THIRD QUARTER REPORT 2019 QUARTER REPORT THIRD POWER FINANCIAL CORPORATION
Third Quarter Report For the period ended September 30, 2019 3
PART A PART B PART C PART D POWER FINANCIAL CORPORATION GREAT-WEST LIFECO INC. IGM FINANCIAL INC. PARGESA HOLDING SA 1 PART A PART B PART C PART D led with the nancial condition,
ows of Power Financial Corporation (the Corporation) for for Corporation) (the Financial Corporation of Power ows
nancial statements of the Corporation as at and for the three the three as at and for Corporation of the statements nancial nancial performance and cash fl nancial performance months and nine months ended September 30, 2019. This document has been fi document This 2019. 30, ended September months and nine months condensed consolidated fi consolidated condensed securities regulatory authorities in each of the provinces and territories of Canada and mailed territories and of the provinces authorities in each securities regulatory POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER to requesting shareholders of the Corporation in accordance with applicable securities laws. with applicable securities in accordance the Corporation of shareholders requesting to the three months and nine months ended September 30, 2019 and nine months ended September months the three interim and the unaudited fi POWER FINANCIAL CORPORATION POWER HOLDINGPARGESA SA IGM FINANCIAL INC. GREAT-WEST LIFECO INC. GREAT-WEST POWER FINANCIAL CORPORATION FINANCIAL POWER This document contains management’s discussion and analysis of the fi of the analysis and discussion management’s document contains This TABLE OF CONTENTS TABLE The trademarks contained in this report are owned by Power Financial Corporation or by a Member of the Power Corporation Group of Companies®. Trademarks that are not owned by Power Financial are used with permission.
2 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 PART A POWER FINANCIAL CORPORATION 1 A POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER PAGE A 45 PAGE A 2 PART A FINANCIAL STATEMENTS AND NOTES FINANCIAL STATEMENTS MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S POWER FINANCIAL CORPORATION FINANCIAL POWER PART A POWER FINANCIAL CORPORATION developments, aswellother considerations thatare believedtobe conclusion ormakingaforecast or projection, including management’s perceptions ofhistorical trends, current conditions and looking statements.Information contained in The reader is cautioned toconsider and theCorporation’s and its subsidiaries’ success in the operations, performance andresults oftheCorporation andits subsidiaries and theirbusinesses, and could causeactual re events, theCorporation’s and its subsidiaries’ ability to cybersecurity risks, changes in government regulation andlegislati assumptions), the effectofapplying future accounting changes, accounting policies andmethods used toreportfinancial condition (i and funding risks, risks related toinvestments in private companies and illiquid securities, risks associated withfinancial i exchange rates, monetary policies, business investment andthehe North in factors market and political economic, ofgeneral impact strategic goals and priorities will not beachieved. Avariety offactors, many ofwhich are beyond theCorporation’s and its s expectations, forecasts, predictions, projections orconclusions wi By its nature, this information subjectis to inherent risks and uncertainties that maybe generalor whichgivespecific and r The following abbreviations are usedthroughoutthis report: Form, filed withthe securities regulatory authorities in Canada andavailable atwww.sedar.com. contained inforward-looking statements is Additional information abouttherisks andun of newinformation,result futu reflect events or circumstances after th Other than as specifically required by applicable Canadian law,the Corporation undertakes no obligation to updateanyforward- assumptions to be reasonable based oninformation curren paragraph, collectively, are not expected tohave a material impact on the Corporation and its subsidiaries. While the Corporat versions thereof and other similar expressions, orfuture orconditio or conditions, orinclude words such as“expects”, “anticipates”, “plans”, “believes”, “estimates”, “seeks”, “intends”, “target fiscal year and subsequent periods. Forward-looking statements Corporation andits subsidiaries includ from current expectations of estimated oranticipated eventsor resu condition, expected financial results, performance, prospects, opp not be appropriate forother purposes. These statements may include, withoutlimitation, statements regarding the operations, b present information aboutmanageme understanding the Corporation’s financial performance, financial po FORWARD-LOOKING STATEMENTS Financial Statements), the MD&A should bereadinconjunct (TSX: forthe nine-month corporation, a public PWF), ofPower Fina performance financial and condition financial The following presents Management’s Discussion and Analysis (MD&A) ofthe unaudited interim condensed consolidated ALL TABULAR AMOUNTS ARE IN MILLIONS OF CANADIAN DOLLARS, UNLESS OTHERWISE NOTED. 7,2019 NOVEMBER Management’s Discussion and Analysis POWER FINANCIALCORPORATION the Corporation’s website at www.powerfinancial.com and on SEDAR at www.sedar.com. at www.sedar.com. onSEDAR and at www.powerfinancial.com website Corporation’s the Statements). Additionalinform consolidated financial statements andnote reflect such subsidiaries’ disclosed current expectations. on certain assumptions and reflect the Corporation’s current expectations, or with respect todisclosure regarding the Corporat and notestheretofor thenine-mont London Life Life London Lifeco LafargeHolcim Koho Irish Life Counsel Planning Investment Management Wealth IG IGM or IGMFinancial IFRS Great-West Life Great-West Life & Annuity GEA GBL EPA EBR China AMC Life Canada Burberry BME adidas A 2 POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 London Life Insurance Company Insurance Life London Great-West Lifeco Inc. LafargeHolcim Ltd Inc. Financial KOHO Irish Life Group Limited Inc. Counsel Planning Investment Investors Group Inc. Financial Inc. IGM Standards Reporting Financial International Company Life Assurance The Great-West Great-West Life & Annuity Insurance Company Group GEA Groupe Bruxelles Lambert Euronext Paris Euronext Brussels Co., Ltd. Management China Asset Company Assurance The CanadaLife Burberry Group plc Exchange Stock Madrid adidas AG re events or results, or otherwise. ion with theunaudit ion with › these and other factors, uncertainties and potential events carefully andnottoput undue ation relating toPowerFinancial, includingitsAnnualInformation Form, maybefoundon Certain statements inthis MD&A, other thanstatements of historical fact,are forward-looking statements based ing thefintech strategy, as well astheoutlookforNorthAmericanandinternational ec nt’s current expectations and plans relating tothe futureandthe reader is cautioned thats e date on which such statement is made,orto reflect the occurrence of unanticipated e for the yearended December 31, 2018 based is provided in itsbased isprovidedin disclosure materia forward-looking statements is based upon h and three-monthperiodsendedSeptember 30 certainties oftheCorporation’s businessandmaterialfactors orassumptions on w anticipating and managing theforegoing factors. s thereto31, forthe year ended December complete strategictransactions ed interimcondensed consolidated finan tly available tomanagement, theymay prove tobeincorrect. Forward-looking statements areprovided for thepurposes of assistin
includestatements that arepredictive in nature, depend upon or ll not prove tobeaccurate, thatassumptions may not becor on, changes in taxlaws, unexpected judicial or regulatory p ortunities, priorities, targets, goals, ongoing objectives, s alth oflocalandglobalequity andcapital markets, managemen nal verbs such as “may”, “will”, “should”, “would” and “co business competition, operational and reputational risks, techn and three-month periods ended September September ended periods and three-month MD&A 2019. This 30, America and internationally, fl internationally, and America appropriate in the circumstances, including thatthelist sition and cash flows asatand for the periods ended oncer lts. These factors include, butare not limited to: the imp ncluding uncertainties associated withsignificant judgmen ncial Corporation (Power Financial or the Corporation) or Corporation) the Financial (Power Corporation ncial XETR Wealthsimple Umicore Total SIX SGS Sagard Holdings Putnam Power Corporation Portag3 II Portag3 Personal Capital Parques Parjointco Pargesa PanAgora Ontex Mackenzie or Mackenzie or Mackenzie Investments ls, includingthis MD , integrate acquisitions and implemen certain material assumptions that wereap (the 2018 AnnualMD&A), andthe audited uctuations in interest rates, rates, interest in uctuations 2018 (the 2018 Consolidated Financial &A andits most rece cial statementsofPower Financial XETRA Stock Exchange Corp. Financial Wealthsimple Umicore, NV/SA SA Total Swiss Stock Exchange SGS SA Sagard Holdings ULC Putnam Investments,LLC Canada of Corporation Power Portag3 Ventures II Limited Partnership Portag3 Ventures Limited Partnership Personal Capital Corporation Parques Reunidos Servicios Centrales, S.A. Parjointco N.V. Pargesa HoldingSA Inc. AssetManagement, PanAgora N.V. Ontex Mackenzie Financial Corporation , 2019(theInte s”, “projects”, “forecasts” or negative uld”. uld”. trategies and outlook ofthe ubsidiaries’ control, affect t other growth strategies, of factors in the previous previous the in factors of ise to thepossibility that roceedings, catastrophic nstruments, changes in in changes nstruments, rect andthatobjectives, onomies forthe current ion’s public subsidiaries, sults todiffermaterially nt Annual Information rim Consolidated rim Consolidated refer tofuture events looking statement to act or unanticipated inflation and foreign uch statements may may statements uch reliance on forward- ion considers these vents, whetheras a vents, t ofmarket liquidity plied in a plied in drawing tain dates andto ological changes, ts, estimates and hich information usiness, financial expected future g the reader in g thereaderin PART A POWER FINANCIAL CORPORATION e ѶѶ Ѷѷ Ѷѹ ѷѷ ѷѶ ѷѶ ѷѵ ѷѴ ѷѴ ѷѳ ѷѳ ѷѳ ѷѳ Ѷѻ ѶѼ Pag 3 A ry, Power Financial has has Financial ry, Power base decisions on what is what is on base decisions c and ongoing objective is to to c and ongoing objective is s. Throughout its histo s. Throughout its sistent in its approach to in its sistent Power Financial’s histori Power Net Asset Value Cash Flows Capital Management Risk Management Risk Summary of Quarterly Results Summary of Quarterly Internal Control over Financial Reporting Reporting Financial over Control Internal Future Accounting Changes Changes in Accounting Policies Accounting in Changes Summary of Critical Accounting Estimates and Judgments Estimates Accounting Summary of Critical Transactions with Related Parties Related Parties with Transactions Income Taxes Commitments and Contractual Obligations Obligations Contractual and Commitments Contingent Liabilities Contingent Off-Balance Sheet Arrangements Arrangements Sheet Off-Balance Financial Instruments and Other Instruments Instruments Other and Instruments Financial diversified international management and holding company with company and holding international diversified management e Ѷ ѹ ѹ Ѻ Ѽ ѻ ѵѼ ѴѺ Ѵѹ Ѵѷ ѴѶ ѴѶ Ѵѵ Ѵѳ Ѵѳ es group, Power Financial has remained committed to the growth and and growth to the committed has remained Financial group, Power es
N O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A R O P R O C
L A I C N A N I , Wealthsimple and Koho and Koho , Wealthsimple F
Ѷ w R provide active and strong governance oversight of its companies; and and companies; of its oversight governance and strong active provide position. financial a strong and maintain aware be risk prudence, use take a long-term perspective and investment horizon; horizon; and investment perspective long-term a take profiles; growth attractive with leaders build industry E W Power Financial Corporation Corporation Power Financial Substantial Issuer Bids Bids Issuer Substantial Lifeco IGM Financial Contribution to Net Earnings and Adjusted Net Earnings Adjusted and Earnings to Net Contribution Non-Consolidated Statements of Earnings of Earnings Statements Non-Consolidated Consolidated Statements of Earnings of Earnings Statements Consolidated Reconciliation of IFRS and Non-IFRS Financial Measures Financial Non-IFRS and IFRS of Reconciliation Non-IFRS Financial Measures and Presentation Presentation and Measures Financial Non-IFRS IFRS FinancialMeasures and Presentation Pargesa and GBL Pargesa GBL and Portag O interests substantially in the financial services sector in Canada, the United States and Europe. Founded in 1984 with the the with in 1984 Founded Europe. and States United the Canada, in sector services financial the in substantially interests servic financial an integrated ambition of creating an implemented recent years in and Lifeco and IGM, in interests controlling its through holdings evolution of its primary its through influence having company a holding Pargesa, in has an investment also Financial Power strategy. fintech active based in Europe. companies and services industrial holdings in global create superior shareholdervalue over thelong term. con remained has Financial of Power leadership Since its inception, the in the best long-term interest of its operating companies and shareholder and companies of its operating interest in the best long-term principles: basic same to the managed Overview CORPORATION FINANCIAL POWER of a Power Corporation, a subsidiary is Power Financial, P Organization of Interimthe MD&A Pag Overvie
Financial Position Position Financial Results of Power Financial Financial of Power Results Basis of Presentation of Presentation Basis PART A POWER FINANCIAL CORPORATION Power Financial holdsalso jointlywith Financial theFrèrePower environment to bemore effective. The fintech strategy has three objectives: understand how these disruptive business models will affect th of financial services. The fintech strategy enables the group The investments to date have contributed to building leading platfo businesses transformtheir models. The fintech strategy aims atprovidinganattractive return on the capital invested while helping the existing financialservic them. suits best that time the at means and the them by to available and to consumers moreaccessible services investment group believes that fintech willchange business modelsin financial services, makingfinancial advice, insurance and Power Financial, in partnership with Lifeco and IGM, has been actively participating in the emerging fintech industry. The acquisitions and thegroup strategic principal markets: Canada, theU.S. and Europe. Power Financial has supported these companies through various Lifeco and IGM are leaders across the insurance, asset management, and wealth andretirement business sectors intheir Holdings Governance Principles Operating Principles Investment Principles company: investee ofeach evaluation investment approach isguided bythree overridingprinciples, fromidentifyingthe right investment totheoversight and Its value. shareholder long-term create turn in that businesses market-leading developing to committed is Financial Power Value creation P portfolio. services financial its diversifies and market European the in value create to vehicle a with Financial Power provides investment potentialfor long-term creation. value Par Pargesa grouphas viewpositioned itsportfolio a to with streng The investor. professional active an as creation value to can contribute it which through sector, respective intheir leaders which, through its subsidiary GBL,maintains a diversifiedhigh-quality portfoliocomposed ofglobal companies that are O W E companies. Develop afintech venture builder tosupport the creatio Make significant investmentsinleadingdigital financial services providers including Wealthsimple, oneofCanada’s potential forglobal impact; Through the Portag3 funds, create an ecosystem ofearly-st collaborative approach to important industry developments. scaleenhancement relationships through key capabilities; back-office and technologies shared collaborative product development; distribution of services; products group-wide and largest digital financial advisors; and A R
F 4 I POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 N A N C I A L
C O R P O R A T I O N
ally benefits through: ally benefits Board composition isacombinationofPowerFinancial executives andexternaldirectors Active governancemodelthrough boardsofsubsidiaries Prudent, risk-aware andfocus andmaintaining oncreating astrongbalancesheet andcapitalallocation Focus onstrategy,people Majority orsignificant levelofownership Perform adisciplined, fact-based analysis equity Focus onhighgrowthandreturn on products andmarket segments Support operatingcompanies’managementto buildindustryleaders Invest incompaniesthathavea perspectiveandinvestmentlong-term horizon gesa shares the values and prudent investing approach of Power Financial. This External directors provide expertise anddiverseperspectivesExternal directors provideexpertise Power Financial industry andcompanyexecutives providesubstantial knowledge Group of Belgium a Group ofBelgium controllinginterestinPargesa, a holding company and aggregated purchasing power; and n ofthenext generation ofCanadian-based global fintech to learn from, adoptandintegrate new technologies and age investments in promising fintech companies that have thening its growth profile and thening itsgrowthprofileand e current business and how toreact to changes in the rms that are expected to be part of the next generation consequently optimizing its consequently optimizing its
es PART A POWER FINANCIAL CORPORATION 5 A plicable securities plicable securities mple. mple. a rapidly changing a rapidly changing environment; accordancewith ap % and 43.9%, respectively, in Koho. ѹ . Ѷ . Power. Financial, Lifeco and IGM also equal hold interests Ѷ leading franchises leading franchises in ed on the Toronto Stock Exchange. Pargesa is a public public is a Pargesa Stock Exchange. Toronto on the ed II of interests hold Ѷ et capitalizations reported in the following sections are at at are sections following the in reported capitalizations et from SEDAR (www.sedar.com) or from Lifeco’s website website Lifeco’s or from (www.sedar.com) from SEDAR ww.sedar.com) or from IGM’s website (www.igmfinancial.com); (www.igmfinancial.com); website or from IGM’s ww.sedar.com) blicly disclosed information, as issued by Pargesa in its quarterly quarterly in its by Pargesa as issued disclosed information, blicly id the foundation for future value creation, foundationthe for future including: id % interest in Lifeco. Lifeco. in interest % ѳ . ѷ also interests hold of 17.1% and 46.8%, respectively, in Wealthsi %). Ѹѳ oy capital in accretive acquisitions; acquisitions; accretive in oy capital te value creation. creation. te value IGMhold also equal interests of 18.5%, in Portag
N O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A R rtfolio to accelera rtfolio to O P % interest in IGM, and IGM holds a a holds IGM and IGM, in interest % Ѽ R . Ѷ O C
L II. II. Ѷ A I C N A N I % in Portag F
Ѷ . Ѽ R legislation, and which is also available either directly either available also is which and legislation, (www.greatwestlifeco.com); Part A – Power Financial, presented on a consolidated and non-consolidated basis; basis; non-consolidated and a consolidated on presented Financial, A – Power Part interim MD&A, asprepared and Lifeco in disclosed by Lifeco’s – B Part legislation, securities applicable with accordance in by IGM and disclosed prepared as MD&A, interim IGM’s – C Part (w SEDAR from directly either available also is which and from pu derived results, Pargesa’s financial – D Part (www.pargesa.ch). website its on available is results Pargesa’s on information Further releases. press Continuedlong-term shareholder focus value on creation; of our scale capitalizing on the organically by earnings Growing to depl opportunities seeking Actively businesses; incumbent enhance to services solutions in financial technology–enabled Pursuing po Rotation of GBL’s E of ] ] a holds Life Great-West ] Heldthrough Parjointco, a jointly controlled corporation ( ] companies. public in investments of list a for section GBL” and “Pargesa the to Refer ] Power Financial holds a 63% interest,Lifeco and and ] Power Financial holds a 20.9% interest,and Portag3 and IGM ] Power Financial, Lifeco and IGM hold equal interests of and 8.9%, Portag3 and Portag W Ѵ ѵ Ѷ ѷ Ѹ ѹ In bold: Publicly listed holdings holdings listed Publicly bold: In [ [ [ [ [ [ O investments at September 30, 2019. 2019. 30, September at investments Organization of the MD&A of the MD&A Organization parts: consists of four MD&A Corporation’s The Lifeco (TSX: GWO) and IGM (TSX: IGM) are public companies list companies public are IGM) (TSX: and IGM GWO) Lifeco (TSX: Mark PARG). (SIX: Exchange Stock Swiss on the company listed 2019. September 30, other certain and in its operating subsidiaries Corporation by the held economic interests the reflects chart following The P la have of companies and group its Corporation The PART A POWER FINANCIAL CORPORATION In the second quarter of2019,Lifecoreco sheet. on its balance asset reinsurance offsetting and liability the both hold will Lifeco consequently, agreement, reinsurance insurance, individual annuities as well as closed-block life insurance and annuities. The transaction isstructured asa (US$400 million). The business transferred included bank-owned and corporate-owned lifeinsurance, single-premium life value included a ceding commission of$1,080 tax transaction value toLifeco ofapproximately $1.6 billio which now assumes the economics and risks associated with the reinsured business. The transaction resulted in an after- substantially all ofits in employer-sponsored defined contribution plans, administrative and record-keeping services, individual retirement result in additional payments to Li payments to result inadditional closing ofthis transaction are subject to future adjustme assumptions primarily related tostranded overhead. The included transaction costs of$63 million (US$47 million) and$36 million (US$27 million) duetoupdated expense the Corporation toreturn capital at a purchase price of$33.00 per common common shares, representing approximately completedits PowerFinancial substant 2019, Power Financial used theproceeds fro SIB, also participatedthe Lifeco in from 67.8%to 66.8%(excludingIGM’s4.0%interest)after giving effect through its participationintheLifecoSIB. As a result of the Lifeco at a purchase price of$33.50per common common shares, representing approximately 6.0% ofthe issued On June 1, 2019, Great-West Life & Annuity, a U.S. subsidiary ofLifeco, completed the sale,viaindemnityreinsurance, of offers a broad range ofinvestment solutions investment products, including equity, fixed income, absolute return investment management, certain administrative functions, an accounts, fund management as Services unit, andspecificallytheEmpower Retirementbrand,provides The United States segment operates two primary business units, Financial Services and Asset Management. Its Financial lines ofbusiness. brand under which theorganization willcreate,deliver and communicate Company Insurance Life London Company, Assurance Life and TheCanada LifeAssurance Company, Great-West The companies, insurance life Canadian three its that insuranceproducts as well as wealth savingsincome and ot and and families,benefit plan businesses solutions forindividuals, In Canada,throughtheIndividual Customer companies. the of structure corporate and management lines as as well the geographic Europe reflect UnitedStates, and the which Corporate, segments: Canada, reportable West Life, London Life,Canada Life, Great-West Life & Annuity, Putnam and Irish Life. For reporting purposes, Lifeco hasfour Great- through Europe and States United the Canada, in operations has Lifeco businesses. reinsurance and management services holding company with interests inlifeinsurance, health insurance, retirement and investment services, asset Great-West Lifeco Inc., TSX: GWO; market LIFECO opportunities. On April 17, 2019,Lifecocompleted a BIDS SUBSTANTIAL ISSUER P contribution retirement and asset management markets. block retrocession as closed aswell a Life, & Annuity will retain a block oflifeinsurance, predominately participati O W E A R
F 6 I POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 N A N C I A L
C O R P dividual life insurance and annuity bu O R A T I O N well asinvestment and advisory services. TheAsset Management unit,Putnam, provides
feco, which couldimpactnetearnings duringth tendering onaproportionatebasis.
to shareholders, while maintaining a m itsparticipation intheLifeco SIB tofundits own substantial issuerbid. On April 17, substantial issuerbid (LifecoSIB), and capitalization of $29.5 of capitalization of life insurance. Post-transaction, Lifeco of insurance. life gnized alossrelated tothis transacti aremoving to onebrandinCanada:Ca share, for an aggregate amount of $1.65 bi share, foran aggregate amount of$1.65 share, for an aggregate amountbi of$2.0 andGroupCustomer business units, Lifecooffersabroad portfoliooffinancial using sophisticated quantitative techniques. 7.0%ofthe issued andoutstanding co million (US$806 million) andacapitalre (US$806million ial issuer issuer ial bid (PFC ofits 49,999,973 SIB), forcancellation and purchased nts. Additionally, certain post-closing contingencies exist that may n (US$1.2 billion), excluding one-time expenses. Thetransaction liabilities transferred and ceding commission received atthe sinessInsu toProtectiveLife and organizations, including life, disability and critical ill d distribution services as well as offers a broad range of and outstanding common shares prior tothe repurchase, her speciality products. On Ap billion atSeptember financial isaninternational 30, 2019, SIB, the Corporation’s equity interest in Lifecodecreas and alternative strategies. PanAgora, a Putnam affiliate, ng policies,which arenow administered by Protective to the cancellation tothecancellation an arrayof financial se products and services inCanada across allofits strong capital position to strong capital purchased for cancellation 59,700,974 of its purchased forcancellation59,700,974ofits on of$199 million (US$148 million), which ’s U.S. segment will focus on the defin on the focus will segment ’s U.S. e fourth quarterof20 nada Life. Canada Life will become the Life willbecome Life. nada Canada llion. The substantial issuer bid allowed llion. Power Financial supported Lifeco mmon shares prior totherepurchase, lease of millionapproximately $530 rance Company (P Company rance of Lifeco common shares. IGM of Lifecocommonshares. ril 3, 2019, Lifeco announcedril 3,2019, curity products,including fundfuture growth 19. Great-WestLife rotective Life) ness ed ed
PART A POWER FINANCIAL CORPORATION
s ng 7 A Insurance eloped and eloped Canada. It strives to It strives Canada. of the firm’s data to a firm’s data of the which has dev and technology infrastructure and technology infrastructure s and aspirations of Canadian Canadian of aspirations s and services and advice in Canada. services and advice k of consultants across k of consultants nctions. This will add fund administration servicing servicing nctions. add This will fund administration d view of all aspects of a client’s finances, includi finances, of a client’s view of all aspects d s. IG Wealth Management offers IG Living Plan™, a Plan™, Living IG offers IG Wealth Management s. % equity interest in China AMC. Power Corporation and and Corporation Power AMC. in China interest equity % le Cloud Platform. The migration The Platform. le Cloud ne 1, 2019. These products include life insurance, annuity annuity life insurance, include products These 2019. ne 1, er improve the service experience for its clients. As part As of for part its clients. experience service the er improve tially all of the individual life insurance and annuity busines annuity and life insurance individual of the all tially cts the evolving needs, goal needs, evolving the cts ional efficiencies through greater productivity and business and business productivity greater through ional efficiencies funds and other investment vehicles, and a wide range of range of a wide and vehicles, investment and other funds ed to all outstanding Lifeco voting shares. The The shares. Lifeco voting ed to all outstanding
egies, creating a truly synchronized and comprehensive plan. plan. and comprehensive synchronized a truly egies, creating U.S. segment. U.S. segment. st Life, a subsidiary of Lifeco, held interests of 62.1% and 3.9%, and 3.9%, interests of 62.1% Lifeco, held a subsidiary of Life, st fund management companies in China, fund management nt firm providing investment advisory and related services through through services advisory and related firm providing investment nt ation to modernize its digital platforms digital platforms its ation to modernize tiatives in the third quarter of 2019: of 2019: quarter third in the tiatives s that CIBC Mellon already performs for IGM. performs already Mellon CIBC s that red by the ndent distributor of financial products, of financial distributor ndent ation, a holds directly 13.9 tions provider and business partner. partner. and business tions provider sume most of its fund services fu of its fund services most sume
stment manageme
five-year transform five-year N O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A additional information on Lifeco. additional information on R O P g subsidiary assets under management, were RMB¥918 RMB¥918 were under management, g subsidiary assets (C$175 billion Power 2019. at June 30, billion) R O C
L ments is an inve A limits voting rights in life insurance companies to 65%. to 65%. companies insurance rights in life voting limits I C N A N I F
R IGM has selected CIBC Mellon to as to selected CIBC Mellon IGM has IGM has chosen GoogleCloud to manage its dataplatform. among IGM is theCanadian first major financial services Goog to the data and applications move SAP to companies cloud-based environment is expected to enhance operat to enhance expected is environment cloud-based agility, and enhanced levels. service solutions to the custody and related service related and custody the solutions to E W O representing approximately 65% of the voting rights attach rights voting 65% of the approximately representing Companies Act See Part B of this MD&A for sold, through indemnity reinsurance, to Protective Life effective Ju effective Life to Protective reinsurance, indemnity sold, through offe longer no are benefits, which executive and offer which Reinsurance, and & Annuities Insurance units, business distinct two of comprised is segment European The products. reinsurance and products annuity payout including products, management wealth and protection shares, common Lifeco’s in respectively, 4.0%, and IGM held interests of 66.8% and 30, 2019, Power Financial At September IGM FINANCIAL insurance, securities, mortgage products and other financial service and other financial products mortgage securities, insurance, refle that planning to financial approach client-centric holistic, integrate single, a provides Living Plan™ families and individuals. The IG and Great-We Financial 30, 2019, Power At September shares. IGM’s common in respectively, on IGM. for additional information C of this MD&A See Part IGM Financial Inc., TSX: IGM; market capitalization of $9.0 billion at September 30, 2019, is a leading wealth and asset asset and wealth a leading 2019, is 30, at September billion of $9.0 capitalization market TSX: IGM; Inc., IGM Financial operating each subsidiaries, principal its through Canadians of needs financial the serves which company management its through out carried are activities Its market. services financial the of segment advice the within primarily distinctly, Counsel. Planning and Investment Investments Mackenzie Management, Wealth IG subsidiaries of mutual family exclusive an offers Management IG Wealth the first of one AMC, China in interest a 13.9% IGM holds P substan unit reflects Insurance & Business Annuity The Reinsured strat and tax investments, planning, estate and retirement networ exclusive its through its services provides Management Wealth IG of long-term context within the clients to its planning offering comprehensive by from its competition itself distinguish relationships. Mackenzie Invest multiple distributionchannels: Retail, Strategic Alliances and Institutional. Mackenzie distributes its products and services distribution networkthird-partya diversified of through primarily financial advisors. Mackenzieseeksbe Canada’s to asset management solu global preferred their interests as an associate using the equity method. method. equity the using associate an as interests their an indepe is Counsel Planning Investment a announced IGM had previously maintained its position among the market leaders in China’s asset management industry. China AMC’s assets under assets AMC’s China industry. management asset China’s in leaders market the among maintained its position management, excludin and furth efficiencies achieve operations, enhance to it to enable two ini effort, announced IGM this transformation IGM hold a combined 27.8% interest in China AMC. Power Corporation and IGM have significant influence and account for account and significant influence and IGM have Power Corporation AMC. in China interest 27.8% IGM hold a combined Financial’s parent company, Power Corpor Power company, parent Financial’s PART A POWER FINANCIAL CORPORATION At September 30, 2019,GBL’s portfoliowas mainly comprised ofinvestments in the following publicly traded companies: global industrial and services companies,leaders in their market company focusedonlong-term value creation, GBLrelies on a GBLB; market capitalizationGBL, EBR: billion, of isone€14.2 ofthe largest listed holding companies inEurope.As a holding Exchange. interest in GBL, representing 51.7% of the voting rights. GBL, aBelgian holding company, is listed onthe Brussels Stock ofSF6.5 SIX: aholding which, September capitalization heldbillion, a50% company, Pargesa, market at 2019, is PARG; 30, Parjointco. At September 30, 2019,Parjointco helda 55.5% interestin Pargesa, representing 75.4% of the voting rights. an investment vehicle con 2, 2019,On August GBLannounced the signing ofanagreement 2020. GBL expects torealize a gain of€411 million. During the second quarter of2019,GBLsold its interest inTotal of 0.6% through forward sales contracts maturing in January In addition, through itssubsidiarySiennaCapital,GBL isdeveloping a portfolio ofprivateequity, debt and thematic funds. Power Financial Europe B.V., a whollyowne PARGESA AND GBL P of foraddit D this MD&A See Part GBL’s net asset value at September 30,2019 was €19,224 mi 30, 2019,Pargesa’s net asset value was SF10,330 At September vehicle, onthe basisofa total enterprise value of €2.4 billion forthe Webhelp group. business process outsourcing.GBLwill O W aggregates andconcrete LafargeHolcim (SIX: HOLNandEPA:LHN)–cement, –testing,inspectionandcertificationSGS (SIX:SGSN) Pernod Ricard(EPA: RI)–winesandspirits –designanddistributionofsportswear adidas (XETR:ADS) industry Imerys (EPA:NK) E A R
F 8 I POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 N A N C I A L
– C mineral-based specialtysolutionsfor O R P O trolled byGBL.Webhelp R A T I O N ional information on Pargesa. on information Pargesa. ional
invest up to €0.8 billion for an ownership ofup ownership billion foran invest upto€0.8 d subsidiary of Power Financial, andtheFrèreGrou d subsidiaryof Power Financial, group is ofthe one world’s leading llion, compared withllion, €16,193 million, compared with SF8,973 million at December 31, 2018. 31, 2018. million at December million, compared with SF8,973 stable, family shareholder ba s, in which GBL plays its role ofprofessionalshareholder. to acquire a majority stake in mcr ER UMI) Umicore (EBR: Parques (BME:PQR)–operationofregionalleisure parks hygieneproducts Ontex (EBR:ONTEX)–disposable primarily in thefood andbeverage sectors management for awide rangeof processingindustries – supplier ofequipmentandprojectG1A) GEA (XETR: oil, gasandchemicalindustriesTotal (EPA:FP)– precious metals – to 61%ofthe oftheinvestment capital materials technologyandrecycling of providers ofcustomerexperience and million at December 31, 2018. se. Its portfolio is comprised of p each hold a 50%interestin p holda each the Webhelp group, through
PART A POWER FINANCIAL CORPORATION
9 A technology n. At September 30, n. At September 30, obal financial investment managers. managers. On investment ber 30, 2019, the cost of the of cost the 2019, 30, ber naged by an affiliate, Portag3 by an affiliate, naged were transferred to be under to be under transferred were tal commitments by $71 million to million by $71 commitments tal a total of $99 a millio chnology-driven age investments in the gl in the age investments uding the investment in the consolidated subsidiary the investment in the consolidated subsidiary uding a traditional bank. At September 30, 2019, the cost of cost the 2019, 30, September At bank. traditional a of $61 million at September 30, 2019 ($56 million at million ($56 2019 30, September at million of $61 ple Invest, Wealthsimple Save, Wealthsimple Trade, Trade, Wealthsimple Save, Wealthsimple Invest, ple uired SimpleTax, a Canadian web-based tax preparation preparation tax web-based a Canadian uired SimpleTax, a Canada-based a suite digital platform offering of financial a Canada-based e anchor investors in funds ma in funds investors e anchor rk (W4W) and serves over 175,000 clients across Canada, the the Canada, across clients 175,000 over serves and (W4W) rk nancial and IGM invested a total of $98 invested a and IGM nancial million in Wealthsimple, gs increased the total capi total the gs increased issued promissory notes. At Septem notes. promissory issued Ventures has invested in more than 45 fintech companies and companies more fintech has than in 45 invested Ventures and $92 million ($55 million at December 31, 2018), respectively. and $92 million ($55 million at December and operations Ventures of Portag3 3, Power Financial, Lifeco and IGM, through a limited partnership controlled controlled partnership a limited through and IGM, Lifeco Financial, 3, Power erest in Koho. Koho is tech fund, is focused on early st tech fund, is focused on early of Canada’s largest te of Canada’s and fastest-growing
N O I Lifeco and IGM have each committed and IGM million for $33 Lifeco T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A ng the investments in consolidated subsidiaries Wealthsimple and Koho discussed below. below. discussed Wealthsimple and Koho consolidated subsidiaries in ng the investments R O P R O held a 74.2% equity int equity held a 74.2% C
L A I C N A N I F
R E W O sector. During the third quarter of 2019, additional closin additional of 2019, third quarter the During sector. $353 million. Power Financial, Power $353 million. portfolio, excl II’s investment and cost of Portag3 value 2019, the fair 31, 2018) million at December million ($62 Koho, was $112 services to provide consumers an experience that is an alternative to an alternative that is an experience to provide consumers services million. was $32 group’s investment the second fin Ventures’ Portag3 II, Portag3 Sagard Holdings, a subsidiary of Power Corporation. Corporation. of Power Holdings, a subsidiary Sagard investments held first fintech fund (Portag3) Portag3 Ventures’ 2018), excludi 31, December Financial, by Power controlled a limited partnership At September held, through and IGM Power Financial 30, 2019, Portag3, equity diluted a fully and of 85.3% voting interest a representing 84.8%, of Wealthsimple in interest equity undiluted an interest of 69.7%. is one Wealthsimple P KOHOAND WEALTHSIMPLE PORTAG3, ar group), (the IGM and Lifeco with together Financial, Power the have that companies services financial innovative backing to dedicated funds investment operates which Ventures, Portag3 To date, impact. global and change for potential management end of 2018, the the At funds. investment round, led by aAllianz third party, million Series B investment athe closing $100 of announced May 22, 2019, Wealthsimple X, group’s investment was $306 million. was $306 group’s investment 30, 2019, Portag3 II and Portag At September Financial, by Power which includes the conversion of $20 million of previously of previously million of $20 conversion the includes which service that makes preparing and filing tax returns quick and easy. The acquisition of SimpleTax increases the number of of number the increases of SimpleTax acquisition The and easy. quick returns tax filing and preparing makes that service to over 1 million. Wealthsimple products users of million, respectively, in million and $10 $7 a further invested and IGM quarter of 2019, Power Financial third the During Fi of 2019, Power first nine months the During Wealthsimple. United States and the United Kingdom. Kingdom. United the and States United it acq that announced 24, 2019, Wealthsimple On September Wealthsimple for Advisors (W4A) and Wealthsimple for Wo for Wealthsimple and (W4A) for Advisors Wealthsimple the digital investment unit of Germany-based insurer and asset manager Allianz Group. Wealthsimple continues to expand to expand continues Wealthsimple Allianz Group. manager and asset insurer Germany-based unit of investment digital the has Wealthsimple 2019. 30, at June billion $4.9 over of administration under assets with the marketplace in its presence Wealthsim offering through reach distribution its expanded PART A POWER FINANCIAL CORPORATION in whichtheinvestment isinitially recognized at Power Financial and the Frère Group. Power Financial’s followingThe tablesummarizesthe accounting prese Power Financial’s investment inPargesa is held through Parjoin subsidiaries) after the eliminationof intercompany balances and transactions. Financial (parent) and Lifeco, IGM,Wealthsimple, Koho and flows ofthe parentcompanyandits financial Consolidated Accounting Standard 34 The Interim Consolidated Financial Statements ofthe Corpo IFRS FINANCIALMEASURES AND PRESENTATION Presentation Basis of P Investment or jointcontrol Significant influence in theentity Controlling interest C O o n W t r E Dividends received from Parjointco. Parjointco. from received Dividends Power Financial’s share of: A o R l Pargesa’s otherchanges in equity. Other comprehensive income orlossin Pargesa; and Net earnings or lossin Pargesa;
F 10 I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A N C I A L
C O R statements statements asinglepresent, as economicentity, vial o ae(F) Earningsconsistof of Corporation’sshare Availableforsale(AFS) Equitymethod Consolidated with non- Consolidation
P A O ൞ c
R Interim Financial Reporting c A o u T n I O t i N n g
M subsidiaries. Theconsolidatedfinanc e t h o d
cost and adjusted thereafter for: cost andadjustedthereafter if any impairment charges, Earnings arereduced by comprehensive income through other marked tomarket The investmentsare disposals gains orlosseson dividends received and comprehensive income earnings andother controlling interests C E a o r m n i p n ntation forthe Co r g e (IAS 34)andare presentedin Canadian dollars. investment in Parjointco isaccounted for using the equity method, s h
e a n n s d i
v O e ration have been prepared in accordance with International t
the Portag3 funds (Power Financi I h n e tco. Parjointco is a holding c r o m e rporation’s holdings: ial statements present the the assets, liabilities, reve the assets,liabilities, impairment leads toafurther impairment charge subsequent toan A sharepricedecrease impairment charge investment results inan the value ofthe prolonged decline in A significantor investment level done attheindividual Impairment testingis tested forimpairment Entire investment is for impairment tested atleastannually life intangibleassets are Goodwill andindefinite I m p a i r m e n t
T e s t i n g company jointlycontrolled by Asubsequentrecoveryof is Reversedifthere Impairment ofgoodwill
reversal value doesnotresultina has recovereditsvalue evidence the investment of value is evidenceofrecovery assets isreversed ifthere Impairment ofintangible cannot bereversed I nues, expenses and cash cash nues, expensesand al’s controlled operating m financial results of Power p a i r m e n t
R e v e r s a l PART A POWER FINANCIAL CORPORATION 11 A d d o o h h t t e e m m
g g n n i i t t n n u u s to the Corporation’s 2018 2018 Corporation’s the s to o o c c c c A
A
%, respectively, in Koho. Ѽ . ѷѶ t t n n e e % and m m ѹ . t t s s Ѷ e e v v n n i i
f f o o
e e r r nction with the following note following with the nction u u t t a a Controlling interestControlling interest Consolidation Investment Consolidation InvestmentInvestment Available for sale Significant influenceInvestment Available for sale Equity method Available for sale Available for sale InvestmentInvestmentInvestmentInvestment Available for sale Investment Available for sale Available for sale Available for sale Available for sale N Controlling interest Consolidation Controlling interestControlling interestControlling Joint control Consolidation Consolidation Controlling interest Equity method Consolidation Controlling interest Consolidation Controlling interest Consolidation N II hold II interests of Ѷ
t t c c and Portag ѳ ѳ Ѻ ѳ ѳ Ѷ ѻ Ѹ Ѷ ѹ Ѹ ѳ Ѷ ѻ Ѵ ѻ Ѽ Ѽ ѳ ...... s i s i Ѷ e e ѹ Ѻ Ѽ ѳ ѻ Ѹ Ѽ ѻ r m r m Ѹѳ Ѹѷ Ѵѹ Ѵѻ ѵѳ ѵѶ ѹѹ ѹѵ ѵѺ ѵѳ < ѹѶ e o e o t t n n n n o o i i c c e e
% % % and Portag Ѽ . ѻ
N O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER
A R O P R O C
L A I
C N [6] A
N I [5]
F
s s [3] [4]
]
R g g Ѵ [
Non-controlling interests (Note 20). 20). (Note interests Non-controlling Basis of presentation and summary of significant accounting policies (Note 2); 2); (Note policies accounting and summary of significant of presentation Basis 6); (Note Investments (Note 8); associates and corporations jointly controlled in Investments 11); and (Note assets intangible and Goodwill E n n [7] i i
[2] d d W L l l Imerys Imerys adidas adidas LafargeHolcim Total Parques Other investments Pernod Ricard Ricard Pernod SGS Umicore GEA Ontex ] IGM also holds a 4.0% interest in Lifeco. ] a 3.9% interest in IGM. also holds Life Great-West ] (50%). corporation controlled a jointly Parjointco, through Held ] Portag3. in of 18.5% interests equal hold also IGM and Lifeco ] Portag3 II. of 9.3% in interests equal hold also IGM and Lifeco ] Wealthsimple. in 46.8%, respectively, of 17.1% and interests hold IGM also Portag3 and ] Lifeco and IGM also hold equal interests of o o B O Ѵ ѵ Ѷ ѷ Ѹ ѹ Ѻ Wealthsimple Pargesa Portag3 Koho in conju read be should presentation of accounting This summary H G Statements: Financial Consolidated [ [ [ [ [ [ [ At September 30, 2019, Pargesa’s publicly listed holdings were as follows: P as follows: holdings were Corporation’s 30, 2019, the At September H Lifeco IGM Portag3 II PART A POWER FINANCIAL CORPORATION accordanceIFRS are with included throughout MD&A.this by other entities. Reconciliations ofthe net asset value an These non-IFRS financial measures donot have a standardme financial measures used in the MD&A are defined as follows: provide additional meaningful information to readers intheir financial measures initspresentation and analysis of the financial performanc This MD&A presents and discusses financial measures which are not inaccordance with IFRS. Management uses these ANDPRESENTATION MEASURES FINANCIAL NON-IFRS P Net assetvaluepershare Net assetvalue Adjusted netearnings pershare Other items Adjusted netearnings of presentation Non-consolidated basis N O o n W - I E A F R R
S F 12
f I i N n POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A a n N c C i a I l A
m L
e C a O s u R r P e
O R A T I O N
omnsae usadn. common shares outstanding. Net assetvaluedividedbythenumberof per sharebasis. Net assetvaluecalculatedona management’s estimate offair value. private entitiesare measured at their market value andinvestments in (Lifeco, IGMandPargesa)are measured at The investmentsheldinpublicentities net debtandpreferred shares. Financial’s non-consolidated assets lessits Net assetvalueis thefairvalueof Power shares outstanding. weighted average numberofcommon Adjusted netearnings dividedby the adjusted net earnings. Earnings pershare calculatedusing or ajointlycontrolledcorporation. presented asother items byasubsidiary Includes theCorporation’s share of items results fromoperations lessmeaningful. the period-over-period comparison of management’s judgment would make After-tax impactofanyitemthat in Other items. Net earnings excludingtheimpact of method. Koho areaccounted forusingtheequity Portag3, Portag3 II,Wealthsimpleand Power Financial’s interestsinLifeco,IGM, D e f i n i t i o n d the non-IFRS basis ofpresentation with the presentation in aning andmaynotbe compar analysisresultsof the of the Corporation. The non-IFRS e of Power Financial, and believes that they
company oritsoverallfairvalue. the fair valueofinvestments heldbythe and analystsindetermining orcomparing This measure may beusedbyinvestors in assessingvalue. the holding companyandisused toassist Presents thefair valueofthenet assets of earnings foreach subsidiary. assess theimpactofcontributionto This presentation isusefultothe readerto net earnings andadjustednet earnings. each operating company’scontributionto reviews andassesses theperformance of As aholdingcompany,management consolidated operatingcompanies. results separately fromtheresults ofits Presents theholding company’s(parent) cash flows. analyze itsresults, financialposition and Used bytheCorporation topresentand value onapersharebasis. Assists thereader incomparingnetasset on apersharebasis. Assists incomparingadjustednet earnings operations. these items are not reflectiveof ongoing the readerinassessing currentresultsas of theseitems assistsmanagement and operations. The part ofongoingexclusion Identifies itemsthat arenotconsidered excluded. operationsare to beapartofongoing periods asitems thatarenotconsidered period’s resultstothoseofprevious Assists inthecomparisonof current P u r p o s e able to similarmeasures used
PART A POWER FINANCIAL CORPORATION
, , Թ Թ Ѻѷ ѳѸ ѳѵ ѳѺ ѻѴ Ѷѳ Ѷѳ . . . . . ѵѳѴѻ ѵѳѴѻ 13 A September September , , ѸѴѹ Ѻ ѹѹ ѳ ѵѳѳѴѳѴ ѳ ѵѵ ѳ ѻѻ ѳ ѳ Ѷѳ Ѷѳ ...... ѷѷѶ ѸѵѶ ѴѶѷѴѷѹ ѶѼ ѸѻѼ ѸѸ ѸѺѻ ѳ ѳ ѳ ѳ ѳ ѳ ѵѳѴѼ ѵѳѴѼ and will be applied applied be and will June June IFRS to non-IFRS financial financial to non-IFRS IFRS ciate or a jointly controlled controlled a jointly or ciate
, , Թ Թ Թ Թ ѹ ѹ ѻѻ ѳѴ ѳѴ ѻѼ Ѷѳ Ѷѳ . . . . Ѹѻѷ ѸѼѳ ѳ ѳ ѳ ѳ e specific discussion included discussion e specific in included ѵѳѴѼ ѵѳѴѼ September September Insurance Contracts , , Թ Թ ѸѸ ѷѻ ѳѸ ѳѵ ѳѺ ѶѼ Ѵѹ ѸѸ Ѷѳ Ѷѳ . . . . . ѺѹѺ ѻѵѵ RS 17 providing a deferral of one year of the of one year RS 17 providing a deferral , , ѵ ѵ ѳ ѳ ѳ ѵѳѴѻ ѵѳѴѻ ributions of operating subsidiaries and Pargesa Pargesa and ributions of operating subsidiaries Ѵ Ѵ , so that both IFRS 9 and IFRS 17 will have the the have will IFRS 17 IFRS 9 and both , so that ation decided to continue applying accounting accounting applying to continue ation decided September September sted net earnings”. sted net , , Ѹ Nine months ended months Nine ended months Three ended months Nine ended months Three policies applied by an asso an by applied policies ѸѴ ѵѼ ѴѼ ѳѴ ѳѵ ѵѵ ѴѶ Ѷѳ Ѷѳ ...... measures. measures. ѸѹѶ ѺѴѸ ѴѶѷ ѴѸѵ , , ѵ ѵ ѳ ѳ ѳ ѳ IASB extended to January insurers for to January exemption IASB extended the 1, 2022 ѵѳѴѼ ѵѳѴѼ s reported in accordance with with accordance in s reported Ѵ Ѵ to Pargesa’s results. On consolidation, the Corporation has the Corporation On consolidation, results. to Pargesa’s , which will replace IFRS 4, IFRS replace will which , September September a jointly controlled corporation do not qualify for the exemption and exemption do not qualify for the corporation controlled a jointly accordance with IAS 39. Refer to th with IAS 39. Refer accordance Financial Instruments Financial RS financial (IFRS 9) “Non-Consolidated Statements of Earnings”: of Earnings”: Statements “Non-Consolidated ] net earnings and adju earnings net Ѵ [ gs in accordance with IFRS”; and IFRS”; and with accordance gs in
] Ѵ [ IASB proposed an amendment to IF proposed an amendment IASB Financial Instruments, nts of Earnings”, which present the cont present which nts of Earnings”, Insurance Contracts Insurance
]
Ѵ [ N O I 2018. The Corporation, in accordance with the amendment of IFRS 4 to defer the adoption of of adoption the 4 to defer of IFRS amendment the with accordance Corporation, in 2018. The T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A IGM and Pargesa to to be IGM and Pargesa in R iliation of iliation IFRS and non-IF O P FINANCIAL INSTRUMENTS INSTRUMENTS FINANCIAL R IFRS financial measure ce with IAS 39, Non-IFRS financial measure O – – , net of tax , net of tax , net of tax , net of tax C
[2] [2] L A I C N IFRS financial measure –
A ] Ѵ [ N I F
R the “Consolidated Statements of Earnin Statements “Consolidated the Stateme the “Non-Consolidated of earnings Power Financial. net and adjusted to earnings the net E W Lifeco Lifeco IGM Pargesa Lifeco Lifeco IGM Pargesa measure ] Financial. of Power shareholders to common Attributable ] Pargesa. and IGM from Lifeco, items on Other more details for items” “Other section the Refer to ] Financial. of Power shareholders to common Attributable ] Pargesa. and IGM from Lifeco, items on Other more details for items” “Other section the Refer to O Ѵ ѵ Ѵ ѵ the IGM and Pargesa sections “Contribution to and Pargesa sections “Contribution the IGM retrospectively. In November 2018, the In November retrospectively. to January the standard addition, of the In 1, 2022. date effective 9, standard, IFRS instruments the financial to apply adjusted the results of both of results the adjusted Refer to the section “Non-IFRS Financial Measures and Presentation” for a description of the non-consolidated basis of of the non-consolidated for a description Presentation” and Measures Financial “Non-IFRS section to the Refer and a reconc presentation same effective date. Parjointco, held through and Pargesa, IGM, a subsidiary corporation which is accounted method. equity for using the The Corpor policies in accordan This section presents: This section presents: 9, OF IFRS DEFERRAL In May the IASB issued IFRS 17, 2017, 1, 9 on January adopted IFRS accounting the to retain required not but permitted 9, is IFRS measures: adjusted net earnings, other items and related per share amounts. Adjusted net earnings and adjusted net net and adjusted earnings net Adjusted amounts. share per and related items other earnings, net adjusted measures: section the in presented are per share earnings Net earnings items Share of Other Adjusted net earnings [ [ Results of Power Financial Share of Other items Share of Other per share – Non-IFRS financial Adjusted net earnings [ [ P MEASURES FINANCIAL NON-IFRS AND OF IFRS RECONCILIATION earning net of a reconciliation present tables following The per share Net earnings PART A POWER FINANCIAL CORPORATION Protec to business annuity and insurance life individual U.S. its of insurance, viaindemnity sale, Lifeco’s of Asaresult [4] [ [ [ A Income taxes Share ofearnings ofinvestmentsinjointly Earnings before investments injointly Total paidorcreditedtopolicyholders E Total netpremiums R Consolidated net earnings – Nine months ended from Lifeco,IGM and Pargesa tothe are presented below. The Corporation’soperating segments are Power Financial’s consolidated statements ofearnings forthe nine months and three months ended September 30, 2019 OF EARNING STATEMENTS CONSOLIDATED P N Earnings before income taxes Total expenses Commissions Net investmentincome Financing charges Operating andadministrative expenses Total revenues Fee income Ѷ ѵ Ѵ x t O e e ] “Corporate” is comprised ofthe results ofPortag3,Portag3 II, Wealthsimple] the and Corporation’s Koho, investment activitie Results reported by Pargesa arein accordance with IFRS ] Results reported byare in IGM accordance with IFRS ] As9. the Corporation has notadopted IFRS 9,adjustments in accordance w t p Non-controlling interests controlled corporationsandassociates and income taxes controlled corporationsandassociates, Common shareholders ofPower Financial Perpetual preferred shareholders v t r W consolidation entries. entries. consolidation charge. Pargesa andanimpairment including the Corporation’s share ofagain realized onthe sale ofaninvestment classified asfair value through other compre recognized on consolidation and included in “Corporate”. premiums include $13.9 billion of premiums ceded to Protective Life Protective to ceded premiums of $13.9billion include premiums
e e i e b n n E a u A u s r R t e n e a
s i s b F 14 n
l I g e N
s POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019
[ ѷ t
A ]
o N
C I A
L [ ѷ
]
C O R P O R A T I O N
net earningsattributableto Power Financial’s commonshareholders. ѴѶ ѴѸ ѵѸ ѶѴ Ѷѷ S IN ACCORDANCE WITH IFRS WITHIFRS S INACCORDANCE ѵ Ѵ Ѵ Ѹ ѵ Ѵ Ѵ ѷ Ѽ Lifeco IGM IGM Lifeco . The Corporation’s share ofearnings ofPargesa includes adjustments accordance in with IAS , , , , , , , , , , , , , Ѵ Ѻѳѹ ѵѴѼ ѻ Ѹ ѴѹѴ ѸѸѺ ѼѻѼ Ѷ ѷ ѴѹѴ Ѷѷѷ ѵѶѻ ѹ ѵ Ѹѹѹ ѳѶѵ Ѹ ѵѴѶ ѺѸѴ Ѵѹѳ ѵѶѳ Ѷѵѵ Ѵ Ѵ ѴѹѴ ѺѴѺ ѵѴѼ Ѽ Ѵ ѺѼѳ Ѵ Ѵѵѹ ѷѴѴ ѻ Ѹ ѴѹѴ ѸѸѺ ѼѻѼ ѻѴ Ѻѻѻ ѵѴѷ ѷѺѸ ѳ ѵ ѳѳѼ Ѻ ѻѵѶ ѺѺѼ Թ ԹԹԹ and fee income includes $1.1 billion of ceding commission r commission ceding of includes $1.1billion income andfee , , , ѵѺѵ ѹѼѵ ѶѼѻ ѴѴѴѷ ѴѹѴ ѴѴ Lifeco, IGMand Pargesa. This table reflects the contributions [ Ѵ ԹԹ ԹԹԹ ] Pargesa [ ѵ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ ] Corporate ( ( ( ( ( ( Ѵѻѵ Ѵѻѳ ѴѺѻ ѴѺѷ Ѵѻѵ Ѵѳѹ Ѵѳѷ ( ( ( ( ( ѴѸ Ѹѵ ѵѶ Ѷѳ Ѽѻ ѻѻ ѷѳ Ѽѳ [ ѻ Ѷ ] ) ) ) ) ) ) ) ) ) ) ) tive LifeeffectiveJune 1, 2019,totalnet September Consolidated netearnings ѶѶ ѵѸ Ѷѹ ѴѶ ѴѸ eceived fromProtective Life. s, corporate operations and Power Financial ѵ Ѵ ѵ ѵ ѵ Ѹ ѵ Ѻ hensive income (FVOCI) by by (FVOCI) hensive income ѵѳѴѼ , , , , , , , , , , , , , Ѵѳѷ ѻѸѻ ѶѼѻ ѴѺѹ ѶѵѸ ѸѺѳ Ѷѵѵ ѶѴѺ ѸѴѷ ѳѴѺ ѸѵѸ ѸѹѶ ѸѵѸ ѼѵѶ ѺѷѺ ѶѹѴ Ѹѹѵ Ѻѻѹ Ѷѳ , ith IAS ith been 39 have September ѶѴ ѵѶ Ѷѷ ѵѹ ѵ Ѵ ѵ Ѷ Ѷ Ѹ ѵ ѹ Ѵ ѵѳѴѻ , , , , , , , , , , , , , Ѵѳѷ ѼѵѼ ѸѳѺ Ѵѵѵ ѵѹѴ ѷѳѵ Ѷѻѵ ѸѻѺ ѷѳѳ ѻѳѳ ѺѹѺ ѻѳѳ ѶѳѺ ѴѻѸ ѴѺѼ Ѹѻѳ ѹѴѼ Ѹѹѻ Ѷѳ ѶѼ , , PART A POWER FINANCIAL CORPORATION , , ѶѼ Ѷѳ ѶѶѵ ѵѶѸ ѺѻѺ Ѻѻѷ ѻѳѹ ѳѷѹ , , , , , , ѵѳѴѻ Ѽ 15 Ѵѳ A September ) ) , ith IAS 39 have been ith IAS Ѷѳ ѼѶ Ѵѻ Ѷѷ ѶѸ Ѷѳ ѻѼѵ ѳѹѳѶѷѶѸѴѴ ѵѵѳ ѵ Ѵѵ ѻѹѶѻѷѵѴѴѴ ѻѹѸ Ѻѻѹ Ѵ ѴѴѴ ѴѴ ѺѵѸѻѴѻ ѼѻѴ ѴѳѼѺѳѼ ѼѼѼ ѴѹѶ ѵѶѵ ѻѶѹ ѷѷѶ ѵѺѻ ѺѳѼ ѸѵѶ ѻѶѹ , , , , , , ѵѳѴѼ Ѷ ѷ Ѷ Ѷ Ѵ ѵ eceived from Protective Life Life from Protective eceived June s, corporate operations and operations corporate s, ent charge. ent charge. Power Financial Power ( ( , tive Life effective June 1, 2019, total net tive Life effective June Consolidated net earnings Consolidated ѶѶ ѶѸ Ѷѳ ѶѴѼ ѸѼѳ ѵѷѼ ѺѶѳ ѳѸѴ ѳѻѷ ѻѶѳ ѴѳѺ ѴѳѼ ѼѺѸ ѶѸѹ Ѹѻѷ ѼѺѸ ѴѳѺ ѴѸѻ ѷѷѳ , , , , , , , , , ѵѳѴѼ Ѽ Ѷ ѵ Ѵ Ѵ Ѵ Ѵѷ ѴѸ ѴѴ September ) ) ) ) ) ) ) ) ) ) ) ] Թ Թ Ѷ Ѽ Ѷ Ѹ ѹ [ ( ( ѹѷ ѹѴ ѹѷ ѸѺ ѹѴ ѷѵ ѴѺ ѵѻ Ѵѷ ѶѶ ѶѸ Ѷѻ ( ( ( ( ( ( ( ( ( each segment based on its contribution to net its contribution on based segment each Corporate Corporate ] Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ ѵ [ Pargesa ] Թ Թ Թ Ѵ ѷѵѼ [
. The Corporation’s share of earnings of Pargesa includes adjustments in accordance with IAS IAS with in accordance adjustments includes Pargesa of of earnings share Corporation’s . The Ѽ Թ Թ Ѻѳ ѵѻ ѷѺ ѸѼ ѸѸѷ ѷѵ ѻѳѻ ѵѳѵ ѵѼ ѷѼѹ ѺѺѳ ѷѶѻ ѵѸѷ ѻѸѸ ѵѸѺ Ѷѵѷ ѶѺѷ ѻѴѵ ѸѴѼ ѸѸѸ Ѷѵѳ Ѻѻ ѻѸѸѻѳѻ ѵѹѴ ѵѳѵ ѵѼ ѵѼ ѷѻѻ Ѵѵѷ ѵѼ ѸѺѴ ѵѺѶ ѷѷѳ , , , , , , , Lifeco IGM Ѷ Ѵ Ѵ Ѽ ussion of the results of Lifeco, IGM and Pargesa is provided in the “Contribution to the “Contribution to provided in is Pargesa of Lifeco, IGM and results ussion of the Ѵѷ ѴѶ ѴѴ ration evaluates the performance of performance the ration evaluates
N O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A R O P R O C
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premiums includebillion of$13.9 premiums ceded to Protective Life and fee incomebillion of$1.1 includes ceding commission r in the three-month period ended June 30, 2019. 2019. 30, June ended period three-month the in recognized on consolidation and included in “Corporate”. “Corporate”. in included and on consolidation recognized including the Corporation’s share of a gain realized on the sale of an investment classified as FVOCI by Pargesa and an impairm and by Pargesa as FVOCI classified of an investment sale on the realized of a gain share Corporation’s the including consolidation entries. W r t v Perpetual preferred shareholders shareholders preferred Perpetual controlled corporations and associates, controlled corporations and associates, taxes and income controlled corporations and associates Non-controlling interests Non-controlling interests Common shareholders of of Common shareholders p t ] Results reported by IGM are in accordance with IFRS 9. As the Corporation has not adopted IFRS 9, adjustments in accordance w accordance in 9, adjustments IFRS adopted not has Corporation the 9. As ] IFRS with accordance IGM are in by reported Results ] IFRS with accordance are in Pargesa by reported Results ] “Corporate” is comprised of the results of Portag3, Portag3 II, Wealthsimple and Koho, the Corporation’s investment activitie investment Koho, Corporation’s and the ] Wealthsimple II, of Portag3, Portag3 results of the comprised is “Corporate” e e O t x Ѵ ѵ Ѷ Net investment income Net investment income Fee income Total revenues expenses Operating and administrative Financing charges Total expenses N As a holding company, the Corpo company, the As a holding Income taxes Income taxes A [ and adjusted earnings. A net earnings disc E to policyholders Total paid or credited investments in jointly Earnings before of investments in jointly Share of earnings [ P ended months Three – earnings net Consolidated R Total net premiums [ [4] As a result of Lifeco’s sale, via indemnity insurance, of its U.S. individual life insurance and annuity business to Protec Earnings before income taxes income taxes Earnings before Commissions net earnings and adjusted net earnings” section and below. net earnings” adjusted net earnings PART A POWER FINANCIAL CORPORATION [ N Pargesa IGM Lifeco O A Dividends onperpetual preferred shares Corporate operations Pargesa IGM Lifeco A C [ N Pargesa IGM Lifeco O A Dividends onperpetual preferred shares Corporate operations Pargesa IGM Lifeco A C Financial’s common shareholders are accounted forusing the equity method. In thissection, thecontributions fromLifeco andIGMto thene EARNINGS OF STATEMENTS NON-CONSOLIDATED P [ [ [ [ [ Ѵ Ѵ Ѷ ѵ ѵ ѷ Ѷ o o d d d d O e e t t For areconciliation ofLifeco, IGMPargesa’s and non-IFRS adjusted netearnings totheir netearnings, referto the “Contrib ] The contributions from Lifeco and IGM include anallocation ofthe results ofWealthsimple, Koho, Portag3and Portag3 II, bas ] See“Other items” section below. ] Attributable tocommon shareholders. ] See“Other items” section below. ] Attributable tocommon shareholders. ] The contributions from Lifeco and IGM include anallocation ofthe results ofWealthsimple, Koho, Portag3and Portag3 II, bas ] h h n n t t j j j j W Contributions from IGMand Pargesa reflect adjustments in accordance with IAS39. Contributions from IGMand Pargesa reflect adjustments in accordance with IAS39. net earnings” section below. u u u u
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ution to net earnings and adjusted ed ontheir respective interest. ed ontheir respective interest. June 30, June ѵѳѴѼ 2019 ѳ ѳ ѳ ѳ ѳ ѳ ѳ ѳ ѳ ѳ ѳ ѳ ѷ ѸѵѶ ѷѷѶ Ѵѷѹ ѸѺѻ ѴѶѷ ѹѷѷ ѸѻѼ ѴѵѼ ѸѳѶ ѹѷѻ ѴѴѸ ѷѷѳ ...... Ѷѳ ѶѴѵ Ѷѷ ѵѸ ѼѶ ѹѳ ѹѹ ѳ ѳ ѻѻ ѳ ѳ ѳ ѼѺ Ѵѷ ѴѺ ѹѹ ѵѵ ѳѴ ѳѴ ѵѳ ѳѸ ѳѷ Three months ended Three months ended Ѻ Ѹ , )( ) )( )( )( )( ) )( )( )( )( )( etme 30, September September ѵѳѴѻ 2018 ѳ ѳ ѳ ѳ ѳ ...... Ѷѳ Ѵѹ ѸѸ ѶѼ ѶѸ ѶѴ Ѻѷ ѻѴ ѼѴ ѳѵ Ѵѻ ѺѴ ѳѺ ѳѵ ѳѸ ѳѸ ѳѸ Թ Թ , ) ) ) ) ) ) ) ) ) ) PART A POWER FINANCIAL CORPORATION ) ) ) , , ѵ ѶѼ Ѷѳ Ѷѳ ѺѸѷ ѳѸѺ ѹѼѺ . . . ѵѳѴѻ ѵѳѴѻ ѳ 17 A September September )( )( )( , ,
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)( )( )( , , Nine months ended months Nine ended months Three Nine months ended months Nine ended months Three ѵ M ( $584 million or $0.88$523 with per share, compared million or $0.74 2018, an increase of period in the corresponding in per share per share in million or $0.66 per share basis, and $443 18.9% on a of 2019. quarter the second $590$0.89 or million $578 per share, compared with million or $0.81 of the corresponding period in 2018, an increase per share in and $5899.9% on a per share basis, per share in million or $0.88 of 2019. the second quarter $641 million, compared with of net earnings Contribution to in 2018, period an increase of corresponding $589 million in the of 2019. 8.8%, and $502 quarter million in the second of $647 million, compared earnings adjusted net Contribution to 2018, period in an increase in the corresponding with $644 million 2019. in theof 0.5%, and $648 million of quarter second Ѷѳ Ѷѳ G I ѶѺѷ ѶѺѵ ѵѶѻ ѴѶѷ Ѵѷѻ Ѽѷѳ ѵѳѻ , , , . . .
