. |
(d) Opinions, comfort letters and other documents substantially similar to those referred to in Section 4(c) of this Agreement will be delivered to the Agents, the directors of the Corporation and their respective counsel with respect to any Supplementary Material concurrently with the filing of such Supplementary Material with the Securities Commissions.
(e) During the period commencing on the date hereof and ending on the date of completion of the distribution of the Debentures, the Corporation will promptly provide to the Agents and their counsel drafts of any press releases of the Corporation relating to any of the Corporate Entities, the Offering or the Business, for review and approval by the Agents and their counsel prior to issuance, such approval not to be unreasonably withheld.
(f) Concurrently with the execution of this Agreement, the Corporation shall have delivered to the Agents provisional confirmation from (i) Standard & Poor’s Ratings Services (“S&P”) of a “BBB+” credit rating for the Debentures and a provisional credit rating of “BBB+” with a “Negative” outlook for the Corporation, and (ii) DBRS Limited (“DBRS”) of a “BBB(high)” rating with a “Negative” trend for the Debentures.
5. Material Change
(a) The Corporation will promptly inform the Agents in writing during the period prior to the completion of the distribution of the Debentures of the full particulars of:
(i) | any Material Adverse Change; |
(ii) | any material fact which has arisen or has been discovered that would have been required to have been stated in an Offering Document had that fact arisen or been discovered on or prior to the date of such Offering Document; and |
(iii) | any change in any material fact contained in any of the Offering Documents or whether any event or state of facts has occurred after the date of this Agreement, which, in any case, could render any of the Offering Documents untrue or misleading in any material respect or result in a misrepresentation in any of the Offering Documents. |
(b) During the period prior to the completion of the distribution of the Debentures, the Corporation will comply with section 57 of the Securities Act (Ontario) and with the comparable provisions of other Securities Laws, and the Corporation will prepare and file promptly at the request of the Agents any Supplementary Material which, in the opinion of the Agents, may be necessary or advisable, and will otherwise comply with all legal requirements necessary to continue to qualify the Debentures for distribution in each of the Qualifying Jurisdictions.
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(c) In addition to the provisions of Sections 5(a) and 5(b), the Corporation will, in good faith, discuss with the Lead Agents any change, event or fact contemplated in Section 5(a) which is of such a nature that there may be reasonable doubt as to whether notice should be given to the Agents under Section 5(a) and will consult with the Agents with respect to the form and content of any Supplementary Material proposed to be filed by the Corporation, it being understood and agreed that no such Supplementary Material will be filed with any Securities Commission prior to the review and approval of such Supplementary Material by the Agents and their counsel (such approval not to be unreasonably withheld).
(d) During the period commencing on the date hereof and ending on the date the Agents notify the Corporation of the completion of the distribution of the Debentures, the Corporation will, and will cause each of the Corporate Entities to, promptly inform the Agents of the full particulars of: (i) any request of any Securities Commission for any amendment to the Prospectus or any Supplementary Material or for any additional information in connection with the Offering; and (ii) any notice or other correspondence received by any of them from any Governmental Body commencing or threatening any investigation into any of the Corporate Entities or their businesses.
6. Regulatory Approvals
The Corporation will, and will cause each of the Corporate Entities to, make all necessary filings and obtain all necessary regulatory consents and approvals, if any, and the Corporation will pay or cause to be paid by the other Corporate Entities all filing fees required to be paid in connection with the transactions contemplated by this Agreement.
7. Representations and Warranties of the Corporation
(a) The Corporation represents and warrants to the Agents and acknowledges that the Agents are relying upon the following representations and warranties in entering into this Agreement and completing the transactions contemplated hereunder:
(i) | the Corporation is a corporation duly created and validly existing as a corporation under the Business Corporations Act (Ontario) and has all requisite power, capacity and authority to own or lease and to manage its properties and assets and to conduct the Business, all as contemplated in the Prospectus; |
(ii) | the Corporation is a reporting issuer in each of the provinces of Canada and is not in default of any requirement under Securities Laws; |
(iii) | each Principal Subsidiary is a subsidiary of the Corporation that is material to the operations of the Business and each Principal Subsidiary is an entity duly formed and validly existing under the Laws of the jurisdiction of its formation; |
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(iv) | all of the equity securities of each of the Corporate Entities outstanding on the date hereof have been duly authorized and validly issued as fully paid and, to the extent applicable, non-assessable; |
(v) | the Business has been and is being operated by the Corporate Entities in compliance in all material respects with all Laws and Authorizations and all such Authorizations are valid and existing and in good standing, except where such failure to be valid, existing and/or in good standing would not have a material adverse effect on the Corporate Entities taken as a whole, and none of them contains any term, provision, condition or limitation which has a material adverse effect on the Corporate Entities taken as a whole; |
(vi) | each of the Corporate Entities has conducted and is conducting its Business in compliance with the terms and provisions of its constating and organizational documents in all material respects; |
(vii) | this Agreement has been, and prior to the Time of Closing the Trust Indenture and the Series Supplement will be, duly authorized, executed and delivered by the Corporation and constitute legal, valid and binding obligations of the Corporation enforceable in accordance with their respective terms, except where enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally and general principles of equity; |
(viii) | the issuance of the Debentures by the Corporation to be distributed by the Agents in accordance with the terms of this Agreement has been authorized by all necessary action of the Corporation; |
(ix) | no Authorization is required by any of the Corporate Entities for the execution and delivery of and the performance by the Corporation of its obligations under this Agreement, the Trust Indenture or the Series Supplement, as applicable, or the creation, issue, sale and distribution of the Debentures, except as may be required under the Securities Laws which shall have been obtained on or before the Time of Closing; |
(x) | none of (i) the execution and delivery of this Agreement, the Trust Indenture, the Series Supplement and any other document or instrument to be executed and delivered by the Corporation pursuant hereto or thereto; (ii) the performance and compliance with the terms of this Agreement, the Trust Indenture and the Series Supplement, and any document or instrument to be executed and delivered by the Corporation pursuant hereto; or (iii) the issue and sale of the Debentures, would result in any breach of, or be in conflict with or constitute a default under or create a state of facts which (whether after notice or lapse of time or both) would constitute, in any material respect, a default under or breach of, and none of the Corporate Entities is in default under or in breach of, (A) the terms, conditions or provisions of their respective constating or organizational documents, or any resolution of their respective trustees, directors, unitholders, partners or shareholders, as applicable; (B) any material Contract to which any of such person is a party or by which its or their respective property or assets are bound (except where such breach or default would not have a material adverse effect on the Corporate Entities, taken as a whole, or the Offering); or (C) any judgment or Law applicable to any of them, including the Securities Laws (except where such breach or default would not have a material adverse effect on the Corporate Entities, taken as a whole, or the Offering); |
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(xi) | the Corporation has obtained or will, on or prior to the Closing Date, obtain all required third party consents under its Contracts and constating documents in connection with the transactions contemplated by this Agreement and the Prospectus, where the failure to obtain such consent would individually or in the aggregate, result in a material adverse effect on the Corporate Entities, taken as a whole, or the Offering; |
(xii) | the Corporation has prepared and filed with the Securities Commissions, in accordance with the Shelf Procedures, the Base Prospectus and has obtained from the Reviewing Authority a Decision Document for the Base Prospectus. The aggregate initial offering amount of all securities issued pursuant to the Base Prospectus does not and, upon completion of the Offering, will not exceed $2,000,000,000, being the maximum allowable amount thereunder. The Corporation is eligible to use the Shelf Procedures; |
(xiii) | the consolidated financial statements of the Corporation incorporated by reference in the Prospectus have been prepared in all material respects in accordance with IFRS and the Securities Laws and present fairly and accurately the financial condition and position, results of operations, cash flows and all of the assets and liabilities of the Corporation on a consolidated basis; |
(xiv) | other than as disclosed in the Financial Information, there are no off-balance sheet transactions, arrangements, obligations (including contingent obligations) or other relationships of any of the Corporate Entities with unconsolidated entities or other persons that would or would reasonably be expected to have a material adverse effect on (i) the Corporate Entities, taken as a whole, or (ii) the liquidity, capital, capital resources, or significant components of revenues or expenses of the Corporation; |
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(xv) | except as disclosed in the Prospectus, none of the Corporate Entities has any contingent liabilities, in excess of the liabilities that are either reflected or reserved against in the Financial Information, which would or would reasonably be expected to have a material adverse effect on (i) the Corporate Entities, taken as a whole, or (ii) the liquidity, capital, capital resources, or significant components of revenues or expenses of the Corporation; |
(xvi) | the Corporation maintains a system of internal controls over financial reporting (as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings) sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS; |
(xvii) | except as disclosed in the Prospectus, there has not occurred any material change, financial or otherwise, in the assets, liabilities (contingent or otherwise), business, financial condition or capital of the Corporate Entities, taken as a whole, since December 31, 2018; |
(xviii) | Ernst & Young LLP, who reported on or reviewed the financial statements of the Corporation included in the Prospectus, are independent with respect to the Corporation, as required by applicable Securities Laws; |
(xix) | each of the Corporate Entities has, on a timely basis, filed all necessary tax returns and notices and has paid or made provision for all applicable taxes of whatever nature for all tax years to the date hereof to the extent such taxes have become due or have been alleged to be due except to the extent that the failure to do any of the foregoing would not be expected to have a material adverse effect on the Corporate Entities, taken as a whole; and the Corporation has no knowledge of any material tax deficiencies or material interest or penalties accrued or accruing or alleged to be accrued or accruing thereon with respect to itself or any subsidiary which have not otherwise been provided for by the Corporation, except to the extent that any such deficiency, interest or penalty would not be expected to have a material adverse effect on the Corporate Entities, taken as a whole; |
(xx) | the proceeds of the Offering will be used in the manner specified in the Prospectus and for no other purpose; |
(xxi) | other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which any Corporate Entity is a party or of which any property or assets of the Corporate Entities is the subject which, if determined adversely to the Corporate Entities, would have a material adverse effect on the assets, liabilities (contingent or otherwise), business, financial condition or capital of the Corporate Entities taken as a whole and, to the best of the Corporation’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or others; |
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(xxii) | no acquisitions have been made by the Corporate Entities that are “significant acquisitions” for which the Corporation is required to file a “business acquisition report” (as such terms are defined in National Instrument 51-102 – Continuous Disclosure Obligations) (other than such as have been filed prior to the date hereof) and none of the Corporate Entities is a party to any Contract with respect to any transaction that would constitute a “proposed acquisition”, in each case which would require disclosure in the Prospectus in accordance with NI 44-101; |
(xxiii) | there has not been any reportable event (within the meaning of National Instrument 51-102 – Continuous Disclosure Obligations) with the auditors of the Corporation; and |
(xxiv) | except as disclosed in the Prospectus and contemplated hereby, there is no person acting or purporting to act at the request of any of the Corporate Entities who is entitled to any brokerage or agency fee in connection with the transactions contemplated by the Prospectus. |
8. Covenants of the Corporation
(a) The Corporation covenants and agrees with each of the Agents that the Corporation:
(i) | will advise the Agents promptly after receiving notice that the Prospectus and any Supplementary Material have been filed and receipts have been obtained therefor, if and as applicable, and will provide evidence satisfactory to the Agents of each such filing and the issuance of such receipts; |
(ii) | will advise the Agents promptly after receiving notice or obtaining knowledge of: |
(A) | the issuance by any Securities Commission of any order suspending or preventing the use of any Offering Document; |
(B) | the suspension of the qualification of the Debentures for offering or sale in any of the Qualifying Jurisdictions; |
(C) | the institution, threatening or contemplation of any proceeding for any of the purposes described in (A) or (B); or |
(D) | any requests made by any Securities Commission to amend or supplement the Prospectus or for additional information, and it will use its reasonable best efforts to prevent the issuance of any such order or request and, if any such order or request is issued, to obtain the withdrawal of such order or request as promptly as possible; and |
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(iii) | will use its reasonable best efforts to promptly do, make, execute, deliver or cause to be done, made, executed or delivered, all such acts, documents and things as the Agents may reasonably require from time to time for the purpose of giving effect to this Agreement and the transactions contemplated by the Prospectus and take all such steps as may be reasonably within its or their power to implement to the full extent the provisions of this Agreement and the transactions contemplated by the Prospectus. |
9. Survival of Representations, Warranties and Covenants
(a) All of the representations, warranties and covenants of the Corporation contained in this Agreement or in agreements, certificates or other documents referred to in this Agreement or delivered pursuant to this Agreement shall survive the distribution of the Debentures and the termination of this Agreement and such representations, warranties and covenants shall survive in full force and effect for the benefit of the Agents for a period of three years after the Closing Date, regardless of any subsequent disposition of the Debentures or any investigation by or on behalf of the Agents with respect thereto.
(b) Notwithstanding anything to the contrary in Section 9(a), in the case of any fraud or fraudulent misrepresentation of the Corporation, the representations, warranties and covenants of the Corporation contained in this Agreement or in agreements, certificates or other documents referred to in this Agreement or delivered pursuant to this Agreement shall survive the distribution of the Debentures and the termination of this Agreement and shall remain in full force and effect indefinitely.
10. Conditions of Closing
The obligation of the Agents to sell and distribute any of the Debentures will be subject to the following conditions, which are for the exclusive benefit of the Agents, and any of the following conditions may be waived, in whole or in part, by the Agents in their sole discretion pursuant to Section 15:
(a) The Agents shall have received at the Time of Closing a legal opinion dated the Closing Date in form and substance and subject to qualifications satisfactory to the Agents and their counsel, acting reasonably, addressed to the Agents and their counsel from the Corporation’s counsel with respect to those matters as the Agents may reasonably request relating to the distribution of the Debentures, including without limitation to the effect that:
(i) | the Corporation is a corporation duly incorporated and validly existing under the Laws of the Province of Ontario; |
(ii) | the Corporation has all requisite corporate power and authority to carry on the Business conducted by it as described in the Prospectus, to own, lease and operate its property and assets, to sign and file each of the Offering Documents and to carry out the transactions contemplated by the Prospectus; |
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(iii) | each Principal Subsidiary is an entity duly formed and validly existing under the Laws of the jurisdiction of its formation; |
(iv) | each of the Corporate Entities has all requisite corporate power and authority to carry on the Business conducted by it as described in the Prospectus and to own, lease and operate its property and assets; |
(v) | all necessary action has been taken by the directors of the Corporation for the Corporation to validly issue and deliver the Debentures; |
(vi) | the attributes of the Debentures are consistent in all material respects with their respective descriptions set forth in the Prospectus; |
(vii) | all necessary action has been taken by the directors of the Corporation to authorize the execution and delivery by the Corporation of this Agreement, and all necessary action has been taken by the directors of the Corporation to authorize the execution and delivery by the Corporation of the Trust Indenture and the Series Supplement, and the performance of the Corporation’s obligations hereunder and thereunder, and this Agreement, the Trust Indenture, the Series Supplement and the certificates representing the Debentures have been duly executed and delivered by the Corporation and constitute legal, valid and binding obligations of the Corporation, enforceable against it in accordance with their terms subject to customary qualifications; |
(viii) | the execution and delivery of this Agreement, the Trust Indenture and the Series Supplement, the fulfillment of the terms hereof and thereof by the Corporation, and the issuance and delivery of the Debentures, do not and will not result in a breach of or a default under, and do not and will not create a state of facts which, after notice or lapse of time or both, will result in a breach of or a default under, and do not and will not conflict with: |
(A) | any of the terms, conditions or provisions of the articles or by-laws of the Corporation; or |
(B) | any Laws of the Province of Ontario or the federal Laws of Canada applicable therein that are applicable to the Corporation; |
(ix) | the Prospectus in both the English and French languages, and the execution and filing of the Prospectus, in both the English and French languages, with the Securities Commissions have been duly approved and authorized by all necessary action on the part of the Corporation, and the Base Prospectus in both the English and French languages, has been duly executed by or on behalf of the Corporation; |
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(x) | all Authorizations under applicable Securities Laws have been obtained, all necessary documents have been filed and all other legal requirements have been fulfilled to qualify the issuance, distribution and sale of the Debentures to the public in each of the Qualifying Jurisdictions through dealers registered under the applicable Laws of each of the Qualifying Jurisdictions who have complied with the relevant provisions of such Securities Laws; |
(xi) | subject to the qualifications, assumptions, limitations and understandings set out therein, the statements as to matters of the federal Laws of Canada set out in the Prospectus under the heading “Certain Canadian Federal Income Tax Considerations” fairly describe the principal Canadian federal income tax considerations as at the date thereof generally applicable under the Tax Act to a prospective purchaser of Debentures pursuant to the Prospectus; |
(xii) | subject to the qualifications, assumptions, limitations and understandings set out in the Prospectus under the heading “Eligibility for Investment”, the Debentures will be qualified as investments under the Tax Act for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax-free savings accounts under the Tax Act; and |
(xiii) | Computershare Trust Company of Canada has been appointed as the trustee with respect to the Debentures under the Trust Indenture and Series Supplement. |
In connection with this opinion, counsel to the Corporation may rely on, or deliver directly, the opinions of local counsel acceptable to the Agents’ counsel, as to form, substance and choice of counsel, acting reasonably, where it deems such reliance proper (or may arrange for the provision of such opinions directly to the Agents and their counsel) and may rely, to the extent appropriate in the circumstances, as to matters of fact on certificates of the auditors of the Corporate Entities, public and stock exchange officials, and, to the extent appropriate in the circumstances, as to matters of fact on certificates of the directors or officers of the Corporation or officers or directors of the Corporate Entities.
(b) The Corporation shall cause each of its auditors to deliver to the Agents a comfort letter, dated the Closing Date, in form and substance satisfactory to the Agents and their counsel, acting reasonably, addressed to the directors of the Corporation and the Agents, bringing forward to a date not more than one business day prior to the Closing Date, the information contained in the comfort letter referred to in Section 4(c)(iv) of this Agreement.
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(c) The Corporation shall deliver to the Agents, at the Time of Closing, a certificate dated the Closing Date, addressed to the Agents and signed by two senior officers of the Corporation, certifying for and on behalf of the Corporation, and not in their personal capacity, after having made due inquiries, with respect to those matters as the Agents may reasonably request, including to the effect that:
(i) | the Corporation has complied with all of the covenants and satisfied all of the terms and conditions of this Agreement on its part to be complied with and satisfied; |
(ii) | subsequent to the respective dates as at which information is given in the Prospectus, there has not been any Material Adverse Change, or any development involving a prospective Material Adverse Change, other than as disclosed in the Offering Documents; |
(iii) | the representations and warranties of the Corporation contained in this Agreement, and in any certificates of the Corporation delivered pursuant to or in connection with this Agreement and arising by reason of the delivery of the Offering Documents, are true and correct in all material respects with the same force and effect as if made at and as of such time, after giving effect to the transactions contemplated by this Agreement and the Prospectus; and |
(iv) | Decision Documents have been obtained in respect of the Base Prospectus and any Supplementary Material, if applicable, and all other necessary documents have been filed, all requisite proceedings have been taken and all other legal requirements have been fulfilled under the Laws of each of the Qualifying Jurisdictions to qualify the issuance and sale of the Debentures to the public in each of the Qualifying Jurisdictions by or through persons who are registered under applicable legislation and who have complied with the relevant provisions of such applicable legislation and no order, ruling or determination having the effect of restricting or ceasing the trading or suspending the sale of the Debentures has been issued and no proceedings for that purpose have been instituted or are pending or, to the knowledge of those senior officers, are contemplated or threatened by any Securities Commission or other regulatory authority; |
and all of those matters will in fact be true and correct as at the Time of Closing.
(d) All actions required to be taken by or on behalf of the Corporation, including the passing of all requisite resolutions of the directors of the Corporation and all requisite filings with any Governmental Body or Securities Commission shall have occurred at or prior to the Time of Closing so as to (i) validly authorize the execution and filing of the Offering Documents and the performance of the obligations of the Corporation hereunder, and (ii) create and issue the Debentures.
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(e) The Agents shall have received from the Corporation at the Time of Closing a copy of a final rating agency letter from each of (i) S&P, confirming a credit rating of “BBB+” for the Debentures, and (ii) DBRS, confirming a rating of “BBB(high)” with a “Negative” trend for the Debentures.
(f) The Corporation shall have complied with all of the terms and conditions of this Agreement on its part to be complied with and satisfied at or prior to the Time of Closing.
(g) The Agents shall have received such other certificates, opinions, agreements, materials or documents, in form and substance satisfactory to the Agents and their counsel, as the Agents or their counsel may reasonably request.
11. Closing
The sale of the Debentures shall be completed at the Time of Closing at the offices of the Corporation’s counsel or at such other place as the Agents and the Corporation may agree upon. At the Time of Closing, the Corporation shall deliver to the Agents evidence of the Debentures issued in book-entry form as certificated Debentures represented by a global certificate, against evidence of payment by the Agents to the Corporation of the aggregate purchase price for the Debentures by wire transfer (to a bank account designated by the Corporation to the Agents at least two business days prior to the Time of Closing) or by other means acceptable to the Corporation, together with a receipt signed by the Agents for such Debentures. The Corporation shall at the Time of Closing pay to the Agents the Agency Fee by wire transfer, or by other means acceptable to the Agents, against the delivery of a receipt for the Agency Fee signed by the Lead Agents.
12. Indemnification
(a) The Corporation (the “Indemnifying Party”) will indemnify and save harmless each of the Agents and their respective affiliates and their respective trustees, directors, officers and employees (collectively, the “Indemnified Parties”) from and against all losses (other than losses of profit in connection with the distribution of the Debentures contemplated under this Agreement), claims, actions, damages or liabilities of whatsoever nature or kind, including the aggregate amount paid in reasonable settlement of any actions, suits, proceedings or claims and the reasonable fees of their counsel in connection with any action, suit, proceeding or claim that may be made against any Indemnified Party (collectively, a “Claim”) which is caused by or arises, directly or indirectly, by reason of:
(i) | any breach of or default under any representation, warranty, covenant or agreement of the Corporation in this Agreement or any other document to be delivered in connection with, or referred to in, this Agreement, or the failure of the Corporation to comply with any of its obligations under this Agreement or under those other documents; |
(ii) | the Corporation not complying with any requirement of any Securities Laws relating to the Offering; |
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(iii) | any information or statement contained in any of the Offering Documents (except any information or statement relating solely to the Agents and furnished by them specifically for use in such documents) being or being alleged to be an untrue statement, omission or misrepresentation; or |
(iv) | any order made or any inquiry, investigation or proceeding instituted, threatened or announced by any court, securities regulatory authority, stock exchange or any other Governmental Body, based upon any untrue statement, omission or misrepresentation or alleged untrue statement, omission or misrepresentation contained in any of the Offering Documents (except an untrue statement, omission or misrepresentation relating solely to the Agents and furnished by them specifically for use in such documents) preventing or restricting the trading in or the sale or distribution of the Debentures; |
and will reimburse the Indemnified Parties for all reasonable costs, charges and expenses, as incurred, which any of the Indemnified Parties may pay or incur in connection with investigating or disputing any Claim or action related thereto, provided that this indemnity shall cease to apply to an Indemnified Party if and to the extent that a court of competent jurisdiction in a final judgment that has become non-appealable shall determine that the Indemnified Party has been grossly negligent or dishonest or has committed any fraudulent act, and the Claim for which indemnification is claimed was directly caused by such gross negligence, dishonesty or fraud. In such event, such Indemnified Party shall reimburse any funds advanced by the Corporation to the Indemnified Party pursuant to the indemnification contained in this Section 12 in respect of such Claim and thereafter this indemnity shall cease to apply to such Indemnified Party in respect of such Claim. For greater certainty, the Corporation and the Agents agree that they do not intend that any failure by the Agents to conduct such reasonable investigation as necessary to provide the Agents with reasonable grounds for believing the Offering Documents contained no misrepresentation shall constitute or be deemed to constitute “gross negligence”, “dishonesty” or “fraud” for purposes of this Section 12 or otherwise disentitle the Agents from indemnification hereunder. This indemnity will be in addition to any liability which the Corporation may otherwise have.
(b) The Indemnifying Party also agrees that no Indemnified Party shall have any liability (either direct or indirect, in contract or tort or otherwise) to the Indemnifying Party or any person asserting Claims on the Indemnifying Party’s behalf or in connection with this Agreement, except to the extent that any Claims incurred by the Indemnifying Party are determined by a court of competent jurisdiction in a final judgment that has become non-appealable to have primarily resulted from the gross negligence, fraud or dishonesty of such Indemnified Party.
(c) The Indemnifying Party hereby waives any rights it may have of first requiring the Indemnified Party to proceed against or enforce any right, power, remedy or security or claim for payment from any other person before making a Claim against an Indemnifying Party under this Section 12.
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(d) If any Claim contemplated by this Section 12 is asserted against any of the Indemnified Parties, or if any potential Claim contemplated by this Section 12 comes to the knowledge of any of the Indemnified Parties, the applicable Indemnified Party will promptly thereafter notify in writing the Indemnifying Party of the nature of the Claim (provided that any failure to so notify in respect of any potential or actual Claim will not affect the liability of the Indemnifying Party under this Section 12). The Indemnifying Party will, subject to the following, be entitled (but not required) to assume the defence on behalf of the Indemnified Party of any suit brought to enforce the Claim; provided that the defence will be through legal counsel selected by the Indemnifying Party and acceptable to the Indemnified Party, acting reasonably, and no admission of liability will be made by the Indemnifying Party or the Indemnified Party without, in each case, the prior written consent of all of the Indemnified Parties and Indemnifying Party affected, which consent will not be unreasonably withheld. An Indemnified Party will have the right to employ separate counsel in any such suit and to participate in its defence but the fees and expenses of that counsel will be at the expense of the Indemnified Party unless:
(i) | the Indemnifying Party fails to assume the defence of the suit on behalf of the Indemnified Party within ten days of receiving notice of the suit; |
(ii) | the employment of that counsel has been authorized by the Indemnifying Party; or |
(iii) | the named parties to the suit (including any added or third parties) include the Indemnified Party and the Indemnifying Party and such Indemnified Party has been advised in writing by counsel that there are legal defences available to the Indemnified Party that are different or in addition to those available to the Indemnifying Party or that representation of the Indemnified Party by counsel for the Indemnifying Party is inappropriate as a result of their potential or actual conflicting interests; |
(in the cases of each of Sections 12(d)(i), (ii) or (iii), the Indemnifying Party will not have the right to assume the defence of the suit on behalf of the Indemnified Party, but in the case of a Claim under Section 12(a), will be liable to pay the reasonable fees and expenses of separate counsel for all Indemnified Parties and, in addition, of local counsel in each applicable jurisdiction). Notwithstanding the foregoing, no settlement may be made by an Indemnified Party without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld.
It is understood that the Indemnifying Party shall, in connection with any one action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate law firm (in addition to any local counsel) at any time for all such Indemnified Parties not having actual or potential differing interests.
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(e) The Indemnifying Party agrees to reimburse the Agents for the time spent by the Agents’ personnel in connection with any Claim at their normal per diem rates. The Indemnifying Party also agrees that if any Claim will be brought against, or an investigation commenced in respect of the Indemnifying Party or the Indemnifying Party and the Agents and personnel of the Agents will be required to testify, participate or respond in respect of or in connection with this Agreement, the Agents will have the right to employ their own counsel in connection therewith and the Indemnifying Party will reimburse the Agents for the time spent by their personnel in connection therewith at their normal per diem rates together with such disbursements and reasonable out-of-pocket expenses as may be incurred, including fees and disbursements of the Agents’ counsel. Such costs shall be reimbursable by the Indemnifying Party as they occur. The Agents will provide copies of all documentation relevant to such Claim or investigation to the Indemnifying Party, keep the Indemnifying Party advised of the progress thereof and discuss with the Indemnifying Party all significant actions proposed with respect thereto.
(f) The Indemnifying Party hereby acknowledges and agrees that, with respect to this Section 12 and Section 13 of this Agreement, the Agents are contracting on their own behalf and as agents for the other Indemnified Parties not party to this Agreement (collectively, the “Beneficiaries”). In this regard, each of the Agents will act as trustee for the Beneficiaries of the covenants of the Indemnifying Party under this Section 12 and Section 13 of this Agreement and accepts these trusts and will hold and enforce those covenants on behalf of the Beneficiaries.
(g) The Indemnifying Party hereby constitutes the Lead Agents as trustees, for each of the other Indemnified Parties as appropriate of the Indemnifying Party’s covenants under this indemnity with respect to those persons and the Lead Agents agree to accept that trust and to hold and enforce those covenants on behalf of those persons.
13. Contribution
(a) In order to provide for just and equitable contribution in circumstances in which an indemnity provided in Section 12 would otherwise be available in accordance with its terms but is, for any reason (other than the reasons specified in Section 12(a)), held to be unavailable to or unenforceable by the Indemnified Parties or enforceable otherwise than in accordance with its terms, the Agents and the Indemnifying Party shall contribute to the aggregate of all Claims of the nature contemplated in Section 12 and suffered or incurred by the respective Indemnified Parties in such proportions as is appropriate to reflect not only the relative benefits received by the Indemnifying Party and the relevant Agents but also the relative fault of the Indemnifying Party and the relevant Agents, as well as any equitable considerations; provided, however, that:
(i) | the Agents shall not in any event be liable to contribute, in the aggregate, any amount in excess of the aggregate fee or any portion thereof actually received in connection with the sale of the Debentures; and |
(ii) | no person who has been negligent or dishonest or engaged in any fraudulent act will be entitled to claim contribution from any person who has not been negligent or dishonest or engaged in any fraudulent act. |
(b) For greater certainty, the Indemnifying Party will not have any obligation to contribute pursuant to this Section 13 in respect of any Claim except to the extent the indemnity given by it in Section 12 of this Agreement would have been applicable to that Claim in accordance with its terms if that indemnity had been found to be enforceable and available to the Indemnified Parties.
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(c) The rights to indemnification and contribution provided in Section 12 and this Section 13, respectively, will be in addition to and not in derogation of any other rights to indemnification or contribution which the Indemnified Parties may have by statute or otherwise at Law, provided that Sections 12, 13(a) and 13(b) will apply, mutatis mutandis, in respect of that other right, and shall be binding upon and enure to the benefit of any successors, assigns, heirs and personal representatives of the Indemnifying Party and the Indemnified Parties.
14. Expenses
Whether or not the distribution of the Debentures is completed, all expenses of or incidental to the transactions contemplated by this Agreement, including the creation, issuance and delivery of the Debentures shall be borne by the Corporation, including without limitation:
(a) all expenses payable in connection with the qualification for distribution of the Debentures under applicable Securities Laws;
(b) the reasonable fees and expenses of the Corporation’s counsel to the Corporate Entities and all local counsel to the Corporation;
(c) all costs incurred in connection with the preparation, translation, filing and printing of the Offering Documents;
(d) all fees and expenses of the Trustee and any agent of the Trustee in connection with the Trust Indenture, the Series Supplement, and the Debentures;
(e) all fees charged by securities rating services for rating the Debentures;
(f) the reasonable fees and disbursements of the Agents’ counsel; and
(g) all other expenses of the Agents incurred in connection with the Offering, including the reasonable out-of-pocket expenses of the Agents;
including Canadian federal goods and services tax and provincial sales tax exigible in respect of any of the foregoing.
15. All Terms to be Conditions
All representations, warranties, covenants and other terms of this Agreement shall be and shall be deemed to be conditions, and any breach or failure to comply with any of them will entitle the Agents (or any of them) to terminate their (or its) obligation(s) to solicit offers to purchase and distribute the Debentures, by written notice to that effect given to the Corporation at or prior to the Time of Closing. It is understood that the Agents may waive, in whole or in part, or extend the time for compliance with, any of those terms and conditions without prejudice to the rights of the Agents in respect of any of those terms and conditions or any other or subsequent breach or non-compliance, provided that to be binding on the Agents any such waiver or extension must be in writing.
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16. Apportionment of Agency Fee
The Agents and the Corporation agree that the Agency Fee will be apportioned as follows: (i) a “step-up fee” equal to 10% of the Agency Fee shall be paid and allocated to the Lead Agents with 60% allocated to CIBC World Markets Inc. and 40% allocated to National Bank Financial Inc.; and (ii) the remainder of the Agency Fee shall paid and allocated to the Agents as follows:
Agent | Fee | |
CIBC World Markets Inc. | 25% | |
National Bank Financial Inc. | 25% | |
BMO Nesbitt Burns Inc. | 10% | |
Manulife Securities Incorporated | 10% | |
Scotia Capital Inc. | 10% | |
TD Securities Inc. | 10% | |
Casgrain & Company Limited | 5% | |
GMP Securities L.P. | 5% |
17. Termination by Agents in Certain Events
(a) In addition to any other remedies which may be available to the Agents, any Agent shall be entitled, at such Agent’s option, to terminate its obligations under this Agreement by written notice to that effect given to the Corporation and the Lead Agents at or prior to the Time of Closing, if:
(i) | any inquiry, investigation or other proceeding is commenced, announced or threatened or any order or ruling is issued under or pursuant to any relevant statute or by any stock exchange or other regulatory authority (unless based upon the activities or alleged activities of the Agents or their agents), or there is any change of Law, or the interpretation or administration thereof, which, in the reasonable opinion of such Agent, operates or could operate to prevent, suspend, hinder, delay, restrict or otherwise materially adversely affect the distribution of or the trading in the Debentures; |
(ii) | there shall occur or be discovered any change as is contemplated by Section 5(a) which, in the reasonable opinion of such Agent, would be expected to have a significant adverse effect on the market price or value of the Debentures; |
(iii) | there should develop, occur or come into effect or existence any event, action, state, condition or major financial occurrence of national or international consequence or any outbreak or escalation of national or international hostilities or any crisis or calamity or act of terrorism or similar event or any governmental action, Law, inquiry or other occurrence of any nature which, in the reasonable opinion of such Agent, materially adversely affects, or involves, or may materially adversely affect, or involve, the financial markets in Canada or the business, operations or affairs of the Corporate Entities taken as a whole or a cease trading order is made or threatened respecting the Corporation by any Securities Commission or other competent regulatory authority; |
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(iv) | there is announced any changes or proposed change in the income tax Laws of Canada or the interpretation or administration thereof and such change would, in the reasonable opinion of such Agent, be expected to have a significant adverse effect on the market price or value of the Debentures; or |
(v) | there occurs a downgrading in the rating applicable to the Debentures by either DBRS (from “BBB(high)” with a “Negative” trend) or S&P (from “BBB+”), or S&P places any of the debt securities of the Corporation on credit watch or publicly announces that it has under surveillance or review, with possible negative implications, its rating of any of the Corporation’s debt securities. |
(b) If an Agent terminates its obligations pursuant to Section 17(a), there shall be no further liability on the part of that Agent or on the part of the Corporation to that Agent, except in respect of any liability which may have arisen or may later arise under Sections 12, 13 and 14 of this Agreement.
(c) The right of the Agents or any of them to terminate their respective obligations under this Agreement is in addition to all other remedies that they may have in respect of any default, act or failure to act of the Corporation in respect of any of the matters contemplated by this Agreement. A notice of termination given by one Agent under this Section 17 shall not be binding upon the other Agents.
18. Notice
Any notice or other communication required or permitted to be given under this Agreement will be in writing and will be delivered to, in the case of: (i) the Corporation, to 2 Queen Street East, 20th Floor, Toronto, ON, M5C 3G7, Attention: Chief Executive Officer (Facsimile: 416.364.6299), with a copy to Blake, Cassels & Graydon LLP, 199 Bay Street, Suite 4000, Commerce Court West, Toronto, ON, M5L 1A9, Attention: John Wilkin (Facsimile: 416.863.2653); (ii) CIBC World Markets Inc., to 161 Bay Street, Brookfield Place, 5th Floor, Toronto ON, M5J 2S8, Attention: Amber Choudhry (Facsimile: 416.956.6320); (iii) National Bank Financial Inc., to The Exchange Tower, 130 King Street West, 4th Floor Podium, Toronto, ON, M5X 1J9, Attention: John Carrique, (Facsimile: 416.869.8648); (iv) BMO Nesbitt Burns Inc., to 100 King Street West, 1 First Canadian Place, 3rd Floor, Toronto, ON, M5X 1H3, Attention: Richard Sibthorpe, (Facsimile: 416.359.5183); (v) Manulife Securities Incorporated, to 79 Wellington Street West, Suite 2402, Toronto, ON, M5K 1K2, Attention: Stephen Arvanitidis, (Facsimile: 416.360.3910); (vi) Scotia Capital Inc., to 40 King Street West, 68th Floor, Toronto, ON, M5H 1H1, Attention: Graham Fry, (Facsimile: 416-863.7527); (vii) TD Securities Inc., to Ernst & Young Tower, 222 Bay Street, 7th Floor, Toronto, ON, M5K 1A2, Attention: Brian Pong, (Facsimile: 416.308.3715); (viii) Casgrain & Company Limited, to 1200 McGill College Avenue, 21st Floor, Montreal, QC, H3B 4G7, Attention: Roger Casgrain, (Facsimile: 514.871.1943); and (ix) GMP Securities L.P., to 145 King Street West, Suite 300, Toronto, ON, M5H 1J8, Attention: Harris Fricker, (Facsimile: 416.943.6160). In the case of a notice delivered to any Agent pursuant to the foregoing, a copy of such notice shall be sent to Torys LLP, 79 Wellington Street West, Suite 3000, Toronto, ON, M5K 1N2, Attention: Glen Johnson (Facsimile: 416.865.7380). The parties may change their respective addresses for notices by notice given in the manner set out above. Any notice or other communication will be in writing, and unless delivered personally to the addressee or to a responsible officer of the addressee, as applicable, will be given by fax and will be deemed to have been given when (i) in the case of a notice delivered personally to a responsible officer of the addressee, when so delivered, and (ii) in the case of a notice delivered or given by fax, on the day on which it is sent.
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19. No Fiduciary Duty
The Corporation hereby acknowledges that (i) the distribution and sale of the Debentures pursuant to this Agreement is an arm’s-length commercial transaction between the Corporation, on the one hand, and each of the Agents and any affiliate through which it may be acting, on the other, (ii) each of the Agents is not acting as fiduciary of the Corporation, and (iii) the Corporation’s engagement of each of the Agents in connection with the Offering and the process leading up to the Offering is as independent contractors and not in any other capacity. Furthermore, the Corporation agrees that it is solely responsible for making its own judgments in connection with the Offering (irrespective of whether any of the Agents has advised or is currently advising the Corporation on related or other matters). The Corporation agrees that it will not claim that the Agents owe a fiduciary or similar duty to the Corporation, in connection with such transaction or the process leading thereto.
20. Miscellaneous
(a) Except with respect to Sections 12, 13, 15 and 17 of this Agreement, all transactions and notices on behalf of the Agents under this Agreement or contemplated by this Agreement may be carried out or given on behalf of the Agents by the Lead Agents, as contemplated herein, which shall in good faith discuss with the other Agents the nature of any of the transactions and notices prior to giving effect to them or the delivery of them, as the case may be. The obligations of the Agents under this Agreement shall be several and not joint.
(b) This Agreement will be governed by and interpreted in accordance with the Laws of the Province of Ontario and the federal Laws of Canada applicable therein. For the purpose of all legal proceedings, this Agreement will be deemed to have been performed in the Province of Ontario and the courts of the Province of Ontario will have jurisdiction to entertain any action arising under this Agreement. Each of the parties hereto hereby irrevocably attorns to the non-exclusive jurisdiction of the courts of the Province of Ontario.
(c) In this Agreement, time is of the essence and, following any waiver or indulgence by any party, time will again be of the essence in this Agreement.
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(d) Each of the parties to this Agreement will be entitled to rely on delivery of a fax copy or a scanned copy of this Agreement delivered by e-mail and acceptance by each party of any such facsimile or scanned copy will be legally effective to create a valid and binding agreement between the parties to this Agreement in accordance with the terms of this Agreement.
(e) This Agreement may be executed in any number of counterparts, each of which when so executed will be deemed to be an original and all of which, when taken together, will constitute one and the same Agreement.
(f) To the extent permitted by applicable Law, the invalidity or unenforceability of any particular provision of this Agreement will not affect or limit the validity or enforceability of the remaining provisions of this Agreement.
(g) This Agreement and the other documents referred to in this Agreement constitute the entire agreement among the parties hereto relating to the subject matter of this Agreement and supersede all prior agreements between those parties with respect to their respective rights and obligations in respect of the transactions contemplated under this Agreement.
(h) This Agreement will not be assignable by any party without the written consent of the others and any purported assignment of this Agreement without that consent will be invalid and of no force and effect.
[The remainder of this page is left blank intentionally]
If this Agreement accurately reflects the terms of the transactions which we are to enter into and are agreed to by you, please communicate your acceptance by executing the enclosed copies of this Agreement where indicated and returning them to us.
Yours very truly, | ||
CIBC WORLD MARKETS INC. | ||
By: | “Amber Choudry” | |
Name: Amber Choudhry | ||
Title: Managing Director |
NATIONAL BANK FINANCIAL INC. | ||
By: | “John Carrique” | |
Name: John Carrique | ||
Title: Managing Director |
BMO NESBITT BURNS INC. | ||
By: | “Richard Sibthorpe” | |
Name: Richard Sibthorpe | ||
Title: Managing Director |
MANULIFE SECURITIES INCORPORATED | ||
By: | “Stephen Arvanitidis” | |
Name: Stephen Arvanitidis | ||
Title: Managing Director, Capital Markets Group |
SCOTIA CAPITAL INC. | ||
By: | “Graham Fry” | |
Name: Graham Fry | ||
Title: Director |
TD SECURITIES INC. | ||
By: | “Brian Pong” | |
Name: Brian Pong | ||
Title: Director |
CASGRAIN & COMPANY LIMITED | ||
By: | “Roger Casgrain” | |
Name: Roger Casgrain | ||
Title: Executive Vice-President | ||
GMP SECURITIES L.P. | ||
By: | “Harris Fricker” | |
Name: Harris Fricker | ||
Title: President & Chief Executive Officer, Investment Banking |
Accepted and agreed to by the undersigned as of the date of this Agreement first written above.
CI FINANCIAL CORP. | ||
By: | “Darie Urbanky” | |
Name: Darie Urbanky | ||
Title: President and Chief Operating Officer |
Exhibit 99.46
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This prospectus supplement, together with the short form base shelf prospectus to which it relates, as amended or supplemented, and the documents incorporated or deemed to be incorporated by reference therein, constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. The securities offered hereby have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), and, subject to certain exceptions, may not be offered or sold within the United States or to or for the account or benefit of a U.S. person (as defined in Regulation S under the U.S. Securities Act).
Information has been incorporated by reference in this prospectus supplement from documents filed with the securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Secretary of CI Financial Corp. at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7 (telephone (416) 364-1145) and are also available electronically at www.sedar.com.
Prospectus Supplement
To a Short Form Base Shelf Prospectus dated December 22, 2017
New Issue | July 18, 2019 |
CI Financial Corp.
$350,000,000
$350,000,000 principal amount of 3.215% Debentures due 2024
This prospectus supplement (the “Prospectus Supplement”) qualifies the distribution (the “Offering”) of $350,000,000 aggregate principal amount of 3.215% Debentures due July 22, 2024 (the “Debentures”) of CI Financial Corp. (“CI”). The Debentures will be dated July 22, 2019 and will mature on July 22, 2024. Interest on the Debentures will be paid at the rate set out above, semi-annually in arrears in equal instalments on January 22 and July 22 in each year commencing January 22, 2020. If any of the aforesaid dates upon which interest on the Debentures is payable is not a business day, such interest shall be payable on the next business day thereafter. See “Details of the Offering”.
CI may, at its option, redeem the Debentures, in whole or in part, any time prior to the Par Call Date (as defined herein), on not less than 30 nor more than 60 days’ prior notice to the registered holder, at a redemption price which is equal to the greater of the Canada Yield Price (as defined herein) and par, together in each case with accrued and unpaid interest up to, but excluding, the date fixed for redemption. In cases of partial redemption, the Debentures to be redeemed will be selected by the Trustee (as defined herein) pro rata or in such other manner as it shall deem appropriate. Any Debentures that are redeemed by CI will be cancelled and will not be reissued. See “Details of the Offering”.
The Debentures may be redeemed in whole or in part at any time on or after the Par Call Date at 100% of the aggregate principal amount outstanding of the Debentures being redeemed, plus accrued and unpaid interest on such amount up to, but excluding, the date fixed for redemption.
The Debentures will not be listed on any exchange or quotation system and, consequently, there is no market through which the Debentures may be sold and purchasers may not be able to resell the Debentures purchased under this Prospectus Supplement. This may affect the pricing of the Debentures in the secondary market, the transparency and availability of trading prices, the liquidity of the Debentures and the extent of issuer regulation. See “Risk Factors”.
Price to the Public | Agents’ Fee | Net Proceeds to CI (1)(2) | ||||||||||
Per $1,000 principal amount of Debentures | $ | 1,000.00 | $ | 3.50 | $ | 996.50 | ||||||
Total | $ | 350,000,000.00 | $ | 1,225,000.00 | $ | 348,775,000.00 |
(1) | Plus accrued interest, if any, from July 22, 2019 to the date of delivery. |
(2) | Before deduction of expenses of the issue, estimated to be $750,000, which will be paid from the proceeds of the Offering. |
CIBC World Markets Inc. (“CIBC”), National Bank Financial Inc. (“NBF”), BMO Nesbitt Burns Inc., Manulife Securities Incorporated, Scotia Capital Inc., TD Securities Inc. (“TD”), Casgrain & Company Limited and GMP Securities L.P. (collectively, the “Agents”), as agents, conditionally offer the Debentures for sale, on a best efforts basis, subject to prior sale, if, as and when issued by CI and accepted by the Agents in accordance with the conditions contained in the Agency Agreement referred to under “Plan of Distribution” below, and subject to approval of certain legal matters on behalf of CI by Blake, Cassels & Graydon LLP, and on behalf of the Agents by Torys LLP. See “Plan of Distribution”. Each of CIBC, NBF and TD is a wholly-owned subsidiary of a Canadian chartered bank which is a lender to CI and accordingly CI may be considered to be a “connected issuer” of CIBC, NBF and TD within the meaning of applicable securities legislation. See “Relationship between CI and Certain Agents”.
In connection with the Offering, the Agents may effect transactions which stabilize or maintain the market price of the Debentures at a level above that which might otherwise prevail in the open market. Such transactions may be commenced, interrupted or discontinued at any time.
Subscriptions for Debentures will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. Book-entry only certificates representing the Debentures will be issued in registered form only to CDS Clearing and Depository Services Inc. (“CDS”), or its nominee, and will be deposited with CDS on closing of the Offering, which is expected to take place on July 22, 2019, but not later than August 6, 2019. A purchaser of the Debentures will receive only a customer confirmation from the registered dealer who is a CDS participant and from or through whom the Debentures are purchased. See “Details of the Offering – Depository Services”.
CI expects that DBRS Limited (“DBRS”) will provide CI with a credit rating of “BBB (high)” with a “Negative” trend relating to the Debentures and that Standard & Poor’s Ratings Services (Canada) (“S&P”, and together with DBRS, the “Rating Agencies”) will provide CI with an issuer credit rating of “BBB+” with a “Negative” outlook and a “BBB+” credit rating relating to the Debentures. A rating trend or outlook, expressed as positive, stable, negative or developing, provides the Rating Agencies’ opinion regarding the outlook for the rating in question over the medium term. The credit ratings assigned to the Debentures are not recommendations to purchase, hold or sell the Debentures. There can be no assurance that a rating will remain in effect for any given period of time or that a rating will not be lowered, withdrawn or revised by either or both Rating Agencies at any time. See “Credit Ratings” and “Risk Factors – Changes in Creditworthiness”.
This Prospectus Supplement does not qualify the distribution of the Debentures outside of Canada.
CI’s registered and head office is located at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, M5C 3G7.
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TABLE OF CONTENTS
ELIGIBILITY FOR INVESTMENT | S-3 |
FORWARD-LOOKING STATEMENTS | S-4 |
DOCUMENTS INCORPORATED BY REFERENCE | S-4 |
MARKETING MATERIALS | S-5 |
CONSOLIDATED CAPITALIZATION | S-5 |
USE OF PROCEEDS | S-5 |
PLAN OF DISTRIBUTION | S-5 |
RELATIONSHIP BETWEEN CI AND CERTAIN AGENTS | S-6 |
DETAILS OF THE OFFERING | S-6 |
CREDIT RATINGS | S-13 |
EARNINGS COVERAGE RATIOS | S-14 |
RISK FACTORS | S-14 |
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS | S-16 |
LEGAL MATTERS | S-17 |
TRUSTEE | S-17 |
PURCHASERS’ STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION | S-18 |
APPENDIX A - TEMPLATE INVESTOR PRESENTATION | A-1 |
CERTIFICATE OF AGENTS | C-1 |
In this Prospectus Supplement, unless otherwise indicated, capitalized terms which are defined in the accompanying short form base shelf prospectus of CI dated December 22, 2017 (the “Prospectus”) are used herein with the meanings defined therein.
ELIGIBILITY FOR INVESTMENT
In the opinion of Blake, Cassels & Graydon LLP, counsel to CI, and Torys LLP, counsel to the Agents, provided the shares of CI are listed on a designated stock exchange in Canada (which currently includes the Toronto Stock Exchange) for purposes of the Income Tax Act (Canada) and the regulations thereunder (the “Tax Act”), the Debentures offered by this Prospectus Supplement, if issued on the date hereof, would be qualified investments under the Tax Act on the date hereof for trusts governed by registered retirement savings plans (“RRSPs”), registered retirement income funds (“RRIFs”), deferred profit sharing plans (other than a deferred profit sharing plan to which contributions are made by CI or by an employer with which CI does not deal at arm’s length within the meaning of the Tax Act), registered education savings plans (“RESPs”), registered disability savings plans (“RDSPs”) and tax-free savings accounts (“TFSAs”).
Notwithstanding that a Debenture may be a qualified investment for a TFSA, RRSP, RRIF, RDSP or RESP, the holder of a TFSA or RDSP, the annuitant of an RRSP or RRIF, or the subscriber of an RESP, as the case may be, may be subject to a penalty tax in respect of the Debentures if such Debentures are a “prohibited investment” (as defined in the Tax Act) for such TFSA, RRSP, RRIF, RDSP or RESP. Provided that the holder of a TFSA or RDSP, the annuitant of an RRSP or RRIF or the subscriber of an RESP, as the case may be, does not hold a “significant interest” (as defined in the Tax Act for purposes of the “prohibited investment” rules) in CI and deals at arm’s length with CI within the meaning of the Tax Act, the Debentures offered by this Prospectus Supplement would not be a prohibited investment for such TFSA, RRSP, RRIF, RDSP or RESP. Prospective purchasers should consult their own tax advisors regarding whether the Debentures would be a prohibited investment for a TFSA, RRSP, RRIF, RDSP or RESP in their particular circumstances.
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FORWARD-LOOKING STATEMENTS
This Prospectus Supplement contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management’s beliefs regarding future events, many of which, by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described under “Risk Factors” in this Prospectus Supplement and “Risk Management” in the Q1 2019 MD&A (as defined below) which is incorporated by reference into this Prospectus Supplement. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements.
Except as otherwise stated, these statements are made as of the date of this document and, other than as specifically required by applicable law, CI undertakes no obligation to publicly update or alter any forward-looking statement, whether to reflect new information, future events or otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
This Prospectus Supplement is deemed to be incorporated by reference into the Prospectus solely for the purpose of the Offering of the Debentures.
The following documents, filed with the securities commission or similar authority in each of the provinces of Canada are specifically incorporated by reference into, and form an integral part of, this Prospectus Supplement:
(a) | CI’s audited comparative consolidated financial statements, together with the accompanying report of the auditors, for the year ended December 31, 2018; |
(b) | management’s discussion and analysis of results of operations and financial condition of CI for the year ended December 31, 2018; |
(c) | CI’s annual information form dated March 1, 2019 (the “AIF”); |
(d) | CI’s management information circular dated May 8, 2019 for its annual meeting of shareholders held on June 24, 2019; |
(e) | CI’s interim unaudited condensed consolidated financial statements for the three months ended March 31, 2019; |
(f) | management’s discussion and analysis of results of operations and financial condition of CI for the three months ended March 31, 2019 (the “Q1 2019 MD&A”); |
(g) | CI’s material change report dated April 18, 2019 with respect to its announcement that Peter Anderson, Chief Executive Officer of CI, has made the decision to retire no later than June 30, 2020; |
(h) | CI’s material change report dated June 26, 2019 with respect to its announcement of the appointment of Darie Urbanky as the President and Chief Operating Officer of CI; |
(i) | the template investor presentation entitled “CI Financial” dated July 8, 2019, filed on SEDAR by CI on July 8, 2019 (the “Template Investor Presentation”), a copy of which is attached as Appendix “A” to this Prospectus Supplement; |
(j) | the template version of the indicative term sheet for the Offering dated July 18, 2019 (the “Indicative Term Sheet”); and |
(k) | the template version of the final term sheet for the Offering dated July 18, 2019 (together with the Template Investor Presentation and the Indicative Term Sheet, the “Marketing Materials”). |
S-4
Any management information circular, annual information form, audited consolidated financial statements, interim unaudited financial statements, material change reports (excluding confidential material change reports) or business acquisition reports and any other documents of CI of the type required to be incorporated by reference herein under National Instrument 44-101 – Short Form Prospectus Distributions (“NI 44-101”), all as filed by CI with the various securities commissions or similar authorities in the provinces of Canada pursuant to the requirements of applicable securities legislation after the date of this Prospectus Supplement and prior to the termination of the Offering shall be deemed to be incorporated by reference into this Prospectus Supplement.
Any statement contained in this Prospectus Supplement or in a document incorporated or deemed to be incorporated by reference in the Prospectus shall be deemed to be modified or superseded for the purposes of the Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference in the Prospectus modifies or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement is not to be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that was required to be stated or that was necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of the Prospectus.
MARKETING MATERIALS
The Indicative Term Sheet and the Final Term Sheet, together with the Template Investor Presentation included in Appendix “A” to this Prospectus Supplement, may be considered marketing materials for purposes of applicable Canadian securities laws. The “template version” of any “marketing materials” (each as defined in National Instrument 41-101 – General Prospectus Requirements) with respect to the Offering (including the Marketing Materials) is not part of this Prospectus Supplement or the Prospectus to the extent that the contents of the template version of such marketing materials have been modified or superseded by a statement contained in this Prospectus Supplement or any amendment. Any “template version” of any “marketing materials” (each as defined in National Instrument 41-101 – General Prospectus Requirements) with respect to the Offering that is filed with the securities commission or similar authority in each of the provinces of Canada after the date of this Prospectus Supplement and prior to the termination of the Offering shall be deemed to be incorporated by reference into this Prospectus Supplement.
CONSOLIDATED CAPITALIZATION
Since March 31, 2019, other than the issuance of the Debentures pursuant to this Prospectus Supplement, there have been no other material changes to the share and loan capital of CI on a consolidated basis.
USE OF PROCEEDS
The net proceeds from the sale of the Debentures under this Prospectus Supplement are estimated to be approximately $348 million, after deduction of the Agents’ fee and the estimated expenses of the Offering. The Agents’ fee and the expenses of the Offering will be paid out of the proceeds of the Offering.
The net proceeds to CI from the sale of the Debentures under this Prospectus Supplement will be used primarily to repay outstanding indebtedness under the Credit Facility (as defined herein), and for general corporate purposes. CI’s indebtedness under its Credit Facility has been incurred in the normal course of business to pay sales commissions and fund operating expenses including payroll and premises costs.
PLAN OF DISTRIBUTION
Under an agency agreement (the “Agency Agreement”) dated July 18, 2019 between CI and the Agents, the Agents have agreed to offer, on a best efforts basis, if, as and when issued by CI up to $350,000,000 aggregate principal amount of Debentures, plus accrued interest, if any, from July 22, 2019 to the date of delivery, payable in cash against delivery of such Debentures. The Offering is anticipated to close on July 22, 2019 or such later date, but not later than August 6, 2019, as may be agreed upon by CI and the Agents.
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The Agency Agreement provides that the Agents will be paid an agency fee of $3.50 per $1,000 principal amount of Debentures on account of services rendered in connection with the Offering. The obligations of the Agents under the Agency Agreement may be terminated at their discretion upon the occurrence of certain stated events, including but not limited to (i) certain regulatory proceedings, orders or rulings which, in the reasonable opinion of an Agent, operates or could operate to prevent, suspend or otherwise materially adversely affect the Offering or trading in the Debentures, (ii) a material change or change in material fact which, in the reasonable opinion of an Agent, would be expected to have a significant adverse effect on the market price or value of the Debentures, and (iii) certain major financial or other occurrences which, in the reasonable opinion of an Agent, materially adversely affect Canadian financial markets or the business, operations or affairs of CI, taken as a whole. While the Agents have agreed to use their best efforts to sell the Debentures offered hereby, they are not obligated to purchase any Debentures which are not sold.
In connection with the Offering, the Agents may effect transactions which stabilize or maintain the market price of the Debentures at a level above that which might otherwise prevail in the open market. Such transactions may be commenced, interrupted or discontinued at any time.
The Debentures have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), or any state securities laws and, subject to certain exemptions, may not be offered or sold within the United States or to or for the benefit of U.S. persons (as defined in Regulation S under the U.S. Securities Act). The distribution of this Prospectus Supplement and the offering and sale of the Debentures are also subject to certain restrictions under the laws of certain other jurisdictions outside of Canada. Each Agent has agreed that it will not offer for sale or sell or deliver the Debentures in any such jurisdiction except in accordance with the laws thereof.
The determination of the terms of the Offering, including the issue price of the Debentures, was made through negotiations between CI and the Agents.
RELATIONSHIP BETWEEN CI AND CERTAIN AGENTS
Each of CIBC, NBF and TD is a wholly-owned subsidiary of a Canadian chartered bank, which banks (the “Lenders”) have provided a $700 million credit facility to CI (the “Credit Facility”). Accordingly, CI may be considered a “connected issuer” of CIBC, NBF and TD within the meaning of applicable legislation. Approximately $329 million is currently drawn under the Credit Facility. CI is currently in compliance with the terms of the agreements governing the Credit Facility. Other than as disclosed in the Prospectus, as supplemented by this Prospectus Supplement, there has been no material change in the financial position of CI since the indebtedness under the Credit Facility was incurred. The Lenders had no involvement in the decision of CI to distribute the Debentures or the terms of such distribution although the Lenders may be advised of the Offering and the terms thereof.
Neither the Agents nor the Lenders will receive any benefits in connection with the Offering other than as described under “Use of Proceeds” and, in the case of the Agents, a fee as set out in the Agency Agreement.
DETAILS OF THE OFFERING
The following is a summary of certain of the material attributes and characteristics of the Debentures offered hereby, which does not purport to be complete. Reference is made to the Trust Indenture and First Supplement referred to below for the full text of such attributes and characteristics. A copy of the Trust Indenture and First Supplement, when executed, will be filed electronically at www.sedar.com.
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General
The Debentures offered hereby will be issued under and pursuant to the provisions of a trust indenture, as amended and supplemented from time to time (the “Trust Indenture”), to be dated on or about the closing date of the Offering between CI and Computershare Trust Company of Canada as trustee (the “Trustee”) providing for the creation and issuance of an unlimited aggregate principal amount of debt securities in series from time to time. The Debentures offered under this Prospectus Supplement will be issued under the first supplement to the Trust Indenture (the “First Supplement”) which will permit the issuance of an unlimited principal amount of 3.215% debentures due July 22, 2024. The Debentures will initially be limited to $350,000,000 aggregate principal amount, will be dated July 22, 2019 and will mature on July 22, 2024. The Debentures will be issued in denominations of $1,000 and authorized multiples thereof. The principal and interest on the Debentures will be paid in lawful money of Canada in the manner and on the terms set out in the Trust Indenture.
The CUSIP/ISIN number for the Debentures is 125491AL4/CA125491AL40.
Depository Services
Except as otherwise provided below, the Debentures will be issued in “book-entry only” form and must be purchased, transferred or redeemed through participants (“Participants”) in the depository service of CDS or its nominee. Each of the Agents is a Participant. On the closing of the Offering, CI will cause a global certificate or certificates representing the Debentures to be delivered to and registered in the name of CDS or its nominee. Except as described below, no purchaser of Debentures will be entitled to a certificate or other instrument from CI or CDS evidencing that purchaser’s ownership thereof, and no purchaser will be shown on the records maintained by CDS except through a book-entry account of a Participant acting on behalf of such purchaser. Each purchaser of Debentures will receive a customer confirmation of purchase from the registered dealer from which the Debentures are purchased in accordance with the practices and procedures of that registered dealer. The practices of registered dealers may vary, but generally customer confirmations are issued promptly after execution of a customer order. CDS will be responsible for establishing and maintaining book-entry accounts for its Participants having interests in the Debentures. Reference in this Prospectus Supplement to a holder of Debentures (“Debentureholder”) means, unless the context otherwise requires, an owner of a beneficial interest in the Debentures.
The Debentures will be issued in fully registered form to holders or their nominees other than CDS or its nominee if (i) CI determines that CDS is no longer willing or able to discharge properly its responsibilities as depository and CI is unable to locate a qualified successor, (ii) CI at its option elects, or is required by law, to terminate the book-entry system through CDS, (iii) the book-entry system ceases to exist, or (iv) after the occurrence of an Event of Default, Debentureholders representing beneficial interests aggregating over 50% of the outstanding principal amount of the Debentures determine that the continuation of the book-entry system is no longer in their best interests.
Neither CI nor the Agents will assume any liability for: (a) any aspect of the records relating to the beneficial ownership of the Debentures held by CDS or the payments relating thereto; (b) maintaining, supervising or reviewing any records relating to the Debentures; or (c) any advice or representation made by or with respect to CDS and contained in the Prospectus and this Prospectus Supplement and relating to the rules governing CDS or any action to be taken by CDS or at the direction of its Participants. The rules governing CDS provide that it acts as the agent and depositary for the Participants. As a result, Participants must look solely to CDS and beneficial owners must look solely to Participants for the payment of the principal and interest on the Debentures paid by or on behalf of CI to CDS.
Transfers
Transfers of ownership in the Debentures will be effected through the records maintained by CDS or its nominee for such Debentures with respect to interests of Participants and on the records of Participants with respect to interests of persons other than Participants. Debentureholders who are not Participants, but who desire to purchase, sell or otherwise transfer ownership of or other interests in such Debentures, may do so only through Participants. The ability of a Debentureholder to pledge a Debenture or otherwise take action with respect to such Debentureholder’s interest in a Debenture (other than through a Participant) may be limited due to the lack of a physical certificate.
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Ranking
The Debentures will be direct and unsecured obligations of CI and will rank pari passu with all existing or future unsecured and unsubordinated indebtedness of CI.
Covenants
CI will covenant in the Trust Indenture, as supplemented by the First Supplement, substantially to the effect that, so long as any of the Debentures are outstanding:
1. | it will not, and it will not permit any of its Subsidiaries to, directly or indirectly, create, assume or suffer to exist any Security Interest on its property to secure any obligation unless at the same time it shall secure equally and rateably with such obligations all of the Debentures then outstanding, provided that this shall not apply to Permitted Encumbrances; |
2. | it will not permit any Subsidiary of CI to create, assume or otherwise incur any Specified Indebtedness, except: (a) Capital Lease Obligations in an aggregate amount not exceeding $150,000,000; (b) Specified Indebtedness owed to CI or another Subsidiary of CI; and (c) any other Specified Indebtedness if, at the time it is created, assumed or incurred, the amount of such Specified Indebtedness, together with any other Specified Indebtedness of CI’s Subsidiaries then outstanding (excluding Specified Indebtedness of the type set forth in the foregoing clauses (a) and (b)), has an aggregate principal amount not exceeding 5% of Consolidated Net Worth; and |
3. | it will not amalgamate or consolidate or merge with or into any other person or liquidate, wind-up or dissolve itself (or suffer any liquidation, winding-up or dissolution or any proceedings therefor), or continue itself under the laws of any other statute or jurisdiction, or sell, transfer, convey or dispose of, in one transaction or a series of related transactions, and whether at the same time or over a period of time, all or substantially all of its property to any other person unless, (a) either CI is the continuing or successor company following such transaction or the continuing or successor company, if other than CI, is a corporation existing under the laws of Canada or a province thereof, and assumes all of CI’s obligations under the Trust Indenture by supplemental indenture, and (b) at the time of, and after giving effect to, such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default (a “Default”), shall have happened and be continuing under the Trust Indenture. |
Repurchase on Change of Control Triggering Event
The First Supplement will contain provisions to the effect that if a Change of Control Triggering Event (as defined below) occurs, unless CI has exercised its optional right to redeem all of the Debentures, CI will be required to make an offer to repurchase all or, at the option of each Debentureholder, any part (equal to $1,000 or an integral multiple thereof) of each Debentureholder’s Debentures pursuant to the offer described below (the “Change of Control Offer”) at a purchase price payable in cash equal to 101% of the outstanding principal amount of Debentures together with accrued and unpaid interest, if any, to the date of purchase.
Within 30 days following any Change of Control Triggering Event, CI will be required to give written notice to the holders of the Debentures describing the transaction or transactions that constitute the Change of Control Triggering Event and offering to repurchase the Debentures on the payment date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is given. CI must comply with the requirements of applicable securities laws and regulations in connection with the repurchase of the Debentures as a result of a Change of Control Triggering Event. To the extent that the provisions of any such applicable securities laws and regulations conflict with the provision described in the First Supplement relating to a Change of Control (as defined below), CI will be required to comply with such laws and regulations and will not be deemed to have breached its obligations to repurchase the Debentures by virtue of such conflict.
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CI will not be required to make a Change of Control Offer upon a Change of Control Triggering Event if a third party makes such an offer substantially in the manner, at the times and in compliance with the requirements for a Change of Control Offer (and for at least the same purchase price payable in cash) and such third party purchases all Debentures properly tendered and not withdrawn under its offer.
Events of Default
The Trust Indenture and the First Supplement will provide that an “Event of Default” in respect of the Debentures will occur upon:
(a) | CI’s failure to pay any principal of or premium on the Debentures when due; |
(b) | CI’s failure to pay any interest on the Debentures when due, which default continues for a period of 30 days; |
(c) | the failure by CI to perform or a breach by it of any other covenant of CI with respect to the Debentures under the Trust Indenture or the First Supplement and the continuance of such default for a period of 60 days after written notice thereof to CI by the Trustee; |
(d) | the failure by any one or more of CI or any of its Subsidiaries to pay any Indebtedness exceeding $50 million in the aggregate; |
(e) | the failure by any one or more of CI or any of its Subsidiaries to perform any term, covenant, condition, or provision applicable to any Indebtedness and such failure results in acceleration of the maturity of Indebtedness exceeding $50 million in the aggregate; |
(f) | certain events of insolvency or bankruptcy of CI; or |
(g) | failure to correct, within 60 days of receipt of written notice thereof, if capable of correction with respect to presently-existing facts or circumstances, a representation or warranty made by CI under the Trust Indenture or the First Supplement which was incorrect at the time it was made. |
If an Event of Default has occurred and is continuing, the Trustee may, in its discretion, and shall, upon request of holders of not less than 25% of the principal amount of the Debentures and upon being indemnified against all costs, expenses and liabilities to be incurred, declare the principal of and interest on all outstanding Debentures to be immediately due and payable and enforce such payment.
Interest
Interest on the Debentures at a rate of 3.215% per annum will be payable semi-annually in arrears in equal instalments on January 22 and July 22 of each year, commencing on January 22, 2020 and continuing until July 22, 2024. The initial interest payment, payable on January 22, 2020, will be $16.075 per $1,000 principal amount of the Debentures, assuming a closing date for the Offering of July 22, 2019. If any of the aforesaid dates upon which interest on the Debentures is payable is not a business day, such interest shall be payable on the next business day thereafter.
Redemption
CI may, at its option, redeem the Debentures, in whole or in part, any time prior to the Par Call Date, on not less than 30 nor more than 60 days’ prior notice to the registered holder at a redemption price equal to the greater of the Canada Yield Price (as defined herein) and par, together in each case with accrued and unpaid interest up to, but excluding, the date fixed for redemption. In cases of partial redemption, the Debentures to be redeemed will be selected by the Trustee pro rata or in such other manner as it shall deem appropriate. Any Debentures offered hereby that are redeemed by CI will be cancelled.
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The Debentures may be redeemed in whole or in part at any time on or after the Par Call Date at 100% of the aggregate principal amount outstanding of the Debentures being redeemed, plus accrued and unpaid interest on such amount up to, but excluding, the date fixed for redemption.
Open Market Purchases
CI will have the right at any time to purchase Debentures in the market or by tender or by private contract at any price. All Debentures that are purchased by CI will be cancelled and will not be reissued.
Modification
The Trust Indenture and the rights of the holders of Debentures may, in certain circumstances, be modified. For that purpose, the Trust Indenture will contain provisions making “Holder Directions” binding upon the holders of debentures, either on a series by series basis or in respect of all of the holders of more than one series of debentures issued under the Trust Indenture. A “Holder Direction” will be defined, in respect of an action involving more than one series of debentures issued under the Trust Indenture, as a resolution approving such action passed by the affirmative vote of the holders of not less than two-thirds of the unpaid aggregate principal amount of all such series voted at a meeting or an approval in writing of the holders of not less than two-thirds of the unpaid aggregate principal amount of all such series. A “Holder Direction” will be defined, in respect of an action involving one series of debentures issued under the Trust Indenture, as a resolution approving such action passed by the affirmative vote of holders of not less than two-thirds of the unpaid principal amount of that series voted at a meeting or an approval in writing of the holders of not less than two-thirds of the unpaid principal amount of that series.
Defeasance
The Trust Indenture will contain provisions requiring the Trustee to release CI from its obligations under the Trust Indenture and the Debentures provided that (i) CI satisfies the Trustee that it has irrevocably deposited funds or made due provision for the payment of the fees and expenses of the Trustee and for payment of all principal and interest and other amounts due or to become due on the Debentures, (ii) CI delivers to the Trustee an opinion of counsel acceptable to the Trustee to the effect that the Debentureholders (resident in Canada for purposes of the Tax Act) will not recognize a gain or loss for Canadian income tax purposes as a result of the exercise by CI of its defeasance option and that they will thereafter be subject to Canadian income taxes on the same amounts, in the same manner and at the same time or times as would have been the case if such option had not been exercised, (iii) no Default or Event of Default at the time of the deposit of funds by CI shall have occurred and be continuing with respect to any series of debentures and certain events of insolvency have not occurred after the date of deposit and prior to the defeasance, and (iv) other conditions to be specified in the Trust Indenture are satisfied.
Definitions
“Canada Yield Price” on any redemption day means a price which, if the Debentures were to be issued at such price on such date, would provide a yield thereon from such date to the Par Call Date of the Debentures equal to the Government of Canada Yield, plus 44.5 basis points (0.445%), compounded semi-annually and calculated on the day that is three business days prior to the date of redemption.
“Capital Lease Obligations” of any person means the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet or statement of financial position of such person under Canadian generally accepted accounting principles, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with Canadian generally accepted accounting principles.
“Change of Control” means (i) the sale of all or substantially all of CI’s assets, other than any such sale to its subsidiaries or affiliates or to any of their respective successors, or (ii) the acquisition by any person, or group of persons acting jointly or in concert, of control or direct or indirect beneficial ownership of more than 50% of the votes attaching to the shares of CI that ordinarily have voting power for the election of directors of CI.
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“Change of Control Triggering Event” means the occurrence of both a Change of Control and a Rating Event.
“Consolidated Net Worth” means, as at any date, the amount of consolidated shareholders’ equity of CI and its Subsidiaries as set forth in the most recently filed annual or interim consolidated financial statements of CI prepared in accordance with Canadian generally accepted accounting principles.
“DBRS” means DBRS Limited and its successors.
“Government of Canada Yield” on any date means the average of the mid-market yields to maturity on such date provided by two independent investment dealers selected by CI and approved by the Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce, if issued at par on such date, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date of the Debentures.
“Indebtedness” means, with respect to any person, (i) all indebtedness of such person for borrowed money and all liabilities of such person to pay money, whether originally incurred or subsequently assumed, and whether or not evidenced by notes, debentures or other like written instruments, and (ii) all indebtedness and liabilities of the nature referred to in the preceding clause (i) of another person which such person has guaranteed, and for greater certainty includes Specified Indebtedness.
“Investment Grade Rating” means a rating equal to or higher than BBB- (or the equivalent of any successor rating category of S&P) by S&P, BBB (low) (or the equivalent of any successor rating category of DBRS) by DBRS, or the equivalent investment grade rating from any other Specified Rating Agency.
“Moody’s” means Moody’s Investors Service, Inc. and its successors.
“Par Call Date” means June 22, 2024 (one month prior to the scheduled maturity date of the Debentures).
“Permitted Encumbrances” means, with respect to the Debentures, Security Interests on the property of CI or a Subsidiary of CI which are:
(a) | Security Interests for taxes, assessments, governmental charges arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with accounting principles generally accepted in Canada, shall have been made; |
(b) | statutory Security Interests of landlords and carriers, warehousemen, mechanics, suppliers, material men, repairmen or other similar Security Interests arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with accounting principles generally accepted in Canada, shall have been made; |
(c) | Security Interests incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security; |
(d) | Purchase Money Liens; |
(e) | Security Interests in favour of CI or a Subsidiary of CI; |
(f) | Security Interests arising in the ordinary course of business in favour of any bank or other lender on the property of CI or a Subsidiary of CI (other than accounts receivable) to secure any liabilities of CI or a Subsidiary of CI that do not relate to borrowed money; |
(g) | Security Interests for any judgment rendered, or claim filed, against CI or a Subsidiary of CI which is being contested in good faith by appropriate proceedings, that do not constitute an Event of Default, if during such contestation a stay of enforcement of such judgment or claim is in effect; |
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(h) | Security Interests arising by operation of law; |
(i) | any Security Interest existing on any property of a person at the time that such person is acquired by CI or a Subsidiary of CI provided that such Security Interest was not incurred in contemplation of or as a result of such acquisition; |
(j) | any Security Interest existing on any property acquired by CI or a Subsidiary of CI provided that such Security Interest was not incurred in contemplation or as a result of such acquisition; |
(k) | Security Interests for any final judgments for the payment of money that do not constitute an Event of Default; |
(l) | Security Interests to secure any investment certificates issued by CI or a Subsidiary of CI in the normal course of business; and |
(m) | any extension, renewal, alteration or substitution or replacement of any Security Interest mentioned above provided that it is not extended thereby to any additional property and the principal amount secured thereby is not increased. |
“Purchase Money Lien” means any Security Interest on property acquired by CI or a Subsidiary of CI which was assumed, created, guaranteed, reserved, issued or given to secure or satisfy all or any part of the acquisition price of such property.
“Rating Event” means the rating of the Debentures is lowered to below Investment Grade Rating by each of the Specified Rating Agencies, if there are less than three Specified Rating Agencies, or by two out of three of the Specified Rating Agencies, if there are three Specified Rating Agencies (the “Required Threshold”), on any day within the 60-day period (which 60-day period will be extended so long as the rating of the Debentures is under publicly announced consideration for a possible downgrade by such number of Specified Rating Agencies which, together with Specified Rating Agencies which have already lowered their ratings on the Debentures as aforesaid, would aggregate in number the Required Threshold, but only to the extent that, and for so long as, a Change of Control Triggering Event would result if such downgrade were to occur) after the earlier of (a) the occurrence of a Change of Control and (b) public notice of the occurrence of a Change of Control.
“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., and its successors.
“Security Interest” means, for any person, any assignment, security interest, mortgage, charge (whether fixed or floating), hypothec, pledge, lien or other encumbrance on or interest in property that secures payment of any Indebtedness of such person, or secures any other item which in accordance with accounting principles generally accepted in Canada would be included as a liability on the liability side of the balance sheet of such person, or secures any contingent liability of such person.