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u u W j j t t n Other items Other items N Adjusted net earnings Adjusted net earnings ] common shareholders. to Lifeco Attributable ] below. section items” See “Other ] co the in (67.7% 2019 30, September ended quarter for the 66.8% in was Lifeco of Power Financial ownership average direct The e e O d d o Ѵ ѵ Ѵ [ [ [ A per share Adjusted net earnings Other items N Contribution to Power Financial Financial to Power Contribution Financial’s Power Contribution to Contribution to net earnings of $1,743 million, compared with net earnings Contribution to period in 2018, a decrease of the corresponding $1,954 million in 10.8%. of $1,895 million, compared earnings adjusted net Contribution to 2018, a period in the corresponding with $2,009 million in of 5.7%. decrease is provided Corporation the of the results A discussion of CONTRIBUTION TO NET EARNINGS AND ADJUSTED NET EARNINGS LIFECO P N $2.29 per share,$1,767 or $1,563 million compared with million or 2018, a decrease of period in in the corresponding $2.48 per share 7.7% on a basis. per share A $1,715 million or $2.51$1,822 with per share, compared or million period in 2018, a decrease of the corresponding $2.55 per share in 1.6% on a per share basis. C earnings”, “Corporate operations”, and “Other items” below. below. items” and “Other operations”, “Corporate earnings”, PART A POWER FINANCIAL CORPORATION basis. 7.9% onapershare $2.333 pershare inthecorrespondingperiod 2018, adecreaseof millionor comparedwithper share, $2,307 $2,045 millionor$2.148 A U.S. segmentcompletedinthesecond quarterof 2018. from therefinancing$60 millionafter taxarising inthe impactof Lifeco’s netearnings anetpositive in2018include per sharebasis.14.8% ona $2.277 pershareinthecorresponding periodin2018,adecreaseof millionor per share, comparedwith$1,846 millionor$1.940 $2,251 N [ N Other items Adjusted netearnings L Europe Corporate Reinsurance Insurance and Annuities E Reinsured Insurance &Annuity Business U.S. Corporate Asset Management Financial Services U Canada Corporate Group Customer Individual Customer C A P [ [ [ Ѵ Ѷ ѵ ѷ i u a d d O n f e e The reinsured Insurance &Annuity Business reflects unit business transferredto Protective Life anindemnity under reinsuran ] Attributable toLifeco commonshareholders. ] Other items representamounts which beenexcluded have fromthe Reinsured Insurance &Annuity Business unitofthe U.S.segme ] U.S.Corporate net earnings forthesecond quarter ] e n r t t j j i W business unit ofthe Europesegment. Referto the “Other items” section. 2019. Comparative figures have beenadjusted toreflect the current presentation. u u o t c
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Q ѵѳѴѼ ѺѶѳ ѺѶѳ ѶѸѺ Ѷѳѹ Ѷѳѳ ѵѳѹ 3 Ѷѳ ѸѸ ѺѺ ѴѶ ѹѶ ѻѸ 2 ( ( ѷ ѷ Ѵ Ѽ 0 Թ Թ , ( ) ( ) ( ( 1 8
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2 ѵѳѴѼ nt and fromthe corporate 0 Ѹ ѹѻѼ ѺѷѸ ѷѸѼ ѶѴѼ ѴѼѼ ѹѸѻ ѵѷѳ ѵѻѵ ѴѴѶ ѵѳѺ ѴѳѴ ѶѴѸ ѴѸѳ ѴѹѸ ѵѻѳ ѴѹѴ ѴѶѸ Ѷѳ ѺѻѺ ѺѺ Ѹѷ ѹѺ Ѷѳ ѹѵ Ѵѹ 1 9 Ѹ ѵ Ѷ ѹ , )( ) )( )( September ѵѳѴѻ Ѷѳ Ѹѹ ( ѵ ѻ ѻ Թ Թ , ) ) ) ) PART A POWER FINANCIAL CORPORATION 19 A 19 decreased by $170 million to $344 million, compared compared million, million to $344 $170 by 19 decreased of 2019 include the impact of updates to policyholder to policyholder updates impact of the include of 2019 tember 30, 2019 and in the corresponding period in 2018. in 2018. period corresponding in the and 30, 2019 tember insurance contract liability basis changes; and basis liability contract insurance ily due to higher contributions from investment experience and experience from investment contributions to higher ily due ber 30, 2019 decreased by $80 million to $85 million, compared million, compared $85 million to $80 by decreased 30, 2019 ber ns from investment experience. experience. investment ns from
N O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A er contributions from investment experience. er contributions experience. from investment R O P R O C
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Partially offset by high offset Partially and experience from investment Higher contributions experience. morbidity More favourable Lower contributions from insurance contract liability basis changes; basis liability contract from insurance Lower contributions and income; fee net Lower experience; behaviour policyholder favourable Less contributio by higher offset Partially changes; basis liability contract insurance from Lower contributions d E A p i v u i N W o d A r O n with the corresponding quarter in 2018. 2018. in quarter corresponding with the Sep ended period nine-month the in items Other no were There with the same quarter last year. The decrease was primarily due to: to: due primarily was decrease The year. last quarter same the with behaviourassumptions, updatesto theultimate reinvestment rate, drivenby theactuarial standards updates,andupdates to morbidity assumptions. Net earnings for the three-month period ended Septem ended period three-month for the earnings Net quarter third in the changes basis liability contract Insurance compared million, to $206 million $56 by increased 2019 30, ended September three-month period the for earnings Net primar was The increase last year. quarter same the with insurance contra with the same period last year. The decrease was primarily due to: to: due was primarily The decrease year. period last same the with G September ended period the nine-month for increased by $32 30, 2019 earnings Net million to $518 with million, compared to: due primarily was The increase year. last period same the I 20 30, period ended September the nine-month for Net earnings P C million, compared to $863 million decreased by $102 2019 30, ended September period the nine-month for Net earnings in 2018. period corresponding with the compared million, $300 million to $15 decreased by 2019 30, ended September period the three-month for Net earnings PART A POWER FINANCIAL CORPORATION of US$148 million (C$199 million) relating to the sale, via indemnity insurance, on June 1, 2019to Protective Life (refer to t earnings ofUS$95 million (C$121 million) for thesa For thenine-month period ended September 30, 2019, the net loss was US$101 million (C$136 million) compared to net R Net earnings also include financing and other expenses after primarily dueto: loss ofUS$25 million (C$32 million) in the corresponding periodin 2018. The increase in net earnings ofUS$36 million was For the nine-month period30, endedSeptember 2019, net earn A changes and investment experience. the same quarter last year as net business growth was offset by lower contributions from insurance contract liability basis For thethree-month period ended September 30, 2019,netearnings of US$49 (C$63million million) were comparable to For thenine-month period ended F Net earnings for thethree-month period ended September 30, 2019decreasedby $36 million to$77 million, compared 2018. September 30, 2019,and excluded Other items of$199 million. with the corresponding period in2018. Adjusted ne Net earnings for thenine-month period ended September 30, 20 U P comparable to the corresponding quarter in 2018. Net earnings in the third quarterof2019 due to loweroperating expenses asdiscussed above, partially offset bylower net fee income. loss of US$6 million (C$8 million) in the same quarter last year. The increase in net earnings of US$15 million was primarily million), compared with a net million (C$13 30, 2019, netearnings wereFor thethree-monthperiod US$9 endedSeptember expenses decreased by US$4millionfromthe corresponding period on June1,2019, there were no additional sales, fee and other Life to Protective reinsurance, indemnity via sale, the Following year. last US$44 quarter same (C$54 for the million million) For the three-monthperiod endedSeptember 30, 2019, there was noearnings impact, compared tonetearnings of quarter. to the same period last year, reflecting the timingof the reinsurance transaction with Protective Life during the second overview section “Lifeco”), adjusted net earnings and in the corresponding quarter in 2018. with thecorrespo US$148 million(C$192million)in the corresponding period in2018. The decreaseof US$13 millionwasprimarily due to: i O s e n N s i W a n e I T n t s E
Partially offset by lowernet fee income. capital; seed on income investment net Higher Lower operating expenses, which includedtheimpact of expensereduction initiatives; and Partially offset by netbusiness growth. Lower contributions frominsurance contract liability Higher operating expenses;and A E u c M R i r D a e a
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a N T I e n g POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A r A s v e N T u i m c E r C e a e S I s n A n
c t L nding quarter in 2018. There e
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e September 30, 2019, netearnings were US$135 million (C$178 million), compared with s s
also includes financing andotherexpenses after taxofUS$8 million (C$9 million), were no Other items in thethree-month period ended September 30, 2019 were US$47 million (C$63 million), a decrease of US$48 million compared me periodlastyear. Excluding other t earnings were $259 million inthe nine-month period ended basis changes and investment experience; income and netearnings related to thisbusiness unit. ThereitemsOther inthe wereno corresponding periodin ings were US$11 million (C$15 million), comparedmillionings (C$15 with werea net US$11 tax of US$27 tax of million (C$35 million). 19 decreased by$273 in primarily2018 due to lowernetfinancing costs. items which compriseanet charge million to $60 million million, compared Financing andother he PART A POWER FINANCIAL CORPORATION
21 A related to updated expense expense updated to related ded September30, 2018 were million to $55 million, compared compared million, $55 to million from investment experience, which which experience, from investment d quarter, Other items of $199 million consisted , 2019 decreased by $32 by , 2019 decreased in the three-monthperiod en s of $63 million and $36 million and $36 million s of $63 S. individual life insurance and annuity business to Protective Protective to business annuity and life insurance S. individual 30, 2019 decreased by $24 million to $938 million, compared compared million, to $938 million by $24 2019 decreased 30, basis changes, adverse morbidity experience in Ireland and the the and in Ireland experience morbidity adverse changes, basis ings in the nine-month period ended September 30, 2018 were 2018 were 30, September ended period the nine-month ings in eland, pricing action has been taken during 2019 with additional additional 2019 with during taken has been action pricing eland, restore profit targets. restore profit ty basis changes and investment experience; experience; investment and changes ty basis s of 2019. In the secon
ct of new business, higher contributions business, higher contributions ct of new
N fourth quarter 2019 of to O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A R O P
R ems in the first and third quarter the first ems in s e O i t C i
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a c r P R R n u Lower contributions from insurance contract liability basis changes; basis liability contract insurance from Lower contributions volumes. business by higher offset Partially changes; basis liability contract from insurance Lower contributions and business; life the in experience claims favourable Less from new business; impacts initial Unfavourable volumes. business by higher offset Partially impact of changesto certain tax estimates; and liabili contract from insurance Higher contributions and Ireland; in experience morbidity by adverse offset Partially movement. of currency impact The business; of new impacts initial Unfavourable and business; and annuity life the in experience claims favourable Less Lower contributions from insurance contract liability liability contract insurance from contributions Lower cash flows primarily in expected property loans and reductions on mortgage charges impairment The impact of administration; a prepackaged entering tenant retail U.K. a with associated impa offset by the favourable Partially included the impact of bond and mortgage upgrades in 2019, compared to downgrades in 2018 and higher realized realized higher and 2018 in downgrades to compared 2019, in upgrades mortgage and bond of impact the included assets. surplus gains on E a E O s r n R H W u i s T e U O n with the same quarter last year. The decrease was primarily due to: to: due primarily was decrease The year. last quarter same the with Other it were no There To address the evidence of an adverse trend in claims in Ir in claims trend of an adverse evidence the To address the considered for action being 30 September period ended three-month the for Net earnings O R million, compared million to $229 2019 decreased by $59 30, ended September period the nine-month for earnings Net to: due was primarily The decrease year. period last same the with I million, compared $716 to million by $49 decreased 2019 30, ended September period the nine-month for Net earnings to: due was primarily The decrease year. period last same the with P E September ended period the nine-month for Net earnings earn net with period in 2018. the corresponding Adjusted of $56 million. below, discussed Other items, excluded and $1,018 million, compared million, $357 to million $94 increased by 2019 30, ended September period three-month the for earnings Net quarterearnings 2018.withcorresponding thenet in Adjusted of $56 million. below, discussed Other items, $319 million, and excluded compared million, $306 to million $66 2019 increased by 30, September ended period three-month for the Net earnings to: due primarily was The increase year. last quarter same the with of a net loss on the sale, via indemnity reinsurance, of the U. reinsurance, indemnity via sale, the loss on of a net cost transaction included charge net The 2019. 1, Life on June assumptions related to stranded overheadon the retained business. tax after of $56 million items Other of 2018, quarter third the In of 2018. quarters two first the in items Other no were There operations. U.K. to the related costs of restructuring consisted information on additional MD&A for this of B see Part Lifeco’s interim MD&A; from above has been derived The information Lifeco’s results. PART A POWER FINANCIAL CORPORATION [ [ [ [ N Other items Adjusted netearnings Interest expense, incometaxes,preferred share Adjusted netearnings (beforeinterest, income taxes, Corporate andother Mackenzie IG WealthManagement A [ N Other items Adjusted netearnings pershare A [ Contribution to Power Financial’s Contribution toPower Financial IGM FINANCIAL P [ [ ѷ ѵ ѵ Ѷ ѵ Ѵ Ѵ Ѵ d d O e e AvailabletoIGMcommonshareholders. ] IGM does notallocate Other items to segments. ] Interest expense includes interest onlong-term debt and also includes interest onleasesmillion of$3.1 in the nine-month p ] Non-IFRS financialmeasure described in PartCofthis MD&A. ] AvailabletoIGMcommonshareholders. ] The averagedirect ownership Financial ofPower was in 62.1%forthe IGM quarter ended September 30, 2019 (61.4%in the corre ] See“Other items” section below. ] Contribution to Power Financial includes adjustmentsin accordance with] IAS 39and allocation the ofthe results ofWealthsim dividends andother preferred share dividends andother) N Adjusted netearnings Other items t t j j W Portag3 II. as aresultadoption ofIGM's ofIFRS 16, u u
Consolidation entries As reportedbyIGM e e e s s t E a a t t A
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G (in accordance with IFRS9) M September September September
(in accordance with IFRS 9) (in accordance withIFRS ѵѳѴѼ ѵѳѴѼ ѵѳѴѼ ( ( ѵ ѵ ѳ ѵѷѶ ѻѳѹ ѴѴѸ ѴѵѺ Ѹѹѷ ѸѸѸ ѸѹѶ Ѷѷѷ ѶѷѼ Ѷѷѻ . . Ѷѳ . Ѷѳ Ѷѳ Ѷѵ ѶѸ ѳѶ ( ( ѻ iemnh ne Nine months ended Ѹ Ѵ iemnh ne Three months ended Nine months ended iemnh ne Three months ended Nine months ended , , , )( )( )( )( September September September ѵѳѴѻ ѵѳѴѻ
ѵѳѴѻ ѵ ѵ ѳ ѻѻѳ ѴѷѶ ѴѷѶ ѸѼѷ ѸѻѺ ѹѴѵ ѵѹѻ ѶѷѴ ѶѸѺ ѶѺѹ ( Ѷѳ . . . ѵѸ Ѷѳ Ѷѳ Ѵѹ ѴѼ ѷѷ Ѹѷ Ѵѳ , , , ) ) ) ) ) September September September ѵѳѴѼ ѵѳѴѼ ѵѳѴѼ ѳ ѳ ѵѻѼ ѵѳѹ ѵѳѵ ѵѳѵ Ѵѵѷ Ѵѵѷ Ѵѵѹ ( Ѷѳ . . ѻѺ ѶѺ ѷѹ Ѷѳ Ѷѳ ѻѸ ѻѸ ( ѵ Թ Թ Թ , , ,
( ) ( ( ) ( (
eriod ended September 30, 2019, endedSeptember eriod June June June sponding period in 2018). ѵѳѴѼ ѵѳѴѼ ѵѳѴѼ ѳ ѳ ѳ ѻ ѴѼѻ ѵѵѶ ѴѻѸ ѶѴѹ ѴѼѶ ѵѺѺ ѵѴѷ ѴѼѸ Ѵ ѴѴѶ ѴѵѼ ѴѴѳ ѴѶѺ ѴѴѸ ѴѴѼ Ѷѳ . . . ѺѸѳ ѻѷ Ѹѵ ѶѺ ѷѸ Ѷѳ Ѷѳ ple, Koho, Portag3 and ple, Koho,Portag3and Ѻѳ ѳ ѺѺ ѻѴ ѳѷ Three months ended ѻ Ѹ ѷ , , , )( )( )( )( )( September September September ѵѳѴѻ ѵѳѴѻ ѵѳѴѻ ѳ . . . Ѷѳ Ѷѳ Ѷѳ Ѵѹ ѼѶ ѵѸ ѻѵ Ѽѵ Ѵѳ ѻ , , , ) ) ) ) ) PART A POWER FINANCIAL CORPORATION m 23 A 9 1 0 2
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8 1 39, the Corporation accounted accounted 39, Corporation the 0 2 3 IGM to Power Financial has been has been Financial IGM to Power Q
. lted primarily from the movement of movement the primarily from lted s v . The contribution to Power Financial Financial to Power contribution . The
9 1 0 2 3 Q $1 million to $376 was primarily increase The million. enses in the first quarter relating to the migration of migration to the relating quarter first in the enses an associate using the equity method. In accordance accordance In method. equity the using associate an fees of $5 million to $1,106 million. The increase was was million. The increase million to $1,106 fees of $5 Power Financial deferredPower has of IFRS 9 and adoption the ain administration fees and changes in the composition of of composition in the changes and fees administration ain uity. In accordance with IAS IAS with accordance In uity. ptember 30, 2018. These Other items are not allocated to allocated not are items Other These 30, 2018. ptember $202 million or $0.85$198 per share, with compared million or $0.82 2018, an increase of period in the corresponding in per share share basis, and $1853.7% on a per the or $0.77 per share in million of 2019. second quarter $202 million or $0.85$223 per share, compared with million or of period in 2018, a decrease corresponding $0.92 per share in the 7.6% on a per share basis, and $193 $0.81 per share in the million or of 2019. second quarter nine-month period ended September 30, 2019, and excluded excluded 30, 2019, and September period ended nine-month . The reclassification of the investment in the first quarter fro quarter first the in investment of the reclassification The . d in a gain; the contribution of d contribution in a the gain; $224 million. The decrease resu $224 decrease The million. nine-month period ended September 30, 2019, compared with the compared 2019, 30, September ended period nine-month Financial Instruments. Instruments. Financial Instruments: Recognition and Measurement and Recognition Instruments:
es of $4 million to $75 million in the three-month period, as explained above; above; as explained period, three-month in the es of $4 million to $75 million
in income from management from in income
8 1
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O . I s T v POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER
Financial A 9 T 1 R 0 N O 2 E P
t investment income of $3 million to $16 million. of $3 million to $16 t investment income R M E O
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d n A R r e due to an increase in average assets under management of 1.0%. The average management fee rate decreased by by decreased rate fee management average The of 1.0%. management under assets average in increase an to due and management; under assets average points of basis to 165.6 points 0.6 basis A decrease in administration fe in A decrease fees of management in income from by an increase offset Partially of ne An increase Partially offset by an increase by offset Partially rate fee management average The of 0.9%. management under assets average in to an increase primarily due reductions pricing reflecting management, under assets average of points basis 166.2 to points basis 0.3 by decreased effective March 1, 2019; and of $4 million to $39 million. income net investment in An increase asset- in increase an to due mainly period, three-month the in million $303 to million $6 of expenses in increase An and expenses; non-commission and in above, compensation, as explained based An increase in expenses of $28 million to $933 million in the nine-month period, mainly due to an increase in non- in increase an to due mainly period, fees of $11 administration to million in A decrease nine-month the in million $933 to million $28 of expenses in increase An exp technology to increased due primarily expenses, commission clients to a new dealer platform and unbundled fee arrangements, as well as continued expenses associated with with associated expenses continued as well as arrangements, fee and unbundled platform dealer a new to clients period nine-month the in also increased compensation Asset-based relaunch. brand Management’s Wealth IG management; under assets due to an increase in primarily assets into unbundled products which are not charged cert not charged are which products unbundled into assets management; under assets average E t a E s e
u W W j t
e O d G available for sale to an associate, under IAS 39, resulte IAS under associate, an to sale for available to 22.7%. IGM has significant influence and accounts for its interest as interest for its accounts influence and has significant IGM to 22.7%. income comprehensive other through value as fair Capital Personal in its interest classified 9, IGM previously with IFRS accordingly. adjusted million in the $8 of charges exclude earnings net Adjusted Se ended period corresponding the in million $25 of charges segments.The followingsummary is a of each segment’s netearnings: Net earnings decreased by $8 million in the three-month period ended September 30, 2019, compared with the compared 2019, 30, September ended period the three-month million in $8 by decreased earnings Net for IGM’s investment in Personal Capital as available for sale available as Capital in Personal for IGM’s investment I the in million $30 by decreased earnings Net to: due period in 2018, corresponding A 9, IFRS adopted 2018, IGM 1, On January eq in permanently remain changes value fair which in (FVOCI), P N $2.32 or $587 million or $555 million share, compared with per 2018, a decrease of period in in the corresponding $2.44 per share share basis. 4.9% on a per $612 million or or $2.35 per share,compared with $563 million of period in 2018, a decrease the corresponding $2.54 per share in 7.5% on a per share basis. to apply IAS continues 39, by IGM. of IFRS 9 application of the impact the to reverse adjustments includes interest its voting increased which million) in Personal Capital (US$50 million $66.8 a further IGM invested 2019, In January corresponding quarter in 2018, primarily due to: 2018, in quarter corresponding PART A POWER FINANCIAL CORPORATION consisted mainly of: results. corresponding quarter in2018, mainlydue increase to an in expenses as explained above. The informationabove hasbeenderived from IGM’sinterim MD&A; seePart Cofthis MD&A formoreinformation on IGM’s There were no Other itemsin the firsttwo quarters of2018. In thethird quarter of2018, Otheritemsof$25millionafter tax of IGM’sproportionate share of Lifeco’s Other items. There were no Otheritems in th O [ Total Corporate andother Mackenzie IG WealthManagement (In billions ofdollars) inve Total averagedaily [ Total Corporate andother Mackenzie IG WealthManagement (In billions ofdollars) follows: as were management under assets Total A Net earnings decreased by $6 in thethree-monthmillion period ended September 30, 2019, compared with the corresponding periodin2018, due to: Net earnings decreased by $16 million in the ni M P Ѵ Ѵ O S ] Includes Investment Planning Counsel’s assets under management less an adjustment for assets subadvised by Mackenzie on behal on Mackenzie by subadvised assets for adjustment an less management under assets Counsel’s Planning Investment Includes ] behal on Mackenzie by subadvised assets for adjustment an less management under assets Counsel’s Planning Investment Includes ] T A S W H C E E E K A premium paid of $8 million: on early redemption of on A premium paidof$8million: early and associatedpersonnel ch Restructuring and othercharge These decreases were partiall in A decrease administration declinein the effective trailingcommissionpartiallyoffset rate, increaseand anin trailing commissionsof $1 An increase in expenses of $7 million to $477 management; million, due to an increase in non-commissionfee rate decreased by3.1basis points to 104.1basis points dueto a changein the composition ofassetsunder expenses of $10fee rate, partially offset by the increase in milliontotal average assets under management of 1.5%. The average management A decrease inmanagement feerevenue of$8 million to A T R R E S
N
F I 24 A T I Z N E N I POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 M A E D N
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T O M R stment fundassets unde P E O N R T A
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y offsetby an increase in net investment income and otherof$2million to$4million. fee revenueof$2millionto $73 million;
A S s of$17million:resulting from there-engineering ofNorth American equity offerings S E T S
U N D r management were as follows: management wereas r E million related to the increase in average mutual fund assets offset by a R
ne-month period ended September 30, 2019, compared with the M A N A G the $375 million 7.35% debentures on August 10, 2018. 2018. 10, onAugust debentures the $375million 7.35% E M September $523 million, duetoadecline inthe average management E N T by a decreasemillion; and by a in commissionexpense$4 of
ѴѸѹ Ѵѹѵ ѵѳѴѼ ѹѴ Ѽѳ ѹѻ Ѽѳ ѷ prove IGM’sofferings andoperational effectiveness. Ѷ Q Ѷѳ ...... ѻ ѷ ѻ ѹ Ѷ Ѷ ѻ Ѹ ѷ , ѴѸѸ ѹѳ Ѽѳ quarter,Otheritems of ѷ Q . . . . ѺѴѷѼѺѷ ѻѸѻѵѻѺ ѵ June Ѵѹѵ ѳѼѵѳѴѻ ѵѳѴѼ ѵѳѴѼ ѹѻ Ѽѳ Ѷ Ѷѳ Q ...... ѼѴѷѺѺѷ ѵѸѺѳѻѸ ѶѴѸѼ ѸѶ ѹѹѺѵѻѼ Ѵ , September Q . . . . ѳѴѸѷѻѸ ѴѸѼѴѻѼ ѷ ѵѳѴѻ $8 millionconsisted Ѷѳ Q f ofother segments. f ofother segments...... ѳѴѸѳѴѸ ѸѸѺѷѻѻ ѺѴѸѼ ѷѶ ѶѹѺѳѻѻ Ѷ , Q . . . . ѼѴѸѳѳѸ ѼѸѺѳѻѺ ѵ June ѵѳѴѻ Ѷѳ Q ...... Ѵ Ѷ ѳ ѻ Ѵ ѵ Ѵ ѻ Ѵ ,
PART A POWER FINANCIAL CORPORATION ) ) ) ) , , Թ Թ Թ Թ Թ Թ Թ Թ Ѻ ѻ ѷ ѷ ( Ѷѳ Ѷѳ ѵѳѴѻ ѵѳѴѻ 25 A September September ) )( )( )( ) , , Թ Ѻ ѻ ѷ Ѻ Ѻ ( ѵѹѹѷ Ѷѵ ѵѸ ѴѳѴѳѴѷ Ѽ ѹ ѴѺѴѳѵѵ Ѵ Ѽ Ѵѻ ѸѹѶѺ ѼѶ Ѵѹ ѻѹ Ѵѵ Ѵѵ Ѷѳ Ѷѳ ѴѻѴѴѸѵ ѸѺ ѴѶѷ ѷѵ Ѷѻ tax authorities related to related authorities tax ѵѳѴѼ ѵѳѴѼ er as described 39 IAS below. June June ( ( ) ( ) ( ) ) , , Թ Թ Թ Թ Թ Թ Ѵ Ѻ ѻ ѹ Ѹ ( ( ( ѵѴ Ѵѳ ѷѻ Ѵѻ Ѵѳ Ѵѹ ѼѴ Ѷѳ ѷѳ ѶѸ ѵѼ Ѷѳ ( ѴѳѸ ѴѳѺ ѵѳѴѼ ѵѳѴѼ ing taxes by the French ing taxes September September ) ) ) ) ) , , Թ ѹ ѹ Ѵ Ѽ Ѷ Ѷ ( Ѹѻ Ѹѳ ѵѴ Ѵѻ Ѵѹ Ѵѵ ѵѳ ѵѴ ѵѷ Ѷѳ ѼѸ Ѽѵ Ѽѵ Ѷѳ ( ѵѹѳ ѵѸѴ Ѵѳѳ ѶѳѸ ѵѳѴѻ ѵѳѴѻ September September
)( )( )( ) , , Nine months ended months Nine ended months Three Ѹ ѻ ѷ ѹ Nine months ended months Nine ended months Three ( ѺѴ ѹѷ Ѹѳ ѵѸ ѵѳ ѴѺ Ѵѷ ѹѹ ѶѼ ѵѷ ѶѺ Ѷѳ ѷѷ ѴѶ Ѷѳ ( ( ( ѶѸѶ ѶѴѹ ѶѺѵ ѴѶѳ ѴѺѷ ѴѹѴ of a reimbursement of withhold of a reimbursement ѵѳѴѼ ѵѳѴѼ September September (in accordance with IFRS 9) with accordance (in
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d N e t : O ] r I Ѵ Engie between 2013 and 2016. o [ T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER p A e and third quarters of 2019 mainly consist of 2019 mainly and third quarters consist R r
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t a E t GEA Ontex Other investment funds Imerys Imerys Parques LafargeHolcim SGS adidas Umicore Total Ricard Pernod s e e As reported by Pargesa entries Consolidation
u dividends received from Total and W j t Contribution from private equity activities and other activities and other private equity Contribution from Share of earnings of: Share of earnings Dividends: Other items N Adjusted net earnings Adjusted net earnings ] Other dividends in the second ] 2019. 30, September ended quarter for the 27.8% Pargesa was in Financial of Power average ownership The ] und Pargesa for account to an adjustment includes Financial Power to contribution The 9. IFRS not adopted has Corporation The ] MD&A. of this Part D in income” operating “Economic as Described ] shareholders. to Pargesa Attributable e O d ѵ Ѷ Ѵ Ѵ ѵ [ [ [ (charges) income Net financial and taxes General expenses Adjusted net earnings Other items N Contribution from the portfolio to adjusted net earnings Contribution from [ [ A francs) of Swiss (In millions P PARGESA Financial to Power Contribution of Canadian dollars) (In millions Power Financial’s Contribution to PART A POWER FINANCIAL CORPORATION of dividendsfromitsnon-consolidated investments, whic Other than the share ofearnings ofImerys and Parques, asignifica [ Total Reversal ofunrealizedlosses onprivateequityfunds (gains) Disposal ofBurberry equityfunds Disposal ofprivate Impairment charges onOntex Partial disposal of interestinadidas (In millions ofdollars) to the contribution ofPargesa to Power deferredPower Financial has the adoption recorded in earnings. classified asavailable forsale remain permanently inequity. Starting January 1, 2018,subsequent changes infair value are transition requirements of IFRS 9required that all unrealized The investments inprivate equity and other inves OCI. classified asFVOCI, an elective classification forequity instruments in which all fair value changes remain permanently in January On IFRS 9, adopted Pargesa 1, 2018, A increaseof 35.8%.period in2018,an SF353 million,compared withSF260 millioninthecorresponding A increaseof25.9%. period in2018,an SF316 million,comparedwithSF251millioninthecorresponding N P [ [ [ [ Ѵ ѵ Ѷ Ѹ ѷ d d O e ] During the first secondquarters and of2019, aportion ofthe investment in adidaswas disposed of,resulting in gains] ofSF ] Under IFRS 9, Pargesa classifies the majori the classifies IFRS9,Pargesa Under ] ] Pargesa classifies private Pargesaclassifiesprivate ] ] During the second quarter of 2018, the investment in Burberry was disposed of, resulting in a gain of SF39 million. This gain This million. SF39 of in a gain resulting of, wasdisposed Burberry in investment the 2018, of quarter second the During ] During the first quarter of2018, two investments held through private equity funds, classifiedinFVPL as accordance] with IF t j j W $18 million in the first quarter and $53 million in the second quarter. respectively. gainswere These notreflected in earnings Pargesa’s as investment the is classified asFVOCI. Power Financial’s During the second quarter of2019, the share price of Ontex decreased to €14.18 pershare. An impairment charge of $13 million During the remainder of2018, the share price ofOntex decreased to€17.90 pershare which resulted in further impairment charg of the impairment charge of$34million in the second quarter of 2018; During the second quarter of2018, the share price ofOntex de IAS 39. does notrecognize these unrealized fair value changes inearnings as it continues toclassify these private equity funds as av Financial, relating to its share of the impairment. impairment. the of share its to relating Financial, earnings as it was classified as FVOCI. Power Financial’s share of the realized gain was $18 million. million. was$18 gain realized the of share Financial’s Power FVOCI. as classified was asit earnings transferred permanently toretained earnings. Power Financial’sshare ofthe realized gain was $21million. availablefor sale toFVPL ontransitionto IFRS 9onJanuary 1,2018. Ontransition, the related unrealized gains recorded in investme asthe earnings Pargesa’s in recognized been not have SF57 of gains gains realized realized in These resulted million. u u
Umicore (second andthirdquarters) adidas (second quarter) SGS (firstquarter) LafargeHolcim (second quarter) e s s E a t t A m e r R n d
e i
F 26 n n n I g e t N s s t POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019
A
t e o N a
r t C n h I i e A n
g c L [4] o
s C
n O t r equity investmentsatFVPLina R i b P u 2 O t 0 i o R 1 [ n 9 ѵ A [3] ]
v o T
s f I .
O [
P 2 Ѵ N ] a 0
r 1
g 8
ty of its investments in public entities inpublic investments its ty of e
s a
Financial’s earningsin accordance39: with IAS of IFRS 9and continues to apply IAS 39. Th Financial Instruments ccordance withIFRS9,and reco creased to€18.81 pershare fromacost of€27.62pershare. Powe tment funds aretment classifiedfairvalu as [5] September h are usually usually asfollows: h declared are
period in 2018, and SF152 millioninthesecondquarter of2019. SF152 period in2018,and comparedwithSF42 million, millioninthecorresponding SF107 millioninthesecondquarter of2019. SF134 period in2018,and million,comparedwithSF38 millioninthe corresponding SF91 gains and losses at January 1, 2018 on investments previously as FVOCI, and as a result impairment char impairment asaresult FVOCI, and as ѵѳѴѼ nt portion ofPargesa’s adjusted net earnings iscomposed ( ( Ѷѳ ѴѶ ѷѷ ѴѸ ѺѴ iemnh ne Three months ended Nine months ended Ontex (secondquarter) GEA (secondquarter) Pernod Ricard(second andfourth quarters) Total (second,thirdandfourth quarters) Ѵ Թ , . The majorityofits investmentsinpublic entities are ) )( September gnizes unrealizedch Q ѵѳѴѻ 3 Ѷѳ Ѵѻ ѵѴ Ѷѹ 2 ( ( Ѷ ѹ Թ 0 , ) ) ) 1 9 September
e following table pr e followingtable v s .
anges infairva Q e through profit orloss (FVPL). The 3 2 ѵѳѴѼ 0 1 Ѷѳ 8 ( ( Ѹ ѹ Ѵ
Թ Թ Թ a , ) ) ( ( other comprehensive were income ges are not recognized in earnings. n ailable forsale in accordance with d
lue in earnings. Power Financial Financial Power in earnings. lue Q wasnot reflected in Pargesa’s r Financial recognized its share RS 9,were disposed which of, shareof the realized gainwas 49 million, SF144 million and 2
June 2 es; nts were reclassified from was recognized by Power by Power recognized was 0 esents ad ѵѳѴѼ 1 9 Ѷѳ ѶѺ ѴѶ ѸѶ
Ѷ Թ Թ , ) ) September justments ѵѳѴѻ Ѷѳ ( ( ( ѷ ѵ ѵ Թ Թ Թ , ) ) ) PART A POWER FINANCIAL CORPORATION ) ѵ ѻ . . ѷ ( 27 Change % Change A om a market , Three months ended Ѷѳ Ѵѷѷ Ѷѵѻ ѳ . . ѵѳѴѻ Ѵ Ѵ revenue fr September , a transformation program and program a transformation Ѷѳ ѳѼѹ ѶѶѼ . . ѵѳѴѼ Ѵ Ѵ 13 and 2016; 2016; 13 and million, from SF32 million to SF21 million to SF21 million million, from SF32 September due to a decrease in a decrease due to )
Ѻ Ѽ . . Ѷ ( s and to the temporary shutdown of a U.S. plant plant of a U.S. shutdown temporary to the and s Change % Change d Engie between 20 d Engie 2019 increased by SF53 million to SF91 million, compared millionSF91 to 2019 increased by SF53 million in the third quarter of 2019, as explained above. above. explained as of 2019, third quarter the million in compared with SF188with compared period in the corresponding million , ies and other investment funds of SF19 funds investment and other ies million, mainly due Nine months ended months Nine to derivative instruments. to derivative instruments. Ѷѳ ng to the implementation of implementation ng to the ѴѹѴ Ѷѵѷ ѳ . . ѵѳѴѻ Ѵ Ѵ plant, primarily recognized in the second quarter; and and quarter; second in the primarily recognized plant, er 30, 2019 increased by SF65 million to SF316 million, compared compared million, million to SF316 SF65 increased by 30, 2019 er three-month periods ended September 30, 2019 and 2018 were as were and 2018 2019 30, September periods ended three-month September llion from the corresponding period in 2018 to SF5 million mainly due mainly million period in 2018 to SF5 llion from the corresponding , Ѷѳ ѴѴѻ ѶѶѹ . . ѵѳѴѼ m Pargesa’s third quarter of 2019 press release; see Part D of this MD&A for of this D Part see release; of 2019 press third quarter m Pargesa’s Ѵ Ѵ anies as well as the monetization of a stock dividend received from LafargeHolcim.aas the monetizationas well stock of from received anies dividend m Imerys to adjusted net earnings of SF11 earnings of net m Imerys to adjusted September of fair value adjustments adjustments of fair value
N O
I T S POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A E T R A O P R
R E O G C
N L A A I H
C C S N X A M E
E N
I E T S I F
G T R R L A slowdown, the deconsolidation of the North American talc subsidiarie talc of the North American the deconsolidation slowdown, of 2019. half first in the charges related to the temporary shutdown of a U.S. of a U.S. shutdown temporary to the related charges Pargesa’s share of Imerys’ charges of SF21 million: relati of SF21 charges of Imerys’ share Pargesa’s the in recognized Parques by recorded expenses non-recurring million: of SF16 charges Parques’ of share Pargesa’s third quarter. to default interest on the withholding taxes which have been applied to the dividend reimbursements discussed discussed reimbursements dividend to the applied been have which taxes withholding the on interest to default net impact above, offset by the to SF65million SF49 of dividends in An increase SF16with compared million, in period corresponding the in million by SF2 increased holdings from its principal Dividends 2018. for a reimbursement include other dividends million and taxes of SF47withholding above; as explained million, and of SF9 million; funds investment other and activities equity from private contribution the in An increase of SF18 income net financial in An increase million to SF10 fro contribution the in A decrease Other dividends include SF62 million relatedto reimbursements bythe French taxauthorities withholding for taxes had been applied to received which dividends from an Total activit equity from private contribution the in An increase mi of SF26 income net financial in An increase A decrease in the contribution from Imerysto adjusted from below, SF100 SF71 million to million at September 2019, 30, primarily net earnings, excluding other items of SF21 million as discussed above. 30, 2019, as explained at September An increase in dividends of SF80 million to SF268 million, million, to SF268 million SF80 of dividends in An increase SF18 by increased holdings principal from its Dividends in 2018. per in dividends to the increase due million, primarily certain comp portfolio share paid by and funds; non-consolidated the of to fair value increases E E R U E S H W Partially offset by: offset Partially Partially offset by: offset Partially T E V O Net earnings in the three-month period ended September 30, 30, Net earnings in the three-monthperiod ended September in 2018, mainly due to: period corresponding with the There were no significant Other items in the first three quarters of 2018. of 2018. quarters three first in the items Other significant no were There Euro/SF SF/CAD fro been derived has above information The O consisted of: and million SF37 were 2019 of quarters the first three in Other items A and nine-month for the rates exchange average The follows: results. Pargesa’s on information additional P R Septemb ended period the nine-month in Net earnings with the corresponding period in 2018, mainly due to: mainly due to: in 2018, period corresponding with the PART A POWER FINANCIAL CORPORATION For additional information, refer tothe Lifeco,IGMandParg Pargesa IGM Lifeco The following table presents the Corporation’s share ofOther items: ITEMS OTHER Corporate operations Operating andother expenses Income (loss)from investments income taxes. Corporate operationsinclude income (loss) frominvestments,operating exp OPERATIONS CORPORATE P O Other Imerys Share ofLifeco’s otheritems Premium paidonearlyredemption ofdebentures Restructuring and othercharges Share ofIGM’sotheritems Restructuring charges Net chargeonthe sale,viareinsurance, of Income taxes Depreciation Financing charges Operating expenses W U.S.individuallife insurance and annuity business E A R
F – 28 Restructuringchargesand other I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A N C (NOT INCLUDED IN ADJUSTED NETEARNINGS) INADJUSTED (NOT INCLUDED I A L
C O R P O R A T I O N
September September
esa “Other items”sections above. ѵѳѴѼ ѵѳѴѼ ( ( ( ѴѶѷ ѴѶѷ ѴѸѵ ( ( ( ( ( Ѷѳ Ѷѳ ѴѶ Ѻѹ Ѻѷ Ѵѷ Ѹѹ ( ( ( ( ( ( ( ѹ Ѻ Ѹ Ѹ Ѵ ѵ Ѷ iemnh ne Three months ended Nine months ended Three months ended Nine months ended Թ Թ Թ Թ , , ) ) ) )( )( )( ) )( )( )( )( )( )( )( )( September September ѵѳѴѻ ѵѳѴѻ ( ( Ѷѳ Ѷѳ Ѵѳ Ѷѻ Ѵѹ ѶѼ ѻѶ Ѻѹ ѴѶ ѹѴ ѸѸ ( ( Ѹ Ѵ Ѵ Ѵ Ѵ Ѻ Թ Թ Թ Թ , , ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) enses, financing charges, depreciationand September September ѵѳѴѼ ѵѳѴѼ ( ( ( Ѷѳ Ѷѳ ѵѵ ѵѷ Ѵѻ ( ( ( ( ( ѹ ѹ ѹ Ѵ Ѹ ѵ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ , , ) ( ) ( ) ( ( ( ( ( ) ( ) ( ( ) ( ) ( ) ( June June ѵѳѴѼ ѵѳѴѼ Ѵѷѹ ѴѶѷ ѴѶѷ Ѷѳ Ѷѳ ѵѸ ѵѸ ѴѼ Ѻ Ѻ Ѹ Ѹ Ѵ Ѵ ѷ Թ Թ Թ Թ Թ Թ , , )( )( ) )( )( )( ) ) )( )( ) ) )( September September ѵѳѴѻ ѵѳѴѻ ( ( Ѷѳ Ѷѳ Ѵѳ Ѷѻ ѸѸ Ѵѹ ѶѼ ѶѴ ѵѷ ѵѳ ( ( ( Ѵ ѷ Ѹ Ѵ Ѻ Թ Թ Թ Թ Թ Թ , , ) ) ) ) ) ) ) ) ) ) ) ) ) PART A POWER FINANCIAL CORPORATION , Թ Թ ѶѴ ѺѴѻ ѻѼѺ ѻѼѺ ѴѺѼ ѸѵѺ ѳѸѸ ѷѶѴ ѸѵѺ Ѵѳѹ ѳѸѸ Ѽѷѻ ѳѺѳ ѺѸѳ ѶѹѼ ѼѷѼ ѹѵѷ ѵѼѴ ѵѸѴ Ѵѵѹ ѵѵѼ Ѽѷѹ ѶѴѼ ѶѺѳ ѷѼѵ ѶѴѼ ѻѶѳ , , , , , , , , , , , , , , , , , , , , , , , ѵѳѴѻ Ѹ Ѷ Ѽ ѹ Ѹ Ѽ Ѷ Ѻ ѻ Ѷ ѵ ѴѴ Ѵѷ Ѵѻ ѴѶ Ѷѷ 29 ѴѻѴ ѵѳѼ ѷѷѺ Ѵѹѻ ѵѳѼ ѷѴѵ ѷѷѺ A December Uncertainty over , Թ Թ Ѷѳ ѴѼѸ ѳѳѷ ѳѳѹ ѶѶѵ ѻѳѸ ѼѹѺ Ѽѳѵ ѻѺѹ ѻѺѹ ѷѵѴ ѻѼѼ ѹѸѵ ѺѼѴ ѴѹѶ ѻѼѷ ѹѳѷ ѴѺѵ ѸѺѶ ѴѸѷ Ѵѻѹ ѹѳѻ ѹѳѷ ѴѺѵ ѹѳѹ ѻѶѳ ѸѺѶ , , , , , , , , , , , , , , , , , , , , , , , ѵѳѴѼ and reinsurance assets of assets reinsurance and Power Financial Financial Power Ѹ Ѷ ѻ Ѹ Ѽ Ѷ Ѻ ѻ Ѷ ѵ ѵѴ ѴѶ ѴѸ ѴѺ Ѵѵ Ѷѵ ѴѺѴ ѵѵѵ ѷѹѹ ѴѺѹ ѵѵѵ ѷѶѶ ѷѹѹ lthsimple and Koho. Consolidated balance sheets Consolidated September
) ) ) ) )
) )
) ) ) ] Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Ѵ [ Ѹѻ ( ѴѸѺ ѼѸѵ ѵѴѳ ѳѴѷ ѺѴѷ ѻѻѻ ѺѺѻ ѵѶѹ ѹѹѵ ѹѹѵ , , , , , , , , ( ( ѵ Ѷ Ѽ ( ( ѵѶ Ѵѷ Ѵѹ Ѵѹ Ѵѹ ( ( ( ( ( and the application of IFRIC 23, and the and other other and adjustments Leases Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Ѵѻѹ ѷѵѹ ѶѺѸѵѵѶѹѹѳ ѴѳѸ ѹѸ Ѻѷѷ ѻѻѳ ѻѼѼ ѸѺѷ ѻѹѵ ѴѺѷ ѷѵѹ ѸѺѷ Ѵѷѻ ѴѴѹ Ѵѳѳ , , , , , , , , , , , , Ѻ Թ Թ Թ ѺѻѸѷѷѴ e and Koho, as well as consolidation entries. entries. e and Koho, as well as consolidation ѺѴѷ ѻѸѶ ѹѻѶ Ѹѵѹ ѷ ѴѺѵ ѼѴѺ ѺѼѴ ѶѼѴѻѺѸѷѼѳ Ѵ Ѵ ѹѳѷ ѵ ѴѺѵ ѴѸѷ ѹѳѷ ѻѺѹ ѻѺѹ ѴѼѸ ѳѵѶ Ѻ ѹѵѹ ѴѸ ѶѷѺ Ѵ ѴѸѺ ѷ ѹѵѹ ѴѸ ѶѴѹ ѵ ѷѹѼ ѴѴ , , , , , , , , , , , , , , , , , , , , , Lifeco IGM Consolidation Ѷ ѵ ѻ Ѷ ѹ Ѷ ѵѴ ѵѵѵ ѴѺѹ ѵѵѵ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ
ѻѶѳ ѵ ѳѷѵ Ѷ ѶѶѵ ѴѼ ѴѶѶ ѴѴ ѶѶѺ ѹѹѸѹѸѵ ѶѷѼ ѵѳѹ Ѵѹѷ ѳѶѸ ѷѷѹ ѹѵѶ Ѵѵ Ѵѹѵ ѵѸ ѳѶѸ ѷѷѹ ѵѸѳ ѹ ѻѺѶ ѷѵѴ , , , , , , , , , Power ѵ Ѵ ѵ Ѷ ѴѺ ѴѶ ѵѴ ѵѳ ѵѴ Financial on as a result of the adoption of IFRS 16, of IFRS adoption the of a result on as (CONDENSED) rporation at September 30, 2019. 30, at September rporation
N includes Portag3, Portag3 II, Wealthsimpl includes O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER
A [3] R
O P [4, 5] R ; refer to the “Changes in Accounting Policies” section for more details. details. for more section Policies” Accounting in “Changes to the ; refer O C
L [2] A I C
N
A Lifeco IGM Parjointco
[2] – – – N I
F
s e R i
t E y s i l t t i i e $15.3 billion were recognized. recognized. were $15.3 billion TreatmentsIncome Tax W b u policyholders held for sale account of segregated fund policyholders held for sale account of segregated fund policyholders account of segregated fund policyholders corporations and associates corporations and policyholders s ] and other adjustments Consolidation ] As a result of Lifeco’s indemnity reinsurance agreement with Protective Life, investments of $15.6 billion were derecognized were derecognized billion of $15.6 investments Life, Protective with agreement ] reinsurance of indemnity a result Lifeco’s As ] milli $80 by decreased were earnings retained Opening ] Lifeco’s non-controlling interests include the Participating Account surplus in subsidiaries. ] Wea IGM, of Lifeco, equity the in interests non-controlling represents adjustments consolidation in interests Non-controlling a O s q i ѵ Ѷ Ѵ ѷ Ѹ [ [ Total liabilities and equity Total liabilities and equity [ E shares preferred Perpetual L liabilities contract investment Insurance and [ A equivalents Cash and cash Investment Investment P PositionFinancial CONSOLIDATED BALANCE SHEETS presented are sheet balance non-consolidated Financial’s Power and IGM, and of Lifeco sheets balance condensed The Assets held for sale Funds held by ceding insurers Obligations to securitization entities Investment fund Investments on account of segregated sale Liabilities held for on contracts investment Insurance and Intangible assets on contracts investment Insurance and Non-controlling interests Total equity Investments Investments – other jointly controlled Reinsurance assets Other assets Goodwill fund Investments on account of segregated Total assets other debt instruments Debentures and Other liabilities Total liabilities equity Common shareholders’ [ below. This table reconciles the non-consolidated balance sheet, which is not in accordance with IFRS, with the condensed condensed the with IFRS, with accordance in is not which sheet, balance non-consolidated the reconciles table This below. of the Co sheet balance consolidated PART A POWER FINANCIAL CORPORATION [ Total liabilitiesandequity Perpetual preferred shares E Debentures L Cash andcash equivalents A assist the reader byidentifying changes in Power Financial’s non-consolidated balance sheets. the MD&A and enhance IFRS, with in not accordance are which sheets, balance non-consolidated These method. equity Li below, shown ofpresentation basis non-consolidated In the SHEETS BALANCE NON-CONSOLIDATED Parts B and C of thisMD&Ainclude a discussionofthe consol $3,172 million atSeptember 30, 2019($897 million and$3,319 mill Assets held forsale of$876 million and investments onaccount of movement. ofcurrency impact December 31, 2018, primarily due to theimpact ofmarket movemen Total assets of theCorporation increased to$466.6 billio P Total equity Total liabilities Other liabilities Total assets Other assets Common shareholders’ equity Investments [ pending saleofaheritage to the following, asdisclosed byLifeco: Liabilities increasedto$433.6 billion at Se Statements. transfer30,September 2019,onOctober 22, 2019,the required court appro occurred with effect from November 1, 2019. See Note 4 to the Corporation’s Interim Consolidated Financial ѵ Ѵ i q IGM IGM Lifeco Other Parjointco s O a ] Cash equivalents include $262 include Cashequivalents ] Includes Financial’s Power investments in Portag3,Portag3 II, Wealthsimple and Koho presented using the equity method. ] s u b W with IFRS, these classified are as investments in the ConsolidatedFinancial Statements. e i i t t l i s y E t Corporation’s Interim Consolidated Financial Statements. December 31, 2018) relate to the pending sale ofaherita policyholders held forsale of $3,172 million atSeptember 30, 2019 ($897 million and $3,319 million, respectively, at Liabilities held forsaleof$876 million and insurance and investment contracts on account of segregated fund dollar. Canadian impact of new business, partially offset by theweaken Insurance and investment contract liabilities increasedby$7.7 billion, primaril billion. of$0.7 withdrawals net of$9.0 billion and movement currency due to the impact of netmarket valuegains and inv Insurance and investment contracts A
i R e [2] s
F 30
I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A N C I A L
C O R [ P Ѵ ] O
million ($293 million at December 31, 2018 million atDecember million ($293 blockofpolicies to Scottish Friendly Assurance R A T I O N
ptember 30,2019, compared with$412.1billion at December 31,2018,mainly due on account ofsegregated fund policyholders increased by $13.1 billion, primarily estment incomeof ) of fixed incomesecurities n atSeptember 30, 2019, compared with$447.1 billion at idated balance sheets ofidated balance sheets ing of the euro, Britishof theeuro, pound,ing andU.S.dollar againstthe ge block ofpolicies to Scottish feco and IGM are presented by the Corporation using the the using by Corporation the presented IGM and are feco ion, respectively, atDecember ion, respectively, 31, 2018)relateto Lifeco’s val for the transfer of these policies wasreceived andthe t andnew business growth, partially offset bythe segregated fundpolicyholders held for sale of Society Limited(Scottish $22.2 billion, partially offsetby theimpactof withmaturi y due to fairvalue adjustments andthe Lifeco and IGM, respectively. ties ofmore
Friendly. SeeNote 4to the September than three months. Inaccordance Friendly). Subsequent to ѵѴ ѵѳ ѴѺ ѵѴ ѴѶ ѵ Ѷ ѵ Ѵ ѵѳѴѼ , , , , , , , , , ѻѶѳ ѹѸѵ ѹѹѸ ѳѷѵ ѳѶѸ Ѵѹѵ ѶѶѵ ѳѶѸ ѶѶѺ ѻѺѶ ѹѵѶ ѵѸѳ ѴѶѶ ѵѳѹ Ѷѳ , December ѵѵ ѵѴ Ѵѻ ѵѵ ѴѸ ѵ Ѷ ѵ Ѵ ѵѳѴѻ , , , , , , , , , ѶѼѴ Ѹѻѳ ѺѸѳ ѶѼѴ ѳѻѻ ѻѴѴ ѸѹѴ ѵѸѳ ѴѴѸ Ѵѻѷ ѻѶѳ ѵѼѴ ѹѻѻ ѳѵѸ ѶѴ , PART A POWER FINANCIAL CORPORATION ) ) ) ) ) ѻѳ ( ѳѹѺ ѼѻѺ ѹѸѷ ѹѸѵ ѴѴѼ ѷѵѶ ѴѴѻ ѻѼѸ ѴѸѵ Total , , , , , , ( ( Ѵ Ѵ Ѵ ( ( 31 ѵѴ ѵѳ ѴѼ A ) ) Թ Թ Ѹ ѴѶ ѻѳ ( ( ѵѼѴ ѵѼѴ ѹѸѵ ѴѺѷ ѵѺѸ , , , Ѷ Ѷ Ѷ Parjointco normal course issuer bid by IGM. issuer course normal ) ) ) ) ) Թ ѹ Ѹ ( ( ѻѹ ѵѸ ( ( IGM ѹѻѵ ѵѸѳ ѹѹѸ ѹѻѻ ѶѷѼ , , , ( ѵ ѵ ѵ ) ) ) ) ) Ѻѷ ( ѶѺѵ ѹѸѵ ѳѻѻ ѳѴѷ ѶѶѺ ѴѶѻ ѴѶѷ ѹѴѵ ѺѻѼ , , , , , ( ( ( Lifeco Ѵ Ѵ ( ѴѸ ѴѶ ѴѸ whole or in part solely at the Corporation’s option from from option Corporation’s the at solely part or in whole ares are described in Note 18 to the Corporation’s 2018 2018 Corporation’s to the 18 in Note described are ares two series of Floating Rate First Preferred Shares, one of which of which one Shares, Preferred First Rate Floating of series two million at September September at December million at as (same 2019 31, 2018). 30, ed with $21,067 million at December 31, 2018: $21,067 million at December ed with are included in other assets and amounted to $83 million (see million (see to $83 amounted and assets in other are included 11 series of Non-Cumulative Fixed Rate First Preferred Shares, two series of two series Shares, Preferred First Rate Fixed 11 series of Non-Cumulative sh Flows” below for details).
N O
I ] ѵѳѴѼ Ѵ T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER [ , A R Ѷѳ O P R O C
L A I C N A
] N ѵ I [ F
R E Change in accounting policy Change in accounting Lifeco SIB in the Participation items Share of other Share of adjusted net earnings net earnings Share of adjusted (loss) income Share of other comprehensive Dividends Other W ] more details. for section Policies” Accounting in “Changes the Refer to ] part of a program as repurchase share of the effect the and SIB, Lifeco the of a result as gain to a dilution related Mainly O Ѵ ѵ Restated carrying value, at the beginning of the year year of the value, at the beginning Restated carrying Carrying value, at September value, at Carrying [ [ EQUITY Preferred shares of consist Corporation of the shares Preferred and Shares, Preferred First Reset Rate 5-Year Non-Cumulative of $2,830 capital stated aggregate an with is Non-Cumulative, in and redeemable are shares preferred are perpetual All series specified dates. Sh Preferred First outstanding of the conditions and terms The Statements. Financial Consolidated year the beginning of the at value, Carrying P cash equivalents Cash and with compared 30, 2019, September at million to $1,042 amounted Financial by Power held equivalents and cash Cash paid on and Corporation the by declared dividends third quarter The 2018. of December million at the end $1,025 November 1, 2019 are included in other liabilities and amounted to $337 million. Dividends declared in the third quarter by quarter by third in the declared million. Dividends amounted to $337 and in other liabilities are included 1, 2019 November “Non-consolidated Statements of Ca“Non-consolidated Statements of Investments Parjointco Lifeco, IGM and in method, the equity using IGM and Parjointco, accounted for in Lifeco, investments Financial’s of Power carrying value The 30, 2019, compar $19,654 million at September to decreased IGM and received by the Corporation on October 31, 2019 on October Corporation by the received IGM and PART A POWER FINANCIAL CORPORATION under theCorporation’sPlan Employee StockOption On April 17, 2019, Lifeco completed a substantial Lifeco completeda 17, 2019, On April Substantial issuerbids 13,079,888 common shares of the Corporation under the Corporation’s EmployeeStock Option Plan. of an to aggregate up purchase to outstanding were options MD&A, December 714,096,479 at ofthis date Atthe 31, 2018. dateofthe this MD&A, At there were664,096,506 common Outstanding number of common shares of 2018. The book value per common share of the Corporation was $26.10 at September30, 2019, compared with $26.26 at the end [ Common shareholders’ equity, at September30 Issuance ofcommon shares (nilin Changes inreserves Changes inretained earnings Restated common shareholders’ atthebeginningof equity, year Common shareholders’ equity, at thebeginning oftheyear Nine monthsSeptembe ended 2018: shareholders’Common equity$17,332 was Common shareholders’equity P As part ofthe Corporation’s substantial issuer bid, Power Corporation, the paren with a corresponding Lifeco resulted inadilution ga Corporation’s equity interest decreased from 67.8% to 66.8% (excluding IGM’s 4.0% interest). The decrease in ownershipat a purchase price of$33.50 in per common share. The Corporatio in thePFC SIB. Power Corporation effected itstender offer through costs incurred in connection with under the PFC SIBover the stated capital of $1.55 billion common shares at a purchase price of$33.00per common share April17, the completed itssubstantia 2019, On Corporation decrease in retained earnings, with no impact to equity. cancelled 467,839,296 co pur shareholders, other to offered also Corporation the which Offer), Ѵ O Referto the “Changes in Accounting Policies” section for moredetails. ] Repurchase ofcommon shares under PFC SIB Other comprehensive income (loss) Effects ofchanges ofsubsidiaries, and incapitalandownership other Net earnings before dividends on perpetualpreferred shares Share-based compensation, including theeffect of subsidiaries Dividends declared Change inaccountingpolicy W Actuarial gains(losses) ondefined benefitplans Investment revaluation andcash flowhedges Foreign currency translationadjustments Share of Pargesa andotherassociates E A R
F 32 I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A N C I A L
C O decrease in non-controlling interests. decrease innon-controlling r R
Ѷѳ P O
mmon shares. This resulted in a net increase in stat R [ A Ѵ ] T
I ѵѳѴѼ O in of$108 inretainedmillion recorded earnings and other comprehensive income reserve N
the PFC SIBof$5millionwere recorded inretained earnings. and ѵѵѸ Septembermillion at 30, 2019, , ѳѳѳ shares in issuer bid and purchased ѵѳѴѻ was recognized as a reduction toretained earnings. Transaction l issuer bid and 49,999,973ofits purchased for issuer bidand l cancellation ) shares ofthe Corporation outstanding, compared with foran aggregate amount of$1.65billion. The excess paid suant to which th suant to n participated in the Lifeco SIBand as a result, the a Qualifying HoldcoAlternative a Qualifying for cancellation 59,700,974 for cancellation compared with $18,750 compared with million atDecember 31, ed capital of $556 millioned capital and of$556 a corresponding t company ofthe Corpo e Corporation issuede Corporation andsubsequently
ѴѺ Ѵѻ Ѵѻ ( ( Ѵ Ѵ Ѵ ѵѳѴѼ ( ( ( ( , , , , , , ѶѶѵ ѹѺѳ ѺѸѳ ѹѸѳ ѳѶѷ ѵѷѺ ѴѵѶ ѷѵѳ ѵѸѺ ѸѸѺ ѼѴѻ ѹѹѺ ( ѻѳ ѵѷ ѼѼ of itscommon shares (as describedin the Թ ) ( ) ( ) ) ( ) ) ( ) ration, participated Ѵѻ ѴѺ ѴѺ Ѵ Ѵ ѵѳѴѻ , , , , , ѷѹѴ ѶѵѶ ѶѵѶ Ѷѷѷ ѵѳѴ Ѵѹѳ ѺѻѺ ѳѶѴ ѻѺѴ ѻѹ Ѻѳ ѸѶ Ѻ Ѵ Թ Թ ) ) ) ) PART A POWER FINANCIAL CORPORATION e e ѹ Ѽ . Ѷѳѻ ѳѵѸ ѻѶѳ ѹѷѴ ѸѼѳ ѻѹѻ Ѵѻѳ ѸѶѼ ѴѴѸ ѵѸѳ ѸѹѴ , , , , , , , , ѵ value ѵѳѴѻ , ѵ Ѵ ѵ Ѷ Ѷ 33 ѶѴ Net asset r A ) tently applied Թ Թ Թ Թ Թ Թ Decembe Ѽѳ ѵѺѷ ѼѳѵѼѻѶ ѷ Ѻѻѳ Ѵѻ ѺѻѼ ѵѺ ѺѻѼ ѵѶ , , , , Ѵ Ѷ ѷ ѷ Fair value adjustment
(
e Corporation decreased by 7.4% by or decreased e Corporation ѹ rs’ equity of the Corporation. Corporation. of the equity rs’ ѵ . te using consis te using ѹѻѻ ѵѼѴ ѳѵѸ ѻѶѳ ѹѷѴ Ѵѻѷ ѴѴѸ ѵѸѳ ѸѹѴ ѳѻѻ ѶѼѴ ѺѸѳ , , , , , , , , ѹ ѵ Ѷ Ѵ ѵ Ѷ ѵ rdance with IFRS; net asset valu asset net IFRS; with rdance ѴѸ ѵѵ Ѵѻ balance sheet balance Non-consolidated Non-consolidated red with $23.5 red December at billion 31, 2018, ѻ Ѷ . ѺѳѶ ѸѹѸ ѶѼѹ ѳѷѵ ѻѶѳ Ѷѵѷ ѴѶѶ ѵѸѳ ѹѵѶ ѷѻѺ ѺѶѳ ѴѼѳ , , , , , , , , ѻ value ѵѳѴѼ , Ѷ Ѹ ѵ Ѵ ѵ Ѷ nagement’s estima ѵѸ ѴѼ ѵѼ Ѷѳ Net asset r ) Թ Թ Թ Թ Թ Թ and paid on November 1, 2019. and paid on November 1, ts in subsidiaries and associates are adjusted to fair valu to fair adjusted are associates and subsidiaries ts in ts in private entities is presented net of any management management of any net is presented entities in private ts Septembe ѴѸѸ ѶѼѶ Ѽѳѳ ѴѸѸ ѵѸѹ ѴѴѻ s at fair value is not in acco not in is value at fair s , , , , , discounted cash flows. Certain valuations are prepared by prepared are valuations Certain flows. cash discounted ѻ ѹ ѵ ѻ Ѵ ( value of the common shareholde common the of value Fair value adjustment value based on ma ѳ Ѵ . ѺѳѶ ѹѹѸ ѹѸѵ ѳѷѵ ѻѶѳ ѶѶѵ ѶѶѺ ѳѶѸ ѵѳѹ ѴѶѶ ѵѸѳ ѹѵѶ , , , , , , , , ѹ Ѷ ѵ Ѷ Ѵ ѵ ѵ ѴѺ ѴѶ ѵѴ decreased from 67.8% to 66.8%). arter by the Corporation ed at the fair value reported by the fund which is net of carried interest or interest which is net of carried fund by the reported value fair ed at the consolidated balance sheet Non-
N clared in the third qu e was $25.5 e was $25.5 billion at September 30, 2019, compa tities are valued at fair O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A
R s e O r P a h R s
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an increase of $1.9 billion or 8.3%. N p
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a other incentives. Investments in private en private in Investments or multiple on a valuation based either models valuation valu are funds investment in Investments Investments in publicly traded companiesvaluedare at their marketvalue, measuredas the closingshare pricethe on date; reporting to used generally are transactions Market-comparable valuators. external by to review subject or valuators external of investmen value The value. fair estimated the corroborate incentives; t E s i a h l t v i s
e 49,318,032 from 669,568,064 to 620,250,032 (equity interest W t b r Net asset value s ] by th held of shares number the quarter of 2019, second the SIB in Lifeco’s in participation Corporation’s of the a result As ] Fair value adjustment is related to Power Financial’s investments in Portag3, Portag3 II, Wealthsimple and Koho. ] 31, 2019. October on Corporation the by received and IGM quarter by third the in declared of dividends million $83 Includes ] Includes $337 millionof dividends de e a O s Other Parjointco Parjointco Lifeco IGM e i ѵ Ѵ Ѷ ѷ [ Other assets shares Total liabilities and preferred Debentures / equity Common shareholders’ Total assets Other liabilities shares preferred Perpetual is a non-IFRS financial measure. measure. financial is a non-IFRS valu net asset The Corporation’s representing [ 30, 2019 at September value at fair assets total of the 98.4% represent cash and value market at measured Investments at December 31, 2018). (98.6% The presentation of the investments in subsidiaries and associate and in subsidiaries investments of the presentation The L N P [ A Investments P Net Asset Value fair of the estimate management’s represents value asset Net Net asset value is the fair value of the assets of Power Financial’s non-consolidated balance sheet less its net debt and debt net its less sheet balance non-consolidated Financial’s of Power assets the of value fair the is value asset Net investmen assets, of value fair the In determining shares. preferred as follows: Cash and cash equivalents equivalents Cash and cash [ PART A POWER FINANCIAL CORPORATION Operating activities produceda compared with adecrease of$56millionin the corresponding period in2018. Consolidated cashandequiv atthebeginning oftheyear Cash andcash equivalents, Cash flo Nine months endedSeptember The condensed cash flowsof LifecoandIGM, and Power Financi FLOWS OF CASH STATEMENTS CONSOLIDATED Cash Flows P Increase (decrease) andcash equivalents incash andcashequivalents ratesoncash Effect ofchangesinexchange Cash andcash equivalents, atSeptember Parts B and C of thisMD&Ainclude a discussionof the cash flows ofLifeco andIGM, respectively. corresponding periodin2018. million inthe nine-month perioden inflow of$31 The Corporation decreased its level offixed incomesecurities September 30, 2019,compared with a net ou Cash flows from investing activities, resulted inane compared with a net outflow of$1,947 controlling interests, represented a net outflow of$3,678 million inthe PFC SIB,dividendspaidonthecommonand preferred shares ofthe Corporation, and dividends paid bysubsidiaries tonon- Cash flows from financing activities, which include the repurcha inflow$5,4 compareda net of with consolidated statement ofcashflowstheCo table reconciles the non-conso O Operating activities Investing activities iacn ciiis ( Financing activities W E A R w
F 34 s from: I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A N C I A L
C O R P O Ѷѳ R
A T I O lidated statement ofcash flows, which is N
alents decreased by$203 million in the nine-month net inflowof$5,298 million inthenine
01 million inthe corresponding period in2018. Ѷѳ million inthe corresponding periodin2018.
tflow of$3,525millionin the corresponding periodin 2018. rporation for the nine-month periodendedSeptember 30, 2019. ded September 30, 2019,comparedmillion inthe withanet outflow of$8 ded September Financial Ѵ Ѵ Ѵ Ѵ ѵ Power Power (CONDENSED) , , , , , ѷ Ѷ ѳѷѵ ѵ ѷ ѳѵѸ ѷ ѳѼѷ ѹѵѳ ѹѼѺ ѴѺ Թ )( t outflow of $1,652 million inthenine-month period ended with maturitiesofmorethan threemonths, resulting in anet ( Ѵ Ѷ ieoIGM Lifeco ( ( , , , , , Ѹ ѹѻѶ ѻѸѶ ѴѺѴ ѶѴѸ ѵѳѳ ѹ ѹѸѳ Ѵѹѻ ѸѵѼ ѻѴѼ ѺѹѶ al’s non-consolidated cash flow
se of common shares pursuant to the Lifeco SIB andthe ) ) )( ) nine-monthperiodended not inaccordance with IF ѹѶѵ ѴѶѹ Ѷѹѵ ѶѶ -month period ended September 30, 2019, Թ ) Consolidation Consolidation adjustments periodended September 30, 2019, and other ( ( Ѵ Ѵ ѵ ( ( , , , ѴѸѺ ѻѸѴ ѵѴѼ Ѵѷѷ ѹѷѸ Թ
)
) ) ) s, are presentedbelow. This RS, tothe condensed September 30, 2019, 2019, September 30, ( ( Ѵ Ѷ Ѹ Ѹ Ѹ Power Financial ѵѳѴѼ ( ( , , , , , ѹѸѵ ѹѺѻ ѷѵѴ ѹѵѷ ѵѼѻ ѵѳѶ ѴѺѴ Consolidated )( ) )( )( Ѷ Ѵ Ѹ Ѹ Ѹ ѵѳѴѻ , , , , , ѸѵѸ ѼѷѺ ѵѹѸ ѶѵѴ ѷѳѴ Ѹѹ ѴѸ ) ) ) PART A POWER FINANCIAL CORPORATION ) ) ) ) ) ) ) Թ Թ Թ Ѻ ѺѸ ѺѸ ѶѸ ѶѸ ѴѶ Ѵѳѹ ѳѶѴ ѳѳѼ ѳѸѷ ѳѷѴ ѺѻѴ ѵѸѳ ѴѳѶ ѼѴѶ , , , , , ѵѳѴѻ Ѵ Ѵ Ѵ Ѵ Ѵ 35 A ) ( ) ( ) ( ) ) ) ( ) ( ( ( Թ ѹ ( ѻѳ ѴѺ ѵѸ Ѷѵ ( ( ѺѻѼ ѵѸѳ ѴѴѼ ѳѼѷ Ѵѳѷ ѼѶѺ ѹѸѵ ѹѵѳ ѳѵѸ ѳѷѵ ѹѸѳ ѹѼѺ , , , , , , , , ( ( ѵѳѴѼ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ ѵ ( ( onth period ended September 30, 2019, September onth period ended $789 million, compared with $781 million in $781 with million, compared $789 which are which are not presented with in accordance operating expenses, financing charges, income charges, financing expenses, operating e-month period ended September 30, 2019 were were 2019 30, ended September e-month period in 2018. In the nine-month period ended September 30, September period ended nine-month in 2018. In the increased by $17 million in the nine-month period ended period ended in the nine-month million by $17 increased ng the nine-month period ended September 30, 2019 were 2019 30, period ended September nine-month ng the compared with $75 million (SF59 million) in 2018. 3 million in the corresponding period in 2018. period corresponding in the 3 million cash flows are primarily comprised of dividends received from Lifeco, Lifeco, from received of dividends comprised primarily are flows cash
ѳ ss) from cash and cash equivalents, less less equivalents, cash and cash from ss) 31 million in the corresponding period in 2018. 31 million in the Ѷ
r N e b O I T m POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER e A t R p ted in a net inflow of $1,094 million in the nine-m ted in a net inflow of $1,094 e
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g n d n i R i n t n i Pargesaannual in second quarter.theto Parjointco declaresan PargesaThe dividend paid and pays in by dividend of dividends received Corporation The 2018. in SF2.50 with compared share, bearer per SF2.56 to 2019 amounted in 2019, million) from Parjointco (SF60 $80 million $1.239 per share, compared with $1.167 in the corresponding period in 2018. In the nine-month period ended ended period nine-month the In 2018. in period corresponding the in $1.167 with compared share, per nin the during shares by Lifeco on its common Dividends paid $1.239 from Lifeco of dividends 2019, the Corporation received 30, September 2018. period in corresponding the on its common shares duri by IGM Dividends paid period corresponding as in the same the share, per $1.6875 period in 2018. the corresponding as in the same IGM of $250 million, from dividends received Corporation 2019, the c E t a a
r n s h W e a e IGM Pargesa Lifeco Lifeco s v n p O a i n C PFC SIB under shares Repurchase of common Dividends paid on common shares common shares on Dividends paid Issuance of common shares equivalents cash and cash basis, non-consolidated a On of $1 a decrease with 2019, compared 30, September activitiesOperating resul Share repurchase expenses and other other expenses and Share repurchase I SIB Lifeco of Lifeco shares under from tender Proceeds Investments in Portag3 Funds and Wealthsimple equivalents in cash and cash Increase (decrease) equivalents, beginning of the year at the Cash and cash with of compared a net $1,0 inflow O Dividends items net of non-cash Corporate operations, F shares perpetual preferred on Dividends paid P NON-CONSOLIDATED STATEMENTS OF CASH FLOWS corporate company, holding a is Financial As Power ended Septembe months Nine IGM and Parjointco and income (lo and income Parjointco IGM and taxes, and preferred and common dividends. share common and and taxes, preferred Corporation,statements of the of cash flows non-consolidated The following company. parent the Financial, of Power flows cash the isolate they as reader the assist to prepared been have IFRS, PART A POWER FINANCIAL CORPORATION The Corporation manages itscapitaltaking into As a holding company, Power Financial’s objectives in managing itscapitalare to: Management Capital $1,620 million, primarily due to proceeds received from participation in theLifeco SIB, compared with a net outflow of The Corporation’s investing activities during thenine-month $2,697 million, compared with a net outflow of$1,009million inthecorresponding period in2018,andincluded: The Corporation’s financing activities during the nine-month period ended September 30, 2019 were a net outflow of P shareholders while maintaining Power Financial’s strong capital shares ofcommon repurchase the SIBfacilitated PFC The shares. $35 millionin the corresponding periodin 2018. On April 17,2019,theCorporationcompleted thePFC capital. ofpermanent source effective common shareholders’ equity, andnon-controlling interests. The Corporation views perpetual preferred shares asacost- term nature of itsinvestments. The capital structure ofthe Corporation consists of:debentures, perpetual preferred shares, ot and debentures of exception the With management. well asth subsidiaries, as repurchase of common shares, perpetual preferred shares and de Board ofDirectors ofthe Corporation re responsible for establishing capital management procedures and The Boardof Directors ofthe Corporation to capital shareholders orissue capital. to maintainor adjust itscapital structure, the Corpo O W E maintain an appropriate credit rating to to en rating credit appropriate an maintain capital; and maintain acapitalstructure matches that long-term the natur and other investments as provide sufficient financialflexibility topursue itsgrowth strategy toinvestonatimely basisinitsoperatingcompanies provide attractive long-term returns to in thecorresponding period in2018. Repurchase of commonshares pursu of $7millioninthe corresponding period in2018. issued shares common with compared period, in the exercised options stock foremployee issued shares No common in 2018. Corporation’s common the corresponding periodin 2018. In the nine-month period ended September 30, 2019,dividends paid onthe Dividends paid onpreferred andcommon A R
F 36 I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A N C I A L
C O R P ose of PargesaandGBL,oversee O R A shares were $1.3440 per share, compared with $1.2785 per share in the corresponding period T I O opportunities present; N
her debt instruments, the Corp the debtinstruments, her views and approves capital transactions such as the issuance, redemption and ant to thePFCSIBof $1,650million shareholders ofthe Corporation; isresponsible for capital shares bythe millionmillion, comparedCorporation of in with $1,016 $1,041 sure stable access to the capital markets. markets. capital the to access stable sure consideration therisk characteristics andliquidity of itsholdings.Inorder ration may adjust the amountofdi SIB and repurchased for cancellation $1.65 billion of its common forcancellation$1.65 billionofitscommon SIB andrepurchased and havethe responsibility for their respective company’s capital position tofundfuture growth opportunities. period ended September 30, 2019 wereanet inflowof forimplementing and monitoring its capital plans. The e ofitsinvestments by maximizing the use ofpermanent at attractive market valuations and returned capital to capital and returned valuations market attractive at bentures. The boards ofdirectorsthe Corporation’s management oration’s capital is permanent, matching the long- the matching ispermanent, capital oration’s in theperiod,compared with norepurchase . Management vidends paidto shareholders, return of the Corporation is PART A POWER FINANCIAL CORPORATION
) , ѹѺ ѶѴ ѷѸѼ ѻѸѳ ѵѷѵ ѷѼѵ ѻѶѳ ѺѴѷ ѻѹѷ ѹѼѷ ѺѸѳ ѸѳѸ ѵѸѸ ѷѷѴ ѵѸѳ ѴѸѳ , , , , , , , , , , , , ѵѳѴѻ ѹ Ѵ ѻ ѻ ѵ ѵ ѵ Ѹ 37 Ѵѻ Ѵѳ ѵѼ ѷѶ A December ) ( , regulatory capital capital regulatory Թ Ѹѻ Ѷѳ ( ѶѶѵ ѳѼѴ ѷѵѶ ѸѺѸ ѵѸѳ ѶѴѹ Ѵѳѳ ѶѸѻ ѹѳѻ ѻѶѳ ѺѴѷ ѺѴѷ Ѹѷѷ , , , , , , , , , , , , ѵѳѴѼ ѹ ѵ ѻ ѻ ѵ ѵ ѵ Ѹ ѴѺ Ѵѳ ѵѺ ѷѴ debt instruments issued issued debt instruments , which are shown in this table as September ries are subject to ries are subject ements; however, Lifeco and certain of Lifeco and certain its however, ements; ber 16, 2018, pursuant to which, for a period of for 16, 2018, pursuant to which, ber ts issued by Lifeco and IGM are non-recourse to the to are non-recourse IGM and Lifeco ts issued by aggregate of $3 billion of First Preferred Shares, common common Shares, Preferred billion of First of $3 aggregate sued and outstanding 5.90% Non-Cumulative First Preferred Preferred First Non-Cumulative 5.90% and outstanding sued pectus dated Novem the debentures, preferred shares and other preferred shares the debentures, bt issued by its subsidiaries. Perpetual preferred shares and total equity equity total and shares preferred Perpetual by its subsidiaries. bt issued cured debt securities, or any combination thereof. This filing provides thethereof. combination cured debt securities, or any base shelf pros Financial Statements for additional information. Statements Financial externally imposed regulatory capital requir regulatory imposed externally
s
t n N es not guarantee de not guarantee es e O I m T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER u r A t s R n O i
t P ] Ѵ b R [ e O d
C r
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r Corporation with the flexibility to access debt and equity markets on a timely basis. basis. a timely on markets and equity debt to access flexibility the with Corporation 25 months thereafter, the Corporation may issue up to an up to issue Corporation may the thereafter, 25 months and unse receipts shares, subscription Shares, Series B on April 30, 2019. B on April 30, Series Shares, On March March On were March maturing 2019, IGM issued $250 proceeds 20, of the Part debentures 21, 2050. of 4.206% million $150 million is of its redemption the fund to IGM by used The Corporation filed a short-form a short-form The Corporation filed n E y r t e i e f preferred shares. preferred shares. W b u e ] shares preferred IGM’s and Lifeco excluding subsidiaries Corporation’s of the interests equity non-controlling the Represents e O r q Ѵ IGM Other subsidiaries and consolidation adjustments adjustments and consolidation Other subsidiaries Lifeco Non-controlling interests Lifeco Lifeco
The Corporation itself is not subject to itself is not subject Corporation The E equity Common shareholders’ [ Power Financial IGM P Power Financial IGM P includes capitalization consolidated The Corporation’s D Power Financial accounted for 79% of consolidated capitalization at September 30, 2019. at 30, 2019. September capitalization accounted for 79% of consolidated by its consolidated subsidiaries. Debentures and other debt instrumen and other Debentures subsidiaries. by its consolidated do Corporation The Corporation. main subsidiaries, IGM’s subsidiaries and certain of the Corporation’s other subsidia other Corporation’s IGM’s subsidiaries and certain of the main subsidiaries, and IGM, respectively. of Lifeco activities management capital the describe further of this MD&A and C B Parts requirements. 2018 to the Corporation’s See Note 21 PART A POWER FINANCIAL CORPORATION directors of Lifeco isresponsible and GBLareresponsible forthe riskoversight function attheir description of these risks ispresent Corporation bears the risks associated with being a significant shareholder ofthese operating companies. A complete risk management mandatethrough various office committees. Certain There are certain risks inherent inaninvestment inthe securiti committees: The Boardof Directors provides oversight and carries out maintain acomprehensiveappropria and responsibility for riskmanagement associated with the investmen oversight ofitsinvestments. TheBoardof The Corporation believes that aprudent approach to riskis achieved through a governance model that focuses on the active APPROACH RISK OVERSIGHT at the operating companies. Parts B and C of thisMD&A further describe risks related to LifecoandIGM, respectively. of these and committees a jointcontrolling interest inParjointco,whichitself holdsacontrolling int asset management andother business sectors. Its principal holdings are a controlling interest in each ofLifeco and IGM and internationalmanagement andholdin diversified isa Financial Power Risk Management securitiesand aresubjector with torevision specific security foraparticular investor. Theratings also may notreflect the potential impactofallrisks onthe value of hold the securities of a corp have been obtained fromthe respective rating agencies’ webs accordance with the termsof eachobligation. Descriptionsof the indicators ofthelikelihoodcorporation andare ofpayment and Credit ratings are intended to provideinvestors with an independent measure ofthe credit quality ofthe securities of a Rating Service’s (DBRS) current rating onthe Corporation’s debentures is“A(High)” with a stable rating trend. The current rating by Standard&Poor’s (S&P) of the Corporation’s debentures RATINGS P Corporation. Thisdescription ofrisksdoesnot include allpossible risks,andthere may beother risks of whichthe Corporati quality than AA, and may AA, bevulnerabletoquality than and events, future although term debt. A long-term debenture rated “A(High)” implies that the capacity forrepayment is substantial, but oflesser credit The “A(High)” rating assigned tothe Corporation’s debenturesby commitment on the obligation isstill strong. cate in higher-rated obligations than conditions economic A long-term debenture ratedis somewhat “A+” more susceptible to the adverse effects of changes incircumstances and The “A+”rating assigned tothe Corporation’s debentures by S&Pisthefifth highest ofthe22ratings usedforlong-termdebt. approach, and the identification andmanagement ofthe specificrisks described in the 2018 Annual MD&A. During the nine-month period endedSeptember 30, 2019, there were nochanges tothe Corporation’s risk oversight is notcurrently aware. certain risks that couldimpactthe financial condition andfin which investors should carefully consider before investing in securities of the Corporation. The 2018 Annual MD&A reviews O W E of the Corporation. The Related Party and Conduct Review Committee reviews and risks related to governance matters. Co the oversees Committee Nominating and Governance The The Compensation Committee considers risks AuditThe Committee addressesrelated risks to A R
F 38 I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A N C I A L
C O R P O boards and,consequently,intheirrole as directors, they participate inthe risk oversight function R A oration and do notaddress market price or T I O for itsrisk oversight, and theboard ofdire N
ed intheirpublic disclosures. The respect te set ofpolicies and controls. Directors and executive officersof th drawal at any time by thedrawal atany time associated withthe Corporation’s co financial reporting and cybersecurity. its risk management mandate primarily through the following gories; however, the obligor’s capacity to meet its financial financial its meet to capacity obligor’s the however, gories; es ofthe Corporation and inth ites. These ratings are not arecommendation to buy, sellor respective companies. Therisk committee ofthe board of ancial performance, and the value ofthe equity ofthe rating categories foreach of the agencies set forth below DBRS isthefifth highest ofthe 26 ratings used for long- qualifying negative qualifying factors the capacity of a ofa corporation tothe capacity meetitsobligations in t activities andoperations ofthe holding company and rporation’s approach to appropriately address potential address rporation’s approach toappropriately considers for approval transa rating organization. rs oftheCorpora g company with interestsin other factorsthatmi ctors ofIGM providesoversight and carries out erest inGBL through Pargesa. Asaresult, the ive boards ofdirectors of Lifeco,IGM,Pargesa is “A+” with a stable outlook. Dominion Bond e Corporation have overall oversight ande Corporationoverall have mpensation policies and practices. tion aremembers e activities oftheCorporation are considered are ght determine suitability ofa ght determinesuitability ctionsrelated with parties thefinancial services, of theseboards manageable. manageable. its on ,
PART A POWER FINANCIAL CORPORATION ) ) ) ) ) m – ѵ ( ѴѶ ( ѴѷѸ ѴѸѻ Ѵѹѳ Total Total , , , ѵѳѴѻ Ѵ Ѵ Ѵ , ( ( ( 39 fair value ѶѴ A – – Ѵѹ ѷѴѺ ѷѶѶ ѷѶѶ December credit risk credit Maximum exposure to exposure derivative