“Specified Indebtedness” of any person means, without duplication:
(a) | all obligations of such person for borrowed money or with respect to deposits or advances of any kind; |
(b) | all obligations of such person evidenced by bonds, debentures, notes or similar instruments; |
(c) | all obligations of such person under conditional sale or other title retention agreements relating to property acquired by such person; |
(d) | all obligations of such person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business); |
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(e) | all Specified Indebtedness of another person secured by any Security Interest upon the property of such person; |
(f) | all Capital Lease Obligations of such person; |
(g) | all obligations, contingent or otherwise, of such person as an account party in respect of letters of credit and letters of guarantee (other than letters of credit and letters of guarantee issued in support of current accounts payable incurred in the ordinary course of business); |
(h) | all obligations, contingent or otherwise, of such person in respect of bankers’ acceptances; |
(i) | the net termination amount payable by such person under any hedging, swap or other derivative transactions, including those designed and entered into to protect or mitigate against risks in interest, currency exchange or commodity price fluctuations; |
(j) | all obligations of such person to purchase, redeem (other than at the option of the holder) or otherwise acquire any equity interest (including preferred shares) of such person; and |
(k) | all obligations of the type referred to in clauses (a) through (j) of any other person for which such person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of a guarantee or indemnity. |
“Specified Rating Agencies” means each of S&P and DBRS and, if a rating of the Debentures is obtained from Moody’s, shall also include Moody’s, as long as, in each case, such entity has not ceased to rate the Debentures or failed to make a rating of the Debentures publicly available for reasons outside of CI’s control; provided that if one or more of DBRS, S&P or Moody’s, as applicable, ceases to rate the Debentures or fails to make a rating of the Debentures publicly available for reasons outside of CI’s control, CI may select any other “designated rating organization” within the meaning of NI 44-101 as a replacement agency for such one or more of them, as the case may be.
“Subsidiary” means a “subsidiary” as defined in the Business Corporations Act (Ontario).
CREDIT RATINGS
The Debentures have a provisional rating of “BBB (high)” with a “Negative” trend by DBRS. The “BBB (high)” rating assigned to the Debentures represents the fourth highest of the ten rating categories available from DBRS for long-term debt. Under the DBRS system, debt securities rated “BBB (high)” are of adequate credit quality and the capacity for the payment of financial obligations is considered acceptable. While this is a favourable rating, obligations in the “BBB (high)” category are considered to be more vulnerable to future events than higher-rated obligations. A reference to “high” or “low” reflects the relative strength within the rating category, while the absence of either a “high” or “low” designation indicates the rating is placed in the middle of the category. According to DBRS, the “Negative” trend helps give investors an understanding of DBRS’s opinion regarding the outlook for the rating.
The Debentures have a provisional rating of “BBB+” by S&P and S&P has provided CI with a provisional issuer credit rating of “BBB+” with a “Negative” outlook. The “BBB+” rating assigned to the Debentures is the fourth highest of the 11 major rating categories for long-term debt and indicates S&P’s view that CI’s capacity to meet its financial commitment on the obligations is adequate. However, adverse economic conditions or changing circumstances are more likely to weaken CI’s capacity to meet its financial commitments than obligations in higher rated categories. S&P uses “+” or “-” designations to indicate the relative standing of securities within a particular ratings category. According to S&P, the “Negative” rating outlook means that the rating may be lowered in the intermediate term (which S&P defines as typically six months to two years).
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CI paid customary rating fees to DBRS and S&P in connection with the ratings. Other than in the ordinary course of business of customary rating fees, in the past two years, CI did not make any payments to either DBRS or S&P in respect of any other services provided by either DBRS or S&P to CI.
Credit ratings are intended to provide investors with an independent assessment of the credit quality of an issue or issuer of securities and do not speak to the suitability of particular securities for any particular investor. A rating is therefore not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating agency.
EARNINGS COVERAGE RATIOS
The following consolidated earnings coverage ratios are calculated for the 12 month periods ended March 31, 2019 and December 31, 2018. The ratios give effect to the issuance of the Debentures offered pursuant to this Prospectus Supplement and the use of the proceeds thereof to repay indebtedness, and the incurrence of additional indebtedness since such dates as if such issuance, incurrence and repayments had occurred on April 1, 2018 and January 1, 2018, respectively. CI’s borrowing cost requirements amounted to approximately $47.5 million and $43.1 million for the 12 months ended March 31, 2019 and December 31, 2018, respectively. CI’s pro forma borrowing cost requirements, after giving effect to the issue of the Debentures offered pursuant to this Prospectus Supplement and the use of the proceeds thereof to repay indebtedness, and the incurrence of such additional indebtedness, would have amounted to $51.4 million and $47.7 million for the 12 months ended March 31, 2019 and December 31, 2018, respectively. CI’s profit attributable to its shareholders before borrowing costs and income tax for the 12 months then ended was $861.5 million and $885.8 million, which is 16.8 and 18.6 times CI’s pro forma borrowing cost requirements for such periods, respectively.
Twelve Month Period Ended | ||||
March 31, 2019 | December 31, 2018 | |||
Consolidated earnings coverage ratio on long-term debt | 16.8 times | 18.6 times |
RISK FACTORS
Before deciding whether to invest in any Debentures, investors should consider carefully the risks set out herein and incorporated by reference in this Prospectus Supplement, including disclosure in the AIF and CI’s annual and interim management’s discussion and analysis and notes to CI’s financial statements. These documents discuss, among other things, known material trends and events, and risks or uncertainties that may reasonably be expected to have a material effect on CI’s business, financial condition or results of operations or on the Debentures.
There are certain risks inherent in the activities of CI and in an investment in the Debentures, including the following, which investors should consider carefully before investing in the Debentures. This description of the risks does not include all possible risks, and there may be other risks of which CI is not currently aware.
Changes in Creditworthiness
The credit rating assigned to the Debentures by each of the Rating Agencies is not a recommendation to buy, hold or sell the Debentures. A rating is not a comment on the market price of a security nor is it an assessment of ownership given various investment objectives. There can be no assurance that the creditworthiness of CI or that any credit rating assigned to the Debentures will remain in effect for any given period of time and ratings may be upgraded, downgraded, placed under review, confirmed and discontinued by either or both of the Rating Agencies at any time. Real or anticipated lowering or withdrawal of credit ratings of the Debentures may adversely affect the market price or value and the liquidity of the Debentures. In addition, real or anticipated changes in credit ratings can affect the cost at which CI can access the capital markets. See “Credit Ratings”.
S-14
Market Value Risk
Prevailing interest rates will affect the market value of the Debentures. The price or market value of the Debentures will decline as prevailing interest rates for comparable securities rise. CI may choose to redeem Debentures from time to time, in whole or in part, in accordance with its rights described under “Details of the Offering – Redemption”, including when prevailing interest rates are lower than the yield borne by the Debentures. If prevailing rates are lower at the time of redemption, a holder may not be able to reinvest the redemption proceeds in a comparable security at an effective yield as high as the yield on the Debentures being redeemed.
Liquidity Risk
The Debentures constitute a new issue of securities with no established trading market. In addition, CI does not intend to list the Debentures on any exchange. As a result, the trading market for the Debentures may not be active or liquid. There can be no assurance that an active market for the Debentures will develop or be sustained or that holders of the Debentures will be able to sell their Debentures at any particular price or at all.
Ranking of the Debentures
The Debentures are unsecured obligations of CI and will not be secured by any of its assets. CI will agree in the Trust Indenture not to create, assume or suffer to exist any Security Interest on its property to secure any obligation unless the Debentures are also secured equally and rateably, subject to Permitted Encumbrances. Holders of or those entitled to Permitted Encumbrances will therefore have a claim on the assets of CI that ranks in priority to the claims of holders of the Debentures and will have a claim that ranks equally with the claims of holders of the Debentures to the extent that the security constituting Permitted Encumbrances is insufficient to satisfy their claims.
No Limitation on Indebtedness
The Trust Indenture and the First Supplement will not limit CI from incurring additional indebtedness, although they will limit the incurrence of Specified Indebtedness by Subsidiaries of CI. See “Details of the Offering – Covenants”. The degree to which CI is leveraged on a consolidated basis could have important consequences, including:
(a) | CI’s ability to obtain additional financing for working capital or other purposes may be limited; |
(b) | CI may be unable to refinance indebtedness coming due on terms acceptable to CI or at all; and |
(c) | defaults under other indebtedness may cause an Event of Default under the Debentures. |
Change of Control Repurchase
If a Change of Control Triggering Event occurs, CI will be required to offer to repurchase outstanding Debentures at 101% of the principal amount thereof plus accrued and unpaid interest, if any. It is possible that CI will not have sufficient funds at the time of such Change of Control Triggering Event to make any required repurchases. Failure to purchase tendered Debentures would constitute an Event of Default under the Debentures.
Structural Subordination of the Debentures
Liabilities of a parent entity, such as CI, with assets held by various subsidiaries will result in the structural subordination of the lenders to the parent entity. The parent entity is entitled only to the residual equity of its subsidiaries after all debt obligations of its subsidiaries are discharged. In addition, the Debentures will not be guaranteed by any of the Subsidiaries of CI, although CI will agree to limit the incurrence of Specified Indebtedness by Subsidiaries of CI as described under “Details of the Offering – Covenants”. In the event of a bankruptcy, liquidation or reorganization of CI, holders of indebtedness of CI (including holders of the Debentures) will be subordinate to lenders to the Subsidiaries of CI.
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CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Blake, Cassels & Graydon LLP, counsel to CI, and Torys LLP, counsel to the Agents, the following is, as of the date of this Prospectus Supplement, a summary of the principal Canadian federal income tax considerations generally applicable under the Tax Act to a prospective purchaser who acquires, as beneficial owner, Debentures pursuant to the Offering and who, at all relevant times, for purposes of the Tax Act, is resident or deemed to be resident in Canada, deals at arm’s length with CI and the Agents, is not affiliated with CI or the Agents, and holds the Debentures as capital property (a “Holder”). Generally, Debentures will be considered to be capital property to a Holder provided that the Holder does not acquire or hold the Debentures in the course of carrying on a business and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade. Certain purchasers who might not otherwise be considered to hold their Debentures as capital property may be entitled to have them treated as capital property by making the irrevocable election permitted by subsection 39(4) of the Tax Act. Such purchasers should consult their own tax advisors regarding their particular circumstances.
This summary is not applicable to (i) a Holder that is a “financial institution” (as defined in the Tax Act for purposes of the mark-to-market rules), (ii) a Holder an interest in which is a “tax shelter investment” (as defined in the Tax Act), or (iii) a Holder who has elected to report its “Canadian tax results” (as defined in the Tax Act) in a currency other than Canadian currency, or (iv) a Holder that has entered or will enter into a “derivative forward agreement” (as defined in the Tax Act) in respect of the Debentures. Such Holders should consult their own tax advisors regarding their particular circumstances.
This summary is based on the facts set out in this Prospectus Supplement, the current provisions of the Tax Act and counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency made publicly available prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”) and assumes that all Proposed Amendments will be enacted in the form proposed. However, no assurances can be given that the Proposed Amendments will be enacted as proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative policies or assessing practices, whether by legislative, administrative or judicial action or interpretation nor does it take into account tax legislation or considerations of any province, territory or foreign jurisdiction, which may be different from those discussed herein.
This summary is not exhaustive of all possible Canadian federal income tax considerations applicable to an investment in Debentures. The income and other tax consequences of acquiring, holding or disposing of Debentures will vary depending on the purchaser’s particular circumstances. Accordingly, this summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any purchaser. Purchasers should consult their own tax advisors for advice with respect to the tax consequences of an investment in Debentures based on their particular circumstances.
Taxation of Interest on the Debentures
A Holder that is a corporation, partnership, unit trust or trust of which a corporation or partnership is a beneficiary will be required to include in computing its income for a taxation year all interest on a Debenture that accrues or is deemed to accrue to the Holder to the end of that taxation year, or becomes receivable or is received by the Holder before the end of that taxation year, except to the extent that such amount was included in the Holder’s income for a preceding taxation year.
Any other Holder, including an individual (other than certain trusts), will be required to include in computing its income for a taxation year any interest on a Debenture that is received or receivable by such Holder in that taxation year (depending upon the method regularly followed by the Holder in computing income), to the extent that such amount was not otherwise included in the Holder’s income for a preceding taxation year. If in a taxation year such a Holder holds a Debenture which is an “investment contract” (as defined in the Tax Act) on any “anniversary day” (as defined in the Tax Act), such Holder will also be required to include in its income for the taxation year any interest on the Debenture which accrues to the Holder to the end of such day, to the extent that such interest was not otherwise included in computing the Holder’s income for the taxation year or a preceding taxation year.
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On a disposition or deemed disposition of a Debenture, including a redemption, payment on maturity, repurchase pursuant to a Change of Control Offer or other purchase for cancellation, a Holder will generally also be required to include in income for the taxation year in which the disposition occurs the amount of interest accrued or deemed to accrue on the Debenture to the date of disposition to the extent that such amount has not otherwise been included in the Holder’s income for the taxation year or a preceding taxation year.
Any premium paid by CI to a Holder as a penalty or bonus on redemption or repurchase of a Debenture before its maturity, including as a result of CI’s exercise of its optional redemption right, or as a result of CI’s repurchase pursuant to a Change of Control Offer, will generally be deemed to be received by the Holder as interest on the Debenture at the time of the redemption or repurchase to the extent that it can reasonably be considered to relate to, and does not exceed the value at the time of the redemption or repurchase of, the interest that, but for the redemption or repurchase, would have been paid or payable by CI on the Debenture for a taxation year ending after the redemption or repurchase and will be required to be included in computing the Holder’s income as described above.
A Holder that throughout the year is a “Canadian-controlled private corporation” (as defined in the Tax Act) may also be liable to pay an additional refundable tax on its “aggregate investment income” (as defined in the Tax Act) for the year, which will generally include interest income.
Disposition of Debentures
In general, a disposition or deemed disposition of a Debenture, including a redemption, payment on maturity, repurchase pursuant to a Change of Control Offer or other purchase for cancellation, will give rise to a capital gain (or capital loss) to the extent that the proceeds of disposition, net of any amount included in the Holder’s income on such disposition or deemed disposition as interest (see the discussion above under the heading “Taxation of Interest on the Debentures”), exceed (or are less than) the adjusted cost base of the Debenture to the Holder immediately before the disposition or deemed disposition and any reasonable costs of disposition.
One half of the amount of any capital gain (a “taxable capital gain”) realized by a Holder in a taxation year generally must be included in the Holder’s income in that year. One half of the amount of any capital loss (an “allowable capital loss”) realized by a Holder in a taxation year generally must be deducted from taxable capital gains realized by the Holder in that year, and allowable capital losses in excess of taxable capital gains in any particular year may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years to the extent and under the circumstances described in the Tax Act. A capital gain realized by an individual (other than certain trusts) may give rise to a liability for alternative minimum tax. As discussed above, a Holder that is throughout the year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable for an additional refundable tax on its “aggregate investment income” (as defined in the Tax Act) for the year, which will generally include amounts in respect of taxable capital gains.
LEGAL MATTERS
In connection with the issue and sale of the Debentures, certain legal matters will be passed upon on behalf of CI by Blake, Cassels & Graydon LLP and on behalf of the Agents by Torys LLP. As of the date hereof, the partners and associates of Blake, Cassels & Graydon LLP, and of Torys LLP, each as a group, beneficially own, directly or indirectly, less than 1% of any outstanding class or series of securities of CI or any associated party or affiliate of CI.
TRUSTEE
The Trustee is Computershare Trust Company of Canada, at its office in Toronto, Ontario.
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PURCHASERS’ STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION
Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revision of the price or damages if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission, revision of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal adviser.
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APPENDIX A
TEMPLATE INVESTOR PRESENTATION
A-1
CERTIFICATE OF AGENTS
Dated: July 18, 2019
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this supplement as required by the securities legislation of all the provinces of Canada.
C-1
Exhibit 99.47
A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinces of Canada. A copy of the final base shelf prospectus, any amendment to the final base shelf prospectus and any applicable shelf prospectus supplement that has been filed, is required to be delivered with this document.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final base shelf prospectus, any amendment and any applicable shelf prospectus supplement for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
There is no market through which the securities may be sold and purchasers may not be able to resell the securities purchased under the prospectus supplement. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities and the extent of issuer regulation.
CI Financial Corp.
·% Debentures due 2024
INDICATIVE TERM SHEET
July 18, 2019
Issuer | CI Financial Corp. (“CI”) | |
Issue | ·% Debentures due July 22, 2024 (the “Debentures”) issued via a Prospectus Supplement to the Short Form Base Shelf Prospectus dated December 22, 2017 | |
Principal Amount | Minimum $300 million | |
Term | 5-year | |
Interest Rate | ·% per annum from issuance to July 22, 2024 | |
Interest Payment Dates | From issuance to July 22, 2024, payable semi-annually in arrears on January 22 and July 22 of each year, with the first payment date on January 22, 2020 | |
Issue Spread(1) | Redacted in accordance with subsection 9A.3(4) of National Instrument 44-102. | |
Maturity Date | July 22, 2024 | |
Redemption | CI may, at its option, redeem the Debentures, in whole or in part any time prior to the Par Call Date, on not less than 30 nor more than 60 days’ prior notice to the registered holder at a redemption price equal to the greater of the Canada Yield Price (as defined herein) and par, together in each case with accrued and unpaid interest up to but excluding the date fixed for redemption | |
The Debentures may be redeemed in whole or in part at any time on or after the Par Call Date at 100% of the aggregate principal amount outstanding of the Debentures being redeemed, plus accrued and unpaid interest on such amount up to but excluding the date fixed for redemption | ||
Canada Yield Price | “Canada Yield Price” on any redemption date means a price which, if the Debentures were to be issued at such price on such date, would provide a yield thereon from such date to the Par Call Date, equal to the Government of Canada Yield, plus · bps, compounded semi-annually and calculated on the day that is three business days prior to the date of redemption | |
Government of Canada Yield | “Government of Canada Yield” on any date means, with respect to the Debentures, the average mid-market yields to maturity on such date provided by two independent investment dealers selected by CI and approved by the Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce, if issued at par on such date, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date of the Debentures |
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Par Call Date | June 22, 2024 (1 month prior to Maturity Date) | |
Yield | ·% | |
Settlement | July 22, 2019 (T+2) | |
Price | $· | |
Expected Credit Ratings(2) (3) | DBRS: BBB (high), trend Negative S&P: BBB+ | |
Rank | The Debentures will be direct and unsecured obligations of CI and will rank pari passu with all existing or future unsecured and unsubordinated indebtedness of CI | |
Covenants | Negative Pledge, Limitation on Subsidiary Indebtedness, Limitation on Merger or Sale of Assets, Change of Control, Cross-Default | |
Use of Proceeds | Primarily to repay outstanding indebtedness under the Credit Facility (as defined in the Prospectus Supplement) and for general corporate purposes | |
CUSIP / ISIN | 125491AL4 / CA125491AL40 | |
Syndicate | CIBC World Markets Inc. (Joint Bookrunner) | |
National Bank Financial Inc. (Joint Bookrunner) | ||
BMO Nesbitt Burns Inc. | ||
Manulife Securities Incorporated | ||
Scotia Capital Inc. | ||
TD Securities Inc. | ||
Casgrain & Company Limited | ||
GMP Securities L.P. |
The Debentures will be issued under and pursuant to the provisions of a first supplemental indenture to the trust indenture to be dated July 22, 2019 (the “Trust Indenture”) between CI and Computershare Trust Company of Canada, as the trustee (the “Trustee”). The foregoing is a brief summary of certain attributes of the Debentures which does not purport to be complete. Should any conflict arise between this summary and the Trust Indenture, the terms of the Trust Indenture will govern.
(1) Redacted in accordance with subsection 9A.3(4) of National Instrument 44-102.
(2) A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
(3) Standard & Poor’s Ratings Services has provided CI with a provisional issuer credit rating of “BBB+” with a “Negative” outlook.
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Exhibit 99.48
A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinces of Canada. A copy of the final base shelf prospectus, any amendment to the final base shelf prospectus and any applicable shelf prospectus supplement that has been filed, is required to be delivered with this document.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final base shelf prospectus, any amendment and any applicable shelf prospectus supplement for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
There is no market through which the securities may be sold and purchasers may not be able to resell the securities purchased under the prospectus supplement. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities and the extent of issuer regulation.
CI Financial Corp.
3.215% Debentures due 2024
FINAL TERM SHEET
July 18, 2019
Issuer | CI Financial Corp. (“CI”) | |
Issue | 3.215% Debentures due July 22, 2024 (the “Debentures”) issued via a Prospectus Supplement to the Short Form Base Shelf Prospectus dated December 22, 2017 | |
Principal Amount | $350 million | |
Term | 5-year | |
Interest Rate | 3.215% per annum from issuance to July 22, 2024 | |
Interest Payment Dates | From issuance to July 22, 2024, payable semi-annually in arrears on January 22 and July 22 of each year, with the first payment date on January 22, 2020 | |
Issue Spread(1) | Redacted in accordance with subsection 9A.3(4) of National Instrument 44-102. | |
Maturity Date | July 22, 2024 | |
Redemption | CI may, at its option, redeem the Debentures, in whole or in part any time prior to the Par Call Date, on not less than 30 nor more than 60 days’ prior notice to the registered holder at a redemption price equal to the greater of the Canada Yield Price (as defined herein) and par, together in each case with accrued and unpaid interest up to but excluding the date fixed for redemption | |
The Debentures may be redeemed in whole or in part at any time on or after the Par Call Date at 100% of the aggregate principal amount outstanding of the Debentures being redeemed, plus accrued and unpaid interest on such amount up to but excluding the date fixed for redemption | ||
Canada Yield Price | “Canada Yield Price” on any redemption date means a price which, if the Debentures were to be issued at such price on such date, would provide a yield thereon from such date to the Par Call Date, equal to the Government of Canada Yield, plus 44.5 bps, compounded semi-annually and calculated on the day that is three business days prior to the date of redemption | |
Government of Canada Yield | “Government of Canada Yield” on any date means, with respect to the Debentures, the average mid-market yields to maturity on such date provided by two independent investment dealers selected by CI and approved by the Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce, if issued at par on such date, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date of the Debentures |
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Par Call Date | June 22, 2024 (1 month prior to Maturity Date) | |
Yield | 3.215% | |
Settlement | July 22, 2019 (T+2) | |
Price | $1,000.00 | |
Expected Credit | DBRS: BBB (high), trend Negative | |
Ratings(2) (3) | S&P: BBB+ | |
Rank | The Debentures will be direct and unsecured obligations of CI and will rank pari passu with all existing or future unsecured and unsubordinated indebtedness of CI | |
Covenants | Negative Pledge, Limitation on Subsidiary Indebtedness, Limitation on Merger or Sale of Assets, Change of Control, Cross-Default | |
Use of Proceeds | Primarily to repay outstanding indebtedness under the Credit Facility (as defined in the Prospectus Supplement) and for general corporate purposes | |
CUSIP / ISIN | 125491AL4 / CA125491AL40 | |
Syndicate | CIBC World Markets Inc. (Joint Bookrunner) | |
National Bank Financial Inc. (Joint Bookrunner) | ||
BMO Nesbitt Burns Inc. | ||
Manulife Securities Incorporated | ||
Scotia Capital Inc. | ||
TD Securities Inc. | ||
Casgrain & Company Limited | ||
GMP Securities L.P. |
The Debentures will be issued under and pursuant to the provisions of a first supplemental indenture to the trust indenture to be dated July 22, 2019 (the “Trust Indenture”) between CI and Computershare Trust Company of Canada, as the trustee (the “Trustee”). The foregoing is a brief summary of certain attributes of the Debentures which does not purport to be complete. Should any conflict arise between this summary and the Trust Indenture, the terms of the Trust Indenture will govern.
(1) Redacted in accordance with subsection 9A.3(4) of National Instrument 44-102.
(2) A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
(3) Standard & Poor’s Ratings Services has provided CI with a provisional issuer credit rating of “BBB+” with a “Negative” outlook.
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Exhibit 99.49
Execution Version
CI FINANCIAL CORP.
and
COMPUTERSHARE TRUST COMPANY OF CANADA
TRUST INDENTURE
Dated as of
July 22, 2019
Providing for the Creation and Issuance of Debt Securities
TABLE OF CONTENTS | ||
Page | ||
ARTICLE 1 INTERPRETATION | 1 | |
1.1 | Definitions | 1 |
1.2 | Accounting Principles | 11 |
1.3 | Headings and Table of Contents | 12 |
1.4 | Section and Schedule References | 12 |
1.5 | Governing Law | 12 |
1.6 | Currency | 12 |
1.7 | Non-Business Days | 12 |
1.8 | Time | 13 |
1.9 | Reference to Statutes | 13 |
1.10 | Severability | 13 |
1.11 | Number, Gender and Expressions | 13 |
1.12 | Independence of Covenants | 13 |
1.13 | Interest Payments and Calculations | 13 |
1.14 | English Language | 14 |
1.15 | No Conflict with Series Supplements | 14 |
1.16 | Form of Documents Delivered to Trustee | 14 |
1.17 | Exhibit A | 16 |
ARTICLE 2 THE DEBT SECURITIES | 16 | |
2.1 | No Fixed Limitation | 16 |
2.2 | Principal Terms of a Series | 16 |
2.3 | Currency and Denominations | 18 |
2.4 | Form of Definitive Debt Securities | 18 |
2.5 | Form of Interim Debt Securities | 19 |
2.6 | Execution | 19 |
2.7 | Certification by Trustee | 20 |
2.8 | Certifying Agent | 20 |
2.9 | Paying Agent | 21 |
2.10 | Registrar | 23 |
2.11 | Transfer Agent | 26 |
2.12 | Registration of Exchanges and Transfers | 26 |
2.13 | Persons Entitled to Payment | 27 |
2.14 | Cancellation of Debt Securities | 28 |
2.15 | Mutilated, Lost, Stolen or Destroyed Debt Securities | 28 |
2.16 | Access to Lists of Holders | 29 |
2.17 | Global Securities | 30 |
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TABLE OF CONTENTS | ||
(continued) | ||
Page | ||
ARTICLE 3 REDEMPTIONS AND PURCHASES; SINKING FUNDS | 31 | |
3.1 | Redemption | 31 |
3.2 | Sinking Fund | 34 |
3.3 | Purchase of Debt Securities | 35 |
ARTICLE 4 PAYMENTS; PRIORITY ARRANGEMENTS | 35 | |
4.1 | Provisions for Payment | 35 |
4.2 | Interest Payments | 35 |
4.3 | Currency Indemnity | 37 |
4.4 | Ranking of Debt Securities | 37 |
ARTICLE 5 REPRESENTATIONS, WARRANTIES AND COVENANTS OF ISSUER | 38 | |
5.1 | Representations and Warranties | 38 |
5.2 | Positive Covenants | 39 |
5.3 | Negative Pledge | 42 |
5.4 | Trustee May Perform Covenants | 42 |
ARTICLE 6 EVENTS OF DEFAULT AND REMEDIES | 43 | |
6.1 | Events of Default | 43 |
6.2 | Acceleration of Maturity; Rescission and Annulment | 44 |
6.3 | Remedies | 45 |
6.4 | Trustee May File Proofs of Claim | 45 |
6.5 | Enforcement Without Possession of Debt Securities | 46 |
6.6 | Application of Money Collected | 46 |
6.7 | Notice of Event of Default | 46 |
6.8 | Restoration of Rights and Remedies | 47 |
6.9 | Rights and Remedies Cumulative | 47 |
6.10 | Waiver of Defaults | 47 |
6.11 | Holders May Direct Trustee’s Action | 48 |
6.12 | Limitation of Trustee’s Liability | 48 |
ARTICLE 7 SUITS BY HOLDERS AND TRUSTEE | 48 | |
7.1 | Holders May Not Sue | 48 |
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TABLE OF CONTENTS | ||
(continued) | ||
Page | ||
ARTICLE 8 THE TRUSTEE | 49 | |
8.1 | Duties of Trustee | 49 |
8.2 | Employ Agents | 49 |
8.3 | Reliance on Evidence of Compliance | 50 |
8.4 | Provision of Evidence of Compliance to Trustee | 50 |
8.5 | Contents of Evidence of Compliance | 50 |
8.6 | Advice of Experts | 51 |
8.7 | Trustee May Deal in Debt Securities | 51 |
8.8 | Conditions Precedent to Trustee’s Obligation to Act | 51 |
8.9 | Trustee Not Required To Give Security | 52 |
8.10 | Resignation or Removal of Trustee; Conflict of Interest | 52 |
8.11 | Authority to Carry on Business; Resignation | 53 |
8.12 | Protection of Trustee | 53 |
8.13 | Additional Representations and Warranties of Trustee | 55 |
8.14 | Acceptance of Trusts by Trustee | 55 |
8.15 | Privacy Laws | 56 |
8.16 | Anti-Money Laundering | 56 |
ARTICLE 9 NOTICES | 56 | |
9.1 | Notice to CI | 56 |
9.2 | Notice to Holders | 57 |
9.3 | Notice to Trustee | 57 |
ARTICLE 10 HOLDERS ACTIONS AND MEETINGS | 58 | |
10.1 | Holder Actions | 58 |
10.2 | Meetings of Holders | 60 |
10.3 | Additional Powers Exercisable by Holder Direction | 62 |
10.4 | Powers Cumulative | 62 |
10.5 | Regulations | 63 |
ARTICLE 11 AMALGAMATION; CONSOLIDATION; CONVEYANCE; TRANSFER | 64 | |
11.1 | Amalgamation and Consolidations of Issuer | 64 |
11.2 | Rights and Duties of Successor Issuer | 64 |
11.3 | Actions by Successor | 65 |
11.4 | Officer’s Certificate and Opinion of Counsel | 65 |
ARTICLE 12 SUPPLEMENTAL INDENTURES AND AMENDMENTS | 65 | |
12.1 | Series Supplements | 65 |
12.2 | Supplemental Indentures | 65 |
ARTICLE 13 DEFEASANCE; SATISFACTION AND DISCHARGE | 67 | |
13.1 | Defeasance | 67 |
13.2 | Satisfaction and Discharge | 69 |
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TABLE OF CONTENTS | ||
(continued) | ||
Page | ||
ARTICLE 14 GENERAL | 69 | |
14.1 | Force Majeure | 69 |
14.2 | Third Party Interest | 70 |
14.3 | Binding Effect | 70 |
14.4 | Counterparts | 70 |
EXHIBIT A TO THE TRUST INDENTURE |
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TRUST INDENTURE
THIS TRUST INDENTURE dated as of July 22, 2019,
BETWEEN:
CI FINANCIAL CORP., a corporation existing under the laws of Ontario (hereinafter called “CI”)
OF THE FIRST PART,
-and-
COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company existing under the laws of Canada, (hereinafter called the “Trustee”)
OF THE SECOND PART,
WHEREAS CI wishes to issue from time to time Debt Securities in the manner provided for in this Indenture;
AND WHEREAS all things necessary have been done and performed to make the Debt Securities and instruments evidencing the same when certified by the Trustee and issued as in this Indenture provided, valid, binding and legal obligations of CI with the benefits and subject to the terms of this Indenture and any supplemental indenture issued in connection therewith;
AND WHEREAS the foregoing recitals and any statements of fact in this Indenture or in the Debt Securities (except for the representations contained in subsection 8.10(1) and sections 8.11 and 8.13 and in the certificate of the Trustee on the Debt Securities) are and shall be deemed to be made by CI and not by the Trustee;
NOW THEREFORE THIS INDENTURE WITNESSES that, for good and valuable consideration, the receipt and sufficiency of which are acknowledged by CI and the Trustee, it is agreed as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Indenture, the following terms shall have the meanings specified below unless there is something in the subject matter or context that is inconsistent therewith:
“Affiliate” shall mean an “affiliate” as defined in the Business Corporations Act (Ontario).
“Applicable Law” shall mean, at any time, with respect to any Person, property, transaction, event or other matter, as applicable, all laws, rules, statutes, regulations, treaties, orders, judgments and decrees, and all official requests, directives, rules, orders and other requirements of any Governmental Authority relating or applicable at such time to such Person, property, transaction, event or other matter, and shall also include any interpretation thereof by any Person having jurisdiction over it or charged with its administration or interpretation.
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“Applicable Securities Law” shall mean any Applicable Law in any jurisdiction regulating, or regulating disclosure with respect to, any sale or distribution or trading of securities in, or to residents of, such jurisdiction.
“Applicants” shall have the meaning specified in subsection 2.16(2).
“Book-Entry System” shall mean, in relation to the Global Debt Securities of a Series, the debt clearing, record entry, transfer and pledge systems and services established and operated by or on behalf of the related Depository for such Series (including where applicable pursuant to one or more agreements between such Depository and its Participants establishing the rules and procedures for such systems and services).
“Bearer Debt Security” shall mean a Debt Security issued in bearer form and which is payable to the bearer from time to time of such Debt Security, and shall include, where the context so requires, the coupons of such Debt Security.
“Business Day” shall mean a day on which Canadian chartered banks are open for business in Toronto, Ontario, other than a Saturday, Sunday or statutory or civic holiday in Toronto, Ontario.
“Canadian Dollars” or “$” shall mean lawful currency of Canada.
“Canadian Government Obligation” shall mean:
(a) | any security which is: |
(i) | a direct obligation of Canada for the payment of which the full faith and credit of Canada is pledged; or |
(ii) | an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of Canada the payment of which is unconditionally guaranteed as a full faith and credit obligation by Canada, and which, in any case, is not callable or redeemable at the option of CI or such Person, and |
(b) | any depositary receipt issued by a bank named in Schedule I of the Bank Act (Canada) as custodian with respect to any Canadian Government Obligation which is specified in paragraph (a) of this definition and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any Canadian Government Obligation which is so specified and held, provided that (except as required by Applicable Law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Canadian Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. |
“CDS” shall mean CDS Clearing and Depository Services Inc., together with its successors from time to time.
“Certifying Agent” shall have the meaning specified in subsection 2.8(1).
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“Certificate of CI” shall mean (i) with respect to CI, a written certificate signed in the name of CI by any Responsible Officer of CI and (ii) with respect to a Guarantor Subsidiary, a written certificate signed in the name of the Guarantor Subsidiary by any Responsible Officer of the Guarantor Subsidiary.
“CI” has the meaning specified in the first paragraph of this Indenture, and shall include its successors from time to time pursuant to the applicable provisions of this Indenture.
“Clearing Agency” shall mean, in relation to a Series issuable in whole or in part in the form of one or more Global Debt Securities, (i) CDS, or (ii) any other organization recognized as a “clearing agency” pursuant to Applicable Securities Law specified for such purpose in the related Series Supplement.
“contested” shall mean contested in good faith by appropriate proceedings promptly initiated and diligently conducted.
“Counsel” shall mean, in the case of Counsel to the Trustee, any barrister, solicitor or other lawyer or firm of barristers, solicitors or other lawyers retained or employed by the Trustee (who may, except as otherwise expressly provided in this Indenture, also be Counsel to CI) and, in the case of Counsel to CI, any barrister, solicitor or other lawyer or firm of barristers, solicitors or other lawyers retained or employed by CI.
“Debt Instrument” shall mean any bond, debenture, note or other evidence of Indebtedness of any kind, nature or description whatsoever, each of which is a “Type” of Debt Instrument.
“Debt Security” shall mean any Debt Instrument executed by CI and certified and delivered by the Trustee from time to time pursuant to this Indenture, and “Type” of Debt Security shall mean the Type of Debt Instrument so issued and certified.
“Declaration of Acceleration” shall mean, in relation to a Series, a declaration of acceleration with respect to such Series made under subsection 6.2(1), subsection 6.2(2) or the related Series Supplement.
“Default” shall mean, with respect to a Series, any occurrence that is, or with notice or the lapse of time or both would become, an Event of Default with respect to such Series.
“Default Interest” shall have the meaning specified in subsection 4.2(3).
“Defeasance” shall have the meaning specified in paragraph 13.1(2).
“Definitive Bearer Debt Security” shall mean, with respect to a Series, a Bearer Debt Security in the definitive form specified or provided for in the related Series Supplement.
“Definitive Debt Security” shall mean, with respect to a Series, a Debt Security, whether in bearer or registered form, in the definitive form specified or provided for in the related Series Supplement.
“Depository” shall mean, with respect to a Series issuable in whole or in part in the form of one or more Global Debt Securities, the Clearing Agency designated in or pursuant to the related Series Supplement as the Depository for such Series, together with its successors in such capacity.
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“Equivalent Amount” shall mean, with respect to any two currencies, the amount obtained in one such currency when an amount in the other currency is translated into the first currency for the purchase of the applicable amount of the first currency with the other currency using the daily average exchange rate published by the Bank of Canada on the immediately preceding Business Day with respect to which such computation is required for the purpose of this Indenture or the other applicable Series Specific Document or, in the absence of such a rate on such date, using such other rate as the Trustee, the related Registrar or the related Paying Agent, as the case may be, may reasonably select.
“Event of Default” shall mean, with respect to a Series, any of the events identified in section 6.1, or in the related Series Supplement, as being an Event of Default with respect to such Series.
“Global Debt Security” shall mean a Debt Security of a Series in global form, whether in bearer or registered form.
“Governmental Authority” shall mean, when used with respect to any Person, any government, parliament, legislature, regulatory authority, agency, tribunal, department, commission, board, instrumentality, court, arbitration board or arbitrator or other law, regulation or rule making entity (including a Minister of the Crown, any central bank, Superintendent of Financial Institutions or other comparable authority or agency) having or purporting to have jurisdiction on behalf of, or pursuant to the laws of, Canada or any country in which such Person is incorporated, continued, amalgamated, merged or otherwise created or established or in which such Person has an undertaking, carries on business or holds property, or any province, territory, state, municipality, district or political subdivision of any such country or of any such province, territory or state of such country.
“Guarantee” means a guarantee of Debt Securities provided by a Guarantor Subsidiary, if, as and to the extent provided in a Series Supplement.
“Guarantor Subsidiary” means, if and as so specified with respect to a Series in a Series Supplement, a Subsidiary of CI which provides a Guarantee of Debt Securities.
“Holder” shall mean, with respect to a Bearer Debt Security, including a coupon of a Bearer Debt Security, the Person having possession of such Bearer Debt Security or coupon, and with respect to a Registered Debt Security, the Person in whose name such Registered Debt Security is registered in the relevant Register in accordance with this Indenture (and including, for greater certainty, in the case of any Global Debt Security, the applicable Depository or its nominee which has possession of such Global Debt Security or in whose name such Global Debt Security is registered, as the case may be).
“Holder Action” shall mean any request, demand, authorization, direction, notice, consent, waiver or other action of any nature or kind given, made or taken, or to be given, made or taken, by one or more Holders under or in respect of this Indenture or any Debt Securities.
“Holder Direction” shall mean:
(a) in respect of a Holder Action by Holders of a Series solely in relation to such Series:
(i) | an approval of or direction to make, give or take such Holder Action given by Holders of at least 66.67% (or such other percentage as is specifically prescribed herein with respect to a particular Holder Action) of the unpaid principal amount of such Series voted at a duly constituted meeting of such Holders; or |
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(ii) | an approval of or direction to make, give or take such Holder Action given pursuant to an instrument in writing signed in one or more counterparts by Holders of at least 66.67% (or such other percentage as is specifically prescribed herein with respect to a particular Holder Action) of the unpaid principal amount of such Series; or |
(b) in respect of a Holder Action by Holders of more than one Series in relation to more than one Series:
(i) | an approval of or direction to make, give or take such Holder Action given by Holders of at least 66.67% of the aggregate unpaid principal amount of all such Series voted at a duly constituted meeting of such Holders; or |
(ii) | an approval of or direction to make, give or take such Holder Action given pursuant to an instrument in writing signed in one or more counterparts by the Holders of at least 66.67% of the aggregate unpaid principal amount of all such Series. |
“including” shall mean including without limitation; and “include” or “includes” shall mean, respectively, include without limitation or includes without limitation.
“Indebtedness” shall mean, with respect to any Person, (i) all indebtedness of such Person for borrowed money and all liabilities of such Person to pay money, whether originally incurred or subsequently assumed, and whether or not evidenced by notes, debentures or other like written instruments and (ii) all indebtedness and liabilities of the nature referred to in the preceding clause (i) of any other Person which such Person has guaranteed.
“Indenture” shall mean (i) this trust indenture as originally executed, including the Schedules to this Indenture, as the same may be supplemented (other than by a Series Supplement), amended (other than by a Series Supplement), consolidated or restated from time to time, and (ii) with respect to a particular Series, this Indenture as defined in clause (i) above as supplemented by the related Series Supplement; and the expressions “hereto”, “herein”, “hereof”, “hereby”, “hereunder”, and similar expressions refer to this Indenture and not to any particular Article, section, subsection, paragraph, clause or other part of this Indenture.
“Indenture Amendment” shall have the meaning specified in subsection 12.2(1).
“Interest Payment Date” shall mean, with respect to any accrued interest on any Debt Security, the Stated Maturity of such interest.
“Investment Certificate” shall mean any contract, agreement, certificate, instrument or writing containing an undertaking by a corporation making, issuing or guaranteeing it to pay to the holder thereof, or such holder’s assignee or personal representative, or other Person, a stated or determinable maturity value in cash or its equivalent on a fixed or determinable date and containing optional settlement, cash surrender or loan values prior to or after maturity, the consideration for which consists of payments made or to be made to the corporation in installments or periodically, or of a single sum, according to a plan fixed by the contract regardless of whether the holder is or may be entitled to share in the profits or earnings of, or to receive additional credits or sums from, the corporation.
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“issued” shall mean, in relation to a Debt Security, that such Debt Security has been executed by CI, certified by the Trustee as provided herein, and delivered by or on behalf of CI.
“Issuer Order” or “Issuer Request” shall mean a written order or request signed in the name of CI by a Responsible Officer.
“Material Adverse Effect” shall mean, with respect to a Series, a material adverse effect on (i) the business, operations, prospects, properties or condition, financial or otherwise, of CI, or (ii) CI’s ability to perform its obligations and liabilities under this Indenture and the other Series Specific Documents for such Series.
“Maturity” shall mean, with respect to any principal of a Debt Security, the date on which such principal becomes due and payable, whether at Stated Maturity or by Declaration of Acceleration, call for redemption or otherwise.
“Notice” shall have the meaning specified in section 9.1.
“Offering Document” shall mean, with respect to a Series, any prospectus, prospectus supplement, offering memorandum or similar disclosure document prepared by or on behalf of CI for delivery to purchasers, or prospective purchasers, of such Series in connection with the initial sale of such Series.
“Office” or “Agency” shall mean, with respect to a Series, an office or agency of CI, the Trustee, the related Registrar or the related Paying Agent, as the case may be, maintained or designated in the Place of Payment for such Series pursuant to this Indenture or the related Series Supplement or any other office or agency of CI, the Trustee, the related Registrar or the related Paying Agent, as the case may be, maintained or designated for such Series pursuant to this Indenture and the related Series Supplement.
“Opinion of Counsel” shall mean a written opinion addressed to the Trustee (among other addressees) by legal counsel who may, except as otherwise expressly provided in this Indenture, be Counsel for CI, and who shall be reasonably satisfactory to the Trustee.
“Organizational Documents” shall mean, with respect to any Person, such Person’s articles or other charter documents, by-laws, unanimous shareholder agreement, partnership agreement, joint venture agreement, operating agreement, declaration of trust or trust agreement, as applicable, and any and all other similar agreements, documents and instruments relative to such Person.
“Original Currency” shall have the meaning specified in section 4.3.
“Other Currency” shall have the meaning specified in section 4.3.
“Other Series Agent” shall mean, with respect to any Series, a Person appointed in or pursuant to the related Series Supplement to act in any agency or other identified capacity (other than as Depository, Registrar or Paying Agent) for such Series, together with such Person’s successors from time to time in such capacity.
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“Outstanding” shall mean, in relation to a Series, all Debt Securities of such Series issued under this Indenture on or prior to the date of determination, except:
(a) | any such Debt Securities cancelled by the Trustee, or delivered to the Trustee, the related Registrar or the related Paying Agent for cancellation, on or prior to such date; |
(b) | any such Debt Securities for which funds in the necessary amount to repay such Debt Securities have been deposited on or prior to such date with the Trustee, the related Registrar or the related Paying Agent (other than CI) in trust or set aside and segregated in trust by CI (if CI shall act as its own Paying Agent) for the Holders of such Debt Securities; provided that, if such Debt Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision for such notice satisfactory to the Trustee has been made; |
(c) | Debt Securities as to which Defeasance has been effected pursuant to section 13.1; and |
(d) | Debt Securities which have been paid and satisfied in full or in exchange for or in lieu of which other Debt Securities of such Series have been issued other than any such Debt Securities in respect of which there shall have been presented to the Trustee proof satisfactory to the Trustee that such Debt Securities are held by a bona fide purchaser in whose hands such Debt Securities are valid obligations of CI; |
provided, however, that in determining whether Holders of the requisite principal amount of Debt Securities have given, made or taken any Holder Action as of any date, (w) the Outstanding principal amount of a Debt Security shall be the principal of such Debt Security which would be due and payable as of such date upon acceleration of the Maturity of such Debt Security to such date pursuant to a Declaration of Acceleration, (x) if, as of such date, the principal amount of a Debt Security payable at its Stated Maturity is not determinable, the principal amount thereof which shall be deemed to be outstanding shall be the amount as specified in or determined pursuant to the related Series Supplement, (y) the principal amount of a Debt Security denominated in one or more foreign currencies which shall be deemed to be outstanding shall be the Equivalent Amount in Canadian Dollars, determined as of such date, of the principal amount of such Debt Security (or, in the case of a Debt Security described in clause (w) or (x) above, of the amount determined as provided in such clause), and (z) Debt Securities beneficially owned by CI or any other obligor upon such Debt Securities or any Affiliate of CI or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such Holder Action, only Debt Securities which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Debt Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Debt Securities and that the pledgee is not CI or any other obligor upon such Debt Securities or any Affiliate of CI or of such other obligor, provided that the outstanding principal amount of any such pledged Debt Securities as at any date shall be deemed to be only the aggregate of the indebtedness and liabilities of CI secured by such pledge that are outstanding on such date or which the pledgee thereof (or Person on whose behalf the pledgee thereof is acting) is committed on such date to permit CI to incur.
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“Participant” shall mean, in relation to a Depository, a broker, dealer, bank or other financial institution or other Person on whose behalf such Depository or its nominee holds Debt Securities pursuant to a Book-Based System operated by such Depository.
“Paying Agent” shall mean, in relation to a Series, the Person appointed in or pursuant to the related Series Supplement as the paying agent for such Series, in such capacity, together with such Person’s successors from time to time in such capacity.
“Permitted Encumbrances” shall mean, with respect to a Series, Security Interests on the property of CI or, if applicable for a Series, a Guarantor Subsidiary, which are:
(a) | Security Interests for taxes, assessments, governmental charges arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with Canadian generally accepted accounting principles shall have been made; |
(b) | statutory Security Interests of landlords and carriers, warehousemen, mechanics, suppliers, material men, repairmen or other similar Security Interests arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with Canadian generally accepted accounting principles shall have been made; |
(c) | Security Interests incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security; |
(d) | Purchase Money Liens; |
(e) | Security Interests in favour of CI or, if applicable, a Guarantor Subsidiary; |
(f) | Security Interests arising in the ordinary course of business in favour of any bank or other lender on the property of CI or, if applicable, a Guarantor Subsidiary (other than accounts receivable) to secure any liabilities of CI or, if applicable, a Guarantor Subsidiary that do not relate to borrowed money; |
(g) | Security Interests for any judgment rendered, or claim filed, against CI or any Guarantor Subsidiary, which is being contested in good faith by appropriate proceedings, that does not constitute an Event of Default, if during such contestation a stay of enforcement of such judgment or claim is in effect; |
(h) | Security Interests that arise by operation of law; |
(i) | any Security Interest existing on any property of a Person at the time that such Person is acquired by CI or, if applicable, a Guarantor Subsidiary provided that such Security Interest was not incurred in contemplation of or as a result of such acquisition; |
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(j) | any Security Interest existing on any property acquired by CI or, if applicable, a Guarantor Subsidiary, provided that such Security Interest was not incurred in contemplation of or as a result of such acquisition; |
(k) | Security Interests for any final judgments for the payment of money that do not constitute an Event of Default; |
(l) | any Security Interest to secure any Investment Certificate issued by CI or, if applicable, a Guarantor Subsidiary, in the normal course of business; and |
(m) | any extension, renewal, alteration or substitution or replacement of any Security Interest mentioned above provided that it is not extended thereby to any additional property and the principal amount secured thereby is not increased. |
“Person” is to be broadly interpreted and shall include an individual, a corporation, a limited liability company, a partnership, a trust, an unincorporated organization, a joint venture, the government of a country or any political subdivision of a country, or an agency or department of any such government, any other Governmental Authority and the executors, administrators or other legal representatives of an individual in such capacity.
“Place of Payment” shall mean, in relation to a Series, the place or places where the principal of and any premium, interest and other amounts on such Series are payable as specified in the related Series Supplement.
“Principal Terms” shall have the meaning specified in section 2.2.
“Privacy Laws” shall have the meaning specified in section 8.15.
“Proceeding” shall mean any suit, action or other judicial or administrative proceeding.
“property” shall include any asset or property of any nature, kind or description whatsoever (whether real, personal or intellectual and whether tangible or intangible) and any cash, receivables, revenue or undertaking, whether or not shown on a balance sheet in accordance with applicable generally accepted accounting principles.
“Purchase Money Lien” shall mean any Security Interest on property acquired by CI or, if applicable, a Guarantor Subsidiary which was assumed, created, guaranteed, reserved, issued or given to secure or satisfy all or any part of the acquisition price of such property.
“Quorum” shall mean, in relation to a meeting of Holders of one or more Series, a quorum of such Holders determined in accordance with paragraph 10.2(3)(a).
“Rating Agency” shall mean, at any particular time with respect to a Series, a credit rating agency specified in the related Series Supplement which is then rating such Series, or any other credit rating agency selected from time to time by the Trustee to provide a rating, and which is then providing a rating, for such Series.
“Redemption Date” shall mean, with respect to a Debt Security to be redeemed, the date fixed for such redemption by or pursuant to the related Series Supplement.
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“Redemption Price” shall mean, with respect to a Debt Security to be redeemed, the price (including any applicable premium) at which such Debt Security is to be, or may be, redeemed, as specified in the related Series Supplement.
“Register” shall have the meaning specified in paragraph 2.10(a).
“Registered Debt Security” shall mean a Debt Security issued in registered form and which is payable to the registered Holder thereof.
“Registrar” shall mean, in relation to a Series, the Person appointed in or pursuant to the related Series Supplement as the Registrar for such Series, in such capacity, together with such Person’s successors from time to time in such capacity.
“Regular Interest Record Date” shall mean, with respect to a Series and related Interest Payment Date, the date specified in or determined pursuant to the related Series Supplement as the record date for the determination of the Holders to which interest on such Series is payable on such Interest Payment Date, provided that, if the related Series Supplement does not contain any provision specifying or setting out the manner to determine such date, the Regular Interest Record Date for such Series shall mean (i) the fifteenth day of the month immediately preceding the month in which such Interest Payment Date occurs, if such Interest Payment Date is the fourteenth or any preceding day of a month, and (ii) the last day of the month immediately preceding the month in which such Interest Payment Date occurs, if such Interest Payment Date is the fifteenth or any subsequent day of a month.
“Replacement Agent” shall have the meaning specified in subsection 2.15(1).
“Requirements of Law” shall mean, with respect to any Person, the Organizational Documents of such Person and any Applicable Law, or determination of a Governmental Authority, in each case applicable to or binding upon such Person or any of its business or property or to which such Person or any of its business or property is subject.
“Responsible Officer” shall mean, with respect to (i) the Trustee, any Vice President, any Assistant Vice President, any Assistant Secretary, any Assistant Treasurer, any Senior Manager or any Manager, and any other officer of the Trustee customarily performing functions similar to any such office within the corporate trust department of the Trustee and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer’s knowledge of and familiarity with that relevant subject, or (ii) CI, the Chief Executive Officer, the Chief Operating Officer, the President, any Executive Vice President or Senior Vice President, and any other officer of CI customarily performing functions similar to any such office with CI, or (iii) a Guarantor Subsidiary, the Chief Executive Officer, the Chief Operating Officer, the President, any Executive Vice President or Senior Vice President, and any other officer of the Guarantor Subsidiary customarily performing functions similar to any such office with such Guarantor Subsidiary.
“Security Interest” shall mean, for any Person, any assignment, security interest, mortgage, charge (whether fixed or floating), hypothec, pledge, lien or other encumbrance on or interest in property that secures payment of any Indebtedness of such Person, or secures any other item which in accordance with Canadian generally accepted accounting principles would be included as a liability on the liability side of the balance sheet of such Person, or secures any contingent liability of such Person.
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“Series” shall mean all Debt Securities of the same Type issued pursuant to the same Series Supplement, the Principal Terms of which are, subject to the last sentence of section 2.2, identical, whether or not such Debt Securities have been or are to be issued on the same date.
“Series Issuance Date” shall mean, with respect to a Series, the date specified as such in the related Series Supplement.
“Series Specific Documents” shall mean, in relation to a Series, (i) this Indenture including the related Series Supplement, (ii) all Debt Securities of such Series, (iii) all documents and agreements, including those creating any Series Specific Security Interest for such Series, identified in the related Series Supplement as Series Specific Documents for such Series, and (iv) all other agreements, documents, certificates and instruments delivered by CI and, if and as applicable, a Guarantor Subsidiary, to the Trustee pursuant to, or in respect of, any of the agreements, documents, certificates or instruments referred to in any of the preceding clauses of this definition.
“Series Specific Security Interest” shall have the meaning specified in subsection 4.4(4).
“Series Supplement” shall mean, with respect to a Series, a supplement to this Indenture establishing the Principal Terms of, and other terms and conditions applicable to, such Series, as such supplement may be amended, modified, supplemented, consolidated or restated from time to time.
“Special Interest Record Date” shall have, with respect to the payment of any Default Interest on a Series, the meaning specified in paragraph 4.2(3)(a).
“Stated Maturity” shall mean, with respect to any principal of or accrued interest on a Debt Security, the fixed date specified in the related Series Supplement on which such principal or interest is due and payable.
“Subsidiary” shall mean, a “subsidiary” as defined in the Business Corporations Act (Ontario).
“Successor Issuer” shall have the meaning specified in section 11.1.
“Transfer Agent” shall have the meaning specified in section 2.11.
“Trustee” shall have the meaning specified in the first paragraph of this Indenture and shall include any successor Trustee appointed pursuant to this Indenture.
“Type” shall have the meaning specified in the definition of “Debt Security”.
“U.S. Government Obligation” means securities that are direct obligations of, or obligations guaranteed by, or participations in pools consisting of obligations of or obligations guaranteed by, the United States of America, for the timely payment of which its full faith and credit is pledged.
1.2 | Accounting Principles |
(1) | As used in this Indenture and in any certificate or other document made or delivered pursuant to this Indenture, accounting terms not defined in this Indenture (including with respect to a particular Series, in the related Series Supplement) or in any such certificate or other document, and accounting terms partly defined in this Indenture (including with respect to a particular Series, in the related Series Supplement) or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under Canadian generally accepted accounting principles. To the extent that the definitions of accounting terms in this Indenture (including any Series Supplement) or in any such certificate or other document are inconsistent with the meanings of such terms under Canadian generally accepted accounting principles, the definitions contained in this Indenture (including such Series Supplement) or in any such certificate or other document shall prevail. |
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(2) | For greater certainty, references to Canadian generally accepted accounting principles shall refer to the accounting principles generally accepted in Canada from time to time and applicable to CI, as recommended by the Canadian Institute of Chartered Accountants (or any applicable successor body), and shall include, if and to the extent applicable to CI, International Financial Reporting Standards. |
1.3 | Headings and Table of Contents |
The division of this Indenture, a Series Supplement or a Debt Security into Articles, sections, subsections, paragraphs, clauses and other subdivisions, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture, such Series Supplement or such Debt Security.
1.4 | Section and Schedule References |
Unless something in the subject matter or context is inconsistent therewith, references in this Indenture to Articles, sections, subsections, paragraphs, clauses, other subdivisions, exhibits, appendices or schedules are to Articles, sections, subsections, paragraphs, clauses, other subdivisions, exhibits, appendices or schedules of or to this Indenture.
1.5 | Governing Law |
This Indenture, each Series Supplement and each Debt Security shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable in such Province, and each of CI, the Trustee and, by their acceptance of Debt Securities and the benefits of this Indenture and the related Series Supplement, the Holders from time to time submit to the non-exclusive jurisdiction of the courts of the Province of Ontario.
1.6 | Currency |
Unless expressly provided to the contrary in this Indenture or in any Debt Security, all monetary amounts in this Indenture or in such Debt Security refer to Canadian Dollars.
1.7 | Non-Business Days |
Unless expressly provided to the contrary in this Indenture or in any Debt Security, whenever any payment shall be due, any period of time would begin or end, any calculation is to be made or any other action is to be taken on, or as of, or from a period ending on, a day other than a Business Day, such payment shall be made, such period of time shall begin or end, such calculation shall be made and such other actions shall be taken, as the case may be, on, or as of, or from a period ending on, the next succeeding Business Day.
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1.8 | Time |
Unless otherwise expressly stated in this Indenture or in any Debt Security, all references to a time will mean Toronto, Ontario local time. Time shall be of the essence in this Indenture and all other Series Specific Documents.
1.9 | Reference to Statutes |
Unless expressly provided to the contrary in this Indenture or in any Debt Security, all references to any statute or any provision of any statute shall include all regulations or policies made under such statute or in connection with such statute from time to time, and shall include such statute or provision as the same may be amended, restated, re-enacted or replaced from time to time.
1.10 | Severability |
In the event that one or more provisions in this Indenture, any Series Supplement or any Debt Security shall be invalid, illegal or unenforceable in any respect under any Applicable Law, the validity, legality and enforceability of the remaining provisions hereof or thereof shall not be affected or impaired thereby. Each of the provisions of this Indenture and the other Series Specific Documents is declared to be separate and distinct.
1.11 | Number, Gender and Expressions |
Words importing the singular number only will include the plural and vice versa, words importing gender will include all genders and words importing any type or category of Persons will include all types and categories of Persons. Where any term or expression is defined in this Agreement, derivations of such term or expression will have a corresponding meaning.
1.12 | Independence of Covenants |
Each covenant contained in this Indenture or any other Series Specific Document shall be construed (absent an express provision to the contrary) as being independent of each other covenant, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant.
1.13 | Interest Payments and Calculations |
(1) | All interest payments to be made under this Indenture or any Debt Security will be paid without allowance or deduction for deemed re-investment or otherwise, both before and after maturity and before and after default and/or judgment, if any, until payment of the amount on which such interest is accruing, and, to the extent permitted by Applicable Law, interest will accrue on overdue interest. |
(2) | For the purposes of the Interest Act (Canada), if in this Indenture or in any Debt Security a rate of interest is or is to be calculated on the basis of a period which is less than a full calendar year, the yearly rate of interest to which such rate is equivalent is such rate multiplied by the actual number of days in the calendar year for which such calculation is made and divided by the number of days in such period. |
(3) | The rates of interest stipulated in this Indenture or in any Debt Security will be calculated using the nominal rate method of calculation, and will not be calculated using the effective rate method of calculation or on any other basis that gives effect to the principle of deemed reinvestment of interest. |
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(4) | In calculating interest or fees payable under this Indenture or under a Debt Security for any period, unless otherwise specifically stated, the first day of such period shall be included and the last day of such period shall be excluded. |
1.14 | English Language |
CI, the Guarantor Subsidiaries from time to time, the Trustee and, by their acceptance of Debt Securities and the benefits of this Indenture, the Holders acknowledge that this Indenture, each Debt Security and each document related hereto and thereto (whether or not any of such documents is also drawn up in French) has been drawn up in English at the express will of such Persons. Les parties aux présents conviennent que ces présents ainsi que tout document qui s’y rattache (incluant tout document rédige en français et en anglais) soient rédiges en langue anglaise a la volonté expresse des parties.
1.15 | No Conflict with Series Supplements |
The terms and provisions of a Series Supplement for a Series may modify or amend any of the terms and provisions of this Indenture, but solely as applied to such Series. The insertion of the phrase “in any Series Supplement”, “unless otherwise specified in the related Series Supplement” or similar phrases in this Indenture, or the absence of any such phrase, shall not limit the scope of or otherwise affect the preceding sentence or section 2.2. For greater certainty, if a term or provision contained in this Indenture shall conflict or be inconsistent with a term or provision of a Series Supplement for a Series, such Series Supplement shall govern with respect to such Series; provided, however, that the terms and provisions of such Series Supplement may modify or amend the terms and provisions of this Indenture solely as applied to such Series. For greater certainty, a Series Supplement may provide for the creation and issuance of more than one Series of Debt Securities.
1.16 | Form of Documents Delivered to Trustee |
(1) | In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. |
(2) | Any certificate or opinion of a Responsible Officer of CI may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, Counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such Responsible Officer’s certificate or opinion is based are erroneous. Any such certificate or opinion or any Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, a Responsible Officer of CI to the extent that it relates to information or factual matters in the possession of CI or upon a certificate or opinion of, or representation by, an officer or officers of any other Person to the extent that it relates to information or factual matters in the possession of such other Person, unless the Person giving such certificate or counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Any Opinion of Counsel may be based on the written opinion of other counsel, in which event such Opinion of Counsel shall be accompanied by a copy of such other counsel’s opinion and shall include a statement to the effect that such counsel believes that such counsel and the Trustee may rely upon the opinion of such other counsel. |
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(3) | Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. |
(4) | In connection with any application or certificate or report to the Trustee, wherever it is provided that CI or any Guarantor Subsidiary shall deliver any document as a condition of the granting of such application, or as evidence of compliance with any term or condition, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of CI of such Guarantor Subsidiary to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Trustee’s right to rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in section 8.3. |
(5) | Every certificate or opinion with respect to compliance with a term, condition or covenant shall specify the document and the section of such document under which such certificate or opinion is being made and shall include: |
(a) | a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions in such document relating to such covenant or condition; |
(b) | a statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; |
(c) | a statement that, in the opinion of each such individual, such individual has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; |
(d) | a statement as to whether, in the opinion of each such individual, such term, condition or covenant has been complied with; |
(e) | any application, written demand, statement, request, notice, designation, direction, nomination or other document to be made by CI or a Guarantor Subsidiary shall, unless otherwise provided, be deemed sufficiently made and executed if executed by a Responsible Officer of CI or such Guarantor Subsidiary, as applicable; and |
(f) | any certificate of any expert, insofar as it relates to matters outside of such expert’s competence or responsibility, may be based upon a certificate or opinion of or upon representations by Counsel, or some other qualified expert, unless such first-mentioned expert knows that the certificate or opinion or representations with respect to the matters upon which the certificate may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. |
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1.17 Exhibit A
The attached Exhibit A, being the form of Series Supplement, is a part of this Indenture.
ARTICLE 2
THE DEBT SECURITIES
2.1 No Fixed Limitation
The aggregate principal amount of Debt Securities which may be issued under this Indenture is unlimited, and the aggregate principal amount of any Series which may be issued under this Indenture will be specified or determined in the manner provided for in the related Series Supplement. Notwithstanding the foregoing, Debt Securities may be issued only upon and subject to the conditions specified in this Indenture.
2.2 Principal Terms of a Series
Prior to the initial issuance of any Debt Securities of a Series, CI will establish, pursuant to a separate Series Supplement, the principal terms of such Series (the “Principal Terms”) which will include, if applicable, the following:
(a) | the name, title or designation of such Series ( which will distinguish such Series from all other Series); |
(b) | the Type of Debt Securities that will comprise such Series; |
(c) | the aggregate principal amount of such Debt Securities that may be issued (except for Debt Securities issued upon a transfer of, or in exchange for, or in lieu of, other Debt Securities of such Series); |
(d) | the date or dates of payment (or the method for determining the date or dates of such payment) of principal of and any premium and other amounts on such Debt Securities; |
(e) | the currency of such Debt Securities; |
(f) | the denominations in which such Debt Securities may be issued; |
(g) | the manner of payment and the Place of Payment for such Debt Securities; |
(h) | whether such Debt Securities are to be interest bearing and, if so, the rate or rates of interest, the Interest Payment Dates and the Regular Interest Record Dates (or the method of determining any of the foregoing); |
(i) | the right of CI, if any, to extend the Interest Payment Dates, and the duration of any such extension, with respect to such Debt Securities; |
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(j) | the right of CI, if any, to prepay or redeem such Debt Securities and, in relation to any such right, the period or periods within which, the price or prices at which and the terms and conditions upon which such Securities are to be so prepaid or redeemed, in whole or in part; |
(k) | the right of the Holders, if any, to cause CI to prepay, redeem or repurchase such Debt Securities and, in relation to any such right, the details of the obligation, if any, of CI to prepay, redeem or repurchase such Debt Securities and the period or periods within which the price or prices at which, and the terms and conditions upon which, such Debt Securities are to be so prepaid, redeemed or purchased, in whole or in part; |
(l) | the rights or obligations of CI, if any, to establish and fund a sinking fund or other analogous arrangement with respect to such Debt Securities, and in relation to any such right or obligation the details of the right or obligation, if any of CI to establish and fund such sinking fund or analogous arrangement, and the terms and conditions upon which such sinking fund or analogous arrangement may or shall be established and funded; |
(m) | the definitive form or forms of such Debt Securities, including the form of the certificate of the Trustee relative thereto; |
(n) | which such Debt Securities will be issued as Bearer Debt Securities or Registered Debt Securities or both; |
(o) | whether such Debt Securities will be issued as either Definitive Debt Securities or Global Debt Securities or both and the Depository for any such Global Debt Securities, the terms and conditions, if any upon which any such Global Debt Securities may be exchanged, in whole or in part, for Definitive Debt Securities, and the manner in which any interest payable on such Global Debt Securities will be paid; |
(p) | whether such Debt Securities are subject to Defeasance as provided in Article 13; |
(q) | the subordination provision, if any, to be applicable to such Debt Securities; |
(r) | the terms and conditions, if any, pursuant to which such Debt Securities are to be guaranteed or secured by a Series Specific Security Interest; |
(s) | whether such Debt Securities will be convertible into or exchangeable for any other security of CI and, if so, the terms and conditions of conversion or exchange including the conversion or exchange price, the conversion or exchange period and any provisions pursuant to which the number of securities of CI to be received by the Holders of such Debt Securities would be subject to adjustment; |
(t) | if the amount of principal of or any premium, interest or other amount on such Debt Securities may be determined with reference to an index or an identifiable security, commodity or other asset, the description of such index, security, commodity or other asset and the manner in which such amounts shall be determined; |
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(u) | if other than the full principal amount thereof, the portion of the principal amount of such Debt Securities which shall be payable upon a Declaration of Acceleration; |
(v) | whether a Registrar, Paying Agent or Other Series Agent will be appointed for such Debt Securities and, if so, the identity of, or the manner for determining the identity of, such Registrar, Paying Agent and Other Series Agent; |
(w) | any provisions with respect to those definitions specified in Article 1, and those other provisions of this Indenture, which require or permit further specification in the related Series Supplement; |
(x) | any additional terms and provisions with respect to, and any additional conditions, representations, covenants and Events of Default, if any, for, such Debt Securities; |
(y) | any modification or elimination of any of the definitions, representations, covenants, conditions, Events of Default or other terms and provisions of this Indenture to be applicable to such Debt Securities; |
(z) | any provisions granting special rights to Holders of such Debt Securities when a specified event occurs; |
(aa) | any special tax implications of, or any special tax provisions, representations, agreements or indemnities relating to, such Debt Securities, including any provisions for withholding tax indemnities or gross-ups; and |
(bb) | any other provisions, requirements, conditions, indemnities, enhancements or other matters of any nature or kind whatsoever relating to such Debt Securities including any terms which may be required by, or advisable under, any Applicable Law or any rules, procedures or requirements of any securities exchange on which any of such Debt Securities are, or are proposed to be, listed or of any over the counter market in which any of such Debt Securities are, or are proposed to be, traded or which may be advisable in connection with the marketing of such Debt Securities. |
All Debt Securities of a particular Series will be subject to identical Principal Terms except that the issue date, the issue price and the amount of the first payment of interest may be different in respect of Debt Securities of such Series issued on different dates.
2.3 Currency and Denominations
Debt Securities shall be issuable only in the currency or currencies, and only in the denomination or denominations, prescribed in the related Series Supplement.
2.4 Form of Definitive Debt Securities
(1) | The definitive form or forms of a Debt Security, and the Trustee’s certificate of authentication on such Debt Security, shall be substantially as set forth in the related Series Supplement. The forms of all Debt Securities may contain such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and the related Series Supplement, and may have such letters, numbers or other marks or identification or designation and such legends or endorsements placed thereon as are required to conform to usage or to comply with any Applicable Law, or with the rules of any securities exchange on which any of such Debt Securities may be listed or any over the counter market on which any of such Debt Securities may be traded, or as CI may determine to be necessary, appropriate or desirable for any other purpose. |
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(2) | Debt Securities may be typewritten, printed, lithographed or engraved or otherwise reproduced, or be any combination of the foregoing, as CI may determine. |
2.5 Form of Interim Debt Securities
(1) | Pending the delivery of Definitive Debt Securities of a Series to the Trustee, there may be issued, in lieu of such Definitive Debt Securities, interim Debt Securities of such Series, in such forms and in such denominations and signed in such manner as CI may approve, entitling the Holders of such interim Debt Securities to Definitive Debt Securities of such Series when the same are ready for delivery; provided, however, that the aggregate unpaid principal amount of interim Debt Securities of a Series so created and certified shall not exceed the aggregate unpaid principal amount of Debt Securities of such Series for the time being authorized. The provisions of section 2.7 regarding certification by the Trustee shall apply to interim Debt Securities. |
(2) | When issued, interim Debt Securities of a Series shall, for all purposes, be deemed to be Debt Securities of such Series and, pending the exchange of such interim Debt Securities for Definitive Debt Securities of such Series, the Holders of such interim Debt Securities shall be deemed to be Holders of Debt Securities of such Series and entitled to the benefit of this Indenture to the same extent and in the same manner as though such exchange had been made. |
(3) | Immediately after the delivery of Definitive Debt Securities of a Series to the Trustee, the Trustee shall call in for exchange all interim Debt Securities of such Series and immediately after such exchange shall cancel the same. No charge shall be made by CI or the Trustee to the Holders of such interim Debt Securities for such exchange. |
2.6 Execution
(1) | Debt Securities shall be executed on behalf of CI by a Responsible Officer of CI. The signature of such Responsible Officer on any Debt Securities may be manual or mechanically reproduced, and Debt Securities bearing such mechanically reproduced signature shall be as valid and binding upon CI as if a Responsible Officer had manually signed such Debt Securities. Debt Securities bearing the manual or facsimile signature of an individual who was, at the time that such signature was affixed, a Responsible Officer of CI shall, subject to certification by the Trustee pursuant to section 2.7, be valid and binding upon CI notwithstanding that such individual ceased to be a Responsible Officer of CI prior to the certification and delivery of such Debt Securities. |
(2) | CI shall provide to the Trustee, the related Registrar or the related Paying Agent, as the case may be, a supply of certificates to evidence Debt Securities for each Series in such forms (including interim, bearer, registered, global or definitive, as the case may be), in such amounts, bearing such distinguishing letters and numbers, and as at such times as are necessary to enable the Trustee, the related Registrar and the related Paying Agent to fulfill their respective responsibilities under this Indenture. |
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2.7 Certification by Trustee
(1) | At any time and from time to time after the execution and delivery of this Indenture (including the related Series Supplement), CI may deliver Debt Securities signed by a Responsible Officer of CI to the Trustee for certification, pursuant to an Issuer Order applicable thereto. Upon receipt by the Trustee of an Issuer Order applicable to such Debt Securities, the Trustee shall certify and deliver such Debt Securities in the manner specified in such Issuer Order, without receiving any consideration for such certification and delivery. |
(2) | No Holder shall be entitled to any right or benefit under this Indenture with respect to a Debt Security, and such Debt Security shall not be valid or binding for any purpose, unless such Debt Security has been certified, substantially in the form provided for in the related Series Supplement, by the Trustee, as evidenced by the manual signature of a Responsible Officer of the Trustee. Such certification upon any Debt Security shall be conclusive evidence, and the only evidence, that such Debt Security has been issued under this Indenture. |
(3) | Debt Securities bearing the manual signature of an individual who was, at the time that such signature was affixed, a Responsible Officer of the Trustee, shall be valid and binding on the Trustee notwithstanding that such individual ceased to be a Responsible Officer of the Trustee prior to the delivery of such Debt Securities. |
(4) | The certification of the Trustee on a Debt Security shall not be construed as a representation or warranty by the Trustee as to the validity of this Indenture (including the related Series Supplement) or such Debt Security or the authorization and execution of such Debt Security, and the Trustee shall in no respect be liable or answerable for the use made of such Debt Security or the proceeds of such Debt Security. The certification of a Debt Security by the Trustee shall, however, be a representation and warranty by the Trustee that such Debt Security is Outstanding in accordance with the terms of this Indenture. |
2.8 Certifying Agent
(1) | There may be a certifying agent for any Series which the Trustee, with the consent of CI, shall have the right to appoint (a “Certifying Agent”). The Certifying Agents shall be authorized to act on behalf of the Trustee to certify Debt Securities of such Series issued upon exchange, transfer or partial redemption of such Debt Securities and all Debt Securities so certified shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if certified by the Trustee. All references in this Indenture to certification of Debt Securities by the Trustee shall be deemed to include certification by a Certifying Agent for such Debt Securities. Each Certifying Agent shall be a corporation that has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of the jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and that is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by Canadian federal or provincial Governmental Authorities. If at any time any Certifying Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. |
(2) | A Certifying Agent may resign at any time by giving written notice of resignation to the Trustee and to CI. The Trustee may at any time (and upon request by CI shall) terminate the agency of any Certifying Agent for a Series by giving written notice of termination to such Certifying Agent and to CI. Upon resignation, termination or cessation of eligibility of any Certifying Agent for a Series, the Trustee may appoint an eligible successor Certifying Agent for such Series acceptable to CI. Any successor Certifying Agent for a Series, upon acceptance of its appointment under this Indenture, shall become vested with all the rights, powers and duties of its predecessor under this Indenture as if originally named as a Certifying Agent pursuant hereto. |
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2.9 Paying Agent
If a Series Supplement provides for a Paying Agent with respect to the applicable Series, then, subject to any contrary provision in such Series Supplement:
(a) | Such Paying Agent shall separately in respect of such Series maintain a record of all Bearer Debt Securities of such Series and of their redemption, payment, exchange, forfeiture, cancellation, mutilation, defacement, alleged destruction, theft or loss or replacement, and make all such records available for inspection at all reasonable times by CI. |
(b) | CI may from time to time deliver to such Paying Agent Definitive Bearer Debt Securities of such Series for cancellation, whereupon the Paying Agent shall forward the same to the Trustee for cancellation. CI may from time to time deliver to such Paying Agent an interim Global Bearer Debt Security or a permanent Global Bearer Debt Security of such Series with instructions to cancel a specified aggregate principal amount of the Debt Securities represented thereby whereupon the Paying Agent shall note or cause to be noted on the Schedule to such Global Bearer Debt Security the aggregate principal amount of Debt Securities so cancelled and the remaining principal amount of such Global Bearer Debt Security thereof and shall acknowledge and confirm such notation by its signature or certification of the same. |
(c) | As soon as practicable after each date on which Debt Securities of such Series are cancelled or forwarded to the Trustee for cancellation in accordance with paragraph (b) above or otherwise under this Indenture, and after each date on which the Bearer Debt Securities of such Series become due for redemption, the Paying Agent shall notify the Trustee and CI in writing (on the basis of the information available to it) of the serial number of such Bearer Debt Securities so cancelled or forwarded to the Trustee for cancellation, and the serial numbers of any Bearer Debt Securities of such Series against presentation or surrender of which payment has been made, and of the serial numbers of any Bearer Debt Securities of such Series which have not yet been presented or surrendered for payment. |
(d) | Such Paying Agent will forward to the Trustee for cancellation each Global Bearer Debt Security and Definitive Bearer Debt Security of such Series (where there is no principal amount thereof remaining) delivered to it for cancellation in accordance with paragraph (b) above or otherwise under this Indenture and will as soon as reasonably practicable furnish to CI, the related Registrar and the Trustee a certificate specifying the serial numbers of the Global Bearer Debt Securities and Definitive Bearer Debt Securities in numerical sequence so forwarded to the Trustee for cancellation. |
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(e) | Such Paying Agent shall, at the request of the Holder of any Bearer Debt Security of such Series, issue voting certificates (including block, global or omnibus voting certificates) and voting instructions in a form and manner which comply with the provisions of this Indenture (subject to such regulations and procedures with respect to the same as may be established and agreed to from time to time by CI, the Trustee and such Paying Agent). Such Paying Agent shall keep a full record of voting certificates and voting instructions issued by it and will give to CI not less than 24 hours before the time appointed for any meeting or adjourned meeting full particulars of all voting certificates and voting instructions issued by it in respect of such meeting or adjourned meeting. |
(f) | Such Paying Agent shall make payments of principal, premium, if any, interest and other amounts, if any, in respect of Bearer Debt Securities of such Series in accordance with the Principal Terms of such Bearer Debt Securities, provided that such Paying Agent shall not be obliged (but shall be entitled) to make such payments if it is not able to establish that it has received from CI (whether or not at the due time) the full amount of such payment. |
(g) | Such Paying Agent shall not exercise any Security Interest, right of set-off or similar claim against any Person to whom it makes any payment under paragraph |
(f) | above in respect of such payment, nor shall any commission or expense be charged by such Paying Agent to any such Person in respect of such payment. |
(h) | CI shall provide to such Paying Agent for distribution, specimen Bearer Debt Securities of such Series in definitive form, and sufficient copies of all documents required to be available at the Paying Agent for inspection as provided in any Offering Document relative to, or in the related Series Supplement for, of such Series. |
(i) | Such Paying Agent shall make available for inspection during normal business hours at its specified Office such documents as may be specified as so available in any Offering Document relative to, or in the related Series Supplement for, such Series, or as may be required by any securities exchange on which such Series may be listed or any over the counter market in which such Series may be traded. |
(j) | Such Paying Agent shall make (on behalf of CI) all necessary notifications and filings as may be required from time to time in relation to the issue, purchase and redemption of Bearer Debt Securities of such Series by all Applicable Laws. Except as set forth in the preceding sentence, CI shall be solely responsible for ensuring that each Debt Security of such Series to be issued or other transactions to be effected under this Indenture complies with all Applicable Laws and that all necessary consents and approvals of, notifications to and registrations and filings with, any such authority in connection therewith are effected, obtained and maintained in full force and effect. |
(k) | Such Paying Agent shall immediately notify CI, any applicable Guarantor Subsidiary and the Trustee in writing of any notice delivered to it requesting a declaration that a Debt Security of such Series is due and payable by reason of an Event of Default or requiring any breach of any provision of this Indenture to be remedied. |
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(l) | Such Paying Agent shall arrange, upon and in accordance with the instructions of, and at the expense of, CI but not otherwise, for the publication in accordance with the terms and conditions of such Series of any notice which is to be given to the Holders of any Bearer Debt Securities of such Series and shall supply a copy of such publication to the Trustee. |
(m) | If Bearer Debt Securities of such Series are exchangeable for Registered Debt Securities, such Paying Agent shall accept requests to effect such exchanges, together with the applicable Bearer Debt Securities, inform the related Registrar specifying (i) the aggregate principal amount of such Bearer Debt Securities, (ii) the names and addresses to be entered on the relevant Register for the Holders of such Registered Debt Securities, and (iii) the denominations of such Registered Debt Securities, and assist in the issue of such Registered Debt Securities in accordance with the terms and conditions applicable thereto. Such Paying Agent shall, on the applicable exchange date forward such Bearer Debt Securities to the Trustee for cancellation. |
(n) | Such Paying Agent shall collect all forms, if any, from Holders (or from other relevant Persons) that are specified by CI which are required to exempt payments under the Bearer Debt Securities of such Series from Canadian federal withholding tax, and shall forward copies of such forms to CI. |
(o) | Such Paying Agent shall carry out such other acts and duties, and provide such other services, as may be specified with respect to such Paying Agent in the related Series Supplement. |
If the applicable Series Supplement does not provide for a Paying Agent with respect to a Series, the Trustee shall (in the case of the duties required to be performed by the Paying Agent under this section) and may (in the case of the duties permitted to be performed by the Paying Agent under this section) itself perform the duties of the Paying Agent specified in this section.
2.10 Registrar
If a Series Supplement provides for a Registrar with respect to the applicable Series:
(a) | Such Registrar shall maintain a register (with respect to such Series, the “Register”) in accordance with the terms and conditions of this Indenture. The Register shall show the principal amount and date of issue of each Registered Debt Security of such Series, the names and addresses of the initial Holders of such Registered Debt Securities, and the dates of all transfers to, and the names and addresses of, all subsequent Holders of such Registered Debt Securities. |
(b) | Such Registrar may from time to time provide additional facilities at its other offices or, with the approval of CI, at the offices of third parties for such registration and/or registration of exchange and transfer. No exchange or transfer of a Registered Debt Security of such Series nor any transmission of a Registered Debt Security of such Series upon death will be valid unless made at one of applicable offices of such Registrar by the Holder or by the Holder’s executors, administrators or other legal representatives, or by the Holder’s attorney duly appointed by a document in writing, in form and as to execution satisfactory to such Registrar and upon compliance with such reasonable requirements as such Registrar may prescribe from time to time and upon surrender of such Registered Debt Security to such Registrar for delivery to the Trustee for cancellation, whereupon a new Registered Debt Security of the same Series in the same principal amount and having identical terms will be executed by CI, certified by the Trustee, and delivered to the transferee. |
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(c) | By the issue of new Registered Debt Securities of such Series, the forwarding of old Registered Debt Securities of such Series to the Trustee for cancellation, and the making of entries in the Register, such Registrar shall give effect to transfers of Registered Debt Securities of such Series in accordance with the terms and conditions of this Indenture. |
(d) | CI may from time to time deliver to such Registrar for cancellation Registered Debt Securities of such Series of which CI is the Holder, whereupon the Registrar shall forward the same to the Trustee for cancellation and shall make the corresponding entries in the Register. |
(e) | As soon as reasonably practicable but in any event within three months after each date on which Registered Debt Securities of such Series fall due for redemption, such Registrar shall notify CI of the serial numbers of such Registered Debt Securities against surrender of which payment has been made and of the serial numbers of such Registered Debt Securities (and the names and addresses of the Holders thereof) which have not yet been surrendered for payment. |
(f) | Such Registrar shall, upon and in accordance with the instructions of, and at the expense of, CI but not otherwise, arrange for the delivery of any notice which is to be given to the Holders of Registered Debt Securities of such Series, and shall supply a copy of each such notice to CI, the Trustee and the Paying Agent for such Series. |
(g) | CI shall ensure that such Registrar has available to it supplies of such Registered Debt Securities of such Series as shall be necessary in connection with the transfer of Registered Debt Securities of such Series and the exchange of Bearer Debt Securities of such Series for Registered Debt Securities. |
(h) | Such Registrar shall, at the request of the Holder of any Registered Debt Security of such Series, make available forms of proxy (including block, global or omnibus forms of proxy) in a form and manner which comply with the provisions of this Indenture (subject to such regulations and procedures with respect to the same as may be established and agreed to from time to time by CI and such Registrar) and shall perform and comply with the provisions for meetings of Holders as set out in this Indenture. |
(i) | Such Registrar shall make payments of principal and any premium, interest and other amounts in respect of Registered Debt Securities of such Series in accordance with the Principal Terms thereof, provided that such Registrar shall not be obliged (but shall be entitled) to make such payments if it is not able to establish that it has received from CI (whether or not at the due time) the full amount of such payment. |
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(j) | Such Registrar shall not exercise any Security Interest, right of set-off or similar claim against any Person to whom it makes any payment under paragraph (i) above in respect of such payment, nor shall any commission or expense be charged by such Registrar to any such Person in respect of such payment. |
(k) | CI shall provide to such Registrar specimen Registered Debt Securities of such Series in definitive form, and sufficient copies of all documents required to be available from the Registrar for inspection as provided in any Offering Document relative to, or in the related Series Supplement for, the Debt Securities of such Series. |
(l) | Such Registrar shall make available for inspection during normal business hours at its specified Office such documents as may be specified as so available in any Offering Document relative to, or in the related Series Supplement for, such Series or as may be required by any securities exchange on which such Series may be listed or any over the counter market in which such Series may be traded. |
(m) | Such Registrar shall provide to the Paying Agent for such Series all such information in the Registrar’s possession with respect to Registered Debt Securities of such Series as such Paying Agent may reasonably require in order to perform its obligations with respect to such Series set out in this Indenture. |
(n) | If Bearer Debt Securities of such Series are exchangeable for Registered Debt Securities, such Registrar shall accept requests to effect such exchanges, together with the applicable Bearer Debt Securities (or notifications from the Paying Agent for such Series of receipt by it of such Bearer Debt Securities) and such Registrar shall effect the issue of Registered Debt Securities of such Series and the making of entries in the Register, and shall give effect to exchanges of Bearer Debt Securities of such Series for Registered Debt Securities in accordance with the terms and conditions applicable to such Debt Securities. Such Registrar shall immediately upon the receipt of the applicable Bearer Debt Securities, together with a request for the exchange of such Bearer Debt Securities for Registered Debt Securities, notify the Paying Agent for such Series of such receipt specifying (i) the serial numbers of the Bearer Debt Securities, (ii) the aggregate principal amount of the Debt Securities, and (iii) the applicable exchange date, and shall on the applicable exchange date forward all Bearer Debt Securities received by it to the Trustee for cancellation. Such Registrar shall notify CI and the related Paying Agent promptly of the exchange of Bearer Debt Securities for Registered Debt Securities, specifying the serial numbers of the Bearer Debt Securities and of the Registered Debt Securities issued in exchange therefor, the aggregate principal amount involved and the applicable exchange date. |
(o) | Such Registrar shall ensure that in no event shall Registered Debt Securities be exchanged for Bearer Debt Securities without the consent of CI. |
(p) | Such Registrar shall carry out such other acts and duties, and provide such other services, as may be specified with respect to such Registrar in the related Series Supplement. |
If the applicable Series Supplement does not provide for a Registrar with respect to a Series, the Trustee shall (in the case of the duties required to be performed by the Registrar under this section) and may (in the case of the duties permitted to be performed by the Registrar under this section) itself perform the duties of the Registrar specified in this section.
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2.11 Transfer Agent
If a Series Supplement provides for a transfer agent with respect to the applicable Series (a “Transfer Agent”), such Transfer Agent shall:
(a) | receive requests from Holders of such Series for the transfer of Registered Debt Securities of such Series, inform the Registrar for such Series in writing of the receipt of such requests, forward the deposited Registered Debt Securities to or to the order of such Registrar and assist in the issuance of new Registered Debt Securities of such Series and in particular, without limitation, notify the Registrar for such Series in writing of (w) the name and address of the Holders of the Registered Debt Securities to be transferred, (x) the serial number and principal amount of the Registered Debt Securities to be transferred, (y) in the case of a transfer of part only, the principal amount of the Registered Debt Securities to be transferred, and (z) the names and addresses of the transferees to be entered on the Register; |
(b) | make available for collection by each applicable Holder new Registered Debt Securities of such Series; |
(c) | accept surrender of Registered Debt Securities of such Series and assist in effecting final payment of the Registered Debt Securities of such Series; |
(d) keep the Registrar for such Series informed of all transfers;
(e) | carry out such other acts as may reasonably be necessary to give effect to the Principal Terms of such Series; and |
(f) | carry out such other acts and duties, and provide such other services, as may be specified with respect to such Transfer Agent in the related Series Supplement. |
If the applicable Series Supplement does not provide for a Transfer Agent with respect to a Series, the Trustee shall (in the case of the duties required to be performed by the Transfer Agent under this section) and may (in the case of the duties permitted to be performed by the Transfer Agent under this section) itself perform the duties of the Transfer Agent specified in this section.
2.12 Registration of Exchanges and Transfers
(1) | Debt Securities of a Series may be exchanged for one or more Debt Securities of the same Series in an equal aggregate principal amount and having the same Principal Terms; provided, however, that each Debt Security issued in exchange for such original Debt Security shall have a principal amount in an authorized denomination as provided for in the related Series Supplement. |
(2) | Where the Debt Securities of a Series may be issued in either bearer form or registered form, Bearer Debt Securities of such Series may be exchanged for either (or a combination of) Bearer Debt Securities or Registered Debt Securities of such Series, and Registered Debt Securities of such Series may be exchanged only for Registered Debt Securities of such Series. |
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(3) Bearer Debt Securities shall be transferable by delivery.
(4) | Notwithstanding anything contained in this section, the Registrar shall not be required to register the exchange or transfer of any Debt Security during the period of 15 days preceding the date for any payment with respect to such Debt Security, including the date on which such Debt Security is to be redeemed, if applicable. |
(5) | The Registrar and the Trustee may make a charge to reimburse themselves for any stamp taxes or governmental charges required to be paid and a reasonable charge for their services and a reasonable sum per Debt Security created and issued upon any exchange or transfer of Debt Securities effected by them, other than an exchange of interim Debt Securities for permanent Debt Securities. Payment of such charges will be made by the Person requesting the exchange or transfer as a condition precedent to such exchange or transfer. |
2.13 Persons Entitled to Payment
(1) | Prior to due presentment for registration of transfer of any Registered Debt Security, CI, the Trustee, the related Registrar, the related Paying Agent and any other Person may treat the Person in whose name any Registered Debt Security is registered in the applicable Register (including in the case of a Global Registered Debt Security, the related Depository or the nominee of such Depository in whose name such Global Registered Debt Security is registered) as the absolute and sole owner of such Registered Debt Security for all purposes including receiving payment of the principal of and any premium, interest or other amount on such Registered Debt Security, receiving any notice to be given to the Holder of such Registered Debt Security, and taking any Holder Action with respect to such Registered Debt Security, whether or not any payment with respect to such Registered Debt Security shall be overdue, and none of CI, the Trustee, the related Registrar, the related Paying Agent or any other Person shall be affected by notice to the contrary. |
(2) | CI, the Trustee, the related Registrar, the related Paying Agent and any other Person may treat the bearer of any Bearer Debt Security (including in the case of a Global Bearer Debt Security, the related Depository or the nominee of such Depository which is the bearer of such Global Bearer Debt Security) as the absolute and sole owner of such Bearer Debt Security for all purposes including receiving payment of the principal of and any premium, interest or other amount payable on such Bearer Debt Security, receiving any notice to be given to the Holder of such Bearer Debt Security, and taking any Holder Action with respect to such Bearer Debt Security, whether or not any payment with respect to such Bearer Debt Security shall be overdue, and none of CI, the Trustee, the related Registrar, the related Paying Agent or any other Person shall be affected by notice to the contrary. |
(3) | Delivery of a Debt Security to the Trustee, the related Registrar or the related Paying Agent by or on behalf of the Holder thereof shall, upon payment of such Debt Security, be a good discharge to CI of all obligations evidenced by such Debt Security. None of CI, the Trustee, the related Registrar, the related Paying Agent or any other Person shall be bound to inquire into the title of any such Holder, nor shall CI, the Trustee, the related Registrar, the related Paying Agent or any other Person be bound to see to the execution of any trust affecting the ownership of any Debt Security or be affected by notice of any equity that may be subsisting in respect of any Debt Security. |
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(4) | In the case of the death of one or more joint registered Holders of a Registered Debt Security, the principal of and any premium, interest and other amounts on such Debt Security may be paid to the survivor or survivors of such registered Holders whose receipt of such payment, accompanied by the delivery of such Debt Security, shall constitute a valid discharge to CI, the Trustee, the related Registrar, and the related Paying Agent. |
2.14 Cancellation of Debt Securities
(1) | All Debt Securities surrendered to the Trustee for payment of the final amount required to be paid thereon, or that have been redeemed by CI as contemplated by section 3.1 or redeemed by way of mandatory sinking fund payment as contemplated by section 3.2, or that have been surrendered to the Trustee for registration of exchange or transfer, shall be promptly cancelled by the Trustee, and if surrendered to the related Registrar or the related Paying Agent, shall be delivered by it to the Trustee for cancellation and shall be cancelled by the Trustee on receipt. The Trustee will give prompt written notice to CI, the related Registrar and the related Paying Agent of the particulars of any Debt Securities cancelled by it. |
(2) | CI may in its discretion at any time deliver to the Trustee for cancellation any Debt Securities which CI has purchased as provided for in this Indenture, and all such Debt Securities so delivered shall be cancelled by the Trustee. |
2.15 Mutilated, Lost, Stolen or Destroyed Debt Securities
(1) | If any Debt Security has been mutilated or defaced or has or has been alleged to have been lost, stolen or destroyed, then, on application by the applicable Holder to the related Paying Agent (in the case of a Bearer Debt Security) or the related Registrar (in the case of a Registered Debt Security) (each in such capacity, a “Replacement Agent”), CI may in its discretion, execute, and upon such execution the Trustee will certify and deliver, a new Debt Security of the same Series, date and the same Principal Terms as the defaced, mutilated, lost, stolen or destroyed Debt Security in exchange for and in place of the defaced or mutilated Debt Security, and in lieu of and in substitution for the lost, stolen or destroyed Debt Security. Notwithstanding the foregoing, no Debt Security shall be delivered as a replacement for any Debt Security which has been mutilated or defaced otherwise than upon surrender of the mutilated or defaced Debt Security, and no Debt Security shall be delivered as a replacement for any Debt Security which has been lost, stolen or destroyed unless the applicant for the replacement Debt Security has furnished to CI and the Trustee evidence, satisfactory in form and substance to CI and the Trustee, of its ownership of, and of such loss, theft or destruction of, such Debt Security and has indemnified (including by way of indemnity bond if so required) CI, the Trustee, the related Registrar and the related Paying Agent in amount, form and substance satisfactory to each of them. Any instructions by CI to a Replacement Agent under this section shall include such indemnifications for the protection of such Replacement Agent as such Replacement Agent may reasonably require. |
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(2) | If any mutilated, defaced, lost, stolen or destroyed Debt Security has become or is about to become due and payable, CI, in its discretion, may, instead of executing a replacement Debt Security, pay to the Holder thereof the full amount outstanding on such mutilated, defaced, lost, stolen or destroyed Debt Security. |
(3) | Upon the issuance of a replacement Debt Security, CI may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation to such issuance and any other expenses (including the fees and expenses of the Trustee, the related Registrar and the related Paying Agent) connected with such issuance. |
(4) | Each replacement Debt Security shall bear a unique serial number and be in a form otherwise identical to the Debt Security it replaces and shall be entitled to the benefits of this Indenture to the same extent and in the same manner as the Debt Security it replaces. |
(5) | The Replacement Agent shall promptly deliver to the Trustee for cancellation, and on receipt thereof the Trustee shall cancel, each mutilated or defaced Debt Security surrendered to it and in respect of which a replacement Debt Security has been delivered. |
(6) | The Replacement Agent shall notify CI, the Trustee, the related Registrar (unless the related Registrar is the Replacement Agent) and the related Paying Agent (unless the related Paying Agent is the Replacement Agent) of the delivery by it of any replacement Debt Security, specifying the serial number of such replacement Debt Security and the serial number (if any and if known) of the Debt Security which it replaces and confirming whether or not that the Debt Security which it replaces has been delivered to the Trustee for cancellation. |
(7) | Unless CI instructs otherwise, the Trustee shall cancel each mutilated or defaced Debt Security surrendered to it and in respect of which a replacement Debt Security has been delivered and shall, as soon as reasonably practicable, furnish to CI, the related Registrar and the related Paying Agent a certificate as to such cancellation specifying in numerical sequence the serial numbers of the Debt Securities so cancelled. |
2.16 | Access to Lists of Holders |
(1) | Each Register for a Series will, at all reasonable times, be open for inspection by CI, the Trustee, the related Registrar and the related Paying Agent. |
(2) | If any Holder or group of Holders of one or more Series representing not less than 10% of the aggregate unpaid principal amount of such Series, or such other percentage as may be permitted by Applicable Law, or such one or more Holders as may be permitted by Applicable Law (in each such case, the “Applicants”) apply to the related Registrar or Registrars (with a copy to CI and the Trustee), and such application states that the Applicants wish to communicate with other Holders of such Series with respect to their rights under this Indenture, and such application is accompanied by a copy of the communication which the Applicants propose to transmit, then such Registrar or Registrars, after having been indemnified to their reasonable satisfaction by such Applicants for their related respective costs and expenses, shall afford or shall cause CI to afford the Applicants access during normal business hours to the most recent list of Holders of Registered Debt Securities of such Series within 10 Business Days after the receipt of such application by the Registrar or Registrars. Such list shall be as of a date no more than 45 days prior to the date of receipt of the Applicants’ request. |
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(3) | Every Holder of a Registered Debt Security, by receiving and holding such Debt Security, agrees with CI, the Trustee, the related Registrar, the related Paying Agent and the related Other Series Agents that none of such Persons or their respective agents shall be held accountable by reason of the disclosure of any information as to the names and addresses of such Holders, regardless of the sources from which such information was derived. |
2.17 | Global Securities |
(1) | CI, at its option, may at any time and from time to time require that any or all Debt Securities of a Series be represented in the form of a Bearer Global Debt Security or a Registered Global Debt Security held by or on behalf of the related Depository as custodian of such Global Debt Security. If CI requires that the Debt Securities of a particular Series are to be issued as a Global Debt Security, then CI shall execute, and the Trustee shall certify and deliver, a Global Debt Security that (i) shall represent, and shall be denominated in an amount equal to, the aggregate principal amount, (ii) if in registered form, shall be registered in the name of the related Depository or its nominee, and (iii) shall, if required, bear a legend substantially to the following effect: “Except as otherwise provided in the Indenture, this Debt Security may be transferred, in whole but not in part, only to another nominee of the Depository or to a successor Depository or to a nominee of such successor Depository”, or as the Depository may otherwise require. Any endorsement of a Global Debt Security to reflect the principal amount, or any increase or decrease in the principal amount, of the Debt Securities represented by such Global Debt Security shall be made by the Trustee, the related Registrar or the related Paying Agent, as the case may be, in such manner and upon instructions given by such Person as shall be specified in such Global Debt Security or in an Issuer Order. |
(2) | It is expressly acknowledged that any registrations of beneficial ownership, and transfers of beneficial ownership, of Debt Securities represented by Global Debt Securities will be made only through the applicable Book-Entry System. The rights of a holder of any interest in a Debt Security represented by a Global Debt Security (including the right to receive a certificate or other instrument evidencing an ownership interest in such Debt Security) shall be limited to those rights established by Applicable Law and by agreements between the Depository and its applicable Participant and between such Participant and holder of such interest. Accordingly, none of CI, the Trustee, the related Registrar, the related Paying Agent or any agent of any such Person shall be under any obligation to deliver to the holder of such interest, nor shall such holder have any right to require the delivery of, a certificate evidencing any Debt Security (or interest therein) represented by a Global Debt Security. |
(3) | If: |
(a) | required to do so by Applicable Law; |
(b) | the applicable Book-Entry System ceases to exist; |
(c) | CI determines that the applicable Depository is no longer willing or able to discharge properly its responsibilities as depositary and CI is unable to engage a qualified successor; or |
(d) | CI at its option elects to terminate the applicable Book-Entry System for any reason (including if CI considers it impractical or inefficient to effect a distribution of the applicable Debt Securities through the applicable Book-Entry System or through the facilities of the applicable Depository); |
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CI, with the consent of the Trustee, which consent shall not be unreasonably withheld or delayed, shall have the right to allow Debt Securities represented by a Global Debt Security to be issued in definitive form to holders other than the applicable Depository and its nominees, and to allow transfers of such Debt Securities other than within the applicable Book-Entry System, and to allow any payments or distributions required to be made under this Indenture with respect to such Debt Securities to be made other than to the related Depository or to be distributed other than through the applicable Book-Entry System. In addition, CI, with the consent of the Trustee, which consent shall not be unreasonably withheld or delayed, shall have the right to appoint one or more sub-custodians in the event that CI determines that it is impractical for the related Depository to act as custodian for any Debt Securities which are, and which are permitted to be, beneficially owned by non-residents of Canada.
(4) | Notwithstanding section 2.12, a Global Debt Security may be transferred, in whole but not in part and in the manner provided in section 2.12, only to another nominee of the Depository for the applicable Series, or to a successor Depository for the applicable Series selected or approved by CI, or to a nominee of such successor Depository. |
(5) | If at any time a Depository notifies CI that it is unwilling or unable to continue as Depository for a Series or if at any time such Depository shall no longer be registered or in good standing under any Applicable Law, or be qualified as a Clearing Agency under any Applicable Securities Law, in each case as required in order to fulfill its duties and obligations as Depository for such Series, and a successor Depository for such Series is not appointed by CI within 120 days after CI receives notice, or becomes aware, of such condition, this section shall no longer be applicable to such Series and CI will execute, and the Trustee will certify and deliver, Definitive Debt Securities of such Series in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debt Securities of such Series in exchange for such Global Debt Securities. In addition, CI may at any time determine that a Series shall no longer be represented by Global Debt Securities and that this section shall no longer apply to such Series. In such event CI will execute, and the Trustee, upon receipt of an Issuer’s Order evidencing such determination by CI, will certify and deliver, Definitive Debt Securities of such Series in authorized denominations, and in an aggregate principal amount equal to the principal amount of such Global Debt Securities in exchange for such Global Debt Securities. Upon the exchange of the Global Debt Securities of a Series for Definitive Debt Securities of such Series, such Global Debt Securities shall be cancelled by the Trustee. Such Definitive Debt Securities shall be registered in such names and in such authorized denominations as the related Depository, pursuant to instructions from its Participants or otherwise, shall notify to the Trustee or the related Registrar, as the case may be. The Trustee shall deliver such Definitive Debt Securities to the related Depository for delivery to the Persons in whose names such Debt Securities have been so registered. |
ARTICLE 3
REDEMPTIONS AND PURCHASES; SINKING FUNDS
3.1 Redemption
Debt Securities that are, in accordance with their Principal Terms, redeemable before their Stated Maturity, shall be redeemable in accordance with the following provisions:
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(1) | Election to Redeem; Notice to Trustee, Registrar and Paying Agent. If CI elects to redeem less than all of a Series, CI shall, at least 45 days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee, the related Registrar and the related Paying Agent), notify the Trustee, the related Registrar and the related paying Agent of the Redemption Date and of the principal amount of such Series to be redeemed. |
(2) | Selection of Debt Securities to Be Redeemed. |
(a) | If less than all of a Series is to be redeemed, the particular Debt Securities to be redeemed shall be selected by the Trustee not more than 45 days prior to the Redemption Date on a pro rata basis or by such other method (which may include random selection by computer) as the Trustee may deem appropriate. For this purpose the Trustee may make, and from time to time amend, regulations with respect to the manner in which Debt Securities may be so selected, and regulations so made shall be valid and binding upon all Holders notwithstanding the fact that, as a result of such regulations, any Debt Security becomes subject to redemption in part only. |
(b) | The Trustee shall promptly notify CI, the related Registrar and the related Paying Agent of the Debt Securities selected for redemption and, in the case of any Debt Securities selected for partial redemption, of the principal amount of such Debt Securities to be redeemed. |
(c) | Unless the context otherwise requires, all provisions hereof relating to the redemption of Debt Securities shall relate, in the case of any Debt Security redeemed or to be redeemed only in part, to the portion of such Debt Security that has been or is to be redeemed. |
(3) Notice of Redemption.
(a) | Notice of redemption shall be given not less than 30 days or more than 60 days prior to the Redemption Date, to the Holders of the Debt Securities to be redeemed. |
(b) | All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) if less than all of the applicable Series is to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Debt Securities to be redeemed; (iv) that on the Redemption Date the Redemption Price of each such Debt Security (or part thereof) to be redeemed will become due and payable, and that interest on such Debt Security (or part thereof to be redeemed) shall cease to accrue on and after such date; (v) the Place of Payment where such Debt Securities, together in the case of Bearer Debt Securities with all coupons, if any, maturing on or after the Redemption Date, are to be surrendered; (vi) if applicable, that the redemption is for a sinking fund; and (vii) any other matter that the Trustee, the related Registrar or the related Paying Agent reasonably requests in connection with such redemption. |
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(c) | Notice of redemption of Debt Securities at the election of CI shall be given by CI or, at CI’s request, by the Trustee, the related Registrar or the related Paying Agent in the name and at the expense of CI. |
(4) | Deposit of Redemption Price. On or prior to the Redemption Date, CI shall deposit with the Trustee, the related Registrar or the related Paying Agent (or, if CI is acting as its own Paying Agent, it shall segregate and hold in trust as provided in paragraph 5.2(2)(b)), an amount of money sufficient to pay the Redemption Price of and (except as provided in clause 3.1(5)(a) below) accrued interest on, all the Debt Securities (or parts thereof) that are to be redeemed on such date. |
(5) Debt Securities Payable on Redemption Date.
(a) | If notice of redemption has been given as provided herein, the Debt Securities (or parts thereof) that are to be redeemed shall become due and payable on the Redemption Date, at the Redemption Price specified in such notice. From and after such date (unless CI shall default in the payment of the Redemption Price or any accrued interest) such Debt Securities (or parts thereof) shall cease to bear interest and the coupons for such interest pertaining to any Bearer Debt Securities so redeemed, except to the extent provided below, shall be void. Upon surrender of any Debt Security for redemption in accordance with a notice of redemption, the Redemption Price of such Debt Security shall be paid by CI together with accrued interest to the Redemption Date; provided, however, that installments of interest (on Bearer Debt Securities) having a Stated Maturity on or prior to the Redemption Date shall be payable only upon presentation and surrender of coupons for such interest (except as otherwise provided in clause 3.1(5)(b) below); and provided further that installments of interest (on Registered Debt Securities) having a Stated Maturity on or prior to the Redemption Date shall be payable to the Holders thereof registered as such on the applicable Regular Interest Record Dates for such installments. |
(b) | If a Bearer Debt Security surrendered for redemption is not accompanied by all coupons maturing on or after the Redemption Date, such Bearer Debt Security may be paid after deducting from the amount otherwise payable to the Holder thereof an amount equal to the face amount of all such missing coupons, or the surrender of any such missing coupons may be waived by CI, the Trustee, the related Registrar and the related Paying Agent if they receive such security or indemnity as they may require in respect thereof. If thereafter the applicable Holder shall surrender to the Trustee, the related Registrar or the related Paying Agent any missing coupons in respect of which such a deduction was made, such Holder shall be entitled to receive the amount so deducted. |
(c) | If a Debt Security called for redemption shall not be paid upon surrender of such Debt Security for redemption, the principal of and any premium, interest and other amounts on such Debt Security shall, until paid, bear interest from the Redemption Date at the rate or rates prescribed therefor in the related Series Supplement. |
(6) | Debt Security Redeemed in Part. Any Registered Debt Security that is to be redeemed only in part shall be surrendered to CI, the Trustee or the related Registrar with, if such Person so requires, due endorsement by, or a written instrument of transfer in form satisfactory to such Person duly executed by, the Holder or the Holder’s attorney duly authorized in writing, and CI shall execute, and the Trustee shall certify and deliver to such Holder without charge, a new Registered Debt Security or Registered Debt Securities of the same Series, of any authorized denomination as requested by such Holder in an aggregate principal amount equal to, and having the same Principal Terms as, and in exchange for, the unredeemed portion of the Debt Security so surrendered. Any Bearer Debt Security that is to be redeemed only in part shall be surrendered to CI, the Trustee or the related Paying Agent as specified in the applicable notice of redemption, and CI shall execute, and the Trustee shall certify and deliver to the Holder of such Debt Security, without charge, one or more new Bearer Debt Securities of the same Series (or one or more new Registered Debt Securities of the same Series if requested by the Holder and if such Series is issuable as Registered Debt Securities), of any authorized denomination as requested by such Holder in an aggregate principal amount equal to and having the same Principal Terms as, and in exchange for, the unredeemed portion of the Debt Security so surrendered. |
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3.2 Sinking Fund
If the Principal Terms of a Series create an obligation for CI to establish and fund a sinking fund for such Series, such sinking fund shall be established and funded in accordance with the following:
(a) | The minimum amount of any sinking fund payment required to be made is referred to herein as a “mandatory sinking fund payment”, and any payment in excess of such minimum amount is referred to as an “optional sinking fund payment”. Unless otherwise specified in the related Series Supplement, the cash amount of any mandatory sinking fund payment will be subject to reduction as provided in paragraph (b) below. Each sinking fund payment shall be applied to the redemption of such Series as specified in the related Series Supplement. |
(b) | CI may apply any Debt Securities of such Series that have previously been redeemed at the election of CI (including by way of any optional sinking fund payment) as permitted by the related Series Supplement, as a credit against and in satisfaction of an equal principal amount of any mandatory sinking fund payment with respect to such Series, provided that such Debt Securities have not been previously so credited. Such Debt Securities to be created shall be delivered by CI to the Trustee for such purpose, and the amount of such mandatory sinking fund payment shall be reduced accordingly. |
(c) | Not less than 45 days prior to each sinking fund payment date, CI will deliver to the Trustee a Certificate of CI specifying the amount of the sinking fund payment to be made on such date, the applicable Series, and the portion of such sinking fund payment, if any, that is to be satisfied by delivering and crediting Debt Securities of such Series pursuant to paragraph (b) above, together with any Debt Securities to be so delivered. Not less than 30 days prior to each such sinking fund payment date the Trustee shall select the Debt Securities to be redeemed on such date in the manner specified in section 3.1, and shall cause notice of the redemption to be given in the name of and at the expense of CI in the manner provided in section 3.1. Such notice having been duly given, the redemption of such Debt Securities shall be made as provided in section 3.1. |
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3.3 Purchase of Debt Securities
(1) | CI shall have the right at any time and from time to time to purchase Debt Securities in the market or by tender or by private contract, at any price that is agreed upon between CI and the applicable Holders. CI shall repurchase Debt Securities of a Series if and as required by the terms and conditions of a Series Supplement. All Debt Securities purchased by CI pursuant to this section shall be cancelled and shall not be re-issued. |
(2) | Upon an invitation for tenders, if more Debt Securities of the applicable Series are tendered at the same lowest price that CI is prepared to accept, the Debt Securities to be purchased by CI will be selected by the Trustee in such manner (which may include random selection by computer) as the Trustee deems appropriate, from the Debt Securities tendered at such price. For this purpose the Trustee may make, and from time to time amend, regulations with respect to the manner in which Debt Securities may be so selected, and regulations so made shall be valid and binding upon all Holders notwithstanding the fact that, as a result of such regulations, any Debt Security becomes subject to purchase in part only. The Holder of any Debt Security of which part only is purchased shall be entitled to receive, upon surrender of such Debt Security, without cost to such Holder, one or more new Debt Securities for the unpurchased part so surrendered, and CI shall execute, and the Trustee shall certify and deliver, such new Debt Securities upon receipt of the Debt Security so surrendered. |
ARTICLE 4
PAYMENTS; PRIORITY ARRANGEMENTS
4.1 Provisions for Payment
The principal of and any premium, interest and other amounts on a Series will be payable in the currency specified in the related Series Supplement for such Series at the Place of Payment for such Series. If no currency is specified in the related Series Supplement, amounts payable with respect to such Series will be payable in Canadian Dollars. A Series will bear interest, if any, payable on the Interest Payment Dates and at the rate or rates specified in, or determined in the manner provided in, the related Series Supplement, and, unless otherwise specified in any Series Supplement, interest on such Series will be computed on the basis of a calendar year of 365 or 366 days. Each Debt Security will be dated its Series Issuance Date or, if agreed upon by CI and the Trustee, the date of its certification by the Trustee.
4.2 Interest Payments
(1) | Interest payable on a Registered Debt Security on an Interest Payment Date will be paid to the Holder thereof at the close of business on the Regular Interest Record Date for such Interest Payment Date. If a Bearer Debt Security is surrendered in exchange for a Registered Debt Security after the close of business on a Regular Interest Record Date and before the opening of business on the related Interest Payment Date, such Bearer Debt Security shall be surrendered without the coupon related to such Interest Payment Date and interest will not be payable on such Interest Payment Date in respect of the Registered Debt Security exchanged for such Bearer Debt Security, but will be payable only to the Holder of such coupon when due in accordance with this Indenture. At the option of CI, payment of interest on a Registered Debt Security may be made by cheque mailed at least five days prior to the applicable Interest Payment Date to the address of the Person entitled to such payment as the address appearing in the relevant Register or, with respect to all but not less than all of a Series, and upon payment by CI of the additional fees and expenses of the Trustee with respect thereto, by electronic funds transfer to an account designated by each Holder of such Series from time to time. Interest on a Bearer Debt Security shall be payable only upon presentation and surrender of the applicable coupon for such interest. |
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(2) | If a Debt Security or a portion thereof is called for redemption and the Redemption Date is subsequent to a Regular Interest Record Date but prior to the related Interest Payment Date, interest on such Debt Security will be paid upon presentation and surrender of such Debt Security as provided in section 3.1. |
(3) | Interest on any Series that is not paid on or within three Business Days following the applicable Interest Payment Date (“Default Interest”) will be paid in accordance with the following: |
(a) | CI may elect to pay the Default Interest to the Holders of such Series as at the close of business on a Special Interest Record Date for the payment of the Default Interest, which shall be fixed in the following manner. CI shall notify the Trustee in writing of the amount of Default Interest proposed to be paid and the date of the proposed payment, and at the same time CI shall deposit with the Trustee an amount of money equal to the amount of the Default Interest proposed to be paid, or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, and such money when deposited shall be held in trust for the benefit of the Persons entitled thereto. The Trustee shall then fix a special record date (a “Special Interest Record Date”) for the payment of the Default Interest, which shall be not less than 10 days and not more than 15 days prior to the proposed payment date and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee will cause notice of the proposed payment and the Special Interest Record Date to be given to the Holders of such Series not less than 10 days prior to such Special Interest Record Date. Default Interest will be paid to the Holders as at the close of business on such Special Interest Record Date and will not be payable pursuant to paragraph (b) below. If a Bearer Debt Security is surrendered to the related Registrar or the related Paying Agent in exchange for a Registered Debt Security after the close of business on a Special Interest Record Date but before the opening of business on the date of payment of the Default Interest, such Bearer Debt Security shall be surrendered without the coupon related to the Default Interest, and the Default Interest will not be payable on such date of payment in respect of the Registered Debt Security exchanged for such Bearer Debt Security, but will be payable only to the Holder of such coupon in accordance with the provisions of this Indenture. |
(b) | CI may pay Default Interest on any Series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Series is listed or any over the counter market in which such Series is traded, and upon such notice as may be required by such exchange or market, if, after notice given by CI to the Trustee of the proposed payment pursuant to this paragraph, such manner of payment shall be deemed practicable by the Trustee. |
(4) | Subject to the foregoing provisions of this section, each Debt Security delivered upon the transfer of or in exchange for or in lieu of any other Debt Security shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Debt Security. |
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4.3 Currency Indemnity
CI shall make payments relative to each Debt Security in the currency in which such Debt Security is denominated (the “Original Currency”). If CI makes payment relative to a Debt Security (whether to the Trustee, the related Registrar, the related Paying Agent or the applicable Holder) in a currency (the “Other Currency”) other than the Original Currency (whether voluntarily or pursuant to an order or judgment of a court or tribunal of any jurisdiction), such payment shall constitute a discharge of the liability of CI in respect of such Debt Security only to the extent of the amount of the Original Currency which the recipient of such payment is able to purchase, in accordance with its normal practice, with the amount of the Other Currency received. If the amount of the Original Currency which the recipient is able to purchase is less than the amount of the Original Currency due, CI shall indemnify and save the Trustee, the related Registrar, the related Paying Agent and the applicable Holder harmless from and against any loss or damage arising as a result of such deficiency. This indemnity shall constitute an obligation separate and independent from the other obligations contained in this Indenture, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Trustee, the related Registrar, the related Paying Agent or the applicable Holder, and shall continue in full force and effect notwithstanding any judgment or order in respect of any amount due under this Indenture.
4.4 Ranking of Debt Securities
(1) | All Debt Securities of a Series shall rank pari passu and rateably with all other Debt Securities of such Series, and shall share all security, if any, delivered to the Trustee or any Person on its behalf with respect to such Series equally and rateably with all other Persons for whom such security, pursuant to its terms, is held by the Trustee, in each case without discrimination, preference or priority among such Debt Securities and irrespective of their actual dates or terms of issue. |
(2) | Subject to subsection (5) below, all Debt Securities of a Series shall rank pari passu and rateably with all Debt Securities of all other Series without discrimination, preference or priority among such Debt Securities and irrespective of their actual dates or terms of issue, subject however to any sinking fund or defeasance provisions, if any, applicable to different Series. |
(3) | Subject to subsection (5) below, all Debt Securities of a Series shall rank at least pari passu with all other unsecured and unsubordinated obligations of CI, except to the extent of any mandatory preferences prescribed by Applicable Law. |
(4) | If so provided in the related Series Supplement, and subject to compliance with any terms of this Indenture and any other Series Supplement prohibiting the granting, creation, incurring or suffering to exist of Security Interests, the amounts payable under or with respect to a Series may be secured in such manner, against such property and pursuant to such security documents as may be specified in the related Series Supplement (any such Security Interest for a Series being referred to herein as the “Series Specific Security Interest” for such Series). In any such case, unless otherwise expressly provided by the applicable security documents or by this Indenture, the Series Specific Security Interest for a Series will be separate and distinct from the Series Specific Security Interest, if any, for any other Series, and will not secure the amounts payable under or with respect to any other Series. |
(5) | If so provided in the related Series Supplement, the amounts payable under or with respect to a Series may be subordinated in such manner, pursuant to such documents and to such other debts and liabilities of CI and any other obligor in respect of such Series (including any other Series), as may be specified in the related Series Supplement. |
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(6) | Each Holder by accepting a Debt Security irrevocably authorizes and directs the Trustee on its behalf to take such action (including the execution and delivery of documents of subordination) as may be necessary or appropriate to further assure the priority arrangements provided for in this Indenture with respect to any Series, including regarding application of payments, the provision of security and the effecting of subordination arrangements, and each Holder appoints the Trustee as its agent for any and all such purposes. |
(7) | A Holder may at any time extend any time of payment applicable to its Debt Securities, including waiver of any Event of Default applicable to such Debt Securities, without notice to or consent from any creditor of CI (including any other Holder) which is subordinate in right of payment to such Holder. |
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF ISSUER
5.1 Representations and Warranties
In relation to each Series, CI represents and warrants to the Trustee, for the benefit of the Holders of such Series, that:
(1) | Existence and Power. CI is a corporation existing under the laws of Ontario, has the power and authority to enter into and perform its obligations under this Indenture, the Debt Securities of such Series and any other Series Specific Documents for such Series to which it is a party, and to execute and deliver the Debt Securities of such Series. |
(2) | Authorization; No Conflict. The execution, delivery and performance of this Indenture, the Debt Securities of such Series and any other Series Specific Documents for such Series to which CI is a party: |
(a) | have been duly authorized by all necessary action on the part of CI; |
(b) | will not conflict with any of the terms or provisions of any trust indenture, loan agreement or any other agreement or instrument to which CI is a party or by which it is contractually bound; |
(c) | will not conflict with or violate any Applicable Law; and |
(d) | will not result in the creation or imposition of any Security Interest on any of the property of CI (other than any Series Specific Security Interest for such Series created pursuant to the related Series Supplement). |
(3) | Execution and Delivery. This Indenture, the Debt Securities of such Series from time to time Outstanding and the other Series Specific Documents for such Series to which CI is a party have been duly executed and delivered by CI. |
(4) | No Consents Required. No consent, approval or authorization of, or declaration, registration, filing or qualification with, or giving of notice to, or taking of any other action in respect of, any Governmental Authority on the part of CI is required in connection with the execution and delivery of this Indenture, the Debt Securities of such Series from time to time Outstanding or the other Series Specific Documents for such Series (except those which have been obtained and continue to be in full force and effect and those in respect of which the failure to obtain the same would not be reasonably likely to have a Material Adverse Effect with respect to such Series). |
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(5) | No Default. No Default or Event of Default with respect to such Series has occurred and is continuing. |
The representations and warranties set forth in this section shall survive the execution and delivery of this Indenture (including the related Series Supplement) and the issuance of the Debt Securities of such Series.
5.2 Positive Covenants
In relation to each Series, CI covenants and agrees with the Trustee for the benefit of Holders of such Series, that, except as otherwise permitted by the prior written consent of the Trustee in the case of any such covenant other than the covenant in paragraph (1) below:
(1) | Pay Principal, Interest and other Amounts. CI will duly and punctually pay or cause to be paid to every Holder of such Series the principal of and any premium, interest and other amounts on such Series. |
(2) | Maintenance of Office or Agency. |
(a) | CI will maintain or cause the related Registrar or the related Paying Agent, as the case may be, to maintain an Office or Agency at each Place of Payment for such Series where Debt Securities of such Series may be presented or surrendered for payment, or for registration of transfer or exchange, and where notices and demands to or upon CI in respect of such Series, this Indenture and the related Series Supplement may be served. CI will give prompt written notice to the Trustee of the location, and any change in the location, of any such Office or Agency. If at any time CI shall fail to maintain such required Office or Agency or shall fail to furnish to the Trustee the address of any such Office or Agency, such presentations, surrenders, notices and demands may be made or served at the principal corporate trust office of the Trustee in Toronto, Ontario, except that Bearer Debt Securities of such Series and the related coupons may be presented and surrendered for payment at the place specified for such purpose pursuant to the related Series Supplement or, if no such place is specified, at the stock and bond transfer office of the Trustee in Toronto, Ontario, and CI hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. |
(b) | CI may from time to time designate one or more other offices or agencies (in or outside of such Place of Payment) where the Debt Securities of such Series and, in the case of Bearer Debt Securities, any coupons of such Bearer Debt Securities, subject to the preceding paragraph, may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve CI of its obligation to maintain, or cause the related Registrar or the related Paying Agent, as the case may be, to maintain for such purposes an Office or Agency in each Place of Payment for such Series. CI will give prompt written notice to the Trustee of any such designation and any change in the location of any such other Office or Agency. |
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(3) Money for Payments to Be Held in Trust.
(a) | If CI shall at any time act as its own Paying Agent for such Series it will, on or before each due date of the principal of and any premium, interest or other amounts on such Series, segregate and hold in trust for the benefit of the Holders entitled to such payment a sum sufficient to pay such principal, premium, interest or other amounts until such sums shall be paid to such Holders or otherwise disposed of as provided for in this Indenture, and it will promptly notify the Trustee of its action or failure to so act. |
(b) | Whenever there exists one or more Paying Agents with respect to such Series, CI will, prior to each due date of any principal of or premium, interest or other amounts on such Series, deposit with the related Registrar or the related Paying Agent, as the case may be, a sum sufficient to pay such principal, premium, interest or other amounts, such sum to be held in trust for the benefit of the Holders entitled thereto, and (unless such related Registrar or related Paying Agent is the Trustee), CI will promptly notify the Trustee of its action or failure to so act. |
(c) | CI will cause each Registrar and Paying Agent for such Series, other than the Trustee, to execute and deliver to the Trustee an instrument in which such Registrar or related Paying Agent shall agree with the Trustee, subject to the provisions of this section, that such Registrar or Paying Agent will: |
(x) | hold all sums received by it for the payment of any principal of or premium, interest or other amounts on such Series in trust for the benefit of the Holders entitled thereto until such sums shall be paid to such Holders or otherwise disposed of as provided for in this Indenture or the related Series Supplement; |
(y) | give the Trustee notice of any default by CI (or any other obligor upon such Series) in the making of any payment of any principal of or premium, interest or other amounts on such Series; and |
(z) | at any time during the continuance of any such default, upon the written request of the Trustee, immediately pay to the Trustee all sums so held in trust by such Registrar or Paying Agent. |
(d) | CI may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture and the related Series Supplement or for any other purpose, pay, or by Issuer Request direct the related Registrar or the related Paying Agent to pay, to the Trustee all sums held in trust by CI or such Registrar or Paying Agent; such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by CI or such Registrar or Paying Agent, and upon such payment by such Registrar or Paying Agent to the Trustee, such Registrar or Paying Agent, as the case may be, shall be released from all further liability with respect to such money. |
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(e) | Any money deposited with the Trustee or the related Registrar or Paying Agent, or then held by CI, in trust for the payment of any principal or premium, interest or other amount on such Series, and remaining unclaimed for six years after such principal, premium, interest or other amount has become due and payable, shall be paid to CI if so requested by an Issuer Request, or (if then held by CI) shall be discharged from such trust; and the applicable Holders shall thereafter, as unsecured general creditors, look only to CI for payment thereof, and all liability of the Trustee, the related Registrar and the related Paying Agent with respect to such trust money, and all liability of CI as trustee of such trust money, shall thereupon cease. |
(4) | Issuer Status. CI will and, if and as applicable for a Series, will cause each Guarantor Subsidiary to preserve and maintain its existence (except as permitted by Article 11), and its qualifications in each jurisdiction to carry on its business except to the extent that failure to maintain such qualifications would not be reasonably expected to have a Material Adverse Effect with respect to such Series. |
(5) | Compliance with Laws. CI will and, if and as applicable for a Series, will cause each Guarantor Subsidiary to comply in all material respects with all applicable Requirements of Law, except to the extent that non-compliance would not be reasonably expected to have a Material Adverse Effect with respect to such Series. |
(6) | Notice of Default. CI will promptly notify the Trustee in writing upon becoming aware of the occurrence of any Default or Event of Default with respect to such Series. |
(7) | Financial Statements. CI will deliver to the Trustee within 90 days after the end of each fiscal year of CI audited consolidated financial statements of CI for such fiscal year including the consolidated balance sheet and statements of income, retained earnings and changes in financial position (or the equivalent under then-applicable Canadian generally accepted accounting principles), and within 45 days after the end of each fiscal quarter, other than the last fiscal quarter, unaudited consolidated financial statements of CI for such fiscal quarter consisting of a consolidated balance sheet and consolidated statements of income, retained earnings and changes in financial position (or the equivalent under then-applicable Canadian generally accepted accounting principles); provided that, CI may utilize SEDAR (or a successor system) to deliver any or all of the foregoing documents, and filing any or all of the foregoing documents on SEDAR (or such successor system) shall constitute delivery of such documents to the Trustee. |
(8) | Compliance Certificate. CI and, if and as applicable for a Series, each Guarantor Subsidiary, will deliver to the Trustee within 90 days after the end of each fiscal year of CI a Certificate of CI stating that, as of the end of such fiscal year, it and, if and as applicable for a Series, each Guarantor Subsidiary was in compliance in all material respects with all covenants and other requirements contained in this Indenture and any Series Supplement, or giving particulars of any such non-compliance. |
(9) | Expenses of Issuer. CI will pay all expenses (including sales tax, goods and services tax and harmonized sales and goods and services tax) of CI or any Guarantor Subsidiary applicable to the issuance of such Series, including any underwriting fees or commissions, legal expenses, printing costs, listing fees, registration charges in connection with the use of any applicable Book-Entry System, filing fees with respect to any Offering Document, and any other expenses incurred directly or indirectly in connection therewith. |
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(10) | Agents’ Fees and Expenses. CI will pay such fees as are agreed upon in writing between CI and the Trustee, the related Registrar, the related Paying Agent or any related Other Series Agent relative to such Series, and all reasonable expenses, disbursements and advances incurred or made by the Trustee in the administration or execution of the trusts created by this Indenture (including the reasonable compensation and the disbursements of its counsel and all other advisers and assistants not regularly in its employ), both before and after any Default or Event of Default with respect to such Series, until all its duties shall be finally and fully performed, except any such expense, disbursement or advance as may arise from or in connection with the, bad faith, willful misconduct, or gross negligence by the Trustee or the failure to comply with the standard of care referred to in section 8.1 by the Trustee. |
5.3 Negative Pledge
CI covenants and agrees with the Trustee, for the benefit of the Holders of each Series, that it will not, and will not permit any Guarantor Subsidiary to, directly or indirectly, create, assume or suffer to exist any Security Interest (other than Permitted Encumbrances) on any of the present or future property of such Person to secure any obligation unless such Series and, if applicable, the Guarantee of such Series, and if CI so elects, any other liabilities of CI or the Guarantor Subsidiary ranking at least pari passu with such Series or, if applicable, the Guarantee are secured equally and rateably with (or prior to) such obligation so long as such Security Interest is outstanding. If at any time CI or any Guarantor Subsidiary shall create, assume or suffer to exist any Security Interest to which this paragraph is applicable, CI shall promptly deliver to the Trustee a Certificate of CI and an Opinion of Counsel, each stating that the covenant in this paragraph has been complied with. If CI shall secure such Series equally and rateably with (or prior to) any such other obligation pursuant to this paragraph, the Trustee is hereby authorized to enter into an indenture or agreement supplemental to this Indenture and to take such action, if any, to enable the Trustee to effectively enforce the rights of the Holders of such Series including under any Guarantee so secured equally and rateably with (or prior to) the obligees of such other obligation; provided however that the Trustee shall not be responsible for filing any financing or continuation statements or recording any documents or instruments in any public office at any time or times.
5.4 Trustee May Perform Covenants
If CI or, if and as applicable, a Guarantor Subsidiary, shall fail to perform any of its covenants in this Indenture relative to a Series, the Trustee may, but unless provided to the contrary in this Indenture need not, notify the Holders of such Series of such failure, and itself may perform any such covenant that is capable of being performed by it, and if any such performance requires the payment of money, it may make such payment with its own funds or with money borrowed by it for such purpose, but shall be under no obligation to do so; provided however that no such performance or payment by the Trustee shall be deemed to release CI or such Guarantor Subsidiary from or be a waiver of any Default resulting from CI’s or such Guarantor Subsidiary’s failure to perform, its applicable covenant, and any amounts so paid or expended by the Trustee shall be immediately repaid to the Trustee by CI or such Guarantor Subsidiary and shall bear interest until so repaid at a rate of interest that is 1% per annum above the interest payable on such Series (or if such Series does not bear interest, at the highest rate of interest chargeable from time to time by the Trustee to its corporate trust customers), and shall be secured by the Series Specific Security Interest, if any, for such Series.
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ARTICLE 6
EVENTS OF DEFAULT AND REMEDIES
6.1 Events of Default
An Event of Default with respect to a Series means any one of the following events (whatever the reason for such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any Governmental Authority):
(1) | Default in Payment of Principal or Premium. A default by CI in making payment of any principal or premium with respect to such Series when due and payable; or |
(2) | Default in other Payments. A default by CI in making payment of any interest with respect to such Series when due and payable, which default continues for a period of 30 days; provided that, for greater certainty, no such default shall be considered to occur as a result of amounts that may be required to be deducted or withheld under the Income Tax Act (Canada) or any other applicable taxation statute by CI, the Trustee, the related Registrar or the related Paying Agent from any payment to be made to any Holder having been so deducted or withheld and such amounts having been remitted to the appropriate Governmental Authority on behalf of such Holder; or |
(3) | Other Covenant Defaults. A default by CI or any Guarantor Subsidiary in the due performance of, or a breach of, any other covenant of CI or such Guarantor Subsidiary with respect to such Series contained in this Indenture or any Series Specific Document for such Series, which default or breach continues for a period of 60 days after the date on which written notice of such default has been given to CI by the Trustee; or |
(4) | Cross-Events. A default by any one or more of CI and its Subsidiaries in making payment of any Indebtedness in an aggregate amount exceeding $50,000,000 when due and payable, or in performing or observing any term, covenant, condition or provision applicable to any Indebtedness with the result that Indebtedness in an aggregate amount exceeding $50,000,000 is declared to be or otherwise becomes due and payable prior to the date on which it was otherwise due and payable; or |
(5) | Voluntary Insolvency Actions. If CI or any Guarantor Subsidiary institutes a Proceeding for its winding up, liquidation or dissolution (except to the extent permitted under Article 11), or takes action to become a voluntary bankrupt, or consents to the filing of a bankruptcy proceeding against it, or files a proposal, a notice of intention to make a proposal, a petition or answer or consent seeking reorganization, readjustment, arrangement, administration, composition or similar relief under any bankruptcy law, any insolvency law or any other similar applicable law (including the Bankruptcy and Insolvency Act (Canada), the Companies Creditors Arrangement Act (Canada), the Winding-Up and Restructuring Act (Canada) or any similar legislation in any other jurisdiction) or consents to the filing of any such petition or other proceeding, or consents to the appointment of a receiver, liquidator, administrator, trustee or assignee in bankruptcy or insolvency of the whole or a substantial part of the property of any such Person, or makes an assignment for the benefit of creditors, or publicly announces or admits in writing its inability, or is deemed for the purpose of any Applicable Law to be unable, to pay its debts generally as they become due or commits any act of bankruptcy or insolvency, or suspends making payments on all or any class of its debts or announces an intention to do so, or suspends or threatens to suspend transaction of all or any substantial part of its usual business, or any action is taken by CI or any Guarantor Subsidiary in furtherance of any of the foregoing; or |
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(6) | Involuntary Insolvency Proceedings. If a Proceeding is instituted in any court of competent jurisdiction by any Person for the winding up, liquidation, administration or dissolution of CI or any Guarantor Subsidiary (except to the extent permitted under Article 11), or for any reorganization, readjustment, arrangement, administration, composition or similar relief with respect to CI or a Guarantor Subsidiary under any bankruptcy law, insolvency law or other similar applicable law (including the Bankruptcy and Insolvency Act (Canada) the Companies Creditors Arrangement Act (Canada), the Winding-Up and Restructuring Act (Canada) or for the appointment of a receiver, liquidator, trustee, administrator or assignee in bankruptcy or insolvency of the whole or any material part of its property, and in any such case |
(a) | at any time thereafter such Proceeding is not being contested by CI or such Guarantor Subsidiary or the effect of such Proceeding has not been stayed, or |
(b) | such Proceeding has not been dismissed within 30 days after the day on which it was commenced, or |
(c) | the final order sought in such Proceeding is granted; or |
(7) | Breach of Representation or Warranty. If any representation or warranty made by CI or any Guarantor Subsidiary in relation to such Series in this Indenture or any Series Specific Document for such Series was incorrect as at the time made and, if such representation or warranty is capable of being corrected with reference to the presently-existing facts and circumstances, such representation or warranty is not corrected within a period of 60 days after the date on which written notice thereof is given to CI or such Guarantor Subsidiary by the Trustee. |
6.2 Acceleration of Maturity; Rescission and Annulment
(1) | If an Event of Default described in paragraph 6.1(5) or 6.1(6) is continuing and the Trustee has received notice of such Event of Default in accordance with subsection 8.8(1), the Trustee shall declare all Series to be immediately due and payable by a notice in writing to CI, and upon such Declaration of Acceleration the aggregate unpaid principal amount of all Series (together with all accrued and unpaid interest thereon and any other amounts owing with respect thereto) shall become immediately due and payable and the Series Specific Security Interest, if any, with respect to each Series shall immediately become enforceable. |
(2) | Except as provided in subsection 6.2(1), if an Event of Default is continuing with respect to a Series and the Trustee has received notice of such Event of Default in accordance with subsection 8.8(1), the Trustee may, and if requested by a Holder Direction given by Holders of not less than 25% of the unpaid principal amount of such Series shall, by written notice to CI, declare such Series to be immediately due and payable, and upon such Declaration of Acceleration the aggregate unpaid principal amount of such Series (together with all accrued and unpaid interest thereon and any other amounts owing with respect thereto) shall become immediately due and payable and the Series Specific Security Interest, if any, with respect to such Series shall immediately become enforceable. |
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(3) | At any time after a Declaration of Acceleration with respect to a Series has been made by the Trustee and before a judgment for payment of any amount due under such Series has been obtained by the Trustee, such Declaration of Acceleration and its consequences may be rescinded and annulled by a Holder Direction from the Holders of such Series. In such case the rescission and annulment will be effective on the date on which: |
(a) | written notice of such Holder Direction is given to CI and the Trustee; and |
(b) | CI has paid or deposited with the Trustee a sum sufficient to pay (x) all principal, premium, interest and other amounts which, by the Principal Terms of such Series, are then due and payable otherwise than pursuant to such Declaration of Acceleration, and (y) all sums paid or advanced by the Trustee with respect to such Series and the reasonable compensation and expenses of the Trustee with respect to such Series; and |
(c) | there shall be continuing no Default or Event of Default with respect to such Series, other than the non-payment of principal, premium, interest and other amounts with respect to such Series that became due solely by such Declaration of Acceleration. |
(4) | No such rescission and annulment shall affect any subsequent or other Event of Default with respect to such Series or impair any right of the Trustee or the Holders of such Series with respect to such subsequent or other Event of Default. In addition, no such rescission and annulment shall affect any Event of Default with respect to any other Series or impair any right of the Trustee or the Holders of any other Series with respect thereto. |
6.3 Remedies
Subject to subsection 6.2(3) and to compliance with subsection 8.8(2), if an Event of Default with respect to a Series is continuing and a Declaration of Acceleration with respect to such Series has been made, CI will pay to the Trustee, for the benefit of the Holders of such Series, the whole amount then due and payable for principal, premium, interest and other amounts with respect to such Series and, to the extent permitted by Applicable Law, interest on any overdue principal, premium, interest and other amounts at the rate or rates prescribed in the related Series Supplement, and in addition thereto such further amount as shall be sufficient to pay the costs and expenses of collection, including the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and the Trustee may exercise any action, suit, remedy or Proceeding authorized or permitted by this Indenture or any Series Specific Document or any other agreement, at law, in equity, under statute or otherwise. If an Event of Default with respect to a Series is continuing, the Trustee may also protect and enforce its rights and the rights of the Holders of such Series by such appropriate Proceedings as the Trustee may be advised shall be appropriate to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or any Series Specific Document or in aid of the exercise of any power granted in this Indenture or any Series Specific Document, or to enforce any other proper remedy.
6.4 Trustee May File Proofs of Claim
In any Proceeding relative to CI (or any other obligor upon the Debt Securities, including a Guarantor Subsidiary), or its property or its other creditors, the Trustee shall be entitled and empowered, by intervention in such Proceeding or otherwise, to take any and all actions authorized by Applicable Law in order to have the claims of the Holders and the Trustee allowed in such Proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such Proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. No provision of this Indenture or any Series Specific Document shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization or plan of arrangement, adjustment or composition affecting any of the Debt Securities or the rights of any Holder or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided however that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors’ or other similar committee.
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6.5 Enforcement Without Possession of Debt Securities
All rights of action and claims under this Indenture and the Debt Securities may be prosecuted and enforced by the Trustee without the possession of any of the Debt Securities or the production of any of the Debt Securities in any Proceeding relating thereto, and any such Proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the rateable benefit of the Holders for whom such judgment has been recovered (subject to any express provisions to the contrary in this Indenture or a Series Supplement in connection with security for the benefit of, or subordination arrangements applicable to, one or more Series).
6.6 Application of Money Collected
Any money collected by the Trustee pursuant to this Article in respect of a Series shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of any principal, premium, interest or other amount, upon presentation of the Debt Securities of such Series and the notation on such Debt Securities of the payment (if only partially paid) or surrender thereof (if fully paid):
(a) | first, to the payment of all amounts due to the Trustee under this Indenture with respect to such Series; |
(b) | second, to the payment of the accrued interest on such Series; |
(c) | third, to the payment of the principal of and premium on such Series; |
(d) | fourth, to the payment of any other amounts with respect to such Series; and |
(e) | fifth, to whomsoever may be lawfully entitled to receive the balance of such money. |
6.7 Notice of Event of Default
(1) | The Trustee shall give written notice of the occurrence of every Event of Default with respect to a Series to the Holders of such Series within a reasonable time after the Trustee obtains knowledge thereof, unless the Trustee in good faith determines that the withholding of such notice is in the best interest of such Holders, collectively, and so advises CI in writing. |
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(2) | Where notice of the occurrence of an Event of Default with respect to a Series has been given by the Trustee and the Event of Default is thereafter cured, notice that the Event of Default is no longer continuing shall be given by the Trustee to the Holders of such Series within a reasonable time after the Trustee obtains knowledge that the Event of Default has been cured. |
6.8 Restoration of Rights and Remedies
If the Trustee or any Holder has instituted Proceedings in accordance with this Indenture to enforce any right or remedy with respect to a Series and such Proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then in every such case, but subject to such adverse determination,
(a) | CI, the Trustee and the Holders of such Series shall be restored severally and respectively to the fullest extent possible to their former positions under this Indenture, and |
(b) | all rights and remedies of the Trustee and such Holders shall continue as though no such Proceeding had been instituted. |
6.9 Rights and Remedies Cumulative
Except as expressly provided herein, no right or remedy conferred upon or reserved to the Trustee is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to every other right and remedy however existing. Any single or partial exercise of any right or remedy shall not preclude any other or further exercise of such right or remedy or the exercise of any other right or remedy.
6.10 Waiver of Defaults
(1) | Prior or subsequent to a Declaration of Acceleration with respect to a Series, the Holders of such Series shall be permitted to provide a Holder Direction instructing the Trustee to waive, in which event the Trustee shall waive (on and subject to the conditions, if any, specified in such Holder Direction), any prospective or existing Default or Event of Default with respect to such Series. |
(2) | Upon a waiver becoming effective with respect to a Series, CI, the Trustee and the Holders of such Series shall be restored to the fullest extent possible to their former positions and rights under this Indenture and the related Series Specific Documents; and any Default or Event of Default with respect to such Series arising therefrom shall be deemed to have been cured; but no such waiver shall extend to any subsequent or other Default or Event of Default with respect to such Series or impair any right with respect to any such subsequent or other Default or Event of Default, or extend to the same or any subsequent or other Default or Event of Default with respect to any other Series or impair any right with respect thereto. |
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6.11 Holders May Direct Trustee’s Action
Except as otherwise provided herein, and subject to compliance with subsection 8.8(2), the Holders of a Series shall have the right, in each case by a Holder Direction, to direct the time, method and place of conducting any Proceeding or any right or remedy available to the Trustee, or the exercise of any trust or power conferred on the Trustee under the Series Specific Documents with respect to such Series; provided, however, that the Trustee shall have the right to decline to follow any such direction if advised by Counsel that the action so directed may not lawfully be taken or if the Trustee in good faith shall determine that the Proceeding so directed would be illegal or would be unduly prejudicial to the rights of Holders of such Series not parties to such Holder Direction or not bound by such Holder Direction. Nothing in this Indenture shall impair the right of the Trustee to take any action deemed proper by it and which is not inconsistent with such Holder Direction.
6.12 Limitation of Trustee’s Liability
The Trustee will not be bound to do, observe or perform or to see to the observance or performance by CI of any of the obligations imposed upon it under this Indenture or the related Series Specific Documents, or in any other way to supervise or interfere with the conduct of any activities of CI, unless and until a Declaration of Acceleration with respect to such Series has occurred, and the Trustee has determined or become bound to enforce the same and has been supplied with sufficient funds and an indemnity as provided in subsection 8.8(2).
ARTICLE 7
SUITS BY HOLDERS AND TRUSTEE
7.1 Holders May Not Sue
No Holder shall have any right to institute any Proceeding with respect to, or otherwise pursue or enforce any remedy with respect to, any Series Specific Document, or for the appointment of a receiver or trustee of CI or any Guarantor Subsidiary, unless:
(a) | such Holder shall previously have given to or received from the Trustee written notice of a continuing Event of Default with respect to the applicable Series; |
(b) | the Holders of not less than 25% of the aggregate unpaid principal amount of such Series shall have made a written request to the Trustee and the Trustee shall have been afforded reasonable opportunity itself to either proceed to exercise the powers granted in this Indenture or institute a Proceeding in its name for the purpose requested; |
(c) | such Holders shall have provided to the Trustee sufficient funds and an indemnity as contemplated by subsection 8.8(2); |
(d) | the Trustee shall have failed to act within a reasonable time, which for the purposes of the related Series Specific Documents shall not exceed a period of 30 days after such notification, request and offer of sufficient funds and indemnity by such Holders; |
(e) | during the 30 day period referred to in clause (d) above such Event of Default has not been waived as provided herein; |
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(f) | during such 30 day period any Declaration of Acceleration in respect of such Event of Default has not been rescinded and annulled as provided herein; and |
(g) | during such 30 day period the Trustee has not received a contrary Holder Direction from the Holders of such Series; it being understood and intended that no Holder shall have any right in any manner whatsoever to take any action to affect, disturb or prejudice the rights of any other Holders (whether of the same Series or any other Series) or to obtain or seek to obtain priority over or preference to any other Holders (whether of the same Series or any other Series) (subject to any applicable subordination provisions, Series Specific Security Interest or defeasance or sinking fund provisions applicable to one or more Series), or to enforce any right under any related Series Specific Documents, other than in the manner provided in this Indenture and for the equal, rateable and common benefit of all Holders of such Series. |
ARTICLE 8
THE TRUSTEE
8.1 Duties of Trustee
In the exercise of its rights, duties and obligations prescribed or conferred by this Indenture and any other Series Specific Documents, the Trustee shall act honestly and in good faith with a view to the best interests of the Holders, and shall exercise that degree of care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances. Subject to the foregoing, the Trustee shall not be liable for any error in judgment, any act done, step taken or omitted, or for any mistake in fact or law, done or made in good faith by it, or for anything which it may do or refrain from doing, except arising out of its own gross negligence, bad faith or willful misconduct. The Trustee shall not be liable for any act or default on the part of any agent employed by it or for permitting any agent or co-trustee to receive and retain any monies payable to the Trustee under this Indenture or any Series Specific Document, except as aforesaid. The Trustee shall read, understand and act upon (as required) all of the certificates, Certificates of CI, opinions, Opinions of Counsel and other documents delivered to it under or pursuant to this Indenture and the other Series Specific Documents.
8.2 Employ Agents
The Trustee may, but is not required to, employ (at the expense of CI) such counsel, agents and other assistants as it may reasonably require for the proper discharge of its duties under the Series Specific Documents for each Series, and shall not be responsible for any negligence or misconduct on the part of any such counsel, agent or other assistant or for any liability incurred by any Person as a result of not employing such counsel, agent or other assistant, and may pay reasonable remuneration for all services performed for it with respect to such Series Specific Documents, and shall be entitled to receive reimbursement for all reasonable disbursements, costs, liabilities and expenses made or incurred by it with respect to such Series. All such disbursements, costs, liabilities and expenses in relation to a Series and all expenses incidental to the preparation, execution and any recording of related Series Specific Documents for such Series, and to the preparation, execution, creation and issuance of the Debt Securities of such Series, whether done or incurred at the request of the Trustee or CI, shall bear interest at the lowest annual rate of interest charged by the Trustee from time to time to its corporate trust customers from the date which is 30 days following receipt by CI of an invoice from the Trustee with respect to such expenses until the date of reimbursement and shall (together with such interest) be paid by CI immediately upon receipt of such invoice and shall, until paid, be secured by the Series Specific Security Interest, if any, for such Series.
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8.3 Reliance on Evidence of Compliance
In the exercise of its rights, duties and obligations under the Indenture, the Trustee may, if it is acting in good faith, act and rely, as to the truth of the statements and the accuracy of the opinions expressed therein, upon statutory declarations, Opinions of Counsel, reports, directions, orders, certificates and Certificates of CI furnished pursuant to any Series Specific Document or required by the Trustee to be furnished to it in the exercise of its rights, duties and obligations under any Series Specific Document where such statutory declarations, Opinions of Counsel, reports, directions, orders, certificates or Certificates of CI comply with any and all requirements of this Indenture and such Series Specific Document and the Trustee examines such evidence and determines that such evidence indicates compliance with the applicable requirements of this Indenture and such Series Specific Document.
8.4 Provision of Evidence of Compliance to Trustee
In addition to any other provisions of this Indenture, CI or, if and as applicable, a Guarantor Subsidiary shall furnish to the Trustee evidence of compliance with the conditions precedent provided for in this Indenture relating to:
(a) | the certification pursuant to section 2.7 and delivery of Debt Securities; |
(b) | the satisfaction and discharge of this Indenture or any Series Supplement; or |
(c) | the taking of any other action or step to be taken by the Trustee at the request, or on the application of CI or such Guarantor Subsidiary. |
8.5 Contents of Evidence of Compliance
Evidence of compliance required by section 8.4 shall consist of:
(a) | a Certificate of CI that the conditions precedent referred to in such Certificate have been complied with in accordance with the terms of this Indenture and any other applicable Series Specific Document; |
(b) | in the case of conditions precedent compliance with which are, by a Series Specific Document, made subject to review or examination by Counsel, an Opinion of Counsel to CI or such Guarantor Subsidiary that such conditions precedent have been complied with in accordance with the terms of such Series Specific Document; and |
(c) | in the case of conditions precedent compliance with which are subject to the review or examination by auditors or appraisers, an opinion or report of a chartered accountant or appraiser, as the case may be, approved by the Trustee, that such conditions precedent have been complied with in accordance with the terms of such Series Specific Document. |
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8.6 Advice of Experts
In relation to any Series Specific Document the Trustee may act and rely, and shall be protected in acting and relying in good faith, on the opinion, advice or information (including the Opinion of Counsel) obtained from any counsel, auditor, valuator, engineer, surveyor or other expert, whether obtained by the Trustee or by CI, and, if acting in good faith, may rely as to the truth of the statements and the accuracy of the opinions expressed in any report or opinion furnished by such Person and may obtain such assistance as may be necessary to the proper discharge of its duties and may pay proper and reasonable compensation for all such legal and other advice or assistance as aforesaid, including the disbursements of any legal or other advisor or assistants.
8.7 Trustee May Deal in Debt Securities
In its personal capacity or any other capacity, the Trustee, and each Affiliate of the Trustee, may buy, sell, lend upon, become a pledgee of and deal in the Debt Securities and generally contract and enter into financial transactions with CI and any Affiliate of CI without being liable to account for any profits made thereby.
8.8 Conditions Precedent to Trustee’s Obligation to Act
(1) | The Trustee shall not be bound to give any notice, or to do, observe or perform or see to the observance or performance by CI or any Guarantor Subsidiary of any of the obligations imposed under in any Series Specific Document, or to supervise or interfere with any of the activities of CI or any Guarantor Subsidiary, or to do or take any act, action or Proceeding by virtue of the powers conferred on it by any Series Specific Document, unless and until it shall have been required so to do under the terms of this Indenture; nor shall the Trustee be required to take notice of any Default or Event of Default, other than in payment of any monies required by this Indenture or any Series Supplement to be paid to the Trustee, unless and until notified in writing of such Default or Event of Default by CI or any Guarantor Subsidiary or by any Holder, which notice shall distinctly specify the applicable Series and Default or Event of Default, and in the absence of any such notice the Trustee may conclusively assume that CI and the Guarantor Subsidiaries (if any) are not in default under any Series Specific Document and that no Default or Event of Default has occurred. Any such notice or requisition shall in no way limit any discretion given to the Trustee in any Series Specific Document to determine whether or not to take action with respect to any Default or Event of Default or with respect to any such requisition. |
(2) | The obligation of the Trustee to do any of the actions referred to in subsection 8.8(1), including to commence or to continue any Proceeding for the purpose of enforcing any Series Specific Security Interest, or any right of the Trustee or the Holders of a Series, shall be conditional upon the Holders of the applicable Series furnishing, when required by notice in writing by the Trustee, sufficient funds to commence or continue such Proceeding and an indemnity satisfactory to the Trustee to protect and hold harmless the Trustee against the costs, charges, expenses and liabilities which may result from such action and any loss and damage the Trustee may suffer by reason of such action. |
(3) | None of the Series Specific Documents shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified as aforesaid. |
(4) | Before commencing or at any time during the continuance of any Proceeding, the Trustee may require the Holders on whose behalf it is acting to deposit with the Trustee the Debt Securities held by them, and the Trustee shall issue receipts for such Debt Securities. |
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8.9 Trustee Not Required To Give Security
The Trustee shall not be required to give security for its conduct or administration under this Indenture or any other Series Specific Document.