erating policies, guidelines guidelines policies, erating ѻ e Corporation and by senior and by Corporation e to the Corporation’s Corporation’s Interi to the ѵѳ ѻѻѶ ѹѴѷ ѸѳѸ ѸѵѸ , , , , ѵ ѴѼ ѵѵ ѵѵ Notional ) ) ) ) – Ѷ ѵ ( ѺѻѼ ѺѼѵ ѺѼѳ Total ( ( ( ѵѳѴѼ , each established op fair value for additional information. information. for additional Ѷѳ r 31, 2018. See Note 18 See r 31, 2018. an increase of $3.2 billion in the notional amount of notional in the billion of $3.2 an increase oration and its subsidiaries’ oration and subsidiaries’ its – ѵ by senior management of th of senior management by Corporation’s fair value measurement. measurement. value fair Corporation’s ѵѳ ѹѼѷ ѺѴѷ ѺѴѹ September the carrying amounts and fair value of the Corporation and Corporation of the value fair and amounts carrying the credit risk credit Maximum ember 30, 2019. The following table provides a summary of the of the a summary provides table ember following The 2019. 30, ss-currency swaps that pay U.S. and receive Canadian dollars. dollars. Canadian receive and U.S. pay that swaps ss-currency forward-settling mortgage-backed security transactions (“to-be- ѵѶ Ѵѷ as market makers in such derivatives. derivatives. in such market makers as ѳѻѼ ѸѻѴ ѹѻѷ ѺѳѺ , , , , Ѷ ѵѵ ѵѸ ѵѸ Notional ed Financial Statements Statements ed Financial tive financial instruments, which in particularinstruments,tive financial which focus on: of the hedging relationships; and and relationships; hedging of the
s for additional disclosure of the of the disclosure s for additional
N O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A R O monitored and reviewed on a regular basis a regular on reviewed and monitored P R O C
L A I C N A N I F
R prohibiting the use of derivative instruments for speculative purposes; purposes; for speculative instruments of derivative the use prohibiting documentingtransactions and ensuring their consistency with risk management policies; effectiveness the demonstrating monitoring the hedging relationships. E W O management of its subsidiaries. The Corporation and its subsidiaries have subsidiaries and its Corporation The subsidiaries. of its management Consolidated Financial Statement Financial Consolidated Other subsidiaries Other subsidiaries and procedures relating to the use of deriva to the relating and procedures at million to $716 increased position) a gain in of instruments value market the represents (which risk counterparty of the by the impact driven 31, 2018. The increase was primarily million at December 2019 from $433 30, September cro on U.S. dollar the against strengthening dollar Canadian Partsof thisand Cprovide B MD&A informationthe types on of derivative financialinstrumentsand Lifeco used by IGM, respectively. Consolidat 2018 Corporation’s the to 26 See Note derivatives outstanding, primarily due an to increase in Corp The hedging activities. regular and securities”) announced During the nine-month period ended September 30, 2019, there was was there 30, 2019, ended September period nine-month the During is derivatives use of The Therewere majorno changes totheCorporation and its subsidiaries’policies and procedureswith respect tothe use of Sept ended period nine-month the in instruments derivative subsidiaries’ derivatives portfolio: and its Corporation Power Financial Lifeco IGM DERIVATIVE FINANCIAL INSTRUMENTS INSTRUMENTS FINANCIAL DERIVATIVE such using When instruments. financial derivative use subsidiaries and its Corporation the activities, of their course In the as and not they only act end-users limited derivatives, P and Other Instruments Instruments Financial MEASUREMENT VALUE FAIR to changes material no had been 2019, there 30, At September Decembe from value at fair recorded liabilities and assets its subsidiaries’ PART A POWER FINANCIAL CORPORATION The Corporation had, atSeptember CorporationThe had, 30, lossesof$280 2019, non-capital Income Taxes subsidiaries from those reported in the 2018 Annual MD&A. September At changes no material been have there 2019, 30, ContractualObligations Commitments and oninform based However, position of the Corporation. certainty, and itispossible that an adverse resolution could ha arising inthe normal course ofbusiness.It isinherently difficult topredict the outcome ofanythese proceedings with The Corporation andits subsidiaries are from timetosubject to leg Liabilities Contingent liabilities cededtooramountsduefromLifeco. Lifeco may berequir will typically hold aletter ofcredit as collateral inorder Abenefi orbeneficiaries. parties other to of credit letters provides Lifeco business, reinsurance ofits normal course the In LETTERSCREDIT OF determined. amounts are dependent on the outcome offuture continge subsidiary could berequired to paythird parties, assome of thes esti reasonable a thepossibility precludes ofmaking of which In the normal course oftheir operations, GUARANTEES SheetArrangements Off-Balance P Financial Statements. existing letters of creditonmaturity. See alsoPart B (including capital gains). Theselosses expire duringtheyears 2028 Statements. the Corporation. See also Parts B and C ofthis MD&A and No actions, either individuallyor below. Parties” Related with “Transactions also See $84 millionthat can be used indefinitely to reducefuture capital gains. O W E A R
F 40 I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A N C I A L (Non-Consolidated Basis)
C O R P O R A T in theaggregate, will havea material adverse I O N
the Corporation andits subsidiaries may enter intocertain agreements, the nature ation presently itisnotknown, ex of thisMD&A and Note 32 tothe Corporation’s 2018 Consolidated to secure statutory credit forinsurance and investment contract mate of the maximum potential or potential theCorporation mateamount ofthemaximum nt events, the nature andlikelihood ofwhich cannot be in the contractual obligations of the Corporation and its and Corporation obligations ofthe contractual inthe ve a material adverse effect onthe consolidated financial e agreements do not specify a maximumdo notspecifya e agreements amount andthe te 31 tothe Corporation’s 20 to 2039.In addition, theCorporation hascapitallosses o ed toseekcollateral alternatives if itisunable to rene tore million available al actions, including arbitrations andclass actions, effect ontheconsolidated financial position of pected of that any duce futureta 18 Consolidated Financial the existing legal xable income xable ciary w f
PART A POWER FINANCIAL CORPORATION
to to 41 A to approve only to approve only IGM recognizes the benefit of IGM recognizes ns relating to pension and other other and to pension ns relating shareholder, and shareholder, y be acquired by IGM in each year up to up year each IGM by in acquired be y transactions with related companies which which companies with related transactions additional information. information. additional other companies within the Power Financial group Power the within Financial other companies urth quarter of each year. ttee composed entirely of Directors who are independent independent are who of Directors entirely ttee composed Lifeco and its subsidiaries. These transactions are at market are transactions These and its subsidiaries. Lifeco ificant changes in the Corporation’s critical accounting accounting critical Corporation’s the in changes ificant itions. These transactions are reviewed by the appropriate appropriate by the are reviewed transactions These itions. n’s 2018 Annual MD&A and in the notes to the Corporation’s Corporation’s to the notes the and in MD&A Annual 2018 n’s transactions are in the normal course of operations and include and operations of course normal the are in transactions market terms and conditions and are reviewed by the appropriate Financial Statements for Statements Financial tive services for employee benefit pla benefit services for employee tive opriate related party and conduct review committee. committee. conduct review and party related opriate stment impairment, goodwill and intangible assets, income taxes and stment impairment, goodwill taxes and assets, income and intangible that are done at market terms and conditions. done are and conditions. terms that at market Conduct Review Commi Conduct subsidiary that has generated tax losses ma losses tax generated has that subsidiary
d parties of the Corporation, its controlling including the of d parties
Great-West Life and Putnam enter into various into enter and Putnam Life Great-West N O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A R O P R market terms and conditions. Refer to the section “Equity” for more details. for more details. sectionto the “Equity” Refer and conditions. terms market O C
L A I C N A N I F
R E W O See Note 30 to the Corporation’s 2018 Consolidated 2018 Corporation’s the to 30 See Note transactions were at transactions of 2019. third quarter the judgments in and estimates Summary of Critical Accounting Estimates and Judgments – of its subsidiaries managements and the Corporation the of management of the financial statements, preparation In the Lifecoandare IGM – required tosignificant make judgments,estimates andassumptions thataffect the reportedamounts and uncertainty Key sources of estimation and related disclosures. comprehensive income earnings, net of assets, liabilities, of its managements the and Corporation of the management by the made are judgments significant where areas and investment method, insurance equity the using for accounted or consolidated be to entities the include: subsidiaries value inve fair measurements, liabilities, contract Corporatio in the described are These benefits. future employee sign no were There Statements. Financial Consolidated 2018 P Transactions with Related Parties and has a Related Party Power Financial and appropriate it deems that transactions those of business, normal course In the to services and subadvisory benefits group insurance providing include cond and terms at market are Such transactions of companies. review committee. and conduct related party and administra management asset Lifeco provides Great-West Life and London Life. These transactions are at review committee. and conduct related party of a subsidiary with transactions loss consolidation tax which permitted advance tax rulings IGM obtained 2017, In October of a shares whereby Corporation, Power the fo close in are expected to acquisitions 2020. The and including acquired. are subsidiary the in shares the year the throughout realized losses tax the These in the PFC SIB. participated Corporation Lifeco SIB and Power in the participated Financial Power 17, 2019, On April of management and independent of the Corporation’s controlling shareholder. The mandate of this Committee is to review to is Committee of this The mandate shareholder. controlling Corporation’s the of independent and of management with relate transactions proposed and Financial, Power of employees for benefits post-employment the appr and are reviewed by and conditions terms (i) providing certain administrative services, (ii) distributing insurance products and (iii) the sale of residential mortgages sale of residential the and (iii) products insurance (ii) distributing services, administrative certain (i) providing IGM enters into transactions with subsidiaries of Lifeco. These These of Lifeco. subsidiaries with transactions into IGM enters PART A POWER FINANCIAL CORPORATION
Non-controlling interests Retained earnings Deferred taxliabilities of thisimpact is $77million. Owner-occupied properties and capital assets andcapitalassets Owner-occupied properties the interpretation of the standard resulted in a decrease of $10 decrease in a resulted standard ofthe interpretation the underlyinguncertain tax treatment would impact the provisionaccrual tax of the balance as sheetdate. The applicationof likely to occur. The provision fortax uncertainties is classified as cu a provisionfor tax uncertainties which meets theprobable threshold measurement 12, requirements in IAS Effective January 1, 2019, the Corporation adopted IFRIC 23 ADOPTION OF IFRIC23 – instead ofoperating activities. The adoption ofIFRS16did nothave an impact onnet cash flows. the nine-month period ended September 30, 2019, except for The application of IFRS 16 didnot have a material impact on the statement of earnings or thestatement of cash flows for [ Other liabilities L Investment properties A 1, 2019,the Co Effective January ADOPTION OF IFRS 16 – described below. There were no changes to the Corpor Policies Accounting Changes in P On transition, the Corporation and Corporation On transition,the 1,2019.January respective incremental borrowing rates at January 1, 2019. The 1, 2019.When measuring leaseJanuary liabilities,the Corporation and its subsidiaries discounted lease payments using their had been applied since the commencement date but discounted Impact on the balance sheet atJanuary 1, 2019: transition; and ii)toapply a single di liabilit lease of-use assetsand recognized on thebalance sheets immedi equal tothe lease liability, adjusted bythe amount of i) an amount either at basis onalease-by-lease assets right-of-use measure to elected Corporation the application, initial On interpretations. related IAS17and under reported previously as for remains 2018 presented The Corporation has elected toadoptIFRS 16 using a Impact of transition toIFRS 16 operating and financing leases nolonger applies, however anoptio and a corresponding leaseliability representing its obligation tomake lease disclosure ofleases. IFRS 16 requires a lessee torecognize arig The standard prescribesnewguidance for identifying aleasewe as Ѵ i s O a Accruedleasepayme ] s
b W e i t l i s E t A
i R e s
F 42
a I n N d POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A
s N [ h Ѵ C a ]
I r A e h L o
C nts of $64 million withinother nts of$64million l d O e R r s P ’
e O LEASES q R UNCERTAINTYOVER INCOME TAXTREATMENTS u A i t T y ies forleases for wh I
O rporation adopted IFRS 16,rporation 17, whichadopted IFRS replaces IAS N (IFRS 16) 16) (IFRS
its subsidiaries elected toapply practical expe scount rate to a portfolio ofleases with reasonably similar characteristics. Income Taxes, ation’s accounting policies from thosere ately before thedateofinitial application;orii) liabilities on the balance sheetsat onthebalance liabilities ich the remaining leasetermsthe remaining endwith ich when there is uncertainty over income tax treatments. Under23, IFRIC modified retrospective approa any prepaid or accrued lease payments relating tothat lease 9 million to Lifeco’s retained earnings. The Corporation’s shar Corporation’s The earnings. retained Lifeco’s to million 9 weighted-average incremental borrowing rate was 3.95% at ht-of-use asset representing itsright touse the leased asse which clarifies the application of the recognition and the classification oflease payments as financing activities nal exemption exists forshort rrent ordeferred based on how a disallowance of the using the Corporation’s incr for recognition is measured ll as the recognition, measurement, presentation and (as previously reported) December t 31,2018werereclassified December payments for all leases. The distinction between (IFRIC 23) 23) (IFRIC ѶѴ ѴѶ ѴѸ Ѵѳ Leases dients including:i) , Ѵ Ѵ Ѹ ported at December 31,2018, except as ѵѳѴѻ , , , , , , ѶѹѼ ѼѹѺ ѸѴѺ Ѷ Ѹѹѳ ѶѶѴ ѹ ѸѼѺ Ѽѹѳ Ѵ ѵѼ ѵѴѻ ch and accordinglych and (IAS 17) and related (IAS interpretations. at itscarrying amou in twelve months ofthedate based on the amount most on theamount based -term andlow-value leases. emental borrowingrate at Impact o IFRS IFRS o decrease right-of-use assets. ѸѻѼ ѸѻѼ to notrecognizeright- Ѵѹ ( ( ( Ѷ Ѷ ѵ f )
) )
the information nt, as if IFRS January (restated) ѴѶ ѴѸ ѴѴ Ѵ , Ѵ Ѵ Ѹ ѵѳѴѼ , , , , , , Ѷѹѹ Ѽѹѷ ѸѴѸ ѻѼѴ ѸѸѺ ѵѷѺ 16 e t
PART A POWER FINANCIAL CORPORATION
, 43 A atements. atements. , to January 1, 2022. to January , Insurance Contracts Insurance surance regarding the surance regarding e International Accounting ally affect, the Corporation’s Corporation’s the affect, ally idated Financial St porting. All internal control systems systems All internal control porting. ernal purposes is in accordance with accordance in is ernal purposes dments to the standard expected to to expected the standard to dments financial statement preparation and and preparation financial statement Financial Instruments Financial to provide reasonable as reasonable to provide changes proposed by th changes proposed ese amendments. ese amendments. &A and the 2018 Consol &A and the 2018 are reasonably likely to materi likely are reasonably use of changes in conditions. Therefore, even those systems systems those even Therefore, conditions. in of changes use accounting policies that could impact the Corporation and its its and Corporation the impact could that policies accounting of financial statements for ext statements for financial of ntial impact of th impact of ntial onable assurance with respect to with respect onable assurance ective internal over financialcontrol re aft, which provided targeted amendments to IFRS 17, amendments provided targeted aft, which on September 25, 2019, with final amen on September ffective 9, and IFRS standard date of the e Corporation’s internal control over financial reporting during the three-month period period the three-month during reporting financial internal control over e Corporation’s
provide only reas N O I T POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER A R O P R O C
L A I C N A N I F
R E W O There were no other significant changes to the future future to the changes significant other no were There subsidiaries, in addition to the disclosure in the 2018 Annual MD Annual 2018 the disclosure in the to in addition subsidiaries, be released in mid-2020. Lifeco is evaluating the pote is evaluating Lifeco mid-2020. in be released The Exposure Draft comment period closed comment The Exposure Draft including aincluding deferral of one yeare of the Internal Control over Financial Reporting Reporting Internal Controlover Financial is designed reporting financial control over internal Corporation’s The P ChangesFuture Accounting continuously and its subsidiaries potential monitor the The Corporation financial consolidated on their have may standards the in changes that effect the analyze and (IASB) Board Standards effective. they become when statements Dr Exposure an IASB issued the 2019, In June preparation the that and reporting of financial reliability internal control over financial reporting. IFRS. The Corporation’s management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, is Financial Chief the and Officer Chief Executive of the the supervision under management, Corporation’s The IFRS. eff and maintaining establishing for responsible beca ineffective become may and limitations have inherent to be effective can determined presentation. in th been no changes have There or affected, materially have which 2019 30, ended September PART A POWER FINANCIAL CORPORATION [ Other items Adjusted netearnings Net earnings Total revenues Results ofQuarterly Summary P [ [ [ Ѵ ѵ ѷ Ѷ O ] The decrease in revenues in the second quarter of 2019 is due to the impact of Lifeco’s sale, via indemnity reinsurance, of i of reinsurance, indemnity via sale, Lifeco’s of impact the to due is 2019 of quarter second the in revenues in decrease The ] The Corporation’s share ofLifeco, IGM and Pargesa’s items Other is as follows: ] Adjusted netearnings andadjuste ] In the second quarter of 2019, pursuant to the PFC SIB, Power Financial repurchased approximately ] common shareholders) per share per share per share per share shareholders) Pargesa IGM Lifeco W MD&A. financial For measures. adefinition of these non-IFRS financial measures, please refer to the “Non-IFRS Financial Measures and annuity business toProtective Life. Other (charges) income Imerys –Impairments, Imerys –Disposalofroofing Share ofLifeco’s Otheritems Pension plan Premium paidonearly Restructuring and othercharges Share ofIGM’sOtheritems Net chargeonsale ofanequity reform Impact ofU.S.tax Restructuring charges Net chargeonthe sale,via E A R other restructuring chargesand activity redemption ofdebentures investment business life insurance and annuity reinsurance, ofU.S. individual
F 44 I N – – – – [ POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A Ѷ basic basic diluted basic (attributable tocommon , ѷ N
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P O R A T d net earnings per share attributable to common shareholders, andother items and other item I O N
ѴѸ ( ѳ ѳ ѳ ѳ , ѸѼѳ Ѹѻѷ ѴѸѻ . . . . Q ѻѼ ѻѻ ѻѻ ѳѴ Q ( ( ( ѹ ѹ ѹ Ѷ Ѷ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ ( ( Q ) ( ) (
) ( ) ( Q Ѷ ѳ ѳ ѳ ѳ , ѻ Ѷ ѹ Ѻ Ѹ ѻ ѸѷѺ Ѹѻѹ ѹѸѻ ѵѵѸ ѸѺѻ Ѹѻѹ ѷѹѳ Ѵѷѹ ѹѸѻ ѸѶѹ ѸѵѶ ѸѻѼ ѷѺѻ ѸѶѹ ѷѷѶ ѴѶѷ Ѵѷѹ Ѵ ѴѺ ѸѴѴ . . . . ѻѳ ѻѻ ѳ ѳ ѹѹ ѹѹ ѵѵ Ѹ Ѻ ѵ ѵ Թ Թ Թ Թ Թ Թ Թ Թ Թ ) ) ) ) ) ) ѳѼѵѴ ѵѳѴѺ ѵѳѴѻ ѵѳѴѼ ѵѳѴѼ , ѷ Ѵѵ ѹѷѻ . . . Ѹѳ ѺѸ ѳ ѳ ѺѸ ѺѸ Q Q Ѵ Ѵ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ ѳ , Ѷ Ѵѵ ѷѶѻ ( . . . . Ѵѻ Ѹѳ ѹѸ ѳ ѳ ѹѺ ѹѺ ѳѵ Q ѹѻ Ѵѻ ѻѹ Q ѷ ѷ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ ) ( ѳ , ѻ ѴѴ ѺѻѺ ( ( ( ( . . . . Q ѸѸ Ѵѳ ѻѴ ѳ ѳ ѺѶ Ѻѷ ѳѺ Ѵѳ Ѷѻ ѸѸ Q ( ( ( Ѷ Ѵ Ѹ Ѵ Ѷ Թ Թ Թ Թ Թ Թ Թ ) ) ) ) ) ) ) ) , ѹ Ѵѳ Ѷѹѳ . . . Ѻ Q ѵѳ Ѽѵ ѳ ѳ Ѽѵ Ѽѵ Q % ofits issued and outstanding commonshares. ѵ ѵ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ ѳѻѵѳѴѺ ѵѳѴѻ , ѷ ѴѶ ѷѷѳ . . . Q ѵѳ ѻѵ ѳ ѳ ѻѵ ѻѵ Q Ѵ Ѵ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ ( ( ( ( ѳ , Ѷѵѵ Ѵѷѹ Ѷѵѵ ѹѷѹ ( ( . . . . Q Ѻѻ ѻѶ ѺѺ ѶѴ Ѷѵ Q ѷѸ ( ( ( ts U.S. individual life insurance and and insurance life individual U.S. ts ѻ ѷ Ѷ ѷ ѷ Թ Թ Թ Թ Թ Թ ) ) ) ) ( ) ) ) ( ) (
) Ѵѳ Presentation” section in this ѳ ѳ ѳ , ѼѶѴ ѷѹѸ ѷѹѶ . . . Q Q ѹѸ ѹѸ ѹѸ s per share are non-IFRS s pershareare non-IFRS ѵ ѵ ѵ Ѷ Ѷ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ )( ( ( ( )( )(
ѴѴ ( ѳ ѳ ѳ ѳ , ѳ ѴѶ ѻѳѼ ѵ ѸѳѴ ѹѵѵ ѷѻѷ ѸѷѸ . . . . ѺѺ Q ѵѵ Ѵѳ ѻѷ Q ѺѺ Ѻѳ ѻѺ ѳ ѳ Ѻѹ Ѻѹ ѴѴ ѷ Ѵ ѵ ѵ Թ Թ Թ Թ Թ Թ Թ )( ) ) )( ) )( )( ѳ , ѹѳѴ . . . . ѴѺ ѵѳ Q Q ѴѺ Ѻѳ ѹѻ ѹѻ ѳѵ Ѷ Ѵ Ѵ Թ Թ Թ Թ Թ Թ Թ Թ Թ Թ ) ) ) ) Assets Assets Liabilities Liabilities assets Total Equity liabilities Total Total liabilities andequity liabilities Total equity Total PART A POWER FINANCIAL CORPORATION , 8 ѳ 8 8 8 ѼѺ ѼѺ ѶѶ Ѷѳ ѶѴ ѺѴѺ Ѽѹѳ ѼѹѺ Ѹ ѶѹѼ ѼѷѼ ѹѵѷ ѵѷѹ ѵѴ ѼѵѼ ѴѺѼ ѵѸѴ Ѵѵѹ ѷѶѶ ѳѳѼ ѶѶѴ ѴѴ ѳѹѹ ѵѵѼ Ѽѷѹ ѶѴѼ ѺѴѴ ѶѺѳ ѷѼѵ ѸѼѶ ѸѴѺ ѶѴѼ ѼѸѳ ѳѹѼ ѸѵѺ ѳѸѸ Ѻѵѳ ѸѵѺ Ѵѳѹ ѳѸѸ , , , , , , , , , , , , , , , , , , , , , , , , ,8 , , , , , , , , ѵѳѴ Ѹ Ѽ Ѹ Ѵ Ѽ ѹ ѷ Ѵ Ѽ Ѵ Ѹ Ѽ Ѷ Ѵ Ѻ Ѵ Ѵ Ѷ ѵ Ѵ Ѷѵ 8 Ѵѳ ѴѸ ѵѴ ѴѶ Ѷѷ 45 ѴѵѸ Ѵ ѵѳѼ ѷѷѺ Ѵѹѹ ѵѳѼ ѷѴѵ ѷѷѺ A December 8, 8 8 8, 8 , ѹ 8 Ѻѹ Ѻѹ ѳѸ ѼѼ Ѽѷ 8 Ѷѳ Ѷѳ ѷѵѴ ѳѹѼ ѼѸѳ Ѹѷѵ ѸѸѷ ѼѴѼ ѷѳѺ ѴѹѶ ѹѳѷ ѴѺѵ ѸѺѶ ѷѶѶ ѺѵѴ Ѵ Ѹѳѹ ѷѶѸ ѹѳѷ ѴѺѵ ѹѳѹ ѵѼѵ ѸѶѳ ѸѺѶ ѹѵѴ ѴѼѸ ѳѹѸ ѸѴѳ Ѵѹѵ ѼѹѺ 8 ѺѴѹ Ѽѹѵ 8 ѺѴѺ ѺѼѴ ѹѳ , , , , , ,8 , , , , , ,8 , , , , ,8 , , , , , , , , , , , ,8 , , , ѵѳѴѼ Ѹ Ѽ Ѹ 8, 8, ѷ Ѵ Ѽ Ѹ Ѽ Ѷ Ѵ Ѻ 8, Ѵ Ѵ Ѷ ѵ Ѵ Ѵ ѶѴ ѵѴ Ѵѵ Ѵѷ ѵѳ Ѵѵ Ѷѵ ѴѴѹ ѴѺѴ ѵѵѵ ѷѹѹ ѴѺѷ ѵѵѵ ѷѶѶ ѷѹѹ September ] ѷ ] Ѻ ] ѷ ] ѹ ] Ѻ
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l t t l l l l i i e a a a a b u Shares Shares Common shares Bonds Bonds Loans to policyholders Loans to policyholders Investment properties Investment properties shares preferred Perpetual Mortgage and other loans Mortgage and other loans t t t t s a s q o o o o i Deferred tax liabilities Deferred Reserves T T E Stated capital [Note Non-controlling interests L Assets held for sale [Note Assets held for sale [Note POWER FINANCIAL CORPORATION FINANCIAL POWER CondensedBalance Consolidated Sheets (unaudited) dollars] of Canadian millions [in A equivalents Cash and cash Deferred tax assets Deferred Investments [Note insurers Funds held by ceding 8] Reinsurance assets [Note instruments Derivative financial and associates [Note corporations controlled Investments in jointly Owner-occupied properties and capital assets Other assets Intangible assets Goodwill [Note fund Investments on account of segregated policyholders T liabilities [Note 8] Insurance contract sale [Note Liabilities held for Obligations to securitization entities [Note other debt instruments Debentures and instruments Derivative financial Other liabilities policyholders [Note on account of contracts segregated fund investment Insurance and T Retained earnings Total shareholders’ equity Investments on account of held for sale [Note policyholders segregated fund Investment contract liabilities [Note 8] held for sale [Note on account of contracts policyholders segregated investment fund Insurance and PART A POWER FINANCIAL CORPORATION Net investmentincome Operating andadministrative expenses Total netpolicyholderbenefits Total netpremiums E A Income taxes[Note jointly controlledcorporationsand Share ofearnings ofinvestmentsin Earnings before investments injointly controlled corporationsand Commissions Policyholder dividends andexperience refunds Policyholder benefits E Fee income Net investmentincome Premium income R ofCanadi [in millions (unaudited) ofEarnings Statements Consolidated Condensed P Financing charges Changes ininsurance andinvestment contractliabilities Total revenues N Earnings before income taxes Total expenses Total paidorcreditedtopolicyholders a x t O e e t p – – Net earnings attributabletocommonshareholders Non-controlling interests associates [Note associates, andincome taxes Insurance and investment contracts Regular netinvestment income Gross premiums written Ceded premiums Change in fairvalue throughprofit orloss Common shareholders Perpetual preferred shareholders r v t r W n Diluted Basic
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m C I m an dollars, except pershareamounts] an dollars,except A ѹ o L ѴѸ ]
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he otsended Septembe Three months Ѵѷ ѴѴ ѴѸ Ѵѳ ( Ѵ Ѵ Ѵ Ѵ ѵ 8, 8,8 ѵ Ѷ ѵ Ѵ Ѽ ѵѳѴѼ ( ѳ ѳ , , , , , , , , , , , , , , ѴѴѹ Ѻѹѵ ѶѸѹ ѼѺѸ ѴѳѼ ѴѳѺ 8 ѶѸѵ ѼѺѸ Ѹ ѴѳѺ ѷѷѳ ѴѸ ѶѶѹ ѹѸѸ ѳ ѳѸѴ ѺѶѳ ѼѺѵ ѵѷѼ ѸѼѳ ѴѴѴ ѷѺѼ ѶѴѼ .88 .88 ѶѸ ѶѶ Ѻ 8 Ѷѳ 8 ѷ 8 8 ѷ )( )( ѴѴ Ѵѵ Ѵѳ ѴѴ ( Ѵ Ѽ Ѵ Ѻ Ѻ ѵ Ѵ Ѵ Ѵ ѵѳѴ ѳ ѳ , , , , ,88 , , , , ,8 , , , Ѻ ѳѷѹ ѶѼѶ ѵѸѺ ѵѶѸ ѸѼѸ ѹѵѸ Ѻ ѶѶѵ ѳѺѴ ѷѳѶ ѶѺѸ ѵѺ 8 ѴѹѶ ѼѼѼ Ѽ ѴѴѴ 8 ѶѼѹ ѵѵѳ 8 ѸѵѶ r . . 8 ѶѸ Ѵ ѺѶ Ѻѷ ѳѹ 8 Ѷѹ 8 ѹѸ Ѷѹ Ѷѳ ѵ ѷ Ѻ 8 Ѵ 8 8 ,
) )
)
Nine months ended Septembe ( ѶѶ ѵѸ ѵѸ ѵѺ Ѷѹ ѴѶ ѴѸ Ѷѵ ѴѺ ( ( Ѵ ѵ ѵ Ѵ ѵ ѵ ѵ Ѹ ѵ Ѵ Ѻ 8, ѷ ѵѳѴѼ ѵ ѵ , , , , , , , , , , , , , , , , , , , , , ѳѼѳ ѳѸѴ ѺѶѴ ѸѵѸ ѸѹѶ ѸѵѸ ѼѵѶ ѺѷѺ ѶѹѴ Ѹѹѵ ѵѳѺ Ѻ Ѻ Ѵѳѷ 8 ѶѼ ѴѺѹ ѶѵѸ ѸѺѳ Ѷѵѵ ѵѳѸ ѵѸѹ ѶѴѺ ѸѴѷ ѳѴѺ ѷѼѹ ѷѺѼ . . 8 8 ѵѼ ѵѼ Ѹ ѹ Ѷ 8 8 ) )( )( ѶѴ ѵѶ ѵѴ ѵѶ Ѷѷ ѵѹ ѵѼ ( Ѷ ѵ Ѵ ѵ Ѷ Ѷ Ѹ ѵ Ѵ ѹ Ѵ ѷ Ѵ Ѷ ѵѳѴ ѵ ѵ , ,8 , ,8 , , , , , , , , ,8 , , , , , , , , ѷѳѵ Ѷ ѺѺѷ ѹѵѳ Ѹ ѷѳѳ ѹѼѺ ѵѳѼ ѺѹѺ ѶѳѺ Ѵ ѴѺѼ Ѹ ѵѼѹ ѹѴѼ Ѹѹ ѺѺѺ Ѵѳѷ ѼѵѼ ѸѳѺ Ѵѵѵ ѵѹѴ ѶѴѵ ѵѼѺ r . . ѳѳ ѳѳ 8 8 ѷѺ ѷ ѷѹ 8 8 Ѷѳ 8 ѵ Ѻ Ѹ ѳ 8 8 , ) ) )
POWER FINANCIAL CORPORATION Other comprehensive income(loss) Net earnings Attributable to Attributable Comprehensive income Other comprehensive income(loss) Items that may be reclassified subsequently to netearnings subsequently reclassified Items thatmaybe Items that will not be reclassified subsequently to netearnings subsequently to reclassified Items thatwillnotbe PART A POWER FINANCIAL CORPORATION ) ) ) ) ) ) ) ) , 8 Ѻ Ѵ 8 Ѷ 8 Ѵ ѵ ѹ ѳ ѳ ѳ Ѷѳ 88 8 ѳѳ Ѷѳ Ѵ ѹѼ Ѵ Ѷѹ Ѽѳ Ѵѳ ѼѼ Ѻѳ 8 8 r ѴѸѹ Ѵѵѳ Ѵ ѴѼѳ ѴѶѶ ѶѴѴ ѵѷѺ Ѷ Ѵ Ѽѹѷ Ѵѳѷ ѴѴѵ Ѵ ,8 , , , 47 ѵѳѴ ѵ Ѷ ѵ Ѷ A ( ) ) ( ( ) ( ( ( ) ) ( ) ) ) ( ) ) ) – – ѵ 8 ѷ Ѻ Ѽ Ѻ ѹ Ѻ ( ( ѹѸ 8 ѺѴ ѵѳ ѵѳ Ѹѹ Ѵѹ ( ( ( ѸѵѸ ѷѼ ѶѼѸ ѴѵѼ ѶѵѺ ѵѳѺ 8 Ѵѵѳ ѺѹѴ ѵѶѴ ѵѶѺ ѶѴѳ ѴѳѺ ѺѳѸ Ѹ Ѵѳѷ , ,8 , ,8 ( ( ( ( ( ( ѵѳѴѼ ѵ Ѵ Ѵ Ѵ ) ) ) ) ) ) ) ) ) ) ) , Septembe ended months Nine – – – – 8 ѵ ѷ 8) Ѵ ѷ ѵ Ѵ ( ( Ѷѳ Ѷѹ ѷѼ ѵѶ ѹѵ ѶѸ Ѷѳ ѴѴ ѵѸ ѵѴ ѺѺ ( ( ( r ѶѳѴ ѶѶѶ ѶѳѺ ѶѺ Ѵѳѳ ѸѶѸ ѴѺѶ ѶѵѺ ѸѶѸ 8 ѵѳѴ )( ) )( )( )( )( )( )( ) ) ) ) – – – 8 Ѷ ѵ ѷ ѵ Ѵ Ѵ Ѻ ѹ ( ( (8 ( (8 88 8 ѶѸ ѷѸ Ѹѳ ѵѺ Ѻѷ ѵѵ ( ѵѳѷ ѺѺѴ ѵ ѷѷ ѺѺѴ Ѵ ѴѷѴ ѼѺѸ Ѵѳѳ ѴѶѴ Ѵѳѷ ( ( ( ( ( ( ѵѳѴѼ Three months ended Septembe ended months Three s g n s i g n ] r n i a n e Ѵѷ
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W t t r t m h h I Net unrealized foreign exchange gains (losses) on translation exchange foreign Net unrealized income (losses) of investments Share of other comprehensive Income tax (expense) benefit Total Net unrealized gains (losses) on cash flow hedges on cash flow hedges gains (losses) Net unrealized I gains (losses) on available-for-sale investments Net unrealized benefit plans [Note on defined Actuarial gains (losses) income (losses) of investments Share of other comprehensive Total Non-controlling interests Income tax (expense) benefit Income tax (expense) benefit shareholders preferred Perpetual Common shareholders t t t e O t o
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POWER FINANCIAL CORPORATION FINANCIAL POWER Net earnings Attributable to Earnings per common share Revenues Expenses PART A POWER FINANCIAL CORPORATION Dividends tonon-controlling Balance, end ofperiod Share-based compensation B Share-based compensation Dividends tonon-controlling Dividends toshareholders (loss)Comprehensive income Restated balance, Effects ofchanges incapital Stock optionsexercised Dividends toshareholders Comprehensive income Other comprehensive income Balance, beginning ofyear September Nine months ended Reserves Stated [ Effects ofchanges incapital Stock optionsexercised capital Substantial issuer bidon Other comprehensive loss Net earnings B September Nine months ended Equity ofChangesin Statements Consolidated Condensed P [in millions ofCanadian dollars] (unaudited) [in millions ofCanadian dollars] (unaudited) Net earnings Ѵ a a O ] Effects ofchanges in capital andsubsidiar ownership of ] interests Common shares [Note [Note [Note interests beginning ofyear subsidiaries, and other and ownership of subsidiaries, and other and ownership of Perpetual preferred shares common shares [Note Change inaccountingpolicies As previouslyreported Perpetual preferred shares Common shares l l a a W substantial issuer bid and the issuance and the repurchase of common and preferred shares by subsidiaries. subsidiaries. by shares preferred and common of repurchase the and issuance the and bid issuer substantial n n Impact ofIFRS [Note Impact ofIFRIC A E c c R e e , ,
ѴѴ ѴѴ 48 e b F n Ѷѳ Ѷѳ I e ѵ N ] ] d g POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 ] , , A i
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ѵ ѵ ѵ shares shares ѵ ѵ shares ,8 ,8 ,8 ,8 ,8 Ѷѳ Ѷѳ Ѷѳ Ѷѳ Ѷѳ – – – – – – – – – – – – – – – – – – – – –
Stated capital 8
8 Common Common shares shares Ѵ shares shares , ies relate tothe impactofthe purchase forcancellation ofcommon s ѵѼѵ ѷѸѼ 8 8 ѶѴѸ ѶѶ ѹѴѸ ѵѹ ѶѶ ѶѶ Ѻ – – – – – – – – – – – – – – – – – – – Retained Retained earnings Ѵѷ ѴѸ ѴѸ earnings ( ѵ Ѵ Ѵ Ѵ Ѵ ( ( , , , , ,88 , ( ( ѸѴѳ ѼѹѺ ѼѶѳ Ѵѳѷ ѴѳѼ ѹѹѺ ѹѹѺ ,8 ,8 ,8 , ѼѵѺ Ѵѳѷ ѵ Ѹ Ѵ ѴѸѼ ѳѵѴ ( ( ѼѼ ѺѺ ѺѴ ѺѴ ѸѶ ѳ ( Ѻ Ѷ 8 – – – – – – – – ) ) ) ) ) ) ) ) compensation compensation Share-based Share-based Ѵ Ѵѹѵ Ѵѹѵ ѴѸ ( ( ѵѷ ѵѶ ѵѸ 8 Ѷѳ ѵѼ ѹ 8 – – – – – – – – – – – – – – – – ) ) comprehensive comprehensive [Note [Note income income Ѵ Ѵ Ѵ income income Othe Ѵ ( ( , , , Ѷѷѷ Ѻ Ѻ ѷѶѷ ѷѶѷ Other ( , , ѹ Ѵ ѹѹѵ ѷ ѶѷѸ ѶѷѸ ѶѷѸ Ѵ ѶѷѸ ѶѴѺ Ѵѹ 88 88 Ѵѳ Ѵѹ – – – – – – – – – r ] ) ) ) – – – – – – – ] Total Reserves Ѵ Ѵ Ѵ ( ( , , , Total ѸѶѳ ѼѸѳ ѼѸѳ ѷѶѷ ѷѶѷ ( ,8 , ѷѺѹ ѵѷ ѴѶ ѵѸ ( ѵѳ Ѷѳ ѵѼ – – – – – – – ) ) ) – – – – –
( )
controlling controlling haresLifeco by underits interests Ѵѵ ѴѶ ѴѶ interests ѴѶ Ѵѵ ( ( ( ,8 , , Non- ѸѺѳ Ѹ ѵѺѴ ѶѶѷ ѶѹѼ Ѹ 8 ( , ,8 Non- ѹ Ѷѷ Ѵѹѵ ѸѺѸ ѵ ѼѵѼ ѹ Ѷ Ѽѹѷ Ѷѵ ѵѷ Ѵѳ 8 ѳѸ 8 Ѹ ( ( 8 ѳѺ Ѷѳ ѵѷѴ Ѵѵ ѸѶ ѶѸ ѷѶѵ Ѵѷ ѳ Ѷ Ѻ 8 – – – Ѷ ) ) ) ) ) – – ) )( Ѷѵ Ѷѷ Ѷѷ ( Ѵ Ѵ ѵ equity ( ( ( ( ( ( , ,8 , , ,8 , equity Total ѹѸѳ Ѹ ѼѶѳ Ѵѳѷ ѴѳѼ ѸѵѸ ѷѸ ѺѳѸ ѼѹѺ ѼѷѼ ( ( ( ,8 , , , Total ѼѵѺ ѷѸѶ ѴѶѹ Ѵѳѷ ѸѺѸ Ѵ ѼѹѺ ѶѸ ѵѳ 8 Ѷѷ ( ѳѳ 8 8 ѳ ѹ 8 – ѳ ѳ ) ) ) ) ) ) ) ) ) ) ) ) POWER FINANCIAL CORPORATION Operating activities Operating activities Financing activities Investment activities activities Investment Net cash from operating activities includes fromoperatingactivities Net cash period endof equivalents, Cash andcash PART A POWER FINANCIAL CORPORATION
) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) , – – – – – 8 Ѵ 8 Ѻ 8) 8) 8) 8 8 Ѵ 8 Ѽѷ Ѹ ѷѷ ѷ ѵѳ ѴѴ ѴѸ Ѹѹ 8 Ѷѳ ѵѹѷ ѷѵѹ ѷѵѹ ѸѴѵ ѷ ѺѴѹ ѸѺѷ ѴѳѶ ѼѴѶ ѴѸ ѴѴ ѵѺѼ ѴѹѼ ѵѺѶ ѶѳѺ ѵѳѼ ѷѳѴ ѸѼѳ ѺѴѵ ѹѵѴ ѵѶ ѸѶѴ ѼѷѺ ѸѼ ѸѶѷ ѹѳѶ ѼѶѵ ѸѵѸ ѶѵѴ ѵѹѸ Ѷ , ,8 , , , , , , , , , , , , , , , , , ѵѳѴ Ѷ Ѷ Ѹ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѷ ѵ ѷ ѵ Ѷ Ѹ Ѹ ѷ ѴѼ ѵѳ 49 A
)( ( ) ) ( )( )( )( )( ) )( ) ( )( ) )( )( )( )( )( )( )( )( )( )( ) )( – – – 8 8 8 Ѵ Ѻ 8 Ѷ 8 ѹ 8 ѵ 8 8 ѴѺ ѶѼ ѹѶ Ѵѵ Ѻѹ 8 8 8 ( ( ( ( ѵѳѴ ѷѶѸ ѺѹѺ ѷѵѷ ѵѼѵ ѵѺѼ Ѵѵ ѵѸѳ ѵѶ ѵѺѼ ѺѶѴ ѹѵѷ ѹѸѳ ѵ ѼѵѶ Ѷ ѵѼ Ѹ Ѵѳѷ ѼѶѺ Ѷѹ ѴѸѳ ѴѺѶ Ѵ ѷѸѵ ѹѺ ѴѶѺ ѴѺѴ Ѻ ѸѳѺ ѹѸѵ ѴѺѴ ѵѳѶ ѹѵѷ ѷѵѴ ѶѸѶ , , , , , , , , , , , , , , , , , ( ( ( ( ( ( ( ( ( ( ѵѳѴѼ 8, 8, Ѵ Ѵ Ѵ ѷ ѵ Ѹ Ѵ Ѵ Ѷ Ѷ ѵ Ѵ Ѵ Ѹ Ѹ ѷ ( (8, ( ( ( ( ( ( ( Ѵѵ Ѵ Ѵ ( Nine months ended September months Nine ] Ѵѳ ] ѷ ] ѹ
s
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POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER f T s o e A
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h W e a e t s Change in reinsurance assets assets reinsurance Change in or loss through profit fair value Change in Change in insurance and investment contract liabilities and investment insurance Change in to non-controlling interests By subsidiaries Change in funds held by ceding insurers held by ceding insurers funds Change in shares preferred Perpetual Common shares Other Other v n p e O a i n Effect of changes in exchange rates on cash and cash equivalents in exchange rates on cash and cash equivalents Effect of changes and cash equivalents Decrease in cash of year equivalents, beginning Cash and cash Bond sales and maturities maturities Bond sales and other properties and Investment in investment Issue of common shares by the Corporation Corporation shares by the Issue of common by subsidiaries Issue of equity instruments [Note issuer bid cancellation substantial for under shares Repurchase of common by subsidiaries shares Repurchase of common by subsidiaries shares preferred Redemption of [Note Issue of debentures Decrease in other debt instruments liabilities Repayment of lease entities Increase in obligations to securitization I Mortgage and other loan repayments Change in loans to policyholders acquired net of cash and cash equivalents Business acquisitions, F Dividends paid P Condensed Consolidated Statements of Cash Flows (unaudited) dollars] of Canadian millions [in O income taxes Earnings before and other loans Investment in mortgage Proceeds from assets held for sale N received Interest and dividends Change in cash and cash equivalents held for sale [Note classified as cash and cash equivalents Change in Adjusting items Adjusting items Investment in bonds Repayments of obligations to securitizationobligations and other Repayments of entities Sale of shares Interest paid Income tax paid, net of refunds refunds Income tax paid, net of debentures Redemption of Sale of investmentproperties C Increase in other debt instruments debt instruments Increase in other Investment in shares corporations and associates [Note controlled Investments in jointly Balance, end of period POWER FINANCIAL CORPORATION FINANCIAL POWER year of Balance, beginning PART A POWER FINANCIAL CORPORATION Note Insurance andInvestment Contract Liabilities Note 8 Note and Associates Note Note Note Note Accounting Note Policies The Corporation iscontrolled byPower Corporation ofCanada. for thethreeandninemonthsended September 30, 2019 were ap The unaudited Interim Condensed Consolidated Financial Statements (financial statements) of Power Financial as at and Holding SA,Power Financial also ha in companies in thefinancial services sector inCa international management diversified isa Financial Power 751 VictoriaSquare, Montréal, Québec, Canada, H2Y 2J3. Power Financial Corporation isapublicly listed company (TS N CALM The following abbreviationsthese are usedin Consolidated Financial Statements: Note NOTED.) OTHERWISE DOLLARS,UNLESS OFCANADIAN AREIN MILLIONS AMOUNTS (ALL TABULAR Statements Financial Consolidated Condensed Interim the to Notes P ieo Great-West Lifeco Inc. Lifeco Life Irish IG Wealth Management Financial IGM or IGM IFRS Great-West Life &Annuity Great-West Life China AMC Canada Life O O W
T Ѽ Ѻ ѹ Ѹ ѷ Ѷ ѵ Ѵ
A E Debentures andOther DebtInstruments Segregated Funds Investments in Jointly Controlled Corporations Investments Investments Sale for Held Assets Business Acquisition and Disposal Disposal and Acquisition Business Basis ofPresentation and Summary ofSignificant Corporate Information E R
1 50 F
I
N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 Corporate Information Corporate Information A
N C I
A L
C
O R P The CanadaLife Assurance Company Method Liability Asset Canadian Irish Life Group Limited Limited Group Life Irish Investors GroupInc. IGM Financial Inc. International Financial Reporting Standards Great-West Life &Annuity Insurance Company The Great-West Life Assurance Company Co.,China Asset Ltd. Management O R A T I O N
s substantial s substantial holdings inglobalindustrial and serv nada, the United StatesandEurope. Through its investment in Pargesa ѸѼ ѸѼ ѸѺ ѸѺ Ѹѹ ѸѸ Ѹѷ ѸѴ Ѹѳ
and holdingcompanythatholds int
X: PWF) incorporated and domiciled in Canada and located at Note Note Note Note Note Note Note Note Note
Note Wealthsimple Power Financial or Portag Parjointco Portag London Life London Life Insurance Company Insurance Life London Mackenzie or Life London Putnam Power Corporation Pargesa ѴѼ Ѵ ѴѺ Ѵѹ Ѵѷ ѴѸ ѴѶ Ѵѵ ѴѴ Ѵѳ the Corporation Mackenzie Investments Fair Measurement Value 8 Segmented Information Earnings PerShare Other Comprehensive Income Income Taxes PensionOther Plans Post-Employment and Benefits Risk Management Share-Based Compensation Capital Management Stated Capital proved byitsBoard ofDirectorsonNovember7,2019. Ѷ Ѷ
I Portag II
ices companies basedin Europe. Wealthsimple Financial Corp. LLC Investments, Putnam Power Financial Corporation Power Corporation ofCanada Portag Parjointco N.V. SA Pargesa Holding Mackenzie Financial Corporation (unaudited) Ѷ Ѷ Ventures LP Ventures II LP IILP Ventures erests, directlyorindirectly,
Ѻѷ Ѻѳ ѹѼ ѹѼ ѹѝ ѹѝ ѹѷ ѹѵ ѹѳ ѹѴ
NOTE 2 POWER FINANCIAL CORPORATION BASIS OF PRESENTATION PART A POWER FINANCIAL CORPORATION
ѝ , %, as 8 ). Ѻ ѳ ѳ ѵ . . . .8 . ѝ ѝ ѶѴ ). Ѵ over ѝ ѺѴ ѵѳѴ 51 A December % equity interest % equity , ѳѷѺ ѳѴѳѳ ѳѹѸ .8 8 . .8 . Ѷѳ 8. ѷ Financial’s financial financial Financial’s Ѻѳ ѹѹ ѵ 8 ѵѳѴѼ Ѵѳѳ decrease in ownership in ownership decrease ). %, respectively, at December 31, December at %, respectively, ѝ ѝ rish Life and Putnam. 201 September lidated statements of earnings, earnings, of statements lidated .5% in Portag3 (same at December 31, 201 December .5% in Portag3 (same at ѝ % and 4.0%, respectively, at December 31, 201 31, at December % and 4.0%, respectively, tain notes to Power tain notes ѝ of changes in equity and consolidated and consolidated in equity of changes %, respectively, in Wealthsimple (16.0%, 21.9% and 43. in Wealthsimple %, respectively, ѝ non-proportionate basis. The basis. non-proportionate lance sheets, conso lance sheets, ed consolidated financial statements and of Lifeco IGM statements financial ed consolidated (the Lifeco SIB) and purchased for cancellation 59,700,974 of its and purchased SIB) (the Lifeco ed from the date of acquisition, being the date on which the the which on the date being acquisition, of date the ed from the Corporation has power over the entity; (ii) it is exposed or h (ii) it is exposed entity; over the power has Corporation the ements of the Corporation for the year ended December 31, 201 December ended year the for Corporation of the ements terest of 9.3% in Portag3 II (15.7% at December 31, II (15.7% at December terest of 9.3% in Portag3 Power Financial and its subsidiaries on a consolidated basis after basis after consolidated on a and its subsidiaries Power Financial (IAS 34) using the same accounting policies, which are consistent with with consistent are which policies, accounting same 34) (IAS using the equal equity in ve income, consolidated statements statements ve consolidated income, feco and IGM Financial each hold an equity interest of 1 an equity interest hold each feco and IGM Financial million recorded in retained earnings and other comprehensive income reserve reserve income comprehensive other and earnings in retained million recorded an equity interest of 20.9%, 17.1% and 46. of 20.9%, interest an equity ѝ wealth management companies
N
O I te basis in the Lifeco SIB. in te basis POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER N T ). ounts shown on the consolidated ba ounts shown on the consolidated ѝ A manager investment Technology-driven O ] Ѻ I R [ Interim Financial Reporting Interim Financial T O % equity interest and IGM Financial holds a 4.0% equity interest in Lifeco (67. Lifeco in interest a 4.0% equity holds and IGM Financial interest % equity ѝ P A in insurance and holding company with interests Financial services subsidiary companies are IG Wealth Management and Mackenzie. R ] for the three and nine months ended September and nine months three the for Cer 30, 2019. T stage investments in the global on early Focusing technology sector ѵ ] ][ and IGM Financial each hold an O ѹ N [ companies services financial of innovative Backing Ѵ ] [ C Ѹ management and asset Wealth
[ E ] ѷ L ][ S Ѷ A [ I E C R N P Basis of Presentation and Summary of Significant Accounting Policies
A F N I
O F 2
Ventures II LP Ventures LP
). R Ѷ Ѷ S ѝ E I E T S respectively, at December 31, 201 respectively, 201 W O A ] hold and IGM Financial Portag3 Financial, Power ] Lifeco’s principal operating subsidiary companies are Great-West Life, Great-West Life & Annuity, London Life, Canada Life, I ] Power Financial holds a 62.1% equity interest and Great-West Life holds 3.9% a equity interest in IGM Financial (61.4% and 3. ] IGM’s principal operating ] and Li a 63.0% equity holds interest Financial Power ] holds Financial a 66. Power O Ѻ ѵ Ѷ ѷ Ѹ Ѵ [ [6] Power Financial, Lifeco the entity. Subsidiaries of the Corporation are consolidat are Corporation of the Subsidiaries entity. the Corporation obtainscontrol, andcontinue to be consolidateduntil the date such control ceases. TheCorporation reassesses whether or not it controls an entity if factsand circumstances indicate thereare changesto onemore or of the elements of above. control listed are: subsidiaries of the Corporation operating The principal [ [ Wealthsimple Financial Corp. Wealthsimple Financial [ [ On April 17, 2019, Lifeco completed a substantial issuer bid bid a substantial issuer 17, 2019, Lifeco completed On April rights to variable returns from its involvement; and (iii) it has the ability to affect those returns through its use of power power use of through its those returns affect to ability has the (iii) it and its involvement; variable returns from rights to Corporations Great-West Lifeco Inc. IGM Financial Inc. Portag [ operation business Primary SIB by Lifeco the in participated Corporation The share. common per of $33.50 price purchase a at common shares a Lifeco common shares on aand on proportionate basis its tendering $10 of gain a dilution in resulted Lifeco in SUBSIDIARIES SUBSIDIARIES (i) when: controls Corporation the entities are Subsidiaries P N B International with accordance in prepared been 2019 have at September 30, as Financial of Power statements financial The Standard Accounting 34, Portag with a corresponding decrease in non-controlling interests in the statements of changes in equity. IGM Financial also also IGM Financial in equity. of changes statements in the interests in non-controlling decrease a corresponding with proportiona aparticipated on The financial statements of Power Financial include, on a consolidated basis, the results of Lifeco and IGM Financial, both companies. The am public IFRS, as set out in Note 2 to the consolidated financial stat financial consolidated 2 to the in Note out as set IFRS, below. Policies Accounting in Change section the in as described except of accounts the include statements financial The elimination and transactions of intercompany balances, and adjustments. certain consolidation statements are derived from the notes to the financial statements of Lifeco and IGM Financial. Financial. and IGM of Lifeco statements financial to the notes the from derived are statements consolidated statements of comprehensi of statements consolidated disclos publicly from the derived mainly are flows cash of statements all as at and Financial, NOTE 1 POWER FINANCIAL CORPORATION FINANCIAL POWER PART A POWER FINANCIAL CORPORATION The principal jointly controlled corporatio dividends received. (losses), other comprehensive income(loss), the changes accounted forusingthe equity method. Under the equity method, th IFRS 16LEASES – (IFRS 16) oprtos lsiiainPrimary business operation Classification Effective January1, 2019,the Corpora C [ China AssetManagementCo.,Ltd. Parjointco N.V. Corporations financial policies, without having control or activities. Associates are entities in which the Corporation exercises significant influence over the entity’s operating and Jointly controlled corporations are entitie ASSOCIATES AND CORPORATIONS CONTROLLED JOINTLY N P measured amortizedcost at the using ef is liability lease The is used. rate borrowing incremental the Generally, rate. borrowing incremental subsidiaries’ its or [ recognized as an expense on astraight-line basisover the term within operating andadministrative expenses. term of 12 are lease a leases these with associated payments lease The assets. of low-value leases and or less months donotright-of- its recognize subsidiaries and Corporation The lease liabilities isincluded within financing charges. discounteddate, using implicit rate the interest in the leaseor,ifthatra The lease liability isinitially measured at the present value of the lease payments that are not paid at the commencement Depreciation expenseonright incl is and method straight-line the using term lease of the received. The right-of-use asset isdepreciated totheearlier oftheend oftheuseful life oftheright-of-use asset orthee remove the underlying asset ortorestore the underlying asset or or beforethe commence made at The right-of-useassetis reCorporationits subsidiaries and At inception of a contract, the Corporati Accounting policies operating and financing leases nolonger applies, however anoptio and a corresponding leaseliability representing its obligation tomake lease disclosure ofleases. IFRS 16 requires a lessee torecognize arig The standard prescribesnewguidance for identifying aleasewe as Ѵ ѵ O ] Held by IGM Financial. Financial. Held by IGM ] atDecember31,201 (same ParjointcoN.V.holdsa55.5% ] H O W A T A E N E R
G
2 52 F E
I N
POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 I A Basis of Presentation and Summary of Significant Accounting Policies Policies Accounting Significant of Summary and Presentation Basis of N N [ Ѵ
] C on oto Holdingcompany Jointcontrol A I A C L C
C O O U R N initiallymeasured base P O T R I N A T G [ I -of-use assets is included within operating and ѵ O
] P N O ment date, plus any initial direct costs cognize a right-of-use asset and a lease liability at the lease commencement date.