8.10 Resignation or Removal of Trustee; Conflict of Interest
(1) | The Trustee represents and warrants to CI that at the time of the execution and delivery of this Indenture no material conflict of interest exists with respect to the Trustee’s role as a fiduciary hereunder. |
(2) | The Trustee may resign as trustee hereunder by giving not less than 60 days’ notice in writing to CI or such shorter notice as CI may accept as sufficient. The Trustee shall resign if a material conflict of interest arises with respect to its role as trustee under this Indenture that is not eliminated within 90 days after the Trustee becomes aware of such conflict of interest. Immediately after the Trustee becomes aware that it has a material conflict of interest it shall provide CI with written notice of the nature of that conflict. Upon any such resignation, the Trustee shall be discharged from all further duties and liabilities under this Indenture and the other Series Specific Documents. None of the validity and enforceability of this Indenture, the other Series Specific Documents or the Debt Securities shall be affected in any manner whatsoever by reason only of the existence of a material conflict of interest on the part of the Trustee (whether arising prior to or after the date of this Indenture or any other Series Specific Document). If the Trustee does not comply with this section, any Holder or CI may apply to the Superior Court of Justice (Ontario) for an order that the Trustee be replaced as trustee under this Indenture. |
(3) | In the event of the Trustee resigning or being removed or being dissolved, becoming insolvent or bankrupt, going into liquidation or otherwise becoming incapable of acting as trustee under this Indenture, CI shall immediately appoint a successor Trustee unless a successor Trustee has already been appointed by the Holders; failing such appointment by CI, the retiring Trustee or any other Holder may apply to a judge of the Superior Court of Justice (Ontario), on such notice as such judge may direct, for the appointment of a successor Trustee. The successor Trustee so appointed by CI or by such court shall be subject to removal by the Holders by way of a Holder Direction from the Holders of all Series. Any successor Trustee appointed under any provision of this section shall be a corporation authorized to carry on the business of a trust company in each of the provinces of Canada. On any appointment of the successor Trustee, the successor Trustee shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named in this Indenture as Trustee. The expenses of all acts, documents and Proceedings required under this section will be paid by CI in the same manner as if the amount thereof were fees payable to the Trustee under this Indenture. |
(4) | Any successor Trustee shall, immediately upon appointment, become vested with all the estates, properties, rights, powers and trusts of its predecessor in the trusts under this Indenture and the other Series Specific Documents, with like effect as if originally named as Trustee hereunder and thereunder. Nevertheless, upon the written request of the successor Trustee or of CI, the Trustee ceasing to act shall execute and deliver a document assigning and transferring to such successor Trustee, upon the trusts expressed in this Indenture, all the rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver all property (including money) held by such Trustee to the successor Trustee in its place. Should any deed, conveyance or other document in writing from CI be required by any successor Trustee for more fully and certainly vesting in and confirming to it such estates, properties, rights, powers and trusts, then any and all such deeds, conveyances and other documents in writing shall, on the request of the successor Trustee, be made, executed, acknowledged and delivered by CI. |
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(5) | Any corporation into which the Trustee is amalgamated or with which it is consolidated or to which all or substantially all of its corporate trust business is sold or is otherwise transferred or any company resulting from any consolidation or amalgamation to which the Trustee is a party shall be a successor Trustee under this Indenture, without the execution of any document or any further act; provided that such successor Trustee is a corporation qualified to carry on the business of a trust company in each of the provinces of Canada and shall not have a material conflict of interest in its role as a fiduciary under this Indenture. |
8.11 Authority to Carry on Business; Resignation
The Trustee represents and warrants to CI that at the date of execution and delivery by it of this Indenture it is authorized to carry on the business of a trust company in each of the provinces of Canada. If the Trustee ceases to be so authorized to carry on business, the validity and enforceability of this Indenture the other Series Specific Documents and the Debt Securities issued hereunder shall not be affected in any manner by reason only of such event but the Trustee shall, within 90 days after ceasing to be authorized to carry on the business of a trust company in any of the provinces of Canada, either become so authorized or resign in the manner and with the effect specified in section 8.10.
8.12 Protection of Trustee
By way of supplement to any Applicable Law from time to time relating to trustees and in addition to any other provision of this Indenture for the relief of the Trustee, it is expressly agreed that:
(a) | the Trustee shall not be liable for or by reason of any statements of fact or recitals in this Indenture, in any other Series Specific Document or in the Debt Securities (except the representations and warranties contained in the last sentence of subsection 2.7(4) and in subsection 8.10(1) and sections 8.11 and 8.13, which are being given by the Trustee in its personal capacity) or required to verify the same, but all such statements or recitals are and shall be deemed to be made by CI; |
(b) | the Trustee shall not be bound to give to any Person notice of the execution of this Indenture or of any Series Specific Document unless and until an Event of Default and a Declaration of Acceleration with respect to the relevant Series has occurred, and the Trustee has determined or become obliged to enforce the same; |
(c) | the Trustee shall not incur any liability or responsibility as a consequence of permitting or suffering CI to retain all or any of the property that is subject to any Series Specific Security Interest, and to use and enjoy the same unless otherwise provided in this Indenture; nor shall the Trustee be responsible or liable for any destruction, deterioration, loss, injury or damage which may occur or be done by CI or by any other Person to any property that is subject to any Series Specific Security Interest, or be in any way responsible for the consequence of any breach on the part of CI of any of the covenants contained in this Indenture or any other Series Specific Document or of any acts of the agents or servants of CI; |
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(d) | CI indemnifies and saves harmless the Trustee and its officers, directors and employees from and against any and all liabilities, losses, costs, claims, actions, expenses (including legal fees and disbursements on a solicitor and his own client basis) or demands whatsoever which may be brought against the Trustee or which it may suffer or incur as a result of or arising out of the performance of its duties and obligations under this Indenture and the other Series Specific Documents, including those arising out of or related to actions taken or omitted to be taken by the Trustee contemplated by this Indenture and the other Series Specific Documents, legal fees and disbursements on a solicitor and his own client basis and costs and expenses incurred in connection with the enforcement of this indemnity, which the Trustee may suffer or incur, whether at law or in equity, in any way caused by or arising, directly or indirectly, in respect of any act, deed, matter or thing whatsoever made, done, acquiesced in or omitted in or about or in relation to the execution of its duties as Trustee and including any deed, matter or thing in relation to the registration, perfection, release or discharge of any Series Specific Security Interest, save only in the event of gross negligence in acting or failing to act, or the willful misconduct or bad faith of the Trustee. It is understood and agreed that this indemnification shall survive the termination or discharge of this Indenture or the resignation of the Trustee; |
(e) | the Trustee shall not be liable for or by reason of any failure or defect of title to, or any Series Specific Security Interest upon, any collateral that is subject to or intended to be subject to any Series Specific Security Interest or by reason of the statements or implications of fact or law contained in or arising out of anything contained in this Indenture, any other Series Specific Document or any Offering Document or in the Debt Securities or be required to verify the same, but all statements or implications shall be deemed to have been made by CI only, and it shall not be the duty of the Trustee, except as otherwise specifically provided in this Indenture, to see to the registration, recording or filing or renewal of this Indenture or any other Series Specific Document or any Series Specific Security Interest upon any property or any part thereof or upon any other property of CI or to procure any local mortgage, pledge or charge or other additional document of further assurance or to do any other act for the continuance of any Series Specific Security Interest over any property or for giving notice of the existence of any Series Specific Security Interest over any property or for extending or supplementing the same, or to insure or keep insured against loss or damage by fire or otherwise any of the property that is subject to or intended to be subject to any Series Specific Security Interest or any part thereof, or to keep itself informed or advised as to the payment by CI of any taxes or premiums of insurance or other payments which CI should make or to require payments to be made; it being agreed and declared that as to all matters and things referred to in this section, the duty and responsibility shall rest upon CI and not upon the Trustee and the failure of CI to discharge this duty and responsibility shall not in any way render the Trustee liable or cast upon it any duty or responsibility for breach of which it would be liable; |
(f) | the Trustee may, in the exercise of all or any of the trusts and powers vested in it under this Indenture and the other Series Specific Documents, act by its Responsible Officers; the Trustee may delegate to any Person the performance of any of the trusts and powers vested in it by this Indenture and the other Series Specific Documents, and any delegation may be made upon such terms and conditions and subject to such regulations as the Trustee may think to be in the best interest of the Holders of the applicable Series or of all Series, as the case may be; |
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(g) | the Trustee shall not be required to take notice or be deemed to have notice or actual knowledge of any matter under this Indenture or any other Series Specific Document, unless the Trustee shall have received from CI or a Holder written notice stating the matter in respect of which the Trustee should have notice or actual knowledge; |
(h) | the Trustee shall not be bound to act in accordance with any direction or request of CI until a duly authenticated copy of the document containing the direction or request has been delivered to the Trustee, and the Trustee shall be fully empowered to act and shall be fully protected from all liability in acting upon any document purporting to be a Debt Security and believed by the Trustee to be genuine; and |
(i) | the Trustee shall not be responsible for any error made or act done by it resulting from reliance upon the signature of any Person on behalf of CI or of any Person on whose signature the Trustee may be called upon to act or refrain from acting under this Indenture or any other Series Specific Document. |
8.13 | Additional Representations and Warranties of Trustee |
The Trustee represents and warrants to CI that:
(a) | the Trustee is a trust company validly existing under the laws of its jurisdiction of incorporation; |
(b) | the Trustee has full power, authority and right to execute and deliver and perform its obligations under this Indenture and each other Series Specific Document to which it is a party, and has taken all necessary action to authorize the execution, delivery and performance by it of this Indenture and each other Series Specific Document to which it is a party; |
(c) | this Indenture and each other Series Specific Document to which it is a party have been duly executed and delivered by the Trustee; and |
(d) | the Trustee is a resident of Canada within the meaning of the Income Tax Act (Canada). |
8.14 | Acceptance of Trusts by Trustee |
The Trustee accepts the trusts in this Indenture declared and provided and agrees to perform the same upon the terms and conditions set forth in this Indenture and the other Series Specific Documents.
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8.15 | Privacy Laws |
The parties acknowledge that federal and/or provincial legislation that addresses the protection of individuals’ personal information (collectively, “Privacy Laws”) applies to certain obligations and activities under this Indenture. Notwithstanding any other provision of this Indenture, neither party shall take or direct any action that would contravene, or cause the other to contravene, applicable Privacy Laws. CI shall, prior to transferring or causing to be transferred personal information to the Trustee, obtain and retain required consents of the relevant individuals to the collection, use and disclosure of their personal information, or shall have determined that such consents either have previously been given upon which the parties can rely or are not required under Privacy Laws. The Trustee shall use commercially reasonable efforts to ensure that its services hereunder comply with Privacy Laws. Specifically, the Trustee agrees: (a) to have a designated chief privacy officer; (b) to maintain policies and procedures to protect personal information and to receive and respond to any privacy complaint or inquiry; (c) to use personal information solely for the purposes of providing its services under or ancillary to this Indenture and to comply with Applicable Laws and not to use it for any other purpose except with the consent of or direction from CI or the individual involved or as permitted by Privacy Laws; (d) not to sell or otherwise improperly disclose personal information to any third party; and (e) to employ administrative, physical and technological safeguards to reasonably secure and protect personal information against loss, theft, or unauthorized access, use or modification.
8.16 | Anti-Money Laundering |
The Trustee shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Trustee, in its sole judgment and acting reasonably, determines that such act might cause it to be in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline. Further, should the Trustee, in its sole judgment and acting reasonably, determine at any time that its acting under this Indenture has resulted in its being in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation, or guideline, then it shall have the right to resign on 10 days’ written notice to CI or any shorter period of time as agreed to by CI, provided that:
(a) | the Trustee’s written notice shall describe the circumstances of such non-compliance; and, |
(b) | if such circumstances are rectified to the Trustee’s satisfaction within such 10 day period, then such resignation shall not be effective. |
ARTICLE 9
NOTICES
9.1 | Notice to CI |
Any notice, document or other communication (a “Notice”) required or permitted to be given to CI under this Indenture or any other Series Specific Document shall be in writing and shall be valid and effective if delivered or sent by facsimile transmission (with receipt confirmed), to CI, at:
CI Financial Corp.
2 Queen Street East
Twentieth Floor
Toronto Ontario M5C 3G7
Attention: Chief Legal Officer
Fax: 416-365-0501
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and such Notice shall be deemed to have been received, where given by delivery, on the day of delivery, and, where sent by facsimile transmission, on the day of transmittal of such Notice if given on a Business Day during normal business hours of the recipient and on the next succeeding Business Day if not transmitted on a Business Day or during such business hours. CI may from time to time notify the Trustee of a change in address or facsimile number by notice given as provided in section 9.3.
9.2 | Notice to Holders |
(1) | Any Notice required or permitted to be given under this Indenture or any other Series Specific Document to Holders of Bearer Debt Securities of a Series shall be valid and effective if given by means of publication in a newspaper of general circulation published in Toronto, Ontario, and such other cities, if any, at which Registers in respect of Debt Securities of such Series are required to be kept, and any Notice so published shall be deemed to have been given and received by all such Holders of Bearer Debt Securities of a Series on the date when the publication has appeared in such newspaper. Any Notice required or permitted to be given under this Indenture to Holders of Registered Debt Securities of a Series may be effectively given if delivered, sent by electronic communication or if sent to a destination within Canada by first class mail or to a destination outside Canada by airmail, postage prepaid, in each case addressed to the applicable Holder at its post office address or electronic communication numbers, if any, appearing in the relevant Register for such Series, and shall be deemed to have been given on the date of delivery or mailing, as the case may be. In the event of a postal disruption, notice to Holders shall be given or sent by other appropriate means. |
(2) | If at any time a notice is required by this Indenture to be published in a particular city and no newspaper of general circulation is being published and circulated on a daily basis in that city or it shall be impractical to publish any notice to Holders of Bearer Debt Securities as provided above, then CI shall not be required to publish such notice in that city, such notification to such Holders may be given in any other manner approved by the Trustee, and any notice so given shall constitute sufficient notice to such Holders for every purpose under the Series Specific Documents. |
(3) | Neither the failure to give notice by publication to Holders of Bearer Debt Securities as provided above nor any defect in any notice so published shall affect the sufficiency of any notice given to Holders of Registered Debt Securities as provided above. Any notice sent to the Holders of Registered Debt Securities as provided above shall be effective notwithstanding that any such notice has accidentally or inadvertently not been delivered or mailed to one or more such Holders. |
(4) | Any notice provided for in this Indenture may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waiver of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waivers. |
9.3 | Notice to Trustee |
Any Notice required or permitted to be given to the Trustee under this Indenture or any other Series Specific Document shall be in writing and shall be valid and effective if delivered or sent by facsimile transmission (with receipt confirmed), to the Trustee, at:
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Computershare Trust Company of Canada
8th Floor, 100 University Avenue
Toronto, Ontario, M5J 2Y1
Attention: Manager, Corporate Trust
Fax: 416-981-9777
and such Notice shall be deemed to have been received, where given by delivery, on the day of delivery and, where sent by facsimile transmission, on the day of transmittal of such Notice if given on a Business Day during normal business hours of the recipient and on the next succeeding Business Day if not transmitted on a Business Day or during such business hours. The Trustee may from time to time notify CI of a change in address or facsimile number by notice given as provided in section 9.1.
ARTICLE 10
HOLDERS ACTIONS AND MEETINGS
10.1 | Holder Actions |
(1) | Any Holder Action to be made, given or taken by Holders of one or more Series may be made, given or taken by such Holders by way of a Holder Direction from the Holders of such one or more Series. Every Holder Direction given in accordance with this Indenture or a related Series Specific Document shall be binding upon all Holders of the applicable Series whether or not they were present at any applicable meeting or otherwise themselves made, gave or took the Holder Action effected by such Holder Direction, and the Trustee (subject to compliance with subsection 8.8(2)), shall be bound to give effect to every such Holder Direction. |
(2) | A Holder, including a Depository that is a Holder of a Global Debt Security, may make, give or take, by proxies duly appointed in writing, any Holder Action to be made, given or taken by such Holder, and a Depository that is the Holder of a Global Debt Security may provide for the beneficial owners of interests in any such Global Debt Security (including, where applicable, the Participants in any Depository which own beneficial interests in such Global Debt Security) to direct such Depository in taking such action through such Depository’s standing instructions and customary practices, including the delivery of proxies, directions or voting certificates (including any omnibus, global or block proxy, direction or voting certificate) satisfactory to the Trustee under which such Depository, any agent for or nominee of such Depository, or the beneficial owners of interests in any such Global Debt Security (including, where applicable, the Participants in such Depository which own beneficial interests in such Global Debt Security) themselves take such action by means of additional proxies, directions or voting certificates (including any omnibus, global or block proxy, direction or voting certificate) satisfactory to the Trustee, in each case through standing instructions and customary practices applicable to such Depository or such Participant or an agent or nominee of such Depository or such Participant. The Depository (including, where applicable, the Participants in such Depository which own beneficial interests in such Global Debt Security), or such agent or nominee may, in its discretion report to the Trustee the result of its solicitation of proxies, directions and voting certificates on an aggregate basis. |
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(3) | The fact and date of the execution by any Person of an instrument or writing effecting or approving a Holder Action may be proved by the affidavit of a witness of such execution or by the certificate of a notary public or other Person authorized by Applicable Law to take acknowledgements of deeds, certifying that the individual signing such instrument or writing acknowledged to such witness or notary the execution of such instrument or writing. Whenever such execution is by a signer acting in a capacity other than such signer’s individual capacity, such certificate or affidavit shall also constitute sufficient proof of such signer’s authority. The facts and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. |
(4) | The ownership, principal amount and serial numbers of Registered Debt Securities held by any Person, and the date of the commencement and the date of the termination of such holding, shall be proved by the relevant Register. |
(5) | The ownership, principal amount and serial numbers of Bearer Debt Securities held by any Person, and the date of the commencement and the date of the termination of such holding, may be proved by the production of such Bearer Debt Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary acceptable to CI, wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date mentioned in such certificate such Person had on deposit with such depositary the Bearer Debt Securities described in such certificate; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Debt Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and CI may assume that ownership of any Bearer Debt Security continues until another certificate or affidavit bearing a later date issued in respect of the same Bearer Debt Security is produced, or such Bearer Debt Security is produced to the Trustee by some other Person, or such Bearer Debt Security is surrendered in exchange for a Registered Debt Security, or such Bearer Debt Security is no longer Outstanding. The ownership, principal amount and serial numbers of Bearer Debt Securities held by the Person so executing such instrument or writing and the date of the commencement and the date of the termination of such holding may also be proved in any other manner which the Trustee deems sufficient. |
(6) | Any Holder Action of, or which is binding on, any Holder of a Debt Security shall bind every future Holder of such Debt Security and the Holder of every Debt Security issued upon the registration or transfer of such Debt Security or in exchange for or in lieu of such Debt Security in respect of anything done, omitted or suffered to be done by the Trustee or CI in reliance on such Holder Action, whether or not notation of such action is made upon such Debt Security. |
(7) | If CI or the Trustee shall solicit any Holder Action, CI or the Trustee, as the case may be, may fix in advance a record date for the determination of Holders entitled to make, give or take such Holder Action. Such Holder Action may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purpose of determining whether the requisite Holders have authorized or agreed or consented to such Holder Action. No Holder Action shall be deemed effective unless it shall become effective pursuant to this Indenture not later than six months after the applicable record date. |
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10.2 | Meetings of Holders |
(1) | Calling of Meetings. At any time and from time to time, CI or the Trustee may, and the Trustee shall on receipt of a written request signed by Holders representing not less than 25% of the aggregate unpaid principal amount of the applicable one or more Series, and upon receiving sufficient funds and being indemnified to its satisfaction by CI or by the Holders signing such request, as the case may be, against the costs which may be incurred by it in connection with the calling and holding of such meeting, call a meeting of the Holders of such Series. If the Trustee fails within 30 days after receipt of such written request, such funds and such indemnity to give notice calling such meeting, such Holders may themselves call such meeting and the notice calling such meeting may be signed by such Person as those Holders specify. Every such meeting shall be held in Toronto, Ontario or at such other place as CI, the Trustee or the Holders, as the case may be, calling such meeting approve or determine. |
(2) | Notice of Meetings. At least 21 days’ prior notice of any meeting of Holders of one or more Series shall be given to such Holders and CI (unless the meeting has been called by CI) and to the Trustee (unless the meeting has been called by the Trustee). Such notice shall state the time and the place of the meeting and shall specify, in general terms, the nature of the business to be transacted at such meeting. It shall not be necessary to specify in the notice the text of any resolution to be passed at such meeting. Such notice shall also state that any Holder may be represented at any such meeting by a proxy duly appointed by document in writing in accordance with the regulations made from time to time by the Trustee pursuant to section 10.5, and that the appointment of any proxy may be revoked at any time before the commencement of the meeting to which the appointment relates. Subject to subsection 10.2(3), notices shall be given in the manner set forth in Article 9. |
(3) | Quorum. At a meeting of Holders of one or more Series: |
(a) | Persons entitled pursuant to this Indenture to vote Debt Securities representing not less than 25% of the aggregate unpaid principal amount of such one or more Series shall constitute a quorum. No business shall be transacted in the absence of a quorum, unless a quorum is present when the meeting is called to order. If a quorum is not present on the date for which the meeting is called within 30 minutes after the time fixed for the holding of the meeting, then the meeting, if called pursuant to a request of Holders, will be dissolved; but in any other case the meeting shall be adjourned to the same day in the next calendar week (unless such day is not a Business Day in which case it will be adjourned to the next Business Day thereafter) at the same time and place, and no notice will be required to be given in respect of such adjourned meeting. At the adjourned meeting, the Holders of the Series present in person or by proxy will constitute a quorum and may transact the business for which the meeting was originally convened, notwithstanding that such Holders may not represent 25% of the aggregate unpaid principal amount of the applicable Series. Any meeting of Holders duly called at which a quorum is present may be adjourned from time to time, and the meeting may be held as so adjourned without further notice. |
(b) | Any Holder who has executed a document in writing appointing a Person as proxy shall be deemed to be present for the purposes of determining a Quorum and be deemed to have voted; provided, that such Holder shall be considered as present or voting only with respect to the matters covered by such document. |
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(4) | Chairman. The Trustee shall appoint in writing an individual, who need not be a Holder, to be the chairman of the meeting; provided however that Holders representing more than 50% of the aggregate unpaid principal amount of the applicable one or more Series present in person or by proxy at the meeting may elect at such meeting another individual, who need not be a Holder, to be the chairman of the meeting. No vote shall be cast or counted at any meeting in respect of any Debt Securities challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote except as a Holder or proxy of a Holder. |
(5) | Voting. At a meeting of Holders: |
(a) | In order to be entitled to vote, a Person shall be (i) a Holder of the applicable Series, or (ii) a Person appointed by a document in writing as proxy by a Holder of the applicable Series. A Person acting as a proxy need not be a Holder. In the case of joint registered Holders, any one of them present in person or by proxy at the meeting may vote in the absence of the other or others, but in case more than one of them is present in person or by proxy, they will vote together in respect of the Debt Securities of which they are joint registered Holders. |
(b) | The vote upon any resolution submitted to any meeting of Holders shall be by written ballot on which shall be subscribed the name and signatures of Holders or proxies entitled to vote at such meeting and on which shall be inscribed the serial number or numbers of the Debt Securities held or represented by them. The chairman of the meeting shall appoint two scrutineers who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the chairman of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the chairman of the meeting and there shall be attached to such record the original reports of the scrutineers on any vote by ballot taken at such meeting and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that such notice was given as provided in this section. The record shall be signed and verified by the chairman of the meeting and one of the duplicates shall be delivered to CI and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters stated in such record. |
(6) | Minutes. Minutes of all resolutions and proceedings at every such meeting shall be made and duly entered in books to be provided from time to time for that purpose by the Trustee at the expense of CI, and any such minutes if signed by the chairman of the meeting at which such resolutions were passed or proceedings had, or by the chairman of the next succeeding meeting of Holders of the applicable one or more Series, shall be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting in respect of the proceedings of which meetings shall have been made shall be deemed to have been duly called and held and all resolutions passed or proceedings had at such meeting to have been duly passed and had. |
(7) | Persons Who May Attend. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, CI, any Guarantor Subsidiary with respect to the applicable Series and the Trustee and their respective Counsel and any other Person specified in any related Series Supplement. |
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10.3 | Additional Powers Exercisable by Holder Direction |
In addition to any powers granted elsewhere in this Indenture or by law, the Holders of a Series shall have the following powers exercisable from time to time by a Holder Direction of the Holders of such Series:
(a) | to restrain any Holder of such Series from taking or instituting any Proceeding for the recovery of amounts payable under such Series or any Series Specific Document for such Series or for the execution of any trust or power under any Series Specific Document for such Series; |
(b) | to direct any Holder of such Series who, as such, has brought any Proceeding, to stay or discontinue or otherwise deal with such Proceeding in the manner directed by such direction upon payment, if the taking of such Proceeding shall have been permitted by section 8.1, of the costs, charges and expenses reasonably and properly incurred by such Holder in connection with such Proceeding; |
(c) | to appoint a committee to consult with the Trustee and to delegate to the committee (subject to the limitations, if any, as may be prescribed in such Holder Direction) the power to give to the Trustee any or all of the actions or directions which the Holders of such Series could give by way of a Holder Direction; such Holder Direction may provide for payment of the expenses and disbursements of and compensation to such committee; such committee will consist of such number of Persons as shall be prescribed by such Holder Direction appointing it and the members need not be themselves Holders; except as otherwise provided in such Holder Direction, every such committee may elect its chairman and may make regulations respecting its quorum, the calling of its meetings, the filling of vacancies occurring in its number, the manner in which it may act and its procedures generally; such regulations may provide that the committee may act at a meeting at which a quorum is present or may act by minutes signed by the number of members of such committee necessary to constitute a quorum or by an instrument or instruments in writing signed by all or a specified majority of such members; all acts of any such committee within the authority delegated to it shall be binding upon all Holders of such Series; neither the committee nor any member of such committee shall be liable for any loss arising from or in connection with any action taken or omitted to be taken by them in good faith; |
(d) | amend, modify or repeal any Holder Direction previously passed or approved by the Holders of such Series, or any committee appointed pursuant to clause (c) above (subject to any limitations prescribed in such Holder Direction); and |
(e) | to remove the Trustee from office and appoint a successor Trustee, provided that such removal is consented to by a Holder Direction from the Holders of all Series. |
10.4 | Powers Cumulative |
The powers granted in this Indenture shall be deemed to be several and cumulative and not dependent on each other and the exercise of one or more of such powers, or any combination of such powers, from time to time, shall be deemed not to exhaust the rights of the Holders to exercise such power or powers, or combinations of powers, thereafter from time to time.
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10.5 | Regulations |
The Trustee may from time to time make reasonable regulations and may make reasonable variations to the regulations as it thinks fit with respect to:
(a) | the voting by proxy by Holders and the form or forms of instrument appointing proxies and the manner in which such instruments will be executed and with respect to the production of the authority of any Person signing on behalf of the giver of the proxy; |
(b) | the delivery (whether in original, facsimile, electronic or other form) or lodging of instruments appointing proxies at any place or places and in such custody as the Trustee directs and the time, if any, before the holding of the meeting or adjourned meeting by which the same must be deposited; |
(c) | the forwarding by the custodian of proxies or particulars of instruments appointing proxies by letter, cable, telegraph, facsimile, electronic messaging system or other means before the meeting to CI or to the Trustee or to the chairperson of the meeting; |
(d) | the issue of voting certificates to Holders of Global Debt Securities which voting certificates shall entitle the Persons named in such certificate to be present and vote at any such meeting and at any adjournment of such meeting or to appoint a proxy or proxies to represent them and vote for them at any such meeting and at any adjournment of such meeting, in the same manner and with the same effect as though the Holders so named in such voting certificates were the actual registered Holders of Debt Securities represented by such Global Certificate; and |
(e) | any and all other matters respecting the execution and delivery of any documents or instruments evidencing any Holder Action by or on behalf of a Holder making, giving or taking such Holder Action. |
Any regulations so made will be binding and effective and votes given, and the Holder Actions made, given or taken, in accordance with such regulations will be valid and will be counted.
Instruments appointing proxies, the particulars of which are forwarded in accordance with the regulations, will confer the same right to vote, and to make, give or take such Holder Action, as though the instruments themselves were produced at the meeting or made, given or taken by the applicable Holder, as the case may be. Except as otherwise specified in this Indenture, the only Persons who will be recognized at any meeting of Holders or as entitled to vote or be present at any such meeting will be Holders and holders of proxies (or also, in the case of Global Debt Certificates, voting certificates) of such Holders.
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ARTICLE 11
AMALGAMATION; CONSOLIDATION; CONVEYANCE; TRANSFER
11.1 | Amalgamation and Consolidations of Issuer |
CI will not, and will not permit any Guarantor Subsidiary to, amalgamate or consolidate or merge with or into any other Person or liquidate, wind-up or dissolve itself (or suffer any liquidation, winding-up or dissolution or any proceedings therefor), or continue itself under the laws of any other statute or jurisdiction, or sell, transfer, convey or dispose of, in one transaction or a series of related transactions, and whether at the same time or over a period of time, all or substantially all of its property to any other Person unless:
(a) | either: |
(i) | CI or such Guarantor Subsidiary shall be the continuing corporation from such consolidation, amalgamation or merger and shall have succeeded by operation of law to all of the covenants, agreements, debts, liabilities and obligations of CI and such Guarantor Subsidiary under this Indenture and the other Series Specific Documents; or |
(ii) | the successor corporation from such consolidation, amalgamation or merger (or the Person that acquires all or substantially all of CI’s or such Guarantor Subsidiary’s property) (such corporation or Person being referred to as the “Successor Issuer”) shall be a corporation existing under the laws of Canada or any province thereof, and such Successor Issuer shall expressly assume the due and punctual payment of the principal of and any premium, interest and other amounts on all Debt Securities, according to their terms, and the due and punctual performance and observance of all other covenants and conditions of this Indenture and the other Series Specific Documents to be performed by CI or such Guarantor Subsidiary, as applicable, by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such Successor Issuer; |
(b) | such transaction shall be on terms as to substantially preserve and not impair any of the rights and powers of the Trustee or the Holders hereunder; and |
(c) | at the time of, and after giving effect to, such transaction, no Default or Event of Default is or will be continuing. |
11.2 | Rights and Duties of Successor Issuer |
(1) | A Successor Issuer shall agree to be bound by the terms of this Indenture and the other Series Specific Documents as principal obligor in place of CI or any Guarantor Subsidiary, as applicable, with the same effect as if it had been named in this Indenture and the other Series Specific Documents as CI or such Guarantor Subsidiary, as applicable. Such Successor Issuer thereupon may cause to be executed, and may execute either in its own name or in the name of CI or such Guarantor Subsidiary, as applicable, any or all Debt Securities issuable under this Indenture which prior to such time have not been executed by CI or such Guarantor Subsidiary, as applicable and delivered to the Trustee. All Debt Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as Debt Securities of the same Series theretofore or thereafter issued, as though all of such Debt Securities had been issued at the date of the applicable Series Issuance Date. |
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(2) | In the case of any such transaction, such changes in phraseology and form (but not in substance) may be made in Debt Securities thereafter issued as may be appropriate. |
11.3 | Actions by Successor |
Any act or proceeding authorized or required by this Indenture to be done or performed by any board, committee or officer of CI or any Guarantor Subsidiary, as applicable shall and may be done and performed with like force and effect by the corresponding board, committee or officer of any Person that shall at the time be the lawful sole successor of CI or such Guarantor Subsidiary, as applicable.
11.4 | Officer’s Certificate and Opinion of Counsel |
The Trustee may receive a Certificate of CI and an Opinion of Counsel as conclusive evidence that any such transaction, and any such assumption, comply with this Article.
ARTICLE 12
SUPPLEMENTAL INDENTURES AND AMENDMENTS
12.1 | Series Supplements |
Without the consent of any Holders, but subject to the terms and conditions of this Indenture, CI and the Trustee and, if applicable, any Guarantor Subsidiary, may, and the Trustee shall, upon the written request of CI or when so directed by this Indenture, make, execute, acknowledge and deliver Series Supplements from time to time establishing the Principal Terms of the Series which CI wishes to be able to issue under this Indenture. From time to time, as provided in a Series Supplement, additional Guarantor Subsidiaries may execute and deliver a joinder or other deed or instrument supplemental to a Series Supplement in connection with a Guarantee of Debt Securities of a Series.
12.2 | Supplemental Indentures |
(1) | Without the consent of any Holders, any of CI, any applicable Guarantor Subsidiaries and the Trustee may, and the Trustee shall, upon the written request of CI or when so directed by this Indenture, make, execute, acknowledge and deliver deeds or indentures supplemental to this Indenture (provided that, for the purpose of this subsection, such deeds or indentures supplemental to this Indenture shall not include Series Supplements) (any such deed or indenture is sometimes referred to herein as an “Indenture Amendment”) for any one or more of the following purposes: |
(a) | adding to the covenants of CI contained in this Indenture for the protection of the Holders of all or any Series or adding to the covenants of applicable Guarantor Subsidiaries contained in any Series Specific Documents for the protection of the Holders of all or any Series; |
(b) | giving effect to any Holder Direction or any other direction from Holders permitted to be given under this Indenture, and to any other Holder Action made, given to or taken by the holder of one or more Series in accordance with this Indenture; |
(c) | making any such provisions, not substantially inconsistent with this Indenture, as may be necessary or desirable with respect to matters arising under this Indenture which, in the opinion of the Trustee, are expedient to make; provided that the Trustee, or counsel to the Trustee, shall be of the opinion that such provisions do not individually or in the aggregate materially adversely affect the interests of the Holders of any Series; |
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(d) | without limiting Article 11, evidencing the succession, or successive successions of any Successor Issuer to CI or any Guarantor Subsidiary and the covenants and obligations of CI or any Guarantor Subsidiary under this Indenture and the other Series Specific Documents assumed by any such Successor Issuer; |
(e) | providing for altering this Indenture or a Series Supplement in respect of the exchange or transfer of Debt Securities; |
(f) | adding to or modifying, amending or eliminating any of the terms of this Indenture or a Series Supplement, provided however that: |
(i) | no such addition, modification, amendment or elimination shall be effective with respect to any Debt Securities which are Outstanding at the time of such addition, modification, amendment or elimination; and |
(ii) | the Trustee may decline to enter into any Indenture Amendment which would adversely affect its own rights, duties or immunities under this Indenture or otherwise; |
(g) | making any changes or corrections in this Indenture which Counsel to CI shall have advised CI and the Trustee are non-substantive corrections or changes or are required for the purpose of curing or correction any ambiguity or defective or inconsistent provisions or any clerical omission or mistake or manifest error contained in this Indenture or in any deed, or indenture supplemental hereto or thereto; and |
(h) | any other purposes considered appropriate by the Trustee which in the opinion of the Trustee do not individually or in the aggregate materially adversely affect the interests of the Holders of any Series. |
(2) | CI, any applicable Guarantor Subsidiaries and the Trustee may, and the Trustee shall upon written request of CI or when so directed by this Indenture, in any such case subject to the receipt of the consent thereto by the Holders of all Series which would be materially adversely affected, by a Holder Direction from the Holders of all such Series, make, execute, acknowledge and deliver Indenture Amendments for any purpose that is not authorized by subsection 12.2(1) or by a Series Supplement. Any Indenture Amendment made to this Indenture as a whole (as opposed to an Indenture Amendment to a Series Supplement only) made pursuant to this subsection shall be deemed to materially adversely affect all Series, other than any Series which an Opinion of Counsel for CI, addressed and delivered to CI and the Trustee, states is not materially adversely affected thereby. Any Indenture Amendment to any Series Supplement made pursuant to this subsection shall be deemed not to materially adversely affect the interest of any Holder of any other Series. The Trustee may decline, in its discretion, to enter into any Indenture Amendment which would adversely affect its own rights, duties or immunities under this Indenture or any other Series Specific Document or otherwise. |
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(3) | It shall not be necessary for the consent of the Holders of any Series to approve the particular form of any proposed Indenture Amendment, but it shall be sufficient if such consent shall approve the substance of such Indenture Amendment. The manner of obtaining such consents and of evidencing the authorization of the execution of such consents shall be subject to such reasonable requirements as the Trustee may prescribe from time to time. |
(4) | Any one of the purposes in subsections (1) and (2) above and in any Series Supplement may from time to time be exercised independently or in combination with one or more other such purposes and none of such purposes are exclusive of or dependent on any of the other purposes. |
(5) | Any Series Supplement executed in accordance with this Indenture shall not be considered an Indenture Amendment for the purposes of subsections (1) and (2) above. |
ARTICLE 13
DEFEASANCE; SATISFACTION AND DISCHARGE
13.1 Defeasance
If the related Series Supplement provides that a Series is defeasible, the following provisions shall apply:
(1) | Option for Defeasance. CI may elect at any time, by giving an Issuer Order to the Trustee, to apply the provisions of paragraph 13.1(2) to such Series. |
(2) | Defeasance. CI shall be discharged from its obligations with respect to such Series upon satisfaction of the applicable conditions set forth in paragraph 13.1(3) (hereinafter called “Defeasance”). For this purpose, Defeasance means that CI shall be deemed to have paid and discharged the entire indebtedness represented by all Debt Securities of such Series then Outstanding and to have satisfied all its other obligations with respect to such Series, and the Trustee, at the expense of CI, shall execute instruments acknowledging the same, subject to the following which shall survive until otherwise terminated or discharged under this Indenture: |
(a) | the rights of Holders of such Series to receive, solely from the trust fund described in paragraph 13.1(3), payments in respect of the principal of and any premium, interest and other amounts on such Series when due; |
(b) | CI’s obligations with respect to such Series under sections 2.5, 2.12 and 2.15 and paragraphs 5.2(2) and 5.2(3); and |
(c) | the rights, powers, trusts, duties and immunities of the Trustee under this Indenture. |
(3) | Conditions. The following shall be the conditions of the application of paragraph 13.1(2) to any Series: |
(a) | At least 91 days prior to the time the Defeasance is to become effective, CI shall have irrevocably deposited with the Trustee, in trust for the sole purpose of making the payments referred to below, and free and clear of any Security Interest: |
(i) money in an amount; or
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(ii) | Canadian Government Obligations or U.S. Government Obligations which through the scheduled payments of principal and interest in respect thereof will provide, not later than one day before the due date of any payment, money in an amount; or |
(iii) | any combination of money and Canadian Government Obligations or U.S. Government Obligations as referred to above in an amount, |
in each case denominated in the currency of payment of such Series and sufficient, in the opinion of a nationally recognized firm of independent chartered accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee to pay and discharge, the principal of and any premium, interest and other amounts on such Series, on the respective Stated Maturities thereof, in accordance with the Principal Terms of such Series.
(b) | CI shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Series will not recognize gain or loss for Canadian federal or provincial (and/or any other jurisdiction specified for such purpose in the related Series Supplement) income tax purposes as a result of the Defeasance and will be subject to Canadian federal and provincial (and/or any other jurisdiction specified for such purpose in the related Series Supplement) income tax on the same amounts, in the same manner and at the same times as would be the case if the Defeasance had not occurred. |
(c) | No Default or Event of Default with respect to such Series or any other Series shall have occurred and be continuing at the time of the deposit under clause 13.1(3)(a), and no Event of Default under paragraph 6.1(5) or 6.1(6) shall have occurred at any time after the date of such deposit and on or prior to the effective date of the Defeasance. |
(d) | CI shall have delivered to the Trustee a Certificate of CI stating that all conditions precedent to the Defeasance have been satisfied. |
(4) | Holding and Payments. All money and Canadian Government Obligations and U.S. Government Obligations (including all proceeds thereof) deposited with the Trustee under clause 13.1(3)(a) in respect of a Series shall be held in trust and applied by the Trustee, in accordance with the provisions of this Indenture, to the payment, either directly or through any related Registrar or Paying Agent (including CI acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Series, of all sums due and to become due in respect of the principal of and any premium, interest and other amounts on such Series, but money so held in trust need not be segregated from other funds of the Trustee unless required by Applicable Law. |
(5) | Indemnity. CI shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Canadian Government Obligations or U.S. Government Obligations deposited under clause 13.1(3)(a) or the principal and interest received in respect thereof, other than any such tax, fee or other charge which by Applicable Law is for the account of the Holders of the applicable Series. |
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(6) | Return of Excess. The Trustee shall deliver or pay to CI from time to time upon Issuer Request any money or Canadian Government Obligations or U.S. Government Obligations deposited with it under clause 13.1(3)(a) which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited under clause 13.1(3)(a) to effect Defeasance of the applicable Series. |
(7) | Reinstatement. If the Trustee or the related Registrar or related Paying Agent is unable to apply any money in accordance with this section by reason of any order or judgment of a Governmental Authority enjoining, restraining or otherwise prohibiting such application, then the indebtedness and obligations from which CI was discharged or released as a result of the applicable Defeasance shall be revived and reinstated as though no such deposit had been made, until such time as the application of such money is no longer enjoined, restrained or otherwise prohibited. During such period all money and Canadian Government Obligations or U.S. Government Obligations deposited with the Trustee under clause 13.1(3)(a) with respect to the applicable Series shall be retained in trust by the Trustee, but the Trustee shall apply the same to payment of the sums due and to become due on such Series as contemplated by paragraph 13.1(4). |
(8) | Repayment to CI. Subject to Applicable Law, the Trustee shall deliver to CI upon an Issuer Request any money and Canadian Government Obligation or U.S. Government Obligation deposited with the Trustee under clause 13.1(3)(a) that remains unclaimed for six years after the Maturity of the applicable Series. After such delivery to CI, the Holders of such Series and of any related coupons, as general unsecured creditors, shall look only to CI for payment thereof. |
13.2 Satisfaction and Discharge
Upon proof being given to the reasonable satisfaction of the Trustee that the principal of and all premium, interest and other amounts (if any) on a Series has been paid or satisfied, and that all other claims (if any) of the Holders of such Series against CI under the related Series Specific Documents have been paid or satisfied, and upon payment of all costs, charges and expenses properly incurred by the Trustee with respect to such Series, the Trustee shall, at the request and the expense of CI, execute and deliver to CI such deeds and other instruments as shall be requisite to evidence the satisfaction and discharge of such Series and the discharge and release of any Series Specific Security Interest with respect thereto. No purchaser from CI or its successors or assigns shall be obliged to inquire into the necessity, expediency, authority or regularity of or for any deeds or other instruments of release or reconveyance delivered pursuant to this section.
ARTICLE 14
GENERAL
14.1 Force Majeure
Except for the payment obligations of CI contained herein, neither party shall be liable to the other, or held in breach of this Indenture, if prevented, hindered, or delayed in the performance or observance of any provision contained herein by reason of act of God, riots, terrorism, acts of war, epidemics, governmental action or judicial order, earthquakes, or any other similar causes (including but not limited to, mechanical, electronic or communication interruptions, disruptions or failures). Performance times under this Indenture shall be extended for a period of time equivalent to the time lost because of any delay that is excusable under this section.
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14.2 Third Party Interest
CI represents to the Trustee that any account to be opened by, or interest to be held by, the Trustee in connection with this Indenture, for or to the credit of such representing party, either (i) is not intended to be used by or on behalf of any third party; or (ii) is intended to be used by or on behalf of a third party, in which case such representing party hereby agrees to complete, execute and deliver forthwith to the Trustee a declaration, in the Trustee’s prescribed form or in such other form as may be satisfactory to it, as to the particulars of such third party.
14.3 Binding Effect
All the covenants and agreements in this Indenture shall bind the successors and assigns of the parties hereto, whether or not so expressed.
14.4 Counterparts
This Indenture may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts together shall constitute one and the same document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF each of Cl and the Trustee has duly executed this Indenture as of the date first set forth above.
Cl FINANCIAL CORP. | |||
By: | /s/ Darie UrbanKy | ||
Name: | Darie UrbanKy | ||
Title: | President and Chief Operating Officer | ||
By: | /s/ Douglas J. Jamieson | ||
Name: | Douglas J. Jamieson | ||
Title: | Executive Vice-President and Chief Financial Officer | ||
COMPUTERSHARE TRUST COMPANY OF CANADA | |||
By: | |||
Name: | |||
Title: | |||
By: | |||
Name: | |||
Title: |
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IN WITNESS WHEREOF each of Cl and the Trustee has duly executed this Indenture as of the date first set forth above.
Cl FINANCIAL CORP. | |||
By: | |||
Name: | |||
Title: | |||
By: | |||
Name: | |||
Title: | |||
COMPUTERSHARE TRUST COMPANY OF CANADA | |||
By: | /s/ Fiona Koch | ||
Name: | Fiona Koch | ||
Title: | Corporate Trust Officer | ||
By: | /s/ Mohanie Shivprasad | ||
Name: | Mohanie Shivprasad | ||
Title: | Associate Trust Officer |
EXHIBIT A TO THE TRUST INDENTURE
Dated as of ·, 2019
[·] SERIES SUPPLEMENT
THIS IS A SERIES SUPPLEMENT dated as of [·] between CI FINANCIAL CORP. a corporation existing under the laws of Ontario, in its capacity as Issuer, and COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company under the laws of Canada, in its capacity as Trustee.
WHEREAS CI and the Trustee have entered into a trust indenture dated as of ·, 2019 (the “Indenture”);
AND WHEREAS pursuant to section 2.2 of the Indenture, CI may from time to time issue one or more Series of Debt Securities, subject to the satisfaction of certain conditions referred to therein;
AND WHEREAS the Principal Terms of each Series of Debt Securities are to be set out in a Series Supplement;
AND WHEREAS this Series Supplement relates to the Series of Debt Securities to be designated as [·], and CI and the Trustee are entering into this Series Supplement in order to establish the Principal Terms of such Series and to provide for the issuance of such Series;
NOW THEREFORE THIS SERIES SUPPLEMENT WITNESSES and it is hereby agreed as follows:
ARTICLE 1
INTERPRETATION
1.1 | To be Read with Indenture; Governing Law |
This Series Supplement is supplemental to the Indenture, and the Indenture and this Series Supplement shall hereafter be read together and shall have effect, so far as practicable, with respect to the Series, as if all the provisions of the Indenture and this Series Supplement were contained in one instrument, which instrument shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. The parties hereto expressly request and require that this document be drawn up in English. Les parties aux présentes conviennent et exigent que cette entente et tous les documents qui s’y rattachent soient rédiges en anglais.
1.2 | Definitions |
All capitalized terms used but not defined in this Series Supplement shall have the meanings specified in the Indenture. In addition, the following terms shall have the meanings specified below: [specify additional definitions].
1.3 | Conflicts with Indenture |
If any term or provision contained in this Series Supplement shall conflict or be inconsistent with any term or provision of the Indenture, the term or provision of this Series Supplement shall govern; provided however that the terms and provisions of this Series Supplement may modify or amend the terms and provisions of the Indenture solely as applied to the Series.
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1.4 | Interpretation Provisions |
This Series Supplement shall, unless the context otherwise requires, be subject to the interpretation provisions contained in Article 1 of the Indenture.
1.5 | Exhibit |
Exhibit A hereto forms part of this Series Supplement.
ARTICLE 2
THE DEBT SECURITIES
2.1 | Authorization and Designation |
CI is hereby authorized to issue under the Indenture a Series of Debt Securities designated “[·]” having the terms set forth in this Article Two.
2.2 | Limitation on Aggregate Principal Amount |
The aggregate principal amount of the Series that may be issued (except for Debt Securities of the Series issued upon registration of the transfer of, or in exchange for, or in lieu of, other Debt Securities of the Series) shall be [·].
2.3 | Currency |
The Series shall be denominated in, and all principal of and premium, interest and other amounts on the Series shall be payable in, [·].
2.4 | Denominations |
The Debt Securities of the Series shall be denominated in integral multiples of $[·] [and no such Debt Security shall be issued in a principal amount less than $[·]].
2.5 | Date and Maturity |
The Series Issuance Date for the Series shall be [·], and the Stated Maturity of the Series shall be [·].
2.6 | Interest |
(1) | The interest rate applicable to the Series shall be [·]% per annum. |
(2) | The Interest Payment Dates for the Series shall be [·] and [·] in each year. |
(3) | The Regular Interest Record Dates for the Series shall be [·] and [·] in each year. |
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2.7 | Redemption and Purchase |
(1) | The Series [may/may not] be redeemed at the election of CI. [If they may be redeemed describe circumstances and details, describe Redemption Price and Redemption Date and specify whether there are to be any changes in the manner in which section 3.1 of the Indenture would apply to such redemption option]. |
(2) | The Series [may/may not] be redeemed at the election of the Holders thereof. [If they may be redeemed describe circumstances and details, describe Redemption Price and Redemption Date and specify whether there are to be any changes in the manner in which section 3.1 of the Indenture would apply to such redemption option]. |
2.8 | Sinking Fund |
The Series [shall/shall not] be subject to repurchase or redemption pursuant to any sinking fund or any other analogous required repayment provisions. [If they are subject to such provisions describe circumstances and details including amount and date of mandatory sinking fund payments and whether there are to be any changes in the manner in which section 3.2 of the Indenture would apply to such sinking fund obligations].
2.9 | Defeasance |
The Series [shall/shall not] be subject to Defeasance as provided in Article 13 of the Indenture. [If Defeasance is to apply specify any additional covenants to which it will apply for paragraph 13.1(3) and any additional tax jurisdictions to be considered for clauses 13.1(3)(a) and (b).]
2.10 | Form and Certification |
(1) | The Series shall be (i) in [·] form, [(ii) issued initially as one or more fully registered Global Debt Securities held by, or on behalf of, the Depository in accordance with Section 2.17 of the Indenture as custodian], [(iii) registered in the name of the Depository or its nominee as provided for in Section 2.17 of the Indenture,] and (iv) substantially in the form set forth in Exhibit A to this Series Supplement. [describe other attributes of the Series] |
(2) | The form of certification of the Series by the Trustee shall substantially in the form of certification set forth in Exhibit A to this Series Supplement. |
2.11 | Identification of Various Agents, Nominees and Documents |
For the purpose of this Series Supplement and the Series:
(a) | the Depository with respect to the Series shall be [·]; |
(b) | Paying Agent with respect to the Series shall be [·]; |
(c) | the other acts and duties to be carried out by, and the other services to be provided by, the Paying Agent with respect to the Series shall be [·]; |
(d) | the Place of Payment with respect to the Series shall be [·]; |
(e) | the Rating Agency with respect to the Series shall be [·]; |
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(f) | the Registrar with respect to the Series shall be [·]; |
(g) | the other acts and duties to be carried out by, and the other services to be provided by, the Registrar with respect to the Series shall be [·]; |
(h) | the Transfer Agent with respect to the Series shall be [·]; |
(i) | the other acts and duties to be carried out by, and the other services to be provided by, the Transfer Agent with respect to the Series shall be [·]; |
(j) | the Series Issuance Date with respect to the Series shall be [·]; and |
(k) | the additional Series Specific Documents with respect to the Series shall be [·]. |
[Include any other applicable terms for the Series.]
ARTICLE 3
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE SERIES
3.1 | Representations and Warranties in the Indenture |
For the purpose, and only for the purpose, of this Series Supplement and the Series [specify any modifications to be made to the representations and warranties in the Indenture].
3.2 | Additional Representations and Warranties |
In relation to the Series, CI represents and warrants to the Trustee and for the benefit of the Holders of the Series that: [specify additional representations and warranties].
ARTICLE 4
COVENANTS WITH RESPECT TO THE SERIES
4.1 | Covenants in the Indenture |
For the purpose, and only for the purpose, of this Series Supplement and the Series: [specify any modifications to be made to the covenants in the Indenture].
4.2 | Additional Positive Covenants |
In relation to the Series, CI covenants and agrees with the Trustee and for the benefit of the Holders of the Series that so long as any Debt Securities of the Series are Outstanding, and except as otherwise permitted by the prior written consent of the Trustee: [specify additional positive covenants].
4.3 | Additional Negative Covenants |
In relation to the Series, CI covenants and agrees with the Trustee and for the benefit of the Holders of the Series that so long as any of the Debt Securities of the Series are Outstanding, and except as otherwise permitted by the prior written consent of the Trustee: [specify additional negative covenants].
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ARTICLE 5
EVENTS OF DEFAULT WITH RESPECT TO THE SERIES
5.1 | Events of Default in Indenture |
For the purpose, and only for the purpose, of this Series Supplement and the Series: [specify any modifications to be made to the Events of Default in the Indenture].
5.2 | Additional Events of Default |
Any one of the following events shall also constitute an Event of Default with respect to the Series: [specify additional Events of Default].
ARTICLE 6
MISCELLANEOUS
6.1 | Confirmation of Indenture |
The Indenture, as amended and supplemented by this Series Supplement, is in all respects confirmed.
6.2 | Acceptance of Trusts |
The Trustee hereby accepts the trusts in this Series Supplement and agrees to perform the same upon the terms and conditions and subject to the provisions set forth in the Indenture.
6.3 | Counterparts and Formal Date |
This Series Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and all such counterparts together shall constitute one and the same document.
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IN WITNESS WHEREOF, each of CI and the Trustee has duly executed this Series Supplement as of the date first set forth above.
CI FINANCIAL CORP. | ||
By: | ||
Name: | ||
Title: | ||
By: | ||
Name: | ||
Title: | ||
COMPUTERSHARE TRUST COMPANY OF CANADA | ||
By: | ||
Name: | ||
Title: | ||
By: | ||
Name: | ||
Title: |
Exhibit 99.50
CI FINANCIAL CORP.,
as issuer of the Debentures
and
COMPUTERSHARE TRUST COMPANY OF CANADA
as Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of
July 22, 2019
To
TRUST INDENTURE
Dated as of July 22, 2019
3.215% Debentures due 2024
FIRST SUPPLEMENTAL INDENTURE
THIS IS A SERIES SUPPLEMENT dated as of July 22, 2019 between CI FINANCIAL CORP., a corporation existing under the laws of Ontario (“CI”), in its capacity as issuer of Debt Securities hereunder and COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company under the laws of Canada, in its capacity as Trustee (the “Trustee”).
WHEREAS CI and the Trustee have entered into a trust indenture dated as of July 22, 2019 (the “Indenture”);
AND WHEREAS section 2.2 and section 12.1 of the Indenture provide, among other things, that, without the consent of any Holders, CI and the Trustee may enter into a supplement to the Indenture for the purpose of establishing the Principal Terms of any Series which CI wishes to issue under the Indenture;
AND WHEREAS this Series Supplement relates to the Series of Debt Securities to be designated as 3.215% Debentures due 2024, and CI and the Trustee are entering into this Series Supplement in order to establish the Principal Terms of such Series and to provide for the issuance of such Series;
AND WHEREAS the foregoing recitals and any statements of fact in this Series Supplement are and shall be deemed to be made by CI and not the Trustee;
NOW THEREFORE THIS SERIES SUPPLEMENT WITNESSES and it is hereby agreed as follows:
ARTICLE ONE
INTERPRETATION
1.1 To be Read with Indenture; Governing Law
This Series Supplement is supplemental to the Indenture, and the Indenture and this Series Supplement shall hereafter be read together and shall have effect, so far as practicable, with respect to the Series, as if all the provisions of the Indenture and this Series Supplement were contained in one instrument, which instrument shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. The parties hereto expressly request and require that this document be drawn up in English. Les parties aux présentes conviennent et exigent que cette entente et tous les documents qui s’y rattachent soient rédigés en anglais.
1.2 Definitions
All capitalized terms used but not defined in this Series Supplement shall have the meanings specified in the Indenture. In addition, the following terms shall have the meanings specified below:
“2024 Canada Yield Price”, with respect to the 2024 Debentures on any Redemption Date, means a price which, if the 2024 Debentures were to be issued at such price on such date, would provide a yield thereon from such date to the Par Call Date of the principal amount of the 2024 Debentures equal to the Government of Canada Yield, plus 44.5 basis points (0.445%), compounded semi-annually and calculated on the day that is three Business Days prior to the Redemption Date.
“2024 Debentures” means the Series designated “3.215% Debentures due 2024” and having the attributes provided in Article Two hereof.
“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet or statement of financial position of such Person under Canadian generally accepted accounting principles, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with Canadian generally accepted accounting principles.
“Change of Control” means (i) the sale of all or substantially all of CI’s assets, other than any such sale to its Subsidiaries or affiliates or to any of their respective successors, or (ii) the acquisition by any person, or group of persons acting jointly or in concert, of control or direct or indirect beneficial ownership of more than 50% of the votes attaching to the shares of CI that ordinarily have voting power for the election of directors of CI.
“Change of Control Notice”, with respect to the 2024 Debentures, shall have the meaning specified in Section 2.8(a).
“Change of Control Offer”, with respect to the 2024 Debentures, shall have the meaning specified in Section 2.8(a).
“Change of Control Triggering Event” means the occurrence of both a Change of Control and a Rating Event.
“Consolidated Net Worth” means, as at any date, the amount of consolidated shareholders’ equity of CI and its Subsidiaries as set forth in the most recently filed annual or interim consolidated financial statements of CI prepared in accordance with Canadian generally accepted accounting principles.
“DBRS” means DBRS Limited and its successors.
“Government of Canada Yield” on any date means, with respect to the 2024 Debentures, the average of the mid-market yields to maturity on such date provided by two independent investment dealers selected by CI and approved by the Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce, if issued at par on such date, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date of the principal amount of the 2024 Debentures.
“Investment Grade Rating” means a rating equal to or higher than BBB- (or the equivalent of any successor rating category of S&P) by S&P, BBB (low) (or the equivalent of any successor rating category of DBRS) by DBRS, or the equivalent investment grade rating from any other Specified Rating Agency.
“Moody’s” means Moody’s Investors Services, Inc. and its successors.
“Offer Date”, with respect to the 2024 Debentures, shall have the meaning specified in Section 2.8(a).
“Offer Price”, with respect to the 2024 Debentures, shall have the meaning specified in Section 2.8(a).
“Par Call Date” means June 22, 2024 (one month prior to the Stated Maturity).
“Permitted Encumbrances” means, in this Series Supplement and with respect to a Subsidiary of CI, Security Interests on the property of the Subsidiary which are:
(a) | Security Interests for taxes, assessments, governmental charges arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with Canadian generally accepted accounting principles shall have been made; |
(b) | statutory Security Interests of landlords and carriers, warehousemen, mechanics, suppliers, material men, repairmen or other similar Security Interests arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with Canadian generally accepted accounting principles shall have been made; |
(c) | Security Interests incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security; |
(d) | Purchase Money Liens; |
(e) | Security Interests in favour of CI or another Subsidiary of CI; |
(f) | Security Interests arising in the ordinary course of business in favour of any bank or other lender on the property of the Subsidiary of CI (other than accounts receivable) to secure any liabilities of the Subsidiary that do not relate to borrowed money; |
(g) | Security Interests for any judgment rendered, or claim filed, against the Subsidiary of CI, which is being contested in good faith by appropriate proceedings, that does not constitute an Event of Default with respect to the 2024 Debentures, if during such contestation a stay of enforcement of such judgment or claim is in effect; |
(h) | Security Interests that arise by operation of law; |
(i) | any Security Interest existing on any property of a Person at the time that such Person is acquired by the Subsidiary of CI provided that such Security Interest was not incurred in contemplation of or as a result of such acquisition; |
(j) | any Security Interest existing on any property acquired by the Subsidiary, provided that such Security Interest was not incurred in contemplation of or as a result of such acquisition; |
(k) | Security Interests for any final judgments for the payment of money that do not constitute an Event of Default with respect to the 2024 Debentures; |
(l) | any Security Interest to secure any Investment Certificate issued by the Subsidiary of CI, in the normal course of business; and |
(m) | any extension, renewal, alteration or substitution or replacement of any Security Interest mentioned above provided that it is not extended thereby to any additional property and the principal amount secured thereby is not increased. |
“Purchase Money Lien” means, in this Series Supplement and with respect to a Subsidiary of CI, any Security Interest on property acquired by the Subsidiary of CI which was assumed, created, guaranteed, reserved, issued or given to secure or satisfy all or any part of the acquisition price of such property.
“Rating Event” means, with respect to the 2024 Debentures, the rating of the 2024 Debentures is lowered to below Investment Grade Rating by each of the Specified Rating Agencies, if there are less than three Specified Rating Agencies, or by two out of three of the Specified Rating Agencies, if there are three Specified Rating Agencies (the “Required Threshold”), on any day within the 60-day period (which 60-day period will be extended so long as the rating of the 2024 Debentures is under publicly announced consideration for a possible downgrade by such number of Specified Rating Agencies which, together with Specified Rating Agencies which have already lowered their ratings on the 2024 Debentures as aforesaid, would aggregate in number the Required Threshold, but only to the extent that, and for so long as, a Change of Control Triggering Event would result if such downgrade were to occur) after the earlier of (a) the occurrence of a Change of Control and (b) public notice of the occurrence of a Change of Control.
“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., and its successors.
“Specified Indebtedness” of any Person means, without duplication:
(a) | all obligations of such Person for borrowed money or with respect to deposits or advances of any kind; |
(b) | all obligations of such Person evidenced by bonds, debentures, notes or similar instruments; |
(c) | all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person; |
(d) | all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business); |
(e) | all Specified Indebtedness of another Person secured by any Security Interest upon the property of such Person; |
(f) | all Capital Lease Obligations of such Person; |
(g) | all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guarantee (other than letters of credit and letters of guarantee issued in support of current accounts payable incurred in the ordinary course of business); |
(h) | all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances; |
(i) | the net termination amount payable by such Person under any hedging, swap or other derivative transactions, including those designed and entered into to protect or mitigate against risks in interest, currency exchange or commodity price fluctuations; |
(j) | all obligations of such Person to purchase, redeem (other than at the option of the holder) or otherwise acquire any equity interest (including preferred shares) of such Person; and |
(k) | all obligations of the type referred to in clauses (a) through (j) of any other Person for which such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of a guarantee or indemnity. |
“Specified Rating Agencies” means, with respect to the 2024 Debentures, each of S&P and DBRS and, if a rating of the 2024 Debentures is obtained from Moody’s shall also include Moody’s, as long as, in each case, such entity has not ceased to rate the 2024 Debentures or failed to make a rating of the 2024 Debentures publicly available for reasons outside of CI’s control; provided that if one or more of DBRS, S&P or Moody’s, as applicable, ceases to rate the 2024 Debentures or fails to make a rating of the 2024 Debentures publicly available for reasons outside of CI’s control, CI may select any other “designated rating organization” within the meaning of National Instrument 44-101 of the Canadian Securities Administrators as a replacement agency for the 2024 Debentures.
“Total Offer Price”, with respect to the 2024 Debentures, shall have the meaning for such Series specified in Section 2.8(a).
1.3 Interpretation of Indebtedness
CI acknowledges that, with respect to the 2024 Debentures, Indebtedness shall be interpreted to include Specified Indebtedness.
1.4 Conflicts with Indenture
If any term or provision contained in this Series Supplement shall conflict or be inconsistent with any term or provision of the Indenture, the term or provision of this Series Supplement shall govern; provided however that the terms and provisions of this Series Supplement may modify or amend the terms and provisions of the Indenture solely as applied to the 2024 Debentures.
1.5 Interpretation Provisions
This Series Supplement shall, unless the context otherwise requires, be subject to the interpretation provisions contained in Article One of the Indenture.
1.6 Exhibits
Exhibit A hereto forms part of this Series Supplement.
ARTICLE TWO
THE DEBT SECURITIES –
3.215% DEBENTURES DUE 2024
2.1 Authorization and Designation
CI is hereby authorized to issue under the Indenture a Series of Debt Securities designated “3.215% Debentures due 2024” having the terms set forth in this Article Two.
2.2 No Fixed Limitation
The aggregate principal amount of the 2024 Debentures that may be issued shall be unlimited.
2.3 Currency
The 2024 Debentures shall be denominated in, and all principal of and premium, interest and other amounts on the 2024 Debentures shall be payable in, Canadian Dollars.
2.4 Denominations
The 2024 Debentures shall be denominated in integral multiples of $1,000.00 and no such Debt Security shall be issued in a principal amount less than $1,000.00.
2.5 Date and Maturity
The Series Issuance Date for the 2024 Debentures shall be July 22, 2019, and the Stated Maturity of the 2024 Debentures shall be July 22, 2024.
2.6 | Interest |
(1) | The interest rate applicable to the 2024 Debentures shall be 3.215% per annum. Interest shall be calculated and payable semi-annually in arrears on the Interest Payment Dates set forth below in equal instalments. |
(2) | The Interest Payment Dates for the 2024 Debentures shall be January 22 and July 22 in each year commencing January 22, 2020. |
(3) | The Regular Interest Record Dates for the 2024 Debentures shall be as provided in the definition of “Regular Interest Record Date” in Section 1.1 of the Indenture. |
2.7 | Redemption and Purchase |
(1) | The 2024 Debentures may be redeemed at the election of CI on a Redemption Date determined by CI that is not less than 30 nor more than 60 days after notice of such redemption is given to the Holders of 2024 Debentures to be redeemed pursuant to Section 3.1 of the Indenture. At its option, CI may redeem 2024 Debentures in whole at any time or in part from time to time, on notice given pursuant to Section 3.1 of the Indenture, (i) prior to the Par Call Date, at a Redemption Price equal to the greater of (a) the 2024 Canada Yield Price and (b) par, or (ii) on or after the Par Call Date, at a Redemption Price equal to 100% of the aggregate principal amount of the 2024 Debentures, together in each case with accrued and unpaid interest up to but excluding the date fixed for redemption. |
(2) | The 2024 Debentures may not be redeemed at the election of the Holders thereof. |
2.8 | Change of Control Triggering Event |
Within 30 days following the occurrence of a Change of Control Triggering Event, unless CI has exercised its right to redeem all of the 2024 Debentures in accordance with Section 2.7, and subject to the provisions and conditions of this Section 2.8, CI shall be obligated to offer to purchase all of the 2024 Debentures and to purchase any 2024 Debentures tendered in respect of such offer. The terms and conditions of such obligation are set forth below:
(a) | Within 30 days following the occurrence of a Change of Control Triggering Event, CI shall deliver to the Trustee, and the Trustee shall, as soon as practicable thereafter and in any event no later than two Business Days after receiving notice from CI of the occurrence of a Change of Control Triggering Event, deliver to the Holders of the 2024 Debentures a written notice stating that there has been a Change of Control Triggering Event and specifying the circumstances surrounding such event (a “Change of Control Notice”) together with an offer in writing (the “Change of Control Offer”) to purchase, on a date (the “Offer Date”) which is no earlier than 30 days and no later than 60 days following the date upon which the Trustee delivers a Change of Control Notice, all then outstanding 2024 Debentures made in accordance with the requirements of Applicable Securities Legislation (provided that, for greater certainty, CI shall use its commercially reasonable efforts to obtain all requisite regulatory consents and to comply with Applicable Securities Legislation in connection with the receiving and completion of such Change of Control Offer) at a price equal to 101% of the principal amount thereof (the “Offer Price”) plus accrued and unpaid interest on such 2024 Debentures up to, but excluding, the date of purchase (collectively, the “Total Offer Price”). To the extent that the provisions of any Applicable Securities Legislation conflict with the provisions herein relating to a Change of Control Triggering Event, CI will be required to comply with such Applicable Securities Legislation and will not be deemed to have breached its obligations to repurchase the 2024 Debentures by virtue of such conflict. |
(b) | To accept the Change of Control Offer, the Holder of 2024 Debentures must deliver to the Trustee, not less than two Business Days prior to the Offer Date, written notice of the Holder’s acceptance of the Change of Control Offer, together with the 2024 Debentures with respect to which the offer is being accepted, duly endorsed for transfer. |
(c) | CI shall, on or before 11:00 a.m. (Toronto time), on the Business Day immediately prior to the Offer Date, deposit with the Trustee or any Paying Agent to the order of the Trustee, such sums of money as may be sufficient to pay the Total Offer Price for each of the 2024 Debentures to be purchased by CI on the Offer Date. CI shall also deposit with the Trustee a sum of money sufficient to pay any charges or expenses that may be incurred by the Trustee or any Paying Agent in connection with such purchase. Every such deposit shall be irrevocable. From the sums so deposited, the Trustee or any Paying Agent shall pay or cause to be paid to the Holders of such 2024 Debentures, the Offer Price, and all accrued and unpaid interest, if any, to which they are entitled on CI’s purchase. |
(d) | 2024 Debentures for which Holders have accepted the Change of Control Offer shall become due and payable at the Total Offer Price on the Offer Date, in the same manner and with the same effect as if it were the date of maturity specified in such 2024 Debentures, anything therein or herein to the contrary notwithstanding, and from and after such date of expiry of the Change of Control Offer, if the money necessary to purchase or redeem the tendered 2024 Debentures shall have been deposited as provided in this Section 2.8 and affidavits or other proofs satisfactory to the Trustee as to the publication and/or mailing of such notices shall have been lodged with it, interest on the tendered 2024 Debentures shall cease. If any question shall arise as to whether any notice has been given as above provided and such deposit made, such question shall be decided by the Trustee whose decision shall be final and binding upon all parties in interest. |
(e) | In case the Holder of any 2024 Debentures to be purchased in accordance with this Section 2.8 shall fail on or before the Offer Date so to surrender such Holder’s 2024 Debentures or shall not within such time accept payment of the monies payable, or give such receipt therefor, if any, as the Trustee may require, such monies may be set aside in trust, either in the deposit department of the Trustee or in a chartered bank, and such setting aside shall for all purposes be deemed a payment to the Holder of the sum so set aside and the Holder shall have no other right except to receive payment of the monies so paid and deposited, upon surrender and delivery up of such Holder’s 2024 Debentures. In the event that any money required to be deposited hereunder with the Trustee or any depository or Paying Agent on account of principal, premium, if any, or interest, if any, on 2024 Debentures issued hereunder shall remain so deposited for a period of six years from the Offer Date, then such monies, together with any accumulated interest thereon, shall at the end of such period be paid over or delivered over by the Trustee or such depository or Paying Agent to CI and the Trustee shall not be responsible to Holders for any amounts owing to them. Notwithstanding the foregoing, the Trustee will pay any remaining funds deposited hereunder prior to the expiry of six years after the Offer Date to CI upon receipt from CI, or one of its Subsidiaries, of an unconditional letter of credit from a Schedule “A” Canadian chartered bank in an amount equal to or in excess of the amount of the remaining funds, valid until the end of such six-year period. If the remaining funds are paid to CI prior to the expiry of six years after the Offer Date, CI shall reimburse the Trustee for any amounts required to be paid by the Trustee to a Holder of 2024 Debentures pursuant to the Change of Control Offer after the date of such payment of the remaining funds to CI but prior to six years after the Offer Date. |
(f) | All 2024 Debentures purchased under this Section 2.8 shall forthwith be delivered to the Trustee and cancelled and no 2024 Debentures shall be issued in substitution therefor. |
(g) | Notwithstanding the foregoing, CI shall not be obligated to make a Change of Control Offer upon a Change of Control Triggering Event if a third party makes such an offer substantially in the manner, at the times and in compliance with the requirements for a Change of Control Offer (and for at least the same purchase price payable in cash) and such third party purchases all 2024 Debentures properly tendered and not withdrawn under its offer. |
2.9 | Limitation on Specified Indebtedness of Subsidiaries |
CI will not permit any Subsidiary of CI to create, assume or otherwise incur any Specified Indebtedness, except: (a) Capital Lease Obligations in an aggregate amount not exceeding $150,000,000; (b) Specified Indebtedness owed to CI or another Subsidiary of CI; and (c) any other Specified Indebtedness if, at the time it is created, assumed or incurred, the amount of such Specified Indebtedness, together with any other Specified Indebtedness of CI’s Subsidiaries then outstanding (excluding Specified Indebtedness of the type set forth in the foregoing clauses (a) and (b)), has an aggregate principal amount not exceeding 5% of Consolidated Net Worth.
2.10 | Negative Pledge re: Subsidiaries of CI |
CI covenants and agrees with the Trustee, for the benefit of the Holders of the 2024 Debentures, that it will not permit any Subsidiary of CI to, directly or indirectly, create, assume or suffer to exist any Security Interest (other than Permitted Encumbrances as defined in this Series Supplement) on any of the present or future property of such Person to secure any obligation unless the 2024 Debentures and, if applicable, any Guarantee of the 2024 Debentures, and if CI so elects, any other liabilities of the Subsidiary are secured equally and rateably with (or prior to) such obligation so long as such Security Interest is outstanding. If at any time a Subsidiary of CI shall create, assume or suffer to exist any Security Interest to which this paragraph is applicable, CI shall promptly deliver to the Trustee a Certificate of CI and an Opinion of Counsel, each stating that the covenant in this paragraph has been complied with. If CI shall secure the 2024 Debentures equally and rateably with (or prior to) any such other obligation pursuant to this paragraph, the Trustee is hereby authorized to enter into an indenture or agreement supplemental to this Series Supplement and to take such action, if any, as it may deem advisable to enable the Trustee to effectively enforce the rights of the Holders of the 2024 Debentures including under any Guarantee (if any) so secured equally and rateably with (or prior to) the obligees of such other obligation; provided however that the Trustee shall not be responsible for filing any financing or continuation statements or recording any documents or instruments in any public office at any time or times.
2.11 Sinking Fund
The 2024 Debentures shall not be subject to repurchase or redemption pursuant to any sinking fund or any other analogous required repayment provisions.
2.12 Defeasance
The 2024 Debentures shall be subject to Defeasance as provided in Article Thirteen of the Indenture.
2.13 Form and Certification
(1) | The 2024 Debentures shall be (i) Registered Debt Securities, (ii) issued initially as one or more fully registered Global Debt Securities held by, or on behalf of, the Depository in accordance with Section 2.17 of the Indenture as custodian, and (iii) substantially in the form set forth in Exhibit A to this Series Supplement. |
(2) | The form of certification of the 2024 Debentures by the Trustee shall substantially in the form of certification set forth in Exhibit A to this Series Supplement. |
2.14 Identification of Various Agents, Nominees and Documents
For the purpose of this Series Supplement and the 2024 Debentures:
(a) | the Depository with respect to the 2024 Debentures shall be CDS; |
(b) | the Place of Payment with respect to the 2024 Debentures shall be Toronto, Ontario; |
(c) | the initial Rating Agencies with respect to the 2024 Debentures shall be DBRS and S&P; and |
(d) | the Series Issuance Date with respect to the 2024 Debentures shall be July 22, 2019. |
2.15 Ranking
The 2024 Debentures shall be direct and unsecured obligations of CI, ranking pari passu with all other current and future unsecured and unsubordinated Indebtedness of CI.
ARTICLE THREE
MISCELLANEOUS
3.1 Confirmation of Indenture
The Indenture, as amended and supplemented by this Series Supplement, is in all respects confirmed.
3.2 Acceptance of Trusts
The Trustee hereby accepts the trusts in this Series Supplement and agrees to perform the same upon the terms and conditions and subject to the provisions set forth in the Indenture.
3.3 Counterparts
This Series Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and all such counterparts together shall constitute one and the same document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each of CI and the Trustee has duly executed this Series Supplement as of this 22nd day of July, 2019.
CI FINANCIAL CORP. | |||
By: | /s/ Darie Urbanky | ||
Name: | Darie Urbanky | ||
Title: | President and Chief Operating Officer | ||
COMPUTERSHARE TRUST COMPANY OF CANADA | |||
By: | |||
Name: | |||
Title: | |||
By: | |||
Name: | |||
Title: |
CI Financial Corp. – First Supplemental Indenture
IN WITNESS WHEREOF, each of CI and the Trustee has duly executed this Series Supplement as of this 22nd day of July, 2019.
CI FINANCIAL CORP. | |||
By: | /s/ Darie Urbanky | ||
Name: | Darie Urbanky | ||
Title: | President and Chief Operating Officer | ||
COMPUTERSHARE TRUST COMPANY OF CANADA | |||
By: | /s/ Fiona Koch | ||
Name: | Fiona Koch | ||
Title: | Corporate Trust Officer | ||
By: | /s/ Mohanie Shivprasad | ||
Name: | Mohanie Shivprasad | ||
Title: | Associate Trust Officer |
CI Financial Corp. – First Supplemental Indenture
EXHIBIT A
FORM OF 2024 DEBENTURE
Unless this certificate is presented by an authorized representative of CDS Clearing and Depository Services Inc.(“CDS”) to the Issuer or its agent for registration of transfer, exchange or payment, and any certificate issued in respect thereof is registered in the name of CDS & CO., or in such other name as is requested by an authorized representative of CDS (and any payment is made to CDS & CO. or to such other entity as is requested by an authorized representative of CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered holder hereof, CDS & CO., has a property interest in the securities represented by this certificate herein and it is a violation of its rights for another person to hold, transfer or deal with this certificate. This certificate is issued pursuant to a Book Entry Only Securities Services Agreement between the Issuer and CDS, as such agreement may be replaced or amended from time to time.
CI FINANCIAL CORP.
No. [·] | $ [·] |
CUSIP No. 125491AL4
ISIN No. CA125491AL40
3.215% DEBENTURES DUE 2024
CI Financial Corp. (the “Issuer”) for value received hereby acknowledges itself indebted and promises to pay to the Holder hereof on presentation and surrender of this Debenture at the principal office of Computershare Trust Company of Canada (the “Indenture Trustee”, which term shall include its successors under the Indenture hereinafter referred to) in Toronto, Ontario, Canada, the principal amount of [INSERT DOLLAR AMOUNT] in lawful money of Canada ($[INSERT DOLLAR AMOUNT]) and to pay interest on the outstanding principal amount hereof at the same place in like money at the rate of 3.215% per annum, as well after as before maturity, default and judgment, with interest on overdue interest at the same rate as more particularly specified in the Indenture. The outstanding principal amount of this Debenture is payable in one instalment on July 22, 2024. Interest on this Debenture is payable semi-annually in arrears in equal instalments on January 22 and July 22 in each year, commencing on January 22, 2020.
This Debenture is one of a duly authorized Series of Debt Securities designated as 3.215% Debentures due 2024, issued under a trust indenture dated as of July 22, 2019 between the Issuer and the Indenture Trustee, and a Series Supplement dated as of July 22, 2019, between the Issuer and the Indenture Trustee (collectively the “Indenture”). Reference is hereby made to the Indenture as to the nature and extent of the rights of the Holders of the Debt Securities of this Series, all to the same effect as if the provisions of the Indenture were herein set forth, to all of which provisions the Holder of this Debenture by acceptance hereof assents. All capitalized terms used but not defined herein have the meanings specified in the Indenture.
Each Debt Security of this Series, including this Debenture, may be redeemed by the Issuer in whole or in part at any time upon not less than 30 days’, and not more than 60 days’ notice to the Holder hereof, in accordance with section 3.1 of the Indenture, (i) prior to the Par Call Date, at a Redemption Price equal to the greater of (a) 100% of the outstanding principal amount hereof and (b) such price as would, if this Debenture were to be issued at such price on the Redemption Date, provide a yield to the Par Call Date with respect to this Debenture (or portion thereof being redeemed) equal to the Government of Canada Yield plus 44.5 basis points (0.445%) per annum, compounded semi-annually and calculated on the day that is three Business Days prior to the Redemption Date, or (ii) on or after the Par Call Date, at a Redemption Price equal to 100% of the outstanding principal amount hereof, together in each case with all accrued and unpaid interest up to but excluding the Redemption Date. For the purpose of the preceding sentence, “Government of Canada Yield” shall mean, on any day, the average of the mid-market yields to maturity on such day provided by two independent investment dealers selected by the Issuer and approved by the Indenture Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce if issued at par on such day, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date. In the case of any redemption of less than all of the Debt Securities of this Series, the Debt Securities to be redeemed will be selected by the Indenture Trustee on a pro rata basis or by such other method (which may include random selection by computer) as the Indenture Trustee may deem appropriate.
The outstanding principal amount of this Debenture may become or be declared to be due and payable by the Indenture Trustee before maturity in the circumstances set out in section 6.1 of the Indenture.
This Debenture is transferable only in accordance with the provisions of the Indenture. No transfer of this Debenture shall be valid unless made on the Register kept by and at the principal office of the Indenture Trustee in Toronto, Ontario, by the Holder hereof or its attorney duly appointed by instrument in writing in form and execution satisfactory to the Indenture Trustee upon compliance with such reasonable requirements as the Indenture Trustee may prescribe.
The Indenture contains provisions making binding upon all Holders of the Debt Securities of this Series, or upon the Holders of all Series outstanding under the Indenture, certain Holder Actions taken by the Holders of a specified majority of the Debt Securities of this Series, or of all Series, as the case may be, then outstanding.
This Debenture shall not become obligatory for any purpose until certified by the Indenture Trustee.
IN WITNESS WHEREOF CI Financial Corp. has caused this 3.215% Debenture due 2024 to be signed by its duly authorized officer on [INSERT DATE].
CI FINANCIAL CORP. | |||
By: | |||
Name: | |||
Title: |
INDENTURE TRUSTEE’S CERTIFICATE
This 3.215% Debenture due 2024 is a 3.215% Debenture due 2024 referred to in the Indenture.
COMPUTERSHARE TRUST COMPANY OF CANADA | |||
By: | |||
Name: | |||
Title: |
Form of Registration Panel
(No writing hereon except by the Indenture Trustee)
Date of | In Whose Name | Authorized Signature |
Registration | Registered | of Indenture Trustee |
Exhibit 99.51
A copy of this preliminary short form prospectus has been filed with the securities regulatory authorities in each of the provinces of Canada but has not yet become final for the purpose of the sale of securities. Information contained in this preliminary short form prospectus may not be complete and may have to be amended. The securities may not be sold until a receipt for the short form prospectus is obtained from the securities regulatory authorities.
This short form prospectus is a base shelf prospectus. This short form prospectus has been filed under legislation in all provinces of Canada that permits certain information about these securities to be determined after this prospectus has become final and that permits the omission from this prospectus of that information. The legislation requires the delivery to purchasers of a prospectus supplement containing the omitted information within a specified period of time after agreeing to purchase any of these securities.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This short form prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. These securities have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “1933 Act”), and accordingly will not be offered, sold or delivered, directly or indirectly, within the United States of America, its possessions and other areas subject to its jurisdiction or to, or for the account or for the benefit of, a U.S. person (as defined in Regulation S under the 1933 Act) without the availability of an exemption from registration. See “Plan of Distribution”.
Information has been incorporated by reference in this short form prospectus from documents filed with the securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Secretary of CI Financial Corp. at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7 (telephone (416) 364-1145) and are also available electronically at www.sedar.com.
Preliminary Short Form Base Shelf Prospectus
New Issue | December 5, 2019 |
CI Financial Corp.
$2,000,000,000
Debt Securities (unsecured)
Subscription Receipts
Preference Shares
Common Shares
CI Financial Corp. (“CI” or the “Corporation”) may from time to time offer and issue the following securities: (i) unsecured debt securities of the Corporation (“Debt Securities”), (ii) subscription receipts of the Corporation (“Subscription Receipts”); and (iii) preference shares (“Preference Shares”) and common shares (“Common Shares”) of the Corporation (“Equity Securities”) or any combination thereof. The Debt Securities, Subscription Receipts, and Equity Securities (collectively, the “Securities”) offered hereby may be offered separately or together, in separate series, in amounts, at prices and on terms to be set forth in one or more shelf prospectus supplements (collectively or individually, as the case may be, a “Prospectus Supplement”). All information not included in this short form base shelf prospectus (the “Prospectus”) will be contained in one or more Prospectus Supplements that will be delivered to purchasers together with this Prospectus. The Corporation may sell at the initial offer price up to $2,000,000,000 in the aggregate of Securities (or its equivalent in any other currency used to denominate the Securities at the time of the offering) at any time during the 25-month period that this Prospectus, including any amendments hereto, remains valid.
The specific terms of the Securities in respect of which this Prospectus is being delivered will be set forth in the applicable Prospectus Supplement and may include, where applicable: (i) in the case of Debt Securities, the specific designation, aggregate principal amount, the currency or the currency unit for which the Debt Securities may be purchased, maturity, interest provisions, authorized denominations, offering price, covenants, events of default, any terms for redemption at the option of the Corporation or the holder, any exchange or conversion terms and any other specific terms; (ii) in the case of Subscription Receipts, the number of Subscription Receipts being offered, the offering price, the procedures for the exchange of the Subscription Receipts for Common Shares and any other specific terms; and (iii) in the case of Equity Securities, the designation of the particular class and series, the number of shares offered, the issue price and dividend rate, if any, and any other terms specific to the Equity Securities. A Prospectus Supplement may include specific variable terms pertaining to the Securities that are not within the alternatives and parameters described in this Prospectus.
Each Prospectus Supplement will be incorporated by reference into this Prospectus for the purposes of securities legislation as of the date of the Prospectus Supplement and only for the purposes of the distribution of the Securities to which the Prospectus Supplement pertains.
This Prospectus does not qualify for issuance any Securities in respect of which the payment of principal and/or interest may be determined, in whole or in part, by reference to one or more underlying interests including, for example, an equity or debt security, a statistical measure of economic or financial performance including, but not limited to, any currency, consumer price or mortgage index, or the price or value of one or more commodities, indices or other items, or any other item or formula, or any combination or basket of the foregoing items. For greater certainty, this Prospectus may qualify for issuance Securities in respect of which the payment of principal and/or interest may be determined, in whole or in part, by reference to published rates of a central banking authority or one or more financial institutions, such as the prime rate or a bankers’ acceptance rate, or to recognized market benchmark interest rates such as LIBOR.
The Corporation may sell the Securities to or through underwriters or dealers purchasing as principals and may also sell the Securities to one or more purchasers directly or through agents. The Prospectus Supplement relating to a particular offering of Securities will identify each underwriter, dealer or agent engaged by the Corporation in connection with the offering and sale of the Securities and will set forth the terms of the offering of such Securities, the method of distribution of such Securities, including, to the extent applicable, the proceeds to the Corporation and any fees, discounts or any other compensation payable to underwriters, dealers or agents and any other material terms of the plan of distribution. See “Plan of Distribution”. The offering of the Securities is subject to the approval of certain legal matters on behalf of the Corporation.
In connection with any offering of the Securities (unless otherwise specified in a Prospectus Supplement), the underwriters or agents may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at a higher level than that which might exist in the open market. Such transactions, if commenced, may be interrupted or discontinued at any time. See “Plan of Distribution”.
The issued and outstanding Common Shares are listed and posted for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “CIX”. On December 4, 2019, the last trading day prior to the date of this Prospectus, the closing price of the Common Shares on the TSX was $20.90 per Common Share.
Unless otherwise specified in the applicable Prospectus Supplement, Securities, other than the Common Shares, will not be listed on any securities exchange. Accordingly, unless so specified, there will be no market through which these Securities may be sold, and purchasers may not be able to resell such Securities purchased under this Prospectus. This may affect the pricing of the Securities in the secondary market, the transparency and availability of trading prices, the liquidity of the Securities and the extent of issuer regulation. See “Risk Factors”.
The head and registered office of the Corporation is located at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7. Unless otherwise specifically stated, all dollar amounts in this Prospectus are expressed in Canadian dollars.
2
TABLE OF CONTENTS | |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION | 3 |
DOCUMENTS INCORPORATED BY REFERENCE | 3 |
THE CORPORATION | 5 |
BUSINESS OF THE CORPORATION AND ITS SUBSIDIARIES | 6 |
CONSOLIDATED CAPITALIZATION | 7 |
USE OF PROCEEDS | 7 |
EARNINGS COVERAGE RATIOS | 7 |
PLAN OF DISTRIBUTION | 7 |
DESCRIPTION OF DEBT SECURITIES | 8 |
DESCRIPTION OF SUBSCRIPTION RECEIPTS | 10 |
DESCRIPTION OF EQUITY SECURITIES | 10 |
PRICE RANGE AND TRADING VOLUME OF COMMON SHARES | 11 |
DIVIDEND RECORD AND POLICY | 11 |
PRIOR SALES | 11 |
PRINCIPAL SHAREHOLDERS | 12 |
RISK FACTORS | 12 |
AUDITORS, TRANSFER AGENT AND REGISTRAR | 13 |
PURCHASERS’ STATUTORY AND CONTRACTUAL RIGHTS OF WITHDRAWAL AND RESCISSION | 13 |
CERTIFICATE OF THE CORPORATION | C-1 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Prospectus contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to the Corporation and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar expressions of future or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which, by their nature are inherently uncertain and beyond management control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described under “Risk Factors” in this Prospectus and under “Risk Management” in the management’s discussion and analysis of results of operations and financial condition and the annual information form that are incorporated by reference into this Prospectus. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. The reader is cautioned against undue reliance on these forward-looking statements.
Except as otherwise stated, these statements are made as of the date of this document and, except as required by applicable law, management and the board of directors of the Corporation (the “Board of Directors”) undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference into this Prospectus from documents filed with the securities commissions or similar authorities in Canada. Copies of documents incorporated herein by reference may be obtained upon request without charge from the Secretary of the Corporation at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7. Copies of documents incorporated by reference may also be obtained by accessing www.sedar.com.
3
The following documents, filed with the securities commission or similar authority in each of the provinces of Canada, are specifically incorporated by reference into, and form an integral part of, this Prospectus:
(a) | the Corporation’s audited consolidated financial statements, together with the accompanying report of the auditors, for the year ended December 31, 2018; |
(b) | management’s discussion and analysis of results of operations and financial position of the Corporation for the year ended December 31, 2018; |
(c) | the Corporation’s annual information form dated March 1, 2019; |
(d) | the Corporation’s management information circular dated May 8, 2019 for its annual meeting of shareholders held on June 24, 2019; |
(e) | the Corporation’s unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2019; |
(f) | management’s discussion and analysis of results of operations and financial position of the Corporation for the three and nine months ended September 30, 2019; |
(g) | the Corporation’s material change report dated April 18, 2019, in respect of the retirement of Peter Anderson, Chief Executive Officer of the Corporation; |
(h) | the Corporation’s material change report dated June 26, 2019, in respect of the appointment of Darie Urbanky as President of the Corporation; and |
(i) | the Corporation’s material change report dated August 6, 2019, in respect of the appointment of Kurt MacAlpine as Chief Executive Officer and Director of the Corporation. |
Any document of the type referred to in the preceding paragraph (excluding confidential material change reports) and any other documents of the Corporation of the type required to be incorporated by reference herein under National Instrument 44-101 – Short Form Prospectus Distributions, all as filed by the Corporation with the various securities commissions or similar authorities in the provinces of Canada pursuant to the requirements of applicable securities legislation after the date of this Prospectus and prior to 25 months from the date of issuance of the receipt for this Prospectus shall be deemed to be incorporated by reference into this Prospectus.
Upon new annual financial statements and related management’s discussion and analysis (“MD&A”) of the Corporation being filed by the Corporation with and, where required, accepted by, the applicable securities regulatory authorities during the currency of this Prospectus, the previous annual financial statements and related MD&A, and all previous interim financial statements and related interim MD&A, filed prior to the commencement of the Corporation’s financial year in which the new annual financial statements and related MD&A are filed shall be deemed no longer to be incorporated into this Prospectus for purposes of future offers and sales of Securities hereunder.
Upon a new annual information form (“AIF”) of the Corporation being filed by the Corporation with and, where required, accepted by, the applicable securities regulatory authorities during the currency of this Prospectus, the previous AIF, any material change reports filed prior to the end of the financial year in respect of which the new AIF is filed, any management information circular filed since the start of such financial year (unless otherwise required by applicable Canadian securities legislation to be incorporated by reference into this Prospectus), and any business acquisition report for an acquisition completed since the beginning of such financial year (unless such report is incorporated by reference into the current AIF or less than nine months of the acquired business’ or related businesses’ operations are incorporated into the Corporation’s most recent annual financial statements), shall be deemed no longer to be incorporated into this Prospectus for purposes of future offers and sales of Securities hereunder. Upon a new management information circular prepared in connection with an annual general meeting of the Corporation’s shareholders being filed with the applicable securities regulatory authorities during the currency of this Prospectus, the previous information circular prepared in connection with an annual general meeting of the Corporation’s shareholders shall be deemed no longer to be incorporated into this Prospectus for purposes of future offers and sales of Securities hereunder.
4
Upon interim financial statements and related MD&A of the Corporation being filed by the Corporation with the applicable securities regulatory authorities during the currency of this Prospectus, all previously filed interim financial statements and related MD&A shall be deemed no longer to be incorporated into this Prospectus for purposes of future offers and sales of Securities hereunder.
Any template version of any “marketing materials” (as such term is defined in National Instrument 41-101 – General Prospectus Requirements) filed after the date of a Prospectus Supplement and before the termination of the distribution of the Securities offered pursuant to such Prospectus Supplement (together with this Prospectus) is deemed to be incorporated by reference in such Prospectus Supplement.
A Prospectus Supplement containing the specific variable terms of an offering of Securities, updated disclosure of earnings coverage ratios, if applicable, and other information in relation to the Securities will be delivered to purchasers of such Securities together with this Prospectus and will be deemed to be incorporated by reference into this Prospectus as of the date of such Prospectus Supplement but only for the purposes of the offering of the Securities covered by that Prospectus Supplement.
Any statement contained in this Prospectus or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded, for purposes of this Prospectus, to the extent that a statement contained herein or in any other subsequently filed document which also is, or is deemed to be, incorporated by reference herein modifies or supersedes such prior statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded thereafter shall not constitute a part of this Prospectus, except as so modified or superseded.
THE CORPORATION
The Corporation is the successor to CI Financial Income Fund (the “Fund”), following the completion of the conversion of the Fund from an income trust to a corporate structure by way of a court-approved plan of arrangement under the Business Corporations Act (Ontario) (the “OBCA”) on January 1, 2009 (the “Conversion”). The Fund had been created effective June 30, 2006 when CI Financial Inc. converted to an income trust. The Conversion effectively reversed this income trust conversion.
The Corporation was incorporated under the OBCA on November 12, 2008 and did not carry on any active business prior to the Conversion, other than executing the arrangement agreement pursuant to which the Conversion was implemented.
The registered and head office of the Corporation is 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7.
The principal business of the Corporation is carried on through its subsidiaries, CI Investments Inc. (“CI Investments”), Assante Wealth Management (Canada) Ltd. (“AWM”), CI Private Counsel LP (“CIPC”), GSFM Pty Ltd. (“GSFM”), WealthBar Financial Services Inc. (“WealthBar”), and BBS Securities Inc. (“BBS”).
The table below shows the principal entities controlled by the Corporation as at November 30, 2019, including (i) the percentage of votes attaching to all voting securities of the entity beneficially owned, controlled or directed by the Corporation, and (ii) the jurisdiction of incorporation or formation:
Entity | Jurisdiction | Ownership % | ||||
CI Investments Inc. | Ontario | 100 | % | |||
Assante Wealth Management (Canada) Ltd. | Canada | 100 | % |
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BUSINESS OF THE CORPORATION AND ITS SUBSIDIARIES
CI is an independent Canadian company offering global asset management and wealth management advisory services. CI is well diversified with a strong presence in both the Canadian asset management and advisory businesses. CI is also diversified internationally through its subsidiary GSFM, an asset manager operating in Australia and New Zealand.
Within the Canadian asset management industry, CI’s strengths include a wide selection of portfolio management teams that operate independently of one another and offer distinct investment approaches. This multi-manager model is a key factor distinguishing CI within the Canadian marketplace. CI also offers a comprehensive product lineup diversified by portfolio manager, asset class, geographic region, investment approach, and by platform, including various classes of mutual funds, segregated funds and exchange-traded funds. CI distributes its products to Canadian investors through multiple channels, including the institutional investment market and through retail dealers and advisors across Canada. Through the acquisition of a 75% stake in WealthBar, CI also offers investors access to a digital advice platform.
Within asset administration, AWM and CIPC focus on providing clients with an integrated approach to wealth planning that includes financial planning, wealth management, estate and succession planning and insurance services in addition to investment management.
CI’s asset management operations are conducted through its subsidiaries CI Investments, Marret Asset Management Inc., CIPC, and, in Australia, through GSFM. Asset administration is conducted through its subsidiary AWM.
The asset management segment provides the majority of CI’s income and derives its revenues principally from the fees earned on the management of several families of mutual, segregated, pooled, exchange-traded, and closed-end funds, and discretionary accounts. The asset administration segment derives its revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients and capital market activities.
CI Investments is an investment fund management company engaged in the business of sponsoring, managing, distributing and administering investment funds in Canada. These products are distributed primarily through brokers, independent financial planners and insurance advisors, including AWM and CIPC financial advisors. CI Investments is also a portfolio manager and exempt market dealer.
AWM’s subsidiaries include financial services distribution companies engaged in the business of providing financial planning.
As at November 30, 2019, CI, through its subsidiaries, managed and advised on approximately $180 billion in client assets.
Additional information about the Corporation’s businesses is included in the documents incorporated by reference into this Prospectus.
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CONSOLIDATED CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of the Corporation as at September 30, 2019. Since September 30, 2019, there have been no material changes to the share and loan capital of the Corporation on a consolidated basis.
Designation (Authorization) | As at September 30, 2019 | |||
(amounts in $000s, except share amount) | ||||
Cash and cash equivalents | 119,894 | |||
Long-term debt | 1,569,185 | |||
Shareholders’ equity | 1,528,831 | |||
Total capitalization | 3,098,016 | |||
Common Shares (unlimited) | 229,159,837 | |||
Preference Shares (unlimited) | Nil |
USE OF PROCEEDS
Unless otherwise specified in a Prospectus Supplement, the net proceeds resulting from the issue of Securities will be used to repay indebtedness and for general corporate purposes, including in connection with acquisitions and investments by the Corporation.
All expenses incurred in connection with this Prospectus, any offerings of Securities hereunder and related commissions will be paid out of the Corporation’s general funds.
EARNINGS COVERAGE RATIOS
If Debt Securities having a term to maturity in excess of one year or Preference Shares are offered under a Prospectus Supplement, the Prospectus Supplement will include earnings coverage ratios giving effect to the issuance of such Securities.
PLAN OF DISTRIBUTION
The Corporation may sell the Securities to or through underwriters or dealers purchasing as principals and may also sell the Securities to one or more purchasers directly or through agents. The Prospectus Supplement relating to a particular offering of Securities will identify each underwriter, dealer or agent engaged by the Corporation in connection with the offering and sale of the Securities and will set forth the terms of the offering of such Securities, the method of distribution of such Securities, including, to the extent applicable, the proceeds to the Corporation and any fees, discounts or any other compensation payable to underwriters, dealers or agents and any other material terms of the plan of distribution. Only underwriters so named in the Prospectus Supplement are deemed to be underwriters in connection with the Securities offered thereby.
If underwriters are used in the sale, the Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale, at market prices prevailing at the time of sale or at prices related to such prevailing market prices. The obligations of the underwriters to purchase such Securities will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all the Securities offered by the Prospectus Supplement (other than those that may be subject to an over-allotment option, if applicable) if any of such Securities are purchased. Any public offering price and any discounts or concessions allowed or re-allowed or paid to underwriters, dealers or agents may be changed from time to time.
The Securities may also be sold directly by the Corporation at such prices and upon such terms as agreed to by the Corporation and the purchaser or through agents designated by the Corporation from time to time. Any agent involved in the offering and sale of the Securities in respect of which this Prospectus and an applicable Prospectus Supplement is delivered will be named, and any commissions payable by the Corporation to such agent will be set forth, in the Prospectus Supplement.
Unless otherwise indicated in the Prospectus Supplement, any agent is acting on a best efforts basis for the period of its appointment.
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The Corporation may agree to pay the underwriters, dealers or agents a commission for various services relating to the issue and sale of any Securities offered hereby. Any such commission will be paid out of the general funds of the Corporation. Underwriters, dealers and agents who participate in the distribution of the Securities may be entitled under agreements to be entered into with the Corporation to indemnification by the Corporation against certain liabilities, including liabilities under securities legislation, or to contribution with respect to payments which such underwriters, dealers or agents may be required to make in respect thereof.
In connection with any offering of the Securities (unless otherwise specified in a Prospectus Supplement), the underwriters or agents may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at a higher level than that which might exist in the open market. Such transactions, if commenced, may be interrupted or discontinued at any time.
Unless otherwise specified in a Prospectus Supplement, the Securities will not be registered under the 1933 Act or the securities laws of any states in the United States and, subject to certain exceptions, may not be offered or sold or otherwise transferred or disposed of in the United States. Accordingly, the Securities will only be offered or sold within the United States pursuant to Rule 144A or another exemption under the 1933 Act and thereafter may only be re-offered or re-sold in the United States or to, or for the account or benefit of, a U.S. person pursuant to the registration requirements of the 1933 Act and applicable state securities laws or an exemption therefrom. In addition, until 40 days after closing of an offering of Securities, an offer or sale of the Securities within the United States by any dealer (whether or not participating in such offering) may violate the registration requirement of the 1933 Act if such offer or sale is made other than in accordance with Rule 144A or another exemption under the 1933 Act.
DESCRIPTION OF DEBT SECURITIES
The following describes certain general terms and provisions of the Debt Securities. The particular terms and provisions of Debt Securities offered by a Prospectus Supplement, and the extent to which the general terms and provisions described below may apply to such Debt Securities, will be described in such Prospectus Supplement.
The Debt Securities will be direct unsecured obligations of the Corporation and will be senior or subordinated indebtedness of the Corporation as described in the relevant Prospectus Supplement.
The Debt Securities may be offered separately or together with Equity Securities or Subscription Receipts, as the case may be. The Debt Securities will be issued under one or more indentures (each, a “Trust Indenture”) in each case between the Corporation and a trustee (an “Indenture Trustee”), determined by the Corporation in accordance with applicable laws. The statements made below relating to the Trust Indenture and the Debt Securities to be issued thereunder are summaries of certain anticipated provisions thereof, are not complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Trust Indenture.
Each Trust Indenture may provide that Debt Securities may be issued thereunder up to the aggregate principal amount which may be authorized from time to time by the Corporation. Reference is made to the applicable Prospectus Supplement which will accompany this Prospectus for the terms and other information with respect to the offering of Debt Securities being offered thereby, including:
· | the specific designation of the Debt Securities; | |
· | any limit upon the aggregate principal amount of the Debt Securities that may be authenticated and delivered under the Trust Indenture; |
· | the denominations in which any Debt Securities will be issuable; |
· | if other than Canadian dollars, the currency in which payment of the principal of, and premium, if any, or interest, if any, on the Debt Securities will be payable or in which the Debt Securities will be denominated; |
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· | the date or dates on which the principal of the Debt Securities is payable and the portion (if other than the principal amount) of Debt Securities that will be payable upon declaration of acceleration; |
· | the rate or rates at which the Debt Securities will bear interest, if any, the date or dates from which interest will accrue and the dates on which interest will be payable; |
· | whether the Debt Securities will be guaranteed and the material terms of any such guarantee; |
· | the basis upon which interest will be calculated if other than on the basis of a 360-day year of twelve 30-day months; |
· | the place or places, if any, other than or in addition to Toronto, where the principal of (and premium, if any) and any interest on Debt Securities will be payable, any Debt Securities may be surrendered for registration of transfer, Debt Securities may be surrendered for exchange and the place or places where notices or demands to or upon the Corporation in respect of the Debt Securities may be served; |
· | whether the Corporation has an option to redeem the Debt Securities, whether in whole or in part, and the period or periods within which, the price or prices at which, the currency in which, and other terms and conditions upon which Debt Securities may be redeemed; |
· | whether the Corporation has the obligation to redeem, repay or purchase the Debt Securities pursuant to any sinking fund or analogous provision or at the option of a holder of Debt Securities, and the period or periods within which, the price or prices at which, the currency in which, and other terms and conditions upon which Debt Securities will be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; |
· | any conversion or exchange terms; |
· | the name of the Indenture Trustee under the Trust Indenture pursuant to which the Debt Securities are to be issued; |
· | whether the amount of payments of principal of, and premium, if any, or interest on the Debt Securities may be determined with reference to a formula or other method, and the manner in which such amounts will be determined; |
· | whether the principal of, and premium, if any, and interest, if any, on the Debt Securities are to be payable, at the Corporation’s election or at the election of a holder, in a currency other than that in which such Debt Securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the currency in which such Debt Securities are denominated or stated to be payable and the currency in which such Debt Securities are to be so payable; |
· | any provisions limiting the applicability of, in modification of, in addition to or in lieu of the defeasance provisions of the applicable Trust Indenture that will be applicable to the Debt Securities; |
· | provisions, if any, granting special rights to the holders of Debt Securities upon the occurrence of such events as may be specified; |
· | events of default or covenants with respect to Debt Securities, and any deletions from, modifications of or additions to events of default or covenants with respect to Debt Securities, whether or not such events of default or covenants are consistent with the events of default or covenants in the applicable Trust Indenture; |
· | whether any Debt Securities are to be issuable in global form and, if so, whether beneficial owners of interests in any such global security may exchange such interests for Debt Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur; |
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· | the person to whom any interest on any security will be payable, if other than the person in whose name that security is registered at the close of business on the record date for such interest; |
· | if Debt Securities are to be issuable in definitive form, whether upon original issue or upon exchange of a temporary security of such series, only upon receipt of certain certificates or other documents or satisfaction of other conditions, the form and/or terms of such certificates, documents or conditions; and |
· | any other terms, conditions, rights and preferences, or limitations of the Debt Securities. |
Debt Securities of a single series may be issued at various times with different maturity dates, may bear interest at different rates and may otherwise vary.
DESCRIPTION OF SUBSCRIPTION RECEIPTS
The following sets forth certain general terms and provisions of the Subscription Receipts. The particular terms and provisions of the Subscription Receipts offered pursuant to an accompanying Prospectus Supplement, and the extent to which the general terms described below apply to those Subscription Receipts, will be described in such Prospectus Supplement.
Subscription Receipts may be offered separately or together with Equity Securities or Debt Securities, as the case may be. The Subscription Receipts will be issued under a subscription receipt agreement. Under the subscription receipt agreement, an original purchaser of Subscription Receipts will have a contractual right of rescission following the issuance of Common Shares to such purchaser upon the exchange of Subscription Receipts. The contractual right of rescission will entitle such original purchasers to receive the amount paid for the applicable Subscription Receipts upon surrender of the underlying Common Shares, if this Prospectus, the relevant Prospectus Supplement, and any amendment thereto, contains a misrepresentation or is not delivered to such purchaser, provided (i) the exchange takes place within 180 days of the date of the purchase under this Prospectus of such Subscription Receipts, and (ii) such remedy for rescission is exercised within 180 days of the date the Subscription Receipts are issued. See “Purchasers’ Statutory and Contractual Rights of Withdrawal and Rescission”.
The particular terms of each issue of Subscription Receipts will be described in the related Prospectus Supplement. This description will include, where applicable (i) the number of Subscription Receipts, (ii) the price at which the Subscription Receipts will be offered, (iii) the procedures for the exchange of the Subscription Receipts into Common Shares, (iv) the number of Common Shares that may be issued upon exchange of each Subscription Receipt, (v) the designation and terms of any other Securities with which the Subscription Receipts will be offered, if any, and the number of Subscription Receipts that will be offered with each Security, and (vi) any other material terms and conditions of the Subscription Receipts. Securities issued upon the exchange of Subscription Receipts will be issued for no additional consideration.
DESCRIPTION OF EQUITY SECURITIES
The following is a brief summary of the Corporation’s authorized share capital. The authorized share capital is established in the Corporation’s articles of incorporation, as amended. This summary may not be complete and is subject to, and qualified in its entirety by reference to, the Corporation’s articles of incorporation, as amended.
The Corporation’s authorized share capital consists of an unlimited number of Common Shares and an unlimited number of Preference Shares, issuable in series. As at November 30, 2019 there were 225,011,537 Common Shares issued and outstanding. No Preference Shares have been issued by the Corporation.
The Equity Securities may be offered separately or together with the Debt Securities or Subscription Receipts, as the case may be. The particular terms and provisions of the Equity Securities offered by a Prospectus Supplement and the extent to which these general terms and provisions apply will be described in such Prospectus Supplement.
Common Shares
Holders of Common Shares are entitled to one vote per share at meetings of shareholders of the Corporation, to receive dividends if, as and when declared by the Board of Directors (subject to the rights of shares, if any, having priority over the Common Shares) and to receive pro rata the remaining property and assets of the Corporation upon its dissolution or winding up, subject to the rights of shares, if any, having priority over the Common Shares.
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Preference Shares
Each series of Preference Shares shall consist of such number of shares and have such rights, privileges, restrictions and conditions as may be determined by the Board of Directors prior to the issuance thereof. These will be described in the Prospectus Supplement prepared in connection with such issuance. Holders of Preference Shares, except as required by law or as provided in the rights, privileges, restrictions and conditions of a particular series, will not be entitled to vote at meetings of shareholders of the Corporation. With respect to the payment of dividends and distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the Preference Shares of each series shall rank on a parity with the Preference Shares of every other series and are entitled to preference over the Common Shares and any other shares ranking junior to the Preference Shares from time to time and may also be given such other preferences over the Common Shares and any other shares ranking junior to the Preference Shares as may be determined at the time of creation of such series.
PRICE RANGE AND TRADING VOLUME OF COMMON SHARES
The Common Shares are traded on the TSX under the symbol “CIX”. The following table sets forth the market price ranges and the aggregate volume of trading of the Common Shares on the TSX for the periods indicated:
Price ($)
Month | High | Low | Trading Volume | |||||||||
December 1-4, 2019 | 21.03 | 20.34 | 2,010,824 | |||||||||
November 2019 | 21.255 | 18.98 | 9,901,394 | |||||||||
October 2019 | 19.47 | 18.26 | 8,269,556 | |||||||||
September 2019 | 19.655 | 18.58 | 11,161,083 | |||||||||
August 2019 | 20.63 | 18.00 | 12,201,289 | |||||||||
July 2019 | 21.97 | 20.35 | 9,733,879 | |||||||||
June 2019 | 21.57 | 20.18 | 11,850,023 | |||||||||
May 2019 | 20.97 | 18.99 | 13,209,345 | |||||||||
April 2019 | 19.72 | 17.96 | 12,344,173 | |||||||||
March 2019 | 19.25 | 17.71 | 20,290,165 | |||||||||
February 2019 | 19.44 | 17.225 | 12,167,154 | |||||||||
January 2019 | 18.58 | 16.92 | 12,163,785 | |||||||||
December 2018 | 20.28 | 16.47 | 18,973,234 |
On December 4, 2019, the last trading day prior to the date of this Prospectus, the closing price of the Common Shares on the TSX was $20.90.
DIVIDEND RECORD AND POLICY
The Board of Directors has established a dividend policy pursuant to which the Corporation will authorize the declaration and payment of a fixed dividend to be paid to holders of Common Shares. Dividends are paid at the discretion of the Board of Directors and the dividend rate will be reviewed from time to time by the Board of Directors after giving consideration to CI’s cash flow, financial position, net earnings, sales outlook and other relevant factors.
The current dividend is $0.18 per Common Share per quarter.
PRIOR SALES
The Corporation has not sold or issued any Common Shares or securities convertible into or exchangeable for Common Shares during the 12-month period ending on November 30, 2019 other than:
(a) | on September 1, 2019, 203,136 restricted share units(1)(2) under the Corporation’s restricted share unit plan, in respect of a signing bonus for Kurt MacAlpine as Chief Executive Officer, having a grant date value of $19.08 per restricted share unit; |
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(b) | on February 26, 2019, 494,292 restricted share units (1)(2) under the Corporation’s restricted share unit plan having a grant date value of $18.99 per restricted share unit; |
(c) | on the respective dates on which the Corporation paid a dividend on its Common Shares from December 1, 2018 to November, 2019, an additional aggregate 38,771 restricted share units (1)(2) as dividend equivalent restricted share units credited to participants under the terms of the Corporation’s restricted share unit plan having dividend payment date values ranging between $17.60 to $21.62 per restricted share unit; and |
(d) | on February 26, 2019, options to acquire an aggregate of 743,027 Common Shares under the Corporation’s employee stock option plan at a price of $18.99 per share. |
Notes:
(1) | The number of restricted share units granted or credited is determined based on the value of Common Shares determined in accordance with the terms of the restricted share unit plan on the grant date or dividend payment date, as applicable. |
(2) | Upon vesting of restricted share units, the Corporation may elect to settle restricted share units by one or a combination of (a) paying cash equal to the market value of one Common Share (as determined in accordance with the terms of the restricted share unit plan) per restricted share unit or (b) delivering one Common Share for each restricted share unit (such Common Shares either issued from treasury or purchased on the market through a trust pursuant to the terms of the restricted share unit plan). The Corporation has chosen to use a trust to hold Common Shares purchased on the market to fulfill obligations to employees arising from the restricted share unit plan – see Note 6 to the Corporation’s interim unaudited consolidated financial statements for the three and nine months ended September 30, 2019 which are incorporated by reference in this Prospectus. Accordingly, CI does not currently expect to issue a material number of Common Shares from treasury upon vesting and settlement of these restricted share units. |
The Corporation has not sold or issued any Debt Securities or securities convertible into or exchangeable for Debt Securities during the 12-month period ending on November 30, 2019 other than on July 22, 2019, $350 million aggregate principal amount of debentures having a term of five years maturing in July 2024 and carrying an annual interest rate of 3.215% payable semi-annually.
PRINCIPAL SHAREHOLDERS
To the knowledge of the Corporation, no person or entity beneficially owns, directly or indirectly, or exercises control or direction over, more than 10% of the voting rights attached to the outstanding Common Shares, other than “Fidelity” which may include the following entities: Fidelity Management & Research Company, FMR Co., Inc., Fidelity Management Trust Company, FIAM LLC, Fidelity Institutional Asset Management Trust Company, Strategic Advisers LLC, FIL Limited, Crosby Advisors LLC, Fidelity SelectCo, LLC, and Fidelity (Canada) Asset Management ULC. According to an early warning report under the alternative monthly reporting system prescribed by National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues filed on January 8, 2019, Fidelity holds 25,178,492 Common Shares of the Corporation, representing approximately 11.2% of the outstanding Common Shares as at November 30, 2019.
RISK FACTORS
Prospective investors in a particular offering of the Securities should carefully consider, in addition to information contained in the Prospectus Supplement relating to that offering, the information set forth in the section entitled “Risk Management” in the Corporation’s most recent AIF and the section entitled “Risk Management” in the MD&A in respect of the Corporation’s most recent annual financial statements and the MD&A in respect of the Corporation’s most recent interim financial statements filed thereafter, each of which is incorporated by reference in this Prospectus.
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AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of the Corporation are Ernst & Young LLP, chartered accountants, located at 100 Adelaide Street West, P.O. Box 1, Toronto, Ontario, M5H 0B3. Ernst & Young LLP is independent with respect to the Corporation in accordance with the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario.
Computershare Investor Services Inc. acts as Transfer Agent and Registrar for the Common Shares and maintains registers of transfers of the Common Shares in Toronto, Montreal and Vancouver.
PURCHASERS’ STATUTORY AND CONTRACTUAL RIGHTS OF WITHDRAWAL AND RESCISSION
Securities legislation in several of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages where the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that such remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province.
Original Canadian purchasers of Securities which are convertible or exchangeable into other securities of the Corporation (including Subscription Receipts or Debt Securities which are convertible or exchangeable) will have a contractual right of rescission against the Corporation following the issuance of underlying securities of the Corporation to such original purchasers upon the conversion or exchange of such Securities. The contractual right of rescission will entitle such original purchasers to receive the amount paid for the applicable convertible or exchangeable Securities (and any additional amount paid upon conversion, exchange or exercise thereof) upon surrender of the underlying securities of the Corporation issued upon the conversion or exchange of such Securities, in the event that this Prospectus, the relevant Prospectus Supplement or an amendment contains a misrepresentation, provided that: (i) the conversion or exchange takes place within 180 days of the date of the purchase under this Prospectus of the Securities which are convertible or exchangeable; and (ii) the right of rescission is exercised within 180 days of the date of the purchase under this Prospectus of such Securities. This contractual right of rescission will be consistent with the statutory right of rescission described under section 130 of the Securities Act (Ontario), and is in addition to any other right or remedy available to original purchasers under section 130 of the Securities Act (Ontario) or otherwise at law.
In an offering of Securities which are convertible or exchangeable into other securities of the Corporation (including Subscription Receipts or Debt Securities which are convertible or exchangeable), investors are cautioned that the statutory right of action for damages for a misrepresentation contained in the prospectus is limited, in certain provincial securities legislation, to the price at which such Securities were offered to the public under the prospectus offering. This means that, under the securities legislation of certain provinces, if the purchaser pays additional amounts upon conversion or exchange of the Security, those amounts may not be recoverable under the statutory right of action for damages that applies in those provinces.
The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal advisor.
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CERTIFICATE OF THE CORPORATION
Dated: December 5, 2019
This short form prospectus, together with the documents incorporated in this prospectus by reference, will, as of the date of the last supplement to this prospectus relating to the securities offered by this prospectus and the supplement(s), constitute full, true and plain disclosure of all material facts relating to the securities offered by this prospectus and the supplement(s) as required by the securities legislation of each of the provinces of Canada.
CI FINANCIAL CORP. | ||
(Signed) KURT MACALPINE | (Signed) DOUGLAS J. JAMIESON | |
Chief Executive Officer | Chief Financial Officer | |
On behalf of the Board of Directors | ||
(Signed) WILLIAM T. HOLLAND | (Signed) PAUL J. PERROW | |
Director | Director |
C-1 |
Exhibit 99.52
CI FINANCIAL CORP.
2 Queen Street East, Twentieth Floor
Toronto, ON M5C 3G7
December 5, 2019
VIA SEDAR
TO: Ontario Securities Commission
as Principal Regulator under National Policy 11-202
Dear Sirs/Mesdames:
Re: CI Financial Corp.
Re: Preliminary Short Form Base Shelf Prospectus
Re: Qualification Certificate
In connection with the filing of a preliminary short form base shelf prospectus of CI Financial Corp. (the “Issuer”) dated December 5, 2019, and in accordance with clause 4.1(1)(a)(ii) of National Instrument 44-101 - Short Form Prospectus Distributions (“NI 44-101”) and clause 2.2(1) of National Instrument 44-102 – Shelf Distributions, the Issuer hereby:
(A) | advises that it is qualified to file a prospectus in the form of a short form base shelf prospectus pursuant to section 2.2 of NI 44-101 and section 2.2(1) of NI 44-102; and |
(B) | certifies that: |
(I) | all of the applicable qualification criteria in section 2.2 of NI 44-101 and section 2.2(1) of NI 44-102 have been satisfied; and |
(II) | all of the material incorporated by reference in the preliminary short form base shelf prospectus and not previously filed is being filed with the preliminary short form base shelf prospectus. |
Yours truly,
CI FINANCIAL CORP.
By: | (signed) “Douglas J. Jamieson” | |
Name: | Douglas J. Jamieson | |
Title: | Executive Vice-President and Chief Financial Officer |
Exhibit 99.53
EARLY WARNING REPORT UNDER
THE ALTERNATIVE MONTHLY REPORTING SYSTEM
OF NATIONAL INSTRUMENT 62-103F3
Item 1 – Security and Reporting Issuer
1.1 Designation of securities to which this report relates:
COMMON SHARES
1.2 Name and address of the head office of the issuer of the securities:
CI FINANCIAL CORP
2 Queen Street East
Twentieth Floor
Toronto, Ontario M5C 3G7
1.3 Name of the market in which the transaction or other occurrence that triggered the requirement to file this report took place:
TORONTO STOCK EXCHANGE
Item 2 – Identity of the Eligible Institutional Investor
2.1 State the name and address of the eligible institutional investor:
“Fidelity” which may include the following:
Fidelity Management & Research Company (“FMR Co.”)
245 Summer Street
Boston, MA, 02210
FMR Co., Inc. (“FMR Co., Inc.”)
245 Summer Street
Boston, MA, 02210
Fidelity Management Trust Company (“FMTC”)
245 Summer Street
Boston, MA, 02210
FIAM LLC (“FIAM LLC”)
900 Salem Street
Smithfield, RI, 02917
Fidelity Institutional Asset Management Trust Company (“FIAMTC”)
900 Salem Street
Smithfield, RI, 02917
Strategic Advisers LLC (“Strategic Advisers”)
245 Summer Street
Boston, MA 02210
FIL Limited (“FIL”)
42 Crow Lane, Pembroke, Bermuda
Crosby Advisors LLC (“Crosby”)
11 Keewaydin Drive, Suite 200
Salem, New Hampshire 03079
Fidelity SelectCo, LLC (“SelectCo”)
6501 S. Fiddler’s Green Circle, Suite 600
Greenwood Village, Colorado 80111
Fidelity (Canada) Asset Management ULC (“FCAM”)
#100, 407- 2nd Street SW
Calgary, A0 T2P 2Y3
FMR Co., FMR Co., Inc., FMTC, FIAM LLC, FIAMTC, Strategic Advisers, Crosby, and
SelectCo (hereinafter collectively referred to as “FMR”), and FIL and certain of its
affiliates (“FIL”, and together with FMR and FCAM, “Fidelity”).
The foregoing entities are not currently claiming the ability to disaggregate their respective beneficial ownership from each other pursuant to Part 5 of National Instrument 62-103 and are consequently submitting a single report; however, this report is not an admission that any entity named in this report owns or controls any securities or is a joint actor with another named entity. Fidelity is relying on aggregation relief as provided for in Part 5 of National Instrument 62-103 with respect to securities controlled by other business units that are affiliates or associates of the entities listed above and such securities have not been disclosed in this report.
2.2 State the date of the transaction or other occurrence that triggered the requirement to file this report and briefly describe the transaction or other occurrence:
The transaction that triggered the requirement to file this report were net sales of 11,182,787 COMMON SHARES of CI FINANCIAL CORP that occurred on November 12, 2019.
2.3 State the name of any joint actors:
N/A
2.4 State that the eligible institutional investor is eligible to file reports under Part 4 in respect of the reporting issuer:
FMR and FCAM are eligible to file this report under the alternative monthly reporting system of National Instrument 62-103, and FIL is able to file this report pursuant to MRRS Decision Document dated April 4th, 2005 granted to FIL.
Item 3 –Interest in Securities of the Reporting Issuer
3.1 State the designation and the net increase or decrease in the number or principal amount of securities, and in the eligible institutional investor’s security holding percentage in the class of securities, since the last report filed by the eligible institutional investor under Part 4 or the early warning requirements:
Since Fidelity’s last report filed on January 9, 2019, Fidelity’s holdings have decreased by 11,841,998 COMMON SHARES of CI FINANCIAL CORP. This represents a net decrease of 4.65% of the outstanding COMMON SHARES.
3.2 State the designation and number or principal amount of securities and the eligible institutional investor’s security holding percentage in the class of securities at the end of the month for which the report is made:
Fidelity holds 13,336,494 COMMON SHARES representing approximately 5.59% of the outstanding shares of that class.
3.3 If the transaction involved a securities lending arrangement, state that fact:
N/A
3.4 State the designation and number or principal amount of securities and the percentage of outstanding securities of the class of securities to which this report relates and over which:
(a) the eligible institutional investor, either alone or together with any joint actors, has ownership and control:
N/A
(b) the eligible institutional investor, either alone or together with any joint actors, has ownership but control is held by persons or companies other than the eligible institutional investor or any joint actor:
N/A
(c) the eligible institutional investor, either alone or together with any joint actors, has exclusive or shared control but does not have ownership:
Fidelity holds 13,336,494 COMMON SHARES representing approximately 5.59% of the outstanding shares of that class. Such securities are owned by funds and accounts for which Fidelity exercises investment discretion.
3.5 If the eligible institutional investor or any of its joint actors has an interest in, or right or obligation associated with, a related financial instrument involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the related financial instrument and its impact on the eligible institutional investor’s security holdings:
N/A
3.6 If the eligible institutional investor or any of its joint actors is a party to a securities lending arrangement involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the arrangement including the duration of the arrangement, the number or principal amount of securities involved and any right to recall the securities or identical securities that have been transferred or lent under the arrangement:
The funds and accounts managed by Fidelity that hold the securities referenced herein may, from time-to-time, lend some or all of such securities pursuant to securities lending arrangements for such periods of time as may be agreed upon with the relevant borrower(s). Such securities lending arrangements are subject to the exception provided in Section 5.7 of NI 62-104 and the securities loans made pursuant thereto are generally terminable upon notice to the borrower.
3.7 If the eligible institutional investor or any of its joint actors is a party to an agreement, arrangement or understanding that has the effect of altering, directly or indirectly, the eligible institutional investor’s economic exposure to the security of the class of securities to which this report relates, describe the material terms of the agreement, arrangement or understanding:
N/A
Item 4 – Purpose of the Transaction
The COMMON SHARES of CI FINANCIAL CORP were acquired in the ordinary course of business, for investment purposes only and not with the purpose of exercising control or direction over CI FINANCIAL CORP. Fidelity may from time to time, on behalf of funds or accounts it manages, acquire additional COMMON SHARES or related financial instruments, dispose of some or all of the COMMON SHARES or related financial instruments, if any, they hold or continue to hold COMMON SHARES or such related financial instruments, if any.
Item 5 – Agreements, Arrangements, Commitments or Understandings With Respect to Securities of the Reporting Issuer
N/A
Item 6 – Change in Material Fact
If applicable, describe any change in a material fact set out in a previous report filed by the eligible institutional investor under the early warning requirements or Part 4 in respect of the reporting issuer’s securities:
N/A
Item 7 – Certification
I, as the eligible institutional investor, certify, or I, as the agent filing the report on behalf of the eligible institutional investor, certify to the best of my knowledge, information and belief, that the statements made in this report are true and complete in every respect.
DATE: December 9, 2019
Fidelity Management & Research Company; FMR Co., Inc.; Fidelity Management Trust Company; Strategic Advisers LLC; Crosby Advisors LLC;
Fidelity SelectCo, LLC; FIAM LLC; Fidelity Institutional Asset Management Trust Company; Fidelity (Canada) Asset Management ULC; and FIL Limited
By: | /s/ Kevin M. Meagher | |
Name: Kevin M. Meagher |
Title: Chief Compliance Officer of Fidelity Management & Research Company
Duly authorized under Powers of Attorney by and on behalf of FMR Co., FMR Co., Inc., FMTC, Strategic Advisers, Crosby, SelectCo., FIAM LLC, FIAMTC, FCAM and FIL and its direct and indirect subsidiaries
Exhibit 99.54
This short form prospectus is a base shelf prospectus. This short form prospectus has been filed under legislation in all provinces of Canada that permits certain information about these securities to be determined after this prospectus has become final and that permits the omission from this prospectus of that information. The legislation requires the delivery to purchasers of a prospectus supplement containing the omitted information within a specified period of time after agreeing to purchase any of these securities.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This short form prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. These securities have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “1933 Act”), and accordingly will not be offered, sold or delivered, directly or indirectly, within the United States of America, its possessions and other areas subject to its jurisdiction or to, or for the account or for the benefit of, a U.S. person (as defined in Regulation S under the 1933 Act) without the availability of an exemption from registration. See “Plan of Distribution”.
Information has been incorporated by reference in this short form prospectus from documents filed with the securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Secretary of CI Financial Corp. at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7 (telephone (416) 364-1145) and are also available electronically at www.sedar.com.
Short Form Base Shelf Prospectus
New Issue | December 17, 2019 |
CI Financial Corp.
$2,000,000,000
Debt Securities (unsecured)
Subscription Receipts
Preference Shares
Common Shares
CI Financial Corp. (“CI” or the “Corporation”) may from time to time offer and issue the following securities: (i) unsecured debt securities of the Corporation (“Debt Securities”), (ii) subscription receipts of the Corporation (“Subscription Receipts”); and (iii) preference shares (“Preference Shares”) and common shares (“Common Shares”) of the Corporation (“Equity Securities”) or any combination thereof. The Debt Securities, Subscription Receipts, and Equity Securities (collectively, the “Securities”) offered hereby may be offered separately or together, in separate series, in amounts, at prices and on terms to be set forth in one or more shelf prospectus supplements (collectively or individually, as the case may be, a “Prospectus Supplement”). All information not included in this short form base shelf prospectus (the “Prospectus”) will be contained in one or more Prospectus Supplements that will be delivered to purchasers together with this Prospectus. The Corporation may sell at the initial offer price up to $2,000,000,000 in the aggregate of Securities (or its equivalent in any other currency used to denominate the Securities at the time of the offering) at any time during the 25-month period that this Prospectus, including any amendments hereto, remains valid.
The specific terms of the Securities in respect of which this Prospectus is being delivered will be set forth in the applicable Prospectus Supplement and may include, where applicable: (i) in the case of Debt Securities, the specific designation, aggregate principal amount, the currency or the currency unit for which the Debt Securities may be purchased, maturity, interest provisions, authorized denominations, offering price, covenants, events of default, any terms for redemption at the option of the Corporation or the holder, any exchange or conversion terms and any other specific terms; (ii) in the case of Subscription Receipts, the number of Subscription Receipts being offered, the offering price, the procedures for the exchange of the Subscription Receipts for Common Shares and any other specific terms; and (iii) in the case of Equity Securities, the designation of the particular class and series, the number of shares offered, the issue price and dividend rate, if any, and any other terms specific to the Equity Securities. A Prospectus Supplement may include specific variable terms pertaining to the Securities that are not within the alternatives and parameters described in this Prospectus.
Each Prospectus Supplement will be incorporated by reference into this Prospectus for the purposes of securities legislation as of the date of the Prospectus Supplement and only for the purposes of the distribution of the Securities to which the Prospectus Supplement pertains.
This Prospectus does not qualify for issuance any Securities in respect of which the payment of principal and/or interest may be determined, in whole or in part, by reference to one or more underlying interests including, for example, an equity or debt security, a statistical measure of economic or financial performance including, but not limited to, any currency, consumer price or mortgage index, or the price or value of one or more commodities, indices or other items, or any other item or formula, or any combination or basket of the foregoing items. For greater certainty, this Prospectus may qualify for issuance Securities in respect of which the payment of principal and/or interest may be determined, in whole or in part, by reference to published rates of a central banking authority or one or more financial institutions, such as the prime rate or a bankers’ acceptance rate, or to recognized market benchmark interest rates such as LIBOR.
The Corporation may sell the Securities to or through underwriters or dealers purchasing as principals and may also sell the Securities to one or more purchasers directly or through agents. The Prospectus Supplement relating to a particular offering of Securities will identify each underwriter, dealer or agent engaged by the Corporation in connection with the offering and sale of the Securities and will set forth the terms of the offering of such Securities, the method of distribution of such Securities, including, to the extent applicable, the proceeds to the Corporation and any fees, discounts or any other compensation payable to underwriters, dealers or agents and any other material terms of the plan of distribution. See “Plan of Distribution”. The offering of the Securities is subject to the approval of certain legal matters on behalf of the Corporation.
In connection with any offering of the Securities (unless otherwise specified in a Prospectus Supplement), the underwriters or agents may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at a higher level than that which might exist in the open market. Such transactions, if commenced, may be interrupted or discontinued at any time. See “Plan of Distribution”.
The issued and outstanding Common Shares are listed and posted for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “CIX”. On December 16, 2019, the last trading day prior to the date of this Prospectus, the closing price of the Common Shares on the TSX was $21.78 per Common Share.
Unless otherwise specified in the applicable Prospectus Supplement, Securities, other than the Common Shares, will not be listed on any securities exchange. Accordingly, unless so specified, there will be no market through which these Securities may be sold, and purchasers may not be able to resell such Securities purchased under this Prospectus. This may affect the pricing of the Securities in the secondary market, the transparency and availability of trading prices, the liquidity of the Securities and the extent of issuer regulation. See “Risk Factors”.
The head and registered office of the Corporation is located at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7. Unless otherwise specifically stated, all dollar amounts in this Prospectus are expressed in Canadian dollars.
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TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION | 4 | |||
DOCUMENTS INCORPORATED BY REFERENCE | 4 | |||
THE CORPORATION | 6 | |||
BUSINESS OF THE CORPORATION AND ITS SUBSIDIARIES | 7 | |||
CONSOLIDATED CAPITALIZATION | 8 | |||
USE OF PROCEEDS | 8 | |||
EARNINGS COVERAGE RATIOS | 8 | |||
PLAN OF DISTRIBUTION | 8 | |||
DESCRIPTION OF DEBT SECURITIES | 9 | |||
DESCRIPTION OF SUBSCRIPTION RECEIPTS | 12 | |||
DESCRIPTION OF EQUITY SECURITIES | 12 | |||
PRICE RANGE AND TRADING VOLUME OF COMMON SHARES | 13 | |||
DIVIDEND RECORD AND POLICY | 14 | |||
PRIOR SALES | 14 | |||
PRINCIPAL SHAREHOLDERS | 15 | |||
RISK FACTORS | 15 | |||
AUDITORS, TRANSFER AGENT AND REGISTRAR | 15 | |||
AGENT FOR SERVICE OF PROCESS | 15 | |||
PURCHASERS’ STATUTORY AND CONTRACTUAL RIGHTS OF WITHDRAWAL AND RESCISSION | 15 | |||
CERTIFICATE OF THE CORPORATION | C-1 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Prospectus contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to the Corporation and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar expressions of future or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which, by their nature are inherently uncertain and beyond management control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described under “Risk Factors” in this Prospectus and under “Risk Management” in the management’s discussion and analysis of results of operations and financial condition and the annual information form that are incorporated by reference into this Prospectus. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. The reader is cautioned against undue reliance on these forward-looking statements.
Except as otherwise stated, these statements are made as of the date of this document and, except as required by applicable law, management and the board of directors of the Corporation (the “Board of Directors”) undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference into this Prospectus from documents filed with the securities commissions or similar authorities in Canada. Copies of documents incorporated herein by reference may be obtained upon request without charge from the Secretary of the Corporation at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7. Copies of documents incorporated by reference may also be obtained by accessing www.sedar.com.
The following documents, filed with the securities commission or similar authority in each of the provinces of Canada, are specifically incorporated by reference into, and form an integral part of, this Prospectus:
(a) | the Corporation’s audited consolidated financial statements, together with the accompanying report of the auditors, for the year ended December 31, 2018; |
(b) | management’s discussion and analysis of results of operations and financial position of the Corporation for the year ended December 31, 2018; |
(c) | the Corporation’s annual information form dated March 1, 2019; |
(d) | the Corporation’s management information circular dated May 8, 2019 for its annual meeting of shareholders held on June 24, 2019; |
(e) | the Corporation’s unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2019; |
(f) | management’s discussion and analysis of results of operations and financial position of the Corporation for the three and nine months ended September 30, 2019; |
(g) | the Corporation’s material change report dated April 18, 2019, in respect of the retirement of Peter Anderson, Chief Executive Officer of the Corporation; |
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(h) | the Corporation’s material change report dated June 26, 2019, in respect of the appointment of Darie Urbanky as President of the Corporation; and |
(i) | the Corporation’s material change report dated August 6, 2019, in respect of the appointment of Kurt MacAlpine as Chief Executive Officer and Director of the Corporation. |
Any document of the type referred to in the preceding paragraph (excluding confidential material change reports) and any other documents of the Corporation of the type required to be incorporated by reference herein under National Instrument 44-101 – Short Form Prospectus Distributions, all as filed by the Corporation with the various securities commissions or similar authorities in the provinces of Canada pursuant to the requirements of applicable securities legislation after the date of this Prospectus and prior to 25 months from the date of issuance of the receipt for this Prospectus shall be deemed to be incorporated by reference into this Prospectus.
Upon new annual financial statements and related management’s discussion and analysis (“MD&A”) of the Corporation being filed by the Corporation with and, where required, accepted by, the applicable securities regulatory authorities during the currency of this Prospectus, the previous annual financial statements and related MD&A, and all previous interim financial statements and related interim MD&A, filed prior to the commencement of the Corporation’s financial year in which the new annual financial statements and related MD&A are filed shall be deemed no longer to be incorporated into this Prospectus for purposes of future offers and sales of Securities hereunder.
Upon a new annual information form (“AIF”) of the Corporation being filed by the Corporation with and, where required, accepted by, the applicable securities regulatory authorities during the currency of this Prospectus, the previous AIF, any material change reports filed prior to the end of the financial year in respect of which the new AIF is filed, any management information circular filed since the start of such financial year (unless otherwise required by applicable Canadian securities legislation to be incorporated by reference into this Prospectus), and any business acquisition report for an acquisition completed since the beginning of such financial year (unless such report is incorporated by reference into the current AIF or less than nine months of the acquired business’ or related businesses’ operations are incorporated into the Corporation’s most recent annual financial statements), shall be deemed no longer to be incorporated into this Prospectus for purposes of future offers and sales of Securities hereunder. Upon a new management information circular prepared in connection with an annual general meeting of the Corporation’s shareholders being filed with the applicable securities regulatory authorities during the currency of this Prospectus, the previous information circular prepared in connection with an annual general meeting of the Corporation’s shareholders shall be deemed no longer to be incorporated into this Prospectus for purposes of future offers and sales of Securities hereunder.
Upon interim financial statements and related MD&A of the Corporation being filed by the Corporation with the applicable securities regulatory authorities during the currency of this Prospectus, all previously filed interim financial statements and related MD&A shall be deemed no longer to be incorporated into this Prospectus for purposes of future offers and sales of Securities hereunder.
Any template version of any “marketing materials” (as such term is defined in National Instrument 41-101 – General Prospectus Requirements) filed after the date of a Prospectus Supplement and before the termination of the distribution of the Securities offered pursuant to such Prospectus Supplement (together with this Prospectus) is deemed to be incorporated by reference in such Prospectus Supplement.
A Prospectus Supplement containing the specific variable terms of an offering of Securities, updated disclosure of earnings coverage ratios, if applicable, and other information in relation to the Securities will be delivered to purchasers of such Securities together with this Prospectus and will be deemed to be incorporated by reference into this Prospectus as of the date of such Prospectus Supplement but only for the purposes of the offering of the Securities covered by that Prospectus Supplement.
Any statement contained in this Prospectus or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded, for purposes of this Prospectus, to the extent that a statement contained herein or in any other subsequently filed document which also is, or is deemed to be, incorporated by reference herein modifies or supersedes such prior statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded thereafter shall not constitute a part of this Prospectus, except as so modified or superseded.
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The Corporation is the successor to CI Financial Income Fund (the “Fund”), following the completion of the conversion of the Fund from an income trust to a corporate structure by way of a court-approved plan of arrangement under the Business Corporations Act (Ontario) (the “OBCA”) on January 1, 2009 (the “Conversion”). The Fund had been created effective June 30, 2006 when CI Financial Inc. converted to an income trust. The Conversion effectively reversed this income trust conversion.
The Corporation was incorporated under the OBCA on November 12, 2008 and did not carry on any active business prior to the Conversion, other than executing the arrangement agreement pursuant to which the Conversion was implemented.
The registered and head office of the Corporation is 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7.
The principal business of the Corporation is carried on through its subsidiaries, CI Investments Inc. (“CI Investments”), Assante Wealth Management (Canada) Ltd. (“AWM”), CI Private Counsel LP (“CIPC”), GSFM Pty Ltd. (“GSFM”), WealthBar Financial Services Inc. (“WealthBar”), and BBS Securities Inc. (“BBS”).
The table below shows the principal entities controlled by the Corporation as at November 30, 2019, including (i) the percentage of votes attaching to all voting securities of the entity beneficially owned, controlled or directed by the Corporation, and (ii) the jurisdiction of incorporation or formation:
Entity | Jurisdiction | Ownership % | ||||||
CI Investments Inc. | Ontario | 100 | % | |||||
Assante Wealth Management (Canada) Ltd. | Canada | 100 | % |
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BUSINESS OF THE CORPORATION AND ITS SUBSIDIARIES
CI is an independent Canadian company offering global asset management and wealth management advisory services. CI is well diversified with a strong presence in both the Canadian asset management and advisory businesses. CI is also diversified internationally through its subsidiary GSFM, an asset manager operating in Australia and New Zealand.
Within the Canadian asset management industry, CI’s strengths include a wide selection of portfolio management teams that operate independently of one another and offer distinct investment approaches. This multi-manager model is a key factor distinguishing CI within the Canadian marketplace. CI also offers a comprehensive product lineup diversified by portfolio manager, asset class, geographic region, investment approach, and by platform, including various classes of mutual funds, segregated funds and exchange-traded funds. CI distributes its products to Canadian investors through multiple channels, including the institutional investment market and through retail dealers and advisors across Canada. Through the acquisition of a 75% stake in WealthBar, CI also offers investors access to a digital advice platform.
Within asset administration, AWM and CIPC focus on providing clients with an integrated approach to wealth planning that includes financial planning, wealth management, estate and succession planning and insurance services in addition to investment management.
CI’s asset management operations are conducted through its subsidiaries CI Investments, Marret Asset Management Inc., CIPC, and, in Australia, through GSFM. Asset administration is conducted through its subsidiary AWM.
The asset management segment provides the majority of CI’s income and derives its revenues principally from the fees earned on the management of several families of mutual, segregated, pooled, exchange-traded, and closed-end funds, and discretionary accounts. The asset administration segment derives its revenues principally from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients and capital market activities.
CI Investments is an investment fund management company engaged in the business of sponsoring, managing, distributing and administering investment funds in Canada. These products are distributed primarily through brokers, independent financial planners and insurance advisors, including AWM and CIPC financial advisors. CI Investments is also a portfolio manager and exempt market dealer.
AWM’s subsidiaries include financial services distribution companies engaged in the business of providing financial planning.
As at November 30, 2019, CI, through its subsidiaries, managed and advised on approximately $180 billion in client assets.
Additional information about the Corporation’s businesses is included in the documents incorporated by reference into this Prospectus.
7
The following table sets forth the unaudited consolidated capitalization of the Corporation as at September 30, 2019. Since September 30, 2019, there have been no material changes to the share and loan capital of the Corporation on a consolidated basis.
Designation (Authorization) | As at September 30, 2019 | |||
(amounts in $000s, except share amount) | ||||
Cash and cash equivalents | 119,894 | |||
Long-term debt | 1,569,185 | |||
Shareholders’ equity | 1,528,831 | |||
Total capitalization | 3,098,016 | |||
Common Shares (unlimited) | 229,159,837 | |||
Preference Shares (unlimited) | Nil |
Unless otherwise specified in a Prospectus Supplement, the net proceeds resulting from the issue of Securities will be used to repay indebtedness and for general corporate purposes, including in connection with acquisitions and investments by the Corporation.
All expenses incurred in connection with this Prospectus, any offerings of Securities hereunder and related commissions will be paid out of the Corporation’s general funds.
If Debt Securities having a term to maturity in excess of one year or Preference Shares are offered under a Prospectus Supplement, the Prospectus Supplement will include earnings coverage ratios giving effect to the issuance of such Securities.
The Corporation may sell the Securities to or through underwriters or dealers purchasing as principals and may also sell the Securities to one or more purchasers directly or through agents. The Prospectus Supplement relating to a particular offering of Securities will identify each underwriter, dealer or agent engaged by the Corporation in connection with the offering and sale of the Securities and will set forth the terms of the offering of such Securities, the method of distribution of such Securities, including, to the extent applicable, the proceeds to the Corporation and any fees, discounts or any other compensation payable to underwriters, dealers or agents and any other material terms of the plan of distribution. Only underwriters so named in the Prospectus Supplement are deemed to be underwriters in connection with the Securities offered thereby.
If underwriters are used in the sale, the Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale, at market prices prevailing at the time of sale or at prices related to such prevailing market prices. The obligations of the underwriters to purchase such Securities will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all the Securities offered by the Prospectus Supplement (other than those that may be subject to an over-allotment option, if applicable) if any of such Securities are purchased. Any public offering price and any discounts or concessions allowed or re-allowed or paid to underwriters, dealers or agents may be changed from time to time.
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The Securities may also be sold directly by the Corporation at such prices and upon such terms as agreed to by the Corporation and the purchaser or through agents designated by the Corporation from time to time. Any agent involved in the offering and sale of the Securities in respect of which this Prospectus and an applicable Prospectus Supplement is delivered will be named, and any commissions payable by the Corporation to such agent will be set forth, in the Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement, any agent is acting on a best efforts basis for the period of its appointment.
The Corporation may agree to pay the underwriters, dealers or agents a commission for various services relating to the issue and sale of any Securities offered hereby. Any such commission will be paid out of the general funds of the Corporation. Underwriters, dealers and agents who participate in the distribution of the Securities may be entitled under agreements to be entered into with the Corporation to indemnification by the Corporation against certain liabilities, including liabilities under securities legislation, or to contribution with respect to payments which such underwriters, dealers or agents may be required to make in respect thereof.
In connection with any offering of the Securities (unless otherwise specified in a Prospectus Supplement), the underwriters or agents may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at a higher level than that which might exist in the open market. Such transactions, if commenced, may be interrupted or discontinued at any time.
Unless otherwise specified in a Prospectus Supplement, the Securities will not be registered under the 1933 Act or the securities laws of any states in the United States and, subject to certain exceptions, may not be offered or sold or otherwise transferred or disposed of in the United States. Accordingly, the Securities will only be offered or sold within the United States pursuant to Rule 144A or another exemption under the 1933 Act and thereafter may only be re-offered or re-sold in the United States or to, or for the account or benefit of, a U.S. person pursuant to the registration requirements of the 1933 Act and applicable state securities laws or an exemption therefrom. In addition, until 40 days after closing of an offering of Securities, an offer or sale of the Securities within the United States by any dealer (whether or not participating in such offering) may violate the registration requirement of the 1933 Act if such offer or sale is made other than in accordance with Rule 144A or another exemption under the 1933 Act.
DESCRIPTION OF DEBT SECURITIES
The following describes certain general terms and provisions of the Debt Securities. The particular terms and provisions of Debt Securities offered by a Prospectus Supplement, and the extent to which the general terms and provisions described below may apply to such Debt Securities, will be described in such Prospectus Supplement.
The Debt Securities will be direct unsecured obligations of the Corporation and will be senior or subordinated indebtedness of the Corporation as described in the relevant Prospectus Supplement.
The Debt Securities may be offered separately or together with Equity Securities or Subscription Receipts, as the case may be. The Debt Securities will be issued under one or more indentures (each, a “Trust Indenture”) in each case between the Corporation and a trustee (an “Indenture Trustee”), determined by the Corporation in accordance with applicable laws. The statements made below relating to the Trust Indenture and the Debt Securities to be issued thereunder are summaries of certain anticipated provisions thereof, are not complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Trust Indenture.
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Each Trust Indenture may provide that Debt Securities may be issued thereunder up to the aggregate principal amount which may be authorized from time to time by the Corporation. Reference is made to the applicable Prospectus Supplement which will accompany this Prospectus for the terms and other information with respect to the offering of Debt Securities being offered thereby, including:
· | the specific designation of the Debt Securities; |
· | any limit upon the aggregate principal amount of the Debt Securities that may be authenticated and delivered under the Trust Indenture; |
· | the denominations in which any Debt Securities will be issuable; |
· | if other than Canadian dollars, the currency in which payment of the principal of, and premium, if any, or interest, if any, on the Debt Securities will be payable or in which the Debt Securities will be denominated; |
· | the date or dates on which the principal of the Debt Securities is payable and the portion (if other than the principal amount) of Debt Securities that will be payable upon declaration of acceleration; |
· | the rate or rates at which the Debt Securities will bear interest, if any, the date or dates from which interest will accrue and the dates on which interest will be payable; |
· | whether the Debt Securities will be guaranteed and the material terms of any such guarantee; |
· | the basis upon which interest will be calculated if other than on the basis of a 360-day year of twelve 30-day months; |
· | the place or places, if any, other than or in addition to Toronto, where the principal of (and premium, if any) and any interest on Debt Securities will be payable, any Debt Securities may be surrendered for registration of transfer, Debt Securities may be surrendered for exchange and the place or places where notices or demands to or upon the Corporation in respect of the Debt Securities may be served; |
· | whether the Corporation has an option to redeem the Debt Securities, whether in whole or in part, and the period or periods within which, the price or prices at which, the currency in which, and other terms and conditions upon which Debt Securities may be redeemed; |
· | whether the Corporation has the obligation to redeem, repay or purchase the Debt Securities pursuant to any sinking fund or analogous provision or at the option of a holder of Debt Securities, and the period or periods within which, the price or prices at which, the currency in which, and other terms and conditions upon which Debt Securities will be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; |
· | any conversion or exchange terms; |
· | the name of the Indenture Trustee under the Trust Indenture pursuant to which the Debt Securities are to be issued; |
· | whether the amount of payments of principal of, and premium, if any, or interest on the Debt Securities may be determined with reference to a formula or other method, and the manner in which such amounts will be determined; |
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· | whether the principal of, and premium, if any, and interest, if any, on the Debt Securities are to be payable, at the Corporation’s election or at the election of a holder, in a currency other than that in which such Debt Securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the currency in which such Debt Securities are denominated or stated to be payable and the currency in which such Debt Securities are to be so payable; |
· | any provisions limiting the applicability of, in modification of, in addition to or in lieu of the defeasance provisions of the applicable Trust Indenture that will be applicable to the Debt Securities; |
· | provisions, if any, granting special rights to the holders of Debt Securities upon the occurrence of such events as may be specified; |
· | events of default or covenants with respect to Debt Securities, and any deletions from, modifications of or additions to events of default or covenants with respect to Debt Securities, whether or not such events of default or covenants are consistent with the events of default or covenants in the applicable Trust Indenture; |
· | whether any Debt Securities are to be issuable in global form and, if so, whether beneficial owners of interests in any such global security may exchange such interests for Debt Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur; |
· | the person to whom any interest on any security will be payable, if other than the person in whose name that security is registered at the close of business on the record date for such interest; |
· | if Debt Securities are to be issuable in definitive form, whether upon original issue or upon exchange of a temporary security of such series, only upon receipt of certain certificates or other documents or satisfaction of other conditions, the form and/or terms of such certificates, documents or conditions; and |
· | any other terms, conditions, rights and preferences, or limitations of the Debt Securities. |
Debt Securities of a single series may be issued at various times with different maturity dates, may bear interest at different rates and may otherwise vary.
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DESCRIPTION OF SUBSCRIPTION RECEIPTS
The following sets forth certain general terms and provisions of the Subscription Receipts. The particular terms and provisions of the Subscription Receipts offered pursuant to an accompanying Prospectus Supplement, and the extent to which the general terms described below apply to those Subscription Receipts, will be described in such Prospectus Supplement.
Subscription Receipts may be offered separately or together with Equity Securities or Debt Securities, as the case may be. The Subscription Receipts will be issued under a subscription receipt agreement. Under the subscription receipt agreement, an original purchaser of Subscription Receipts will have a contractual right of rescission following the issuance of Common Shares to such purchaser upon the exchange of Subscription Receipts. The contractual right of rescission will entitle such original purchasers to receive the amount paid for the applicable Subscription Receipts upon surrender of the underlying Common Shares, if this Prospectus, the relevant Prospectus Supplement, and any amendment thereto, contains a misrepresentation or is not delivered to such purchaser, provided (i) the exchange takes place within 180 days of the date of the purchase under this Prospectus of such Subscription Receipts, and (ii) such remedy for rescission is exercised within 180 days of the date the Subscription Receipts are issued. See “Purchasers’ Statutory and Contractual Rights of Withdrawal and Rescission”.
The particular terms of each issue of Subscription Receipts will be described in the related Prospectus Supplement. This description will include, where applicable (i) the number of Subscription Receipts, (ii) the price at which the Subscription Receipts will be offered, (iii) the procedures for the exchange of the Subscription Receipts into Common Shares, (iv) the number of Common Shares that may be issued upon exchange of each Subscription Receipt, (v) the designation and terms of any other Securities with which the Subscription Receipts will be offered, if any, and the number of Subscription Receipts that will be offered with each Security, and (vi) any other material terms and conditions of the Subscription Receipts. Securities issued upon the exchange of Subscription Receipts will be issued for no additional consideration.
DESCRIPTION OF EQUITY SECURITIES
The following is a brief summary of the Corporation’s authorized share capital. The authorized share capital is established in the Corporation’s articles of incorporation, as amended. This summary may not be complete and is subject to, and qualified in its entirety by reference to, the Corporation’s articles of incorporation, as amended.
The Corporation’s authorized share capital consists of an unlimited number of Common Shares and an unlimited number of Preference Shares, issuable in series. As at November 30, 2019 there were 225,011,537 Common Shares issued and outstanding. No Preference Shares have been issued by the Corporation.
The Equity Securities may be offered separately or together with the Debt Securities or Subscription Receipts, as the case may be. The particular terms and provisions of the Equity Securities offered by a Prospectus Supplement and the extent to which these general terms and provisions apply will be described in such Prospectus Supplement.
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Common Shares
Holders of Common Shares are entitled to one vote per share at meetings of shareholders of the Corporation, to receive dividends if, as and when declared by the Board of Directors (subject to the rights of shares, if any, having priority over the Common Shares) and to receive pro rata the remaining property and assets of the Corporation upon its dissolution or winding up, subject to the rights of shares, if any, having priority over the Common Shares.
Preference Shares
Each series of Preference Shares shall consist of such number of shares and have such rights, privileges, restrictions and conditions as may be determined by the Board of Directors prior to the issuance thereof. These will be described in the Prospectus Supplement prepared in connection with such issuance. Holders of Preference Shares, except as required by law or as provided in the rights, privileges, restrictions and conditions of a particular series, will not be entitled to vote at meetings of shareholders of the Corporation. With respect to the payment of dividends and distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the Preference Shares of each series shall rank on a parity with the Preference Shares of every other series and are entitled to preference over the Common Shares and any other shares ranking junior to the Preference Shares from time to time and may also be given such other preferences over the Common Shares and any other shares ranking junior to the Preference Shares as may be determined at the time of creation of such series.