L tion adopted IFRS 16,tion 17, whichadopted IFRS replacesIAS I C soit Assetmanagement company Associate I E fective intere ns and associates of the Corporation are: S on and its subsidiaries assess whether a contract is or contains a lease. The s inwhich unanimous consent is required fordecisions relating torelevant
joint control. Investments in jointlycont ѝ ) equity interest in Pargesa Holding SA. SA. Holding inPargesa interest ) equity d ontheinitial amount of the lease lia st method andisincluded within in equityofthe jointlycontrolled corporations and associates, and uded within owner-occupied properties and capital assets. assets. andcapital properties owner-occupied within uded use assets and lease andlease use assets ht-of-use asset representing itsright touse the leased asse nal exemption exists forshort the site on which it islocated,less anylease incentive ll as the recognition, measurement, presentation and e Corporation recognizes its share ofnet earnings te cannot be readily bereadily cannot te incurredof costsdismantleestimate and to andan payments for all leases. The distinction between administrative expenses. Leases liabilities for short-term leases that have that leases forshort-term liabilities rolled corporations andassociates are bility adjusted fo other liabilities. Interest expense on (IAS 17) and related (IAS interpretations. determined, the Corporation’s September -term andlow-value leases. r any lease payments ѵѳѴѼ (continued) ѴѶ Ѹѳ Ѷѳ . . ѼѴѶѳѸѳ , % equity interest December
ѵѳѴ ѶѴ nd . . Ѽ ѳ 8 , t
NOTE 2 POWER FINANCIAL CORPORATION Liabilities andshareholders’equity Liabilities Assets PART A POWER FINANCIAL CORPORATION
6 ) ) ) ) ) ) ѹ ѹ ѹ ѹ , as 8 ѸѼ ѼѴ ѝ ѹѹѴ ѴѵѺ ѳѶѼ Ѵ ѵѷѺ ѸѴѸ ѸѸѺ Ѽѹѷ Ѷѹѹ , , , , ,8 , , ( ѵѳѴѼ Ѵ Ѵ Ѹ Ѵ , 53 Ѵ ѴѴ ѴѸ ѴѶ (restated A January January the information the
(
(
( (
)
) )
f (continued) (continued) Ѽ ѵ Ѷ Ѷ Ѽ ( ( ( Ѵѹ 8 8 ѵѼ to not recognize right- Ѹ Ѹ s recognized on initial on initial s recognized IFRS Impact o emental borrowing rate at borrowing emental in twelve months of the date of months of the date of twelve in ) ch and accordingly ch and accordingly 8 8 were reclassified to decrease right-of-use assets. ѶѶѴ Ѹѹѳ ѵѴ ѸѴѺ Ѽѹѳ ѸѼѺ ѼѹѺ ѶѹѼ , , , , , , ѵѳѴ ѝ Ѵ Ѹ Ѵ , dients including: i) Ѵѳ ѴѸ ѴѶ ѶѴ to the lease liabilitie lease to the December (as previously reported previously (as using the Corporation’s incr Corporation’s the using 2019, except for the classification of lease payments as as payments of lease classification the for except 2019, and its subsidiaries discounted lease payments using their their using payments lease discounted subsidiaries and its weighted-average incremental borrowing rate was 3.95% at 3.95% at was rate borrowing incremental weighted-average any prepaid or accrued lease payments relating to that lease lease to that relating payments lease or accrued any prepaid ѵѳѴѼ , modified retrospective approa retrospective modified Ѵ ich with end the remaining lease terms 8 ѵѳѴ , ration and its subsidiaries’ operating lease obligations at December 31, 201 obligations at December lease operating and subsidiaries’ its ration iately before the date of initial application; or ii) at its carrying amount as if IFRS ii) at application; or date of initial the 1 before iately included in operating lease commitments in operating included
ѶѴ ѵѳѴѼ scount rate to a portfolio of leases with reasonably similar characteristics. characteristics. similar reasonably with of leases a portfolio to rate scount ѵѳѴѼ , its subsidiaries elected to apply practical expe practical to apply elected subsidiaries its , Ѵ ating activities. The adoption of IFRS 16 did not have an impact on net cash flows. net impact on did not have an of IFRS 16 adoption The activities. ating
Ѵ N O
I ies for leases for wh ies for leases POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER y T t i A u R q O e
’ P s r R e O d l C remainsaspreviously reported under IAS 17 and related interpretations.
o L h ѝ e A r I
] a C Ѵ [ h N s
Basis of Presentation and Summary of Significant Accounting Policies A d N n I
a
F 2
s
e R i
E t E s i l t T i -value leases included in operating lease commitments-value leases included in operating e W b
s w O ] 31, 201 at December sheet balance on the liabilities other within of $64 million payments lease Accrued a O s i Ѵ application of IFRS 16 at January 1, 2019: January at IFRS 16 of application previously disclosed in the Corporation’s consolidated financial statements, statements, financial consolidated Corporation’s the previously disclosed in of-use assets and lease liabilit transition; and ii) to apply a single di a single ii) to apply and transition; 1, 2019: January at as sheet balance the Impact on Owner-occupied properties and capital assets Operating lease commitments at December commitments Operating lease rate at January borrowing the incremental Discounting using for flows cash of the statement or earnings of statement the on impact material a have 16 did not IFRS of application The 30, September ended periods and nine-month three-month the had been applied since the commencement date but discounted discounted but date commencement the since applied had been Corporation the liabilities, January lease measuring When 1, 2019. The 1, 2019. at January rates borrowing incremental respective January 1, 2019. On transition, the Corporation and A Investment properties L Other liabilities [ Corpo the reconciles table following The of oper activities instead financing
P N 16 to IFRS transition of Impact a 16 using IFRS to adopt elected has Corporation The of amount by the adjusted liability, lease to the equal immed balance sheets the on recognized presented for 201 for presented On initialapplication, the Corporation elected to measure right-of-useassets on a lease-by-leasebasis at eitheramountan i) Lease liabilities recognized at January Lease liabilities recognized Renewal options not included in operating lease commitments Leases not yet commenced at January at January Leases not yet commenced included in operating lease commitmentsShort-term leases Non-lease components included in operating lease commitmentsNon-lease components Retained earnings Retained earnings Deferred tax liabilities tax liabilities Deferred Lo Non-controlling interests Non-controlling interests
CHANGE IN ACCOUNTING POLICIES POLICIES ACCOUNTING CHANGE IN POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 2 PART A POWER FINANCIAL CORPORATION Revenue and net earnings of Invesco Ltd. (Ireland) were not significant to the results of the Corporation. including intangibleassetsandcompletion ofthefinal purchase price During the second quarter of 2019,Lifecocompleted its comprehensive evaluation ofthe fairvalue ofthe net assets acquired, employee benefit consultancy andprivate wealth management that manages and administers assets onbehalf of clients. acquire a controlling interest inInvesco Ltd. (Ireland), an independent financial consultancy firminIreland specializing in On August 1, 201 Invesco Ltd.(Ireland) $247 million ($199 millionaftertax). $12,463 million tototalpaid orcreditedto policyholder $219 million to net investment income an statements of earnings, Lifeco recognized increases of$13, Life (Note 5), recognition of $15,230 resultof the transaction, the balancesheets wereimpacted by individual life insurance and annuity business in the United States. The transaction was completed onJune 1, 2019.As a ofits all substantially reinsurance, indemnity via sell, to Life) (Protective Company Insurance Life Protective with agreement of thisimpact is $77million. On January 24, 2019,Great-WestLife & Annuity, a wholly owned subsidiaryofLifeco, announced that it had entered into an U.S. individuallifeinsurance and annu LIFECO N impact theCorporation fromwhat was disclosed in the December 31,201 statements when they become effective. There have been no Standards Board (IASB) and analyze the effect that changes in the standards may have ontheir consolidated financial The Corporation monitorthepotential anditssubsidiariescontinuously F thereto forthe year ended December 31,201 further described in the relevant accounting policies as judgments have made bysignificant manabeen the net earnings, comprehensive income and related disclosures. Key sources ofestimation uncertainty and areas where required to make significant judgments, estimates and assumptions th In the preparation of the financial statements, management of the Corporation and management of its subsidiaries are U of $10 decrease in a resulted standard ofthe interpretation the underlyinguncertain tax treatment would impact the provisionaccrual tax of the balance as sheetdate. The applicationof likely to occur. The provision fortax uncertainties is classified as cu a provisionfor tax uncertainties which meets theprobable threshold measurement 12, requirements in IAS Effective January 1, 2019, IFRIC 23 TAX – TREATMENTS OVER INCOME 23) UNCERTAINTY (IFRIC N P O U S O O W T E T T A U E
E E O R R
3 2 F 54 F E
I
S N A POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 I A Business Acquisition and Disposal Disposal and Acquisition Business Policies Accounting Significant of Summary and Presentation Basis of G C N N C C O I I A ѝ F U L , Lifeco, through its indirectwholly ownedsubsidiary Irish Life Gro I
C N C A O T R N I N P T O G
J R
the Corporation adopted IFRIC IFRIC the Corporationadopted 23 which clarifies the application oftherecognition and U C A T H D I O A G N N M
G E million ofreinsurance assets (Note E N Income Taxes, S T ity businessrein
S , d $116 million tooperating and administrative expenses, as well as adecrease of
E ѝ S . T I M A T gement of the Corporation and the management ofitssubsidiaries are gement management ofthe andthe Corporation when there is uncertainty over income tax treatments. Under23, IFRIC E S surance agreement
A describedin the Corporation’s financi s. The netloss forLifeco resulting fromthe transaction was N ѝѝ D 9 million to Lifeco’s retained earnings. The Corporation’s shar Corporation’s The earnings. retained Lifeco’s to million 9 significant changes to future accounting policies that could 9 million toceded premiums, $1,0
the transfer of$15,595 million ofinvestments to Protective A S S rrent ordeferred based on how a disallowance of the for recognition is measured U allocation, with nosignifica M changes proposedbyth at affectthereported of assets, amounts liabilities, ѝ P ѝ ) and$1,069 million ofcashreceived. Within the T consolidated annual financial statements. statements. financial annual consolidated I O N S
up Limited,completed its agreement to based on the amount most on theamount based e International Accounting e International nt adjustment to goodwill. ѝ al statementsnotes and 0 million to fee income, (continued)
e
NOTE 4 POWER FINANCIAL CORPORATION Assets Assets Liabilities Liabilities PART A POWER FINANCIAL CORPORATION , 8 Ѷ ѶѴ ѼѺ Ѻѳ ѼѺ ѵѵ ѵѼ ѵѺ ѶѴѼ ѵѴѹ ѶѴѼ ѵѴѹ ѴѴѵ ѺѶѴ , , , , ѵѳѴ Ѷ ѷ Ѷ ѷ 55 A December , 8 8 8 8 8 8 8 Ѷ Ѷѳ Ѻѹ Ѹѹ Ѻѹ ѹ ѵѵ ѵѸ ѵѳ ѴѺѵ ѳѷ ѴѺѵ ѳѷ ѺѸ 8 8 8 , , , , ѵѳѴѼ Ѷ ѷ Ѷ ѷ ve evaluation of the ve evaluation fair h Friendly Assurance Society Society Assurance h Friendly September ced an agreement to sell a heritage block block a heritage sell to agreement ced an assets held sale for are as follows: finalized after a comprehensi after finalized ry of Lifeco, announ of Lifeco, ry cted to be material to the financial statements. financial the to material to be cted cies and non-unit-linked policies, to Scottis policies, cies and non-unit-linked pproval for the transfer of these policies was received and the transfer occurred occurred transfer and the was received policies these of transfer for the pproval ies of theclassified group disposal as
N O I POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T A R O P R O C
L A I C N Assets Held for Sale A N I
F 4
s , Canada Life Limited, an indirect wholly owned subsidia wholly an indirect Limited, Life , Canada
e R i ѝ
E t E s i l t T i e W b Bonds Bonds Shares Investment properties Loans to policyholders s O a O s i Total assets included in disposal group classified as held for sale as held for sale group classified Total liabilities included in disposal Investments Investments liabilities Insurance contract Assets held for sale sale Liabilities held for value of the assets and liabilities transferred has been completed. completed. been has transferred and liabilities assets the of value expe not are policies of these the disposal from earnings Net L policyholders on account of contracts segregated fund investment Insurance and Subsequent event a court required the 2019, 22, October On 2019. 1, November from with effect be will group disposal of the and liabilities of assets composition The A equivalents Cash and cash Investments on account of segregated fund policyholders P N Limited Society Assurance Friendly to Scottish Sale of policies In 201 Investment contract liabilities Investment contract liabilities of individual policies, composed of unit-linked poli of unit-linked composed of individual policies, Limited. The of the composition assets andliabilit NOTE 3 POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 2 JUDGMENTS, ESTIMATES ANDUSE OF SIGNIFICANT ASSUMPTIONS CHANGES FUTURE ACCOUNTING PART A POWER FINANCIAL CORPORATION [ [ Loans topolicyholders Investment properties Shares Mortgage andotherloans Bonds Carrying values and estimated fairvalues of investments are asfollows: CARRYING VALUES AND FAIR VALUES N P ѵ Ѵ O ] ] O
Available forsale Classified asfair value throughprofit orloss Designated asfair valuethrough profit orloss Classified asfair value throughprofit orloss Designated asfair valuethrough profit orloss Loans andreceivables Loans andreceivables Available forsale Classified asfair value throughprofit orloss Designated asfair valuethrough profit orloss W Fair value ofcertain shares available forsale cannotbe reliably measured, therefore these investments areheld cost. at As aresult ofthe reinsurance transaction with Protective Life (Note3),investments were derecognized and reinsurance assets T A E E R
5 56 F
I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A Investments Investments N C I A [ L ѵ ]
C O R P O R A T I O N
ѴѺѴ ѴѴѹ Carrying ѶѴ Ѷѳ ѴѺ Ѵѵ 8 8, Ѹ Ѽ Ѽ Ѵ Ѵ ѷ value ,8 , , , , , , , , , , , ѹѵѴ ѷѷѼ ѳѸѼ Ѷѵѷ ѺѴѺ ѵѼѷ ѴѹѺ Ѻ Ѹѷѵ ѼѸѳ ѷ Ѵѹѳ ѳѹѼ Ѽѳѹ ѼѼ Ѵѵ 8 8 ѳ Ѽ September ѴѺѸ ѴѴ Ѷѳ Ѷѵ ѶѴ ѴѼ Ѵѵ 8 , 8, Ѹ Ѽ Ѽ Ѵ 8, Ѵ ѷ ѵѳѴѼ value , , , , , , , , , , , ѼѶѴ ѺѸѼ ѵѺ Ѷѵѷ ѺѴѺ ѵ ѵѼѷ ѴѹѺ Ѻ ѷѵ Ѹѷѵ ѼѸѳ ѷ Ѵѹѳ Ѽѳѹ Fair Fair 88 Ѵѵ 8 8 8 ѳ 8 Ѽ [ Ѵ ] Ѵ ѴѵѸ were recognized (Note Carrying Ѷѵ ѶѴ ѴѼ ѴѶ 8 8 Ѵ 8, Ѹ Ѽ 8, Ѵ Ѽ value , , , , ,88 , , , , , ѺѴѺ Ѽѳѳ Ѻѵѵ ѸѶѵ ѳѹѼ ѴѺѼ ѼѵѼ ѹѸ ѵѴ ѵѷѹ ѷѸѵ ѴѶѹ 8 ѼѵѼ ѴѶ 8 8 ѹ ѷ December Ѵ ѴѵѸ ѶѴ ѶѶ Ѷѵ ѵѳ ѴѶ 8 8 , ѵ 8, Ѹ Ѽ 8, Ѵ Ѽ ѝ ѵѳѴ value , , , , ,88 , , , , , ). ѼѵѼ ѹѸ ѷѸѵ ѴѶѹ 8 Ѵѹѹ ѶѷѼ ѹѴѼ ѸѶѵ ѼѵѼ ѸѵѸ Ѽѹѹ ѵѴ ѵѷѹ Fair Fair ѴѶ 8 ѷ ѹ 8 8 NOTE 6 POWER FINANCIAL CORPORATION NOTE 7 PART A POWER FINANCIAL CORPORATION
) ) , ) – 8 8 Ѻ 8 ѳ ѶѴ ѴѴ ѸѶ 8 ѹѷ (8 ( ѴѼѷ ѳѴѹ ѵѷѸ ѷѸ Ѵѷѵ ѼѸѹ ѶѴѼ Ѻѷѹ ѷѺѷ Ѷ ѴѼѴ ѸѵѺ , , , , ,8 , , , , , , ѵѳѴ ѵѳѴ Ѽ ѵ Ѷ , 57 ѴѶ ѷѵ Ѹѳ Ѵѵ Ѷѳ ѵѴѴ ѵѳѼ A ) ) – – December ѼѴѵѵ Ѷ Ѵ ѴѴ ѴѴ Ѵѷ ѷ Ѷѳ ѷ utory reporting utory reporting , 8 )( 8 September Ѷѳ ѺѴ ѷѵѼ Ѽѹѳ ѹѸѵ ѸѺѹ ѷѳѶ Ѻѵѷ ѵѴѵ Ѵѳѷ ѹѳѷ ѴѴѸ , , , , ,8 , , , , ,
) ( ) (
ѵѳѴѼ – – – ѵ Ѵ ѷ ( 8 Ѵѵ ѷѷ ѼѺ Ѹѷ Ѵѵ ation (Personal Capital) (Personal ation ѵѴ Ѵѵ Ѵѹ ѵѵѸ ѵѵѵ ѹѷ ѹѷѴ and therefore accounts for and therefore September
) ( (
– – (8) (8) the relevant stat relevant the Ѽѵ ѺѸ ѵѴѴ ѶѸѷ ѸѺѷ , , Ѷ Ѷ Parjointco AMC China Other Total )( Ѽ ѹ Ѽѳ ( ѵѴѺ ѴѺѹ ѵѵѺ ѳѳѼ ѸѸѷ Total , , ѵѳѴѼ ѷ ѷ , Personal Capital Capital Corpor Personal Ѷѳ ) ) – Ѽ Ѷ Ѵ (8 ( ѶѸ ѵѴѺ ѵѸѴ Other segregated fund policyholders: fund policyholders: segregated September counted for as an available-for-sale investment. The carrying The investment. available-for-sale an for as counted ) ) – – – Ѷ 8 ѵѶ ѷѸ Ѵѳ ( ( ѹ ѹѸѴ Significant influence arises from its voting interest and board board and interest voting arises from its influence Significant termined that termined influenceit has significant lled corporations and associates are as follows: as follows: are and associates lled corporations China AMC ) – – ѳ Ѹ (8 ѴѹѴ ѵѺѸ ѵѼѴ ѹѸѵ , , Ѷ Ѷ a gain recorded in net investment income. income. investment in net recorded a gain Parjointco % equity interest in Personal Capital. Capital. in Personal interest % equity ѝ co’s operations, on account of co’s operations,
N O I ils of the investments, determined in accordance with investments, ils of the POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T A R O P R O C
L A I C N Investments in Controlled Jointly and Corporations Associates Segregated Funds A N I
F 7 6
R E E E T T W Share of other comprehensive income (loss) income Share of other comprehensive Share of earnings (losses) Share of earnings Acquisition Acquisition Investments Effects of changes in ownership and other ownership and other in Effects of changes Dividends Dividends O O O value at the time of the acquisition of significant influence was $217 million. The reclassification of the investment from from the investment of The reclassification million. was $217 influence of significant acquisition of the time at the value in resulted associate an to for sale available 24. IGM held a 2019, 30, As at September its interest as an associate using the equity method. equity using the an associate as its interest representation. The interest in Personal Capital was previously ac previously was Capital Personal in interest The representation. which increased its voting interest to 22.7%. IGM has de has IGM 22.7%. to interest voting its increased which Mortgage loans Investment properties Shares and units in unit trusts Shares and units Other liabilities Carrying value, end of period of period end value, Carrying equivalents Cash and cash Bonds Accrued income N deta presents following The of each region of Life requirements INVESTMENTS ON ACCOUNT OF SEGREGATED FUND POLICYHOLDERS PERSONAL CAPITAL CORPORATION in million) (US$50 million $67 additional invested an IGM 2019, In January P N contro in jointly investments of the values carrying The beginning of year value, Carrying Mutual funds Non-controlling mutual fund interest interest Non-controlling mutual fund
POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 5 PART A POWER FINANCIAL CORPORATION assets include those assets where fair value is not available from normal market pricing sources, where inputs are utilized in Lifeco’s change infrom Level Level 2 to use($1, 1 of inputs in additionDuring thenine monthsended September30, 2019,certainforeignshare holdings valued at $1,31 to quoted prices in active[ markets for certain[ foreign share holdings. Level 2 fundpolicyholdersInvestments onaccountofsegregated heldforsale fund policyholders Investments onaccountofsegregated [ [ segregated fund policyholders Total investments onaccountof fundpolicyholdersInvestments onaccountofsegregated heldforsale fund policyholders Investments onaccountofsegregated POLICYHOLDERS OF SEGREGATEDFUND ACCOUNT ON INVESTMENTS Balance, end ofperiod Additions (deductions): Balance, beginning ofyear INSURANCEAND INVESTMENT CONTRACTSACCOUNT ON OFSEGREGATED FUND POLICYHOLDERS N P addition toquoted prices in active markets and where Lifeco Total investments on account of segregated fundpolicyholders Total investments onaccountof ѵ Ѵ ѵ Ѵ O Excludes other assets, netof other liabilities, of$8million. ] Excludes other liabilities, netofother assets, of$2,510 million. ] Excludes other assets, netof other liabilities, of$ ] Excludes other liabilities, netofother assets, of$3,146million. ] O Non-controlling mutualfund interest General Fund investment insegregated fund Segregated fund investmentin General Fund Policyholder withdrawals measured atfair value Assets heldforsale[Note Net transfer from GeneralFund Business acquisition Unrealized changesinforeign gains(losses)dueto exchangerates Net unrealized capital (losses)oninvestments gains Net realized capitalgainsoninvestments Net investmentincome Policyholder deposits measured atfair value W T A E E R
7 58 F
I N POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A Segregated Funds N C I A L
C O R P ѷ O ] ѝ R 42 million were transferred from Level A T I O N
(continued) ѝ million. million.
[ [ Ѵ Ѵ ] ] does not havevisibilitythethroughdoes underlying to assets. [ [ ѵ ѵ ] ] 2 to Level1 at December 31, 201 ѴѶѴ ѴѷѸ Ѵѷѵ ѴѶѷ (by fairvaluehierarchy level) Level Level Level Level Ѷ Ѷ , , , , , , Ѽ Ѹ ѹѺ ѵѼѺ ѹѳѶ ѸѺѼ ѴѸѶ ѷѵѹ ѳ ѹѺ Ѽѳѳ Ѵ Ѵ ѹѼ ѹѼ Level Level Level Level , , , , ѷѷѹ ѷѷѶ ѴѼѼ ѵѳѷ Ѷ ѵ ѵ Nine months endedSeptember
ѝ ѵѵѵ ѵѳѼ million were transferred ( ѴѺ ѴѶ Ѵ ѴѺ (
Ѽ ѵ Ѵ 8, ѝ ѵѳѴѼ , , , , , , , , ѴѷѺ ѵѷѳ Ѵѵѹ Ѽ ѳѵѴ ѳѺѺ Ѷѵѹ ѹѶѵ ѳ ѸѵѴ ѹѳѷ ѸѵѺ ), primarily based on ѴѶ ѴѶ ѴѶ ѴѶ ( Level Level Level Level Ѵѳ ѴѼ 8 8 Ѹ ѵ ,88 ,88 , , Ѷ ѵѴѵ ѵѶѸ ѷ ѵѴѸ ѵѷѷ – September ( ( ) ) ( ) ( December Ѽ Ѵ 8 ѼѶ Ѷ Ѷ ѵѵѳ ѵѴѺ ѵѵ ѵѵѸ Ѷѳ ѶѴ ѴѼ Ѵ , , ѵ Ѷ Ѵ 8, Ѷ 8, ѵѳѴ ѵѳѴѼ ѵѳѴ , ,8 , , , , , , , , , Total Total ѼѸѳ ѺѸѺ ѼѸѳ ѷѺѹ ѴѵѼ ѵѳѺ ѷѵ ѷѶѷ ѶѸѺ ѼѴѷ ѺѸѳ Ѵѹѷ ѶѴѴ ѳѶѺ Ѷѷ Ѷѳ ѴѼ Ѵѹ ѵѴ ѹ Ѹѳ 8 8 8 8 8 – , ) ) ) ) NOTE 7 POWER FINANCIAL CORPORATION NOTE 8 NOTE 9
PART A POWER FINANCIAL CORPORATION l 8 ) ) – – 8 Ѽ ( ѶѳѸ ѸѼѷ ѺѴѴ ѸѴ , , , ѵѳѴ ѸѺѵ ѸѺѵ ѵѷѷ ѷѳѷ ѹѸѴ ѷѵѸ Total , , Ѵ , , ( ѵѳѴ 59 , ѶѴ Ѵѵ Ѵѵ ѶѴ A –
f – – – – – – – – Ѵѵѹ Ѵѹѵ Ѵѵѹ Ѵѹѳ , , Ѽ ѼѴѶ December assets Net ѹ ѹ ansfers out of Leve ansfers out 6 million being recorded in 6 Reinsurance 9. The adoption of IFRS 16 had 16 had IFRS of adoption 9. The account o
held for sale policyholders by corroboration of market Investments on ѷѶѴ Ѻѵѳ ѺѴѴ segregated fund fund segregated , , Gross ulative First Preferred Shares, Shares, Preferred First ulative 8, Ѵ liability December ) ) )
f – Ѵѹѹ Ѵѹ Ѽ Ѽ ( ( ѸѴ segregated fund policyholders for for policyholders fund segregated ѷѳѷ ѷѵѸ ѹѸѴ ѵѶѸ ѸѺѵ ѸѺѵ , , , ѴѶ Ѵѵ Ѵѵ 88 Net account o Ѹ ѼѸѼ ѶѺѴ , , , ѵѳѴѼ as evidenced as evidenced Ѵ , policyholders Investments on Ѷѳ ѴѸѷ ѴѸѶ l 3 during the period ended September 30, 30, ended September the period l 3 during segregated fund fund segregated luation methodologies. Tr ) )( ] – – – Ѵ ѹ Ѽ ѳ [ ( 8 ѴѴѹ ѹѶѴ ѴѶѹ ѵѷѷ Ѷ Total ,88 , , ( ѵѳѴѼ ѳѹѵ ѴѼѸ ѴѶѶ , , , September assets ѴѶ ѴѶ ѴѶ Ѷѳ ѵѴ ѵѴ Reinsurance )
f – – – – – – investments on account of on account investments September 8 Ѽ Ѽ Ѵ ѺѵѴ ѴѸѷ ѷѶѶ , , , ( Gross Ѵ liability valuation methodologies valuation methodologies ѴѺѹ ѴѺѷ and offsetting right-of-use assets and lease liabilities of $13 liabilities and lease assets right-of-use and offsetting issued and outstanding 5.90% Non-Cum 5.90% and outstanding issued account o held for sale policyholders Investments on segregated fund fund segregated ) )
f – – – Ѹ Ѵ ( ѴѴѹ ѹѶѴ ѴѶѹ ѵѶѸ ѶѺѴ ,88 , , ( e were no transfers into or out of Leve e were decreased observability of inputs in va decreased observability ѴѶ ѴѶ ѴѶ account o policyholders (continued)
Investments on
segregated fund fund segregated N O I POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER
T ] Ѵ [ A R O P
R Ѷ
O Ѷ C
L A I C N Debentures and Other Debt Instruments Debentures Insurance and Investment Contract Liabilities Segregated Funds Segregated A N I
F 9 8 7
R E E E E segregated fund investment segregated fund income T T T no net impact on investments on account of segregated fund policyholders as of January 1, 2019. of segregated on account on investments no net impact investment properties and other liabilities within investments on account of segregated fund policyholders as of January 1, 201 of January as policyholders fund of segregated on account investments within liabilities other and properties investment W Change in accounting policy Change in accounting Transfers out of Level Transfers As previously reported As previously reported beginning of year in Total gains (losses) included Purchases Sales Transfers into Level Transfers to assets held for sale Transfers O O O ] (Note 3). Life Protective with transaction reinsurance of the completion upon the recognized assets reinsurance Includes ] The segregated funds adopted IFRS 16, which resulted in equal equal in resulted 16, which ] adopted IFRS funds segregated The O Ѵ Ѵ 2019.
IGM FINANCIAL used were proceeds net The 2050. 21, March maturing debentures of 4.206% million $250 2019, IGM issued 20, On March on April redemption, the 2019, of its to fund by IGM 30, INSURANCE AND INVESTMENT CONTRACT LIABILITIES LIABILITIES CONTRACT INVESTMENT AND INSURANCE liabilities Insurance contract Investment contract liabilities [ N Balance, end of period of period Balance, end [ to primarily are due 3 Level into Transfers of inputs in observability to increased primarily due 3 are N for general corporate purposes. B for $150 million, and Series of year Balance, beginning Restated balance, P N Lifeco’s about information additional presents following The value: fair determine to Level 3 inputs utilized has Lifeco which vendors. Ther prices with pricing multiple POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 7 PART A POWER FINANCIAL CORPORATION Transaction costs incurredin connection wi The excess paid under the PFC SIBover the stated capital of pe $33.00 of price purchase a at commonshares its of 49,999,973 issu substantial its completed Corporation April17, the 2019, On Substantial IssuerBid to $1.3665 persharein ($1.2990pershare201to During the nine monthsended September 30, 2019,dividends declared onthe Corporation’s common sharesamounted $7 million). Balance, beginning ofyear C Stock Option Plan (225,000 common shares issued in the nine months ended September 30, 201 During the nine months ended September 30, 2019, nocommon sha Common Shares [ Balance, end ofperiod F ISSUED ANDOUTSTANDING unlimited numberofSecondPreferred Shares, issuable in se of PowerFinanc capital The authorized AUTHORIZED N P
Ѵ i o O r OnJanuary 31,2019, the Series Twere subject toadividend ratereset and the Series Tshareholderswere entitled toconver ] O s Series A Issued under StockOptionPlan Series V Series R Series Q Series P Series O Series K Series I Series H Series F Series E Series D Substantial issuer bid Series T Series S Series L m W $0.26343 Non-Cumulative Floating RateFirst PreferredShares, Series U.The dividend ratefor the Series Tshares wasreset to anannual floating rateFirst Preferred Shares. Noneof the outstanding t
T P m Issuance through effect ofQualifying HoldcoAlternative Purchase forcancellation Cancellation ofshares A E E r R e o
f n
1 60 e F 0
r S I [ r
Ѵ N ѝ h e
] POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019
per share cash dividend payable quarterly. quarterly. payable cash pershare dividend d a A r
N Stated Capital Stated S e h s C
a I r A e L s
( C p O e r R p P e O t u R a A l )
T I O N
ial consists ofanunlimited number of First Preferred Shares, issuable in series; an th thePFCSIB of$5million were recorded inretained earnings. ѝ ). ѝ ,000,000 Non-Cumulative 5-year Rate Reset First Preferred Shares, Series T were converted into into converted Twere Series Shares, Preferred First Reset Rate 5-year Non-Cumulative ,000,000 $1.55 billion was recognized as a reduction toretained $1.55 earnings. ries; and an unlimited nuries; andan ( ѷѹѺ ѹѹѷ ѷѹѺ ѺѴѷ ( ѷѼ Ѵѳ Ѵѵ Ѵѳ Ѵѳ r common share for an aggregate amount of $1.65 billion. of$1.65 r amount for aggregate commonan share 8, ѵ 8, ѹ 8, 8, ѹ ѹ 8, ѹ ѷ , , , , , ,8 , ,8 , , , , , , , er bid (the PFC SIB) and purchased for cancellation forcancellation SIB)andpurchased PFC er bid(the ѼѼѼ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѼѹѸ ѳѳѳ ѳѳѳ ѳѳѳ ѳѼѹ ѳѼѹ ѵѶѷ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ of shares Number ѶѼ ѶѼ res were issued underthe , , , , , , , , , , , , , , , , , , , , ѼѺѶ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѵѼѹ ѵѼѹ ѳѳѳ ѷ ѳѳѳ ѳѳѳ ѳѳѳ Ѹѳѹ ѷѺѼ ѸѴѸ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ 8 Ѹ – September ) ) Ѷѳ mber ofcommon shares. capital , Ѵ Ѵ ѵ Stated ѵѳѴѼ ( , , ,8 ѼѴѳ 8 ѵѸѳ ѵѳѳ Ѷѳѳ ѵѸѳ ѵѵѷ ѴѸѳ ѵѳѳ ѵѸѳ ѵѳѳ ѴѸѳ ѴѸѳ ѵѳѳ ѴѸѳ Ѵѳѳ ѵѼѵ ѷѹѹ ( ѼѺ Ѹѹ Ѷѳ ѶѶ $ – ) ) 8, 8, 8, 8, 8, ѺѴѷ ѺѴѶ t their shares into non-cumulative Ѵѳ Ѵѵ Ѵѳ Ѵѳ ѵ ѹ ѹ ѹ ѹ ѷ Corporation’s Employee ѝ , ,8 , , , , , , , , , , ѵѵѸ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѼѹѸ ѳѳѳ ѳѳѳ ѳѳѳ ѳѼѹ ѵѶѷ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ of shares foraconsideration of Number ѺѴ , , , , , , , , , , , , , , , , , , ѳ ѵѳѳ ѳѳѳ ѵѳѳ ѵѳѳ ѷ ѳѳѳ ѵѳѳ ѳѳѳ ѳѳѳ ѷѺѼ ѷѺѼ Ѹѹ ѴѸѳ ѸѴѸ ѴѸѳ ѳѳѳ ѴѸѳ ѴѸѳ Ѵѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѳѳѳ ѳ Ѻ ѳѳѳ ѵѸѳ Ѷѳѳ ѵѸѳ ѳѳѳ ѳѳѳ ѳѳѳ ѵѸѳ ѳѳѳ fixed rateof4.215% or 8 December Ѹѵѵѷ – – – ѶѴ capital , ѵ Stated ѵѳѴ ,8 8 8 Ѷѳ ѶѶ ѵѹ 8 $ – – – NOTE 10 POWER FINANCIAL CORPORATION NOTE 11 PART A POWER FINANCIAL CORPORATION
) % % % ѝ , $ 8 8 8 ѷ Ѹ Ѵ ѵ ѹ 8 . . . . Ѻ Ѻѹ ѸѼ Ѷѹ ѵѵ ѹѶ Ѻ ...... Ѷѳ . ѷ ѵ Ѽ .8 ѴѺ ѵ ѵѳѴ ѵѳѴ ѶѴ ѶѶ Ѷѵ Ѷѵ ѶѴ ѵѼ , ѶѴ 61 Ѷѳ A exercise price exercise the PFC SIB, PFC the September , and changes changes , and ѝ Weighted-average )
) 3 options in 2013 options in September % % % Ѷ , Ѷ 8 Ѷ ѷ . . .8 . ѝѝ ѹ Ѹѷ Ѷѳ ѳѶѺ ѺѺѼ ѹѵѸ ѵѹѹ ѳѳѳ . . Ѹ Ѵ Ѽ ,88 , , , , choles option-pricing choles option-pricing ѴѸ Ѵ ѷ 8, ѵѳѴѼ Ѷѵ Options 09, ѳѼ 8 ѝ Ѹ Ѻѳ ѵѼѴ ѵѼѵ ѵѵѸ , ,8 , , , ( As a resultAs of Ѵ Ѵ Ѹ ( ѴѴ ѴѴ
39,296 common shares. This39,296 common shares. September 30, 2019, total compensation 2019, total compensation 30, ѝ ), and is recorded in operating in operating recorded is and ), ѝ – $ 8 Ѷѹ ѹ ѵѵ ѷѺ ѼѼ . . . . . ѵѳѴѼ Ѷѵ Ѷѵ ѵѹ Ѷѵ ѶѴ 64.1%. Power Corporation effected its its effected Corporation 64.1%. Power , .35. .35. Ѷѳ ѝ ed using the Black-S ed using exercise price exercise Weighted-average ) September – ѵ 8 granted 1,923,445 options (1, ѷѷѸ ѼѳѸ ѹѵѸ Ѵ , , , ,888 , Options ѼѵѶ Ѽѷѹ ѵѼѵ ѳѺѼ ѴѶѹ , , , , latility of the Corporation’s share price over the expected expected the over price share Corporation’s of the latility ( Ѵ ѹ ѴѴ ѴѶ 01 common shares are reserved for issuance. for issuance. reserved are shares 01 common ѝ uant to which options may be granted to certain officers and officers to certain granted may be options which to uant , ribed in the offer), which the Corporation also offered to other offered also Corporation the which the offer), in ribed ee months ended September September ended ee months ѝ
Stock Option Plan asatStock Option September 2019 30, and 201 September 30, 2019 ($41 million in 201 in million ($41 2019 30, September ionate basis and on a non-proportionate basis. non-proportionate ionate basis and on a wer Financial decreased from 65.5% to 65.5% from decreased Financial wer oration issued and subsequently cancelled 467, cancelled and subsequently oration issued
The fair value of these options was estimat was The fair value of these options ember 30, 2019, Power Financial30, 2019, Power ember ation, theation, parentcompany theCorporation, of participated and in the PFC tendered SIB bsidiaries of the Corporation have established share-based compensation plans. plans. compensation share-based have established Corporation of the bsidiaries outstanding options ranges from $25.07 to $3 ranges $25.07 from outstanding options Stock Option Plan, 27,49 Stock
N (continued) ѝѝѝ O I POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T ying Holdco Alternative (as desc ying Holdco Alternative A stated capital of $556 million and with a earnings, decrease no corresponding in retained impact R O P R O C
L A I C Stated Capital N Share-Based Compensation Share-Based Compensation A
N
I 1 0 F 1 1
R E E E ), and $35 million for the nine months ended nine the million for and $35 ), T T ѝ W Granted Granted Exercised Exercised Expired O O O shareholders, pursuant Corp which the to resulteda net in increase in tender through a offer tender Qualif Power Corporation’s equity ownership Po in ownership equity Corporation’s Power to equity. Outstanding, end of period end of period Outstanding, Risk-free interest rate Risk-free interest Expected life (years) of earnings. statements in the expenses administrative and during the respective periods ended is as follows: as follows: is ended periods respective the during vo historical on the based estimated has been volatility Expected option life. purs plans option stock established also have IGM and Lifeco employees. In addition, other su $11 to million ($11 million in amounted subsidiaries and its Corporation the by granted stock options to the relating expense 201 Dividend yield Expected volatility the at instruments equity of the value fair the or options of the value fair the on based recorded is expense Compensation thr For the period. the vesting over amortized date, grant beginning of year Outstanding, end of period Options exercisable, 13,079, of the price exercise The Compensation expense Sept months ended nine the During Fair value per stock option ($/option) ($/option) exercise price Weighted-average N PLAN OPTION STOCK Employee Under Power Financial’s P N PartyRelated Transaction As partthe Corpor Power PFC SIB, of its Power Financial common shares on a proport sharescommon Financial on its Power A summary of the statusFinancial’sA summary of Power Employee under its Employee Stock Option Plan. under model with the following weighted-average assumptions: assumptions: weighted-average the following model with Common Shares Common Shares POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 10 Shares (perpetual) First Preferred PART A POWER FINANCIAL CORPORATION shareholders while maintaining Power Financial’s strong capitalposition tofundfuture growth opportunities. shares ofcommon repurchase the SIBfacilitated PFC The shares. On April 17,2019,theCorporationcompleted thePFC respective company’s capital management. subsidiaries, aswellthose repurchase of common shares, perpetual preferred shares and de Board ofDirectors ofthe Corporation re responsible for establishing capital management procedure below. described as capital their manage they and requirements The Boardof Directors ofthe Corporation fixed income securities forliquidity purposes. capital. The Corporation is along-terminvestor and as such and non-controlling interests. The Corporation views perpetual The capital structure ofthe Corp to capital shareholders orissue capital. are: strategy management capital Lifeco’s of objectives Lifeco manages its capital on both a consolidated basis as well as LIFECO its main subsidiaries,IGM’ssubsidiaries and certain ofthe of certain and Lifeco However, requirements. capital regulatory imposed externally to not subject is itself Corporation The As a holding company, Power Financial’s objectives in managing itscapitalare to: FINANCIAL POWER N P to maintainor adjust itscapital structure, the Corpo The Corporation manages itscapitaltaking into sufficient capital to be able to honour a be able to to capital sufficient expressed byvarious credit ratingagencies thatprovide financial probability offalling below the minimum regulatory capital requir The target level ofcapitalization Lifeco is responsible forestablishing capital management procedu Lifeco has established policies andprocedures designed to identify,measure andreportallmaterial risks.Management of
O O W maintain an appropriate credit rating to en to rating credit appropriate an maintain capital; and maintain a capitalstru and other investments as provide sufficient financial flexibility to pursue itsgrowth strategy toinvest on a timely basis initsoperating companies returns provide long-term attractive strategic plans. and risks operational ofLifeco’s context inthe value shareholder to maximize structure capital efficient an provide to to maintain strong credit and financial strength ratings of regulatory capital requirements in the jurisdictions in which they operate; to maintain the capitalization ofitsregulated operating subsidiaries at alevel that will exceed the relevant minimum T A E E R
1 62 F 2 I N
POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A Capital Management N C I A L
C O R P O cturematches that lo the R A opportunities present; T I O of Pargesa and Groupe Bruxelles Lambert, oversee and have the responsibility fortheir N oration consistsofdebe
for is Lifeco anditssubsidiaries assessedby to shareholde ll policyholder andotherobligations ofLifeco with a high degree of confidence. views and approves capital transactions such as the issuance, redemption and isresponsible for capital sure stable access to the capital markets. markets. capital the to access stable sure consideration therisk characteristics andliquidity of itsholdings.Inorder ng-term nature ofitsinvestmentsby ration may adjust the amountofdi rs of the Corporation; rs oftheCorporation; SIB and repurchased for cancellation $1.65 billion of its common forcancellation$1.65 billionofitscommon SIB andrepurchased ntures, perpetualpreferred shares, common shareholders’equity Corporation’s other subsidiariesare subject Corporation’s other to regulatory capital s and forimplementing and monitoring its capital plans. The Lifeco ensuring stable access tocapital markets; and holdspositionsinvestmentsin long-term aswellcashand preferred shares as a cost-effective source ofpermanent strength andotherratin atthe individual operating subsidiarylevel. The primary res for implementing andmonitoring the capital plan. ements in the relevant operating jurisdiction, the views at attractive market valuations and returned capital to capital and returned valuations market attractive at bentures. The boards ofdirectorsthe Corporation’s management considering various factors suchas the . Manageme vidends paidto shareholders, return maximizing theuseofpermanent gs toLifeco, andthedesire to hold nt ofthe Corporation is
NOTE 12 POWER FINANCIAL CORPORATION
PART A POWER FINANCIAL CORPORATION %, 63 A (Canada)and their er, portfolio managers, er, portfolio managers, target total ratio of 100 ratio total target requirements, long-term long-term requirements, capital resources are provided are by the capital resources maintain levelsmaintain of capitalon their based Insurance Companies Act Companies Insurance support working capital support working including a mutual fund deal including a mutual s while ensuring that IGM is capitalized in a manner a manner capitalized in is that IGM ensuring s while to comply with local capital or solvency requirements requirements or solvency capital local with to comply has established a supervisory a supervisory has established ng capital needs and business expansion. IGM’s capital capital IGM’s expansion. and business needs ng capital nsolidated LICAT ratio at September 30, 2019 was 2019 139% 30, LICAT ratio atnsolidated September gic objectives. gic objectives. requirements include investment dealers, mutual fund dealers, dealers, fund mutual dealers, include investment requirements quality of its financial position by maintaining a solid capital base and and base a solid capital maintaining by position quality of its financial
ltiplied by a scalar of 1.05. The total The 1.05. of by a scalar ltiplied d other strate d other ncy Buffer or required capital. The Base Solvency Buffer, defined by OSFI, is the is the by OSFI, defined Buffer, capital. Solvency The Base or required ncy Buffer (continued) is to maximize shareholder is to return
managers, investment fund managers and a trust company. These IGM subsidiaries are are IGM subsidiaries These company. a trust and fund managers investment managers, N O I broker. These other subsidiaries are required to These other subsidiaries are required broker. POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T ). ). A ѝ R O y or shareholders’ equity. At September 30, 2019, these other subsidiaries have complied with all complied have subsidiaries 2019, these other 30, At Septemberequity. shareholders’ y or P R O C gement objective gement
L A I C N Capital Management Management Capital A
N I 2 F 1
R E E T W O O investments made by IGM, business expansion expansion made by an IGM, business investments capital to regulatory subject are that subsidiaries IGM The exempt market dealers, portfolio market dealers, exempt requiredmaintainto minimum levels capital of either based on capital, working liquidityshareholders’ or equity. At September 30, 2019 IGM subsidiaries havecomplied with all regulatory capital requirements.