PRICE RANGE AND TRADING VOLUME OF COMMON SHARES
The Common Shares are traded on the TSX under the symbol “CIX”. The following table sets forth the market price ranges and the aggregate volume of trading of the Common Shares on the TSX for the periods indicated:
Price ($) |
|||||||||||||
Month | High | Low | Trading Volume | ||||||||||
December 1-16, 2019 | 22.24 | 20.34 | 7,103,103 | ||||||||||
November 2019 | 21.255 | 18.98 | 9,901,394 | ||||||||||
October 2019 | 19.47 | 18.26 | 8,269,556 | ||||||||||
September 2019 | 19.655 | 18.58 | 11,161,083 | ||||||||||
August 2019 | 20.63 | 18.00 | 12,201,289 | ||||||||||
July 2019 | 21.97 | 20.35 | 9,733,879 | ||||||||||
June 2019 | 21.57 | 20.18 | 11,850,023 | ||||||||||
May 2019 | 20.97 | 18.99 | 13,209,345 | ||||||||||
April 2019 | 19.72 | 17.96 | 12,344,173 | ||||||||||
March 2019 | 19.25 | 17.71 | 20,290,165 | ||||||||||
February 2019 | 19.44 | 17.225 | 12,167,154 | ||||||||||
January 2019 | 18.58 | 16.92 | 12,163,785 | ||||||||||
December 2018 | 20.28 | 16.47 | 18,973,234 |
On December 16, 2019, the last trading day prior to the date of this Prospectus, the closing price of the Common Shares on the TSX was $21.78.
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The Board of Directors has established a dividend policy pursuant to which the Corporation will authorize the declaration and payment of a fixed dividend to be paid to holders of Common Shares. Dividends are paid at the discretion of the Board of Directors and the dividend rate will be reviewed from time to time by the Board of Directors after giving consideration to CI’s cash flow, financial position, net earnings, sales outlook and other relevant factors.
The current dividend is $0.18 per Common Share per quarter.
The Corporation has not sold or issued any Common Shares or securities convertible into or exchangeable for Common Shares during the 12-month period ending on November 30, 2019 other than:
(a) | on September 1, 2019, 203,136 restricted share units(1)(2) under the Corporation’s restricted share unit plan, in respect of a signing bonus for Kurt MacAlpine as Chief Executive Officer, having a grant date value of $19.08 per restricted share unit; |
(b) | on February 26, 2019, 494,292 restricted share units (1)(2) under the Corporation’s restricted share unit plan having a grant date value of $18.99 per restricted share unit; |
(c) | on the respective dates on which the Corporation paid a dividend on its Common Shares from December 1, 2018 to November, 2019, an additional aggregate 38,771 restricted share units (1)(2) as dividend equivalent restricted share units credited to participants under the terms of the Corporation’s restricted share unit plan having dividend payment date values ranging between $17.60 to $21.62 per restricted share unit; and |
(d) | on February 26, 2019, options to acquire an aggregate of 743,027 Common Shares under the Corporation’s employee stock option plan at a price of $18.99 per share. |
Notes:
(1) | The number of restricted share units granted or credited is determined based on the value of Common Shares determined in accordance with the terms of the restricted share unit plan on the grant date or dividend payment date, as applicable. |
(2) | Upon vesting of restricted share units, the Corporation may elect to settle restricted share units by one or a combination of (a) paying cash equal to the market value of one Common Share (as determined in accordance with the terms of the restricted share unit plan) per restricted share unit or (b) delivering one Common Share for each restricted share unit (such Common Shares either issued from treasury or purchased on the market through a trust pursuant to the terms of the restricted share unit plan). The Corporation has chosen to use a trust to hold Common Shares purchased on the market to fulfill obligations to employees arising from the restricted share unit plan – see Note 6 to the Corporation’s interim unaudited consolidated financial statements for the three and nine months ended September 30, 2019 which are incorporated by reference in this Prospectus. Accordingly, CI does not currently expect to issue a material number of Common Shares from treasury upon vesting and settlement of these restricted share units. |
The Corporation has not sold or issued any Debt Securities or securities convertible into or exchangeable for Debt Securities during the 12-month period ending on November 30, 2019 other than on July 22, 2019, $350 million aggregate principal amount of debentures having a term of five years maturing in July 2024 and carrying an annual interest rate of 3.215% payable semi-annually.
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To the knowledge of the Corporation, no person or entity beneficially owns, directly or indirectly, or exercises control or direction over, more than 10% of the voting rights attached to the outstanding Common Shares.
Prospective investors in a particular offering of the Securities should carefully consider, in addition to information contained in the Prospectus Supplement relating to that offering, the information set forth in the section entitled “Risk Management” in the Corporation’s most recent AIF and the section entitled “Risk Management” in the MD&A in respect of the Corporation’s most recent annual financial statements and the MD&A in respect of the Corporation’s most recent interim financial statements filed thereafter, each of which is incorporated by reference in this Prospectus.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of the Corporation are Ernst & Young LLP, chartered accountants, located at 100 Adelaide Street West, P.O. Box 1, Toronto, Ontario, M5H 0B3. Ernst & Young LLP is independent with respect to the Corporation in accordance with the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario.
Computershare Investor Services Inc. acts as Transfer Agent and Registrar for the Common Shares and maintains registers of transfers of the Common Shares in Toronto, Montreal and Vancouver.
Kurt MacAlpine, Chief Executive Officer and Director of the Corporation, resides outside of Canada and has appointed the following agent for service of process:
Name of Person | Name and Address of Agent |
Kurt MacAlpine |
CI Financial Corp. 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 |
Purchasers are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person that resides outside of Canada, even if the party has appointed an agent for service of process.
PURCHASERS’ STATUTORY AND CONTRACTUAL RIGHTS OF WITHDRAWAL AND RESCISSION
Securities legislation in several of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages where the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that such remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province.
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Original Canadian purchasers of Securities which are convertible or exchangeable into other securities of the Corporation (including Subscription Receipts or Debt Securities which are convertible or exchangeable) will have a contractual right of rescission against the Corporation following the issuance of underlying securities of the Corporation to such original purchasers upon the conversion or exchange of such Securities. The contractual right of rescission will entitle such original purchasers to receive the amount paid for the applicable convertible or exchangeable Securities (and any additional amount paid upon conversion, exchange or exercise thereof) upon surrender of the underlying securities of the Corporation issued upon the conversion or exchange of such Securities, in the event that this Prospectus, the relevant Prospectus Supplement or an amendment contains a misrepresentation, provided that: (i) the conversion or exchange takes place within 180 days of the date of the purchase under this Prospectus of the Securities which are convertible or exchangeable; and (ii) the right of rescission is exercised within 180 days of the date of the purchase under this Prospectus of such Securities. This contractual right of rescission will be consistent with the statutory right of rescission described under section 130 of the Securities Act (Ontario), and is in addition to any other right or remedy available to original purchasers under section 130 of the Securities Act (Ontario) or otherwise at law.
In an offering of Securities which are convertible or exchangeable into other securities of the Corporation (including Subscription Receipts or Debt Securities which are convertible or exchangeable), investors are cautioned that the statutory right of action for damages for a misrepresentation contained in the prospectus is limited, in certain provincial securities legislation, to the price at which such Securities were offered to the public under the prospectus offering. This means that, under the securities legislation of certain provinces, if the purchaser pays additional amounts upon conversion or exchange of the Security, those amounts may not be recoverable under the statutory right of action for damages that applies in those provinces.
The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal advisor.
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CERTIFICATE OF THE CORPORATION
Dated: December 17, 2019
This short form prospectus, together with the documents incorporated in this prospectus by reference, will, as of the date of the last supplement to this prospectus relating to the securities offered by this prospectus and the supplement(s), constitute full, true and plain disclosure of all material facts relating to the securities offered by this prospectus and the supplement(s) as required by the securities legislation of each of the provinces of Canada.
(Signed) Kurt MacAlpine | (Signed) Douglas J. Jamieson |
Chief Executive Officer | Chief Financial Officer |
On behalf of the Board of Directors | |
(Signed) William T. Holland | (Signed) Paul J. Perrow |
Director | Director |
C-1
Exhibit 99.55
CI FINANCIAL CORP.
(the “Company”)
CODE OF BUSINESS CONDUCT AND ETHICS
As of February 13, 2020
1. | Introduction |
The Company is committed to conducting its business ethically and legally. In keeping with that commitment, this Code of Business Conduct and Ethics (the “Code”) covers a wide range of business practices and procedures. The Code has been approved by our Board of Directors, senior management and business unit leaders to summarize the standards of business conduct that must guide our actions. It does not cover every issue that may arise, but sets out basic principles to guide all directors, officers and employees of the Company and its subsidiaries and affiliates (collectively, “CI Personnel”). All CI Personnel must conduct themselves accordingly and seek to avoid even the appearance of improper behaviour. This Code also must be provided to and followed by the agents and representatives, including advisors, of the Company and its subsidiaries and affiliates (collectively, the “CI Group”).
If a law conflicts with a policy in this Code, CI Personnel must comply with the law. If a local custom or policy conflicts with this Code, CI Personnel must comply with this Code. In some instances, there may be a conflict between the laws of different jurisdictions that apply to the operations of the CI Group. If you have any questions about these conflicts, you should ask your supervisor or department head how to handle the situation.
Some subsidiaries, departments and specialized areas within the CI Group have specific codes of conduct or ethics or the like in place that cover conduct (such as personal trading) or regulatory issues that only apply to that area or field. If CI Personnel work for one of these subsidiaries or specialized areas, such specific codes of conduct of ethics apply in addition to this Code.
CI Personnel who violate the standards in this Code will be subject to disciplinary action, up to and including the termination of their employment or other relationship with the Company. If you are involved in or have become aware of suspected misconduct, illegal activities, fraud, abuse of the CI Group’s assets or a situation that you believe may violate or lead to a violation of this Code, follow the guidelines described below under “Compliance Procedures”.
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2. | The Code |
Compliance with Laws, Rules, Regulations and CI Policies & Procedures
Obeying the law, both in letter and in spirit, is the foundation on which the CI Group’s ethical standards are built and is critical to our reputation and continued success. All CI Personnel must respect and obey the laws (including the requirements of applicable securities commissions, regulatory authorities and stock exchanges)) of the various jurisdictions in which the CI Group operates and avoid even the appearance of impropriety. You have a duty to know, understand and comply with any of those laws, rules and regulations which apply to your employment duties and responsibilities. To fulfill this duty, you have an obligation to seek advice from supervisors, department heads or other appropriate personnel as necessary. The CI Group’s Legal Department (“Legal”) is always available to assist CI Personnel in determining applicable legal and regulatory requirements. You may contact Legal via an e-mail to legal@ci.com.
All CI Personnel must also abide by CI Group’s policies and procedures. This includes corporate policies and procedures and those of our wholly-owned entities. Failure to abide by the laws, rules, regulations and CI’s policies and procedures may result in sanctions against either/both CI Personnel and CI Group. Individuals who fail to comply may be disciplined, up to and including termination of employment.
Conflicts of Interest
The Company expects CI Personnel to avoid situations where personal interests could conflict, or appear to conflict, with their duties and responsibilities or the interests of the Company. A conflict of interest may exist when a person’s private interests have an adverse effect on the employee’s motivation or the proper performance of their job or affects a person’s judgement or ability to act in the best interests of the Company. CI Personnel may also find it difficult to perform their work for the CI Group objectively and effectively if they or members of their families have received improper personal benefits through their position within the CI Group.
It is almost always a conflict of interest for CI Personnel to work at the same time for a competitor or a person with whom the CI Group has a business relationship. CI Personnel are not allowed to work for a competitor as a consultant or board member. The best policy is to avoid any direct or indirect business relationship (except on behalf of the CI Group) with competitors of the CI Group or persons with whom the CI Group has business relationships. Other examples of conflicts could include, but are not limited to: accepting personal payments from any organization which does business with the CI Group or is a competitor of the CI Group; accepting or giving gifts of more than modest value to or from vendors or clients of the CI Group; competing with the CI Group for the purchase or sale of property, services or other interests or taking personal advantage of an opportunity in which the CI Group has an interest; personally having immediate family members who have a financial interest in a firm which does business with the CI Group; and having an interest in a transaction involving the CI Group or a customer, business partner or supplier (not including routine investments in publicly traded companies). CI Personnel must abide by all compliance policies that relate to personal trading.
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Conflicts of interest are prohibited as a matter of CI Group policy, except under guidelines approved by the Board of Directors of the Company, if any. Conflicts of interest may not always be clear-cut. If you have a question, you should consult with your supervisor or department head. Any CI Personnel who become aware of a conflict or potential conflict should bring it to the attention of a supervisor or department head and consult the procedures described below under “Compliance Procedures”.
If the CI Group determines that an employee’s outside work interferes with performance or the ability to meet the requirements of the CI Group, as they are modified from time to time, the employee may be asked to terminate the outside employment if he or she wishes to remain employed by the CI Group. To protect the interests of both the employees and the CI Group, any such outside work or other activity that involves potential or apparent conflict of interest may be undertaken only after disclosure to the CI Group by the employee and review and approval by management.
Confidentiality
CI Personnel must maintain the confidentiality of confidential information entrusted to them by the CI Group and persons with whom the CI Group does business, except when disclosure is authorized by the President, the Chief Executive Officer or the Chief Legal Officer (or other senior legal officer) or is required by applicable laws or regulations. Confidential information includes all non-public information that might be of use to competitors or harmful to the CI Group, its stakeholders or the person to whom it relates if disclosed. The obligation to preserve confidential information continues even after CI Personnel cease to have a relationship with the CI Group. The Company’s Information Technology Acceptable Use Policy has been developed to ensure that all CI Personnel are aware of their responsibilities with respect to confidential information and includes a list of appropriate procedures that should be observed by CI Personnel to protect confidential information.
The CI Group is committed to protecting the privacy of personal information collected, used and disclosed in the conduct of its business. CI personnel must abide by CI’s Privacy Policy.
CI Personnel who have access to confidential information are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of the CI Group’s business. The Company has established an Insider Trading Policy and all CI Personnel must read and abide by this policy.
Knowledge of confidential information about another party gained in the course of work duties for CI Group is protected in the same manner as confidential information about CI Group.
Company Opportunities
CI Personnel are prohibited from taking for themselves personally and/or sharing with third parties opportunities that are discovered through the use of Company property, information or positions without the consent of the President, the Chief Executive Officer or the Chief Legal Officer (or other senior legal officer) and from using Company property, information, or position for improper personal gain. No CI Personnel may compete with the CI Group directly or indirectly. CI Personnel owe a duty to the CI Group to advance its legitimate interests, before their own, when the opportunity to do so arises.
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Anti-Money Laundering (AML)
CI Personnel are required to abide by federal Anti-Money Laundering legislation and regulations. All occurrences of (attempted) suspicious transactions must be immediately reported to the respective entity’s compliance department or Chief AML Officer. Please contact your entity’s Compliance department and/or Chief AML Officer for further information.
Protection and Proper Use of Company Assets
All CI Personnel must endeavour to protect the CI Group’s assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the CI Group’s profitability. Any suspected incident of fraud, theft or other irregularity should be reported immediately to your department head for investigation. CI Group equipment should not be used for non-CI Group business, other than incidental personal use; other use requires pre-approval by an immediate supervisor.
The obligation of CI Personnel to protect the CI Group’s assets includes the CI Group’s proprietary information. Proprietary information includes any information that is not known generally to the public or would be helpful to the CI Group’s competitors. Examples of proprietary information include intellectual property (such as trade secrets, patents, trademarks, and copyrights), business, marketing and service plans, designs, databases, company guides, manuals, client information, salary information and any unpublished financial data and reports. Unauthorized use or distribution of this information violates CI Group policy and could be illegal and result in civil or criminal penalties. The obligation to preserve the confidentiality of proprietary information continues even after CI Personnel cease to have a relationship with the CI Group.
CI Group assets (such as funds, products, corporate information, information system assets, digital communications, internet access, office equipment, tools, supplies, facilities and services) may be used only for legitimate business purposes. CI Group assets may never be used for illegal purposes.
Competition and Fair Dealing
CI Personnel must respect the rights of, and deal fairly with, the CI Group’s investors, suppliers, business partners, competitors, employees and other persons with whom the CI Group has a business relationship. No CI Personnel may take unfair advantage of anyone through illegal conduct, manipulation, concealment, abuse of proprietary information, misrepresentation of material facts or any other intentional unfair-dealing practice. The CI Group seeks to excel and to outperform competitors fairly and honestly through superior performance and not through unethical or illegal business practices or behaviour.
Nor should any CI Personnel act in a manner that may be anti-competitive under competition or anti-trust laws. The CI Group’s Legal Department can assist CI Personnel in determining the application of competition and anti-trust laws to the business activities of CI Personnel.
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Gifts and Entertainment
Offering or receiving any gift, gratuity or entertainment that might reasonably be perceived to unfairly influence a business relationship, or that might be outside of a customary course of business relationship, is a conflict of interest and must be avoided. These guidelines apply at all times and do not change during traditional gift-giving seasons.
No gift or entertainment should ever be offered, given, provided, authorized or accepted by any CI Personnel or their family members unless it is not a cash gift or a gift in securities, is consistent with customary business practices, is not excessive in value, cannot be construed as a bribe or payoff, and does not violate any laws. Consideration should be given to acceptable industry practice and guidance from regulatory bodies (including self-regulatory organizations) in determining the reasonability of any of the foregoing. The CI Group has also implemented a Sales Practices Policy which must be adhered to by CI Personnel dealing with advisors and clients. Strict rules also apply when the CI Group does business with governmental agencies and officials, as discussed in more detail below. CI Personnel should discuss with the applicable department head and with their clients or business partners any gifts or proposed gifts about which they have any questions.
Payments to Government Personnel
All CI Personnel must comply with all laws prohibiting improper payments to domestic and foreign officials, as set out in the Company’s Anti-Bribery and Anti-Corruption Policy.
Certain governments have laws regarding business gifts that may be made in connection with government personnel. The promise, offer or delivery to a foreign public official or to any person for the benefit of a foreign public official, either directly or indirectly of a gift, favour, loan, reward or other gratuity/benefit in violation of anti-corruption laws is prohibited. Such an action violates both CI Group policy and is a criminal offence in a number of foreign jurisdictions. Illegal payments must not be made to government officials of any country. The CI Group’s Legal Department can provide guidance to CI Personnel in this area.
Political Donations and Activities
In no circumstances shall any CI Personnel be permitted to use or associate their position or office with the CI Group with any personal political activity or donation or in any circumstances in which any such association could be reasonably inferred.
CI Personnel may choose to become involved in political activities as long as they undertake these activities on their own behalf and may, on a personal level, give to any political party or candidate, but reimbursement by CI Group is prohibited.
Discrimination and Harassment
The diversity of CI Personnel is a tremendous asset. The CI Group is firmly committed to providing equal opportunity in all aspects of employment and ensuring that all stakeholders are treated with respect and dignity. The CI Group will not tolerate any illegal discrimination or harassment of any kind. Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances. CI Personnel are encouraged to speak with their supervisor or the CI Group’s Human Resources Department when a co-worker’s conduct makes them uncomfortable and to report harassment when it occurs, consistent with written policies published by the Human Resources Department.
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Health and Safety
The CI Group strives to provide all CI Personnel with a safe and healthy work environment. All CI Personnel are responsible for maintaining a safe and healthy workplace by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions to an immediate supervisor. Violence and threatening behaviour are not permitted. CI Personnel should refer to the CI Workplace Harassment Policy and the CI Workplace Violence Policy for further information. The use of illegal drugs in the workplace will not be tolerated. CI Personnel should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol.
Accuracy of Company Records and Reporting
All business transactions that CI Personnel have participated in must be properly authorized, properly recorded and supported by accurate documentation in reasonable detail. Books and records must be kept and maintained to fulfill relevant legal requirements. The CI Group requires honest and accurate recording and reporting of information.
The CI Group’s accounting records are relied upon to produce reports for our management, directors, securityholders, governmental agencies and persons with whom the CI Group does business. All of the CI Group’s financial statements and the books, records and accounts on which they are based must appropriately reflect the CI Group’s activities and conform to applicable legal and accounting requirements and to the CI Group’s system of internal controls. Unrecorded or “off the books” funds or assets should not be maintained unless required by applicable law or regulation.
All CI Personnel have a responsibility, within the scope of their positions, to ensure that the CI Group’s accounting records do not contain any false or intentionally misleading entries. The CI Group does not permit intentional misclassification of transaction as to accounts, departments or accounting records. All transactions must be supported by accurate documentation in reasonable detail and recorded in the proper accounts and in the proper accounting period.
Many CI Personnel use business expense accounts, which must be documented and recorded accurately. If CI Personnel are not sure whether a certain expense is legitimate, an immediate supervisor can provide advice.
Business records and communications often become public through legal or regulatory proceedings or the media. CI Personnel should avoid exaggeration, derogatory remarks, guesswork or inappropriate characterizations that can be misunderstood. This requirement applies equally to communications of all kinds, including e-mail, informal notes, internal memos, and formal reports.
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Use of Phone, Fax, E-mail and Internet Services
Phone, fax, e-mail and internet services are provided by the CI Group to assist CI Personnel in carrying out their work. Incidental and occasional personal use is permitted, but never for personal gain or any improper purpose. CI Personnel may not access, send or download any information that could be insulting or offensive to another person, such as sexually explicit messages, cartoons, jokes, unwelcome propositions, derogatory messages based on racial or ethnic characteristics or any other messages that could reasonably be viewed as harassment. Activities that require significant system resources, in terms of bandwidth/memory, such as watching of video files, listening to audio files, downloading of large data files and/or any excessive use of system resources for personal use impairs the ability of the CI Group’s system to handle legitimate CI Group business and is prohibited.
Messages (including voicemail) and computer information sent, received or created by CI Personnel are CI Group property and CI Personnel should recognize that these messages and information are not “private”. Unless prohibited by law, the CI Group reserves the right to access and disclose those messages and information as necessary for its business purposes. CI Personnel should use good judgment and not access or send messages or store any information that they would not want to be seen or heard by others.
CI Personnel are also referred to the CI Group’s internet/e-mail policies published from time to time.
Disclosure
The CI Group is committed to providing timely, factual, accurate, complete and broadly disseminated information, consistent with disclosure requirements under applicable securities laws. The Company has adopted a Disclosure Policy to promote this commitment and a consistent approach to the Company’s disclosure practices. For further details, please consult the Company Disclosure Policy.
No Rights Created
This Code is a statement of the fundamental principles and key policies and procedures that govern the conduct of our business. It is not intended to and does not, in any way, constitute an employment contract or an assurance of continued employment or create any rights in any employee, director, client, supplier, competitor, stockholder or any other person or entity.
3. | Compliance Procedures |
All CI Personnel must work to ensure prompt and consistent action against real or suspected violations of this Code. It is your personal responsibility to (i) become familiar with, and conduct CI Group business in compliance with, applicable laws, rules and regulations and this Code; (ii) treat all CI Group employees, customers and business partners in an honest and fair manner; (iii) avoid situations where your personal interests are, or appear to be, in conflict with the CI Group interests; and (iv) safeguard and properly use the CI Group’s proprietary and confidential information, assets and resources, as well as those of the CI Group’s customers and business partners.
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However, in some situations it is difficult to know right from wrong. Since we cannot anticipate every situation that will arise, it is important that the CI Group has a way to approach a new question or problem. These are the steps to keep in mind:
· | Make sure you have all the facts. In order to reach the right solutions, we must be as fully informed as possible. |
· | Ask yourself: What specifically am I being asked to do? Does it seem unethical or improper? This will help you to focus on the specific question you are faced with and the alternatives you have. Use your judgment and common sense - if something seems unethical or improper, it probably is. |
· | Clarify your responsibility and role. Are you qualified to do what is being asked? In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem. |
· | Discuss the problem with your supervisor or department head. This is the basic guidance for all situations. In many cases, your supervisor or department head will be more knowledgeable about the question, and will appreciate being brought into the decision-making process. Remember that it is their responsibility to help solve problems. |
· | You may report ethical violations in confidence and without fear of retaliation. As described in more detail below, if your situation requires that your identity be kept secret, your anonymity will be protected. The CI Group does not permit retaliation of any kind against employees for good faith reports of ethical violations or breaches of rules, policies, regulations or laws. |
· | Always ask first, act later: If you are unsure of what to do in any situation, seek guidance before you act. |
· | Sources of assistance: If you need any further guidance, please contact Head Office at (416) 364-1145 or 1-800-268-9374 to consult any of the following as you believe appropriate: |
· |
Chief Talent Officer
CI Financial Corp. 15 York Street, Second Floor Toronto, Ontario M5J 0A3 |
· |
President
CI Financial Corp. 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 |
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· | Chief Executive Officer |
CI Financial Corp.
2 Queen Street East, Twentieth Floor
Toronto, Ontario M5C 3G7
· |
Chairman of the Board
CI Financial Corp. 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 |
· |
Lead Director of the Board of Directors
CI Financial Corp. c/o 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 |
ci@muir99.com
(The Lead Director’s email is a private email and is not associated with CI’s email or IT infrastructure)
· | Chief Legal Officer |
CI Financial Corp.
2 Queen Street East, Nineteenth Floor
Toronto, Ontario M5C 3G7
4. | Reporting any Illegal or Unethical Behaviour |
The CI Group has a strong commitment to the conduct of its business in a lawful and ethical manner. As described above under “Compliance Procedures”, CI Personnel are expected to talk to supervisors, department heads or other appropriate personnel about observed illegal or unethical behaviour and when in doubt about the best course of action in a particular situation. It is the policy of the CI Group not to allow retaliation for reports of misconduct by others made in good faith. It is, at the same time, unacceptable to file a report knowing that it is false. CI Personnel will be protected from retaliation or reprisal if they, in good faith, report actual, suspected or perceived breaches of this Code, or problems with CI Group policies, procedures or controls. CI Personnel are required to cooperate in internal investigations of misconduct. Any individual who has been found to have engaged in retaliation against any CI Personnel for raising, in good faith, a conduct concern or for participating in the investigation of such a concern may be subject to discipline, up to and including termination of employment or other business relationships. If any individual believes that he or she has been subjected to such retaliation, that person is encouraged to report the situation as soon as possible to one of the people detailed in the “Compliance Procedures” section above.
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Generally
If you believe that you may have breached this Code or have observed:
· | a breach of this Code by any CI Personnel; or |
· | a serious weakness or deficiency in the CI Group’s policies, procedures or controls which might enable breaches to occur or go undetected, |
you have a responsibility to the CI Group, your fellow employees and yourself to report it to your supervisor, that employee’s supervisor or to the Head of the Human Resources Department.
Failure to report a known breach of this Code may result in serious consequences. If a problem or irregularity under this Code has been referred to you, you must resolve the issue or refer it appropriately using the chain of communication referred to in this Code.
The CI Group recognizes that, from time to time, you may be uncertain about an appropriate course of action. In all such cases, immediately seek the advice of your supervisor or department head.
Reportable Matters
The CI Group is committed to complying with all applicable legal and regulatory requirements relating to accounting and auditing controls and procedures. CI Personnel are encouraged to report complaints or concerns regarding accounting or auditing matters through any available channels described in this subsection.
In order to facilitate the reporting of complaints and concerns regarding accounting or auditing matters by CI Personnel, the Company’s Audit and Risk Committee (the “Audit Committee”) has established the following procedures for:
(1) | the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, or auditing matters (“Accounting Matters”); and |
(2) | the confidential, anonymous submission by CI Personnel of concerns regarding questionable Accounting Matters, free from discrimination, retaliation or harassment. |
The Company’s Audit Committee is responsible for the oversight of the receipt and treatment of employee complaints and concerns in this area.
This subsection relates to employee complaints and concerns relating to Accounting Matters, including the following:
· | fraud or deliberate error in the preparation, evaluation, review or audit of any financial statement of the CI Group; |
· | fraud or deliberate error in the recording and maintaining of financial records of the CI Group; |
· | deficiencies in or non-compliance with the CI Group’s internal accounting controls; |
· | misrepresentation or false statement to or by a senior officer or accountant of the CI Group regarding a matter contained in the financial records, financial reports or audit reports of the CI Group; |
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· | fraud by management or other employees who have a significant role in the CI Group’s internal control over financial reporting; and |
· | deviation from full and fair reporting of the CI Group’s financial condition. |
CI Personnel may submit complaints or concerns regarding an Accounting Matter to the Chief Legal Officer of the Company, or to the Lead Director, as described in more detail below under “Reporting Procedures”. Contact information for the Chief Legal Officer and Lead Director appears above.
The Company’s Audit Committee is also responsible for the oversight of the receipt and treatment of employee complaints and concerns or other questionable conduct not regarding Accounting Matters (“Non-Accounting Matters” and, together with Accounting Matters, “Reportable Matters”).
Reporting Procedures
CI Personnel may submit complaints or concerns regarding a Reportable Matter to the Chief Legal Officer of the Company or the Lead Director.
CI Personnel wishing to report a complaint or concern on an anonymous basis to the Chief Legal Officer, may do so by regular mail or by delivery marked “CONFIDENTIAL – TO BE OPENED BY ADDRESSEE ONLY”.
CI Personnel making an anonymous report are guaranteed anonymity in the event of self-identification. However, if a complainant fails to identify himself or herself in his or her complaint and the information provided is insufficient, the Company may not be able to adequately investigate and resolve the complaint.
Further information may be required depending on the nature of the issue and the clarity of the information provided. Allegations made anonymously should contain sufficient detail and information so that, if necessary, a meaningful investigation can be conducted.
Reporting to the Lead Director or Others
If any CI Personnel is not comfortable contacting the Chief Legal Officer or believes that the Chief Legal Officer may have a conflict of interest in handling a complaint or concern, or if the Chief Legal Officer is unavailable and the matter is urgent, the CI Personnel may submit his or her complaint or concern by regular mail, by delivery or by email marked “CONFIDENTIAL – TO BE OPENED BY ADDRESSEE ONLY” directly to the Company’s Lead Director whose contact information appears above.
If any CI Personnel would like to contact the Lead Director anonymously, he or she may do so by regular mail, by delivery or by email marked “CONFIDENTIAL – TO BE OPENED BY ADDRESSEE ONLY” to the contact information listed above.
If the matter concerns the CI Group’s investment funds, CI Personnel may submit his or her complaint or concern marked “CONFIDENTIAL – TO BE OPENED BY ADDRESSEE ONLY” directly to the Chairman of the Independent Review Committee of the investment funds, Mr. James Werry, at James Werry, Chairman of the Board of Governors, CI Investments Inc., c/o 360 Bloor Street East, #804, Toronto, Ontario, M4W 3M3.
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Complaint Handling Procedures
Employee complaints and concerns initially received by the Chief Legal Officer will, as a general matter, be copied (or, if received verbally, summarized) and promptly forwarded to the Lead Director (or, in the absence of the Lead Director, to the Chair of the Audit Committee) unless, in the judgment of the Chief Legal Officer, the complaint or concern, upon initial review, (i) is frivolous or not credible, or (ii) even if valid, would not be material to the Company, its financial statements or its internal controls (collectively “Non-Reportable Matter”).
As soon as reasonably practicable following receipt and initial review of an employee complaint or concern, the Chief Legal Officer or, if applicable, the Lead Director will acknowledge receipt of the complaint or concern to the sender, unless sent anonymously. If a determination has been made that the complaint or concern is a Non-Reportable Matter, the complaint or concern will be acknowledged and such determination may be set forth in such acknowledgement.
Complaints and concerns that are determined to not be a Non-Reportable Matter will be investigated, subject to Audit Committee direction and oversight, as applicable, by the Chief Legal Officer or such other persons, which may include outside counsel, as the appropriate committee determines to be appropriate. Confidentiality will be maintained with respect to all employee complaints to the fullest extent reasonably practicable, consistent with the need to conduct an adequate investigation.
Responsive action to an investigated complaint or concern will be determined in the judgment of the Lead Director or the applicable committee. Any action taken (or the decision not to take any action) shall promptly be communicated to the sender of the complaint or concern, if sent on other than anonymous terms.
The Chief Legal Officer and, as applicable, the Lead Director will maintain a written record of all reported complaints and concerns, including their receipt, acknowledgement, investigation and resolution and shall together prepare or cause to be prepared a periodic (but not less than quarterly) summary report of Reportable Matter complaints for the Audit Committee. Copies of the complaints and concerns (and any summary or written record reflecting them) will be maintained for a period of at least five years from receipt. Any member of the applicable committee shall at any time, upon request, be given prompt access to the complete underlying complaint or concern reflected in any written record.
In accordance with the Company’s policies, retaliation of any kind against any CI Personnel who submits in good faith a complaint or concern regarding a Reportable Matter or who assists in good faith in the investigation (whether by the CI Group or any regulatory authority or law enforcement agency) of any alleged wrongdoing involving a Reportable Matter is strictly prohibited.
Any acts of retaliation should be reported immediately to your supervisor who, in turn, should report the act of retaliation to any of the persons named above. If the employee is uncomfortable reporting to his or her supervisor, believes that his or her supervisor may have a conflict of interest in responding to the retaliation, or the supervisor is unavailable and the matter is urgent, the employee is encouraged to report any act of retaliation to any of the persons named above. Acts of retaliation may result in severe disciplinary action against the individual(s) causing such retaliation, including termination of employment.
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5. | Waivers of the Code |
From time to time, the CI Group may waive certain provisions of this Code. Any waiver of this Code for directors or executive officers of the Company may be made only by the Board of Directors of the Company (or a committee of the Board to whom that authority has been delegated) and will be disclosed promptly as required by law or stock exchange regulation, and may include the filing of a material change report describing the date of the waiver, the parties involved, the reasons of the Board of Directors for approving the waiver or not sanctioning the respective departure and any measures taken by the Board of Directors to address the situation.
Last updated: February 13, 2020
Exhibit 99.56
A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinces of Canada . A copy of the final base shelf prospectus, any amendment to the final base shelf prospectus and any applicable shelf prospectus supplement that has been filed, is required to be delivered with this document . This document does not provide full disclosure of all material facts relating to the securities offered . Investors should read the final base shelf prospectus, any amendment and any applicable shelf prospectus supplement for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision . May 21 , 2020
2 2 CI Financial | Kurt MacAlpine Chief Executive Officer Doug Jamieson Chief Financial Officer • Mr. MacAlpine was appointed Chief Executive Officer and Director of CI Financial in September 2019. He has extensive experience in the global asset and wealth management industry, having previously served as Executive Vice - President and Head of Global Distribution for WisdomTree Asset Management and as a Partner and Leader of the North American Asset Management Practice at McKinsey & Company. • At WisdomTree, a global asset manager and exchange - traded fund sponsor based in New York, Mr. MacAlpine was responsible for all client - facing functions globally, including distribution, marketing, data intelligence and strategy, business development, and client solutions. He also oversaw the majority of the firm’s international businesses, which during his tenure included employees in Canada, Europe, Japan, Israel and Latin America and strategic partnerships in Asia and Australia and New Zealand. He was a member of the company’s global executive management committee and sat on the boards of several of its international entities and AdvisorEngine, a digital wealth platform. • Prior to joining WisdomTree in July 2015, Mr. MacAlpine was a Partner at McKinsey, a global management consulting firm, based in its New York office. In his role as a Partner, he managed global consulting teams working with some of the largest asset and wealth managers in the world on topics related to strategy, distribution, marketing, international expansion, mergers and acquisitions, and product development. • Mr. MacAlpine holds a Bachelor of Commerce degree from Saint Mary’s University and an MBA from Queen’s University • Doug has served as Chief Financial Officer of CI Financial since May 2005. He joined CI in 1995 as Manager, Corporate Finance, and following several promotions he progressed to the role of Chief Financial Officer of CI Investments Inc. in 1998. Prior to joining CI, Doug articled at BDO Dunwoody. • Doug is a CPA and CFA charter holder, holds an MBA from the Ivey School of Business, and a Masters in Accounting from the University of Waterloo.
3 3 CI Financial | Investment Highlights Scale and market position, as one of Canada’s largest fund companies I • $119 billion in assets under management and $48 billion in assets under administration • Recognized brand name • Continued investment in digital technology to support product offering and marketing strategy Diversified business model across asset classes, investment strategies, product types and distribution channels II • Comprehensive investment product suite with growing alternative and managed product offering • Access to top - ranked portfolio management talent • Captive distribution network complemented with strong access to IIROC investment dealers, financial planners Renewed strategic priorities, well positioned to tackle industry headwinds III • Modernize our asset management business • Expand our wealth management platform • Globalize our company Strong financial position IV • Resilient revenue base, strong EBITDA margins, and significant free cash flow generation • Cost containment initiatives resulting in a $49 million year - over - year decrease in annualized SG&A • Modest leverage levels • Conservative capital allocation strategy
Overview Business Profiles Strategic Priorities Financial Highlights Appendix
| A diversified, global wealth management firm and one of Canada’s largest fund companies Founded in 1965 | Listed on the TSX in 1994 (CIX) $119 billion in assets under management | $48 billion in administered assets Headquartered in Toronto | ~1,800 employees Market capitalization $3.2 billion | Enterprise value $4.8 billion $2 billion in annual revenues | LTM EBITDA* of $837 million CIX stock: 13% CAGR since IPO | Outperformed TSX & TSX Fin. Services Indexes 5 As at April 30, 2020, except where noted, figures are in CAD, net income adjusted for provisions. *This is a non - IFRS financial measure. See the Disclaimer on page 27 relating to non - IFRS financial measures. 5 CI Financial | Overview
2002 Spectrum Investment Management Clarica Diversico 2020 SureVest Wealth One Capital Management WisdomTree Canada 6 CI Financial | History of Asset Growth & Development 6 6 6 1994 Initial Public Offering 1999 BPI Financial 2003 Synergy Asset Management 2004 IQON Financial 2007 Rockwater Capital 2010 Hartford Investments Canada 2013 Marret Asset Management 2015 2016 2017 2018 1994 AUM: $4BN 2020 AUM: $119BN │ Founded in 1965, CI Financial has grown to be one of the largest asset management companies in Canada with a global scale and continued market development leadership Rebranding AUM as of April 30, 2020.
Asset Management Wealth Management $167 billion Client Assets $119 billion $48 billion Supported by: CI Financial | Business Lines 7 7 7
$48B $17B $4B $39B 1 $4B 2 $9B CI Owned Toronto / Hong Kong Toronto / Boston Toronto Toronto Toronto Toronto Partially Owned Largest External Sub - Advisors CI employs other sub - advisors not listed above; AUM as of April 30, 2020, figures are in CAD. 1. Consists of assets managed by other CI portfolio managers through CI Multi - Asset Management’s strategic asset allocation process . 2. A portion of CI First Asset ETF AUM is managed by sub - advisors and/or other CI - owned portfolio managers. CI Investments | Portfolio Management 8 8 8 8
80% 7% 7% 6% Fixed Income 28% Cash/ Other, 4% Equity 68% Currency Exposure of AUM AUM by Product Type AUM by Client Type Mutual funds Pooled funds / accounts Exchange - traded funds Variable annuity funds AUM by Fund Type 4% 16% 19% 27% 34% Segregated Accounts Portfolio Balanced Fixed Income & Diversified Income Equity Excludes GSFM’s assets under management. AUM as of March 31, 2020. AUM by Underlying Class CI Investments | Asset Breakdown 9 9 9 9 88% Retail 12% Institutional
0 5 10 15 20 25 30 35 40 45 50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Apr-20 | Distribution platform with $42 billion in administered assets (Apr - 2020) ~760 financial advisors across Canada | Average of $52 million assets per advisor All - encompassing approach to wealth planning | Investment, insurance, tax and estate Figures are in CAD. 10 Assets Under Administration (in $billions) Assante Wealth Management and Private Client 10 10 10 10 10 Designed for high net worth clients of Assante Wealth Management | $2.7 billion in AUM Specialized services | Customized reporting and access to alternative investment options
│ $16.1 billion of high net worth assets managed through discretionary and non - discretionary investment platforms, supported by experienced teams of wealth planning professionals As of April 30, 2020, figures are in CAD, unless otherwise noted. 11 12 advisory teams servicing clients across Canada | $3.8 billion in AUA Heritage dates back to the early 1980s | Catering exclusively to HNW/Ultra HNW clients CI Private Wealth 11 11 11 11 11 11 Stonegate | Exclusive team of specialists providing personalized solutions | $0.5 billion in AUA Founded 2002 in Phoenix, AZ | Collaborative team - based approach to wealth management Surevest | Robust cross - border capabilities and advanced wealth planning | $2.3 billion in AUA California - based RIA | Offerings include a division focused on Sports & Entertainment clientele One Capital | Designed for high net worth clients of Assante Wealth Management | $2.5 billion in AUA Specialized services | Customized reporting and access to alternative investment options Assante| Amongst the fastest growing registered investment advisers in the U.S. | $1.7 billion in AUA Breadth of Offerings | Diverse product offerings with offices in Arkansas, Texas and Colorado Cabana|
BBS Securities | an IIROC Broker Dealer providing brokerage, custody and technology solutions to institutional clients Virtual Brokers | a division of BBS Securities providing self - directed online brokerage services for retail and professional traders. WealthBar | Leading Canadian digital advice (robo) platform, launched in 2014, acquired by CI in December 2018. 5 ETF portfolios with low fees, brand name funds, 3 private portfolios that include alternative asset classes Technology - Based Wealth Management Platforms 12 12 12 12 12 12 12
CI Financial | Strategic Priorities 13 13 13
CI Financial | Rationale for Each Strategic Priority 14 14 14 Modernize our asset management business Expand our wealth management platform Globalize our company • Scale is becoming increasingly important, and difficult to achieve in Canada • Investors want to be serviced and supported globally • Talent acquisition from global markets • Role of advisor is more important than ever • Our breadth of capabilities uniquely positions us to be Canada's market leader • Consumers' lives are becoming increasingly complex and digital • Evolving demographics • Shifts in investor preferences • Changing expectations for servicing and support • Ongoing regulatory change
February 6, 2020 CI Financial | Strategic Progress 15 15 15 Sept - 19 New corporate strategy October 17, 2019 October 30, 2019 November 26, 2019 December 23, 2019 October 21, 2019 November 7, 2019 February 6, 2020 December 3, 2019 Dr. Joseph Coughlin partnership March 2020 Next - gen distribution analytics rollout Globalize our company Expand our wealth management platform Modernize our asset management business WisdomTree Canada DoubleLine Capital Cabana Asset Management Adams Street Partners April 14, 2020 April 17, 2020
CI Financial | Update on Select Strategic Initiatives 16 16 16 DoubleLine Coughlin US RIA Strategy Overview • Jeffrey Gundlach is the world’s most influential bond investor and one of the most successful asset managers • Critical element to our strategic priority to globalize our company • Dr. Joseph Coughlin is the leading global researcher on aging and longevity and Founder and Director of MIT’s AgeLab • Launching a suite of income strategies for Canadian investors including: – Total Return Bond Fund (DoubleLine's flagship) – Income Fund – Core Plus Bond Fund • Creating better awareness of CI’s $40B fixed income capabilities • Partnering to help investors effectively plan for, and live well in retirement. We will deliver his expertise through: – Bringing new investment solutions to market – Evolving our industry - leading financial planning capability to include longevity planning – Educating advisors and investors on retirement • Announced three acquisitions: SureVest, One Capital Management and Cabana Group – ~$3.2B USD (~$4.2B CAD) in combined AUA • Signed letters of intent to acquire 2 more RIAs in key strategic US locations • Rolling out full cross - border capabilities to service clients north and south of the border Globalize our company Expand our wealth management platform Modernize our asset management business What we're doing Strategic priorities
CI Financial | Why the US RIA Market? 17 17 17 Why the US? How will we compete? The US market is the most attractive market for global expansion • Largest addressable pool of assets • Most accessible – same time zones, same language, similar cultures • Competition is high but barriers to entry are low Why RIAs? Registered Independent Advisors (RIAs): • Fastest growing segment of the US wealth market • Account for 23% of the wealth market and growing at 18% p.a. • Fiduciary standard for clients, strong focus on financial planning • Highly fragmented with ~90% of firms independently owned • Significant economies of scale, accessible through M&A Create an industry - leading RIA aggregator by selectively pursuing acquisitions of fast growing firms in strategically attractive markets and market segments
CI Financial | Expense Management 18 18 18 511.2 500.7 494.2 451.5 462.5 Q2 - 2019 Q1 - 2020 Q3 - 2019 Q1 - 2019 Q4 - 2019 Annualized SG&A ($millions) $49M | Expense management strategies delivered annualized SG&A reductions of $49 million Transition to cost - effective digital marketing efforts x Firm - wide brand integration across all CI businesses x SG&A target of less than $120 million per quarter x • CI Financial has put specific initiatives into place to enhance its cost containment efforts: x Launch of a 5 - year initiative in 2018 to streamline product shelf and reduce complexity x Rationalize fund line up to save on filing and administrative fees x Short - term increase in innovation spend and acquisition of Virtual Brokers and WealthBar to introduce technology to replace manual processes in the back and middle office Cost Containment Efforts
Public debentures $ 1 , 570 Credit facility $ 175 Total debt outstanding at March 31 , 2020 $ 1 , 745 Credit facility repayment in April $ 119 Expected repayment of credit facility in May $ 56 Expected debt outstanding at May 31 , 2020 $ 1 , 570 Liquid marketable securities on hand $ 100 19 Leverage Considerations 19 19 19 19 19 19 19 19 1,268 1,270 1,341 1,383 1,464 1,470 $1,529 $1,525 $1,569 $1,604 $1,745 $1,570 1.8x 1.8x 1.9x 1.8x 2.2x 1.9x 1.5x 1.5x 1.6x 1.6x 1.9x 1.8x Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Pro Forma May 2020 Net debt* Gross Debt Gross debt to EBITDA* Net debt to EBITDA* 15.3x 15.3x 15.1x 15.8x 13.4x Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Interest coverage* │ While credit markets have improved considerably over the past few weeks, we are maintaining our conservative stance with an expected full pay - down of debt under our $700mn bank debt facility. This will occur before the end of May Interest Coverage (2) Leverage ($millions) Pro Forma Debt Repayment Schedule ($millions) All figures in $millions. 1. Based on Q1 - 2020 adj. EBITDA. 2. Interest coverage ratio defines as EBITDA (adj.) divided by interest and lease finance payment. * This is a non - IFRS financial measure. See the Disclaimer on page 27 relating to non - IFRS financial measures. (1)
20 Capital Management 20 20 20 20 20 20 20 20 $450 $200 $325 $350 $250 2020 2021 2022 2023 2024 2025 2026 2027 Senior Unsecured Debentures Maturity ($millions) CI has implemented several strategic initiatives to position its capital structure for long - term growth Date Outlook Issuer Rating March 19, 2020 Stable BBB March 27, 2020 Negative BBB (high) Financial figures on an adjusted basis. Credit Ratings Target Leverage • Target maximum net debt to EBTIDA of 2.0x Pay Down Debt • Intend to pay down outstanding balance of credit facility by end of May 2020 Pause on NCIB • Pause NCIB program with a shift in focus on maintaining a defensive, flexible capital position Reduced Dividend Policy • In August 2018, announced a decrease in the annual dividend rate to $0.72 per share from $1.41 per share
Financial Highlights
22 Quarterly Financial Highlights 22 22 22 22 22 22 22 22 Q1 - 2020 Q4 - 2019 Q1 - 2019 QoQ YoY Average AUM $127,163 $130,542 $128,521 (3%) (1%) Ending AUM $111,065 $131,741 $130,944 (16%) (15%) Assets under administration $44,611 $50,505 $46,393 (12%) (4%) Adjusted net income* $126.5 $147.5 $140.0 (14%) (10%) • per share* $0.58 $0.66 $0.58 (12%) - % Free cash flow* $143.7 $168.3 $143.5 (15%) - % Change All numbers in millions, except per share *This is a non - IFRS financial measure. See the Disclaimer on page 27 relating to non - IFRS financial measures.
(in $millions, except per share) FY 2016 FY 2017 FY 2018 FY 2019 Assets under management 117,889 143,028 123,991 131,741 Total client assets 156,124 185,727 166,277 182,246 Total revenues 1,948 2,111 2,236 2,119 Total expenses 1,179 1,303 1,393 1,392 EBITDA (adjusted)* 835 892 906 851 Net income to shareholders (adjusted)* 590 628 617 565 Earnings per share (adjusted)* 2.18 2.38 2.38 2.41 LTM ROE (adjusted net income, %) 37.2% 39.9% 37.1% 37.8% Free cash flow* 605 648 656 603 Net debt* 573 861 1,255 1,383 Net debt/annualized adjusted EBITDA* 0.7x 0.9x 1.5x 1.6x Adjusted EBITDA /total revenue* 42.9% 42.2% 40.5% 40.1% Net management fees, % of avg. AUM 1.050% 1.012% 0.961% 0.942% Total SG&A expenses, % of avg. AUM 0.353% 0.358% 0.374% 0.377% Net management fees are defined as management fees less trailer fees and DSC paid. *This is a non - IFRS financial measure. See the Disclaimer on page 27 relating to non - IFRS financial measures. 23 Historical Annual Results 23 23 23 23 23 23 23 23
Appendix
25 CI Executives 25 25 25 25 25 25 25 25 25 Kurt MacAlpine Chief Executive Officer Darie Urbanky President and Chief Operating Officer Doug Jamieson Chief Financial Officer Sean Etherington President, Assante Wealth Management Jaime Ross President, CI Private Counsel and Head of Institutional Sales Roy Ratnavel EVP, CI Financial and Head of Retail Sales Lorraine Blair Chief Talent Officer
26 Board of Directors 26 26 26 26 26 26 26 26 26 Kurt MacAlpine Chief Executive Officer CI Financial Bridgette Chang - Addorisio William T. Holland Chairman of the Board CI Financial David P. Miller Tom P. Muir Sheila A. Murray Paul J. Perrow William Butt
This presentation contains forward - looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp . (“CI”) and its products and services, including its business operations, strategy and financial performance and condition . Forward - looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would” . These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control . Although management believes that the expectations reflected in such forward - looking statements are based on reasonable assumptions, such statements involve risks and uncertainties . The material factors and assumptions applied in reaching the conclusions contained in these forward - looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable . Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time . The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward - looking statements . Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward - looking statement after the date on which it is made, whether to reflect new information, future events or otherwise . This presentation contains non - IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies . However, management uses these financial measures and believes that these financial measures provide information that is useful to shareholders, other stakeholders and investment analysts in understanding CI’s performance and results . These non - IFRS measures are described and/or reconciled to the nearest IFRS measure in CI’s most recent Management’s Discussion and Analysis available at www . cifinancial . com . This presentation is not an offer and will not form the basis of any contract for the consummation of any transaction between you and CI . There will be no binding commitment relating to any transaction unless and until definitive agreements relating thereto have been executed . All dollar values included in this presentation are expressed in Canadian dollars unless otherwise specified . 27 27 27 27 27 27 27 27 27 27 Disclaimer
Exhibit 99.57
EXECUTION VERSION
AGENCY AGREEMENT
May 21, 2020
CI Financial Corp.
2 Queen Street East, 20th Floor
Toronto, ON
M5C 3G7
Attention: | Kurt MacAlpine, Chief Executive Officer |
Dear Sirs/Mesdames:
National Bank Financial Inc. and CIBC World Markets Inc. (collectively, the “Lead Agents”), TD Securities Inc., BMO Nesbitt Burns Inc., Scotia Capital Inc., Casgrain & Company Limited, INFOR Financial Inc. and Manulife Securities Incorporated (collectively with the Lead Agents, the “Agents”, and each individually an “Agent”) understand that CI Financial Corp. (the “Corporation”) proposes to issue and sell up to $450,000,000 aggregate principal amount of 3.759% debentures due 2025 (the “Debentures”) of the Corporation. Upon and subject to the terms and conditions contained in this Agreement, the Corporation hereby appoints the Agents, acting severally, as its exclusive agents to solicit offers to purchase Debentures. The Agents hereby severally accept their appointment to act as the Corporation’s exclusive agents in the solicitation of offers to purchase Debentures, and each Agent agrees to use its reasonable best efforts to attempt to sell the Debentures in accordance with the terms and conditions of this Agreement.
We understand that the Corporation has prepared and filed with the Ontario Securities Commission (the “Reviewing Authority”) and the other Securities Commissions in accordance with National Instrument 44-101 – Short Form Prospectus Distributions (“NI 44-101”) and National Instrument 44-102 – Shelf Distributions (“NI 44-102”, and, collectively with NI 44-101, the “Shelf Procedures”), a (final) unallocated short form base shelf prospectus dated December 17, 2019 relating to the offering of up to $2,000,000,000 aggregate initial offering price of unsecured debt securities, subscription receipts, preference shares and common shares of the Corporation (in the English and French languages, as applicable, the “Base Prospectus”) and has obtained from the Reviewing Authority a Decision Document for the Base Prospectus for and on behalf of itself and each of the other Securities Commissions pursuant to National Policy 11-202 – Process for Prospectus Reviews in Multiple Jurisdictions (“NP 11-202”).
The Agents will solicit offers in each of the provinces of Canada (collectively, the “Qualifying Jurisdictions”). Offers to purchase the Debentures solicited by any Agent will be subject to acceptance by the Corporation and to the requirements of applicable Securities Laws or other applicable Laws. The Corporation will have the sole right to accept offers to purchase Debentures and reserves the right to withdraw, cancel or modify the offer made pursuant to the Prospectus Supplement and may, in its absolute discretion, reject any proposed purchase of Debentures, in whole or in part. For greater certainty, the Agents are under no obligation to purchase any Debentures.
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In consideration of the Agents’ services, the Corporation hereby agrees to pay or cause to be paid to the Agents at the Time of Closing, an aggregate fee equal to 0.35% of the aggregate principal amount of the Debentures (the “Agency Fee”).
1. Interpretation
(a) In this Agreement, the following terms shall have the following meanings:
“affiliate” has the meaning given to such term under the Securities Act (Ontario);
“Agency Fee” has the meaning given to that term in the fourth paragraph of this Agreement;
“Agents” has the meaning given to that term in the first paragraph of this Agreement;
“Agreement” means the agreement resulting from the appointment by the Corporation of the Agents and the Agents’ acceptance hereunder, and the terms “hereof”, “hereunder” and similar expressions refer to this Agreement and not to any particular Section or other portion hereof, as the same may be amended, restated, supplemented or otherwise modified from time to time;
“Authorization” means any certificate, consent, order, permit, approval, consent, waiver, licence, qualification, registration or similar authorization of any Governmental Body having jurisdiction over a person or property;
“Base Prospectus” has the meaning given to that term in the second paragraph of this Agreement;
“Beneficiaries” has the meaning given to that term in Section 12(f);
“Business” means the business carried on by the Corporate Entities taken as a whole on a consolidated basis;
“business day” means a day, other than a Saturday, Sunday or a day on which chartered banks are not open for business in Toronto, Ontario;
“Claim” has the meaning given to that term in Section 12(a);
“Closing Date” means May 26, 2020;
“Contract” means any agreement, indenture, mortgage, charge, contract, lease, offer to lease, agreement to lease, deed of trust, licence, option, warrant, note agreement, loan agreement, instrument, collective agreement, or other binding commitment or understanding, whether written or oral;
“Corporate Entities” means the Corporation and the Principal Subsidiaries;
“Corporation” has the meaning given to that term in the first paragraph of this Agreement and includes any successors or assigns;
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“DBRS” has the meaning given to that term in Section 4(f);
“Debenture Marketing Materials” means the following written documents that constitute the Template Version of Marketing Materials that are required to be filed with the Securities Commissions in accordance with the Shelf Procedures: (i) CI Financial Corp. Indicative Term Sheet dated May 21, 2020, (ii) CI Financial Corp. Final Term Sheet dated May 21, 2020 and (iii) the investor presentation entitled “CI Financial” dated May 21, 2020;
“Debentures” has the meaning given to that term in the first paragraph of this Agreement;
“Decision Document” means a receipt for the Base Prospectus issued by or on behalf of the Securities Commissions in accordance with the Passport System;
“distribution” means “distribution” or “distribution to the public”, as the case may be, for the purposes of applicable Securities Laws;
“Documents Incorporated by Reference” means the documents incorporated by reference in the Prospectus;
“Financial Data” has the meaning given to that term in Section 4(c)(iv)(A);
“Financial Information” means the following information set forth in the Prospectus or the Documents Incorporated by Reference (and corresponding information in other Offering Documents):
(i) | the audited comparative consolidated financial statements of the Corporation for the year ended December 31, 2019, together with the notes thereto and the auditors’ report thereon; |
(ii) | the management’s discussion and analysis of operating results and financial position of the Corporation for the year ended December 31, 2019; |
(iii) | the unaudited condensed consolidated financial statements of the Corporation for the three months ended March 31, 2020, together with the notes thereto; |
(iv) | the management’s discussion and analysis of operating results and financial position of the Corporation for the three months ended March 31, 2020; and |
(v) | the sections “Earnings Coverage Ratios” and “Consolidated Capitalization” appearing in the Prospectus; |
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“Governmental Body” means any:
(i) | multinational, federal, provincial, municipal, local or other governmental or public department, regulatory authority, central bank, court, commission, board, bureau, agency or instrumentality, domestic or foreign; |
(ii) | subdivision or authority of any of the foregoing; or |
(iii) | quasi-governmental, or self-regulatory organization; |
“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board, which were adopted by the Canadian Accounting Board as Canadian generally accepted accounting principles applicable to publicly accountable enterprises;
“Indemnified Parties” has the meaning given to that term in Section 12(a);
“Indemnifying Party” has the meaning given to that term in Section 12(a);
“Laws” means any and all applicable laws, including all statutes, codes, ordinances, decrees, rules, regulations, municipal by-laws, judicial or arbitral or administrative or ministerial or departmental or regulatory judgments, orders, decisions, rulings or awards, or policies or guidelines of (or issued by) Governmental Bodies, or Authorizations binding on or affecting the person referred to in the context in which the word is used;
“Lead Agents” has the meaning given to the term in the first paragraph of this Agreement;
“Marketing Materials” has the meaning given to that term in NI 41-101;
“Material Adverse Change” means a material adverse change (whether actual, anticipated, contemplated, proposed, or threatened), financial or otherwise, in the operating, financial or physical condition of the Business, or capital of the Corporate Entities, taken as a whole on a consolidated basis, in each case from that in effect at the time of filing the Prospectus;
“material change”, “material fact” and “misrepresentation” have the respective meanings given to them under applicable Securities Laws of the Qualifying Jurisdictions;
“NI 41-101” means National Instrument 41-101 – General Prospectus Requirements;
“NI 44-101” has the meaning given to that term in the second paragraph of this Agreement;
“NI 44-102” has the meaning given to that term in the second paragraph of this Agreement;
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“NP 11-202” has the meaning given to that term in the second paragraph of this Agreement;
“Offering” means the offering of the Debentures under the Prospectus;
“Offering Documents” means, collectively, the Prospectus and any Supplementary Material;
“Passport System” means the prospectus review procedures provided for under NP 11-202;
“person” means and includes any individual, general partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation (with or without share capital), joint stock company, association, trust, trust company, bank, pension fund, trustee, executor, administrator or other legal personal representative, Governmental Body or other organization or entity, whether or not a legal entity, however designated or constituted;
“Principal Subsidiaries” means, collectively, CI Investments Inc. and Assante Wealth Management (Canada) Ltd., and “Principal Subsidiary” means any one of them;
“Prospectus” means, collectively, the Base Prospectus and the Prospectus Supplement, including the Documents Incorporated by Reference;
“Prospectus Supplement” means the prospectus supplement dated May 21, 2020 relating to the issuance of the Debentures;
“Qualifying Jurisdictions” has the meaning given to that term in the third paragraph of this Agreement;
“Reviewing Authority” has the meaning given to that term in the second paragraph of this Agreement;
“S&P” has the meaning given to that term in Section 4(f);
“Securities Commissions” means, collectively, the securities commission or securities regulatory authority in each of the Qualifying Jurisdictions;
“Securities Laws” means, collectively, the securities Laws of each of the Qualifying Jurisdictions and the respective regulations and rules made under those securities Laws together with all published policy statements, instruments, blanket orders and rulings of the Securities Commissions and all discretionary orders or rulings, if any, of the Securities Commissions made in connection with the transactions contemplated by this Agreement and the Prospectus, together with the policy statements of the Canadian Securities Administrators;
“Selling Group” has the meaning given to that term in Section 3(a);
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“Series Supplement” means the supplement to the Trust Indenture creating the Debentures;
“Shelf Procedures” has the meaning given to that term in the second paragraph of this Agreement;
“Supplementary Material” means, collectively, any amendment or supplement to the Prospectus;
“Tax Act” means the Income Tax Act (Canada) and the regulations thereunder, as amended;
“Template Version” has the meaning given to that term in NI 41-101;
“Time of Closing” means 8:00 a.m. (Toronto time) on the Closing Date, or any other time on the Closing Date as may be agreed to by the Corporation and the Agents;
“Trustee” means Computershare Trust Company of Canada, a corporation duly registered to carry on the business of a trust corporation in each of the provinces and territories of Canada; and
“Trust Indenture” means the trust indenture to be dated on or about the Closing Date, as supplemented from time to time, between the Corporation and the Trustee pursuant to which the Debentures are to be issued.
(b) All dollar amounts in this Agreement are expressed in Canadian currency.
(c) The division of this Agreement into Sections and the insertion of headings is for convenience of reference only and shall not affect the construction or interpretation hereof. Except as expressly provided herein, references to a Section or Schedule are references to a Section of or Schedule to this Agreement.
(d) Words importing the singular number shall include the plural and vice versa, and words importing any gender shall include all genders. The term “including” means “including without limitation”.
2. Filing of Prospectus Supplement
(a) The Corporation shall as soon as possible and in any event not later than 11:00 p.m. (Toronto time) on May 21, 2020 comply with the Shelf Procedures to prepare and file the Prospectus Supplement with the Securities Commissions in each of the Qualifying Jurisdictions.
(b) Until the distribution of the Debentures has been completed, the Corporation will promptly take, or cause to be taken, all additional steps and proceedings that are in its power to take or cause to be taken and which may from time to time be required under the Securities Laws to continue to qualify the distribution of the Debentures in the Qualifying Jurisdictions or, if the Debentures have, for any reason, ceased to so qualify, to again qualify the Debentures, as applicable, for distribution in each of the Qualifying Jurisdictions.
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(c) Prior to the filing of the Prospectus Supplement and any Supplementary Material, the Corporation shall have permitted the Agents to review each of the Prospectus Supplement and such Supplementary Material and shall have allowed the Agents to conduct any due diligence investigations which each of them reasonably requires in order to fulfil its obligations as an agent under Securities Laws and in order to enable it to responsibly execute the certificate in the Prospectus Supplement and such Supplementary Material required to be executed by it where applicable. Following the filing of the Prospectus Supplement and prior to the completion of the distribution of the Debentures, the Corporation shall allow each of the Agents to conduct any due diligence investigations which any of them reasonably requires to confirm as at any date that it continues to have reasonable grounds for the belief that the Prospectus does not contain a misrepresentation as at such date.
3. Distribution and Certain Obligations of Agents
(a) During the course of the distribution of the Debentures to the public by or through the Agents, the Agents will solicit offers for the Debentures from the public only in those jurisdictions where they may be lawfully offered for sale or sold. The Agents will comply with applicable Securities Laws in connection with the distribution of the Debentures. The Agents will not, directly or indirectly, solicit offers to purchase the Debentures or deliver any Offering Document in any jurisdiction other than the Qualifying Jurisdictions. Each Agent will cause similar undertakings to be contained in any agreements entered into among the members of the banking, selling or other groups formed for the distribution of the Debentures (collectively, the “Selling Group”), if any, and will cause each member of such Selling Group to comply with applicable Securities Laws.
(b) The Agents will complete and will use their reasonable best efforts to cause members of their Selling Group, if any, to complete the distribution of the Debentures as soon as practicable after the Time of Closing. The Agents will notify the Corporation as soon as practicable and in any event within 10 days following the date when, in the Agents’ opinion, the Agents and the members of their Selling Group, if any, have ceased the distribution of the Debentures and will provide the Corporation with a written breakdown of the number of Debentures distributed in each of the Qualifying Jurisdictions where that breakdown is required by the relevant Securities Commission for the purpose of calculating fees payable to that Securities Commission.
(c) For the purposes of this Section 3, the Agents will be entitled to assume that the Debentures are qualified for distribution in each Qualifying Jurisdiction in respect of which the Decision Document has been obtained unless the Agents receive written notice to the contrary from the Corporation.
(d) Each of the Agents hereby severally represents, warrants and covenants and will require each member of the Selling Group to represent, warrant and covenant to the Agents that: (a) other than the Prospectus and the Debenture Marketing Materials (modified as permitted by sections 9A.3(2) and 9A.3(3) of NI 44-102), it has not provided, and will not without the prior written approval of the Corporation and the Lead Agents, on behalf of the Agents, provide, any information in respect of the Debentures to any potential investors including, without limitation: (i) Marketing Materials in respect of the Debentures; and (ii) a standard term sheet in respect of the Debentures; and (b) it will provide a copy of the Base Prospectus and any Supplementary Material that has been filed with any Marketing Materials (including the Debenture Marketing Materials) that are provided to a potential investor.
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(e) Each of the Agents hereby severally represents and warrants that the Corporation is not a “related issuer” or “connected issuer” of it; except that each of National Bank Financial Inc., CIBC World Markets Inc. and TD Securities Inc. is the subsidiary of a Canadian chartered bank or other financial institution that is a lender to the Corporation. For the purposes of this Section 3(e), “related issuer” and “connected issuer” have the meanings ascribed thereto in National Instrument 33-105 – Underwriting Conflicts.
(f) No Agent will be liable to the Corporation under this Section 3 with respect to a default by any of the other Agents.
4. Delivery of Prospectus and Related Matters
(a) The Corporation shall deliver promptly to the Agents copies of the Prospectus Supplement and the Base Prospectus in the English and French languages, signed and certified as required by Securities Laws. The Corporation shall prepare and deliver promptly to the Agents copies of all Supplementary Material in the English and French languages, as applicable, signed and certified as required under Securities Laws and accompanied by documents corresponding to those referred to in Section 4(c).
(b) Each delivery of an Offering Document by the Corporation to the Agents shall constitute the consent of the Corporation to the use by the Agents and the members of their Selling Group, if any, of such Offering Document in connection with the Offering of the Debentures and shall constitute the representation and warranty of the Corporation to the Agents that, at the respective times of such delivery:
(i) | all information and statements (except information and statements relating solely to the Agents and provided by the Agents in writing expressly for inclusion therein) contained therein: |
(A) | are true and correct in all material respects and contain no misrepresentation; and |
(B) | constitute full, true and plain disclosure of all material facts relating to the Debentures and to the Corporate Entities considered as a whole; |
(ii) | such document does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made; and |
(iii) | such document complies in all material respects with Securities Laws at the time filed. |
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(c) Prior to or concurrently with the filing of the Prospectus Supplement, the Corporation shall deliver to the Agents, without charge:
(i) | a copy of any other document required to be filed by the Corporation under the Securities Laws in connection with the Offering; |
(ii) | a translation opinion from Québec counsel to the Corporation dated the date of this Agreement, in form and substance satisfactory to the Agents, addressed to the Agents, the Corporation and their respective counsel, to the effect that except for the Financial Information contained in the English language version of the Prospectus (as to which no opinion need be expressed by Québec counsel), the French language version of the Prospectus is in all material respects a complete and proper translation of the English language version thereof; |
(iii) | an opinion from the auditors of the Corporation, dated the date of this Agreement, in form and substance satisfactory to the Agents, addressed to the Agents, the Corporation and their respective counsel, to the effect that the Financial Information contained in the French language version of the Prospectus includes the same information and in all material respects carries the same meaning as the English language version of the Financial Information; and |
(iv) | a “long-form” comfort letter of the auditors of the Corporation dated the date of this Agreement, in form and substance satisfactory to the Agents and their counsel and addressed to the Agents, based on a review completed not more than two business days prior to the date of the letter, verifying certain financial and accounting information relating to the Corporation in the Prospectus, including all Documents Incorporated by Reference, and any Supplementary Material, including: |
(A) | relating to the verification of the financial information and statistical and accounting data (other than industry data derived from industry sources) (collectively, the “Financial Data”) contained in the “circle up” of the Prospectus, the Documents Incorporated by Reference and any Supplementary Material and matters involving changes or developments since the respective dates as of which such Financial Data is given in the Prospectus, the Documents Incorporated by Reference or the Supplementary Material, as the case may be; and |
(B) | to the effect that the auditors are independent public accountants as required by Securities Laws, which letter will be in addition to the consent letters addressed by the auditors to the Securities Commissions in the Qualifying Jurisdictions or contained in the Prospectus. |
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(d) Opinions, comfort letters and other documents substantially similar to those referred to in Section 4(c) of this Agreement will be delivered to the Agents, the directors of the Corporation and their respective counsel with respect to any Supplementary Material concurrently with the filing of such Supplementary Material with the Securities Commissions.
(e) During the period commencing on the date hereof and ending on the date of completion of the distribution of the Debentures, the Corporation will promptly provide to the Agents and their counsel drafts of any press releases of the Corporation relating to any of the Corporate Entities, the Offering or the Business, for review and approval by the Agents and their counsel prior to issuance, such approval not to be unreasonably withheld.
(f) Concurrently with the execution of this Agreement, the Corporation shall have delivered to the Agents provisional confirmation from (i) Standard & Poor’s Ratings Services (“S&P”) of a “BBB” credit rating for the Debentures and a provisional credit rating of “BBB” with a “Stable” outlook for the Corporation, and (ii) DBRS Limited (“DBRS”) of a “BBB(high)” rating Under Review with Negative Implications for the Debentures.
5. Material Change
(a) The Corporation will promptly inform the Agents in writing during the period prior to the completion of the distribution of the Debentures of the full particulars of:
(i) | any Material Adverse Change; |
(ii) | any material fact which has arisen or has been discovered that would have been required to have been stated in an Offering Document had that fact arisen or been discovered on or prior to the date of such Offering Document; and |
(iii) | any change in any material fact contained in any of the Offering Documents or whether any event or state of facts has occurred after the date of this Agreement, which, in any case, could render any of the Offering Documents untrue or misleading in any material respect or result in a misrepresentation in any of the Offering Documents. |
(b) During the period prior to the completion of the distribution of the Debentures, the Corporation will comply with section 57 of the Securities Act (Ontario) and with the comparable provisions of other Securities Laws, and the Corporation will prepare and file promptly at the request of the Agents any Supplementary Material which, in the opinion of the Agents, may be necessary or advisable, and will otherwise comply with all legal requirements necessary to continue to qualify the Debentures for distribution in each of the Qualifying Jurisdictions.
(c) In addition to the provisions of Sections 5(a) and 5(b), the Corporation will, in good faith, discuss with the Lead Agents any change, event or fact contemplated in Section 5(a) which is of such a nature that there may be reasonable doubt as to whether notice should be given to the Agents under Section 5(a) and will consult with the Agents with respect to the form and content of any Supplementary Material proposed to be filed by the Corporation, it being understood and agreed that no such Supplementary Material will be filed with any Securities Commission prior to the review and approval of such Supplementary Material by the Agents and their counsel (such approval not to be unreasonably withheld).
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(d) During the period commencing on the date hereof and ending on the date the Agents notify the Corporation of the completion of the distribution of the Debentures, the Corporation will, and will cause each of the Corporate Entities to, promptly inform the Agents of the full particulars of: (i) any request of any Securities Commission for any amendment to the Prospectus or any Supplementary Material or for any additional information in connection with the Offering; and (ii) any notice or other correspondence received by any of them from any Governmental Body commencing or threatening any investigation into any of the Corporate Entities or their businesses.
6. Regulatory Approvals
The Corporation will, and will cause each of the Corporate Entities to, make all necessary filings and obtain all necessary regulatory consents and approvals, if any, and the Corporation will pay or cause to be paid by the other Corporate Entities all filing fees required to be paid in connection with the transactions contemplated by this Agreement.
7. Representations and Warranties of the Corporation
(a) The Corporation represents and warrants to the Agents and acknowledges that the Agents are relying upon the following representations and warranties in entering into this Agreement and completing the transactions contemplated hereunder:
(i) | the Corporation is a corporation duly created and validly existing as a corporation under the Business Corporations Act (Ontario) and has all requisite power, capacity and authority to own or lease and to manage its properties and assets and to conduct the Business, all as contemplated in the Prospectus; |
(ii) | the Corporation is a reporting issuer in each of the provinces of Canada and is not in default of any requirement under Securities Laws; |
(iii) | each Principal Subsidiary is a subsidiary of the Corporation that is material to the operations of the Business and each Principal Subsidiary is an entity duly formed and validly existing under the Laws of the jurisdiction of its formation; |
(iv) | all of the equity securities of each of the Corporate Entities outstanding on the date hereof have been duly authorized and validly issued as fully paid and, to the extent applicable, non-assessable; |
(v) | the Business has been and is being operated by the Corporate Entities in compliance in all material respects with all Laws and Authorizations and all such Authorizations are valid and existing and in good standing, except where such failure to be valid, existing and/or in good standing would not have a material adverse effect on the Corporate Entities taken as a whole, and none of them contains any term, provision, condition or limitation which has a material adverse effect on the Corporate Entities taken as a whole; |
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(vi) | each of the Corporate Entities has conducted and is conducting its Business in compliance with the terms and provisions of its constating and organizational documents in all material respects; |
(vii) | this Agreement has been, and prior to the Time of Closing the Trust Indenture and the Series Supplement will be, duly authorized, executed and delivered by the Corporation and constitute legal, valid and binding obligations of the Corporation enforceable in accordance with their respective terms, except where enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally and general principles of equity; |
(viii) | the issuance of the Debentures by the Corporation to be distributed by the Agents in accordance with the terms of this Agreement has been authorized by all necessary action of the Corporation; |
(ix) | no Authorization is required by any of the Corporate Entities for the execution and delivery of and the performance by the Corporation of its obligations under this Agreement, the Trust Indenture or the Series Supplement, as applicable, or the creation, issue, sale and distribution of the Debentures, except as may be required under the Securities Laws which shall have been obtained on or before the Time of Closing; |
(x) | none of (i) the execution and delivery of this Agreement, the Trust Indenture, the Series Supplement and any other document or instrument to be executed and delivered by the Corporation pursuant hereto or thereto; (ii) the performance and compliance with the terms of this Agreement, the Trust Indenture and the Series Supplement, and any document or instrument to be executed and delivered by the Corporation pursuant hereto; or (iii) the issue and sale of the Debentures, would result in any breach of, or be in conflict with or constitute a default under or create a state of facts which (whether after notice or lapse of time or both) would constitute, in any material respect, a default under or breach of, and none of the Corporate Entities is in default under or in breach of, (A) the terms, conditions or provisions of their respective constating or organizational documents, or any resolution of their respective trustees, directors, unitholders, partners or shareholders, as applicable; (B) any material Contract to which any of such person is a party or by which its or their respective property or assets are bound (except where such breach or default would not have a material adverse effect on the Corporate Entities, taken as a whole, or the Offering); or (C) any judgment or Law applicable to any of them, including the Securities Laws (except where such breach or default would not have a material adverse effect on the Corporate Entities, taken as a whole, or the Offering); |
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(xi) | the Corporation has obtained or will, on or prior to the Closing Date, obtain all required third party consents under its Contracts and constating documents in connection with the transactions contemplated by this Agreement and the Prospectus, where the failure to obtain such consent would individually or in the aggregate, result in a material adverse effect on the Corporate Entities, taken as a whole, or the Offering; |
(xii) | the Corporation has prepared and filed with the Securities Commissions, in accordance with the Shelf Procedures, the Base Prospectus and has obtained from the Reviewing Authority a Decision Document for the Base Prospectus. The aggregate initial offering amount of all securities issued pursuant to the Base Prospectus does not and, upon completion of the Offering, will not exceed $2,000,000,000, being the maximum allowable amount thereunder. The Corporation is eligible to use the Shelf Procedures; |
(xiii) | the consolidated financial statements of the Corporation incorporated by reference in the Prospectus have been prepared in all material respects in accordance with IFRS and the Securities Laws and present fairly and accurately the financial condition and position, results of operations, cash flows and all of the assets and liabilities of the Corporation on a consolidated basis; |
(xiv) | other than as disclosed in the Financial Information, there are no off-balance sheet transactions, arrangements, obligations (including contingent obligations) or other relationships of any of the Corporate Entities with unconsolidated entities or other persons that would or would reasonably be expected to have a material adverse effect on (i) the Corporate Entities, taken as a whole, or (ii) the liquidity, capital, capital resources, or significant components of revenues or expenses of the Corporation; |
(xv) | except as disclosed in the Prospectus, none of the Corporate Entities has any contingent liabilities, in excess of the liabilities that are either reflected or reserved against in the Financial Information, which would or would reasonably be expected to have a material adverse effect on (i) the Corporate Entities, taken as a whole, or (ii) the liquidity, capital, capital resources, or significant components of revenues or expenses of the Corporation; |
(xvi) | the Corporation maintains a system of internal controls over financial reporting (as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings) sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS; |
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(xvii) | except as disclosed in the Prospectus, there has not occurred any material change, financial or otherwise, in the assets, liabilities (contingent or otherwise), business, financial condition or capital of the Corporate Entities, taken as a whole, since December 31, 2019; |
(xviii) | Ernst & Young LLP, who reported on or reviewed the financial statements of the Corporation included in the Prospectus, are independent with respect to the Corporation, as required by applicable Securities Laws; |
(xix) | each of the Corporate Entities has, on a timely basis, filed all necessary tax returns and notices and has paid or made provision for all applicable taxes of whatever nature for all tax years to the date hereof to the extent such taxes have become due or have been alleged to be due except to the extent that the failure to do any of the foregoing would not be expected to have a material adverse effect on the Corporate Entities, taken as a whole; and the Corporation has no knowledge of any material tax deficiencies or material interest or penalties accrued or accruing or alleged to be accrued or accruing thereon with respect to itself or any subsidiary which have not otherwise been provided for by the Corporation, except to the extent that any such deficiency, interest or penalty would not be expected to have a material adverse effect on the Corporate Entities, taken as a whole; |
(xx) | the proceeds of the Offering will be used in the manner specified in the Prospectus and for no other purpose; |
(xxi) | other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which any Corporate Entity is a party or of which any property or assets of the Corporate Entities is the subject which, if determined adversely to the Corporate Entities, would have a material adverse effect on the assets, liabilities (contingent or otherwise), business, financial condition or capital of the Corporate Entities taken as a whole and, to the best of the Corporation’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or others; |
(xxii) | no acquisitions have been made by the Corporate Entities that are “significant acquisitions” for which the Corporation is required to file a “business acquisition report” (as such terms are defined in National Instrument 51-102 – Continuous Disclosure Obligations) (other than such as have been filed prior to the date hereof) and none of the Corporate Entities is a party to any Contract with respect to any transaction that would constitute a “proposed acquisition”, in each case which would require disclosure in the Prospectus in accordance with NI 44-101; |
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(xxiii) | there has not been any reportable event (within the meaning of National Instrument 51-102 – Continuous Disclosure Obligations) with the auditors of the Corporation; and |
(xxiv) | except as disclosed in the Prospectus and contemplated hereby, there is no person acting or purporting to act at the request of any of the Corporate Entities who is entitled to any brokerage or agency fee in connection with the transactions contemplated by the Prospectus. |
8. Covenants of the Corporation
(a) The Corporation covenants and agrees with each of the Agents that the Corporation:
(i) | will advise the Agents promptly after receiving notice that the Prospectus and any Supplementary Material have been filed and receipts have been obtained therefor, if and as applicable, and will provide evidence satisfactory to the Agents of each such filing and the issuance of such receipts; |
(ii) | will advise the Agents promptly after receiving notice or obtaining knowledge of: |
(A) | the issuance by any Securities Commission of any order suspending or preventing the use of any Offering Document; |
(B) | the suspension of the qualification of the Debentures for offering or sale in any of the Qualifying Jurisdictions; |
(C) | the institution, threatening or contemplation of any proceeding for any of the purposes described in (A) or (B); or |
(D) | any requests made by any Securities Commission to amend or supplement the Prospectus or for additional information, |
and it will use its reasonable best efforts to prevent the issuance of any such order or request and, if any such order or request is issued, to obtain the withdrawal of such order or request as promptly as possible; and
(iii) | will use its reasonable best efforts to promptly do, make, execute, deliver or cause to be done, made, executed or delivered, all such acts, documents and things as the Agents may reasonably require from time to time for the purpose of giving effect to this Agreement and the transactions contemplated by the Prospectus and take all such steps as may be reasonably within its or their power to implement to the full extent the provisions of this Agreement and the transactions contemplated by the Prospectus. |
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9. Survival of Representations, Warranties and Covenants
(a) All of the representations, warranties and covenants of the Corporation contained in this Agreement or in agreements, certificates or other documents referred to in this Agreement or delivered pursuant to this Agreement shall survive the distribution of the Debentures and the termination of this Agreement and such representations, warranties and covenants shall survive in full force and effect for the benefit of the Agents for a period of three years after the Closing Date, regardless of any subsequent disposition of the Debentures or any investigation by or on behalf of the Agents with respect thereto.
(b) Notwithstanding anything to the contrary in Section 9(a), in the case of any fraud or fraudulent misrepresentation of the Corporation, the representations, warranties and covenants of the Corporation contained in this Agreement or in agreements, certificates or other documents referred to in this Agreement or delivered pursuant to this Agreement shall survive the distribution of the Debentures and the termination of this Agreement and shall remain in full force and effect indefinitely.
10. Conditions of Closing
The obligation of the Agents to sell and distribute any of the Debentures will be subject to the following conditions, which are for the exclusive benefit of the Agents, and any of the following conditions may be waived, in whole or in part, by the Agents in their sole discretion pursuant to Section 15:
(a) The Agents shall have received at the Time of Closing a legal opinion dated the Closing Date in form and substance and subject to qualifications satisfactory to the Agents and their counsel, acting reasonably, addressed to the Agents and their counsel from the Corporation’s counsel with respect to those matters as the Agents may reasonably request relating to the distribution of the Debentures, including without limitation to the effect that:
(i) | the Corporation is a corporation duly incorporated and validly existing under the Laws of the Province of Ontario; |
(ii) | the Corporation has all requisite corporate power and authority to carry on the Business conducted by it as described in the Prospectus, to own, lease and operate its property and assets, to sign and file each of the Offering Documents and to carry out the transactions contemplated by the Prospectus; |
(iii) | each Principal Subsidiary is an entity duly formed and validly existing under the Laws of the jurisdiction of its formation; |
(iv) | each of the Corporate Entities has all requisite corporate power and authority to carry on the Business conducted by it as described in the Prospectus and to own, lease and operate its property and assets; |
(v) | all necessary action has been taken by the directors of the Corporation for the Corporation to validly issue and deliver the Debentures; |
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(vi) | the attributes of the Debentures are consistent in all material respects with their respective descriptions set forth in the Prospectus; |
(vii) | all necessary action has been taken by the directors of the Corporation to authorize the execution and delivery by the Corporation of this Agreement, and all necessary action has been taken by the directors of the Corporation to authorize the execution and delivery by the Corporation of the Trust Indenture and the Series Supplement, and the performance of the Corporation’s obligations hereunder and thereunder, and this Agreement, the Trust Indenture, the Series Supplement and the certificates representing the Debentures have been duly executed and delivered by the Corporation and constitute legal, valid and binding obligations of the Corporation, enforceable against it in accordance with their terms subject to customary qualifications; |
(viii) | the execution and delivery of this Agreement, the Trust Indenture and the Series Supplement, the fulfillment of the terms hereof and thereof by the Corporation, and the issuance and delivery of the Debentures, do not and will not result in a breach of or a default under, and do not and will not create a state of facts which, after notice or lapse of time or both, will result in a breach of or a default under, and do not and will not conflict with: |
(A) | any of the terms, conditions or provisions of the articles or by-laws of the Corporation; or |
(B) | any Laws of the Province of Ontario or the federal Laws of Canada applicable therein that are applicable to the Corporation; |
(ix) | the Prospectus in both the English and French languages, and the execution and filing of the Prospectus, in both the English and French languages, with the Securities Commissions have been duly approved and authorized by all necessary action on the part of the Corporation, and the Base Prospectus in both the English and French languages, has been duly executed by or on behalf of the Corporation; |
(x) | all Authorizations under applicable Securities Laws have been obtained, all necessary documents have been filed and all other legal requirements have been fulfilled to qualify the issuance, distribution and sale of the Debentures to the public in each of the Qualifying Jurisdictions through dealers registered under the applicable Laws of each of the Qualifying Jurisdictions who have complied with the relevant provisions of such Securities Laws; |
(xi) | subject to the qualifications, assumptions, limitations and understandings set out therein, the statements as to matters of the federal Laws of Canada set out in the Prospectus under the heading “Certain Canadian Federal Income Tax Considerations” fairly describe the principal Canadian federal income tax considerations as at the date thereof generally applicable under the Tax Act to a prospective purchaser of Debentures pursuant to the Prospectus; |
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(xii) | subject to the qualifications, assumptions, limitations and understandings set out in the Prospectus under the heading “Eligibility for Investment”, the Debentures will be qualified as investments under the Tax Act for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax-free savings accounts under the Tax Act; |
(xiii) | Computershare Trust Company of Canada has been appointed as the trustee with respect to the Debentures under the Trust Indenture and Series Supplement; and |
(xiv) | all Laws of the Province of Québec relating to the use of the French language will have been complied with in connection with the Prospectus, and the sale of the Debentures to purchasers in the Province of Québec if such purchasers receive copies of the French language version or French and English language versions of the Prospectus and forms of order and confirmation of sale in the French language only or in the French and English languages, provided that the English language version of the Prospectus and such forms of order and confirmation in the English language may be delivered, without delivery of the French language versions thereof, if expressly requested by the purchaser in writing. |
In connection with this opinion, counsel to the Corporation may rely on, or deliver directly, the opinions of local counsel acceptable to the Agents’ counsel, as to form, substance and choice of counsel, acting reasonably, where it deems such reliance proper (or may arrange for the provision of such opinions directly to the Agents and their counsel) and may rely, to the extent appropriate in the circumstances, as to matters of fact on certificates of the auditors of the Corporate Entities, public and stock exchange officials, and, to the extent appropriate in the circumstances, as to matters of fact on certificates of the directors or officers of the Corporation or officers or directors of the Corporate Entities.
(b) The Corporation shall cause each of its auditors to deliver to the Agents a comfort letter, dated the Closing Date, in form and substance satisfactory to the Agents and their counsel, acting reasonably, addressed to the directors of the Corporation and the Agents, bringing forward to a date not more than one business day prior to the Closing Date, the information contained in the comfort letter referred to in Section 4(c)(iv) of this Agreement.
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(c) The Corporation shall deliver to the Agents, at the Time of Closing, a certificate dated the Closing Date, addressed to the Agents and signed by two senior officers of the Corporation, certifying for and on behalf of the Corporation, and not in their personal capacity, after having made due inquiries, with respect to those matters as the Agents may reasonably request, including to the effect that:
(i) | the Corporation has complied with all of the covenants and satisfied all of the terms and conditions of this Agreement on its part to be complied with and satisfied; |
(ii) | subsequent to the respective dates as at which information is given in the Prospectus, there has not been any Material Adverse Change, or any development involving a prospective Material Adverse Change, other than as disclosed in the Offering Documents; |
(iii) | the representations and warranties of the Corporation contained in this Agreement, and in any certificates of the Corporation delivered pursuant to or in connection with this Agreement and arising by reason of the delivery of the Offering Documents, are true and correct in all material respects with the same force and effect as if made at and as of such time, after giving effect to the transactions contemplated by this Agreement and the Prospectus; and |
(iv) | Decision Documents have been obtained in respect of the Base Prospectus and any Supplementary Material, if applicable, and all other necessary documents have been filed, all requisite proceedings have been taken and all other legal requirements have been fulfilled under the Laws of each of the Qualifying Jurisdictions to qualify the issuance and sale of the Debentures to the public in each of the Qualifying Jurisdictions by or through persons who are registered under applicable legislation and who have complied with the relevant provisions of such applicable legislation and no order, ruling or determination having the effect of restricting or ceasing the trading or suspending the sale of the Debentures has been issued and no proceedings for that purpose have been instituted or are pending or, to the knowledge of those senior officers, are contemplated or threatened by any Securities Commission or other regulatory authority; |
and all of those matters will in fact be true and correct as at the Time of Closing.
(d) All actions required to be taken by or on behalf of the Corporation, including the passing of all requisite resolutions of the directors of the Corporation and all requisite filings with any Governmental Body or Securities Commission shall have occurred at or prior to the Time of Closing so as to (i) validly authorize the execution and filing of the Offering Documents and the performance of the obligations of the Corporation hereunder, and (ii) create and issue the Debentures.
(e) The Agents shall have received from the Corporation at the Time of Closing a copy of a final rating agency letter from each of (i) S&P, confirming a credit rating of “BBB” for the Debentures, and (ii) DBRS, confirming a rating of “BBB(high)” Under Review with Negative Implications for the Debentures.
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(f) The Corporation shall have complied with all of the terms and conditions of this Agreement on its part to be complied with and satisfied at or prior to the Time of Closing.
(g) The Agents shall have received such other certificates, opinions, agreements, materials or documents, in form and substance satisfactory to the Agents and their counsel, as the Agents or their counsel may reasonably request.
11. Closing
The sale of the Debentures shall be completed at the Time of Closing at the offices of the Corporation’s counsel or at such other place as the Agents and the Corporation may agree upon. At the Time of Closing, the Corporation shall deliver to the Agents evidence of the Debentures issued in book-entry form as certificated Debentures represented by a global certificate, against evidence of payment by the Agents to the Corporation of the aggregate purchase price for the Debentures by wire transfer (to a bank account designated by the Corporation to the Agents at least two business days prior to the Time of Closing) or by other means acceptable to the Corporation, together with a receipt signed by the Agents for such Debentures. The Corporation shall at the Time of Closing pay to the Agents the Agency Fee by wire transfer, or by other means acceptable to the Agents, against the delivery of a receipt for the Agency Fee signed by the Lead Agents.
12. Indemnification
(a) The Corporation (the “Indemnifying Party”) will indemnify and save harmless each of the Agents and their respective affiliates and their respective trustees, directors, officers and employees (collectively, the “Indemnified Parties”) from and against all losses (other than losses of profit in connection with the distribution of the Debentures contemplated under this Agreement), claims, actions, damages or liabilities of whatsoever nature or kind, including the aggregate amount paid in reasonable settlement of any actions, suits, proceedings or claims and the reasonable fees of their counsel in connection with any action, suit, proceeding or claim that may be made against any Indemnified Party (collectively, a “Claim”) which is caused by or arises, directly or indirectly, by reason of:
(i) | any breach of or default under any representation, warranty, covenant or agreement of the Corporation in this Agreement or any other document to be delivered in connection with, or referred to in, this Agreement, or the failure of the Corporation to comply with any of its obligations under this Agreement or under those other documents; |
(ii) | the Corporation not complying with any requirement of any Securities Laws relating to the Offering; |
(iii) | any information or statement contained in any of the Offering Documents (except any information or statement relating solely to the Agents and furnished by them specifically for use in such documents) being or being alleged to be an untrue statement, omission or misrepresentation; or |
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(iv) | any order made or any inquiry, investigation or proceeding instituted, threatened or announced by any court, securities regulatory authority, stock exchange or any other Governmental Body, based upon any untrue statement, omission or misrepresentation or alleged untrue statement, omission or misrepresentation contained in any of the Offering Documents (except an untrue statement, omission or misrepresentation relating solely to the Agents and furnished by them specifically for use in such documents) preventing or restricting the trading in or the sale or distribution of the Debentures; |
and will reimburse the Indemnified Parties for all reasonable costs, charges and expenses, as incurred, which any of the Indemnified Parties may pay or incur in connection with investigating or disputing any Claim or action related thereto, provided that this indemnity shall cease to apply to an Indemnified Party if and to the extent that a court of competent jurisdiction in a final judgment that has become non-appealable shall determine that the Indemnified Party has been grossly negligent or dishonest or has committed any fraudulent act, and the Claim for which indemnification is claimed was directly caused by such gross negligence, dishonesty or fraud. In such event, such Indemnified Party shall reimburse any funds advanced by the Corporation to the Indemnified Party pursuant to the indemnification contained in this Section 12 in respect of such Claim and thereafter this indemnity shall cease to apply to such Indemnified Party in respect of such Claim. For greater certainty, the Corporation and the Agents agree that they do not intend that any failure by the Agents to conduct such reasonable investigation as necessary to provide the Agents with reasonable grounds for believing the Offering Documents contained no misrepresentation shall constitute or be deemed to constitute “gross negligence”, “dishonesty” or “fraud” for purposes of this Section 12 or otherwise disentitle the Agents from indemnification hereunder. This indemnity will be in addition to any liability which the Corporation may otherwise have.
(b) The Indemnifying Party also agrees that no Indemnified Party shall have any liability (either direct or indirect, in contract or tort or otherwise) to the Indemnifying Party or any person asserting Claims on the Indemnifying Party’s behalf or in connection with this Agreement, except to the extent that any Claims incurred by the Indemnifying Party are determined by a court of competent jurisdiction in a final judgment that has become non-appealable to have primarily resulted from the gross negligence, fraud or dishonesty of such Indemnified Party.
(c) The Indemnifying Party hereby waives any rights it may have of first requiring the Indemnified Party to proceed against or enforce any right, power, remedy or security or claim for payment from any other person before making a Claim against an Indemnifying Party under this Section 12.
(d) If any Claim contemplated by this Section 12 is asserted against any of the Indemnified Parties, or if any potential Claim contemplated by this Section 12 comes to the knowledge of any of the Indemnified Parties, the applicable Indemnified Party will promptly thereafter notify in writing the Indemnifying Party of the nature of the Claim (provided that any failure to so notify in respect of any potential or actual Claim will not affect the liability of the Indemnifying Party under this Section 12). The Indemnifying Party will, subject to the following, be entitled (but not required) to assume the defence on behalf of the Indemnified Party of any suit brought to enforce the Claim; provided that the defence will be through legal counsel selected by the Indemnifying Party and acceptable to the Indemnified Party, acting reasonably, and no admission of liability will be made by the Indemnifying Party or the Indemnified Party without, in each case, the prior written consent of all of the Indemnified Parties and Indemnifying Party affected, which consent will not be unreasonably withheld. An Indemnified Party will have the right to employ separate counsel in any such suit and to participate in its defence but the fees and expenses of that counsel will be at the expense of the Indemnified Party unless:
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(i) | the Indemnifying Party fails to assume the defence of the suit on behalf of the Indemnified Party within ten days of receiving notice of the suit; |
(ii) | the employment of that counsel has been authorized by the Indemnifying Party; or |
(iii) | the named parties to the suit (including any added or third parties) include the Indemnified Party and the Indemnifying Party and such Indemnified Party has been advised in writing by counsel that there are legal defences available to the Indemnified Party that are different or in addition to those available to the Indemnifying Party or that representation of the Indemnified Party by counsel for the Indemnifying Party is inappropriate as a result of their potential or actual conflicting interests; |
(in the cases of each of Sections 12(d)(i), (ii) or (iii), the Indemnifying Party will not have the right to assume the defence of the suit on behalf of the Indemnified Party, but in the case of a Claim under Section 12(a), will be liable to pay the reasonable fees and expenses of separate counsel for all Indemnified Parties and, in addition, of local counsel in each applicable jurisdiction). Notwithstanding the foregoing, no settlement may be made by an Indemnified Party without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld.
It is understood that the Indemnifying Party shall, in connection with any one action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate law firm (in addition to any local counsel) at any time for all such Indemnified Parties not having actual or potential differing interests.
(e) The Indemnifying Party agrees to reimburse the Agents for the time spent by the Agents’ personnel in connection with any Claim at their normal per diem rates. The Indemnifying Party also agrees that if any Claim will be brought against, or an investigation commenced in respect of the Indemnifying Party or the Indemnifying Party and the Agents and personnel of the Agents will be required to testify, participate or respond in respect of or in connection with this Agreement, the Agents will have the right to employ their own counsel in connection therewith and the Indemnifying Party will reimburse the Agents for the time spent by their personnel in connection therewith at their normal per diem rates together with such disbursements and reasonable out-of-pocket expenses as may be incurred, including fees and disbursements of the Agents’ counsel. Such costs shall be reimbursable by the Indemnifying Party as they occur. The Agents will provide copies of all documentation relevant to such Claim or investigation to the Indemnifying Party, keep the Indemnifying Party advised of the progress thereof and discuss with the Indemnifying Party all significant actions proposed with respect thereto.
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(f) The Indemnifying Party hereby acknowledges and agrees that, with respect to this Section 12 and Section 13 of this Agreement, the Agents are contracting on their own behalf and as agents for the other Indemnified Parties not party to this Agreement (collectively, the “Beneficiaries”). In this regard, each of the Agents will act as trustee for the Beneficiaries of the covenants of the Indemnifying Party under this Section 12 and Section 13 of this Agreement and accepts these trusts and will hold and enforce those covenants on behalf of the Beneficiaries.
(g) The Indemnifying Party hereby constitutes the Lead Agents as trustees, for each of the other Indemnified Parties as appropriate of the Indemnifying Party’s covenants under this indemnity with respect to those persons and the Lead Agents agree to accept that trust and to hold and enforce those covenants on behalf of those persons.
13. Contribution
(a) In order to provide for just and equitable contribution in circumstances in which an indemnity provided in Section 12 would otherwise be available in accordance with its terms but is, for any reason (other than the reasons specified in Section 12(a)), held to be unavailable to or unenforceable by the Indemnified Parties or enforceable otherwise than in accordance with its terms, the Agents and the Indemnifying Party shall contribute to the aggregate of all Claims of the nature contemplated in Section 12 and suffered or incurred by the respective Indemnified Parties in such proportions as is appropriate to reflect not only the relative benefits received by the Indemnifying Party and the relevant Agents but also the relative fault of the Indemnifying Party and the relevant Agents, as well as any equitable considerations; provided, however, that:
(i) | the Agents shall not in any event be liable to contribute, in the aggregate, any amount in excess of the aggregate fee or any portion thereof actually received in connection with the sale of the Debentures; and |
(ii) | no person who has been negligent or dishonest or engaged in any fraudulent act will be entitled to claim contribution from any person who has not been negligent or dishonest or engaged in any fraudulent act. |
(b) For greater certainty, the Indemnifying Party will not have any obligation to contribute pursuant to this Section 13 in respect of any Claim except to the extent the indemnity given by it in Section 12 of this Agreement would have been applicable to that Claim in accordance with its terms if that indemnity had been found to be enforceable and available to the Indemnified Parties.
(c) The rights to indemnification and contribution provided in Section 12 and this Section 13, respectively, will be in addition to and not in derogation of any other rights to indemnification or contribution which the Indemnified Parties may have by statute or otherwise at Law, provided that Sections 12, 13(a) and 13(b) will apply, mutatis mutandis, in respect of that other right, and shall be binding upon and enure to the benefit of any successors, assigns, heirs and personal representatives of the Indemnifying Party and the Indemnified Parties.
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14. Expenses
Whether or not the distribution of the Debentures is completed, all expenses of or incidental to the transactions contemplated by this Agreement, including the creation, issuance and delivery of the Debentures shall be borne by the Corporation, including without limitation:
(a) all expenses payable in connection with the qualification for distribution of the Debentures under applicable Securities Laws;
(b) the reasonable fees and expenses of the Corporation’s counsel to the Corporate Entities and all local counsel to the Corporation;
(c) all costs incurred in connection with the preparation, translation, filing and printing of the Offering Documents;
(d) all fees and expenses of the Trustee and any agent of the Trustee in connection with the Trust Indenture, the Series Supplement, and the Debentures;
(e) all fees charged by securities rating services for rating the Debentures;
(f) the reasonable fees and disbursements of the Agents’ counsel; and
(g) all other expenses of the Agents incurred in connection with the Offering, including the reasonable out-of-pocket expenses of the Agents;
including Canadian federal goods and services tax and provincial sales tax exigible in respect of any of the foregoing.
15. All Terms to be Conditions
All representations, warranties, covenants and other terms of this Agreement shall be and shall be deemed to be conditions, and any breach or failure to comply with any of them will entitle the Agents (or any of them) to terminate their (or its) obligation(s) to solicit offers to purchase and distribute the Debentures, by written notice to that effect given to the Corporation at or prior to the Time of Closing. It is understood that the Agents may waive, in whole or in part, or extend the time for compliance with, any of those terms and conditions without prejudice to the rights of the Agents in respect of any of those terms and conditions or any other or subsequent breach or non-compliance, provided that to be binding on the Agents any such waiver or extension must be in writing.
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16. Apportionment of Agency Fee
The Agents and the Corporation agree that the Agency Fee will be apportioned as follows: (i) a “step-up fee” equal to 10% of the Agency Fee shall be paid and allocated to the Lead Agents with 60% allocated to National Bank Financial Inc. and 40% allocated to CIBC World Markets Inc.; and (ii) the remainder of the Agency Fee shall paid and allocated to the Agents as follows:
Agent | Fee | |||
National Bank Financial Inc. | 25 | % | ||
CIBC World Markets Inc. | 25 | % | ||
TD Securities Inc. | 11 | % | ||
BMO Nesbitt Burns Inc. | 11 | % | ||
Scotia Capital Inc. | 11 | % | ||
Casgrain & Company Limited | 7 | % | ||
INFOR Financial Inc. | 5 | % | ||
Manulife Securities Incorporated | 5 | % |
17. Termination by Agents in Certain Events
(a) In addition to any other remedies which may be available to the Agents, any Agent shall be entitled, at such Agent’s option, to terminate its obligations under this Agreement by written notice to that effect given to the Corporation and the Lead Agents at or prior to the Time of Closing, if:
(i) | any inquiry, investigation or other proceeding is commenced, announced or threatened or any order or ruling is issued under or pursuant to any relevant statute or by any stock exchange or other regulatory authority (unless based upon the activities or alleged activities of the Agents or their agents), or there is any change of Law, or the interpretation or administration thereof, which, in the reasonable opinion of such Agent, operates or could operate to prevent, suspend, hinder, delay, restrict or otherwise materially adversely affect the distribution of or the trading in the Debentures; |
(ii) | there shall occur or be discovered any change as is contemplated by Section 5(a) which, in the reasonable opinion of such Agent, would be expected to have a significant adverse effect on the market price or value of the Debentures; |
(iii) | there should develop, occur or come into effect or existence any event, action, state, condition or major financial occurrence of national or international consequence or any outbreak or escalation of national or international hostilities or any crisis or calamity or act of terrorism or similar event or any governmental action, Law, inquiry or other occurrence of any nature (including the novel coronavirus (COVID-19) pandemic to the extent there are material adverse developments relating thereto after the date hereof or similar events or the escalation thereof), which, in the reasonable opinion of such Agent, materially adversely affects, or involves, or may materially adversely affect, or involve, the financial markets in Canada or the business, operations or affairs of the Corporate Entities taken as a whole or a cease trading order is made or threatened respecting the Corporation by any Securities Commission or other competent regulatory authority; |
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(iv) | there is announced any changes or proposed change in the income tax Laws of Canada or the interpretation or administration thereof and such change would, in the reasonable opinion of such Agent, be expected to have a significant adverse effect on the market price or value of the Debentures; or |
(v) | there occurs a downgrading in the rating applicable to the Debentures by either DBRS (from “BBB(high)” Under Review with Negative Implications) or S&P (from “BBB”), or S&P places any of the debt securities of the Corporation on credit watch or publicly announces that it has under surveillance or review, with possible negative implications, its rating of any of the Corporation’s debt securities. |
(b) If an Agent terminates its obligations pursuant to Section 17(a), there shall be no further liability on the part of that Agent or on the part of the Corporation to that Agent, except in respect of any liability which may have arisen or may later arise under Sections 12, 13 and 14 of this Agreement.
(c) The right of the Agents or any of them to terminate their respective obligations under this Agreement is in addition to all other remedies that they may have in respect of any default, act or failure to act of the Corporation in respect of any of the matters contemplated by this Agreement. A notice of termination given by one Agent under this Section 17 shall not be binding upon the other Agents.
18. Notice
Any notice or other communication required or permitted to be given under this Agreement will be in writing and will be delivered to, in the case of: (i) the Corporation, to 2 Queen Street East, 20th Floor, Toronto, ON, M5C 3G7, Attention: Chief Legal Officer (Email: legal@ci.com), with a copy to Blake, Cassels & Graydon LLP, 199 Bay Street, Suite 4000, Commerce Court West, Toronto, ON, M5L 1A9, Attention: John Wilkin (Email: john.wilkin@blakes.com); (ii) National Bank Financial Inc., to The Exchange Tower, 130 King Street West, 4th Floor Podium, Toronto, ON, M5X 1J9, Attention: John Carrique, (Email: john.carrique@nbc.ca); (iii) CIBC World Markets Inc., to 161 Bay Street, Brookfield Place, 5th Floor, Toronto ON, M5J 2S8, Attention: Amber Choudhry, (Email: Amber.Choudhry@cibc.com); (iv) TD Securities Inc., to Ernst & Young Tower, 222 Bay Street, 7th Floor, Toronto, ON, M5K 1A2, Attention: Greg McDonald, (Email: Brian.Pong@tdsecurities.com); (v) BMO Nesbitt Burns Inc., to 100 King Street West, 1 First Canadian Place, 3rd Floor, Toronto, ON, M5X 1H3, Attention: Michael Cleary and Kris Somers, (Email: Michael.Cleary@bmo.com and Kris.Somers@bmo.com); (vi) Scotia Capital Inc., to 40 King Street West, 68th Floor, Toronto, ON, M5H 1H1, Attention: Michal Cegielski, (Email: Michal.Cegielski@scotiabank.com); (vii) Casgrain & Company Limited, to 1200 McGill College Avenue, 21st Floor, Montreal, QC, H3B 4G7, Attention: Roger Casgrain, (Email: rcasgrain@casgrain.ca); (viii) INFOR Financial Inc., to 200 Bay Street, Suite 2350, Toronto, ON, M5J 2J2, Attention: Neil Selfe, (Email: nselfe@inforfg.com; and (ix) Manulife Securities Incorporated, 1920 – 1095 West Pender Street, Vancouver, BC, V6E 2M6, Attention: William Porter, (Email: bill_porter@manulife.ca). In the case of a notice delivered to any Agent pursuant to the foregoing, a copy of such notice shall be sent to Torys LLP, 79 Wellington Street West, Suite 3000, Toronto, ON, M5K 1N2, Attention: Glen Johnson (Email: grjohnson@torys.com). The parties may change their respective addresses for notices by notice given in the manner set out above. Any notice or other communication will be in writing, and unless delivered personally to the addressee or to a responsible officer of the addressee, as applicable, will be given by email and will be deemed to have been given when (i) in the case of a notice delivered personally to a responsible officer of the addressee, when so delivered, and (ii) in the case of a notice delivered or given by email, on the day on which it is sent.
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19. No Fiduciary Duty
The Corporation hereby acknowledges that (i) the distribution and sale of the Debentures pursuant to this Agreement is an arm’s-length commercial transaction between the Corporation, on the one hand, and each of the Agents and any affiliate through which it may be acting, on the other, (ii) each of the Agents is not acting as fiduciary of the Corporation, and (iii) the Corporation’s engagement of each of the Agents in connection with the Offering and the process leading up to the Offering is as independent contractors and not in any other capacity. Furthermore, the Corporation agrees that it is solely responsible for making its own judgments in connection with the Offering (irrespective of whether any of the Agents has advised or is currently advising the Corporation on related or other matters). The Corporation agrees that it will not claim that the Agents owe a fiduciary or similar duty to the Corporation, in connection with such transaction or the process leading thereto.
20. Miscellaneous
(a) Except with respect to Sections 12, 13, 15 and 17 of this Agreement, all transactions and notices on behalf of the Agents under this Agreement or contemplated by this Agreement may be carried out or given on behalf of the Agents by the Lead Agents, as contemplated herein, which shall in good faith discuss with the other Agents the nature of any of the transactions and notices prior to giving effect to them or the delivery of them, as the case may be. The obligations of the Agents under this Agreement shall be several and not joint.
(b) This Agreement will be governed by and interpreted in accordance with the Laws of the Province of Ontario and the federal Laws of Canada applicable therein. For the purpose of all legal proceedings, this Agreement will be deemed to have been performed in the Province of Ontario and the courts of the Province of Ontario will have jurisdiction to entertain any action arising under this Agreement. Each of the parties hereto hereby irrevocably attorns to the non-exclusive jurisdiction of the courts of the Province of Ontario.
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(c) In this Agreement, time is of the essence and, following any waiver or indulgence by any party, time will again be of the essence in this Agreement.
(d) Each of the parties to this Agreement will be entitled to rely on delivery of a fax copy or a scanned copy of this Agreement delivered by e-mail and acceptance by each party of any such facsimile or scanned copy will be legally effective to create a valid and binding agreement between the parties to this Agreement in accordance with the terms of this Agreement.
(e) This Agreement may be executed in any number of counterparts, each of which when so executed will be deemed to be an original and all of which, when taken together, will constitute one and the same Agreement.
(f) To the extent permitted by applicable Law, the invalidity or unenforceability of any particular provision of this Agreement will not affect or limit the validity or enforceability of the remaining provisions of this Agreement.
(g) This Agreement and the other documents referred to in this Agreement constitute the entire agreement among the parties hereto relating to the subject matter of this Agreement and supersede all prior agreements between those parties with respect to their respective rights and obligations in respect of the transactions contemplated under this Agreement.
(h) This Agreement will not be assignable by any party without the written consent of the others and any purported assignment of this Agreement without that consent will be invalid and of no force and effect.
[The remainder of this page is left blank intentionally]
If this Agreement accurately reflects the terms of the transactions which we are to enter into and are agreed to by you, please communicate your acceptance by executing the enclosed copies of this Agreement where indicated and returning them to us.
Yours very truly, | |||
NATIONAL BANK FINANCIAL INC. | |||
By: | /s/ John Carrique | ||
Name: | John Carrique | ||
Title: | Managing Director | ||
CIBC WORLD MARKETS INC. | |||
By: | |||
Name: | |||
Title: | |||
TD SECURITIES INC. | |||
By: | |||
Name: | |||
Title: | |||
BMO NESBITT BURNS INC. | |||
By: | |||
Name: | |||
Title: |
If this Agreement accurately reflects the terms of the transactions which we are to enter into and are agreed to by you, please communicate your acceptance by executing the enclosed copies of this Agreement where indicated and returning them to us.
Yours very truly, | |||
NATIONAL BANK FINANCIAL INC. | |||
By: | |||
Name: | |||
Title: | |||
CIBC WORLD MARKETS INC. | |||
By: | /s/ Amber Choudhry | ||
Name | Amber Choudhry | ||
Title | Managing Director | ||
TD SECURITIES INC. | |||
By: | |||
Name: | |||
Title: | |||
BMO NESBITT BURNS INC. | |||
By: | |||
Name: | |||
Title: |
If this Agreement accurately reflects the terms of the transactions which we are to enter into and are agreed to by you, please communicate your acceptance by executing the enclosed copies of this Agreement where indicated and returning them to us.
Yours very truly, | |||
NATIONAL BANK FINANCIAL INC. | |||
By: | |||
Name: | |||
Title: | |||
CIBC WORLD MARKETS INC. | |||
By: | |||
Name: | |||
Title: | |||
TD SECURITIES INC. | |||
By: | /s/ Greg McDonald | ||
Name: | Greg McDonald | ||
Title: | Director | ||
BMO NESBITT BURNS INC. | |||
By: | |||
Name: | |||
Title: |
If this Agreement accurately reflects the terms of the transactions which we are to enter into and are agreed to by you, please communicate your acceptance by executing the enclosed copies of this Agreement where indicated and returning them to us.
Yours very truly, | |||
NATIONAL BANK FINANCIAL INC. | |||
By: | |||
Name: | |||
Title: | |||
CIBC WORLD MARKETS INC. | |||
By: | |||
Name | |||
Title | |||
TD SECURITIES INC. | |||
By: | |||
Name: | |||
Title: | |||
BMO NESBITT BURNS INC. | |||
By: | /s/ Kris Somers | ||
Name: | Kris Somers | ||
Title: | Director |
SCOTIA CAPITAL INC. | |||
By: | /s/ Michal Cegielski | ||
Name: | Michal Cegielski | ||
Title: | Managing Director | ||
CASGRAIN & COMPANY LIMITED | |||
By: | |||
Name: | |||
Title: | |||
INFOR FINANCIAL INC. | |||
By: | |||
Name: | |||
Title: | |||
MANULIFE SECURITIES INCORPORATED | |||
By: | |||
Name: | |||
Title: |
SCOTIA CAPITAL INC. | |||
By: | |||
Name: | |||
Title: | |||
CASGRAIN & COMPANY LIMITED | |||
By: | /s/ Roger Casgrain | ||
Name: | Roger Casgrain | ||
Title: | Executive Vice-President | ||
INFOR FINANCIAL GROUP INC. | |||
By: | |||
Name: | |||
Title: | |||
MANULIFE SECURITIES INCORPORATED | |||
By: | |||
Name: | |||
Title: |
SCOTIA CAPITAL INC. | |||
By: | |||
Name: | |||
Title: | |||
CASGRAIN & COMPANY LIMITED | |||
By: | |||
Name: | |||
Title: | |||
INFOR FINANCIAL INC. | |||
By: | /s/ Neil Selfe | ||
Name: | Neil Selfe | ||
Title: | Managing Principal | ||
MANULIFE SECURITIES INCORPORATED | |||
By: | |||
Name: | |||
Title: |
SCOTIA CAPITAL INC. | |||
By: | /s/ Michal Cegielski | ||
Name: | Michal Cegielski | ||
Title: | MANAGING DIRECTOR | ||
CASGRAIN & COMPANY LIMITED | |||
By: | |||
Name: | |||
Title: | |||
INFOR FINANCIAL INC. | |||
By: | |||
Name: | |||
Title: | |||
MANULIFE SECURITIES INCORPORATED | |||
By: | /s/ William Porter | ||
Name: | William Porter | ||
Title: | Vice President, Capital Markets Group |
Accepted and agreed to by the undersigned as of the date of this Agreement first written above.
CI FINANCIAL CORP. | |||
By: | /s/ Kurt MacAlpine | ||
Name: | Kurt MacAlpine | ||
Title: | Chief Executive Officer |
Signature Page – Agency Agreement
Exhibit 99.58
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This prospectus supplement, together with the short form base shelf prospectus to which it relates, as amended or supplemented, and the documents incorporated or deemed to be incorporated by reference therein, constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. The securities offered hereby have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), and, subject to certain exceptions, may not be offered or sold within the United States or to or for the account or benefit of a U.S. person (as defined in Regulation S under the U.S. Securities Act).
Information has been incorporated by reference in this prospectus supplement from documents filed with the securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Secretary of CI Financial Corp. at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, Canada M5C 3G7 (telephone (416) 364-1145) and are also available electronically at www.sedar.com.
Prospectus Supplement
To a Short Form Base Shelf Prospectus dated December 17, 2019
New Issue | May 21, 2020 |
CI Financial Corp.
$450,000,000
$450,000,000 principal amount of 3.759% Debentures due 2025
This prospectus supplement (the “Prospectus Supplement”) qualifies the distribution (the “Offering”) of $450,000,000 aggregate principal amount of 3.759% Debentures due May 26, 2025 (the “Debentures”) of CI Financial Corp. (“CI”). The Debentures will be dated May 26, 2020 and will mature on May 26, 2025. Interest on the Debentures will be paid at the rate set out above, semi-annually in arrears in equal instalments on May 26 and November 26 in each year commencing November 26, 2020. If any of the aforesaid dates upon which interest on the Debentures is payable is not a business day, such interest shall be payable on the next business day thereafter. See “Details of the Offering”.
CI may, at its option, redeem the Debentures, in whole or in part, any time prior to the Par Call Date (as defined herein), on not less than 30 nor more than 60 days’ prior notice to the registered holder, at a redemption price which is equal to the greater of the Canada Yield Price (as defined herein) and par, together in each case with accrued and unpaid interest up to, but excluding, the date fixed for redemption. In cases of partial redemption, the Debentures to be redeemed will be selected by the Trustee (as defined herein) pro rata or in such other manner as it shall deem appropriate. Any Debentures that are redeemed by CI will be cancelled and will not be reissued. See “Details of the Offering”.
The Debentures may be redeemed in whole or in part at any time on or after the Par Call Date at 100% of the aggregate principal amount outstanding of the Debentures being redeemed, plus accrued and unpaid interest on such amount up to, but excluding, the date fixed for redemption.
The Debentures will not be listed on any exchange or quotation system and, consequently, there is no market through which the Debentures may be sold and purchasers may not be able to resell the Debentures purchased under this Prospectus Supplement. This may affect the pricing of the Debentures in the secondary market, the transparency and availability of trading prices, the liquidity of the Debentures and the extent of issuer regulation. See “Risk Factors”.
Price to the Public | Agents’ Fee | Net Proceeds to CI (1)(2) | |||||||||||
Per $1,000 principal amount of Debentures | $ | 1,000.00 | $ | 3.50 | $ | 996.50 | |||||||
Total | $ | 450,000,000.00 | $ | 1,575,000.00 | $ | 448,425,000.00 |
(1) Plus accrued interest, if any, from May 26, 2020 to the date of delivery.
(2) Before deduction of expenses of the issue, estimated to be $775,000, which will be paid from the proceeds of the Offering.
National Bank Financial Inc. (“NBF”), CIBC World Markets Inc. (“CIBC”), TD Securities Inc. (“TD”), BMO Nesbitt Burns Inc., Scotia Capital Inc., Casgrain & Company Limited, INFOR Financial Inc. and Manulife Securities Incorporated (collectively, the “Agents”), as agents, conditionally offer the Debentures for sale, on a best efforts basis, subject to prior sale, if, as and when issued by CI and accepted by the Agents in accordance with the conditions contained in the Agency Agreement referred to under “Plan of Distribution” below, and subject to approval of certain legal matters on behalf of CI by Blake, Cassels & Graydon LLP, and on behalf of the Agents by Torys LLP. See “Plan of Distribution”. Each of NBF, CIBC and TD is a wholly-owned subsidiary of a Canadian chartered bank which is a lender to CI and accordingly CI may be considered to be a “connected issuer” of NBF, CIBC and TD within the meaning of applicable securities legislation. See “Relationship between CI and Certain Agents”.
In connection with the Offering, the Agents may effect transactions which stabilize or maintain the market price of the Debentures at a level above that which might otherwise prevail in the open market. Such transactions may be commenced, interrupted or discontinued at any time.
Subscriptions for Debentures will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. Book-entry only certificates representing the Debentures will be issued in registered form only to CDS Clearing and Depository Services Inc. (“CDS”), or its nominee, and will be deposited with CDS on closing of the Offering, which is expected to take place on May 26, 2020, but not later than June 8, 2020. A purchaser of the Debentures will receive only a customer confirmation from the registered dealer who is a CDS participant and from or through whom the Debentures are purchased. See “Details of the Offering – Depository Services”.
CI expects that DBRS Limited (“DBRS”) will provide CI with a credit rating of “BBB (high)” Under Review with Negative Implications relating to the Debentures and that Standard & Poor’s Ratings Services (Canada) (“S&P”, and together with DBRS, the “Rating Agencies”) will provide CI with an issuer credit rating of “BBB” with a “Stable” outlook and a “BBB” credit rating relating to the Debentures. A rating trend or outlook, expressed as positive, stable, negative or developing, provides the Rating Agencies’ opinion regarding the outlook for the rating in question over the medium term. The credit ratings assigned to the Debentures are not recommendations to purchase, hold or sell the Debentures. There can be no assurance that a rating will remain in effect for any given period of time or that a rating will not be lowered, withdrawn or revised by either or both Rating Agencies at any time. See “Credit Ratings” and “Risk Factors – Changes in Creditworthiness”.
This Prospectus Supplement does not qualify the distribution of the Debentures outside of Canada.
CI’s registered and head office is located at 2 Queen Street East, Twentieth Floor, Toronto, Ontario, M5C 3G7.
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TABLE OF CONTENTS
ELIGIBILITY FOR INVESTMENT | 3 | |
FORWARD-LOOKING STATEMENTS | 3 | |
DOCUMENTS INCORPORATED BY REFERENCE | 4 | |
MARKETING MATERIALS | 5 | |
CONSOLIDATED CAPITALIZATION | 5 | |
USE OF PROCEEDS | 5 | |
PLAN OF DISTRIBUTION | 5 | |
RELATIONSHIP BETWEEN CI AND CERTAIN AGENTS | 6 | |
DETAILS OF THE OFFERING | 6 | |
CREDIT RATINGS | 13 | |
EARNINGS COVERAGE RATIOS | 14 | |
RISK FACTORS | 14 | |
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS | 16 | |
LEGAL MATTERS | 17 | |
TRUSTEE | 17 | |
PURCHASERS’ STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION | 17 | |
APPENDIX A - TEMPLATE INVESTOR PRESENTATION | A-1 | |
CERTIFICATE OF AGENTS | C-1 |
In this Prospectus Supplement, unless otherwise indicated, capitalized terms which are defined in the accompanying short form base shelf prospectus of CI dated December 17, 2019 (the “Prospectus”) are used herein with the meanings defined therein.
ELIGIBILITY FOR INVESTMENT
In the opinion of Blake, Cassels & Graydon LLP, counsel to CI, and Torys LLP, counsel to the Agents, provided the shares of CI are listed on a designated stock exchange in Canada (which currently includes the Toronto Stock Exchange) for purposes of the Income Tax Act (Canada) and the regulations thereunder (the “Tax Act”), the Debentures offered by this Prospectus Supplement, if issued on the date hereof, would be qualified investments under the Tax Act on the date hereof for trusts governed by registered retirement savings plans (“RRSPs”), registered retirement income funds (“RRIFs”), deferred profit sharing plans (other than a deferred profit sharing plan to which contributions are made by CI or by an employer with which CI does not deal at arm’s length within the meaning of the Tax Act), registered education savings plans (“RESPs”), registered disability savings plans (“RDSPs”) and tax-free savings accounts (“TFSAs”).
Notwithstanding that a Debenture may be a qualified investment for a TFSA, RRSP, RRIF, RDSP or RESP, the holder of a TFSA or RDSP, the annuitant of an RRSP or RRIF, or the subscriber of an RESP, as the case may be, may be subject to a penalty tax in respect of the Debentures if such Debentures are a “prohibited investment” (as defined in the Tax Act) for such TFSA, RRSP, RRIF, RDSP or RESP. Provided that the holder of a TFSA or RDSP, the annuitant of an RRSP or RRIF or the subscriber of an RESP, as the case may be, does not hold a “significant interest” (as defined in the Tax Act for purposes of the “prohibited investment” rules) in CI and deals at arm’s length with CI within the meaning of the Tax Act, the Debentures offered by this Prospectus Supplement would not be a prohibited investment for such TFSA, RRSP, RRIF, RDSP or RESP. Prospective purchasers should consult their own tax advisors regarding whether the Debentures would be a prohibited investment for a TFSA, RRSP, RRIF, RDSP or RESP in their particular circumstances.
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management’s beliefs regarding future events, many of which, by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, among other things, the impact of the COVID-19 pandemic, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described under “Risk Factors” in this Prospectus Supplement and “Risk Management” in the Q1 2020 MD&A (as defined below) which is incorporated by reference into this Prospectus Supplement. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements.
3
Except as otherwise stated, these statements are made as of the date of this document and, other than as specifically required by applicable law, CI undertakes no obligation to publicly update or alter any forward-looking statement, whether to reflect new information, future events or otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
This Prospectus Supplement is deemed to be incorporated by reference into the Prospectus solely for the purpose of the Offering of the Debentures.
The following documents, filed with the securities commission or similar authority in each of the provinces of Canada are specifically incorporated by reference into, and form an integral part of, this Prospectus Supplement:
(a) | CI’s audited comparative consolidated financial statements, together with the accompanying report of the auditors, for the year ended December 31, 2019; | |
(b) | management’s discussion and analysis of results of operations and financial condition of CI for the year ended December 31, 2019; | |
(c) | CI’s annual information form dated March 1, 2020 (the “AIF”); | |
(d) | CI’s management information circular dated May 5, 2020 for its annual meeting of shareholders to be held on June 18, 2020; | |
(e) | CI’s interim unaudited condensed consolidated financial statements for the three months ended March 31, 2020; | |
(f) | management’s discussion and analysis of results of operations and financial condition of CI for the three months ended March 31, 2020 (the “Q1 2020 MD&A”); | |
(g) | the template investor presentation entitled “CI Financial” dated May 21, 2020, filed on SEDAR by CI on May 21, 2020 (the “Template Investor Presentation”), a copy of which is attached as Appendix “A” to this Prospectus Supplement; | |
(h) | the template version of the indicative term sheet for the Offering dated May 21, 2020 (the “Indicative Term Sheet”); and | |
(i) | the template version of the final term sheet for the Offering dated May 21, 2020 (together with the Template Investor Presentation and the Indicative Term Sheet, the “Marketing Materials”). |
Any management information circular, annual information form, audited consolidated financial statements, interim unaudited financial statements, material change reports (excluding confidential material change reports) or business acquisition reports and any other documents of CI of the type required to be incorporated by reference herein under National Instrument 44-101 – Short Form Prospectus Distributions (“NI 44-101”), all as filed by CI with the various securities commissions or similar authorities in the provinces of Canada pursuant to the requirements of applicable securities legislation after the date of this Prospectus Supplement and prior to the termination of the Offering shall be deemed to be incorporated by reference into this Prospectus Supplement.
4
Any statement contained in this Prospectus Supplement or in a document incorporated or deemed to be incorporated by reference in the Prospectus shall be deemed to be modified or superseded for the purposes of the Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference in the Prospectus modifies or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement is not to be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that was required to be stated or that was necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of the Prospectus.
MARKETING MATERIALS
The Indicative Term Sheet and the Final Term Sheet, together with the Template Investor Presentation included in Appendix “A” to this Prospectus Supplement, may be considered marketing materials for purposes of applicable Canadian securities laws. The “template version” of any “marketing materials” (each as defined in National Instrument 41-101 – General Prospectus Requirements) with respect to the Offering (including the Marketing Materials) is not part of this Prospectus Supplement or the Prospectus to the extent that the contents of the template version of such marketing materials have been modified or superseded by a statement contained in this Prospectus Supplement or any amendment. Any “template version” of any “marketing materials” (each as defined in National Instrument 41-101 – General Prospectus Requirements) with respect to the Offering that is filed with the securities commission or similar authority in each of the provinces of Canada after the date of this Prospectus Supplement and prior to the termination of the Offering shall be deemed to be incorporated by reference into this Prospectus Supplement.
CONSOLIDATED CAPITALIZATION
Since March 31, 2020, other than the issuance of the Debentures pursuant to this Prospectus Supplement, there have been no other material changes to the share and loan capital of CI on a consolidated basis.
USE OF PROCEEDS
The net proceeds from the sale of the Debentures under this Prospectus Supplement are estimated to be approximately $447 million, after deduction of the Agents’ fee and the estimated expenses of the Offering. The Agents’ fee and the expenses of the Offering will be paid out of the proceeds of the Offering.
The net proceeds to CI from the sale of the Debentures under this Prospectus Supplement will be used primarily to repay outstanding indebtedness including the $450,000,000 principal amount of debentures maturing on December 7, 2020, issued by CI on December 7, 2015, and amounts owing under the Credit Facility (as defined herein). The remainder of the proceeds, if any, will be used for general corporate purposes. CI’s indebtedness under its Credit Facility has been incurred in the normal course of business to pay sales commissions and fund operating expenses including payroll and premises costs.
PLAN OF DISTRIBUTION
Under an agency agreement (the “Agency Agreement”) dated May 21, 2020 between CI and the Agents, the Agents have agreed to offer, on a best efforts basis, if, as and when issued by CI up to $450,000,000 aggregate principal amount of Debentures, plus accrued interest, if any, from May 26, 2020 to the date of delivery, payable in cash against delivery of such Debentures. The Offering is anticipated to close on May 26, 2020 or such later date, but not later than June 8, 2020, as may be agreed upon by CI and the Agents.
5
The Agency Agreement provides that the Agents will be paid an agency fee of $3.50 per $1,000 principal amount of Debentures on account of services rendered in connection with the Offering. The obligations of the Agents under the Agency Agreement may be terminated at their discretion upon the occurrence of certain stated events, including but not limited to (i) certain regulatory proceedings, orders or rulings which, in the reasonable opinion of an Agent, operates or could operate to prevent, suspend or otherwise materially adversely affect the Offering or trading in the Debentures, (ii) a material change or change in material fact which, in the reasonable opinion of an Agent, would be expected to have a significant adverse effect on the market price or value of the Debentures, and (iii) certain major financial or other occurrences which, in the reasonable opinion of an Agent, materially adversely affect Canadian financial markets or the business, operations or affairs of CI, taken as a whole. While the Agents have agreed to use their best efforts to sell the Debentures offered hereby, they are not obligated to purchase any Debentures which are not sold.
In connection with the Offering, the Agents may effect transactions which stabilize or maintain the market price of the Debentures at a level above that which might otherwise prevail in the open market. Such transactions may be commenced, interrupted or discontinued at any time.
The Debentures have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), or any state securities laws and, subject to certain exemptions, may not be offered or sold within the United States or to or for the benefit of U.S. persons (as defined in Regulation S under the U.S. Securities Act). The distribution of this Prospectus Supplement and the offering and sale of the Debentures are also subject to certain restrictions under the laws of certain other jurisdictions outside of Canada. Each Agent has agreed that it will not offer for sale or sell or deliver the Debentures in any such jurisdiction except in accordance with the laws thereof.
The determination of the terms of the Offering, including the issue price of the Debentures, was made through negotiations between CI and the Agents.
RELATIONSHIP BETWEEN CI AND CERTAIN AGENTS
Each of NBF, CIBC and TD is a wholly-owned subsidiary of a Canadian chartered bank, which banks (the “Lenders”) have provided a $700 million credit facility to CI (the “Credit Facility”). Accordingly, CI may be considered a “connected issuer” of NBF, CIBC and TD within the meaning of applicable legislation. Approximately $45.5 million is currently drawn under the Credit Facility. CI is currently in compliance with the terms of the agreements governing the Credit Facility. Other than as disclosed in the Prospectus, as supplemented by this Prospectus Supplement, there has been no material change in the financial position of CI since the indebtedness under the Credit Facility was incurred. The Lenders had no involvement in the decision of CI to distribute the Debentures or the terms of such distribution although the Lenders may be advised of the Offering and the terms thereof.
Neither the Agents nor the Lenders will receive any benefits in connection with the Offering other than as described under “Use of Proceeds” and, in the case of the Agents, a fee as set out in the Agency Agreement.
DETAILS OF THE OFFERING
The following is a summary of certain of the material attributes and characteristics of the Debentures offered hereby, which does not purport to be complete. Reference is made to the Trust Indenture and Second Supplement referred to below for the full text of such attributes and characteristics. A copy of the Trust Indenture has been, and once executed, a copy of the Second Supplement will be, filed electronically at www.sedar.com.
General
The Debentures offered hereby will be issued under and pursuant to the provisions of a trust indenture, as amended and supplemented from time to time (the “Trust Indenture”), dated July 22, 2019 between CI and Computershare Trust Company of Canada as trustee (the “Trustee”) providing for the creation and issuance of an unlimited aggregate principal amount of debt securities in series from time to time. The Debentures offered under this Prospectus Supplement will be issued under the Second Supplement to the Trust Indenture (the “Second Supplement”) which will permit the issuance of an unlimited principal amount of 3.759% debentures due May 26, 2025. The Debentures will initially be limited to $450,000,000 aggregate principal amount, will be dated May 26, 2020 and will mature on May 26, 2025. The Debentures will be issued in denominations of $1,000 and authorized multiples thereof. The principal and interest on the Debentures will be paid in lawful money of Canada in the manner and on the terms set out in the Trust Indenture.
6
The CUSIP/ISIN number for the Debentures is 125491AJ9/CA125491AJ93.
Depository Services
Except as otherwise provided below, the Debentures will be issued in “book-entry only” form and must be purchased, transferred or redeemed through participants (“Participants”) in the depository service of CDS or its nominee. Each of the Agents is a Participant. On the closing of the Offering, CI will cause a global certificate or certificates representing the Debentures to be delivered to and registered in the name of CDS or its nominee. Except as described below, no purchaser of Debentures will be entitled to a certificate or other instrument from CI or CDS evidencing that purchaser’s ownership thereof, and no purchaser will be shown on the records maintained by CDS except through a book-entry account of a Participant acting on behalf of such purchaser. Each purchaser of Debentures will receive a customer confirmation of purchase from the registered dealer from which the Debentures are purchased in accordance with the practices and procedures of that registered dealer. The practices of registered dealers may vary, but generally customer confirmations are issued promptly after execution of a customer order. CDS will be responsible for establishing and maintaining book-entry accounts for its Participants having interests in the Debentures. Reference in this Prospectus Supplement to a holder of Debentures (“Debentureholder”) means, unless the context otherwise requires, an owner of a beneficial interest in the Debentures.
The Debentures will be issued in fully registered form to holders or their nominees other than CDS or its nominee if (i) CI determines that CDS is no longer willing or able to discharge properly its responsibilities as depository and CI is unable to locate a qualified successor, (ii) CI at its option elects, or is required by law, to terminate the book-entry system through CDS, (iii) the book-entry system ceases to exist, or (iv) after the occurrence of an Event of Default, Debentureholders representing beneficial interests aggregating over 50% of the outstanding principal amount of the Debentures determine that the continuation of the book-entry system is no longer in their best interests.
Neither CI nor the Agents will assume any liability for: (a) any aspect of the records relating to the beneficial ownership of the Debentures held by CDS or the payments relating thereto; (b) maintaining, supervising or reviewing any records relating to the Debentures; or (c) any advice or representation made by or with respect to CDS and contained in the Prospectus and this Prospectus Supplement and relating to the rules governing CDS or any action to be taken by CDS or at the direction of its Participants. The rules governing CDS provide that it acts as the agent and depositary for the Participants. As a result, Participants must look solely to CDS and beneficial owners must look solely to Participants for the payment of the principal and interest on the Debentures paid by or on behalf of CI to CDS.
Transfers
Transfers of ownership in the Debentures will be effected through the records maintained by CDS or its nominee for such Debentures with respect to interests of Participants and on the records of Participants with respect to interests of persons other than Participants. Debentureholders who are not Participants, but who desire to purchase, sell or otherwise transfer ownership of or other interests in such Debentures, may do so only through Participants. The ability of a Debentureholder to pledge a Debenture or otherwise take action with respect to such Debentureholder’s interest in a Debenture (other than through a Participant) may be limited due to the lack of a physical certificate.
Ranking
The Debentures will be direct and unsecured obligations of CI and will rank pani passu with all existing or future unsecured and unsubordinated indebtedness of CI.
7
Covenants
CI will covenant in the Trust Indenture, as supplemented by the Second Supplement, substantially to the effect that, so long as any of the Debentures are outstanding:
1. | it will not, and it will not permit any of its Subsidiaries to, directly or indirectly, create, assume or suffer to exist any Security Interest on its property to secure any obligation unless at the same time it shall secure equally and rateably with such obligations all of the Debentures then outstanding, provided that this shall not apply to Permitted Encumbrances; | |
2. | it will not permit any Subsidiary of CI to create, assume or otherwise incur any Specified Indebtedness, except: (a) Capital Lease Obligations in an aggregate amount not exceeding $150,000,000; (b) Specified Indebtedness owed to CI or another Subsidiary of CI; and (c) any other Specified Indebtedness if, at the time it is created, assumed or incurred, the amount of such Specified Indebtedness, together with any other Specified Indebtedness of CI’s Subsidiaries then outstanding (excluding Specified Indebtedness of the type set forth in the foregoing clauses (a) and (b)), has an aggregate principal amount not exceeding 5% of Consolidated Net Worth; and | |
3. | it will not amalgamate or consolidate or merge with or into any other person or liquidate, wind-up or dissolve itself (or suffer any liquidation, winding-up or dissolution or any proceedings therefor), or continue itself under the laws of any other statute or jurisdiction, or sell, transfer, convey or dispose of, in one transaction or a series of related transactions, and whether at the same time or over a period of time, all or substantially all of its property to any other person unless, (a) either CI is the continuing or successor company following such transaction or the continuing or successor company, if other than CI, is a corporation existing under the laws of Canada or a province thereof, and assumes all of CI’s obligations under the Trust Indenture by supplemental indenture, and (b) at the time of, and after giving effect to, such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default (a “Default”), shall have happened and be continuing under the Trust Indenture. |
Repurchase on Change of Control Triggering Event
The Second Supplement will contain provisions to the effect that if a Change of Control Triggering Event (as defined below) occurs, unless CI has exercised its optional right to redeem all of the Debentures, CI will be required to make an offer to repurchase all or, at the option of each Debentureholder, any part (equal to $1,000 or an integral multiple thereof) of each Debentureholder’s Debentures pursuant to the offer described below (the “Change of Control Offer”) at a purchase price payable in cash equal to 101% of the outstanding principal amount of Debentures together with accrued and unpaid interest, if any, to the date of purchase.
Within 30 days following any Change of Control Triggering Event, CI will be required to give written notice to the holders of the Debentures describing the transaction or transactions that constitute the Change of Control Triggering Event and offering to repurchase the Debentures on the payment date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is given. CI must comply with the requirements of applicable securities laws and regulations in connection with the repurchase of the Debentures as a result of a Change of Control Triggering Event. To the extent that the provisions of any such applicable securities laws and regulations conflict with the provision described in the Second Supplement relating to a Change of Control (as defined below), CI will be required to comply with such laws and regulations and will not be deemed to have breached its obligations to repurchase the Debentures by virtue of such conflict.
CI will not be required to make a Change of Control Offer upon a Change of Control Triggering Event if a third party makes such an offer substantially in the manner, at the times and in compliance with the requirements for a Change of Control Offer (and for at least the same purchase price payable in cash) and such third party purchases all Debentures properly tendered and not withdrawn under its offer.
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Events of Default
The Trust Indenture and the Second Supplement will provide that an “Event of Default” in respect of the Debentures will occur upon:
(a) | CI’s failure to pay any principal of or premium on the Debentures when due; | |
(b) | CI’s failure to pay any interest on the Debentures when due, which default continues for a period of 30 days; | |
(c) | the failure by CI to perform or a breach by it of any other covenant of CI with respect to the Debentures under the Trust Indenture or the Second Supplement and the continuance of such default for a period of 60 days after written notice thereof to CI by the Trustee; | |
(d) | the failure by any one or more of CI or any of its Subsidiaries to pay any Indebtedness exceeding $50 million in the aggregate; | |
(e) | the failure by any one or more of CI or any of its Subsidiaries to perform any term, covenant, condition, or provision applicable to any Indebtedness and such failure results in acceleration of the maturity of Indebtedness exceeding $50 million in the aggregate; | |
(f) | certain events of insolvency or bankruptcy of CI; or | |
(g) | failure to correct, within 60 days of receipt of written notice thereof, if capable of correction with respect to presently-existing facts or circumstances, a representation or warranty made by CI under the Trust Indenture or the Second Supplement which was incorrect at the time it was made. |
If an Event of Default has occurred and is continuing, the Trustee may, in its discretion, and shall, upon request of holders of not less than 25% of the principal amount of the Debentures and upon being indemnified against all costs, expenses and liabilities to be incurred, declare the principal of and interest on all outstanding Debentures to be immediately due and payable and enforce such payment.
Interest
Interest on the Debentures at a rate of 3.759% per annum will be payable semi-annually in arrears in equal instalments on May 26 and November 26 of each year, commencing on November 26, 2020 and continuing until May 26, 2025. The initial interest payment, payable on November 26, 2020, will be $18.795 per $1,000 principal amount of the Debentures, assuming a closing date for the Offering of May 26, 2020. If any of the aforesaid dates upon which interest on the Debentures is payable is not a business day, such interest shall be payable on the next business day thereafter.
Redemption
CI may, at its option, redeem the Debentures, in whole or in part, any time prior to the Par Call Date, on not less than 30 nor more than 60 days’ prior notice to the registered holder at a redemption price equal to the greater of the Canada Yield Price (as defined herein) and par, together in each case with accrued and unpaid interest up to, but excluding, the date fixed for redemption. In cases of partial redemption, the Debentures to be redeemed will be selected by the Trustee pro rata or in such other manner as it shall deem appropriate. Any Debentures offered hereby that are redeemed by CI will be cancelled.
The Debentures may be redeemed in whole or in part at any time on or after the Par Call Date at 100% of the aggregate principal amount outstanding of the Debentures being redeemed, plus accrued and unpaid interest on such amount up to, but excluding, the date fixed for redemption.
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Open Market Purchases
CI will have the right at any time to purchase Debentures in the market or by tender or by private contract at any price. All Debentures that are purchased by CI will be cancelled and will not be reissued.
Modification
The Trust Indenture and the rights of the holders of Debentures may, in certain circumstances, be modified. For that purpose, the Trust Indenture contains provisions making “Holder Directions” binding upon the holders of debentures, either on a series by series basis or in respect of all of the holders of more than one series of debentures issued under the Trust Indenture. A “Holder Direction” is defined, in respect of an action involving more than one series of debentures issued under the Trust Indenture, as a resolution approving such action passed by the affirmative vote of the holders of not less than two-thirds of the unpaid aggregate principal amount of all such series voted at a meeting or an approval in writing of the holders of not less than two-thirds of the unpaid aggregate principal amount of all such series. A “Holder Direction” is defined, in respect of an action involving one series of debentures issued under the Trust Indenture, as a resolution approving such action passed by the affirmative vote of holders of not less than two-thirds of the unpaid principal amount of that series voted at a meeting or an approval in writing of the holders of not less than two-thirds of the unpaid principal amount of that series.
Defeasance
The Trust Indenture contains provisions requiring the Trustee to release CI from its obligations under the Trust Indenture and the Debentures provided that (i) CI satisfies the Trustee that it has irrevocably deposited funds or made due provision for the payment of the fees and expenses of the Trustee and for payment of all principal and interest and other amounts due or to become due on the Debentures, (ii) CI delivers to the Trustee an opinion of counsel acceptable to the Trustee to the effect that the Debentureholders (resident in Canada for purposes of the Tax Act) will not recognize a gain or loss for Canadian income tax purposes as a result of the exercise by CI of its defeasance option and that they will thereafter be subject to Canadian income taxes on the same amounts, in the same manner and at the same time or times as would have been the case if such option had not been exercised, (iii) no Default or Event of Default at the time of the deposit of funds by CI shall have occurred and be continuing with respect to any series of debentures and certain events of insolvency have not occurred after the date of deposit and prior to the defeasance, and (iv) other conditions specified in the Trust Indenture are satisfied.
Definitions
“Canada Yield Price” on any redemption day means a price which, if the Debentures were to be issued at such price on such date, would provide a yield thereon from such date to the Par Call Date of the Debentures equal to the Government of Canada Yield, plus 84 basis points (0.840%), compounded semi-annually and calculated on the day that is three business days prior to the date of redemption.
“Capital Lease Obligations” of any person means the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet or statement of financial position of such person under Canadian generally accepted accounting principles, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with Canadian generally accepted accounting principles.
“Change of Control” means (i) the sale of all or substantially all of CI’s assets, other than any such sale to its subsidiaries or affiliates or to any of their respective successors, or (ii) the acquisition by any person, or group of persons acting jointly or in concert, of control or direct or indirect beneficial ownership of more than 50% of the votes attaching to the shares of CI that ordinarily have voting power for the election of directors of CI.
“Change of Control Triggering Event” means the occurrence of both a Change of Control and a Rating Event.
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“Consolidated Net Worth” means, as at any date, the amount of consolidated shareholders’ equity of CI and its Subsidiaries as set forth in the most recently filed annual or interim consolidated financial statements of CI prepared in accordance with Canadian generally accepted accounting principles.
“DBRS” means DBRS Limited and its successors.
“Government of Canada Yield” on any date means the average of the mid-market yields to maturity on such date provided by two independent investment dealers selected by CI and approved by the Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce, if issued at par on such date, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date of the Debentures.
“Indebtedness” means, with respect to any person, (i) all indebtedness of such person for borrowed money and all liabilities of such person to pay money, whether originally incurred or subsequently assumed, and whether or not evidenced by notes, debentures or other like written instruments, and (ii) all indebtedness and liabilities of the nature referred to in the preceding clause (i) of another person which such person has guaranteed, and for greater certainty includes Specified Indebtedness.
“Investment Grade Rating” means a rating equal to or higher than BBB- (or the equivalent of any successor rating category of S&P) by S&P, BBB (low) (or the equivalent of any successor rating category of DBRS) by DBRS, or the equivalent investment grade rating from any other Specified Rating Agency.
“Moody’s” means Moody’s Investors Service, Inc. and its successors.
“Par Call Date” means April 26, 2025 (one month prior to the scheduled maturity date of the Debentures).
“Permitted Encumbrances” means, with respect to the Debentures, Security Interests on the property of CI or a Subsidiary of CI which are:
(a) | Security Interests for taxes, assessments, governmental charges arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with accounting principles generally accepted in Canada, shall have been made; | |
(b) | statutory Security Interests of landlords and carriers, warehousemen, mechanics, suppliers, material men, repairmen or other similar Security Interests arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with accounting principles generally accepted in Canada, shall have been made; | |
(c) | Security Interests incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security; | |
(d) | Purchase Money Liens; | |
(e) | Security Interests in favour of CI or a Subsidiary of CI; | |
(f) | Security Interests arising in the ordinary course of business in favour of any bank or other lender on the property of CI or a Subsidiary of CI (other than accounts receivable) to secure any liabilities of CI or a Subsidiary of CI that do not relate to borrowed money; | |
(g) | Security Interests for any judgment rendered, or claim filed, against CI or a Subsidiary of CI which is being contested in good faith by appropriate proceedings, that do not constitute an Event of Default, if during such contestation a stay of enforcement of such judgment or claim is in effect; | |
(h) | Security Interests arising by operation of law; |
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(i) | any Security Interest existing on any property of a person at the time that such person is acquired by CI or a Subsidiary of CI provided that such Security Interest was not incurred in contemplation of or as a result of such acquisition; | |
(j) | any Security Interest existing on any property acquired by CI or a Subsidiary of CI provided that such Security Interest was not incurred in contemplation or as a result of such acquisition; | |
(k) | Security Interests for any final judgments for the payment of money that do not constitute an Event of Default; | |
(l) | Security Interests to secure any investment certificates issued by CI or a Subsidiary of CI in the normal course of business; and | |
(m) | any extension, renewal, alteration or substitution or replacement of any Security Interest mentioned above provided that it is not extended thereby to any additional property and the principal amount secured thereby is not increased. |
“Purchase Money Lien” means any Security Interest on property acquired by CI or a Subsidiary of CI which was assumed, created, guaranteed, reserved, issued or given to secure or satisfy all or any part of the acquisition price of such property.
“Rating Event” means the rating of the Debentures is lowered to below Investment Grade Rating by each of the Specified Rating Agencies, if there are less than three Specified Rating Agencies, or by two out of three of the Specified Rating Agencies, if there are three Specified Rating Agencies (the “Required Threshold”), on any day within the 60-day period (which 60-day period will be extended so long as the rating of the Debentures is under publicly announced consideration for a possible downgrade by such number of Specified Rating Agencies which, together with Specified Rating Agencies which have already lowered their ratings on the Debentures as aforesaid, would aggregate in number the Required Threshold, but only to the extent that, and for so long as, a Change of Control Triggering Event would result if such downgrade were to occur) after the earlier of (a) the occurrence of a Change of Control and (b) public notice of the occurrence of a Change of Control.
“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., and its successors.
“Security Interest” means, for any person, any assignment, security interest, mortgage, charge (whether fixed or floating), hypothec, pledge, lien or other encumbrance on or interest in property that secures payment of any Indebtedness of such person, or secures any other item which in accordance with accounting principles generally accepted in Canada would be included as a liability on the liability side of the balance sheet of such person, or secures any contingent liability of such person.
“Specified Indebtedness” of any person means, without duplication:
(a) | all obligations of such person for borrowed money or with respect to deposits or advances of any kind; | |
(b) | all obligations of such person evidenced by bonds, debentures, notes or similar instruments; | |
(c) | all obligations of such person under conditional sale or other title retention agreements relating to property acquired by such person; | |
(d) | all obligations of such person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business); | |
(e) | all Specified Indebtedness of another person secured by any Security Interest upon the property of such person; |
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(f) | all Capital Lease Obligations of such person; | |
(g) | all obligations, contingent or otherwise, of such person as an account party in respect of letters of credit and letters of guarantee (other than letters of credit and letters of guarantee issued in support of current accounts payable incurred in the ordinary course of business); | |
(h) | all obligations, contingent or otherwise, of such person in respect of bankers’ acceptances; | |
(i) | the net termination amount payable by such person under any hedging, swap or other derivative transactions, including those designed and entered into to protect or mitigate against risks in interest, currency exchange or commodity price fluctuations; | |
(j) | all obligations of such person to purchase, redeem (other than at the option of the holder) or otherwise acquire any equity interest (including preferred shares) of such person; and | |
(k) | all obligations of the type referred to in clauses (a) through (j) of any other person for which such person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of a guarantee or indemnity. |
“Specified Rating Agencies” means each of S&P and DBRS and, if a rating of the Debentures is obtained from Moody’s, shall also include Moody’s, as long as, in each case, such entity has not ceased to rate the Debentures or failed to make a rating of the Debentures publicly available for reasons outside of CI’s control; provided that if one or more of DBRS, S&P or Moody’s, as applicable, ceases to rate the Debentures or fails to make a rating of the Debentures publicly available for reasons outside of CI’s control, CI may select any other “designated rating organization” within the meaning of NI 44-101 as a replacement agency for such one or more of them, as the case may be.
“Subsidiary” means a “subsidiary” as defined in the Business Corporations Act (Ontario).
CREDIT RATINGS
The Debentures have a provisional rating of “BBB (high)” Under Review with Negative Implications by DBRS. The “BBB (high)” rating assigned to the Debentures represents the fourth highest of the ten rating categories available from DBRS for long-term debt. Under the DBRS system, debt securities rated “BBB (high)” are of adequate credit quality and the capacity for the payment of financial obligations is considered acceptable. While this is a favourable rating, obligations in the “BBB (high)” category are considered to be more vulnerable to future events than higher-rated obligations. A reference to “high” or “low” reflects the relative strength within the rating category, while the absence of either a “high” or “low” designation indicates the rating is placed in the middle of the category. According to DBRS, the “Under Review with Negative Implications” helps give investors an understanding of DBRS’s opinion regarding the outlook for the rating.
The Debentures have a provisional rating of “BBB” by S&P and S&P has provided CI with a provisional issuer credit rating of “BBB” with a “Stable” outlook. The “BBB” rating assigned to the Debentures is the fourth highest of the 11 major rating categories for long-term debt and indicates S&P’s view that CI’s capacity to meet its financial commitment on the obligations is adequate. However, adverse economic conditions or changing circumstances are more likely to weaken CI’s capacity to meet its financial commitments than obligations in higher rated categories. S&P uses “+” or “-” designations to indicate the relative standing of securities within a particular ratings category. According to S&P, the “Stable” rating outlook means that the rating is not likely to change in the intermediate term (which S&P defines as typically six months to two years).
CI paid customary rating fees to DBRS and S&P in connection with the ratings. Other than in the ordinary course of business of customary rating fees, in the past two years, CI did not make any payments to either DBRS or S&P in respect of any other services provided by either DBRS or S&P to CI.
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Credit ratings are intended to provide investors with an independent assessment of the credit quality of an issue or issuer of securities and do not speak to the suitability of particular securities for any particular investor. A rating is therefore not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating agency.
EARNINGS COVERAGE RATIOS
The following consolidated earnings coverage ratios are calculated for the 12 month periods ended March 31, 2020 and December 31, 2019. The ratios give effect to the issuance of the Debentures offered pursuant to this Prospectus Supplement and the use of the proceeds thereof to repay indebtedness, and the incurrence of additional indebtedness since such dates as if such issuance, incurrence and repayments had occurred on April 1, 2019 and January 1, 2019, respectively. CI’s borrowing cost requirements amounted to approximately $56.3 million and $55.4 million for the 12 months ended March 31, 2020 and December 31, 2019, respectively. CI’s pro forma borrowing cost requirements, after giving effect to the issue of the Debentures offered pursuant to this Prospectus Supplement and the use of the proceeds thereof to repay indebtedness, and the incurrence of such additional indebtedness, would have amounted to $59.3 million and $60.5 million for the 12 months ended March 31, 2020 and December 31, 2019, respectively. CI’s profit attributable to its shareholders before borrowing costs and income tax for the 12 months then ended was $760.8 million and $783.4 million, which is 12.8 and 12.9 times CI’s pro forma borrowing cost requirements for such periods, respectively.
Twelve Month Period Ended | ||||
March 31, 2020 | December 31, 2019 | |||
Consolidated earnings coverage ratio on long-term debt | 12.8 times | 12.9 times |
RISK FACTORS
Before deciding whether to invest in any Debentures, investors should consider carefully the risks set out herein and incorporated by reference in this Prospectus Supplement, including disclosure in the AIF and CI’s annual and interim management’s discussion and analysis and notes to CI’s financial statements. These documents discuss, among other things, known material trends and events, and risks or uncertainties that may reasonably be expected to have a material effect on CI’s business, financial condition or results of operations or on the Debentures.