OTHER SUBSIDIARIES requirements, capital regulatory to subject are other subsidiaries Certain and an order-execution-only liquidit working capital, requirements. regulatory capital IGM FINANCIAL mana IGM’s capital P N adequacy capital a regulatory established has (OSFI) Institutions Financial of Superintendent of the Office the Canada, In the under incorporated companies life insurance for measurement a strong balance sheet. IGM regularly assesses its capital management practices in response to changing economic changing economic to in response practices management capital its assesses regularly IGM sheet. balance a strong conditions. business operations to used in its ongoing primarily IGM’s capital is which appropriately supports regulatory capital requirements, worki requirements, capital regulatory supports appropriately which the focused on preserving are management practices and a supervisory minimum total ratio of 90%. minimum anda supervisory Great-West Life’s co 31, 201 at December (140% required are of Lifeco subsidiaries foreign and operations foreign Other jurisdictions. respective in their aggregate of all defined capital requirements mu requirements capital aggregate of all defined subsidiaries known as the Life Insurance Capital Adequacy Test (LICAT). The LICAT ratio compares the regulatory capital capital the regulatory compares ratio LICAT The (LICAT). Test Adequacy Capital Insurance Life as the known subsidiaries Solve to its Base resources of a company sum of available capital, surplus allowance and eligible deposits. OSFI OSFI deposits. and eligible allowance surplus capital, sum of available POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 12 PART A POWER FINANCIAL CORPORATION results can differsignificantly fromthese estimates for a variety ofreasons, including: the sensitivity due tospecificchanges in interest rate This note to the financial statements includes estim provide assurance that the actual impa actual the that assurance provide respective factorsbase risk, credit risk and market risk. monitor and mitigate risks associated with financial instruments. The key risks related tofinancial instruments are liquidity its The have and subsidiaries established Corporation policies, N P For thesereasons,thesensitivitiesshouldonly
O O W risk. changes in market factors. Market factors include th Market risk is the risk that theto meetitspaymentobligations. market Credit risk canbe relat value orCredit risk is future the potential for financial loss to cash flowsraisea timelymanner, in comeas theyor beable to, due of a financialLiquidity riskisthethat Corporation anditssubsidiaries wouldnotbe able to meet all cash outflow obligations instrument will fluctuate as a result of the general limitations ofinternal models. interactions amongthese facto changes in business mix,effective ta actual experience differing from the assumptions; changesin actuarial,investment returnandinvestmentfuture activity assumptions; rate scenarios considered; assessment of the circumstances that led to the scenario may spreads ontradable fixedincome securities and also to
T A E E volatility in equity markets. Equity risk isthe potential loss associated with thesensitivity ofthemarket price ofafinancial instrument arising from rates. Interest rate risk is the risk that the fair value of a financial instrument will fluctuate following changes in the interest at different foreign exchange levels when adverse changes inforeign currency exchange rates occur. different currenc in operating Foreign exchange risk relates tothe Corporation, its subsidiarie R
1 64 F 3 I N
POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A Risk Management N C I A L
C O R d ontheassumptionsoutlined abov P O R A T I O N
rs and assumptions when morethan one changes; and ies and converting non-Cana converting ies and x rates andother market factors; ct on net earnings will be as indicated. indicated. will be as ct onnetearnings be viewedasdirectionalestimate the Corporation andits subsidiaries if a counterparty in a transaction fail ates of sensitivities and risk exposure measures forcertain risks, such as levels projected and ma levelsprojectedand ree types ofrisks: foreign exchange risk, interest raterisk and equity counterparty risk relating toderivative products. e. Giventhe nature ofthese ed to thedefault ofasingle debtissuer,thevariationofcredit capital ormonetize assets at guidelines and proceduresdesigned lead to changes in (re)investment approaches and interest dian investments dian an s andits jointly controlled co rket prices as at th at pricesas rket s oftheunderlying sensitivities for the d earnings at at different pointsin d earnings time calculations, theCorporation cannot normal market conditions. rporations andassociates e valuation e valuation to identify, measure, date. Actual date. s
NOTE 13 POWER FINANCIAL CORPORATION PART A POWER FINANCIAL CORPORATION
. A ѝ 65 A ount, resultingount, resultingount, sed in Note 22 to the 22 to sed in Note financial statements. statements. financial s of credit or via capital credit or s of ѝ equity. Correspondingly, Correspondingly, equity. co’s key risks. co’s has Lifeco ors or groups of debtors that tely the same am tely the same am tely and have not changed significantly ѝ euros and U.S. dollars. In accordance with dollars. euros and U.S. acts Lifeco’s total total Lifeco’s acts , monitor and report risks associated with with risks associated , monitor and report subsidiaries are discus subsidiaries of assets and liabilities and forecasting earned and forecasting earned liabilities and of assets . ѝ a group of related debt lable through established lable line s not changed significantly since December 31, 201 since December s not significantly changed onsible for the oversight of Life oversight of for the onsible come. Strengthening or weakening of the Canadian dollar dollar the Canadian of or weakening come. Strengthening t investments in foreign operations, net of related hedging hedging net of related operations, in foreign t investments licyholder requirements and the yield of assets. and the yield of assets. requirements licyholder ir supporting assets by approxima ir supporting assets by approxima red by rating agencies are also impacted. also impacted. are red by rating agencies tted lines of credit with Canadian chartered banks. banks. chartered of Canadian tted lines credit with
the solvency and capital positions of its principal subsidiaries opposite liquidity liquidity opposite subsidiaries principal of its positions capital and solvency the gned to identify, measure, manage measure, gned to identify, ons are denominated in Canadian dollars, dollars, in Canadian are denominated ons (continued) procedures of procedures Power Financial and other
N O I POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T A R O risk arise from exposures to a single debtor, debtor, to a single exposures arise from risk P the U.S. dollar, British pound and euro spot rates imp and euro spot rates pound British U.S. dollar, the R O lidated Financial Statements for the year ended December 31, 201 December ended year for the Statements Financial lidated C
L A I C N Risk Management Risk Management A
N I 3 F 1
R E E Foreign exchange risk T market transactions. Lifeco maintains commi maintains Lifeco transactions. market in an immaterial change to net earnings. earnings. to net change in an immaterial earnings. to net change in an immaterial A 10% weakening of the Canadian dollar against foreign currencies would be expected to increase non-participating non-participating to increase expected be would currencies foreign against dollar Canadian of the weakening A 10% and the liabilities contract investment insurance and non-participating to decrease expected be would currencies foreign against dollar Canadian of the A 10% strengthening and the liabilities contract investment insurance and requirements at the holding company. is avai at the requirements Additional liquidity Lifeco closely manages liquidity through operating cash flow matching of monitors Lifeco closely Management and required yields, to ensure consistency between po between consistency ensure to yields, and required W
O O
Corporation’s Conso Corporation’s LIFECO is resp Lifeco committee of the board riskThe of directors of P N POWER FINANCIAL OTHERAND SUBSIDIARIES and The risk managementpolicies established policies and procedures desi and procedures policies established financial instruments. Lifeco’s approach to risk management ha to risk management approach Lifeco’s financial instruments. have similar credit risk characteristics in that they operate in the same geographic region or in similar industries. No No industries. similar in or region geographic same the in operate they that in characteristics risk credit similar have significant changeshave occurred the from year endedDecember 31, 201 Market risk a) Credit risk Credit risk of credit Concentrations in the nine-month period ended September 30, 2019. 2019. 30, period ended September in the nine-month If the assets backing insurance and investment contract liabilities are not matched by currency, changes in foreign exchange exchange in foreign changes currency, by matched not are liabilities contract and investment If the assets backing insurance in investments has net Lifeco decreases. by liability not offset losses exchange of foreign risk the to Lifeco expose can rates Liquidity risk Lifeco has and the following policies in procedures place to risk: liquidity manage summary of the riskspresented is below. For a more detailed discussion of Lifeco’s risk governance structureandrisk managementapproach, refer to theRisk Management notethe in Corporation’s December 31, 201 foreign operations. Lifeco’s debt obligati foreign operations. monito and capital ratios Lifeco’s book per share value IFRS, foreign currency translation gains and losses from ne and losses gains translation currency IFRS, foreign in comprehensive in other recorded are effects, and tax activities to spot rate compared POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 13 PART A POWER FINANCIAL CORPORATION quarterly with a full revie quarterlyfull witha The totalprovision forinterestrates also considers theimpact of impact Lifeco’s rangeofscenarios covered. Lifeco’s view of the range of interest rates to be covered The range ofinterestratesco minimum arising fromthecurrent Ca reinvestment risk. The total provision forinterestrates issufficient to coverabroader ormoresevere setofrisks than the Testing under a number ofinterest rate scenarios (including increasing, decreasing and fluctuating rates) isdone to assess periodically forcontinued appropriateness. necessary to provide correlation together with margins for adverse deviation set in accordance with professional standards. These margins are The valuation assumptions use best estimates offuture reinvestment rates andinflation assumptions with an assumed Valuation assumptions have been made regardingrates of returns are andliabilities assets current fromthe flows cash Projected provide reasonable as Increase (decrease) innetearnings Increase (decrease) innon-participating insurance C b) N P decrease in the interest rates at both the low andhigh end to be covered bythese provisions. The following provides information on theeffect of animmediate 1%increase or1% and investment contract liabilities impacting thenet earnings of a 1% change Another way of measuring the interest rate risk associated with
h O O and investment contractliabilities
a W net earnings. prescribed scenariosresults in intere 30, 2019and At September December 31,201 net earnings. prescribed scenariosresults in intere At September 30, 2019 and December 31, 201 n T Interest rate risk risk rate Interest A g E E e R
i
1 66 n F 3
I i N
n POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 t A e Risk Management N r e C s t I
A r a L t
e C s O forpossibilities ofmisestimation deteriorat and/or future
surance thatinsu R P w annually. An immediate1%parallel shiftin O R A vered by thesepr T I O N
(continued) nadian Institute of Actua rance contract liabilities cover arangeof st rate changesassets tha st to and liabilities st rate changesassets st to and li ovisions is setin consideration oflong-ter
ѝ ѝ , theeffectofanimmediate1%parallel decrease intheyield curve on the , the effect of an immediate 1% parallel increase in the yield curve on the by the provisions.If sustained however,parallel the shiftcould of therange of interest rates recognized in the provisions: used in the CALM to determine insurance contract liabilities. liabilities. contract insurance CALM determine inthe to used ries-prescribed scenarios. this assumption istodetermine the effect onthe insurance the Canadian Institute ofActuaries-prescribedscenarios: on supportingassets abilities that will the yieldcurve would not Ѵ % increase in Lifeco’sview ofthe range ofinterest rates ( Ѵѹѹ ѴѳѼ September ion inthebestesti possible outcomes. Margins are reviewed t will offset each othe offset each t will ) Ѵ m historical result % decrease offset each , fixedincome, equity andinflation. Ѷѳ , ѵѳѴѼ ( ѸѳѸ ѹѼѺ ) ( December have amaterial impacton other withnoimpactto mate assumptions and and assumptions mate Ѵ % increase r withnoimpactto s and ismonitore ѴѴѸ ѴѹѸ ) Ѵ % decrease ѶѴ , ѵѳѴ ( ѷѹѸ ѹѶѼ 8 d )
NOTE 13 POWER FINANCIAL CORPORATION Change in equity valuesChange inequity Change in best estimatereturnassumptionsforequities Change in PART A POWER FINANCIAL CORPORATION ) ) 8 8 8 ѳ 8 ѶѶ ѸѶѼ ѹ ѵѹѹ ( ( ѵѳѴ ѵѳѴ , , 67 ѶѴ ѶѴ % decrease % decrease A Ѵ Ѵѳ ) ) Ѻ ѺѶ ѸѼѴ ѷѺѹ % increase % increase Ѵ Ѵѳ December (8 ) December ( ) and interest rate derivatives. interest and ѴѷѸ ѺѴѼ ѴѴѸ ѸѸѼ ( ( ѵѳѴѼ ѵѳѴѼ , , Ѷѳ Ѷѳ % decrease % decrease Ѵ Ѵѳ act liabilities at a level that covers the a level that at act liabilities ) ) properties, common shares and private shares common properties, 8 88 September September ѷѼѵ Ѵѳ ѹѵѷ ( ( equity values: equity % increase % increase and have not changed significantly in the nine- and have not changed Ѵ ѝ Ѵѳ tures, currency forwards, tures, currency forwards, based on long-term historical averages. Changes in the the in Changes averages. historical on long-term based ed in the IGM section of the Corporation’s Management’s Management’s Corporation’s of the section IGM the ed in s with long-tail cash flows. Generally these liabilities will will liabilities these Generally cash flows. s with long-tail ate differently than the equity values. The following provides provides following The values. equity the than differently ate de for prudent investment in equity markets with clearly defined defined clearly with markets equity in investment prudent de for be additional market and liability impacts as a result of changes in changes impactsliability of result and as a market additional be or 10% decrease in es have been mitigated through a hedging program for lifetime lifetime for program hedging a through mitigated been have es generally determines insurance contract liabilities at a conditional tail at a tail conditional determines contract liabilities generally insurance tees using equity fu using equity tees s e i
t i ed impacts of a 1% increase or 1% decrease in the best estimate assumptions: assumptions: estimate best the in or 1% decrease increase of a 1% ed impacts u q liabilities by investment are supported liabilities e
r o f e nine months ended September 30, 2019 and in Note 22 to the Corporation’s 22 to the Corporation’s 2019 and in Note 30, ended September months nine e
s n (continued) arantees, Lifeco arantees, o for the year ended December 31, 201 December year ended for the i other words, Lifeco determines insurance contr Lifeco determines insurance words, other t
p al Benefit guaranal Benefit N m O u I s POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T s a A
R n r O u t P e R r
O e s t C e a
u L l m a i A t v I
s C y e t
i N t Risk Management Risk Management s u A e q
N b e I
3 F n n 1
i i
R e e E E g g Equity risk T n n W a a and investment contract liabilities and investment
O O h h Increase (decrease) in net earnings in net earnings Increase (decrease) Consolidated Financial Statements Statements Financial Consolidated Discussion and Analysis (Part C) for th C) for (Part Analysis and Discussion IGM FINANCIAL discuss are of IGM procedures and policies management risk The Increase (decrease) in non-participating insurance insurance in non-participating Increase (decrease) primarily are for equities assumptions return estimate best The The flows. cash liability and asset both impact will and assumptions these to changes in result could market current expect the on information provides following C contract liabilities insurance in non-participating Increase (decrease) in net earnings Increase (decrease) C P N c) month period ended September 30, 2019. 30, ended September month period Guaranteed Minimum Withdraw Minimum Guaranteed Lifeco has investment policy guidelines in place that provi that place in guidelines policy has investment Lifeco risk. price limits to mitigate guarante fund segregated with associated risks The information on the expected impacts of a 10% increase a 10% increase of expected impacts the information on average loss in the worst 25% part of the loss distribution. distribution. loss part of the 25% worst the loss in average Some insurance contract and investment and product products fund segregated example, for equities, may there However, values. equity with line fluctuate in to fluctu liabilities the cause will that values equity the expectation of 75 (CTE75) level. In of 75 (CTE75) expectation For policies with segregated fund gu segregated with For policies Change in interest rates Change in interest POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 13 PART A POWER FINANCIAL CORPORATION associates that are not taxable. not taxable. are that associates taxable investmentincome, lower taxincertain foreignjurisdictions and results fromthe jointly controlled corporations and non- dueto of26.6% rate tax income statutory Corporation’s the than lower generally are rates tax income effective The of incomesubjecttolower rates inforeign jurisdictions as well as changes in certain tax estimates. The overall effective income tax rate forthe three months compared to14.4% for the full year 201 The overall effective income tax rate forthe Corporatio EFFECTIVE INCOME TAX RATE Deferred taxes Current taxes The componentsofincome tax expe TAXEXPENSE INCOME N [ Total expense(income) Expense recognizedinnet earnings Post-employment benefits Pension plans follows: as are other plan and pension The N P Expense(recovery)recognized in Remeasurements
Ѵ O Actuarial losses related topension plans and other post-employment benefits forthe three30 and nine months ended September ] O O Pension plans Service costs Service costs other comprehensive income(loss) Net interestcost Post-employment benefits Net interestcost Curtailment W in discount rates since December 31, 201 31, December since rates discount in T T Actuarial (gains) losses Change intheassetceiling Return onassetsless(greater)thandiscountrate Actuarial (gains) losses A E E E R
1 1 68 F 5 4 I N
POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A Pension Plans and Other Post-Employment Benefits Post-Employment Other and Pension Plans Income Taxes Income Taxes N C I A L
C O R P [ [ Ѵ Ѵ O ] ] R A post-employment benefits expe benefits post-employment T I O N ѝ
. nse recognized in net earnings are: ѝ and 15.3%fortheninemonths ended September 30, 201 ended September 30, 2019was10.1%dueended September to ahigher percentage n for the nine months ended September 30, 2019 was 13.6%, nse included income innet earnings andothercomprehensive Three months endedSeptembe Three months endedSeptembe ѵѳѴѼ ѵѳѴѼ ( ѵѳѳ ѴѶѴ ѵѹѸ ѴѸѳ ѴѳѼ ѴѶ ѹѼ ѹѸ Ѵѳ Ѹѹ ѵѷ 8 ( Ѷ ѷ Ѷ Ѵ Ѵ Ѹ ) ) ѵѳѴ ѵѳѴ ( ( ѴѶѴ Ѵѳѳ ѴѹѶ ѴѶѸ r r ( ѵѶ Ѷѳ ѺѺ Ѻѵ ѹѷ ѵ Ѷѳ Ѷѳ (8) Ѽ Ѹ ѷ Ѵ 8 8 8 8 – , , ) ) )
Nine months endedSeptember Nine months endedSeptember ѝ . Ѵ ѵѳѴѼ ѵѳѴѼ ( , ѺѴѳ Ѵ ѺѴѵ ѷѼ ѵѴѷ ѵѳѳ ѴѺѵ ѶѼ Ѷѵѵ , 2019 areduetoadecrease ( 8 Ѵѹ ѷѴ Ѵѷ ѴѴ Ѷѳ Ѻѹ ( Ѷ ѵ Ѷ 8 8 ( ( ) ) ( ) (
ѵѳѴ ѵѳѴ ѶѴѴ ѶѷѶ ѵѶѴ ѵѴѹ ѴѼѴ ѸѳѺ ѷѴѶ (8 Ѷѳ ѴѼ Ѷѵ ѴѼ ѴѸ Ѵѵ ѵѹ Ѷѳ Ѽѷ ѳ Ѷ Ѵ 8 8 , , ) ) ) ) )
NOTE 16 POWER FINANCIAL CORPORATION NOTE 17 Earnings Net earnings percommon share Number ofcommonshares
PART A POWER FINANCIAL CORPORATION ) ) ) ) , 8 ѷ Ѽ Ѷ 8 Ѵ . . . ( Ѷѳ ѺѴ ѷ ѷѺ 88 Ѵѳ . . ѳ ( r Ѵѳѷ ѺѹѺ Ѻѹѹ ѶѴѺ ѹѹѵ Ѻ Ѷѷѷ ѷѶѷ Total ,8 , , ѵ ѵ , , , , ( ( ѵѳѴ Ѵ Ѵ Ѵ ѺѴѶ ѺѴѷ Ѵ Ѵ Ѵ Ѵ 69 A ) ) ) ) ) f f – y y ѹѶѷѸ Ѷ ( ѴѼ ѴѶ ѴѺ ѵѳ ( ( ) and and – Ѹ Ѻ ѵ ointl ointl . . . j j ѵѼ ѵѼ . . Ѷ Ѷ ѳ Share o Share Share o Share ѹѹѺ ѸѹѶ ѸѹѶ Ѵѳѷ , , , 8 8 ѵ ѵ ( ѵѳѴѼ associates Total associates controlled controlled Ѵ Ѵ Ѵ ѹ ѹ corporations corporations corporations corporations
) ) ) ) ( ) ( ѹ ons of earnings per share: per ons of share: earnings Nine months ended Septembe ended months Nine ѸѶѸ ѵѹѶ ѺѼѵ ѸѸѺ ѶѼѺ ( ( ( ( ( plans plans Items that will not be not will that Items Items that will not be not will that Items benefit benefit
)
, pension pension ) have been excluded from the the from excluded been ) have – Actuarial Actuarial Actuarial Actuarial 8 ѳ Ѷ Ѷ 8 . . . ѝ Ѷѳ Ѻѷ ѺѶ ѶѸ on defined on defined . . ѳ ( reclassified to net earnings reclassified reclassified to net earnings to reclassified r ѸѸ ѸѵѶ ѸѵѶ ѳ ѳ gains (losses) gains (losses) ѵѳѴ ѺѴѷ ѺѴѷ
f f – y y and and ѴѳѺ ѶѸѺ ѴѶѷ ѶѵѼ ѵѸѳ , , , , ointl ointl j j Ѵ Ѵ Share o Share Share o Share associates associates controlled controlled ) – corporations corporations corporations corporations ѵ Ѷ Ѵ ѷ ѷ . . . .1 201 in million 8 8 ѶѸ .88 .88 ѳ
) ) ( ѝ y y ѹѴѼ Ѹ Ѹ ѳ ѳ ѵѳѴѼ ѹѹѷ ѹѹѷ Ѻѳ ѴѼѸ Ѵѹѳ Ѵѹ ( ѴѼѳ ѸѷѴ ѹѶѶ ѹѹѴ Ѵ , ( Ѵ Foreign Foreign currenc currenc translation translation Three months ended Septembe ended months Three subsequently to net earnings to net subsequently subsequently to net earnings to net subsequently minators used in the computati the in used minators Items that may be reclassified be Items that may reclassified Items that may be reclassified Items that may be reclassified ) – 8 ѹ Ѵѵ ѺѶѴ Ѵ Ѽ ѷѶ ѴѵѶ Ѵѹѹ and cash and cash revaluation revaluation revaluation revaluation Investment Investment flow hedges flow hedges Diluted Basic – – , 2019, 11.0 , stock options ( million
N
8 O I POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T
ѵѳѴѼ ѵѳѴ A e , , r R a [millions] [millions] Ѷѳ Ѷѳ O h
s s P
e n R r o a O h C m s
L m n o A o I c
C m r e N Other ComprehensiveIncome Other Earnings Per ShareEarnings Per m p A
o s c
N
g I f 7 6 n F o
i 1 1
s r n R r e g E E a E n b i T T e
n W m t r Potential exercise of outstanding stock options of outstanding Potential exercise Other Other Other comprehensive income (loss) income Other comprehensive (8 Other comprehensive income (loss) income Other comprehensive O O u e O a Weighted average number of common shares outstanding number of common shares Weighted average Diluted Balance, end of period of period Balance, end computation of diluted earnings per share as they were anti-dilutive. they were as share of diluted earnings per computation Balance, end of period of period Balance, end shares preferred Dividends on perpetual ended September months 30 nine For the Dilutive effect of subsidiaries’ outstanding stock options of subsidiaries’Dilutive effect outstanding N outstanding number of common shares Weighted average N Basic Balance, beginning of year of year Balance, beginning N deno the and numerators of the a reconciliation is following The E attributable to shareholders Net earnings effect for dilutive adjusted Net earnings Nine months ended September months Nine of year Balance, beginning ended September months Nine P N Net earnings attributable to common shareholders attributable to common shareholders Net earnings
NOTE 15 POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 14 PART A POWER FINANCIAL CORPORATION hierarchy: The Corporation’sassets liabilities and recordedfair at value N P O O Utilizeone ormoresignificant inputs thatarenot basedon Level 3 prices Utilizeother-than-quoted included inLevel 1thatare Level 2 Utilizeobservable,unadjusted quoted pricesinactive markets Level 1 L W e v T e A E E l
R
1 70 F 8 I N
POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A Fair Value Measurement Fair Value Measurement N C D appraisers or by discounting projectedappraisers orbydiscounting cashflows. from single-broker quotes,internal pricingmodels,external The valuesofthemajorityLevel 3securities wereobtained for the assetorliability. is little,ifany,market activity observable market situations inputsandinclude where there securities, offers and reference data. quotes, issuerspreads, two-sided markets,benchmark limited to,benchmark yields,reportedtrades,broker/dealer pricingserviceinputsinclude, butarenot a pricingservice.The The fair valuesfor someLevel2securities wereobtained from intervals. and yieldcurves thatareobservable atcommonlyquoted liability,suchasinterestrates that areobservablefortheassetor liabilities inactivemarkets,andinputsother-than-quoted prices prices forsimilarassetsLevel 2inputsincludequoted and observable fortheassetorliability, eitherdirectly orindirectly. ability toaccess. for identical thattheCorporationhas assets orliabilities I A e f L i n
i C t i o O n R
P O R A T I O N
have been categorized based upon the following fair value F i
n certain other debt instruments. entities; obligations tosecuritization investment properties; certain over-the-counter derivatives; there are redemption restrictions; investments in mutual and segregatedfunds where equity-release mortgages; certain mortgage andotherloans, including certain privateequities; certain asset-backed securities; certain bonds; at fairvaluethrough profitorloss. most oftheinvestment contracts thataremeasured most debentures andotherdebt instruments; deposits andcertificates; most mortgageandotherloans; most over-the-counterderivatives; most asset-backedsecurities; bonds; most investment-grade andhigh-yield corporate certain privatebondsandequities; restricted shares; government and agencysecurities; is basedoncreditqualityandaverage life; assets andliabilities pricedusing amatrixwhich from activemarkets. in instanceswhere there arequoted pricesavailable open-end investment fund units andotherliabilities restrictions; prices inanactivemarketwith noredemption mutual and segregatedfunds whichhaveavailable exchange-traded futures; actively exchange-traded equity securities; a n c i a l
a
s s e t s
a n d
l i a
b i l i t i e s
NOTE 18 POWER FINANCIAL CORPORATION Assets Assets Assets Assets Liabilities Liabilities Liabilities
PART A POWER FINANCIAL CORPORATION r ѹ Ѹ ѹ 8 ѵ 8 ѳѸ 8 ѵѳ ѴѺ ѴѸ 8 8 ѹ ѴѺѵ ѹѸѹ Ѹѷѵ ѸѹѸ ѳѵѷ ѺѵѴ Ѹѳѹ ѷѶѵ ѴѵѶ ѺѴѹ ѴѶѶ 8 Ѵ Ѷѵѷ Ѻѷѹ ѹ ѸѶѵ ѵѴ ѼѵѺ 8 ѴѸѸ ѺѴѴ ѺѼѷ ѸѼѶ ѷѼѶ Total Total , , Total Total , , , , , , , , , , ,8 , , , , , , ѹ Ѵ Ѽ Ѹ ѹ Ѵ Ѵ Ѵ Ѷ Ѹ Ѻ Ѵ 8, 71 8 Ѵѵ ѴѶ fair value fair value Ѵѵѷ A – – – – – – – – – Ѷ Ѷ 8 ѷ 8 ѼѷѶѶ ѷѴ ѹѺ Ѹѷ ѵѸ ѵѳ ѴѴ ѴѶ ѷѷ ѴѶ ѹѺ ѼѴ ѵѹ ѵѺ ѵѼ Ѻ Ѻѳ Ѵѹѵ Ѵѹѳ Ѹѷѵ ѷѺѳ ѹѴ ѺѼѶ ѴѵѼ ѵѴ ѷѸѶ ѵѳѷ ѵѴѶ Ѵѳѳ Ѷ , , , , , Ѵ Ѹ Ѻ ѹ Ѹ Level their levels in the faitheir levels
8
Level
– – – – – – ѵ ѵ ѹ 8 ѹ ѷ Ѵ 8 Ѻ ѷ Ѷ 8 Ѵѵ ѷѵ 8 8 8 ѷѸѴ Ѻѷѹ ѺѵѴ ѷѼѶ Ѷ ѹѴѼ ѺѴѳ ѴѶѶ ѺѸ ѹѼѺ ѴѺѵ Ѷѵѷ ѹ ѼѵѸ ѷѴѹ Ѻѷ ѸѶѵ ѺѴѴ Ѹ Ѷ , , , , , , , , , , , , , , ѹ ѹ Ѵ Ѵ Ѷ Ѵ Level Level 8 Ѵѵ ѼѴ ѴѶ ѴѳѺ es represent management’s estimates and – – – – – – – – – – – – – – Ѵ Ѵ Ѽ ѵѴ 88 8 ѵ ѵ ѵ ѵѵ ѺѶѴ Ѵѳ Ѷ ѵѺ ѵѵ ѵѳѺ ѴѴѶ ѵѶѳ ѹ ѶѷѴ ѸѼѺ ѶѶѳ ѳѶ ѸѶѳ ѴѴѷ ѶѵѺ , , , Ѽ Ѽ Ѽ Level Level corded at fair value, including fair corded at ific point in time and may not reflect future fair values. The The values. fair future not reflect may and in time point ific ns described in the summary of significant accounting policies policies accounting significant of summary the in described ns
(continued) on’s assets and liabilities re and liabilities on’s assets financial statementsand above. Fair valu ѝ
N O I POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T A R in nature, and involve uncertainties and matters of significant judgment. judgment. and matters of significant nature, and involve uncertainties in ent the Corporati ent the O P R O
C
L
A I 8 C N Fair Value Fair Value Measurement ѵѳѴѼ ѵѳѴ A , ,
N I Ѷѳ
ѶѴ 8
F 1
s s
e e R
i i
E t t E s s i i l l t t T i i e e W b b Fair value through profit or loss Fair value through Fair value through profit or loss Fair value through Fair value through profit or loss profit or loss Fair value through Available for sale profit or loss Fair value through profit or loss Fair value through Available for sale Fair value through profit or loss Fair value through 8, Available for sale Available for sale s s O a a O s s i i Investment contract liabilities Investment contract liabilities Mortgage and other loans Mortgage and other loans Funds held by ceding insurers Funds held by ceding insurers Investment properties Investment properties L periods. these 2 in Level 1 and Level between transfers significant no were There December A Bonds Derivative instruments Derivative instruments Reinsurance assets Assets held for sale Other assets L Investment contract liabilities Investment contract liabilities held for sale Derivative instruments Other liabilities September A Bonds Mortgage and other loans Shares Investment properties Funds held by ceding insurers P N tables pres The following Shares Shares Derivative instruments Investment contract liabilities held for sale 8 Assets held for sale of the Corporation’s December 31, 201 value hierarchy using the valuation methods and assumptio valuation methods the using hierarchy value Derivative instruments Derivative instruments Other assets Other assets Other liabilities Other liabilities
are generally calculated using market information at a spec information market using calculated are generally subjective are calculations Financial assets and liabilities
Level Definition Definition Level POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 18 PART A POWER FINANCIAL CORPORATION Balance, end ofperiod There were no transfers into or outofLevel 3 inthese periods. [ Balance, beginning ofyear September Nine months ended Bonds [ [ Restated balance, Balance, beginning ofyear September Nine months ended September 30, 2019and 201 for whichthe Corporation and itssubsidiaries haveutilized to det Level3inputs The following tables present additional information about assets and liabilities measured at fair value on a recurring basis N P Balance, end ofperiod Ѵ ѵ Ѵ O Other comprehensive income includes unrealized gains (losses) onforeign exchange. ] InJanuary 2019,the investment in Personal Capitalwas reclassif ] Other comprehensive income includes unrealized gains (losses) onforeign exchange. ] O Total gains(losses) Sales Issues Total gains(losses) beginning ofyear Change in accounting As previouslyreported Other Settlements Purchases Other Settlements Issues Purchases Business acquisition Sales W T In othercomprehensive In netearnings In othercomprehensive In netearnings policy [Note A E E R income income
1 72 [ F ѵ 8 ] Ѷѳ Ѷѳ I
N
POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 , , A ѵѳѴ ѵѳѴѼ Fair Value Measurement Measurement Fair Value N [ [ Ѵ Ѵ C ] ] 8 ѵ I A
] L
C O R P O R profit orloss profit orloss A ѝ T Fair value value Fair Fair value value Fair . I through through O Bonds N
ѹѷ ѹѺ ѹѺ ѹѺ ѹѸ ( ( Ѵ Ѹ Ѹ – – – – – – – – – – – – – ) ( ) ( profit orloss profit orloss te on hrs Shares other loans other loans Mortgages Mortgages Fair value value Fair Fair value value Fair through through Ѵ Ѻѷѳ ѺѼѼ , ѶѴ ѴѶѶ 8 8 Ѵѹѳ and ( (continued) and ( ( ѷѴ ѷѴ ѵѹ ѸѴ ѸѶ ѴѶ ѴѶ Ѷ 8 – – – – – – – – ) ) Ȍ ) ) profit orloss profit orloss Fair value value Fair Fair value value Fair ied fromavailable forsale toaninvestmentin associate through through ѷ ѵ Ѵ ѵѵѳ Ѵ ѴѷѸ ѷ ѴѹѼ ѵѷѷ ѹѴ Ѵѹѵ ѷѸѶ ѷѸѶ ѹ Ѻ Ѹ ѴѺѳ ѶѹѶ
( ( ѷѵ ѶѼ Ѷѷ Ѻ ѴѺ 8 – – – – – – – – – ) )( Available Available for sale for sale Shares ( ѴѸѳ ѵѳѷ ѵѳѷ ( ѵѺ Ѹѷ ѵѺ ( Ѻ Ѻ Ѻ – – – – – – – – )( ) ) ) Investment Investment properties properties Ѹ Ѹ Ѹ ( ,8 , , , , Ѵ ѷѷѴ ѹ Ѵѹ ѳѹѷ Ѹѷѵ ѵѷѺ ѵѴ ( ѴѺ Ѵѷ ѸѴ ѵѳ Ѷѳ ѷѷ ѵѼ 8 (8 ѵ 8 ermine fair value forthe nine months ended – – – – – – – ) ) ) ) Derivatives, Derivatives, ( net net ѴѴ ѴѴ ( ( Ѹ Ѹ Ѻ Ѵ – – – – – – – – – – – – ) ) ) held for sale sale for held (liabilities) and other (liabilities (liabilities (liabilities (liabilities Assets Assets assets assets assets assets Other (Note6). ( ( ( ( ѹѵ ѹѺ ѹѺ Ѵ ѷѸ ѹѸ ( (8 ( Ѷ ѷ 8 – – – – – – – – – – – –
) ( )
) ) ) ) ) ) ( ) Investment Investment Investment Investment iblte Total liabilities liabilities contract contract ѵѵ Ѵ ѷѴ 8) – – – – – – – – – – – – – – – – – – ) Ѹ Ѻ ѹ ѹ ѹ ( ( , , , , , Total ѴѶѵ ѵѹѺ ѶѹѺ ѺѼѼ ѶѴ ѹѳѼ ѵѶѹ ѵѷѼ ѷѵѹ Ѻѵѵ ѹѼѶ ѶѶѷ ( ( ( ( Ѷѳ ѹѴ ѴѶ Ѹѷ ѵѹ ѵѼ ( ( ѷ ѹ 8 ) ) ) ) ) ) ) ) NOTE 18 POWER FINANCIAL CORPORATION yeo se Valuation approach ofassetType
unobservable input unobservable Significant Input value Input value measurement andfair inputs unobservable Inter-relationship key between PART A POWER FINANCIAL CORPORATION
y
e r k i
a f n
e d e n w a 73 t
s t e t n b u
e A assets and assets and p p i n m i h
e s r e l n u o s b i a a t v e a r l e e m r s
- e r b u e o l t n a n v u rate would result in an rate would result in fair value. increase the An increase in result discount rate would in fair value. in a decrease expected vacancy rate result in would generally value. in fair an increase the An increase in expected vacancy rate result in would generally value. in fair a decrease A decrease in the discount in an rate would result in fair value. increase the An increase in result discount rate would in fair value. in a decrease A decrease in the discount in an rate would result in fair value. increase the An increase in result discount rate would in fair value. in a decrease reversionary rate would rate reversionary in fair result in an increase value. the An increase in would rate reversionary in fair result in a decrease value. I -end in measuring -end in % A decrease in the % ѝ ѝ 10.3% decrease in the discount A 6. 4. – – – e u l a v
t u p n
Range of 3.7% I t u p n i
e l
b t a n v r a e c i s f i b unobservable inputs used at period inputs unobservable n o g n i S Reversionary rate Range of 4.3% Vacancy rate 2.7% of average Weighted A decrease in the Discount rate Various Discount rate Range of 2.6% Discount rate u
(continued)
h c a o r
p p N a
O n I o POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T i t A a u R l a O value of shares requires the use value of shares requires as future cash of estimates such flows, discount rates, projected multiples, or recent earnings transactions. Investment property valuations Investment property valuations using determined are generally property valuation models based on expected and models capitalization rates future that discount expected net cash flows. The value of the fair determination requires of investment property as the use of estimates such (such as future flows cash future leasing assumptions, and rental rates, capital and operating expenditures) and discount, reversionary overall capitalization rates applicable to the asset based rates. on current market for The valuation approach is to mortgages equity-release valuation model use an internal to determine the projected asset cash flows, including the stochastically calculated cost of the no-negative-equity individual for each guarantee loan, to aggregate these across all loans and to discount those cash flows back to the valuation is done date. The projection expected monthly until of the loan either redemption voluntarily or on the into long-term death/entering care of the loanholders. V P R ts out information about significant significant about information ts out O C
L A I C N Fair Value Fair Value Measurement
A t e
N s I s 8 F a
1
f
o R
E e E T p y W Shares Shares of the fair The determination Mortgage and other loans through (fair value profit or loss) Investment properties Investment properties T O O liabilities categorized as Level 3 in the fair value hierarchy. value hierarchy. the fair Level 3 in categorized as liabilities
P N table se The following POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 18 PART A POWER FINANCIAL CORPORATION and IGM haveothereach aswelland in ascertain consolidationadjustments. The contribution toearnings operating segments: on theoperating segment’s contribution to earnings. The Power Financial’s management structure and internal financi The Corporation’sreportable operating segments Lifeco, are N P Portag3 and II.This columnal The column entitled “Corporate” is comprised ofcorporate ac
O O W regional leisure parks. industries of processing range wide a for management precious metals; oil,gas and chemical industries; disposa aggregates and concrete; wines and spirits; designand distributio active invariousse Pargesa is heldthrough Parjointco. Pargesa isaholding from fees charged toitsmutualfundsfor administrative services. fees, which are charged toits mutualfunds forinvestment advisory and management services. IGM also earns revenues segment ofthefinancial services market. IGMearns reve IGM Financial is a leading wealthand asset management company operating in Canada primarily within the advice Europe. and States United the in Canada, primarily businesses reinsurance and management asset services, management Lifeco is a financialservices holdingcompany with interests in life in T A E E R
1 74 F 9 I N
POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 A Segmented Information Information Segmented N C I A L
C O R ctors: minerals-base P O R A ofeachsegment include T I O N
so includes consol d specialtysolution s theshareofnetearnings resultingfromthe investments thatLifeco idation elimination entries.idation elimination company with diversified interests in Europe-based companies primarily in the food and beverage sectors; and operation of operation and sectors; food beverage inthe and primarily nues fromarangeofsources, following provides a brief description of the three reportable IGM Financial andPargesa. reportable These segments reflect al reporting. The Corporation evaluates the performance based s forindustry;testing,inspectionandcertification;cement, ble hygiene products;supplier ofequipment andproject tivities ofPower Financial and the results of Wealthsimple, n ofsportswear; materials technology andrecycling of surance,insurance, health but primarily from management retirementinvestment and NOTE 19 POWER FINANCIAL CORPORATION Revenues Revenues Expenses Attributable to Attributable Net earnings Revenues Revenues Expenses Attributable to Attributable Net earnings PART A POWER FINANCIAL CORPORATION 8 8 Ѻ 8 ѷ Ѵ ѷ ѷ 8 ѹѸ 8 Ѷѹ Ѷѹ Ѷѳ 8 ѳѹ ѶѶ ѶѸ Ѵ 8 8 ѴѸ ѷѷѳ ѴѳѺ ѵѵѳ Ѻ ѵѺ ѶѶѵ Ѻ Ѽ ѸѵѶ 8 ѴѳѺ ѴѳѼ ѼѺѸ ѶѸѹ Ѹ ѼѺѸ ѶѴѼ ѸѼѳ ѵѷѼ ѺѶѳ ѳѸѴ ѳ ѳѷѹ ѼѼѼ ѵѶѸ Total , , , , ,8 , , , , , , , , , , Ѽ Ѷ ѵ Ѵ Ѵ Ѵ Ѽ ѵ 75 Ѵѵ Ѵѳ ѴѸ ѴѴ Ѵѷ A ) ) ) )8 ) ) ) ) ) ) ) ) ) ) ) ) ) ) )8 ) )8 ) – – – – 8 Ѹ ѷѴѴѴ ѵ ѴѴѹѶ Ѷ Ѷ 8 Ѽ Ѷ Ѹ ѹ ѵ ( ( Ѷѹ ѵѷ ѹѸ Ѵѹ ѵѼѴѺ Ѵ ѴѴ Ѹѵ ѶѸ ѶѸ Ѷ ѶѶ ѹѷ ѶѸ ѸѺ ѹѷ ѹѹ ѴѺ ѵ Ѵѷ ѹѴ ѹѴ ѷѵ ( ( ( ( ( ( ( ( ( ( the Corporation has not yet not yet has the Corporation Corporate
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– – – – – – – – – – – – – – – – – – – – – – – – – – ѵѼ ѵѼ ѵѼ ѵѼ ѵѼ Pargesa Corporate Total Pargesa ] ] Ѵ Ѵ [ [ – – – – – – Ѻ 8 8 8 8 ѹѴѵ ѷ Ѵѵ ѵѸ 8 ѵ ѸѼ Ѻ ѷѵ IGM ѸѸѸ ѵѸѺ ѵѹѴ ѵѳѵ Ѵѵѷ ѵѳѵ ѺѺѳ 8 ѵѺѶ ѵѸѷ 8 – – – – Ѻѵѹ 8 8 8 ѶѺѺѹ ѸѸ ѸѸ ѳ 88 ѳ Ѵѷ ѵѸѸ Ѵѵ Ѵѷ ѵѷѼ ѹѼ Ѷ 8 Ѻѳ ѷѺ 8 ѵѷѶ ѷ ѷѹѷ ѴѴѶ Ѵѵ ѶѶѺ ѵѳѺ ѷѼ ѵѴѶ ѸѺѹ ѴѳѺѺѳѺ ѸѸ ѵѳѳѺѳѺ Ѵѵ ѵѳѳ Ѵѵ 8 8 8 Ѷѵѳ ѷ 8 ѸѺѴ ѸѴѼ ѶѺѷ ѷѷѳ ѹѴѴ ѵѺѳ Ѷѵѷ ѸѸѷ ѷѼѹ ѷѶ ѷ ѳѵѺ ѳѷѹ , , , , , , , , , , , , , Lifeco Ѵ Ѽ Ѷ Ѵ Ѵ Ѵ Ѽ Ѵѳ ѴѴ ѴѶ Ѵѷ ѴѴ Ѵѵ
(continued) Corporation on consolidation and included in “Corporate”. “Corporate”. in and included consolidation Corporation on
N 8 Lifeco IGM O I POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T ѵѳѴ ѵѳѴѼ , , A R Ѷѳ Ѷѳ O P R O C
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adopted IFRS 9, this impact has been adjusted by the the by been adjusted has impact adopted IFRS 9, this W r r ointly controlled corporations and associates corporations and associates ointly controlled ointly controlled corporations and associates corporations and associates ointly controlled t t v v corporations and associates, and income taxes income taxes associates, and corporations and 8 corporations and associates, and income taxes income taxes associates, and corporations and Non-controlling interests Non-controlling interests Perpetual preferred shareholders shareholders preferred Perpetual Common shareholders Common shareholders j Non-controlling interests Non-controlling interests shareholders preferred Perpetual Common shareholders j p p t t O ] As of mortgage loans. classification to the 9 related of IFRS adoption for the an adjustment include IGM by reported Results e e e e O t t x x Ѵ Operating and administrative expenses expenses Operating and administrative Earnings before income taxes income taxes Earnings before 8 Fee income Fee income Financing charges Income taxes Income taxes A [ E Total paid or credited to policyholders controlled investments in jointly Earnings before of investments in Share of earnings Income taxes Income taxes N A September ended months Three R Total net premiums Net investment income Total expenses N Fee income Fee income Total revenues E to policyholders Total paid or credited Commissions expenses Operating and administrative Financing charges Total expenses controlled investments in jointly Earnings before of investments in Share of earnings income taxes Earnings before P N CONSOLIDATED NETEARNINGS September ended months Three R Total net premiums Net investment income Commissions Commissions Total revenues Total revenues POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 19 PART A POWER FINANCIAL CORPORATION
Operating andadministrative expenses Total revenues Fee income [ [ A Income taxes Earnings before income taxes Share ofearnings ofinvestments in Earnings before investments injointly controlled Total paidorcreditedtopolicyholders E Total netpremiums R Nine months endedSeptember A N Income taxes Earnings before income taxes Share ofearnings ofinvestmentsin Earnings before investments injointly controlled Total expenses Financing charges Operating andadministrative expenses Commissions Total paidorcreditedtopolicyholders E Total revenues Fee income Net investmentincome Total netpremiums R Nine months endedSeptember EARNINGS NET CONSOLIDATED N P Total expenses Financing charges Net investmentincome N Commissions ѵ Ѵ x x t t O e e e e Results reported by IGM include anadjustment forthe adoption ofIFRS9 related tothe classification ofmortgageloans. As ] Includes the the loss reinsurance on transaction with Life Protective of$247 million ($199million after tax) (Note 3). ] O t t p p j Common shareholders Perpetual preferred shareholders Non-controlling interests j Common shareholders Perpetual preferred shareholders o-otoln neet 8 Non-controlling interests corporations and associates,and incometaxes corporations and associates,and incometaxes v v t t ointly controlled corporationsandassociates ointly controlled corporationsandassociates r r W adopted IFRS9,this impact has beenadjusted by the
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Corporation onCorporation consolidation andincluded in “Corporate”. (continued)
Ѷѵ ѶѴ ѵѸ Ѷѷ ѴѶ ѴѸ ѵѶ ѵѹ ѵѼ ѵ ѷ ѷ ѵ ѵ Ѵ Ѵ ѵ Ѵ Ѵ Ѵ Ѵ ѵ ѵ ѷ Ѵ Ѹ Lifeco , , , ,8 , , , , , , , , , , , , , , , , , , , , , , Ѹ Ѽ Ѽѵ ѸѼѷ ѶѸѶ ѳ ѺѺѷ ѶѳѼ ѵ ѶѼѼ Ѽ ѺѶ ѹѼѳ Ѽ ѹ Ѽѵ Ѻѹѳ ѹѼѳ ѸѴ ѵ ѷ Ѽѵ ѶѷѴ Ѽѵ ѸѵѴ ѸѼѷ ѶѸѶ Ѷ ѵ ѶѶѶ Ѽ ѵѶ Ѽ ѵѴѼ ѵѴѼ ѷѺѸ ѺѺѼ Ѹѹѹ ѺѼѳ Ѷѵѵ ѳѳѼ ѷѴѴ ѳѶѵ ѺѸѴ ѵѶѳ ѵѴѷ Ѷ Ѵѹѹ ѶѶѺ Ѷ ѷѴѹ Ѹ ѼѺ ѴѸѴ ѷ Ѵ ѹѷѶ 8 8 ѳѴ 8 ѵѵѸѶ Ѷѵ 8 Ѽ 8 Ѽ ѵ – – – – [ Ѵ ] Ѵ ѵ ѵ , , , , , , ѵѼѶ Ѵѷѵ ѷѶѸ ѹѼѵ ѶѼ ѵѺѵ ѸѸѺ Ѷѷѷ ѵѴѶ ѸѸѺ Ѵѹѳ ѺѴѺ Ѻѳѹ Ѻ 8 Ѵѵѹ ѹѼѺ 8 IGM ѴѴ 8 ѵѼѵ ѵѵ 88 ѵѶ ѵѹ 8 8 Ѵ – – – – – – [ [ ѵ ѵ ] ] ags oprt Total Corporate Pargesa Pargesa ѴѹѴ ѴѹѴ ѴѹѴ ѴѹѴ ѴѹѴ – – – – – – – – – – – – – – – – – – – – – – – – – – ( (
(
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Corporate the Corporation has notyet ( ( ( ( ( ( ( ѵѶѼ ѵѶѸ ѵѶѼ Ѵѳѹ ѴѺѷ ѴѺ Ѵ Ѵ Ѵ Ѵѳѷ Ѵ ѳ Ѵѳѷ Ѵѳѷ ѴѸѹ ѵѷѶ Ѵ ( ( ( ( ( ѷѳ Ѽѳ Ѹѵ ѵѶ ѴѸ 88 Ѷѳ Ѽ ѵѶѴ ѵѹѴ Ѹ ѹѵ ѴѶ Ѽѹ ѷѺ ѺѶ Ѽѵ Ѵѹ 8 8 8 8 8 8 8 ѷ Ѻ ѵ ѳ ѵ 8 ѷѸѳѺ Ѵ – – ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ѵѶ ѶѶ ѵѸ Ѷѹ ѴѶ ѴѸ ѵѹ Ѷѷ ѵ Ѷ ѵ Ѵ ѵ ѹ Ѵ Ѷ ѵ Ѵ ѵ ѵ ѵ Ѹ ѵ Ѻ ,8 , ,8 , , , , , , , , , , , , , , , , , , , , , , , Total ѶѳѺ ѺѹѺ Ѹ ѹѴѼ Ѹѹ Ѵ ѸѵѸ ѸѹѶ ѸѵѸ ѼѵѶ ѺѷѺ ѶѹѴ Ѹѹѵ Ѻ Ѵѳѷ 8 ѶѼ ѴѺѹ ѶѵѸ Ѵѵѵ ѷѳѵ ѴѺѼ ѷѳѳ ѼѵѼ Ѹ Ѷ ѸѺѳ Ѷѵѵ ѶѴѺ ѸѴѷ ѳѴѺ ѳѳ ѳѳ 8 8 8 Ѹ 8 8 ѳ 8 Ѹ ѹ 8 8 Ѻ ѵ NOTE 19 POWER FINANCIAL CORPORATION oa ses assets Total PART A POWER FINANCIAL CORPORATION Ѻѹ ѼѺ ѳѶ ѳѳѼ Ѷѵѳ ѹѳѷ ѸѺѶ ѸѵѺ ѼѼѳ ѳѸѺ ѶѵѸ ѴѺѸ 8 8 ѸѸѷ ѴѺѵ ѶѴѼ ѳѸѸ Total , , , , , , , , ,8 , , , , , ѷ Ѷ Ѷ ѹ 77 8 ѷѵ ѴѸ ѴѺѺ ѵѵѵ ѷѹѹ ѵѳѼ A – – – – – – 8 ѵѺ ѷ ѷѴ ѴѵѸѴѹѶ ѵѺ ѴѸ ѵѶ ѴѺѵ ѵѼѴ Ѻѷѵ ѴѸѴ Ѵ ѷѹѹ ѷѷѺ , , , , Ѵ Ѵ Ѵ Ѵ Corporate he Corporation has not yet adopted adopted not yet has Corporation he
– – – – – – – – – – – – ѵѼѴ ѵѼѴ ѹѸѵ ѹѸѵ , , , , Ѷ Ѷ Pargesa Corporate Total Pargesa ] ] ѵ ѵ [ [ – – – – – – ѶѶ 8 8 8 Ѹѷ IGM ѹ ѵѸѼ ѸѹѺ ѳѵ 8 ѹѳѼ Ѷ ѵѺ ѶѺѸ ѳѹѳ ѹѶѼ , , , , , , 8, Ѵ ѷ 8, Ѵѷ ѷѷ Ѻ ѼѴѷ 8 Ѻѹ ѼѺ ѵѸ 8 ѼѷѴ Ѵ ѶѴѼ Ѽ 8 ѶѺѺ ѹ ѹѴѵ ѺѸѴ ѹѳѷ ѴѺѵ ѳѴѶ ѸѵѺ , , , ,8 , , , , , , , , Lifeco Ѷ Ѷ ѵѸ Ѵѳ ѷѴ Ѵѳ ѷѵѺ ѷѷѹ ѴѹѺ ѵѵѵ ѴѺѺ ѵѳѼ
(continued)
N O I POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER T A R O P R O C
L
A I 8 Lifeco8 IGM C N Segmented Information ѵѳѴѼ
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l T IFRS 9, this impact has been adjusted by the Corporation on consolidation and included in “Corporate”. “Corporate”. in included and on consolidation Corporation the by adjusted been impact has 9, this IFRS W a and associates and associates 8 policyholders held for sale policyholders policyholders and associates and associates policyholders sale policyholders held for t O ] adjustments. consolidation certain and of goodwill allocation the include segments of IGM operating and Lifeco assets Total ] t As loans. of mortgage classification to the 9 related of IFRS adoption an adjustment for the IGM include by reported Assets O o ѵ Ѵ Investments in jointly controlled corporations controlled Investments in jointly Other assets Other assets [ Investments on account of segregated fund Investments on account of segregated Goodwill and intangible assets fund Investments on account of segregated [ Investments in jointly controlled corporations controlled Investments in jointly Other assets assets Goodwill and intangible fund of segregated Investments on account fund of segregated Investments on account T December cash and cash equivalents Investments and Assets held for sale 8 P N ASSETS TOTAL September cash and cash equivalents Investments and Assets held for sale Total assets POWER FINANCIAL CORPORATION FINANCIAL POWER NOTE 19 Revenues Expenses Net earnings Attributable to Revenues Expenses Net earnings Attributable to Page intentionally left blank.
A 78 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 PART B GREAT-WEST LIFECO INC. 1 B as at ows erent page numbers. erent nancial position and cash fl is subject to inherent risks and uncertainties that risks and uncertainties inherent is subject to fi nancial performance, x refers to the number of such page in the original document to x refers and the the number of such page in this document to x “B” refers c and which give rise to the possibility that expectations, forecasts, forecasts, that expectations, the possibility rise to c and which give ect the current expectations of the subsidiary as set forth therein. therein. forth of the subsidiary as set expectations ect the current er materially from the content of forward-looking statements, the material the material statements, of forward-looking the content from er materially management’s current expectations and plans relating to the future and the reader is is and the reader future the to and plans relating expectations current management’s page number without any prefi page number without any in the attached documents, statements Certain such subsidiary. publicly disclosed by may be general or specifi be general may may that assumptions be accurate, to will not prove or conclusions projections predictions, goals and priorities will not be achieved. strategic and that objectives, not be correct issued by Great-West Lifeco Inc. Lifeco Great-West by issued cautioned that such statements may not be appropriate for other purposes. for not be appropriate may such statements cautioned that statements. on forward-looking put undue reliance and not to carefully other than statements of historical fact, are forward-looking statements based on certain based on certain statements forward-looking are fact, of historical other than statements fi the subsidiary’s understanding By its nature, forward-looking information information forward-looking its nature, By For further information provided by the subsidiary as to the material factors that could cause that could factors the material the subsidiary as to by provided further information For and assumptions these factors consider is cautioned to reader The Information. Looking Please note that the bottom of each page in Part B contains two diff two B contains of each page in Part that the bottom Please note in the reader the purposes of assisting for provided are statements Forward-looking POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER actual results to diff to actual results assumptions and refl assumptions about the subsidiary’s information present and to dates the periods ended on certain and for PART B PAGE B 45 PAGE PAGE B 2 B PAGE the subsidiary’s policy for updating the content of forward-looking statements, please see statements, of forward-looking content updating the for policy the subsidiary’s Forward- Regarding the attached documents, including the section entitled Cautionary Note factors and assumptions that were applied in making the forward-looking statements, and statements, applied in making the forward-looking that were and assumptions factors FINANCIAL STATEMENTS AND NOTES FINANCIAL STATEMENTS MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S A page number with the prefi GREAT-WEST LIFECO INC.GREAT-WEST The attached documents concerning Great-West Lifeco Inc. are documents prepared and documents prepared Inc. are Lifeco Great-West attached documents concerning The .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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B 16 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 B 17 .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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PART B PART B TIBSFT NJMMJPOPGOPODVNVMBUJWF'JSTU1SFGFSSFE4IBSFT NJMMJPOPGZFBSSBUFSFTFU'JSTU1SFGFSSFE4IBSFT BOENJMMJPOPGGMPBUJOHSBUF'JSTU1SFGFSSFE4IBSFT$PNNPOTIBSFTEFDSFBTFECZ NJMMJPOGSPN%FDFNCFS QSJNBSJMZ EVF UP UIF TVCTUBOUJBM JTTVFS CJE EFTDSJCFE CFMPX XIJDI JODMVEFE UIF $PNQBOZ JTTVJOH BOE GREAT-WEST LIFECO INC. LIFECO GREAT-WEST TVCTFRVFOUMZDBODFMMJOH TIBSFTBTQBSUPGB2VBMJGZJOH)PMEDP"MUFSOBUJWF BTEFTDSJCFEJOUIF0GGFS EPDVNFOUT
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B 18 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 B 19 .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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B 26 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 B 27 .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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B 28 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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B 32 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 B 33 .BOBHFNFOUT%JTDVTTJPOBOE"OBMZTJT
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B 60 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 'JOBODJBM*OTUSVNFOUT3JTL.BOBHFNFOU DPOUE 5IFCFTUFTUJNBUFSFUVSOBTTVNQUJPOTGPSFRVJUJFTBSFQSJNBSJMZCBTFEPOMPOHUFSNIJTUPSJDBMBWFSBHFT $IBOHFTJOUIFDVSSFOUNBSLFUDPVMESFTVMUJODIBOHFTUPUIFTFBTTVNQUJPOTBOEXJMMJNQBDUCPUIBTTFU BOEMJBCJMJUZDBTIGMPXT5IFGPMMPXJOHQSPWJEFTJOGPSNBUJPOPOUIFFYQFDUFEJNQBDUTPGBJODSFBTFPS EFDSFBTFJOUIFCFTUFTUJNBUFBTTVNQUJPOT
4FQUFNCFS %FDFNCFS JODSFBTF EFDSFBTF JODSFBTF EFDSFBTF $IBOHFJOCFTUFTUJNBUFSFUVSO BTTVNQUJPOTGPSFRVJUJFT *ODSFBTF EFDSFBTF JO OPOQBSUJDJQBUJOHJOTVSBODF DPOUSBDUMJBCJMJUJFT *ODSFBTF EFDSFBTF JOOFU
FBSOJOHT GREAT-WEST LIFECO INC.
'BJS7BMVF.FBTVSFNFOU BPART 5IF$PNQBOZaTBTTFUTBOEMJBCJMJUJFTSFDPSEFEBUGBJSWBMVFIBWFCFFODBUFHPSJ[FECBTFEVQPOUIFGPMMPXJOHGBJS WBMVFIJFSBSDIZ -FWFM'BJSWBMVFNFBTVSFNFOUTVUJMJ[FPCTFSWBCMF RVPUFEQSJDFT VOBEKVTUFE JOBDUJWFNBSLFUTGPSJEFOUJDBM BTTFUTPSMJBCJMJUJFTUIBUUIF$PNQBOZIBTUIFBCJMJUZUPBDDFTT"TTFUTBOEMJBCJMJUJFTVUJMJ[JOH-FWFMJOQVUTJODMVEF BDUJWFMZFYDIBOHFUSBEFEFRVJUZTFDVSJUJFT FYDIBOHFUSBEFEGVUVSFT BOENVUVBMBOETFHSFHBUFEGVOETXIJDIIBWF BWBJMBCMFQSJDFTJOBOBDUJWFNBSLFUXJUIOPSFEFNQUJPOSFTUSJDUJPOT -FWFM'BJSWBMVFNFBTVSFNFOUTVUJMJ[FJOQVUTPUIFSUIBORVPUFEQSJDFTJODMVEFEJO-FWFMUIBUBSFPCTFSWBCMF GPSUIFBTTFUPSMJBCJMJUZ FJUIFSEJSFDUMZPSJOEJSFDUMZ-FWFMJOQVUTJODMVEFRVPUFEQSJDFTGPSTJNJMBSBTTFUTBOE MJBCJMJUJFTJOBDUJWFNBSLFUT BOEJOQVUTPUIFSUIBORVPUFEQSJDFTUIBUBSFPCTFSWBCMFGPSUIFBTTFUPSMJBCJMJUZ TVDI BTJOUFSFTUSBUFTBOEZJFMEDVSWFTUIBUBSFPCTFSWBCMFBUDPNNPOMZRVPUFEJOUFSWBMT5IFGBJSWBMVFTGPSTPNF -FWFMTFDVSJUJFTXFSFPCUBJOFEGSPNBQSJDJOHTFSWJDF5IFQSJDJOHTFSWJDFJOQVUTJODMVEF CVUBSFOPUMJNJUFEUP CFODINBSLZJFMET SFQPSUFEUSBEFT CSPLFSEFBMFSRVPUFT JTTVFSTQSFBET UXPTJEFENBSLFUT CFODINBSLTFDVSJUJFT PGGFSTBOESFGFSFODFEBUB-FWFMBTTFUTBOEMJBCJMJUJFTJODMVEFUIPTFQSJDFEVTJOHBNBUSJYXIJDIJTCBTFEPO DSFEJURVBMJUZBOEBWFSBHFMJGF HPWFSONFOUBOEBHFODZTFDVSJUJFT SFTUSJDUFETUPDL TPNFQSJWBUFCPOETBOEFRVJUJFT NPTU JOWFTUNFOUHSBEF BOE IJHIZJFME DPSQPSBUF CPOET NPTU BTTFUCBDLFE TFDVSJUJFT NPTU PWFSUIFDPVOUFS EFSJWBUJWFT BOENPTUNPSUHBHFMPBOT*OWFTUNFOUDPOUSBDUTUIBUBSFNFBTVSFEBUGBJSWBMVFUISPVHIQSPGJUPSMPTT BSFNPTUMZJODMVEFEJOUIF-FWFMDBUFHPSZ -FWFM'BJSWBMVFNFBTVSFNFOUTVUJMJ[FPOFPSNPSFTJHOJGJDBOUJOQVUTUIBUBSFOPUCBTFEPOPCTFSWBCMFNBSLFU JOQVUTBOEJODMVEFTJUVBUJPOTXIFSFUIFSFJTMJUUMF JGBOZ NBSLFUBDUJWJUZGPSUIFBTTFUPSMJBCJMJUZ5IFWBMVFTPGUIF NBKPSJUZ PG -FWFM TFDVSJUJFT XFSF PCUBJOFE GSPN TJOHMF CSPLFS RVPUFT JOUFSOBM QSJDJOH NPEFMT PS FYUFSOBM BQQSBJTFST"TTFUTBOEMJBCJMJUJFTVUJMJ[JOH-FWFMJOQVUTHFOFSBMMZJODMVEFDFSUBJOCPOET DFSUBJOBTTFUCBDLFE TFDVSJUJFT TPNF QSJWBUF FRVJUJFT JOWFTUNFOUT JO NVUVBM BOE TFHSFHBUFE GVOET XIFSF UIFSF BSF SFEFNQUJPO SFTUSJDUJPOT DFSUBJOPWFSUIFDPVOUFSEFSJWBUJWFT JOWFTUNFOUQSPQFSUJFTBOEFRVJUZSFMFBTFNPSUHBHFT
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 B 61 'BJS7BMVF.FBTVSFNFOU DPOUE 5IFGPMMPXJOHQSFTFOUTUIF$PNQBOZaTBTTFUTBOEMJBCJMJUJFTNFBTVSFEBUGBJSWBMVFPOBSFDVSSJOHCBTJTCZIJFSBSDIZ MFWFM
4FQUFNCFS "TTFUTNFBTVSFEBUGBJSWBMVF -FWFM -FWFM -FWFM 5PUBM
$BTIBOEDBTIFRVJWBMFOUT ` ` 'JOBODJBMBTTFUTBUGBJSWBMVFUISPVHIQSPGJUPSMPTT #POET ` .PSUHBHFMPBOT ` ` 4UPDLT ` 5PUBMGJOBODJBMBTTFUTBUGBJSWBMVFUISPVHIQSPGJUPSMPTT "WBJMBCMFGPSTBMFGJOBODJBMBTTFUT #POET ` ` 4UPDLT ` 5PUBMBWBJMBCMFGPSTBMFGJOBODJBMBTTFUT PART B PART B *OWFTUNFOUQSPQFSUJFT ` `
GREAT-WEST LIFECO INC. LIFECO GREAT-WEST 'VOETIFMECZDFEJOHJOTVSFST ` %FSJWBUJWFT ` 3FJOTVSBODFBTTFUT ` ` "TTFUTIFMEGPSTBMF 0UIFSBTTFUT 5SBEJOHBDDPVOUBTTFUT ` 0UIFS ` ` 5PUBMBTTFUTNFBTVSFEBUGBJSWBMVF
-JBCJMJUJFTNFBTVSFEBUGBJSWBMVF %FSJWBUJWFT ` *OWFTUNFOUDPOUSBDUMJBCJMJUJFT ` ` *OWFTUNFOUDPOUSBDUMJBCJMJUJFTIFMEGPSTBMF ` ` 0UIFSMJBCJMJUJFT ` ` 5PUBMMJBCJMJUJFTNFBTVSFEBUGBJSWBMVF
&YDMVEFTDPMMBUFSBMSFDFJWFEGSPNDPVOUFSQBSUJFTPG *ODMVEFTDPMMBUFSBMSFDFJWFEVOEFSTFDVSJUJFTMFOEJOHBHSFFNFOUT &YDMVEFTDPMMBUFSBMQMFEHFEUPDPVOUFSQBSUJFTPG
5IFSFXFSFOPUSBOTGFSTPGUIF$PNQBOZTBTTFUTBOEMJBCJMJUJFTCFUXFFO-FWFMBOE-FWFMJOUIFQFSJPE
B 62 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 'BJS7BMVF.FBTVSFNFOU DPOUE
%FDFNCFS "TTFUTNFBTVSFEBUGBJSWBMVF -FWFM -FWFM -FWFM 5PUBM
$BTIBOEDBTIFRVJWBMFOUT ` ` 'JOBODJBMBTTFUTBUGBJSWBMVFUISPVHIQSPGJUPSMPTT #POET ` .PSUHBHFMPBOT ` ` 4UPDLT ` 5PUBMGJOBODJBMBTTFUTBUGBJSWBMVFUISPVHIQSPGJUPSMPTT "WBJMBCMFGPSTBMFGJOBODJBMBTTFUT #POET ` `
4UPDLT ` GREAT-WEST LIFECO INC. 5PUBMBWBJMBCMFGPSTBMFGJOBODJBMBTTFUT PART BPART *OWFTUNFOUQSPQFSUJFT ` ` 'VOETIFMECZDFEJOHJOTVSFST ` %FSJWBUJWFT ` "TTFUTIFMEGPSTBMF 0UIFSBTTFUT 5SBEJOHBDDPVOUBTTFUT ` 0UIFS `` 5PUBMBTTFUTNFBTVSFEBUGBJSWBMVF
-JBCJMJUJFTNFBTVSFEBUGBJSWBMVF %FSJWBUJWFT ` *OWFTUNFOUDPOUSBDUMJBCJMJUJFT ` ` *OWFTUNFOUDPOUSBDUMJBCJMJUJFTIFMEGPSTBMF ` 0UIFSMJBCJMJUJFT ` ` 5PUBMMJBCJMJUJFTNFBTVSFEBUGBJSWBMVF
&YDMVEFTDPMMBUFSBMSFDFJWFEGSPNDPVOUFSQBSUJFTPG *ODMVEFTDPMMBUFSBMSFDFJWFEVOEFSTFDVSJUJFTMFOEJOHBSSBOHFNFOUT &YDMVEFTDPMMBUFSBMQMFEHFEUPDPVOUFSQBSUJFTPG
5IFSFXFSFOPUSBOTGFSTPGUIF$PNQBOZTBTTFUTBOEMJBCJMJUJFTCFUXFFO-FWFMBOE-FWFMJOUIFQFSJPE
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 B 63 'BJS7BMVF.FBTVSFNFOU DPOUE 5IFGPMMPXJOHQSFTFOUTBEEJUJPOBMJOGPSNBUJPOBCPVUBTTFUTBOEMJBCJMJUJFTNFBTVSFEBUGBJSWBMVFPOBSFDVSSJOH CBTJTBOEGPSXIJDIUIF$PNQBOZIBTVUJMJ[FE-FWFMJOQVUTUPEFUFSNJOFGBJSWBMVF
4FQUFNCFS 'BJS 'BJSWBMVF 'BJS WBMVF UISPVHI WBMVF UISPVHI QSPGJUPS UISPVHI "TTFUT QSPGJUPS MPTT QSPGJUPS "WBJMBCMF IFME 5PUBM *OWFTUNFOU -JBCJMJUJFT 5PUBM MPTT NPSUHBHF MPTT GPSTBMF *OWFTUNFOU GPS -FWFM DPOUSBDU IFMEGPS -FWFM CPOET MPBOT TUPDLT TUPDLT QSPQFSUJFT TBMF BTTFUT MJBCJMJUJFT TBMF MJBCJMJUJFT
#BMBODF CFHJOOJOHPG ZFBS ` $IBOHFJO BDDPVOUJOHQPMJDZ OPUF ```````` 3FWJTFECBMBODF CFHJOOJOHPGZFBS ` 5PUBMHBJOT MPTTFT *ODMVEFEJOOFU FBSOJOHT ` ` ` ` PART B PART B *ODMVEFEJOPUIFS DPNQSFIFOTJWF JODPNF ` ` ` ``` GREAT-WEST LIFECO INC. LIFECO GREAT-WEST 1VSDIBTFT ` ` ` ` ` ` *TTVFT ` ` ` ` ` ` ` ` 4BMFT ` ` ` ` ``` 4FUUMFNFOUT ` ` ` ` ` ``` 0UIFS ```````` 5SBOTGFSTJOUP -FWFM `````````` 5SBOTGFSTPVUPG -FWFM `````````` #BMBODF FOEPG QFSJPE ` 5PUBMHBJOT MPTTFT GPSUIF QFSJPEJODMVEFE JOOFUJOWFTUNFOU JODPNF ` ` ` ` $IBOHFJO VOSFBMJ[FEHBJOT MPTTFT GPSUIF QFSJPEJODMVEFE JOFBSOJOHTGPS BTTFUTIFMEBU 4FQUFNCFS ` ` ` `
0UIFSDPNQSFIFOTJWFJODPNFJODMVEFTVOSFBMJ[FEHBJOT MPTTFT POGPSFJHOFYDIBOHF
B 64 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 'BJS7BMVF.FBTVSFNFOU DPOUE
%FDFNCFS 'BJS 'BJSWBMVF 'BJS WBMVF UISPVHI WBMVF UISPVHI QSPGJUPS UISPVHI "TTFUT QSPGJUPS MPTT QSPGJUPS "WBJMBCMF IFME 5PUBM *OWFTUNFOU -JBCJMJUJFT 5PUBM MPTT NPSUHBHF MPTT GPSTBMF *OWFTUNFOU GPS -FWFM DPOUSBDU IFMEGPS -FWFM CPOET MPBOT TUPDLT TUPDLT QSPQFSUJFT TBMF BTTFUT MJBCJMJUJFT TBMF MJBCJMJUJFT #BMBODF CFHJOOJOHPG ZFBS ` ` ` 5PUBMHBJOT MPTTFT *ODMVEFEJOOFU FBSOJOHT ` ` ` ` ` ` *ODMVEFEJOPUIFS DPNQSFIFOTJWF JODPNF ` ` ` ` ` `
#VTJOFTTBDRVJTJUJPO ` ` ` ` ` ` ` ` GREAT-WEST LIFECO INC. 1VSDIBTFT ` ` ` ` ` `
*TTVFT ` ` ` ` ` ` ` ` BPART 4BMFT ` ` ` ` `` ` 4FUUMFNFOUT ` ` ` ` ` `` ` 0UIFS ` ` ` ` ` ` ` ` 5SBOTGFSTJOUP-FWFM ` ` ` ` ` ` ` ` ` ` 5SBOTGFSTPVUPG-FWFM ` ` ` ` ` ` ` ` ` ` 5SBOTGFSSFEUPIFMEGPS TBMF ` ` ` ` ` ` #BMBODF FOEPGZFBS `
5PUBMHBJOT MPTTFT GPS UIFZFBSJODMVEFEJO OFUJOWFTUNFOU JODPNF ` ` ` ` ` ` $IBOHFJOVOSFBMJ[FE HBJOT MPTTFT GPSUIF ZFBSJODMVEFEJO FBSOJOHTGPSBTTFUT IFMEBU%FDFNCFS ` ` ` ` ` `
0UIFSDPNQSFIFOTJWFJODPNFJODMVEFTVOSFBMJ[FEHBJOT MPTTFT POGPSFJHOFYDIBOHF
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 B 65 'BJS7BMVF.FBTVSFNFOU DPOUE 5IFGPMMPXJOHTFUTPVUJOGPSNBUJPOBCPVUTJHOJGJDBOUVOPCTFSWBCMFJOQVUTVTFEBUQFSJPEFOEJONFBTVSJOHBTTFUT BOEMJBCJMJUJFTDBUFHPSJ[FEBT-FWFMJOUIFGBJSWBMVFIJFSBSDIZ
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
PART B PART B MPBOT GBJS SFMFBTF NPSUHBHFT JT UP VTF BO XPVMESFTVMUJOBOJODSFBTFJOGBJS WBMVFUISPVHI JOUFSOBMWBMVBUJPONPEFMUPEFUFSNJOF WBMVF "O JODSFBTF JO UIF QSPGJUPSMPTT UIF QSPKFDUFE BTTFU DBTI GMPXT EJTDPVOUSBUFXPVMESFTVMUJOB JODMVEJOH UIF TUPDIBTUJDBMMZ EFDSFBTFJOGBJSWBMVF GREAT-WEST LIFECO INC. LIFECO GREAT-WEST DBMDVMBUFE DPTU PG UIF OP OFHBUJWF FRVJUZHVBSBOUFFGPSFBDIJOEJWJEVBM MPBO UP BHHSFHBUF UIFTF BDSPTT BMM MPBOT BOE UP EJTDPVOU UIPTF DBTI GMPXTCBDLUPUIFWBMVBUJPOEBUF5IF QSPKFDUJPO JT EPOF NPOUIMZ VOUJM FYQFDUFE SFEFNQUJPO PG UIF MPBO FJUIFS WPMVOUBSJMZ PS PO UIF EFBUI FOUFSJOH JOUP MPOH UFSN DBSF PG UIF MPBOIPMEFST
*OTVSBODFBOE*OWFTUNFOU$POUSBDU-JBCJMJUJFT
4FQUFNCFS (SPTT 3FJOTVSBODF MJBCJMJUZ BTTFUT /FU *OTVSBODFDPOUSBDUMJBCJMJUJFT *OWFTUNFOUDPOUSBDUMJBCJMJUJFT 5PUBM
%FDFNCFS (SPTT 3FJOTVSBODF MJBCJMJUZ BTTFUT /FU *OTVSBODFDPOUSBDUMJBCJMJUJFT *OWFTUNFOUDPOUSBDUMJBCJMJUJFT ` 5PUBM
*ODMVEFTSFJOTVSBODFBTTFUTSFDPHOJ[FEVQPOUIFDPNQMFUJPOPGUIFSFJOTVSBODFUSBOTBDUJPOXJUI1SPUFDUJWF-JGF OPUF
B 66 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 4FHSFHBUFE'VOET 5IFGPMMPXJOHQSFTFOUTEFUBJMTPGUIFJOWFTUNFOUT EFUFSNJOFEJOBDDPSEBODFXJUIUIFSFMFWBOUTUBUVUPSZSFQPSUJOH SFRVJSFNFOUTPGFBDISFHJPOPGUIF$PNQBOZTPQFSBUJPOT POBDDPVOUPGTFHSFHBUFEGVOEQPMJDZIPMEFST
B *OWFTUNFOUTPOBDDPVOUPGTFHSFHBUFEGVOEQPMJDZIPMEFST
4FQUFNCFS %FDFNCFS
$BTIBOEDBTIFRVJWBMFOUT #POET .PSUHBHFMPBOT 4UPDLTBOEVOJUTJOVOJUUSVTUT GREAT-WEST LIFECO INC. .VUVBMGVOET *OWFTUNFOUQSPQFSUJFT BPART "DDSVFEJODPNF 0UIFSMJBCJMJUJFT /PODPOUSPMMJOHNVUVBMGVOETJOUFSFTU 5PUBM
C *OWFTUNFOUBOEJOTVSBODFDPOUSBDUTPOBDDPVOUPGTFHSFHBUFEGVOEQPMJDZIPMEFST
'PSUIFOJOFNPOUIT FOEFE4FQUFNCFS
#BMBODF CFHJOOJOHPGZFBS "EEJUJPOT EFEVDUJPOT 1PMJDZIPMEFSEFQPTJUT /FUJOWFTUNFOUJODPNF /FUSFBMJ[FEDBQJUBMHBJOTPOJOWFTUNFOUT /FUVOSFBMJ[FEDBQJUBMHBJOT MPTTFT POJOWFTUNFOUT 6OSFBMJ[FEHBJOT MPTTFT EVFUPDIBOHFTJOGPSFJHOFYDIBOHFSBUFT 1PMJDZIPMEFSXJUIESBXBMT #VTJOFTTBDRVJTJUJPO ` $IBOHFJO4FHSFHBUFE'VOEJOWFTUNFOUJO(FOFSBM'VOE $IBOHFJO(FOFSBM'VOEJOWFTUNFOUJO4FHSFHBUFE'VOE /FUUSBOTGFSGSPN(FOFSBM'VOE /PODPOUSPMMJOHNVUVBMGVOETJOUFSFTU "TTFUTIFMEGPSTBMF OPUF ` 5PUBM #BMBODF FOEPGQFSJPE
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 B 67 4FHSFHBUFE'VOET DPOUE D *OWFTUNFOUTPOBDDPVOUPGTFHSFHBUFEGVOEQPMJDZIPMEFSTCZGBJSWBMVFIJFSBSDIZMFWFM OPUF
4FQUFNCFS -FWFM -FWFM -FWFM 5PUBM
*OWFTUNFOUTPOBDDPVOUPGTFHSFHBUFE GVOEQPMJDZIPMEFST *OWFTUNFOUTPOBDDPVOUPGTFHSFHBUFE GVOEQPMJDZIPMEFSTIFMEGPSTBMF 5PUBMJOWFTUNFOUTPOBDDPVOUPG TFHSFHBUFEGVOEQPMJDZIPMEFST NFBTVSFEBUGBJSWBMVF
&YDMVEFTPUIFSMJBCJMJUJFT OFUPGPUIFSBTTFUT PG &YDMVEFTPUIFSBTTFUT OFUPGPUIFSMJBCJMJUJFT PG
%FDFNCFS PART B PART B -FWFM -FWFM -FWFM 5PUBM GREAT-WEST LIFECO INC. LIFECO GREAT-WEST *OWFTUNFOUTPOBDDPVOUPGTFHSFHBUFE GVOEQPMJDZIPMEFST *OWFTUNFOUTPOBDDPVOUPGTFHSFHBUFE GVOEQPMJDZIPMEFSTIFMEGPSTBMF 5PUBMJOWFTUNFOUTPOBDDPVOUPG TFHSFHBUFEGVOEQPMJDZIPMEFST NFBTVSFEBUGBJSWBMVF
&YDMVEFTPUIFSMJBCJMJUJFT OFUPGPUIFSBTTFUT PG &YDMVEFTPUIFSBTTFUT OFUPGPUIFSMJBCJMJUJFT PG
%VSJOHUIFGJSTUOJOFNPOUITPGDFSUBJOGPSFJHOTUPDLIPMEJOHTWBMVFEBU IBWFCFFOUSBOTGFSSFE GSPN-FWFMUP-FWFM XFSFUSBOTGFSSFEGSPN-FWFMUP-FWFMBU%FDFNCFS QSJNBSJMZ CBTFEPOUIF$PNQBOZTDIBOHFJOVTFPGJOQVUTJOBEEJUJPOUPRVPUFEQSJDFTJOBDUJWFNBSLFUTGPSDFSUBJO GPSFJHOTUPDLIPMEJOHT-FWFMBTTFUTJODMVEFUIPTFBTTFUTXIFSFGBJSWBMVFJTOPUBWBJMBCMFGSPNOPSNBM NBSLFUQSJDJOHTPVSDFT XIFSFJOQVUTBSFVUJMJ[FEJOBEEJUJPOUPRVPUFEQSJDFTJOBDUJWFNBSLFUTBOEXIFSFUIF $PNQBOZEPFTOPUIBWFWJTJCJMJUZUISPVHIUPUIFVOEFSMZJOHBTTFUT
B 68 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 4FHSFHBUFE'VOET DPOUE 5IFGPMMPXJOHQSFTFOUTBEEJUJPOBMJOGPSNBUJPOBCPVUUIF$PNQBOZTJOWFTUNFOUTPOBDDPVOUPGTFHSFHBUFE GVOEQPMJDZIPMEFSTGPSXIJDIUIF$PNQBOZIBTVUJMJ[FE-FWFMJOQVUTUPEFUFSNJOFGBJSWBMVF
4FQUFNCFS *OWFTUNFOUT *OWFTUNFOUT POBDDPVOUPG POBDDPVOUPG TFHSFHBUFE TFHSFHBUFE GVOE GVOE QPMJDZIPMEFST QPMJDZIPMEFST IFMEGPSTBMF 5PUBM
#BMBODF CFHJOOJOHPGZFBS $IBOHFJOBDDPVOUJOHQPMJDZ `
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POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 B 77 4FHNFOUFE*OGPSNBUJPO DPOUE
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B 78 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 PART C IGM FINANCIAL INC. 1 C ows erent page numbers. erent nancial position and cash fl is subject to inherent risks and uncertainties that risks and uncertainties inherent is subject to x refers to the number of such page in the original to x refers nancial performance, fi nancial performance, x “C” refers to the number of such page in this document the number of such page in this document to refers x “C” er materially from the content of forward-looking statements, statements, of forward-looking the content from er materially c and which give rise to the possibility that expectations, forecasts, forecasts, that expectations, the possibility rise to c and which give ect the current expectations of the subsidiary as set forth therein. therein. forth of the subsidiary as set expectations ect the current publicly disclosed by such subsidiary. Certain statements in the attached documents, in the attached documents, statements Certain such subsidiary. publicly disclosed by may be general or specifi be general may may that assumptions be accurate, to will not prove or conclusions projections predictions, goals and priorities will not be achieved. strategic and that objectives, not be correct cause actual results to diff to cause actual results other than statements of historical fact, are forward-looking statements based on certain based on certain statements forward-looking are fact, of historical other than statements fi the subsidiary’s understanding document issued by IGM Financial Inc. by document issued statements, and the subsidiary’s policy for updating the content of forward-looking of forward-looking updating the content for policy and the subsidiary’s statements, including the section entitled please see the attached documents, statements, subsidiary’s management’s current expectations and plans relating to the future and and the future to and plans relating expectations current management’s subsidiary’s By its nature, forward-looking information information forward-looking its nature, By that could factors the material to the subsidiary as by provided further information For and these factors consider is cautioned to reader The Statements. Forward-Looking Please note that the bottom of each page in Part C contains two diff two C contains of each page in Part that the bottom Please note in the reader the purposes of assisting for provided are statements Forward-looking POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER assumptions carefully and not to put undue reliance on forward-looking statements. on forward-looking put undue reliance and not to carefully assumptions and the page number without any prefi and the page number without any and refl assumptions about the information present and to dates the periods ended on certain as at and for PAGE C 54 PAGE C 2 the reader is cautioned that such statements may not be appropriate for other purposes. for not be appropriate may is cautioned that such statements the reader applied in making the forward-looking that were and assumptions factors the material PART C FINANCIAL STATEMENTS AND NOTES FINANCIAL STATEMENTS MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S A page number with the prefi IGM FINANCIAL INC.IGM FINANCIAL The attached documents concerning IGM Financial Inc. are documents prepared and and documents prepared IGM Financial Inc. are concerning attached documents The MANAGEMENT’S DISCUSSION AND ANALYSIS
The Management’s Discussion and Analysis (MD&A) presents management’s view of the results of operations and financial condition of IGM Financial Inc. (IGM Financial or the Company) as at and for the three and nine months ended September 30, 2019 and should be read in conjunction with the unaudited Interim Condensed Consolidated Financial Statements (Interim Financial Statements) as well as the 2018 IGM Financial Inc. Annual Report and the 2019 IGM Financial Inc. First and Second Quarter Reports to Shareholders filed on www.sedar.com. Commentary in the MD&A as at and for the three and nine months ended September 30, 2019 is as of October 31, 2019.
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
The Interim Financial Statements of IGM Financial, which are the basis of the information presented in the Company’s MD&A, have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (IFRS) and are presented in Canadian dollars (Note 2 of the Interim Financial Statements).
FORWARD-LOOKING STATEMENTS
Certain statements in this report, other than statements of historical fact, are forward- its subsidiaries, and their businesses, and could cause actual results to differ materially looking statements based on certain assumptions and reflect IGM Financial’s current from current expectations of estimated or anticipated events or results. These factors expectations. Forward-looking statements are provided to assist the reader in include, but are not limited to: the impact or unanticipated impact of general economic, understanding the Company’s financial position and results of operations as at and for political and market factors in North America and internationally, interest and foreign the periods ended on certain dates and to present information about management’s exchange rates, global equity and capital markets, management of market liquidity current expectations and plans relating to the future. Readers are cautioned that such and funding risks, changes in accounting policies and methods used to report financial statements may not be appropriate for other purposes. These statements may include, condition (including uncertainties associated with critical accounting assumptions and without limitation, statements regarding the operations, business, financial condition, estimates), the effect of applying future accounting changes, operational and reputational expected financial results, performance, prospects, opportunities, priorities, targets, goals, risks, business competition, technological change, changes in government regulations ongoing objectives, strategies and outlook of the Company, as well as the outlook for and legislation, changes in tax laws, unexpected judicial or regulatory proceedings, North American and international economies, for the current fiscal year and subsequent catastrophic events, the Company’s ability to complete strategic transactions, integrate periods. Forward-looking statements include statements that are predictive in nature, acquisitions and implement other growth strategies, and the Company’s and its depend upon or refer to future events or conditions, or include words such as “expects”, subsidiaries’ success in anticipating and managing the foregoing factors. “anticipates”, “plans”, “believes”, “estimates”, “seeks”, “intends”, “targets”, “projects”, The reader is cautioned that the foregoing list is not exhaustive of the factors that may “forecasts” or negative versions thereof and other similar expressions, or future or affect any of the Company’s forward-looking statements. The reader is also cautioned conditional verbs such as “may”, “will”, “should”, “would” and “could”. to consider these and other factors, uncertainties and potential events carefully and not This information is based upon certain material factors or assumptions that were applied place undue reliance on forward-looking statements. in drawing a conclusion or making a forecast or projection as reflected in the forward- Other than as specifically required by applicable Canadian law, the Company looking statements, including the perception of historical trends, current conditions and undertakes no obligation to update any forward-looking statements to reflect events expected future developments, as well as other factors that are believed to be appropriate or circumstances after the date on which such statements are made, or to reflect the in the circumstances. While the Company considers these assumptions to be reasonable occurrence of unanticipated events, whether as a result of new information, future based on information currently available to management, they may prove to be incorrect. events or results, or otherwise. By its nature, this information is subject to inherent risks and uncertainties that may Additional information about the risks and uncertainties of the Company’s business and be general or specific and which give rise to the possibility that expectations, forecasts, material factors or assumptions on which information contained in forward-looking predictions, projections or conclusions will not prove to be accurate, that assumptions statements is based is provided in its disclosure materials, including this Management’s may not be correct and that objectives, strategic goals and priorities will not be achieved. PART C PART C Discussion and Analysis and its most recent Annual Information Form, filed with the A variety of material factors, many of which are beyond the Company’s and its securities regulatory authorities in Canada, available at www.sedar.com.
IGM FINANCIAL INC. FINANCIAL IGM subsidiaries’ control, affect the operations, performance and results of the Company, and
NON-IFRS FINANCIAL MEASURES AND ADDITIONAL IFRS MEASURES
Net earnings available to common shareholders, which is an additional measure in of performance utilized by management, investors and investment analysts to evaluate accordance with IFRS, may be subdivided into two components consisting of: and analyze the Company’s results. The two EBITDA measures have been introduced following the adoption of IFRS 15. EBITDA before sales commissions excludes all • Adjusted net earnings available to common shareholders; and mutual fund sales commissions and is comparable to prior periods. EBITDA after sales • Other items, which include the after-tax impact of any item that management commissions includes all sales commissions and highlights aggregate cash flows. Other considers to be of a non-recurring nature or that could make the period-over-period items of a non-recurring nature, or that could make the period-over-period comparison comparison of results from operations less meaningful. of results from operations less meaningful, are further excluded to arrive at EBITDA “Adjusted net earnings available to common shareholders”, “adjusted diluted earnings before sales commissions and EBITDA after sales commissions. These non-IFRS financial per share” (EPS) and “adjusted return on average common equity” (ROE) are non-IFRS measures do not have standard meanings prescribed by IFRS and may not be directly financial measures which are used to provide management and investors with additional comparable to similar measures used by other companies. measures to assess earnings performance. These non-IFRS financial measures do not “Earnings before income taxes” and “net earnings available to common shareholders” are have standard meanings prescribed by IFRS and may not be directly comparable to additional IFRS measures which are used to provide management and investors with similar measures used by other companies. additional measures to assess earnings performance. These measures are considered “Earnings before interest and taxes” (EBIT), “earnings before interest, taxes, depreciation additional IFRS measures as they are in addition to the minimum line items required by and amortization before sales commissions” (EBITDA before sales commissions), and IFRS and are relevant to an understanding of the entity’s financial performance. “earnings before interest, taxes, depreciation and amortization after sales commissions” Refer to the appropriate reconciliations of non-IFRS financial measures to reported (EBITDA after sales commissions) are also non-IFRS financial measures. EBIT, EBITDA results in accordance with IFRS in Tables 1 to 4. before sales commissions and EBITDA after sales commissions are alternative measures
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 5
C 2 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 IGM FINANCIAL INC. SUMMARY OF CONSOLIDATED OPERATING RESULTS
IGM Financial Inc. (TSX:IGM) is a leading wealth and asset Other items of $8.0 million for the nine months ended management company. The Company’s principal businesses are September 30, 2019 represented the Company’s proportionate Investors Group Inc. and Mackenzie Financial Corporation, each share in Great-West Lifeco Inc.’s after-tax loss on the sale of its operating distinctly primarily within the advice segment of the United States individual life insurance and annuity business. financial services market. Other items for the three and nine months ended September 30, Total assets under management were $162.5 billion at 2018 consisted of: September 30, 2019, the highest quarter end level in the history • Restructuring and other charges of $16.7 million after-tax of the Company, compared with $159.7 billion at September 30, ($22.7 million pre-tax) resulting from the re-engineering of 2018, as detailed in Tables 6 and 7. Average total assets under North American equity offerings and associated personnel management for the third quarter of 2019 were $162.1 billion changes, as well as other initiatives to improve the Company’s compared to $160.4 billion in the third quarter of 2018. offerings and operational effectiveness. Average total assets under management for the nine months • A premium of $7.8 million after-tax ($10.7 million pre-tax) ended September 30, 2019 were $159.9 billion compared to $158.2 billion for the nine months ended September 30, 2018. paid on the early redemption of the $375 million 7.35% debentures on August 10, 2018. Investment fund assets under management, also at a record high, were $157.6 billion at September 30, 2019 compared with Shareholders’ equity was $4.4 billion as at September 30, 2019 compared to $4.6 billion at December 31, 2018. Return on $153.4 billion at September 30, 2018. Average investment fund assets under management for the third quarter of 2019 were average common equity based on adjusted net earnings for the nine months ended September 30, 2019 was 17.0% compared $156.8 billion compared to $154.0 billion in the third quarter of 2018. Average investment fund assets under management for with 18.9% for the comparative period in 2018. The quarterly dividend per common share declared in the third quarter of the nine months ended September 30, 2019 were $154.2 billion compared to $151.7 billion for the nine months ended 2019 was 56.25 cents, unchanged from the second quarter of 2019. September 30, 2018.
Net earnings available to common shareholders for the three THIRD QUARTER DEVELOPMENTS months ended September 30, 2019 were $202.5 million or 85 cents per share compared with net earnings available to IGM Financial has previously announced a five-year transformation common shareholders of $198.2 million or 82 cents per share to modernize its digital platforms and technology infrastructure to for the comparative period in 2018. Adjusted net earnings enable the company to enhance operations, achieve efficiencies
available to common shareholders, excluding other items and further improve the service experience for its clients. As part IGM FINANCIAL INC. outlined below, for the three months ended September 30, of this transformation effort, we announced two initiatives in the PART CPART 2018 were $222.7 million or 92 cents per share. third quarter:
Net earnings available to common shareholders for the nine • IGM Financial has selected CIBC Mellon to assume most of months ended September 30, 2019 were $555.1 million or its fund services functions. This will add fund administration $2.32 per share compared to net earnings available to common servicing solutions to the custody and related services that shareholders of $587.4 million or $2.44 per share for the CIBC Mellon already performs for the Company. comparative period in 2018. Adjusted net earnings available • We have chosen Google Cloud to manage our data platform. to common shareholders, excluding other items outlined We are among the first major Canadian financial services below, for the nine months ended September 30, 2019 were companies to move SAP applications and data to the Google $563.1 million or $2.35 per share compared to adjusted net Cloud Platform. The migration of the firm’s data to a cloud- earnings available to common shareholders, excluding other based environment will enhance operational efficiencies items, of $611.9 million or $2.54 per share for the comparative through greater productivity and business agility, and period in 2018. enhanced service levels.
6 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 3 TABLE 1: RECONCILIATION OF NON-IFRS FINANCIAL MEASURES
THREE MONTHS ENDED NINE MONTHS ENDED
2019 2019 2018 2019 2018 ($ millions) SEP. 30 JUN. 30 SEP. 30 SEP. 30 SEP. 30
Adjusted net earnings available to common shareholders – Non-IFRS measure $ 202.5 $ 193.1 $ 222.7 $ 563.1 $ 611.9 Proportionate share of associate’s one-time loss – (8.0) – (8.0) – Premium paid on early redemption of debentures, net of tax – – (7.8) – (7.8) Restructuring and other, net of tax – – (16.7) – (16.7) Net earnings available to common shareholders – IFRS $ 202.5 $ 185.1 $ 198.2 $ 555.1 $ 587.4 Adjusted net earnings per share(1) available to common shareholders – Non-IFRS measure $ 0.85 $ 0.81 $ 0.92 $ 2.35 $ 2.54 Proportionate share of associate’s one-time loss – (0.04) – (0.03) – Premium paid on early redemption of debentures, net of tax – – (0.03) – (0.03) Restructuring and other, net of tax – – (0.07) – (0.07) Net earnings per share(1) available to common shareholders – IFRS $ 0.85 $ 0.77 $ 0.82 $ 2.32 $ 2.44 EBITDA before sales commissions – Non-IFRS measure $ 337.1 $ 324.5 $ 360.8 $ 957.5 $ 1,036.2 Sales-based commissions paid (38.2) (38.0) (40.5) (119.9) (147.3) EBITDA after sales commissions – Non-IFRS measure 298.9 286.5 320.3 837.6 888.9 Sales-based commissions paid subject to amortization 16.3 14.8 13.5 43.7 42.5 Amortization of capitalized sales commissions (5.9) (5.2) (3.8) (15.9) (10.1) Amortization of capital assets and intangible assets and other(2) (19.9) (19.7) (14.0) (59.6) (41.7) Interest expense(3) (27.7) (27.7) (27.0) (80.6) (86.1) Adjusted Earnings before income taxes – Non-IFRS measure 261.7 248.7 289.0 725.2 793.5 Proportionate share of associate’s one-time loss – (8.0) – (8.0) – Premium paid on early redemption of debentures – – (10.7) – (10.7) Restructuring and other – – (22.7) – (22.7) Earnings before income taxes 261.7 240.7 255.6 717.2 760.1 Income taxes (59.2) (55.6) (55.2) (159.9) (166.1) PART C PART C Perpetual preferred share dividends – – (2.2) (2.2) (6.6)
IGM FINANCIAL INC. FINANCIAL IGM Net earnings available to common shareholders – IFRS $ 202.5 $ 185.1 $ 198.2 $ 555.1 $ 587.4
(1) Diluted earnings per share. (2) Amortization expense includes amortization on capital assets and intangible assets and in 2019 also includes amortization on right-of-use assets as a result of the Company’s adoption of IFRS 16, Leases (third quarter – $6.0 million; second quarter – $5.8 million; nine months – $17.5 million). (3) Interest expense includes interest on long-term debt and in 2019 also includes interest on leases as a result of the Company’s adoption of IFRS 16, Leases (third quarter – $1.0 million; second quarter – $1.0 million; nine months – $3.1 million).
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 7
C 4 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORTABLE SEGMENTS interest expense in the period also resulted from the impact IGM Financial’s reportable segments are: of the following transactions: – The redemption of $150 million 6.58% debentures on • IG Wealth Management (IG Wealth Management or IG) March 7, 2018; • Mackenzie Investments (Mackenzie Investments or Mackenzie) – The issuance of $200 million 4.174% debentures on • Corporate and Other July 11, 2018; These segments, as shown in Tables 2, 3 and 4 reflect the – The early redemption of $375 million 7.35% debentures on Company’s internal financial reporting and performance August 10, 2018, and; measurement. – The issuance of $250 million 4.206% debentures on March 20, 2019. Certain items reflected in Tables 2, 3, and 4 are not allocated to segments: • 2019 Proportionate share of associate’s one-time loss – represents the Company’s proportionate share in Great-West • Interest expense – represents interest expense on long-term Lifeco Inc.’s after-tax loss, recorded in the second quarter, debt and, in 2019 also includes interest expense on leases on the sale of its United States individual life insurance and as a result of the adoption of IFRS 16, Leases. The change in annuity business.
TABLE 2: CONSOLIDATED OPERATING RESULTS BY SEGMENT – Q3 2019 VS. Q3 2018
IG WEALTH MANAGEMENT MACKENZIE INVESTMENTS CORPORATE & OTHER TOTAL
THREE MONTHS ENDED 2019 2018 2019 2018 2019 2018 2019 2018 ($ millions) SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30
Revenues Fee income $ 492.9 $ 497.0 $ 205.0 $ 205.1 $ 71.7 $ 74.1 $ 769.6 $ 776.2 Net investment income and other 15.8 13.3 (1.4) (1.1) 32.1 43.6 46.5 55.8 508.7 510.3 203.6 204.0 103.8 117.7 816.1 832.0 Expenses Commission 154.7 150.7 73.0 73.2 44.7 46.2 272.4 270.1 Non-Commission(1) 148.2 146.1 84.2 78.1 21.9 21.7 254.3 245.9 IGM FINANCIAL INC. 302.9 296.8 157.2 151.3 66.6 67.9 526.7 516.0 PART CPART Earnings before interest and taxes $ 205.8 $ 213.5 $ 46.4 $ 52.7 $ 37.2 $ 49.8 289.4 316.0 Interest expense(2) (27.7) (27.0) Premium paid on early redemption of debentures – (10.7) Restructuring and other – (22.7) Earnings before income taxes 261.7 255.6 Income taxes 59.2 55.2 Net earnings 202.5 200.4 Perpetual preferred share dividends – 2.2 Net earnings available to common shareholders $ 202.5 $ 198.2 Adjusted net earnings available to common shareholders(3) $ 202.5 $ 222.7
(1) The Company’s investment management functions reside at Mackenzie Investments and the cost of investment management activities is allocated proportionately between the segments. (2) Interest expense includes interest on long-term debt and in 2019 also includes interest on leases of $1.0 million as a result of the Company’s adoption of IFRS 16, Leases. (3) Refer to Non-IFRS Financial Measures and Additional IFRS Measures in this MD&A for an explanation of the Company’s use of non-IFRS financial measures. 2018 adjusted net earnings exclude other items as follows: – Premium paid on early redemption of debentures of $10.7 million ($7.8 million after-tax), which was recorded in Interest expense in the Consolidated Statements of Earnings. – Restructuring and other charges of $22.7 million ($16.7 million after-tax), which was recorded in Commission and Non-commission expenses in the Consolidated Statements of Earnings
8 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 5 TABLE 3: CONSOLIDATED OPERATING RESULTS BY SEGMENT – YTD 2019 VS. YTD 2018
IG WEALTH MANAGEMENT MACKENZIE INVESTMENTS CORPORATE & OTHER TOTAL
NINE MONTHS ENDED 2019 2018 2019 2018 2019 2018 2019 2018 ($ millions) SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30
Revenues Fee income $ 1,457.8 $ 1,463.0 $ 600.3 $ 611.4 $ 213.5 $ 219.1 $ 2,271.6 $ 2,293.5 Net investment income and other 39.4 35.7 3.6 1.2 102.5 127.2 145.5 164.1 1,497.2 1,498.7 603.9 612.6 316.0 346.3 2,417.1 2,457.6 Expenses Commission 469.2 467.1 219.0 221.4 134.7 137.8 822.9 826.3 Non-Commission(1) 464.0 437.7 257.8 248.2 66.6 65.8 788.4 751.7 933.2 904.8 476.8 469.6 201.3 203.6 1,611.3 1,578.0 Earnings before interest and taxes $ 564.0 $ 593.9 $ 127.1 $ 143.0 $ 114.7 $ 142.7 805.8 879.6 Interest expense(2) (80.6) (86.1) Proportionate share of associate’s one-time loss (8.0) – Premium paid on early redemption of debentures – (10.7) Restructuring and other – (22.7) Earnings before income taxes 717.2 760.1 Income taxes 159.9 166.1 Net earnings 557.3 594.0 Perpetual preferred share dividends 2.2 6.6 Net earnings available to common shareholders $ 555.1 $ 587.4 Adjusted net earnings available to common shareholders(3) $ 563.1 $ 611.9
(1) The Company’s investment management functions reside at Mackenzie Investments and the cost of investment management activities is allocated proportionately between the segments. (2) Interest expense includes interest on long-term debt and in 2019 also includes interest on leases of $3.1 million as a result of the Company’s adoption of IFRS 16, Leases. (3) Refer to Non-IFRS Financial Measures and Additional IFRS Measures in this MD&A for an explanation of the Company’s use of non-IFRS financial measures. Adjusted net earnings exclude other items as follows: – 2019 – Proportionate share of associate’s one-time loss of $8.0 million, which was recorded in Proportionate share of associates’ earnings in the Consolidated Statements of Earnings. – 2018 – Premium paid on early redemption of debentures of $10.7 million ($7.8 million after-tax), which was recorded in Interest expense in the Consolidated Statements of Earnings. – Restructuring and other charges of $22.7 million ($16.7 million after-tax), which was recorded in Commission and Non-commission expenses in the Consolidated Statements of Earnings PART C PART C IGM FINANCIAL INC. FINANCIAL IGM • 2018 Premium paid on early redemption of debentures – represents income tax filings and regularly assesses the overall adequacy the premium paid on the early redemption of the $375 million of its provision for income taxes and, as a result, income 7.35% debentures on August 10, 2018. taxes recorded in prior years may be adjusted in the current • 2018 Restructuring and other – $22.7 million ($16.7 million year. The effect of changes in management’s best estimates after-tax) resulted from the re-engineering of North American reported in adjusted net earnings is reflected in Other items, equity offerings and associated personnel changes, as well which also includes, but is not limited to, the effect of lower as other initiatives to improve the Company’s offerings and effective income tax rates on foreign operations. operational effectiveness. • Perpetual preferred share dividends – represents the dividends • Income taxes – changes in the effective tax rates are shown in declared on the Company’s 5.90% non-cumulative first Table 5. preferred shares. The decrease in the preferred share dividends Tax planning may result in the Company recording lower reflects the redemption of the $150.0 million in preferred levels of income taxes. Management monitors the status of its shares on April 30, 2019.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 9
C 6 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 TABLE 4: CONSOLIDATED OPERATING RESULTS BY SEGMENT – Q3 2019 VS. Q2 2019
IG WEALTH MANAGEMENT MACKENZIE INVESTMENTS CORPORATE & OTHER TOTAL
THREE MONTHS ENDED 2019 2019 2019 2019 2019 2019 2019 2019 ($ millions) SEP. 30 JUN. 30 SEP. 30 JUN. 30 SEP. 30 JUN. 30 SEP. 30 JUN. 30
Revenues Fee income $ 492.9 $ 491.7 $ 205.0 $ 202.3 $ 71.7 $ 71.8 $ 769.6 $ 765.8 Net investment income and other 15.8 13.6 (1.4) 0.8 32.1 31.7 46.5 46.1 508.7 505.3 203.6 203.1 103.8 103.5 816.1 811.9 Expenses Commission 154.7 157.5 73.0 73.5 44.7 44.8 272.4 275.8 Non-Commission(1) 148.2 152.9 84.2 84.8 21.9 22.0 254.3 259.7 302.9 310.4 157.2 158.3 66.6 66.8 526.7 535.5 Earnings before interest and taxes $ 205.8 $ 194.9 $ 46.4 $ 44.8 $ 37.2 $ 36.7 289.4 276.4 Interest expense(2) (27.7) (27.7) Proportionate share of associate’s one-time loss – (8.0) Earnings before income taxes 261.7 240.7 Income taxes 59.2 55.6 Net earnings 202.5 185.1 Perpetual preferred share dividends – – Net earnings available to common shareholders $ 202.5 $ 185.1 Adjusted net earnings available to common shareholders(3) $ 202.5 $ 193.1
(1) The Company’s investment management functions reside at Mackenzie Investments and the cost of investment management activities is allocated proportionately between the segments. (2) Interest expense includes interest on long-term debt and interest on leases as a result of the Company’s adoption of IFRS 16, Leases (third quarter – $1.0 million; second quarter – $1.0 million) (3) Refer to Non-IFRS Financial Measures and Additional IFRS Measures in this MD&A for an explanation of the Company’s use of non-IFRS financial measures. Second quarter 2019 adjusted net earnings exclude other items as follows: – Proportionate share of associate’s one-time loss of $8.0 million, which was recorded in Proportionate share of associates’ earnings in the Consolidated Statements of Earnings. IGM FINANCIAL INC. PART CPART
TABLE 5: EFFECTIVE INCOME TAX RATE
THREE MONTHS ENDED NINE MONTHS ENDED
2019 2019 2018 2019 2018 SEP. 30 JUN. 30 SEP. 30 SEP. 30 SEP. 30
Income taxes at Canadian federal and provincial statutory rates 26.75 % 26.75 % 26.79 % 26.76 % 26.80 % Effect of: Proportionate share of associates’ earnings (2.89) (3.08) (3.94) (3.27) (3.79) Tax loss consolidation(1) (1.32) (1.41) (1.35) (1.42) (1.35) Other items 0.09 (0.05) 0.09 (0.08) 0.19 Effective income tax rate – adjusted net earnings 22.63 22.21 21.59 21.99 21.85 Proportionate share of associate’s one-time loss – 0.90 – 0.30 – Effective income tax rate – net earnings 22.63 % 23.11 % 21.59 % 22.29 % 21.85 %
(1) See Note 25 – Related Party Transactions of the Consolidated Financial Statements included in the 2018 IGM Financial Inc. Annual Report (Annual Financial Statements).
10 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 7 TABLE 6: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – Q3 2019 VS. Q3 2018(1)
IG WEALTH MACKENZIE INVESTMENT INTERCOMPANY MANAGEMENT INVESTMENTS PLANNING COUNSEL ELIMINATIONS(2) CONSOLIDATED
THREE MONTHS ENDED 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ($ millions) SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30
Investment funds Mutual funds(3) Gross sales $ 2,077 $ 2,014 $ 2,253 $ 2,252 $ 154 $ 219 $ – $ – $ 4,484 $ 4,485 Net sales (291) (64) 139 (57) (60) (6) – – (212) (127)
ETFs Net creations 597 377 – – 597 377 Inter-product eliminations(2) (245) (62) (37) (51) (282) (113)
Total investment fund net sales(4) (291) (64) 491 258 (60) (6) (37) (51) 103 137
Sub-advisory, institutional and other accounts(5) Net sales (1,171) (395) 39 32 (1,132) (363)
Combined net sales $ (291) $ (64) $ (680) $ (137) $ (60) $ (6) $ 2 $ (19) $ (1,029) $ (226)
Change in total assets under management Net sales $ (291) $ (64) $ (680) $ (137) $ (60) $ (6) $ 2 $ (19) $ (1,029) $ (226) Investment returns 894 294 343 531 29 (24) (29) 10 1,237 811
Net change in assets 603 230 (337) 394 (31) (30) (27) (9) 208 585 Beginning assets 90,176 88,762 68,608 66,953 5,396 5,562 (1,852) (2,148) 162,328 159,129
Ending assets $ 90,779 $ 88,992 $ 68,271 $ 67,347 $ 5,365 $ 5,532 $ (1,879) $ (2,157) $ 162,536 $ 159,714
Total assets under management consists of: Investment funds Mutual funds(3) $ 90,779 $ 88,992 $ 59,275 57,343 $ 5,365 $ 5,532 $ – $ – $ 155,419 $ 151,867 ETFs 4,051 2,963 – – 4,051 2,963 Inter-product eliminations(2) (1,176) (813) (716) (587) (1,892) (1,400)
PART C PART C Total investment funds 90,779 88,992 62,150 59,493 5,365 5,532 (716) (587) 157,578 153,430 Sub-advisory, institutional
IGM FINANCIAL INC. FINANCIAL IGM and other accounts(5) 6,121 7,854 (1,163) (1,570) 4,958 6,284
Ending assets $ 90,779 $ 88,992 $ 68,271 $ 67,347 $ 5,365 $ 5,532 $ (1,879) $ (2,157) $ 162,536 $ 159,714
Assets under administration(1) $ 94,500 $ 92,367 $ 68,271 $ 67,347 $ 27,176 $ 27,832 $ (4,802) $ (5,077) $ 185,145 $ 182,469
(1) Assets under management consists of assets in the Company’s funds and pools. Assets under administration consists of assets in Client accounts administered by the Company. (2) Consolidated results eliminate double counting where business is reflected within multiple segments: – Included with Mackenzie’s results were advisory mandates to other segments with assets of $1.9 billion at September 30, 2019 (2018 – $2.2 billion) and net redemptions of $2 million for the third quarter of 2019 (2018 – net sales of $19 million). – Included in ETFs are mutual fund investments in ETFs totalling $1.2 billion at September 30, 2019 (2018 – $813 million) and net sales of $245 million in the three months ending September 30, 2019 (2018 – $62 million). (3) IG Wealth Management and Investment Planning Counsel AUM and net sales includes separately managed accounts. (4) During the third quarter of 2018, institutional clients which include Mackenzie mutual funds within their investment offerings made fund allocation changes which resulted in sales of $28 million, redemptions of $293 million and net redemptions of $265 million. (5) During the third quarter of 2019, MD Financial Management reassigned sub-advisory responsibilities totalling $1.2 billion on mandates advised upon by Mackenzie.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 11
C 8 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 SUMMARY OF CHANGES IN TOTAL SUMMARY OF QUARTERLY RESULTS ASSETS UNDER MANAGEMENT The Summary of Quarterly Results in Table 8 includes the Total assets under management were $162.5 billion at eight most recent quarters and the reconciliation of non-IFRS September 30, 2019 compared to $159.7 billion at September 30, financial measures to net earnings in accordance with IFRS. 2018. Changes in total assets under management are detailed in Changes in average daily investment fund assets under Tables 6 and 7. management over the eight most recent quarters, as shown in Changes in assets under management for IG Wealth Management Table 8, largely reflect the impact of changes in domestic and and Mackenzie Investments are discussed further in each of their foreign markets and net sales of the Company. respective Review of the Business sections in the MD&A.
TABLE 7: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – 2019 VS. 2018(1)
IG WEALTH MACKENZIE INVESTMENT INTERCOMPANY MANAGEMENT INVESTMENTS PLANNING COUNSEL ELIMINATIONS(2) CONSOLIDATED
NINE MONTHS ENDED 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ($ millions) SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30 SEP. 30
Investment funds Mutual funds(3) Gross sales $ 6,472 $ 6,957 $ 7,299 $ 7,623 $ 547 $ 731 $ – $ – $ 14,318 $ 15,311 Net sales (842) 610 494 259 (158) 47 – – (506) 916
ETFs Net creations 913 1,662 – – 913 1,662 Inter-product eliminations(2) (256) (448) (152) (463) (408) (911)
Total investment fund net sales(4) (842) 610 1,151 1,473 (158) 47 (152) (463) (1) 1,667
Sub-advisory, institutional and other accounts(5)
Net sales (1,808) (263) 389 (192) (1,419) (455) IGM FINANCIAL INC.
Combined net sales $ (842) $ 610 $ (657) $ 1,210 $ (158) $ 47 $ 237 $ (655) $ (1,420) $ 1,212 PART CPART
Change in total assets under management Net sales $ (842) $ 610 $ (657) $ 1,210 $ (158) $ 47 $ 237 $ (655) $ (1,420) $ 1,212 Investment returns 8,484 374 6,200 1,628 398 108 (192) (121) 14,890 1,989
Net change in assets 7,642 984 5,543 2,838 240 155 45 (776) 13,470 3,201 Beginning assets 83,137 88,008 62,728 64,509 5,125 5,377 (1,924) (1,381) 149,066 156,513
Ending assets $ 90,779 $ 88,992 $ 68,271 $ 67,347 $ 5,365 $ 5,532 $ (1,879) $ (2,157) $ 162,536 $ 159,714
Assets under administration(1) $ 94,500 $ 92,367 $ 68,271 $ 67,347 $ 27,176 $ 27,832 $ (4,802) $ (5,077) $ 185,145 $ 182,469
(1) Assets under management consists of assets in the Company’s funds and pools. Assets under administration consists of assets in Client accounts administered by the Company. (2) Consolidated results eliminate double counting where business is reflected within multiple segments: – Included with Mackenzie’s results were advisory mandates to other segments with assets of $1.9 billion at September 30, 2019 (2018 – $2.2 billion) and net redemptions of $237 million for the nine months ending September 30, 2019 (2018 – net sales of $655 million). – Included in ETFs are mutual fund investments in ETFs totalling $1.2 billion at September 30, 2019 (2018 – $813 million) and net sales of $256 million for the nine months ending September 30, 2019 (2018 – $448 million). (3) IG Wealth Management and Investment Planning Counsel total AUM and net sales includes separately managed accounts. (4) During the first nine months of 2018, institutional clients which include Mackenzie mutual funds within their investment offerings made fund allocation changes which resulted in sales of $409 million, redemptions of $807 million and net redemptions of $398 million. (5) During the third quarter of 2019, MD Financial Management reassigned sub-advisory responsibilities totalling $1.2 billion on mandates advised upon by Mackenzie.
12 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 9 TABLE 8: SUMMARY OF QUARTERLY RESULTS
2019 2019 2019 2018 2018 2018 2018 2017 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Consolidated statements of earnings ($ millions) Revenues Management fees $ 574.0 $ 567.5 $ 545.2 $ 546.0 $ 573.8 $ 562.8 $ 556.6 $ 564.4 Administration fees 104.5 104.1 101.7 103.3 109.1 107.1 107.6 110.4 Distribution fees 91.1 94.2 89.3 94.4 93.3 89.9 93.3 95.2 Net investment income and other 46.5 46.1 52.9 47.8 55.8 56.2 52.1 36.7 816.1 811.9 789.1 791.5 832.0 816.0 809.6 806.7 Expenses Commission 272.4 275.8 274.7 272.4 270.1 270.1 286.1 288.1 Non-commission 254.3 259.7 274.4 269.0 245.9 252.7 253.1 240.3 Interest(1) 27.7 27.7 25.2 24.1 27.0 28.8 30.3 29.7 554.4 563.2 574.3 565.5 543.0 551.6 569.5 558.1 Earnings before undernoted 261.7 248.7 214.8 226.0 289.0 264.4 240.1 248.6 Proportionate share of associate’s one-time loss – (8.0) – – – – – (14.0) Premium paid on early redemption of debentures – – – – (10.7) – – – Restructuring and other – – – – (22.7) – – (172.3) Earnings before income taxes 261.7 240.7 214.8 226.0 255.6 264.4 240.1 62.3 Income taxes 59.2 55.6 45.1 43.9 55.2 58.5 52.4 9.5 Net earnings 202.5 185.1 169.7 182.1 200.4 205.9 187.7 52.8 Perpetual preferred share dividends – – 2.2 2.2 2.2 2.2 2.2 2.2 Net earnings available to common shareholders $ 202.5 $ 185.1 $ 167.5 $ 179.9 $ 198.2 $ 203.7 $ 185.5 $ 50.6
Reconciliation of Non-IFRS financial measures(2) ($ millions) Adjusted net earnings available to common shareholders – non-IFRS measure $ 202.5 $ 193.1 $ 167.5 $ 179.9 $ 222.7 $ 203.7 $ 185.5 $ 191.4 Other items: Proportionate share of associate’s one-time loss – (8.0) – – – – – (14.0) Premium paid on early redemption of debentures, net of tax – – – – (7.8) – – – Restructuring and other, net of tax – – – – (16.7) – – (126.8) Net earnings available to common shareholders – IFRS $ 202.5 $ 185.1 $ 167.5 $ 179.9 $ 198.2 $ 203.7 $ 185.5 $ 50.6 PART C PART C
Earnings per Share (¢) IGM FINANCIAL INC. FINANCIAL IGM Adjusted net earnings available to common shareholders(1) – Basic 85 81 70 75 92 85 77 80 – Diluted 85 81 70 75 92 85 77 79 Net earnings available to common shareholders – Basic 85 77 70 75 82 85 77 21 – Diluted 85 77 70 75 82 85 77 21
Average daily investment fund assets ($ billions) $ 156.8 $ 155.7 $ 149.9 $ 147.0 $ 154.0 $ 150.9 $ 150.1 $ 148.1 Total investment fund assets under management ($ billions) $ 157.6 $ 156.3 $ 154.3 $ 143.3 $ 153.4 $ 152.5 $ 149.2 $ 149.8
Total assets under management ($ billions) $ 162.5 $ 162.3 $ 160.5 $ 149.1 $ 159.7 $ 159.1 $ 155.8 $ 156.5
(1) Interest expense includes interest on long-term debt and in 2019 also includes interest on leases as a result of the Company’s adoption of IFRS 16, Leases. (2) Refer to Non-IFRS Financial Measures and Additional IFRS Measures in this MD&A in addition to the Summary of Consolidated Operating Results section included in the MD&A of the 2018 IGM Financial Inc. Annual Report for an explanation of Other items used to calculate the Company’s Non-IFRS financial measures.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 13
C 10 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 IG WEALTH MANAGEMENT REVIEW OF THE BUSINESS
2019 DEVELOPMENTS Our value proposition is to deliver better Gamma, better Beta and better Alpha: CHANGES TO MUTUAL FUND PRODUCT OFFERING • Gamma – the value of all efforts that sit outside of IG Wealth Management continues to enhance the performance, investment portfolio construction. This includes the value scope and diversity of our investment offering with the that a financial advisor adds to a client relationship, and introduction of new funds and other product changes that are comes from the creation and follow through of a well- well-suited to the long-term diverse needs of Canadian investors. constructed financial plan. During 2019, IG Wealth Management has implemented changes • Beta – the value created by well-constructed investment to simplify its mutual fund offering with investment fund portfolios – achieving expected investment returns for the changes and mergers including: lowest possible risk. • Changes to the investment objectives and/or fundamental • Alpha – the value of active management – achieving returns investment strategies of several funds so that they provide superior to passive benchmarks with a similar composition broader investment management diversification opportunities. and risk profile.
• Several fund mergers which are expected to provide investors We seek to deliver our value proposition through: with a streamlined and simplified product line-up, broaden investment management diversification opportunities and in • Superior Advice – Acquiring a deep knowledge of Canadian some cases, may result in lower costs to clients. investors and using those insights to shape everything we do. • Segmented Client Experiences – Creating segmented FEE TRANSPARENCY FOR experiences personalized throughout our clients’ lifetimes. ALL CLIENTS AND PRICING CHANGES • Entrepreneurial Advisors – Inspiring our entrepreneurial IG Wealth Management is delivering on its client-focused advisors to constantly deliver an engaging experience and a commitment by expanding fee transparency while introducing holistic plan that seeks to deliver superior outcomes. product and pricing changes to accelerate growth. • Powerful Financial Solutions – Providing our clients with a IG Wealth Management is increasing fee transparency by comprehensive suite of well-constructed, high-performing beginning to make unbundled solutions available to all client and competitively priced solutions. segments commencing later this year. Under unbundled solutions, • Business processes that are simple, easy and digitized – clients pay an advisory fee to the dealer for its services as opposed Re-designing client and advisor interactions to simplify to dealer compensation being bundled within mutual fund processes, reduce errors, and digitize the experience with
management fees. To date, IG’s unbundled fee option (Series U) an appropriate cost structure. IGM FINANCIAL INC. has been limited to high net worth clients and has represented • Enabled by a high-performing and diverse culture. CPART over 80% of high net worth client gross sales year to date. Over the next year, the company will be migrating clients to GAMMA unbundled solutions. the value of all efforts that sit outside of investment portfolio construction. this includes the value that The company has also introduced more competitive pricing to a financial advisor adds to a client relationship, and reward client loyalty while encouraging consolidation of our comes from the creation and follow through of a clients’ assets with IG Wealth Management and increasing well-constructed financial plan. the competitiveness of our products to attract new clients. On March 1, 2019, IG Wealth Management enhanced the Entrepreneurial Advisors competitiveness of pricing to households with over $1 million IG Wealth Management has a national distribution network in assets with IG Wealth Management through advisory fee of Consultants based in region offices across Canada. reductions across multiple client segments. The following provides a breakdown of the IG Wealth Management Consultant network into its significant IG WEALTH MANAGEMENT STRATEGY components at September 30, 2019: IG Wealth Management’s promise is to inspire financial confidence. • 1,859 Consultant practices (2,053 at September 30, 2018), Our strategic mandate is to be Canada’s financial partner which reflect Consultants with more than four years of of choice. IG Wealth Management experience. These practices may include Associates as described below. The level of Consultant
14 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 11 practices is a key measurement of our business as they serve advantage increases based on the length of the relationship with clientele representing approximately 96% of AUM. the financial advisor.
• 618 New Consultants (749 at September 30, 2018), which IG Living Plan™ is a holistic, client-centric approach to financial are those Consultants with less than four years of IG Wealth planning that reflects the evolving needs, goals and aspirations Management experience. of Canadian families and individuals. The IG Living Plan provides • 1,009 Associates and Regional Directors (1,025 at September 30, a single, integrated view of all aspects of a client’s finances 2018). Associates are licensed team members of Consultant including retirement and estate planning, investments and tax practices who provide financial planning services and advice to strategies, creating a truly synchronized and comprehensive plan. the clientele served by the team. The IG Living Plan leverages the experience and expertise of • IG Wealth Management had a total Consultant network of IG Wealth Management’s Consultants who serve approximately 3,486 (3,827 at September 30, 2018). one million clients located in communities throughout Canada. IG Wealth Management’s recruiting standards increase the IG Wealth Management has a full range of products that allow likelihood of success while also enhancing our culture and brand. us to provide a tailored IG Living Plan that evolves over time. These products include: Superior Advice IG Wealth Management requires all Consultants with more than • Powerful financial solutions that include investment vehicles four years of experience to have or be enrolled to achieve the that match risk and investment performance to each client’s Certified Financial Planner (CFP) or its Quebec equivalent, Financial needs and requirements. Planner (F.Pl.) designations. The CFP and F.Pl. designations are • Insurance products that include a variety of different policy nationally recognized financial planning qualifications that require types from the leading insurers in Canada. an individual to demonstrate financial planning competence • Mortgage and Banking to develop mortgage and other through education, standardized examinations, continuing lending strategies that meet the individual needs and goals education requirements, and accountability to ethical standards. of each client as part of their comprehensive financial plan. The Financial Planning Standards Council published in 2018 that • Charitable Giving Program, a donor-advised giving program IG Wealth Management tied for first in terms of the number of which enables Canadians to make donations and build an CFP designation holders. enduring charitable giving legacy with considerably less IG Wealth Management also supports Consultants and clients expense and complexity than setting up and administering through its network of product and planning specialists who their own private foundation. assist in the areas of advanced financial planning, mortgages IG Wealth Management has long believed that providing and banking, insurance, and securities. These specialists provide our clients with personal account level performance and support in ensuring that we are offering the very best in rate of return information over multiple time periods is a financial planning and providing plans that are comprehensive meaningful benefit to our clients and further demonstrates the PART C PART C across all elements of a client’s financial life. Our specialist value provided through advice over the history of our client complement also includes wealth planning specialists who are IGM FINANCIAL INC. FINANCIAL IGM relationships. Our clients’ statements include a multiple-period IIROC-licensed and ensure that the same level of comprehensive view of their performance, including one year, three year and advice on direct securities is available to clients who are served five year rates of return. by both our Mutual Fund Dealers Association of Canada (MFDA) and Investment Industry Regulatory Organization of Canada Communication with our clients includes regular reporting of (IIROC) licensed Consultants. Clients of our MFDA and IIROC their IG Wealth Management investment fund holdings and licensed Consultants have access to the same product and the change in asset values of these holdings. Individual clients service offering. experience different returns as a result of having different composition of their portfolios in each quarter as illustrated Segmented Client Experiences on the accompanying charts. The first chart reflects in-quarter IG Wealth Management distinguishes itself from its competition client account median rates of return for the current year. by offering comprehensive planning to its clients within the The second chart reflects the client account median rates of context of long-term relationships. The value of this approach return based on one, three and five year timeframes as at is illustrated through independent studies demonstrating that September 30, 2019. Both charts also illustrate upper and households receiving advice from a financial advisor have lower ranges of rates of return around the median for 90% of greater wealth than non-advised households, and that this IG Wealth Management client accounts.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 15
C 12 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 Client Account Rate of Return (ROR) Experience Client Account Compound Annual ROR Experience Quarterly and year to date returns As at September 30, 2019
15 15 90% of client 10 account 10 90% of rate of client 5 return 5 account ROR % range ROR % rate of 0 0 return range -5 -5 Q1 19 Q2 19 Q3 19 2019 YTD 1 Year 3 Year 5 Year Median Median Returns - % 7.5 1.3 0.9 9.9 Returns - % 3.2 3.6 3.4
For the three and nine month periods ended September 30, 2019, sub-advisors allows us to provide clients with products that the client account median rate of return was approximately 0.9% provide diversification and global reach. and 9.9%, respectively. New Products Business Processes IG Wealth Management continues to enhance the performance, Administrative support for Consultants and clients includes scope and diversity of our investment offering with the timely and accurate client account record-keeping and introduction of new funds and other product changes that are reporting, effective problem resolution support, and continuous well-suited to the long-term diverse needs of Canadian investors. improvements to servicing systems. Powerful Financial Solutions This administrative support is provided for Consultants and clients IG Wealth Management provides a wide range of investment from both IG Wealth Management’s head office in Winnipeg, and other financial solutions that enable clients to achieve Manitoba and IG Wealth Management’s Quebec General Office their goals. located in Montreal for Consultants and clients residing in Quebec. The Quebec General Office has approximately 180 employees Clients can diversify their holdings across investment managers, and operating units for most functions supporting approximately asset categories, investment styles, geography, capitalization and 750 Consultants throughout Quebec. Mutual fund assets under sectors through portfolios customized to meet their objectives. management in Quebec were approximately $17 billion as at IGM FINANCIAL INC. IG Wealth Management monitors its investment performance
September 30, 2019. CPART by comparing to certain benchmarks. Morningstar† fund ranking service is one of the rankings monitored when determining Enabled by a High-Performing and Diverse Culture fund performance. IG Wealth Management has established a high-performing and diverse culture to allow employees and Consultants to achieve At September 30, 2019, 55.5% of IG Wealth Management maximum results. Gallup and other surveys are utilized to ensure mutual funds had a rating of three stars or better from the that employees and Consultants are fully engaged and have the Morningstar† fund ranking service and 15.4% had a rating of resources required to excel. four or five stars. This compared to the Morningstar† universe of 68.8% for three stars or better and 33.7% for four and five BETA AND ALPHA star funds at September 30, 2019. Morningstar Ratings† are an beta – the value created by well-constructed investment objective, quantitative measure of a fund’s three, five and ten portfolios – achieving expected investment returns for year risk-adjusted performance relative to comparable funds. the lowest possible risk. alpha – the value of active management – achieving ASSETS UNDER MANAGEMENT returns superior to passive benchmarks with a similar At September 30, 2019, IG Wealth Management’s mutual composition and risk profile. fund assets under management were $90.8 billion, an all-time IG Wealth Management strives to provide Beta and Alpha quarter end high. The level of assets under management is through the selection of its global sub-advisors. The use of influenced by three factors: sales, redemptions and investment
16 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 13 returns of our funds. Changes in mutual fund assets under 2019, Series U assets under management had increased to management for the periods under review are reflected in $19.7 billion, compared to $17.1 billion at September 30, Table 9. 2018, an increase of 14.8%. • iProfile™ – is a unique portfolio management program that is HIGH NET WORTH OFFERINGS available for households with investments held at IG Wealth IG Wealth Management has several offerings to address the Management in excess of $250,000. The iProfile program has needs of high net worth clients, who represent a growing a pricing structure which separates the advisory fee, which is segment of our client base, and continues to look at ways charged directly to a client’s account, from the fees charged to to provide further offerings to this segment. Assets under the underlying investment funds. At September 30, 2019, the management for clients in this category totalled $47.8 billion at iProfile program assets under management were $13.5 billion, September 30, 2019, an increase of 9.0% from one year ago, and an increase of 58.5% from $8.5 billion at September 30, 2018. represented 53% of total assets under management. Sales of • Series J is available for households with investments in high net worth solutions totalled $1.1 billion for the third quarter IG Wealth Management funds in excess of $500,000 and had of 2019, an increase of 16.4% from a year ago, and represented assets of $14.6 billion at September 30, 2019, a decrease of 54% of total sales up from 48% in 2018. For the nine month 19.6% from $18.2 billion at September 30, 2018, largely as period, sales of high net worth solutions totalled $3.3 billion and a result of transfer activity from Series J to Series U. Series J represented 50% of total sales up from 44% in 2018. pricing structure bundles the cost of asset management and • Series U is currently available for households with investments advice into one fee. in IG Wealth Management funds in excess of $500,000 and provides a pricing structure which separates the advisory fee, Unbundled Fee Structures which is charged directly to a client’s account, from the fees A growing portion of IG Wealth Management’s client assets are charged to the underlying investment funds. At September 30, in Series U and iProfile, which are products with unbundled fee
TABLE 9: CHANGE IN MUTUAL FUND ASSETS UNDER MANAGEMENT – IG WEALTH MANAGEMENT
% CHANGE
THREE MONTHS ENDED 2019 2019 2018 2019 2018 ($ millions) SEP. 30 JUN. 30 SEP. 30 JUN. 30 SEP. 30
Sales $ 2,077 $ 2,045 $ 2,014 1.6 % 3.1 % Redemptions 2,368 2,582 2,078 (8.3) 14.0
Net sales (redemptions) (291) (537) (64) 45.8 N/M Investment returns 894 1,302 294 (31.3) N/M PART C PART C Net change in assets 603 765 230 (21.2) 162.2
IGM FINANCIAL INC. FINANCIAL IGM Beginning assets 90,176 89,411 88,762 0.9 1.6 Ending assets $ 90,779 $ 90,176 $ 88,992 0.7 % 2.0 % Average daily assets $ 90,363 $ 90,158 $ 89,449 0.2 % 1.0 %
NINE MONTHS ENDED 2019 2018 ($ millions) SEP. 30 SEP. 30 % CHANGE
Sales $ 6,472 $ 6,957 (7.0) % Redemptions 7,314 6,347 15.2
Net sales (redemptions) (842) 610 N/M Investment returns 8,484 374 N/M
Net change in assets 7,642 984 N/M Beginning assets 83,137 88,008 (5.5) Ending assets $ 90,779 $ 88,992 2.0 %
Average daily assets $ 89,182 $ 88,427 0.9 %
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 17
C 14 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 structures where a separate advisory fee is charged to the client 17.4% at September 30, 2019. The increase in the redemption account by the dealer. At September 30, 2019, $33.2 billion, or rate during the last year primarily relates to weakened investor 36.5% of IG Wealth Management’s mutual fund assets under confidence over the last year of market volatility. management, were in products with unbundled fee structures, For the nine months ended September 30, 2019, sales of up 29.3% from $25.6 billion at September 30, 2018 which IG Wealth Management mutual funds through its Consultant represented 28.8% of assets under management. Sales of these network were $6.5 billion, a decrease of 7.0% from 2018. Mutual products to high net worth clients totalled $952 million for the fund redemptions totalled $7.3 billion, an increase of 15.2% from third quarter of 2019, an increase of $228 million from the third 2018. Net redemptions of IG Wealth Management mutual funds quarter of 2018, representing 85% of total high net worth sales were $842 million compared with net sales of $610 million in and 46% of total mutual fund sales. For the nine months ended 2018. During 2019, investment returns resulted in an increase September 30, 2019, sales totalled $2.7 billion, an increase of of $8.5 billion in mutual fund assets compared to an increase of $0.4 billion from 2018, representing 82% of total high net worth $374 million in 2018. sales and 41% of total mutual fund sales.
Over the next year, the Company will migrate the majority CHANGE IN ASSETS UNDER of existing clients to unbundled fee products. Unbundled fee MANAGEMENT – Q3 2019 VS. Q2 2019 products separate the advisory fee that is charged directly IG Wealth Management’s mutual fund assets under management to a client’s account from the fees charged to the underlying were $90.8 billion at September 30, 2019, an increase of 0.7% investment funds. Following this transition, IG Wealth from $90.2 billion at June 30, 2019. Average daily mutual fund Management will discontinue offering bundled purchase options assets were $90.4 billion in the third quarter of 2019 compared to for substantially all investment products. $90.2 billion in the second quarter of 2019, an increase of 0.2%.
For the quarter ended September 30, 2019, sales of IG Wealth CHANGE IN ASSETS UNDER Management mutual funds through its Consultant network MANAGEMENT – 2019 VS. 2018 were $2.1 billion, an increase of 1.6% from the second quarter IG Wealth Management’s mutual fund assets under management of 2019. Mutual fund redemptions, which totalled $2.4 billion were $90.8 billion at September 30, 2019, representing an for the third quarter, decreased 8.3% from the previous quarter increase of 2.0% from $89.0 billion at September 30, 2018. and the annualized quarterly redemption rate was 9.9% in Average daily mutual fund assets were $90.4 billion in the third the third quarter compared to 10.9% in the second quarter of quarter of 2019, up 1.0% from $89.4 billion in the third quarter 2019. IG Wealth Management mutual fund net redemptions of 2018. Average daily mutual fund assets were $89.2 billion were $291 million for the current quarter compared to net for the nine months ended September 30, 2019, up 0.9% from IGM FINANCIAL INC. redemptions of $537 million in the previous quarter. $88.4 billion in 2018. PART CPART
For the quarter ended September 30, 2019, sales of IG Wealth OTHER PRODUCTS AND SERVICES Management mutual funds through its Consultant network were $2.1 billion, an increase of 3.1% from the comparable SEGREGATED FUNDS period in 2018. Mutual fund redemptions totalled $2.4 billion, IG Wealth Management offers segregated funds which an increase of 14.0% from 2018. IG Wealth Management include the IG Series of Guaranteed Investment Funds (GIFs). mutual fund net redemptions for the third quarter of 2019 were Select GIF policies allow for a Lifetime Income Benefit (LIB) $291 million compared with net redemptions of $64 million in option to provide guaranteed retirement income for life. 2018. During the third quarter, investment returns resulted in an The investment components of these segregated funds are increase of $894 million in mutual fund assets compared to an managed by IG Wealth Management. At September 30, 2019, increase of $294 million in the third quarter of 2018. total segregated fund assets were $1.6 billion, compared to IG Wealth Management’s annualized quarterly redemption $1.8 billion at September 30, 2018. rate for long-term funds was 9.9% in the third quarter of 2019, compared to 8.7% in the third quarter of 2018. IG Wealth INSURANCE Management’s twelve month trailing redemption rate for IG Wealth Management distributes insurance products through long-term funds was 10.2% at September 30, 2019, compared I.G. Insurance Services Inc. The average number of policies sold to 8.8% at September 30, 2018, and remains well below the by each insurance-licensed Consultant was 2.5 for the quarter corresponding average redemption rate for all other members of ended September 30, 2019, compared to 2.6 in 2018. For the the Investment Funds Institute of Canada (IFIC) of approximately nine months ended September 30, 2019, the average number
18 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 15 of policies sold by each insurance-licensed Consultant was 7.5, Mortgage fundings offered through IG Wealth Management compared to 7.1 in 2018. Distribution of insurance products and through Solutions Banking† for the three and nine months is enhanced through IG Wealth Management’s Insurance ended September 30, 2019 were $356 million and $900 million Planning Specialists, located throughout Canada, who assist compared to $429 million and $1.0 billion in 2018, a decrease Consultants with advanced estate planning solutions for high of 17.0% and 10.0%, respectively. At September 30, 2019, net worth clients. mortgages offered through both sources totalled $10.5 billion, compared to $10.7 billion at September 30, 2018, a decrease SECURITIES OPERATIONS of 2.5%. Investors Group Securities Inc. is an investment dealer registered Available credit associated with Solutions Banking† All-in-One in all Canadian provinces and territories providing clients with accounts originated for the three and nine month periods securities services to complement their financial and investment ended September 30, 2019 were $207 million and $530 million, planning. IG Wealth Management Consultants can refer clients respectively, compared to $261 million and $744 million in 2018. to one of our Wealth Planning Specialists available through At September 30, 2019, the balance outstanding of Solutions Investors Group Securities Inc. Banking† All-in-One products was $2.8 billion, compared to $2.5 billion one year ago, and represented approximately 50% of MORTGAGE AND BANKING OPERATIONS total available credit associated with these accounts. IG Wealth Management Mortgage Planning Specialists are located throughout each province in Canada, and work with our Other products and services offered through IG Wealth clients and their Consultants to develop mortgage and other Management’s Solutions Banking† include investment loans, lines lending strategies that meet the individual needs and goals of of credit, personal loans, creditor insurance, deposit accounts, and each client as part of their comprehensive financial plan. credit cards. Through Solutions Banking†, clients have access to a network of banking machines, as well as a private labeled client Mortgages are offered to clients by IG Wealth Management, a website and client service centre. The Solutions Banking† offering national mortgage lender, and through IG Wealth Management’s supports IG Wealth Management’s approach to delivering total † Solutions Banking , provided by National Bank of Canada under financial solutions for our clients through a broad financial planning a long-term distribution agreement. An All-in-One product, a platform. Total lending products of IG Wealth Management clients comprehensive cash management solution that integrates the in the Solutions Banking† offering, including Solutions Banking† features of a mortgage, term loan, revolving line of credit and mortgages totalled $4.4 billion at September 30, 2019, compared deposit account, is also offered through Solutions Banking† . to $4.1 billion at September 30, 2018. PART C PART C IGM FINANCIAL INC. FINANCIAL IGM
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 19
C 16 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REVIEW OF SEGMENT OPERATING RESULTS
IG Wealth Management’s earnings before interest and taxes are • Redemption fees on mutual funds that were sold with a presented in Table 10. deferred sales charge. • Portfolio fund distribution fees. 2019 VS. 2018 • Securities trading services provided through Investors Group Securities Inc. FEE INCOME • Banking services provided through Solutions Banking†. Fee income is generated from the management, administration and distribution of IG Wealth Management mutual funds. The Distribution fee income of $41.5 million for the third quarter distribution of insurance and Solutions Banking† products and of 2019 decreased by $1.1 million from $42.6 million in 2018, the provision of securities services provide additional fee income. primarily due to lower redemption fees. For the nine month period, distribution fee income of $127.2 million increased IG Wealth Management earns management fees for investment by $0.8 million from $126.4 million in 2018, primarily due management services provided to its mutual funds, which depend to the increase in distribution fee income from insurance largely on the level and composition of mutual fund assets products partially offset by lower redemption fees. IG Wealth under management. Management fees were $376.2 million Management no longer offers the deferred sales purchase in the third quarter of 2019, an increase of $1.4 million or option for its mutual funds. Redemption fee income varies 0.4% from $374.8 million in 2018. For the nine months ended depending on the level of deferred sales charge attributable September 30, 2019, management fees were $1,106.3 million, an to fee-based redemptions. increase of $4.9 million or 0.4% from $1,101.4 million in 2018.
The net increase in management fees in the third quarter NET INVESTMENT INCOME AND OTHER of 2019 was primarily due to the increase in average assets Net investment income and other includes income related to under management of 1.0%, as shown in Table 9. The average mortgage banking operations and net interest income related to management fee rate for the third quarter was 165.6 basis intermediary operations. points of average assets under management compared to Net investment income and other was $15.8 million in the third 166.2 basis points in 2018, reflecting pricing reductions effective quarter of 2019, an increase of $2.5 million from $13.3 million March 1, 2019. in 2018. For the nine months ended September 30, 2019, net The net increase in management fees in the nine months investment income and other totalled $39.4 million, an increase ended September 30, 2019 was primarily due to the increase in of $3.7 million from $35.7 million in 2018. average assets under management of 0.9%, as shown in Table Net investment income related to IG Wealth Management’s 9. The average management fee rate for the nine months ended IGM FINANCIAL INC. mortgage banking operations totalled $13.9 million for the third
September 30, 2019, was 166.2 basis points of average assets CPART quarter of 2019 compared to $11.3 million in 2018, an increase under management compared to 166.5 basis points in 2018, of $2.6 million. For the nine months ended September 30, 2019, reflecting pricing reductions effective March 1, 2019. net investment income related to IG Wealth Management’s IG Wealth Management receives administration fees for providing mortgage banking operations totalled $32.6 million compared administrative services to its mutual funds and trusteeship services to $30.9 million in 2018, an increase of $1.7 million. A summary to its unit trust mutual funds, which also depend largely on the of mortgage banking operations for the three and nine month level and composition of mutual fund assets under management. periods under review is presented in Table 11. Administration fees totalled $75.2 million in the current quarter compared to $79.6 million a year ago, a decrease of 5.5%. EXPENSES Administration fees were $224.3 million for the nine month IG Wealth Management incurs commission expense in period ended September 30, 2019 compared to $235.2 million connection with the distribution of its financial services and in 2018, a decrease of 4.6%. These decreases resulted primarily products. Commissions are paid on the sale of these products from the movement of assets into unbundled products which and fluctuate with the level of sales. Commissions paid on are not charged certain administration fees and changes in the the sale of investment products are capitalized and amortized composition of average assets under management. over their estimated useful lives where the Company receives a fee directly from the client. All other commissions paid on Distribution fees are earned from: investment product sales are expensed as incurred. • Distribution of insurance products through I.G. Insurance Commission expense was $51.3 million for the third quarter of Services Inc. 2019, a decrease of $2.4 million from $53.7 million in 2018. For
20 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 17 TABLE 10: OPERATING RESULTS – IG WEALTH MANAGEMENT
% CHANGE
THREE MONTHS ENDED 2019 2019 2018 2019 2018 ($ millions) SEP. 30 JUN. 30 SEP. 30 JUN. 30 SEP. 30
Revenues Management fees $ 376.2 $ 371.9 $ 374.8 1.2 % 0.4 % Administration fees 75.2 75.2 79.6 – (5.5) Distribution fees 41.5 44.6 42.6 (7.0) (2.6) 492.9 491.7 497.0 0.2 (0.8) Net investment income and other 15.8 13.6 13.3 16.2 18.8 508.7 505.3 510.3 0.7 (0.3) Expenses Commission Commission amortization 5.9 5.2 3.8 13.5 55.3 Mutual fund sales commissions expensed as incurred 16.4 16.9 20.8 (3.0) (21.2) Other commissions 29.0 32.6 29.1 (11.0) (0.3) 51.3 54.7 53.7 (6.2) (4.5) Asset-based compensation 103.4 102.8 97.0 0.6 6.6 Non-commission 148.2 152.9 146.1 (3.1) 1.4 302.9 310.4 296.8 (2.4) 2.1 Earnings before interest and taxes $ 205.8 $ 194.9 $ 213.5 5.6 % (3.6) %
NINE MONTHS ENDED 2019 2018 ($ millions) SEP. 30 SEP. 30 % CHANGE
Revenues Management fees $ 1,106.3 $ 1,101.4 0.4 % Administration fees 224.3 235.2 (4.6) Distribution fees 127.2 126.4 0.6 1,457.8 1,463.0 (0.4) Net investment income and other 39.4 35.7 10.4 1,497.2 1,498.7 (0.1) Expenses Commission PART C PART C Commission amortization 15.9 10.1 57.4
IGM FINANCIAL INC. FINANCIAL IGM Mutual fund sales commissions expensed as incurred 56.7 81.2 (30.2) Other commissions 91.2 87.9 3.8 163.8 179.2 (8.6) Asset-based compensation 305.4 287.9 6.1 Non-commission 464.0 437.7 6.0 933.2 904.8 3.1 Earnings before interest and taxes $ 564.0 $ 593.9 (5.0) %
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 21
C 18 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 TABLE 11: MORTGAGE BANKING OPERATIONS – IG WEALTH MANAGEMENT
% CHANGE
THREE MONTHS ENDED 2019 2019 2018 2019 2018 ($ millions) SEP. 30 JUN. 30 SEP. 30 JUN. 30 SEP. 30
Total mortgage banking income Net interest income on securitized loans Interest income $ 52.4 $ 52.5 $ 51.1 (0.2) % 2.5 % Interest expense 42.9 43.6 41.4 (1.6) 3.6 Net interest income 9.5 8.9 9.7 6.7 (2.1) Gains on sales(1) 0.9 1.4 – (35.7) – Fair value adjustments 0.7 (1.7) (1.7) 141.2 141.2 Other 2.8 2.8 3.3 – (15.2) $ 13.9 $ 11.4 $ 11.3 21.9 % 23.0 % Average mortgages serviced Securitizations $ 7,185 $ 7,346 $ 7,273 (2.2) % (1.2) % Other 2,750 2,778 3,202 (1.0) (14.1) $ 9,935 $ 10,124 $ 10,475 (1.9) % (5.2) % Mortgage sales to:(2) Securitizations $ 469 $ 327 $ 547 43.4 % (14.3) % Other(1) 166 71 75 133.8 121.3 $ 635 $ 398 $ 622 59.5 % 2.1 %
NINE MONTHS ENDED 2019 2018 ($ millions) SEP. 30 SEP. 30 % CHANGE
Total mortgage banking income Net interest income on securitized loans Interest income $ 157.5 $ 152.3 3.4 % Interest expense 130.6 122.6 6.5 Net interest income 26.9 29.7 (9.4) Gains on sales(1) 2.6 1.5 73.3 IGM FINANCIAL INC. Fair value adjustments (4.5) (7.5) 40.0 PART CPART Other 7.6 7.2 5.6 $ 32.6 $ 30.9 5.5 %
Average mortgages serviced Securitizations $ 7,310 $ 7,430 (1.6) % Other 2,795 3,197 (12.6) $ 10,105 $ 10,627 (4.9) %
Mortgage sales to:(2) Securitizations $ 1,234 $ 1,292 (4.5) % Other(1) 303 276 9.8 $ 1,537 $ 1,568 (2.0) %
(1) Represents sales to institutional investors through private placements, to Investors Mortgage and Short Term Income Fund, and to Investors Canadian Corporate Bond Fund as well as gains realized on those sales. (2) Represents principal amounts sold.
22 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 19 the nine month period, commission expense was $163.8 million, under management of 0.2% for the quarter, as shown in Table a decrease of $15.4 million from $179.2 million in 2018. The 9 and the increase of approximately $3.8 million resulting from decrease in mutual fund commissions was primarily due to one additional calendar day in the third quarter compared to the lower mutual fund sales partially offset by higher compensation second quarter. related to the distribution of insurance products. Administration fees were $75.2 million in the third quarter of Asset-based compensation, which is based on the value of 2019, unchanged from the second quarter. assets under management, increased by $6.4 million and Distribution fee income of $41.5 million in the third quarter of $17.5 million for the three and nine month periods ended 2019 decreased by $3.1 million from $44.6 million in the second September 30, 2019 to $103.4 million and $305.4 million, quarter primarily due to a decrease in distribution fee income compared to 2018. The increase was primarily due to the from insurance product sales and lower redemption fees. increase in assets under management.
Non-commission expenses incurred by IG Wealth Management NET INVESTMENT INCOME AND OTHER primarily relate to the support of the Consultant network, Net investment income and other was $15.8 million in the the administration, marketing and management of its mutual third quarter of 2019 compared to $13.6 million in the previous funds and other products, as well as sub-advisory fees related quarter, an increase of $2.2 million. to mutual fund assets under management. Non-commission Net investment income related to IG Wealth Management’s expenses were $148.2 million for the third quarter of 2019 mortgage banking operations totalled $13.9 million in the third compared to $146.1 million in 2018, an increase of $2.1 million quarter, an increase of $2.5 million from $11.4 million in the or 1.4%. For the nine month period, non-commission expenses previous quarter as shown in Table 11. were $464.0 million in 2019 compared to $437.7 million in 2018, an increase of $26.3 million or 6.0%. The increase for EXPENSES the nine months was primarily due to increased technology Commission expense in the current quarter was $51.3 million expenses in the first quarter relating to the migration of clients to our new dealer platform and unbundled fee arrangements, as compared with $54.7 million in the previous quarter. The decrease related primarily to lower cash commissions paid being well as continued expenses associated with the brand re-launch. expensed in the quarter primarily due to lower mutual fund sales and compensation related to the distribution of insurance Q3 2019 VS. Q2 2019 product sales.
FEE INCOME Non-commission expenses decreased to $148.2 million in the Management fee income increased by $4.3 million or 1.2% to current quarter compared to $152.9 million in the prior quarter $376.2 million in the third quarter of 2019 compared with the primarily due to the seasonality of expenses and ongoing efforts second quarter. The increase in management fees in the third to manage non-commission expense growth.
PART C PART C quarter was primarily due to the increase in average assets IGM FINANCIAL INC. FINANCIAL IGM
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 23
C 20 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 MACKENZIE INVESTMENTS REVIEW OF THE BUSINESS
MACKENZIE STRATEGY primary distribution relationship is with the head office of the Mackenzie seeks to be Canada’s preferred global asset respective bank, insurance company or investment company. management solutions provider and business partner. In the institutional channel, Mackenzie provides investment management services to pension plans, foundations and other Mackenzie’s vision: We are committed to the financial success of institutions. Mackenzie attracts new institutional business through investors, through their eyes. This impacts the strategic priorities its relationships with pension and management consultants. we select to fulfil that commitment and drive future business growth. Our strategic mandate is two-fold: win in the Canadian Gross sales and redemption activity in strategic alliance and retail space and build meaningful strategic relationships. We aim institutional accounts can be more pronounced than in the retail to achieve this mandate by attracting and fostering the best channel given the relative size and the nature of the distribution minds in the investment industry, responding to changing needs relationships of these accounts. These accounts are also subject of financial advisors and investors with distinctive and innovative to ongoing reviews and rebalance activities which may result in solutions, and continuing to deliver institutional quality in a significant change in the level of assets under management. everything we do. Mackenzie is positioned to continue to build and enhance Supporting this vision and strategic mandate are six key its distribution relationships given its team of experienced foundational capabilities that our employees strive to achieve: investment professionals, strength of its distribution network, broad product shelf, competitively priced products and its focus • Delivering competitive and consistent risk-adjusted on client experience and investment excellence. performance
• Offering innovative and high quality investment solutions ASSETS UNDER MANAGEMENT • Accelerating distribution The changes in investment fund assets under management are • Advancing brand leadership summarized in Table 12 and the changes in total assets under • Driving operational excellence and discipline management are summarized in Table 13. • Enabling a high-performing and diverse culture At September 30, 2019, Mackenzie’s investment fund assets Mackenzie seeks to maximize returns on business investment under management were $62.2 billion, an all-time high, and by focusing resources in areas that directly impact the success total assets under management were $68.3 billion. The change of our strategic mandate: investment management, distribution in Mackenzie’s assets under management is determined by and client experience. investment returns generated for our clients and net contributions
from our clients. IGM FINANCIAL INC. Founded in 1967, Mackenzie continues to build an investment advisory business through proprietary investment research and FUND PERFORMANCE CPART portfolio management while utilizing strategic partners in a Long-term investment performance is a key measure of selected sub-advisory capacity. Our business focuses on multiple Mackenzie’s ongoing success. At September 30, 2019, 52.3% distribution channels: Retail, Strategic Alliances and Institutional. of Mackenzie mutual fund assets were rated in the top two Mackenzie primarily distributes its retail investment products performance quartiles for the one year time frame, 55.4% for the through third party financial advisors. Mackenzie’s sales teams three year time frame and 58.2% for the five year time frame. work with many of the more than 30,000 independent financial Mackenzie also monitors its fund performance relative to the advisors and their firms across Canada. In addition to its retail ratings it receives on its mutual funds from the Morningstar† fund distribution team, Mackenzie also has specialty teams focused ranking service. At September 30, 2019, 74.4% of Mackenzie on strategic alliances and the institutional marketplace. Within mutual fund assets measured by Morningstar† had a rating of three the strategic alliance channel, Mackenzie offers certain series stars or better and 47.9% had a rating of four or five stars. This of its mutual funds and provides sub-advisory services to third compared to the Morningstar† universe of 82.3% for three stars party and related party investment programs offered by banks, or better and 46.1% for four and five star funds at September 30, insurance companies and other investment companies. Strategic 2019. These ratings exclude the Quadrus Group of Funds†. alliances with related parties include providing advisory services to IG Wealth Management, Investment Planning Counsel and CHANGES TO PRODUCT OFFERINGS Great-West Lifeco Inc. (Lifeco) subsidiaries, and also include a Mackenzie continues to evolve its product shelf by providing private label mutual fund arrangement with Lifeco subsidiary enhanced investment solutions for financial advisors to offer Quadrus. Within the strategic alliance channel, Mackenzie’s their clients.
24 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 21 TABLE 12: CHANGE IN INVESTMENT FUND ASSETS UNDER MANAGEMENT – MACKENZIE(1)
% CHANGE
THREE MONTHS ENDED 2019 2019 2018 2019 2018 ($ millions) SEP. 30 JUN. 30 SEP. 30 JUN. 30 SEP. 30
Sales $ 2,253 $ 2,541 $ 2,252 (11.3) % – % Redemptions 2,114 2,334 2,309 (9.4) (8.4)
Mutual fund net sales (redemptions)(2) 139 207 (57) (32.9) N/M ETF net creations 597 88 377 N/M 58.4 Inter-product eliminations (245) (11) (62) N/M N/M Investment fund net sales (redemptions)(3) 491 284 258 72.9 90.3 Investment returns 264 985 543 (73.2) (51.4) Net change in assets 755 1,269 801 (40.5) (5.7) Beginning assets 61,395 60,126 58,692 2.1 4.6 Ending assets $ 62,150 $ 61,395 $ 59,493 1.2 % 4.5 % Consists of: Mutual funds $ 59,275 $ 58,864 $ 57,343 0.7 % 3.4 % ETFs 4,051 3,454 2,963 17.3 36.7 Inter-product eliminations (1,176) (923) (813) (27.4) (44.6)
Investment funds(3) $ 62,150 $ 61,395 $ 59,493 1.2 % 4.5 % Daily average investment fund assets $ 61,802 $ 60,781 $ 59,534 1.7 % 3.8 %
NINE MONTHS ENDED 2019 2018 ($ millions) SEP. 30 SEP. 30 % CHANGE
Sales $ 7,299 $ 7,623 (4.3) % Redemptions 6,805 7,364 (7.6) Mutual fund net sales (redemptions)(2) 494 259 90.7 ETF net creations 913 1,662 (45.1) Inter-product eliminations (256) (448) 42.9
Investment fund net sales (redemptions)(3) 1,151 1,473 (21.9) Investment returns 5,491 1,477 N/M
Net change in assets 6,642 2,950 125.2 Beginning assets 55,508 56,543 (1.8) PART C PART C Ending assets $ 62,150 $ 59,493 4.5 %
IGM FINANCIAL INC. FINANCIAL IGM Daily average investment fund assets $ 60,269 $ 58,181 3.6 %
(1) Mackenzie segment excludes investments into Mackenzie mutual funds by IG Wealth Management mutual funds from its assets under management and net sales. (2) During 2018, institutional clients, which include Mackenzie mutual funds within their investment offerings, made fund allocation changes: – Third quarter – resulted in sales of $28 million, redemptions of $293 million and net redemptions of $265 million. – Nine month period – resulted in sales of $409 million, redemptions of $807 million and net redemptions of $398 million. (3) Total investment fund net sales and assets under management exclude Mackenzie mutual fund investments in ETFs.
Exchange Traded Funds Mackenzie’s current line-up consists of thirty ETFs: fifteen active The addition of Exchange Traded Funds (ETF) has complemented and strategic beta ETFs and fifteen traditional index ETFs. During Mackenzie’s broad and innovative fund line-up and reflects its the third quarter of 2019, two milestones were achieved: i) ETF investor-focused vision to provide advisors and investors with assets under management passed $4 billion and ii) traditional new solutions to drive investor outcomes and achieve their index ETF assets under management passed $1 billion. ETF assets personal goals. These ETFs offer investors another investment under management ended the quarter at $4.1 billion, an all-time option to utilize in building long-term diversified portfolios. high, inclusive of $1.2 billion in investments from Mackenzie
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 25
C 22 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 TABLE 13: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – MACKENZIE(1)
% CHANGE
THREE MONTHS ENDED 2019 2019 2018 2019 2018 ($ millions) SEP. 30 JUN. 30 SEP. 30 JUN. 30 SEP. 30
Net sales (redemptions) Mutual funds(2) $ 139 $ 207 $ (57) (32.9) % N/M % ETF net creations 597 88 377 N/M 58.4 Inter-product eliminations (245) (11) (62) N/M N/M Investment funds(3) 491 284 258 72.9 90.3 Sub-advisory, institutional and other accounts(4) (1,171) (534) (395) (119.3) (196.5)
Total net sales (redemptions) (680) (250) (137) (172.0) N/M Investment returns 343 1,082 531 (68.3) (35.4)
Net change in assets (337) 832 394 N/M N/M Beginning assets 68,608 67,776 66,953 1.2 2.5 Ending assets $ 68,271 $ 68,608 $ 67,347 (0.5) % 1.4 % Consists of: Mutual funds $ 59,275 $ 58,864 $ 57,343 0.7 % 3.4 % ETFs 4,051 3,454 2,963 17.3 36.7 Inter-product eliminations (1,176) (923) (813) (27.4) (44.6) Investment funds(3) 62,150 61,395 59,493 1.2 4.5 Sub-advisory, institutional and other accounts(4) 6,121 7,213 7,854 (15.1) (22.1) Total assets under management $ 68,271 $ 68,608 $ 67,347 (0.5