There are certain risks inherent in the activities of CI and in an investment in the Debentures, including the following, which investors should consider carefully before investing in the Debentures. This description of the risks does not include all possible risks, and there may be other risks of which CI is not currently aware.
Changes in Creditworthiness
The credit rating assigned to the Debentures by each of the Rating Agencies is not a recommendation to buy, hold or sell the Debentures. A rating is not a comment on the market price of a security nor is it an assessment of ownership given various investment objectives. There can be no assurance that the creditworthiness of CI or that any credit rating assigned to the Debentures will remain in effect for any given period of time and ratings may be upgraded, downgraded, placed under review, confirmed and discontinued by either or both of the Rating Agencies at any time. Real or anticipated lowering or withdrawal of credit ratings of the Debentures may adversely affect the market price or value and the liquidity of the Debentures. In addition, real or anticipated changes in credit ratings can affect the cost at which CI can access the capital markets. See “Credit Ratings”.
Market Value Risk
Prevailing interest rates will affect the market value of the Debentures. The price or market value of the Debentures will decline as prevailing interest rates for comparable securities rise. CI may choose to redeem Debentures from time to time, in whole or in part, in accordance with its rights described under “Details of the Offering – Redemption”, including when prevailing interest rates are lower than the yield borne by the Debentures. If prevailing rates are lower at the time of redemption, a holder may not be able to reinvest the redemption proceeds in a comparable security at an effective yield as high as the yield on the Debentures being redeemed.
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Liquidity Risk
The Debentures constitute a new issue of securities with no established trading market. In addition, CI does not intend to list the Debentures on any exchange. As a result, the trading market for the Debentures may not be active or liquid. There can be no assurance that an active market for the Debentures will develop or be sustained or that holders of the Debentures will be able to sell their Debentures at any particular price or at all.
Ranking of the Debentures
The Debentures are unsecured obligations of CI and will not be secured by any of its assets. CI has agreed in the Trust Indenture not to create, assume or suffer to exist any Security Interest on its property to secure any obligation unless the Debentures are also secured equally and rateably, subject to Permitted Encumbrances. Holders of or those entitled to Permitted Encumbrances will therefore have a claim on the assets of CI that ranks in priority to the claims of holders of the Debentures and will have a claim that ranks equally with the claims of holders of the Debentures to the extent that the security constituting Permitted Encumbrances is insufficient to satisfy their claims.
No Limitation on Indebtedness
The Trust Indenture and the Second Supplement will not limit CI from incurring additional indebtedness, although they will limit the incurrence of Specified Indebtedness by Subsidiaries of CI. See “Details of the Offering – Covenants”. The degree to which CI is leveraged on a consolidated basis could have important consequences, including:
(a) CI’s ability to obtain additional financing for working capital or other purposes may be limited;
(b) CI may be unable to refinance indebtedness coming due on terms acceptable to CI or at all; and
(c) defaults under other indebtedness may cause an Event of Default under the Debentures.
Change of Control Repurchase
If a Change of Control Triggering Event occurs, CI will be required to offer to repurchase outstanding Debentures at 101% of the principal amount thereof plus accrued and unpaid interest, if any. It is possible that CI will not have sufficient funds at the time of such Change of Control Triggering Event to make any required repurchases. Failure to purchase tendered Debentures would constitute an Event of Default under the Debentures.
Structural Subordination of the Debentures
Liabilities of a parent entity, such as CI, with assets held by various subsidiaries will result in the structural subordination of the lenders to the parent entity. The parent entity is entitled only to the residual equity of its subsidiaries after all debt obligations of its subsidiaries are discharged. In addition, the Debentures will not be guaranteed by any of the Subsidiaries of CI, although CI will agree to limit the incurrence of Specified Indebtedness by Subsidiaries of CI as described under “Details of the Offering – Covenants”. In the event of a bankruptcy, liquidation or reorganization of CI, holders of indebtedness of CI (including holders of the Debentures) will be subordinate to lenders to the Subsidiaries of CI.
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CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Blake, Cassels & Graydon LLP, counsel to CI, and Torys LLP, counsel to the Agents, the following is, as of the date of this Prospectus Supplement, a summary of the principal Canadian federal income tax considerations generally applicable under the Tax Act to a prospective purchaser who acquires, as beneficial owner, Debentures pursuant to the Offering and who, at all relevant times, for purposes of the Tax Act, is resident or deemed to be resident in Canada, deals at arm’s length with CI and the Agents, is not affiliated with CI or the Agents, and holds the Debentures as capital property (a “Holder”). Generally, Debentures will be considered to be capital property to a Holder provided that the Holder does not acquire or hold the Debentures in the course of carrying on a business and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade. Certain purchasers who might not otherwise be considered to hold their Debentures as capital property may be entitled to have them treated as capital property by making the irrevocable election permitted by subsection 39(4) of the Tax Act. Such purchasers should consult their own tax advisors regarding their particular circumstances.
This summary is not applicable to (i) a Holder that is a “financial institution” (as defined in the Tax Act for purposes of the mark-to-market rules), (ii) a Holder an interest in which is a “tax shelter investment” (as defined in the Tax Act), or (iii) a Holder who has elected to report its “Canadian tax results” (as defined in the Tax Act) in a currency other than Canadian currency, or (iv) a Holder that has entered or will enter into a “derivative forward agreement” (as defined in the Tax Act) in respect of the Debentures. Such Holders should consult their own tax advisors regarding their particular circumstances.
This summary is based on the facts set out in this Prospectus Supplement, the current provisions of the Tax Act and counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency made publicly available prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”) and assumes that all Proposed Amendments will be enacted in the form proposed. However, no assurances can be given that the Proposed Amendments will be enacted as proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative policies or assessing practices, whether by legislative, administrative or judicial action or interpretation nor does it take into account tax legislation or considerations of any province, territory or foreign jurisdiction, which may be different from those discussed herein.
This summary is not exhaustive of all possible Canadian federal income tax considerations applicable to an investment in Debentures. The income and other tax consequences of acquiring, holding or disposing of Debentures will vary depending on the purchaser’s particular circumstances. Accordingly, this summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any purchaser. Purchasers should consult their own tax advisors for advice with respect to the tax consequences of an investment in Debentures based on their particular circumstances.
Taxation of Interest on the Debentures
A Holder that is a corporation, partnership, unit trust or trust of which a corporation or partnership is a beneficiary will be required to include in computing its income for a taxation year all interest on a Debenture that accrues or is deemed to accrue to the Holder to the end of that taxation year, or becomes receivable or is received by the Holder before the end of that taxation year, except to the extent that such amount was included in the Holder’s income for a preceding taxation year.
Any other Holder, including an individual (other than certain trusts), will be required to include in computing its income for a taxation year any interest on a Debenture that is received or receivable by such Holder in that taxation year (depending upon the method regularly followed by the Holder in computing income), to the extent that such amount was not otherwise included in the Holder’s income for a preceding taxation year. If in a taxation year such a Holder holds a Debenture which is an “investment contract” (as defined in the Tax Act) on any “anniversary day” (as defined in the Tax Act), such Holder will also be required to include in its income for the taxation year any interest on the Debenture which accrues to the Holder to the end of such day, to the extent that such interest was not otherwise included in computing the Holder’s income for the taxation year or a preceding taxation year.
On a disposition or deemed disposition of a Debenture, including a redemption, payment on maturity, repurchase pursuant to a Change of Control Offer or other purchase for cancellation, a Holder will generally also be required to include in income for the taxation year in which the disposition occurs the amount of interest accrued or deemed to accrue on the Debenture to the date of disposition to the extent that such amount has not otherwise been included in the Holder’s income for the taxation year or a preceding taxation year.
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Any premium paid by CI to a Holder as a penalty or bonus on redemption or repurchase of a Debenture before its maturity, including as a result of CI’s exercise of its optional redemption right, or as a result of CI’s repurchase pursuant to a Change of Control Offer, will generally be deemed to be received by the Holder as interest on the Debenture at the time of the redemption or repurchase to the extent that it can reasonably be considered to relate to, and does not exceed the value at the time of the redemption or repurchase of, the interest that, but for the redemption or repurchase, would have been paid or payable by CI on the Debenture for a taxation year ending after the redemption or repurchase and will be required to be included in computing the Holder’s income as described above.
A Holder that throughout the year is a “Canadian-controlled private corporation” (as defined in the Tax Act) may also be liable to pay an additional refundable tax on its “aggregate investment income” (as defined in the Tax Act) for the year, which will generally include interest income.
Disposition of Debentures
In general, a disposition or deemed disposition of a Debenture, including a redemption, payment on maturity, repurchase pursuant to a Change of Control Offer or other purchase for cancellation, will give rise to a capital gain (or capital loss) to the extent that the proceeds of disposition, net of any amount included in the Holder’s income on such disposition or deemed disposition as interest (see the discussion above under the heading “Taxation ofInterest on the Debentures”), exceed (or are less than) the adjusted cost base of the Debenture to the Holder immediately before the disposition or deemed disposition and any reasonable costs of disposition.
One half of the amount of any capital gain (a “taxable capital gain”) realized by a Holder in a taxation year generally must be included in the Holder’s income in that year. One half of the amount of any capital loss (an “allowable capital loss”) realized by a Holder in a taxation year generally must be deducted from taxable capital gains realized by the Holder in that year, and allowable capital losses in excess of taxable capital gains in any particular year may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years to the extent and under the circumstances described in the Tax Act. A capital gain realized by an individual (other than certain trusts) may give rise to a liability for alternative minimum tax. As discussed above, a Holder that is throughout the year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable for an additional refundable tax on its “aggregate investment income” (as defined in the Tax Act) for the year, which will generally include amounts in respect of taxable capital gains.
LEGAL MATTERS
In connection with the issue and sale of the Debentures, certain legal matters will be passed upon on behalf of CI by Blake, Cassels & Graydon LLP and on behalf of the Agents by Torys LLP. As of the date hereof, the partners and associates of Blake, Cassels & Graydon LLP, and of Torys LLP, each as a group, beneficially own, directly or indirectly, less than 1% of any outstanding class or series of securities of CI or any associated party or affiliate of CI.
TRUSTEE
The Trustee is Computershare Trust Company of Canada, at its office in Toronto, Ontario.
PURCHASERS’ STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION
Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revision of the price or damages if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission, revision of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal adviser.
17
APPENDIX A
TEMPLATE INVESTOR PRESENTATION
A-1 |
A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinces of Canada. A copy of the final base shelf prospectus, any amendment to the final base shelf prospectus and any applicable shelf prospectus supplement that has been filed, is required to be delivered with this document.This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final base shelf prospectus, any amendment and any applicable shelf prospectus supplement for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.May 21, 2020
CI Financial |• Mr. MacAlpine was appointed Chief Executive Officer and Director of CI Financial in September 2019. He has extensive experience in the global asset and wealth management industry, having previously served as Executive Vice-President and Head of Global Distribution for WisdomTree Asset Management and as a Partner and Leader of the North American Asset Management Practice at McKinsey & Company.Kurt MacAlpineChief Executive Officer• At WisdomTree, a global asset manager and exchange-traded fund sponsor based in New York, Mr. MacAlpine was responsible for all client-facing functions globally, including distribution, marketing, data intelligence and strategy, business development, and client solutions. He also oversaw the majority of the firm’s international businesses, which during his tenure included employees in Canada, Europe, Japan, Israel and Latin America and strategic partnerships in Asia and Australia and New Zealand. He was a member of the company’s global executive management committee and sat on the boards of several of its international entities and AdvisorEngine, a digital wealth platform.• Prior to joining WisdomTree in July 2015, Mr. MacAlpine was a Partner at McKinsey, a global management consulting firm, based in its New York office. In his role as a Partner, he managed global consulting teams working with some of the largest asset and wealth managers in the world on topics related to strategy, distribution, marketing, international expansion, mergers and acquisitions, and product development.• Mr. MacAlpine holds a Bachelor of Commerce degree from Saint Mary’s University and an MBA from Queen’s University• Doug has served as Chief Financial Officer of CI Financial since May 2005. He joined CI in 1995 as Manager, Corporate Finance, and following several promotions he progressed to the role of Chief Financial Officer of CI Investments Inc. in 1998. Prior to joining CI, Doug articled at BDO Dunwoody.Doug JamiesonChief Financial Officer• Doug is a CPA and CFA charter holder, holds an MBA from the Ivey School of Business, and a Masters in Accounting from the University of Waterloo.2
CI Financial | Investment HighlightsI Scale and market position, as one of Canada’s largest fund companies• $119 billion in assets under management and $48 billion in assets under administration • Recognized brand name • Continued investment in digital technology to support product offering and marketing strategyII Diversified business model across asset classes, investment strategies, product types and distribution channels• Comprehensive investment product suite with growing alternative and managed product offering • Access to top-ranked portfolio management talent • Captive distribution network complemented with strong access to IIROC investment dealers, financial plannersIIIRenewed strategic priorities, well positioned to tackle industry headwinds• Modernize our asset management business • Expand our wealth management platform • Globalize our companyIV Strong financial position• Resilient revenue base, strong EBITDA margins, and significant free cash flow generation • Cost containment initiatives resulting in a $49 million year-over-year decrease in annualized SG&A • Modest leverage levels • Conservative capital allocation strategy3
OverviewBusiness ProfilesStrategic PrioritiesFinancial HighlightsAppendix
CI Financial | Overview| A diversified, global wealth management firm and one of Canada’s largest fund companiesFounded in 1965 | Listed on the TSX in 1994 (CIX)$119 billion in assets under management | $48 billion in administered assetsHeadquartered in Toronto | ~1,800 employeesMarket capitalization $3.2 billion | Enterprise value $4.8 billion$2 billion in annual revenues | LTM EBITDA* of $837 millionCIX stock: 13% CAGR since IPO | Outperformed TSX & TSX Fin. Services IndexesAs at April 30, 2020, except where noted, figures are in CAD, net income adjusted for provisions. *This is a non-IFRS financial measure. See the Disclaimer on page 27 relating to non-IFRS financial measures.5
CI Financial | History of Asset Growth & Development│ Founded in 1965, CI Financial has grown to be one of the largest asset management companies in Canada with a global scale and continued market development leadership1994Initial Public Offering2002 Spectrum Investment Management Clarica Diversico2004 IQON Financial2010Hartford Investments Canada201520172020SureVest Wealth One Capital Management WisdomTree Canada1999 BPI Financial2003Synergy Asset Management2007Rockwater Capital2013 Marret Asset Management201620181994 AUM: $4BNRebranding2020 AUM: $119BNAUM as of April 30, 2020. 6
CI Financial | Business Lines$167 billion Client AssetsAsset ManagementWealth Management$119 billion $48 billionSupported by:7
CI Investments | Portfolio ManagementCI Owned$48B $17B $4B $39B1 $4B2 $9BToronto / Hong KongToronto / BostonToronto Toronto Toronto TorontoPartially Owned Largest External Sub-AdvisorsCI employs other sub-advisors not listed above; AUM as of April 30, 2020, figures are in CAD. 1. Consists of assets managed by other CI portfolio managers through CI Multi-Asset Management’s strategic asset allocation process. 2. A portion of CI First Asset ETF AUM is managed by sub-advisors and/or other CI-owned portfolio managers.
CI Investments | Asset BreakdownAUM by Fund Type Currency Exposure of AUMEquityFixed Income & Diversified Income Balanced Portfolio Segregated Accounts 4%19%16%27%34%AUM by Product Type AUM by Underlying Class AUM by Client Type6% Pooled funds / accounts 7% Exchange-traded funds 7% Variable annuity fundsFixed Income 28%88% Retail8 0 %Mutual fundsEquity 68%Cash/ Other, 4%12% InstitutionalExcludes GSFM’s assets under management. AUM as of March 31, 2020.9
Assante Wealth Management and Private Client| Distribution platform with $42 billion in administered assets (Apr-2020)~760 financial advisors across Canada | Average of $52 million assets per advisorDesigned for high net worth clients of Assante Wealth Management | $2.7 billion in AUM Specialized services | Customized reporting and access to alternative investment optionsAssets Under Administration (in $billions)50 45 40 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Apr-20Figures are in CAD.10
CI Private Wealth│ $14.8 billion of high net worth assets managed through discretionary and non- discretionary investment platforms, supported by experienced teams of wealth planning professionalsStonegate | Assante| Surevest | One Capital | Cabana|12 advisory teams servicing clients across Canada| $3.8 billion in AUAHeritage dates back to the early 1980s | Catering exclusively to HNW/Ultra HNW clientsDesigned for high net worth clients of Assante Wealth Management | $2.5 billion in AUA Specialized services | Customized reporting and access to alternative investment optionsExclusive team of specialists providing personalized solutions | $0.5 billion in AUAFounded 2002 in Phoenix, AZ | Collaborative team-based approach to wealth managementRobust cross-border capabilities and advanced wealth planning| $2.3 billion in AUA California- based RIA | Offerings include a division focused on Sports & Entertainment clienteleAmongst the fastest growing registered investment advisers in the U.S. | $1.7 billion in AUA Breadth of Offerings | Diverse product offerings with offices in Arkansas, Texas and ColoradoAs of April 30, 2020, figures are in CAD, unless otherwise noted.11
Technology-Based Wealth Management PlatformsBBS Securities | an IIROC Broker Dealer providing brokerage, custody and technology solutions to institutional clientsVirtual Brokers | a division of BBS Securities providing self-directed online brokerage services for retail and professional traders.WealthBar | Leading Canadian digital advice (robo) platform, launched in 2014, acquired by CI in December 2018. 5 ETF portfolios with low fees, brand name funds, 3 private portfolios that include alternative asset classes12
CI Financial | Strategic PrioritiesModernize our asset management businessExpand our wealth management platformGlobalize our companydiffill El kl A kle'l A I iiini I I INIP\1,1%.1P\
CI Financial | Rationale for Each Strategic PriorityModernize our asset management businessExpand our wealth management platformGlobalize our company• Evolving demographics• Shifts in investor preferences• Changing expectations for servicing and support • Ongoing regulatory change• Role of advisor is more important than ever • Our breadth of capabilities uniquely positions us to be Canada's market leader • Consumers' lives are becoming increasingly complex and digital• Scale is becoming increasingly important, and difficult to achieve in Canada • Investors want to be serviced and supported globally • Talent acquisition from global markets14
CI Financial | Strategic ProgressModernize our asset management businessExpand our wealth management platformGlobalize our companyNew corporate strategyDr. Joseph Coughlin WisdomTree Canada DoubleLine Capita partnershiAdamsStreetPartnersruayOctober 21, 2019November 7, 2019December 3, 2019 February 6, 2020April614,20202020Sept-19Next-gen distribution analytics rolloutCabana Asset ManagementOctober 17, 2019 October 30, 2019 November 26, 2019December 23, 2019March 2020 April 17, 202015
CI Financial | Update on Select Strategic Initiatives DoubleLine • Jeffrey Gundlach is the world’s most influential bond investor and one of the most successful asset managers Coughlin • Dr. Joseph Coughlin is the leading global researcher on aging and longevity and Founder and Director of MIT’s AgeLab US RIA Strategy • Critical element to our strategic priority to globalize our company Overview • Launching a suite of income strategies for Canadian investors including: – Total Return Bond Fund (DoubleLine's flagship) – Income Fund – Core Plus Bond Fund • Creating better awareness of CI’s $40B fixed income capabilities • Partnering to help investors effectively plan for, and live well in retirement. We will deliver his expertise through: – Bringing new investment solutions to market – Evolving our industry-leading financial planning capability to include longevity planning – Educating advisors and investors on retirement • Announced three acquisitions: SureVest, One Capital Management and Cabana Group – ~$3.2B USD (~$4.2B CAD) in combined AUA • Signed letters of intent to acquire 2 more RIAs in key strategic US locations • Rolling out full cross-border capabilities to service clients north and south of the border Strategic priorities What we're doing Modernize our asset management business Expand our wealth management platform Globalize our company 16
CI Financial | Why the US RIA Market?Why the US?The US market is the most attractive market for global expansion • Largest addressable pool of assets • Most accessible – same time zones, same language, similar cultures • Competition is high but barriers to entry are lowRegistered Independent Advisors (RIAs) • Fastest growing segment of the US wealth market • Account for 23% of the wealth market and growing at 18% p.a. • Fiduciary standard for clients, strong focus on financial planning • Highly fragmented with ~90% of firms independently owned • Significant economies of scale, accessible through M&AWhy RIAs?How will we compete?Create an industry-leading RIA aggregator by selectively pursuing acquisitions of fast growing firms in strategically attractive markets and market segments17
CI Financial | Expense Management| Expense management strategies delivered annualized SG&A reductions of $49 millionCost Containment EffortsAnnualized SG&A ($millions)• CI Financial has put specific initiatives into place to enhance its cost containment efforts:'V Launch of a 5-year initiative in 2018 to streamline product shelf and reduce complexity'V Rationalize fund line up to save on filing and administrative fees 'V Short-term increase in innovation spend and acquisition of Virtual Brokers and WealthBar to introduce technology to replace manual processes in the back and middle office'V Transition to cost-effective digital marketing efforts'V Firm-wide brand integration across all CI businesses'V SG&A target of less than $120 million per quarter511.2Q1 - 2019500.7Q2 - 2019494.2Q3 - 2019451.5Q4 - 2019462.5Q1- 2020$49M18
Leverage Considerations│ While credit markets have improved considerably over the past few weeks, we are maintaining our conservative stance with an expected full pay-down of debt under our $700mn bank debt facility. This will occur before the end of MayPro Forma Debt Repayment Schedule ($millions)Leverage ($millions)Public debenturesCredit facility$1,570$175$1,529 $1,525 $1,569 $1,604 $1,745 $1,570 2.2xTotal debt outstanding at March 31, 2020 $1,7451.8x1.5x1.8x1.5x1.9x1.6x1.8x1.9x1.9x1.8xCredit facility repayment in AprilExpected repayment of credit facility in May$119$561,268 1,2701,3411.6x 1,383 1,464 1,470(1)Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Pro FormaExpected debt outstanding at May 31, 2020 $1,570Liquid marketable securities on hand $100Net debt* Gross Gross debt to EBITDA* Net debt toInterest Coverage(2)May 202015.3x 15.3x 15.1x 15.8x13.4xQ1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 All figures in $millions. Interest coverage* 1. Based on Q1-2020 adj. EBITDA. 2. Interest coverage ratio defines as EBITDA (adj.) divided by interest and lease finance payment. * This is a non-IFRS financial measure. See the Disclaimer on page 27 relating to non-IFRS financial measures.19
Capital ManagementCI has implemented several strategic initiatives to position its capital structure for long-term growthSenior Unsecured Debentures Maturity ($millions)$450$200$325 $35$250Target LeveragePay Down Debt• Target maximum net debt to EBTIDA of 2.0x• Intend to pay down outstanding balance of credit facility by end of May 20202 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 4 2 0 2 5 2 0 2 6 2 0 2 7Credit RatingsPause on NCIB• Pause NCIB program with a shift in focus on maintaining a defensive, flexible capital positionReduced Dividend Policy• In August 2018, announced a decrease in the annual dividend rate to $0.72 per share from $1.41 per shareD a te Outlook Issuer RatingMarch 19, 2020 Stable BBBMarch 27, 2020 Negative BBB (high)Financial figures on an adjusted basis.20
Financial Highlights
Quarterly Financial HighlightsAll numbers in millions, except per shareChangeQ1-2020 Q4-2019 Q1-2019 QoQ YoYAverage AUM $127,163 $130,542 $128,521 (3%)Ending AUMAssets under administrationAdjusted net income*• per share*$111,065$44,611$126.5$0.58$131,741 $130,944 (16%) (15%$50,505 $46,393 (12%) (4%)$147.5 $140.0 (14%) (10%$0.66 $0.58 (12%) -%Free cash flow* $143.7 $168.3 $143.5 (15%) -*This is a non-IFRS financial measure. See the Disclaimer on page 27 relating to non-IFRS financial measures.22
Historical Annual Results(in $millions, except per share) FY 2016 FY 2017 FY 2018 FY 2019Assets under management 117,889 143,028 123,991 131,741Total client assets 156,124 185,727 166,277 182,246Total revenues 1,948 2,111 2,236 2,119Total expenses 1,179 1,303 1,393 1,392EBITDA (adjusted)* 835 892 906 851Net income to shareholders (adjusted)* 590 628 617 565Earnings per share (adjusted)* 2.18 2.38 2.38 2.41LTM ROE (adjusted net income, %) 37.2% 39.9% 37.1% 37.8% Free cash flow* 605 648 656 603 Net debt* 573 861 1,255 1,383Net debt/annualized adjusted EBITDA* 0.7x 0.9x 1.5x 1.6x Adjusted EBITDA/total revenue* 42.9% 42.2% 40.5% 40.1% Net management fees, % of avg. AUM 1.050% 1.012% 0.961% 0.942% Total SG&A expenses, % of avg. AUM 0.353% 0.358% 0.374% 0.377%Net management fees are defined as management fees less trailer fees and DSC paid.*This is a non-IFRS financial measure. See the Disclaimer on page 27 relating to non-IFRS financial measures.23
Appendix
CI ExecutivesKurt MacAlpine Darie Urbanky Doug Jamieson Sean EtheringtonChief Executive Officer President and Chief Financial Officer President,Chief Operating Officer Assante Wealth ManagementJaime Ross Roy Ratnavel Lorraine Blair President, CI Private Counsel EVP, CI Financial and Chief Talent Officer and Head of Institutional Sales Head of Retail Sales25
Board of DirectorsKurt MacAlpine Bridgette Chang- William T. Holland David P. MillerChief Executive Officer Addorisio Chairman of the BoardCI Financial CI FinancialTom P. Muir Sheila A. Murray Paul J. Perrow William Butt26
DisclaimerThis presentation contains forward-looking statements concerning anticipated future events, results, circumstances, performance or expectations with respect to CI Financial Corp. (“CI”) and its products and services, including its business operations, strategy and financial performance and condition. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar references to future periods, or conditional verbs such as “will”, “may”, “should”, “could” or “would”. These statements are not historical facts but instead represent management beliefs regarding future events, many of which by their nature are inherently uncertain and beyond management’s control. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. The material factors and assumptions applied in reaching the conclusions contained in these forward-looking statements include that the investment fund industry will remain stable and that interest rates will remain relatively stable. Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market conditions, including interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry competition, technological developments and other factors described or discussed in CI’s disclosure materials filed with applicable securities regulatory authorities from time to time. The foregoing list is not exhaustive and the reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, CI undertakes no obligation to update or alter any forward-looking statement after the date on which it is made, whether to reflect new information, future events or otherwise.This presentation contains non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. However, management uses these financial measures and believes that these financial measures provide information that is useful to shareholders, other stakeholders and investment analysts in understanding CI’s performance and results. These non-IFRS measures are described and/or reconciled to the nearest IFRS measure in CI’s most recent Management’s Discussion and Analysis available at www.cifinancial.com.This presentation is not an offer and will not form the basis of any contract for the consummation of any transaction between you and CI. There will be no binding commitment relating to any transaction unless and until definitive agreements relating thereto have been executed.All dollar values included in this presentation are expressed in Canadian dollars unless otherwise specified.27
CERTIFICATE OF AGENTS
Dated: May 21, 2020
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this supplement as required by the securities legislation of all the provinces of Canada.
NATIONAL BANK FINANCIAL INC. | CIBC WORLD MARKETS INC. | ||
By: | /s/ John Carrique | By: | |
TD SECURITIES INC. | BMO NESBITT BURNS INC. | SCOTIA CAPITAL INC. | |
By: | By: | By: | |
CASGRAIN & COMPANY LIMITED | |||
By: | |||
INFOR FINANCIAL INC. | MANULIFE SECURITIES INCORPORATED | ||
By: | By: |
CERTIFICATE OF AGENTS
Dated: May 21, 2020
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this supplement as required by the securities legislation of all the provinces of Canada.
NATIONAL BANK FINANCIAL INC. | CIBC WORLD MARKETS INC. | |
By: | By: | /s/ Amber Choudhry |
TD SECURITIES INC. | BMO NESBITT BURNS INC. | SCOTIA CAPITAL INC. |
By: | By: | By: |
CASGRAIN & COMPANY LIMITED | ||
By: | ||
INFOR FINANCIAL INC. | MANULIFE SECURITIES INCORPORATED | |
By: | By: |
CERTIFICATE OF AGENTS
Dated: May 21, 2020
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this supplement as required by the securities legislation of all the provinces of Canada.
NATIONAL BANK FINANCIAL INC. | CIBC WORLD MARKETS INC. | ||
By: | By: | ||
TD SECURITIES INC. | BMO NESBITT BURNS INC. | SCOTIA CAPITAL INC. | |
By: | /s/ Greg McDonald | By: | By: |
Greg McDonald
Director |
|||
CASGRAIN & COMPANY LIMITED | |||
By: | |||
INFOR FINANCIAL GROUP INC. | MANULIFE SECURITIES INCORPORATED | ||
By: | By: |
CERTIFICATE OF AGENTS
Dated: May 21, 2020
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this supplement as required by the securities legislation of all the provinces of Canada.
NATIONAL BANK FINANCIAL INC. | CIBC WORLD MARKETS INC. | |||
By: | By: | |||
TD SECURITIES INC. | BMO NESBITT BURNS INC. | SCOTIA CAPITAL INC. | ||
By: | By: | /s/ Kris Somers | By: | |
Director | ||||
CASGRAIN & COMPANY LIMITED | ||||
By: | ||||
INFOR FINANCIAL INC. | MANULIFE SECURITIES INCORPORATED | |||
By: | By: |
CERTIFICATE OF AGENTS
Dated: May 21, 2020
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this supplement as required by the securities legislation of all the provinces of Canada.
NATIONAL BANK FINANCIAL INC. | CIBC WORLD MARKETS INC. |
By: | By: |
TD SECURITIES INC. | BMO NESBITT BURNS INC. | SCOTIA CAPITAL INC. | |
By: | By: | By: | /s/ Michal Cegielski |
CASGRAIN & COMPANY LIMITED | ||
By: |
INFOR FINANCIAL INC. | MANULIFE SECURITIES INCORPORATED |
By: | By: |
CERTIFICATE OF AGENTS
Dated: May 21, 2020
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this supplement as required by the securities legislation of all the provinces of Canada.
NATIONAL BANK FINANCIAL INC. | CIBC WORLD MARKETS INC. | ||
By: | By: |
TD SECURITIES INC. | BMO NESBITT BURNS INC. | SCOTIA CAPITAL INC. | |||
By: | By: | By: |
CASGRAIN & COMPANY LIMITED | ||||
By: | /s/ Roger Casgrain |
INFOR FINANCIAL INC. | MANULIFE SECURITIES INCORPORATED | |
By: | By: |
CERTIFICATE OF AGENTS
Dated: May 21, 2020
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this supplement as required by the securities legislation of all the provinces of Canada.
NATIONAL BANK FINANCIAL INC. | CIBC WORLD MARKETS INC. | ||
By: | By: |
TD SECURITIES INC. | BMO NESBITT BURNS INC. | SCOTIA CAPITAL INC. | |||
By: | By: | By: |
CASGRAIN & COMPANY LIMITED | |||
By: |
INFOR FINANCIAL INC. | MANULIFE SECURITIES INCORPORATED | |||
By: | /s/ Neil Selfe | By: |
CERTIFICATE OF AGENTS
Dated: May 21, 2020
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this supplement as required by the securities legislation of all the provinces of Canada.
NATIONAL BANK FINANCIAL INC. | CIBC WORLD MARKETS INC. |
By: | By: |
TD SECURITIES INC. | BMO NESBITT BURNS INC. | SCOTIA CAPITAL INC. | |||
By: | By: | By: |
CASGRAIN & COMPANY LIMITED | |||
By: |
INFOR FINANCIAL INC. | MANULIFE SECURITIES INCORPORATED | ||
By: | By: | /s/ William Porter | |
William Porter |
Exhibit 99.59
A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinces of Canada. A copy of the final base shelf prospectus, any amendment to the final base shelf prospectus and any applicable shelf prospectus supplement that has been filed, is required to be delivered with this document.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final base shelf prospectus, any amendment and any applicable shelf prospectus supplement for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
There is no market through which the securities may be sold and purchasers may not be able to resell the securities purchased under the prospectus supplement. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities and the extent of issuer regulation.
CI Financial Corp.
·% Debentures due 2025
INDICATIVE TERM SHEET
May 21, 2020
Issuer | CI Financial Corp. (“CI”) | |
Issue | ·% Debentures due May 26, 2025 (the “Debentures”) issued via a Prospectus Supplement to the Short Form Base Shelf Prospectus dated December 17, 2019 | |
Principal Amount | Minimum $400 million | |
Term | 5-year | |
Interest Rate | ·% per annum from issuance to May 26, 2025 | |
Interest Payment Dates | From issuance to May 26, 2025, payable semi-annually in arrears on May 26 and November 26 of each year, with the first payment date on November 26, 2020 | |
Issue Spread (1) | Redacted in accordance with subsection 9A.3(4) of National Instrument 44-102. | |
Maturity Date | May 26, 2025 | |
Redemption | CI may, at its option, redeem the Debentures, in whole or in part any time prior to the Par Call Date, on not less than 30 nor more than 60 days’ prior notice to the registered holder at a redemption price equal to the greater of the Canada Yield Price (as defined herein) and par, together in each case with accrued and unpaid interest up to but excluding the date fixed for redemption | |
The Debentures may be redeemed in whole or in part at any time on or after the Par Call Date at 100% of the aggregate principal amount outstanding of the Debentures being redeemed, plus accrued and unpaid interest on such amount up to but excluding the date fixed for redemption | ||
Canada Yield Price | “Canada Yield Price” on any redemption date means a price which, if the Debentures were to be issued at such price on such date, would provide a yield thereon from such date to the Par Call Date, equal to the Government of Canada Yield, plus · bps, compounded semi-annually and calculated on the day that is three business days prior to the date of redemption |
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Government of Canada Yield | “Government of Canada Yield” on any date means, with respect to the Debentures, the average mid-market yields to maturity on such date provided by two independent investment dealers selected by CI and approved by the Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce, if issued at par on such date, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date of the Debentures | |
Par Call Date | April 26, 2025 (1 month prior to Maturity Date) | |
Yield | ·% | |
Settlement | May 26, 2020 (T+3) | |
Price | $· | |
Expected Credit | DBRS: BBB (high), Under Review with Negative Implications | |
Ratings (2) | S&P: BBB | |
Rank | The Debentures will be direct and unsecured obligations of CI and will rank pari passu with all existing or future unsecured and unsubordinated indebtedness of CI | |
Covenants | Negative Pledge, Limitation on Subsidiary Indebtedness, Limitation on Merger or Sale of Assets, Change of Control, Cross-Default | |
Use of Proceeds | CI intends to use the net proceeds from the sale of debentures primarily to repay outstanding indebtedness including the $450,000,000 principal amount of debentures maturing on December 7, 2020, issued by CI on December 7, 2015, and amounts owing under CI’s credit facility. The remainder of the proceeds, if any, will be used for general corporate purposes. | |
CUSIP / ISIN | 125491AJ9 / CA125491AJ93 | |
Syndicate | National Bank Financial Inc. (Joint Bookrunner) | |
CIBC World Markets Inc. (Joint Bookrunner) | ||
TD Securities Inc. | ||
BMO Nesbitt Burns Inc. | ||
Scotia Capital Inc. | ||
Casgrain & Company Limited | ||
INFOR Financial Inc. | ||
Manulife Securities Incorporated |
The Debentures will be issued under and pursuant to the provisions of a second supplemental indenture to the trust indenture dated July 22, 2019, as supplemented (the “Trust Indenture”) between CI and Computershare Trust Company of Canada, as the trustee (the “Trustee”). The foregoing is a brief summary of certain attributes of the Debentures which does not purport to be complete. Should any conflict arise between this summary and the Trust Indenture, the terms of the Trust Indenture will govern.
(1) Redacted in accordance with subsection 9A.3(4) of National Instrument 44-102.
(2) A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
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Exhibit 99.60
A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinces of Canada. A copy of the final base shelf prospectus, any amendment to the final base shelf prospectus and any applicable shelf prospectus supplement that has been filed, is required to be delivered with this document.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final base shelf prospectus, any amendment and any applicable shelf prospectus supplement for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
There is no market through which the securities may be sold and purchasers may not be able to resell the securities purchased under the prospectus supplement. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities and the extent of issuer regulation.
CI Financial Corp.
3.759% Debentures due 2025
FINAL TERM SHEET
May 21, 2020
Issuer | CI Financial Corp. (“CI”) | |
Issue | 3.759% Debentures due May 26, 2025 (the “Debentures”) issued via a Prospectus Supplement to the Short Form Base Shelf Prospectus dated December 17, 2019 | |
Principal Amount | $450 million | |
Term | 5-year | |
Interest Rate | 3.759% per annum from issuance to May 26, 2025 | |
Interest Payment Dates | From issuance to May 26, 2025, payable semi-annually in arrears on May 26 and November 26 of each year, with the first payment date on November 26, 2020 | |
Issue Spread (1) | Redacted in accordance with subsection 9A.3(4) of National Instrument 44-102. | |
Maturity Date | May 26, 2025 | |
Redemption | CI may, at its option, redeem the Debentures, in whole or in part any time prior to the Par Call Date, on not less than 30 nor more than 60 days’ prior notice to the registered holder at a redemption price equal to the greater of the Canada Yield Price (as defined herein) and par, together in each case with accrued and unpaid interest up to but excluding the date fixed for redemption The Debentures may be redeemed in whole or in part at any time on or after the Par Call Date at 100% of the aggregate principal amount outstanding of the Debentures being redeemed, plus accrued and unpaid interest on such amount up to but excluding the date fixed for redemption | |
Canada Yield Price | “Canada Yield Price” on any redemption date means a price which, if the Debentures were to be issued at such price on such date, would provide a yield thereon from such date to the Par Call Date, equal to the Government of Canada Yield, plus 84 bps, compounded semi-annually and calculated on the day that is three business days prior to the date of redemption |
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Government of Canada Yield | “Government of Canada Yield” on any date means, with respect to the Debentures, the average mid-market yields to maturity on such date provided by two independent investment dealers selected by CI and approved by the Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce, if issued at par on such date, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date of the Debentures | |
Par Call Date | April 26, 2025 (1 month prior to Maturity Date) | |
Yield | 3.759% | |
Settlement | May 26, 2020 (T+3) | |
Price | $1,000.00 | |
Expected Credit | DBRS: BBB (high), Under Review with Negative Implications | |
Ratings (2) | S&P: BBB | |
Rank | The Debentures will be direct and unsecured obligations of CI and will rank pari passu with all existing or future unsecured and unsubordinated indebtedness of CI | |
Covenants | Negative Pledge, Limitation on Subsidiary Indebtedness, Limitation on Merger or Sale of Assets, Change of Control, Cross-Default | |
Use of Proceeds | CI intends to use the net proceeds from the sale of debentures primarily to repay outstanding indebtedness including the $450,000,000 principal amount of debentures maturing on December 7, 2020, issued by CI on December 7, 2015, and amounts owing under CI’s credit facility. The remainder of the proceeds, if any, will be used for general corporate purposes. | |
CUSIP / ISIN | 125491AJ9 / CA125491AJ93 | |
Syndicate | National Bank Financial Inc. (Joint Bookrunner) | |
CIBC World Markets Inc. (Joint Bookrunner) | ||
TD Securities Inc. | ||
BMO Nesbitt Burns Inc. | ||
Scotia Capital Inc. | ||
Casgrain & Company Limited | ||
INFOR Financial Inc. | ||
Manulife Securities Incorporated |
The Debentures will be issued under and pursuant to the provisions of a second supplemental indenture to the trust indenture dated July 22, 2019, as supplemented (the “Trust Indenture”) between CI and Computershare Trust Company of Canada, as the trustee (the “Trustee”). The foregoing is a brief summary of certain attributes of the Debentures which does not purport to be complete. Should any conflict arise between this summary and the Trust Indenture, the terms of the Trust Indenture will govern.
(1) Redacted in accordance with subsection 9A.3(4) of National Instrument 44-102.
(2) A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
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Exhibit 99.61
CI FINANCIAL CORP.,
as issuer of the Debentures
and
COMPUTERSHARE TRUST COMPANY OF CANADA
as Trustee
SECOND SUPPLEMENTAL INDENTURE
Dated as of
May 26, 2020
To
TRUST INDENTURE
Dated as of July 22, 2019
3.759% Debentures due 2025
SECOND SUPPLEMENTAL INDENTURE
THIS IS A SERIES SUPPLEMENT dated as of May 26, 2020 between CI FINANCIAL CORP., a corporation existing under the laws of Ontario (“CI”), in its capacity as issuer of Debt Securities hereunder and COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company under the laws of Canada, in its capacity as Trustee (the “Trustee”).
WHEREAS CI and the Trustee have entered into a trust indenture dated as of July 22, 2019 (the “Indenture”);
AND WHEREAS section 2.2 and section 12.1 of the Indenture provide, among other things, that, without the consent of any Holders, CI and the Trustee may enter into a supplement to the Indenture for the purpose of establishing the Principal Terms of any Series which CI wishes to issue under the Indenture;
AND WHEREAS this Series Supplement relates to the Series of Debt Securities to be designated as 3.759% Debentures due 2025, and CI and the Trustee are entering into this Series Supplement in order to establish the Principal Terms of such Series and to provide for the issuance of such Series;
AND WHEREAS the foregoing recitals and any statements of fact in this Series Supplement are and shall be deemed to be made by CI and not the Trustee;
NOW THEREFORE THIS SERIES SUPPLEMENT WITNESSES and it is hereby agreed as follows:
ARTICLE ONE
INTERPRETATION
1.1 | To be Read with Indenture; Governing Law |
This Series Supplement is supplemental to the Indenture, and the Indenture and this Series Supplement shall hereafter be read together and shall have effect, so far as practicable, with respect to the Series, as if all the provisions of the Indenture and this Series Supplement were contained in one instrument, which instrument shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. The parties hereto expressly request and require that this document be drawn up in English. Les parties aux présentes conviennent et exigent que cette entente et tous les documents qui s’y rattachent soient rédigés en anglais.
1.2 | Definitions |
All capitalized terms used but not defined in this Series Supplement shall have the meanings specified in the Indenture. In addition, the following terms shall have the meanings specified below:
“2025 Canada Yield Price”, with respect to the 2025 Debentures on any Redemption Date, means a price which, if the 2025 Debentures were to be issued at such price on such date, would provide a yield thereon from such date to the Par Call Date of the principal amount of the 2025 Debentures equal to the Government of Canada Yield, plus 84 basis points (0.840%), compounded semi-annually and calculated on the day that is three Business Days prior to the Redemption Date.
“2025 Debentures” means the Series designated “3.759% Debentures due 2025” and having the attributes provided in Article Two hereof.
“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet or statement of financial position of such Person under Canadian generally accepted accounting principles, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with Canadian generally accepted accounting principles.
“Change of Control” means (i) the sale of all or substantially all of CI’s assets, other than any such sale to its Subsidiaries or affiliates or to any of their respective successors, or (ii) the acquisition by any person, or group of persons acting jointly or in concert, of control or direct or indirect beneficial ownership of more than 50% of the votes attaching to the shares of CI that ordinarily have voting power for the election of directors of CI.
“Change of Control Notice”, with respect to the 2025 Debentures, shall have the meaning specified in Section 2.8(a).
“Change of Control Offer”, with respect to the 2025 Debentures, shall have the meaning specified in Section 2.8(a).
“Change of Control Triggering Event” means the occurrence of both a Change of Control and a Rating Event.
“Consolidated Net Worth” means, as at any date, the amount of consolidated shareholders’ equity of CI and its Subsidiaries as set forth in the most recently filed annual or interim consolidated financial statements of CI prepared in accordance with Canadian generally accepted accounting principles.
“DBRS” means DBRS Limited and its successors.
“Government of Canada Yield” on any date means, with respect to the 2025 Debentures, the average of the mid-market yields to maturity on such date provided by two independent investment dealers selected by CI and approved by the Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce, if issued at par on such date, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date of the principal amount of the 2025 Debentures.
“Investment Grade Rating” means a rating equal to or higher than BBB- (or the equivalent of any successor rating category of S&P) by S&P, BBB (low) (or the equivalent of any successor rating category of DBRS) by DBRS, or the equivalent investment grade rating from any other Specified Rating Agency.
“Moody’s” means Moody’s Investors Services, Inc. and its successors.
“Offer Date”, with respect to the 2025 Debentures, shall have the meaning specified in Section 2.8(a).
“Offer Price”, with respect to the 2025 Debentures, shall have the meaning specified in Section 2.8(a).
“Par Call Date” means April 26, 2025 (one month prior to the Stated Maturity).
“Permitted Encumbrances” means, in this Series Supplement and with respect to a Subsidiary of CI, Security Interests on the property of the Subsidiary which are:
(a) | Security Interests for taxes, assessments, governmental charges arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with Canadian generally accepted accounting principles shall have been made; |
(b) | statutory Security Interests of landlords and carriers, warehousemen, mechanics, suppliers, material men, repairmen or other similar Security Interests arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested and for which a reserve or other appropriate provision, if any, as shall be required in conformity with Canadian generally accepted accounting principles shall have been made; |
(c) | Security Interests incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security; |
(d) | Purchase Money Liens; |
(e) | Security Interests in favour of CI or another Subsidiary of CI; |
(f) | Security Interests arising in the ordinary course of business in favour of any bank or other lender on the property of the Subsidiary of CI (other than accounts receivable) to secure any liabilities of the Subsidiary that do not relate to borrowed money; |
(g) | Security Interests for any judgment rendered, or claim filed, against the Subsidiary of CI, which is being contested in good faith by appropriate proceedings, that does not constitute an Event of Default with respect to the 2025 Debentures, if during such contestation a stay of enforcement of such judgment or claim is in effect; |
(h) | Security Interests that arise by operation of law; |
(i) | any Security Interest existing on any property of a Person at the time that such Person is acquired by the Subsidiary of CI provided that such Security Interest was not incurred in contemplation of or as a result of such acquisition; |
(j) | any Security Interest existing on any property acquired by the Subsidiary, provided that such Security Interest was not incurred in contemplation of or as a result of such acquisition; |
(k) | Security Interests for any final judgments for the payment of money that do not constitute an Event of Default with respect to the 2025 Debentures; |
(l) | any Security Interest to secure any Investment Certificate issued by the Subsidiary of CI, in the normal course of business; and |
(m) | any extension, renewal, alteration or substitution or replacement of any Security Interest mentioned above provided that it is not extended thereby to any additional property and the principal amount secured thereby is not increased. |
“Purchase Money Lien” means, in this Series Supplement and with respect to a Subsidiary of CI, any Security Interest on property acquired by the Subsidiary of CI which was assumed, created, guaranteed, reserved, issued or given to secure or satisfy all or any part of the acquisition price of such property.
“Rating Event” means, with respect to the 2025 Debentures, the rating of the 2025 Debentures is lowered to below Investment Grade Rating by each of the Specified Rating Agencies, if there are less than three Specified Rating Agencies, or by two out of three of the Specified Rating Agencies, if there are three Specified Rating Agencies (the “Required Threshold”), on any day within the 60-day period (which 60-day period will be extended so long as the rating of the 2025 Debentures is under publicly announced consideration for a possible downgrade by such number of Specified Rating Agencies which, together with Specified Rating Agencies which have already lowered their ratings on the 2025 Debentures as aforesaid, would aggregate in number the Required Threshold, but only to the extent that, and for so long as, a Change of Control Triggering Event would result if such downgrade were to occur) after the earlier of (a) the occurrence of a Change of Control and (b) public notice of the occurrence of a Change of Control.
“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., and its successors.
“Specified Indebtedness” of any Person means, without duplication:
(a) | all obligations of such Person for borrowed money or with respect to deposits or advances of any kind; |
(b) | all obligations of such Person evidenced by bonds, debentures, notes or similar instruments; |
(c) | all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person; |
(d) | all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business); |
(e) | all Specified Indebtedness of another Person secured by any Security Interest upon the property of such Person; |
(f) | all Capital Lease Obligations of such Person; |
(g) | all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guarantee (other than letters of credit and letters of guarantee issued in support of current accounts payable incurred in the ordinary course of business); |
(h) | all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances; |
(i) | the net termination amount payable by such Person under any hedging, swap or other derivative transactions, including those designed and entered into to protect or mitigate against risks in interest, currency exchange or commodity price fluctuations; |
(j) | all obligations of such Person to purchase, redeem (other than at the option of the holder) or otherwise acquire any equity interest (including preferred shares) of such Person; and |
(k) | all obligations of the type referred to in clauses (a) through (j) of any other Person for which such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of a guarantee or indemnity. |
“Specified Rating Agencies” means, with respect to the 2025 Debentures, each of S&P and DBRS and, if a rating of the 2025 Debentures is obtained from Moody’s shall also include Moody’s, as long as, in each case, such entity has not ceased to rate the 2025 Debentures or failed to make a rating of the 2025 Debentures publicly available for reasons outside of CI’s control; provided that if one or more of DBRS, S&P or Moody’s, as applicable, ceases to rate the 2025 Debentures or fails to make a rating of the 2025 Debentures publicly available for reasons outside of CI’s control, CI may select any other “designated rating organization” within the meaning of National Instrument 44-101 of the Canadian Securities Administrators as a replacement agency for the 2025 Debentures.
“Total Offer Price”, with respect to the 2025 Debentures, shall have the meaning for such Series specified in Section 2.8(a).
1.3 | Interpretation of Indebtedness |
CI acknowledges that, with respect to the 2025 Debentures, Indebtedness shall be interpreted to include Specified Indebtedness.
1.4 | Conflicts with Indenture |
If any term or provision contained in this Series Supplement shall conflict or be inconsistent with any term or provision of the Indenture, the term or provision of this Series Supplement shall govern; provided however that the terms and provisions of this Series Supplement may modify or amend the terms and provisions of the Indenture solely as applied to the 2025 Debentures.
1.5 | Interpretation Provisions |
This Series Supplement shall, unless the context otherwise requires, be subject to the interpretation provisions contained in Article One of the Indenture.
1.6 | Exhibits |
Exhibit A hereto forms part of this Series Supplement.
ARTICLE TWO
THE DEBT SECURITIES –
3.759% DEBENTURES DUE 2025
2.1 | Authorization and Designation |
CI is hereby authorized to issue under the Indenture a Series of Debt Securities designated “3.759% Debentures due 2025” having the terms set forth in this Article Two.
2.2 | No Fixed Limitation |
The aggregate principal amount of the 2025 Debentures that may be issued shall be unlimited.
2.3 | Currency |
The 2025 Debentures shall be denominated in, and all principal of and premium, interest and other amounts on the 2025 Debentures shall be payable in, Canadian Dollars.
2.4 | Denominations |
The 2025 Debentures shall be denominated in integral multiples of $1,000.00 and no such Debt Security shall be issued in a principal amount less than $1,000.00.
2.5 | Date and Maturity |
The Series Issuance Date for the 2025 Debentures shall be May 26, 2020, and the Stated Maturity of the 2025 Debentures shall be May 26, 2025.
2.6 | Interest |
(1) | The interest rate applicable to the 2025 Debentures shall be 3.759% per annum. Interest shall be calculated and payable semi-annually in arrears on the Interest Payment Dates set forth below in equal instalments. |
(2) | The Interest Payment Dates for the 2025 Debentures shall be May 26 and November 26 in each year commencing November 26, 2020. |
(3) | The Regular Interest Record Dates for the 2025 Debentures shall be as provided in the definition of “Regular Interest Record Date” in Section 1.1 of the Indenture. |
2.7 | Redemption and Purchase |
(1) | The 2025 Debentures may be redeemed at the election of CI on a Redemption Date determined by CI that is not less than 30 nor more than 60 days after notice of such redemption is given to the Holders of 2025 Debentures to be redeemed pursuant to Section 3.1 of the Indenture. At its option, CI may redeem 2025 Debentures in whole at any time or in part from time to time, on notice given pursuant to Section 3.1 of the Indenture, (i) prior to the Par Call Date, at a Redemption Price equal to the greater of (a) the 2025 Canada Yield Price and (b) par, or (ii) on or after the Par Call Date, at a Redemption Price equal to 100% of the aggregate principal amount of the 2025 Debentures, together in each case with accrued and unpaid interest up to but excluding the date fixed for redemption. |
(2) | The 2025 Debentures may not be redeemed at the election of the Holders thereof. |
2.8 | Change of Control Triggering Event |
Within 30 days following the occurrence of a Change of Control Triggering Event, unless CI has exercised its right to redeem all of the 2025 Debentures in accordance with Section 2.7, and subject to the provisions and conditions of this Section 2.8, CI shall be obligated to offer to purchase all of the 2025 Debentures and to purchase any 2025 Debentures tendered in respect of such offer. The terms and conditions of such obligation are set forth below:
(a) | Within 30 days following the occurrence of a Change of Control Triggering Event, CI shall deliver to the Trustee, and the Trustee shall, as soon as practicable thereafter and in any event no later than two Business Days after receiving notice from CI of the occurrence of a Change of Control Triggering Event, deliver to the Holders of the 2025 Debentures a written notice stating that there has been a Change of Control Triggering Event and specifying the circumstances surrounding such event (a “Change of Control Notice”) together with an offer in writing (the “Change of Control Offer”) to purchase, on a date (the “Offer Date”) which is no earlier than 30 days and no later than 60 days following the date upon which the Trustee delivers a Change of Control Notice, all then outstanding 2025 Debentures made in accordance with the requirements of Applicable Securities Legislation (provided that, for greater certainty, CI shall use its commercially reasonable efforts to obtain all requisite regulatory consents and to comply with Applicable Securities Legislation in connection with the receiving and completion of such Change of Control Offer) at a price equal to 101% of the principal amount thereof (the “Offer Price”) plus accrued and unpaid interest on such 2025 Debentures up to, but excluding, the date of purchase (collectively, the “Total Offer Price”). To the extent that the provisions of any Applicable Securities Legislation conflict with the provisions herein relating to a Change of Control Triggering Event, CI will be required to comply with such Applicable Securities Legislation and will not be deemed to have breached its obligations to repurchase the 2025 Debentures by virtue of such conflict. |
(b) | To accept the Change of Control Offer, the Holder of 2025 Debentures must deliver to the Trustee, not less than two Business Days prior to the Offer Date, written notice of the Holder’s acceptance of the Change of Control Offer, together with the 2025 Debentures with respect to which the offer is being accepted, duly endorsed for transfer. |
(c) | CI shall, on or before 11:00 a.m. (Toronto time), on the Business Day immediately prior to the Offer Date, deposit with the Trustee or any Paying Agent to the order of the Trustee, such sums of money as may be sufficient to pay the Total Offer Price for each of the 2025 Debentures to be purchased by CI on the Offer Date. CI shall also deposit with the Trustee a sum of money sufficient to pay any charges or expenses that may be incurred by the Trustee or any Paying Agent in connection with such purchase. Every such deposit shall be irrevocable. From the sums so deposited, the Trustee or any Paying Agent shall pay or cause to be paid to the Holders of such 2025 Debentures, the Offer Price, and all accrued and unpaid interest, if any, to which they are entitled on CI’s purchase. |
(d) | 2025 Debentures for which Holders have accepted the Change of Control Offer shall become due and payable at the Total Offer Price on the Offer Date, in the same manner and with the same effect as if it were the date of maturity specified in such 2025 Debentures, anything therein or herein to the contrary notwithstanding, and from and after such date of expiry of the Change of Control Offer, if the money necessary to purchase or redeem the tendered 2025 Debentures shall have been deposited as provided in this Section 2.8 and affidavits or other proofs satisfactory to the Trustee as to the publication and/or mailing of such notices shall have been lodged with it, interest on the tendered 2025 Debentures shall cease. If any question shall arise as to whether any notice has been given as above provided and such deposit made, such question shall be decided by the Trustee whose decision shall be final and binding upon all parties in interest. |
(e) | In case the Holder of any 2025 Debentures to be purchased in accordance with this Section 2.8 shall fail on or before the Offer Date so to surrender such Holder’s 2025 Debentures or shall not within such time accept payment of the monies payable, or give such receipt therefor, if any, as the Trustee may require, such monies may be set aside in trust, either in the deposit department of the Trustee or in a chartered bank, and such setting aside shall for all purposes be deemed a payment to the Holder of the sum so set aside and the Holder shall have no other right except to receive payment of the monies so paid and deposited, upon surrender and delivery up of such Holder’s 2025 Debentures. In the event that any money required to be deposited hereunder with the Trustee or any depository or Paying Agent on account of principal, premium, if any, or interest, if any, on 2025 Debentures issued hereunder shall remain so deposited for a period of six years from the Offer Date, then such monies, together with any accumulated interest thereon, shall at the end of such period be paid over or delivered over by the Trustee or such depository or Paying Agent to CI and the Trustee shall not be responsible to Holders for any amounts owing to them. Notwithstanding the foregoing, the Trustee will pay any remaining funds deposited hereunder prior to the expiry of six years after the Offer Date to CI upon receipt from CI, or one of its Subsidiaries, of an unconditional letter of credit from a Schedule “A” Canadian chartered bank in an amount equal to or in excess of the amount of the remaining funds, valid until the end of such six-year period. If the remaining funds are paid to CI prior to the expiry of six years after the Offer Date, CI shall reimburse the Trustee for any amounts required to be paid by the Trustee to a Holder of 2025 Debentures pursuant to the Change of Control Offer after the date of such payment of the remaining funds to CI but prior to six years after the Offer Date. |
(f) | All 2025 Debentures purchased under this Section 2.8 shall forthwith be delivered to the Trustee and cancelled and no 2025 Debentures shall be issued in substitution therefor. |
(g) | Notwithstanding the foregoing, CI shall not be obligated to make a Change of Control Offer upon a Change of Control Triggering Event if a third party makes such an offer substantially in the manner, at the times and in compliance with the requirements for a Change of Control Offer (and for at least the same purchase price payable in cash) and such third party purchases all 2025 Debentures properly tendered and not withdrawn under its offer. |
2.9 | Limitation on Specified Indebtedness of Subsidiaries |
CI will not permit any Subsidiary of CI to create, assume or otherwise incur any Specified Indebtedness, except: (a) Capital Lease Obligations in an aggregate amount not exceeding $150,000,000; (b) Specified Indebtedness owed to CI or another Subsidiary of CI; and (c) any other Specified Indebtedness if, at the time it is created, assumed or incurred, the amount of such Specified Indebtedness, together with any other Specified Indebtedness of CI’s Subsidiaries then outstanding (excluding Specified Indebtedness of the type set forth in the foregoing clauses (a) and (b)), has an aggregate principal amount not exceeding 5% of Consolidated Net Worth.
2.10 | Negative Pledge re: Subsidiaries of CI |
CI covenants and agrees with the Trustee, for the benefit of the Holders of the 2025 Debentures, that it will not permit any Subsidiary of CI to, directly or indirectly, create, assume or suffer to exist any Security Interest (other than Permitted Encumbrances as defined in this Series Supplement) on any of the present or future property of such Person to secure any obligation unless the 2025 Debentures and, if applicable, any Guarantee of the 2025 Debentures, and if CI so elects, any other liabilities of the Subsidiary are secured equally and rateably with (or prior to) such obligation so long as such Security Interest is outstanding. If at any time a Subsidiary of CI shall create, assume or suffer to exist any Security Interest to which this paragraph is applicable, CI shall promptly deliver to the Trustee a Certificate of CI and an Opinion of Counsel, each stating that the covenant in this paragraph has been complied with. If CI shall secure the 2025 Debentures equally and rateably with (or prior to) any such other obligation pursuant to this paragraph, the Trustee is hereby authorized to enter into an indenture or agreement supplemental to this Series Supplement and to take such action, if any, as it may deem advisable to enable the Trustee to effectively enforce the rights of the Holders of the 2025 Debentures including under any Guarantee (if any) so secured equally and rateably with (or prior to) the obligees of such other obligation; provided however that the Trustee shall not be responsible for filing any financing or continuation statements or recording any documents or instruments in any public office at any time or times.
2.11 | Sinking Fund |
The 2025 Debentures shall not be subject to repurchase or redemption pursuant to any sinking fund or any other analogous required repayment provisions.
2.12 | Defeasance |
The 2025 Debentures shall be subject to Defeasance as provided in Article Thirteen of the Indenture.
2.13 | Form and Certification |
(1) | The 2025 Debentures shall be (i) Registered Debt Securities, (ii) issued initially as one or more fully registered Global Debt Securities held by, or on behalf of, the Depository in accordance with Section 2.17 of the Indenture as custodian, and (iii) substantially in the form set forth in Exhibit A to this Series Supplement. |
(2) | The form of certification of the 2025 Debentures by the Trustee shall be substantially in the form of certification set forth in Exhibit A to this Series Supplement. |
(3) | The certification of the 2025 Debentures by the Trustee will be performed manually with the Trustee providing a PDF version of the certified certificate representing the 2025 Debentures electronically on the Series Issuance Date for the 2025 Debentures for electronic deposit with the Depository in accordance with its procedures for electronic deposit and settlement while it is not open for deposit of manually executed or certified documents. Such PDF version of the 2025 Debentures shall for all purposes be deemed to be valid and binding and shall be certified in accordance herewith; provided that, upon the resumption of service for deposit of original manually executed or certified documents with the Depository, the manually certified 2025 Debentures will be delivered to the Depository. Until such resumption of service, the Trustee will possess the manually certified certificate representing the 2025 Debentures until it can be delivered as provided in the Issuer Order with respect to the 2025 Debentures. |
2.14 | Identification of Various Agents, Nominees and Documents |
For the purpose of this Series Supplement and the 2025 Debentures :
(a) | the Depository with respect to the 2025 Debentures shall be CDS; |
(b) | the Place of Payment with respect to the 2025 Debentures shall be Toronto, Ontario; |
(c) | the initial Rating Agencies with respect to the 2025 Debentures shall be DBRS and S&P; and |
(d) | the Series Issuance Date with respect to the 2025 Debentures shall be May 26, 2020. |
2.15 | Ranking |
The 2025 Debentures shall be direct and unsecured obligations of CI, ranking pari passu with all other current and future unsecured and unsubordinated Indebtedness of CI.
ARTICLE THREE
MISCELLANEOUS
3.1 | Confirmation of Indenture |
The Indenture, as amended and supplemented by this Series Supplement, is in all respects confirmed.
3.2 | Acceptance of Trusts |
The Trustee hereby accepts the trusts in this Series Supplement and agrees to perform the same upon the terms and conditions and subject to the provisions set forth in the Indenture.
3.3 | Counterparts |
This Series Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and all such counterparts together shall constitute one and the same document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each of CI and the Trustee has duly executed this Series Supplement as of this 26th day of May, 2020.
CI FINANCIAL CORP. | |||
By: | /s/ Kurt MacAlpine | ||
Name: | Kurt MacAlpine | ||
Title: | Chief Executive Officer | ||
COMPUTERSHARE TRUST COMPANY OF CANADA | |||
By: | |||
Name: | |||
Title: | |||
By: | |||
Name: | |||
Title: |
CI Financial Corp. – Second Supplemental Indenture
IN WITNESS WHEREOF, each of CI and the Trustee has duly executed this Series Supplement as of this 26th day of May, 2020.
CI Financial Corp. – Second Supplemental Indenture
EXHIBIT A
FORM OF 2025 DEBENTURE
Unless this certificate is presented by an authorized representative of CDS Clearing and Depository Services Inc.(“CDS”) to the Issuer or its agent for registration of transfer, exchange or payment, and any certificate issued in respect thereof is registered in the name of CDS & CO., or in such other name as is requested by an authorized representative of CDS (and any payment is made to CDS & CO. or to such other entity as is requested by an authorized representative of CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered holder hereof, CDS & CO., has a property interest in the securities represented by this certificate herein and it is a violation of its rights for another person to hold, transfer or deal with this certificate. This certificate is issued pursuant to a Book Entry Only Securities Services Agreement between the Issuer and CDS, as such agreement may be replaced or amended from time to time.
CI FINANCIAL CORP.
No. [·] | $ [·] |
CUSIP No. 125491AJ9
ISIN No. CA125491AJ93
3.759% DEBENTURES DUE 2025
CI Financial Corp. (the “Issuer”) for value received hereby acknowledges itself indebted and promises to pay to the Holder hereof on presentation and surrender of this Debenture at the principal office of Computershare Trust Company of Canada (the “Indenture Trustee”, which term shall include its successors under the Indenture hereinafter referred to) in Toronto, Ontario, Canada, the principal amount of [INSERT DOLLAR AMOUNT] in lawful money of Canada ($[INSERT DOLLAR AMOUNT]) and to pay interest on the outstanding principal amount hereof at the same place in like money at the rate of 3.759% per annum, as well after as before maturity, default and judgment, with interest on overdue interest at the same rate as more particularly specified in the Indenture. The outstanding principal amount of this Debenture is payable in one instalment on May 26, 2025. Interest on this Debenture is payable semi-annually in arrears in equal instalments on May 26 and November 26 in each year, commencing on November 26, 2020.
This Debenture is one of a duly authorized Series of Debt Securities designated as 3.759% Debentures due 2025, issued under a trust indenture dated as of July 22, 2019 between the Issuer and the Indenture Trustee, and a Series Supplement dated as of May 26, 2020, between the Issuer and the Indenture Trustee (collectively the “Indenture”). Reference is hereby made to the Indenture as to the nature and extent of the rights of the Holders of the Debt Securities of this Series, all to the same effect as if the provisions of the Indenture were herein set forth, to all of which provisions the Holder of this Debenture by acceptance hereof assents. All capitalized terms used but not defined herein have the meanings specified in the Indenture.
Each Debt Security of this Series, including this Debenture, may be redeemed by the Issuer in whole or in part at any time upon not less than 30 days’, and not more than 60 days’ notice to the Holder hereof, in accordance with section 3.1 of the Indenture, (i) prior to the Par Call Date, at a Redemption Price equal to the greater of (a) 100% of the outstanding principal amount hereof and (b) such price as would, if this Debenture were to be issued at such price on the Redemption Date, provide a yield to the Par Call Date with respect to this Debenture (or portion thereof being redeemed) equal to the Government of Canada Yield plus 84 basis points (0.840%) per annum, compounded semi-annually and calculated on the day that is three Business Days prior to the Redemption Date, or (ii) on or after the Par Call Date, at a Redemption Price equal to 100% of the outstanding principal amount hereof, together in each case with all accrued and unpaid interest up to but excluding the Redemption Date. For the purpose of the preceding sentence, “Government of Canada Yield” shall mean, on any day, the average of the mid-market yields to maturity on such day provided by two independent investment dealers selected by the Issuer and approved by the Indenture Trustee, assuming semi-annual compounding, which an issue of non-callable Government of Canada bonds would produce if issued at par on such day, in Canadian dollars in Canada, with a term to maturity equal to the remaining term to the Par Call Date. In the case of any redemption of less than all of the Debt Securities of this Series, the Debt Securities to be redeemed will be selected by the Indenture Trustee on a pro rata basis or by such other method (which may include random selection by computer) as the Indenture Trustee may deem appropriate.
The outstanding principal amount of this Debenture may become or be declared to be due and payable by the Indenture Trustee before maturity in the circumstances set out in section 6.1 of the Indenture.
This Debenture is transferable only in accordance with the provisions of the Indenture. No transfer of this Debenture shall be valid unless made on the Register kept by and at the principal office of the Indenture Trustee in Toronto, Ontario, by the Holder hereof or its attorney duly appointed by instrument in writing in form and execution satisfactory to the Indenture Trustee upon compliance with such reasonable requirements as the Indenture Trustee may prescribe.
The Indenture contains provisions making binding upon all Holders of the Debt Securities of this Series, or upon the Holders of all Series outstanding under the Indenture, certain Holder Actions taken by the Holders of a specified majority of the Debt Securities of this Series, or of all Series, as the case may be, then outstanding.
This Debenture shall not become obligatory for any purpose until certified by the Indenture Trustee.
IN WITNESS WHEREOF CI Financial Corp. has caused this 3.759% Debenture due 2025 to be signed by its duly authorized officer on [INSERT DATE], 2020.
CI FINANCIAL CORP. | |||
By: | |||
Name: | |||
Title: |
INDENTURE TRUSTEE’S CERTIFICATE
This 3.759% Debenture due 2025 is a 3.759% Debenture due 2025 referred to in the Indenture.
COMPUTERSHARE TRUST COMPANY OF CANADA | |||
By: | |||
Name: | |||
Title: |
Form of Registration Panel
(No writing hereon except by the Indenture Trustee)
Date of | In Whose Name | Authorized Signature | ||
Registration | Registered | of Indenture Trustee | ||
Exhibit 99.62
FIRST CREDIT AMENDING AGREEMENT TO SECOND ARCA
THIS FIRST CREDIT AMENDING AGREEMENT TO SECOND ARCA (the “Amending Agreement”) dated as of June 11, 2020 is entered into by and among CI Financial Corp., as borrower (the “Borrower”), The Toronto-Dominion Bank, as administrative agent (the “Agent”), and The Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, as lenders and as co-lead arrangers and joint bookrunners (the “Lenders”).
RECITALS:
A. | The Borrower, the Agent and the Lenders are parties to a second amended and restated credit agreement dated as of October 3, 2018 (as it may be amended, supplemented, restated, changed or replaced from time to time, together, the “Credit Agreement”); |
B. | The Borrower has requested that the Lenders and the Agent amend a certain provision of the Credit Agreement; and |
C. | The Lenders and the Agent have agreed to amend Section 4.2(d) of the Credit Agreement pursuant to the terms and conditions set out in this Amending Agreement. |
NOW THEREFORE, in consideration of the premises herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. | Defined Terms. Unless otherwise defined herein, capitalized terms used herein which are defined in the Credit Agreement are used herein as therein defined. |
2. | Amendments. Upon satisfaction of the conditions precedent set out in Section 3 below, the Credit Agreement is amended as follows: |
(i) | The amount of $15,000,000 provided for in the last line of Section 4.2(d) of the Credit Agreement is amended to $25,000,000. |
3. | Conditions Precedent. The effectiveness of the foregoing amendment is subject to the conditions precedent set out below being met to the satisfaction of the Lenders and the Agent in their sole and absolute discretion: |
(i) | this Amending Agreement shall have been duly executed and delivered by the Borrower, the Lenders and the Agent; |
(ii) | the Lenders and the Agent shall have received such opinions and certificates as they may reasonably require; |
(iii) | the Borrower has paid or reimbursed the Lenders and the Agent for all of their out-of-pocket costs and expenses incurred in connection with the Credit Agreement and this Amending Agreement, including, without limitation, the fees and disbursements of counsel to the Agent; and |
(iv) no Default has occurred and is continuing.
First Credit Amending Agreement to Second ARCA
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Any of the foregoing conditions precedent may be waived by the Agent and the Lenders in their sole and absolute discretion, in whole or in part, and with or without terms or conditions.
4. | Nature of Amendments and Defined Terms. It is acknowledged and agreed that the terms of this Amending Agreement are in addition to and, unless specifically provided for, shall not limit, restrict, modify, amend or release any of the understandings, agreements or covenants as set out in the Credit Agreement. |
5. | Effectiveness. This Amending Agreement shall become effective on the date on which this Amending Agreement shall have been duly executed and delivered by the parties hereto. |
6. | Representations and Warranties. The Borrower hereby represents and warrants that each of covenants, the representations and warranties made by the Borrower in or pursuant to the Credit Agreement or any other document, agreement, certificate or instrument executed in favour of the Lenders and the Agent pursuant to the Credit Agreement shall be, after giving effect to this Amending Agreement, true and correct in all material respects as if made on and as of the date hereof. |
7. | Continuing Effect of Credit Agreement. This Amending Agreement shall not be construed as a waiver or consent to any further or future action on the part of the Borrower that would require a waiver or consent of the Lenders or the Agent. Except as provided hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. |
8. | No Novation. Nothing in this Amending Agreement, nor in the Credit Agreement when read together with this Amending Agreement, shall constitute novation, payment, readvance, or otherwise of any existing Indebtedness of the Borrower. |
9. | Counterparts. This Amending Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original agreement and all of which shall constitute one agreement. All counterparts shall be construed together and shall constitute one and the same agreement. This Amending Agreement, to the extent signed and delivered by means of electronic transmission (including, without limitation, facsimile and Internet transmissions), shall be treated in all manner and respects as an original agreement and should be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. |
10. | Governing Law. This Amending Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the province of Ontario and the laws of Canada applicable therein. |
11. | Expenses. The Borrower agrees to pay or reimburse the Lenders and the Agent for all of their reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Amending Agreement, including, without limitation, the reasonable fees and disbursements of counsel to the Agent and the Lenders. |
12. | Successors and Assigns. This Amending Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors and administrators and permitted successors and assigns. |
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First Credit Amending Agreement to Second ARCA
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IN WITNESS WHEREOF, the parties hereto have caused this Amending Agreement to be executed and delivered as of the date first written above.
CI FINANCIAL CORP. | ||
Per: | ||
/s/ Doug Jamieson | ||
Name: | Doug Jamieson | |
Title: | EVP Finance and CFO | |
/s/ Darie Urbanky | ||
Name: | Darie Urbanky | |
Title: | President and COO | |
We have authority to bind the Corporation. | ||
THE TORONTO-DOMINION BANK, in its capacity | ||
as administrative agent for the Lenders | ||
Per: | ||
Name: | ||
Title: | ||
Name: | ||
Title: | ||
We have authority to bind the Agent. | ||
THE TORONTO-DOMINION BANK, as a Lender | ||
Per: | ||
Name: | ||
Title: | ||
Name: | ||
Title: | ||
We have authority to bind the Bank. |
First Credit Amending Agreement to Second ARCA
Internal
- 4 -
IN WITNESS WHEREOF, the parties hereto have caused this Amending Agreement to be executed and delivered as of the date first written above.
CI FINANCIAL CORP. | ||
Per: | ||
Name: | ||
Title: | ||
Name: | ||
Title: | ||
We have authority to bind the Corporation. | ||
THE TORONTO-DOMINION BANK, in its capacity | ||
as administrative agent for the Lenders | ||
Per: | ||
/s/ Emilia Casado | ||
Name: | Emilia Casado | |
Title: | Vice President, Loan Syndications - Agency | |
Name: | ||
Title: | ||
We have authority to bind the Agent. | ||
THE TORONTO-DOMINION BANK, as a Lender | ||
Per: | ||
/s/ Andrea Rudnick | ||
Name: | Andrea Rudnick | |
Title: | Director, Commercial National Accounts | |
/s/ Bryce Balcom | ||
Name: | Bryce Balcom | |
Title: | Manager, Commercial Credit | |
We have authority to bind the Bank. |
First Credit Amending Agreement to Second ARCA
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CANADIAN IMPERIAL BANK OF COMMERCE, | ||
as a Lender | ||
Per: | ||
/s/ Viktoriya Gruzytska | ||
Name: | Viktoriya Gruzytska | |
Title: | Executive Director | |
/s/ Sushant Pathak | ||
Name: | Sushant Pathak | |
Title: | Director | |
We have authority to bind the Bank. |
First Credit Amending Agreement to Second ARCA
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NATIONAL BANK OF CANADA, as Lender | ||
Per: | ||
/s/ Gavin Virgo | ||
Name: | Gavin Virgo | |
Title: | Director | |
/s/ David Torrey | ||
Name: | David Torrey | |
Title: | Managing Director | |
We have authority to bind the Bank. |
First Credit Amending Agreement to Second ARCA
Exhibit 99.63
November 4, 2020
Consent of Independent Auditor
We hereby consent to the inclusion in the Registration Statement on Form 40-F of CI Financial Corp. (the “Company”) of : our report dated February 13, 2020 relating to the consolidated financial statements of the Company as at December 31, 2019 and 2018, and for the years then ended, which appears in Exhibit 99.5 to this Registration Statement on Form 40-F; and our report dated February 7, 2019 relating to the consolidated financial statements of the Company as at December 31, 2018 and 2017, and January 1, 2017 and for the years ended December 31, 2018 and 2017, which appears in Exhibit 99.2 to this Registration Statement on Form 40-F.
We also consent to the references to us under the heading “Interests of Experts”, which appear in the Annual Information Form for the year ended December 31, 2019 included in Exhibit 99.4 and in the Annual Information Form for the year ended December 31, 2018 included in Exhibit 99.1 to this Registration Statement on Form 40-F.
We also consent to the references to us under the heading “Auditors, Transfer Agent and Registrar”, which appear in the Preliminary Short Form Prospectus dated December 5, 2019 included in Exhibit 99.51 and in the Final Short Form Prospectus dated December 17, 2019 included in Exhibit 99.54 to this Registration Statement on Form 40-F.
/s/ Ernst & Young LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada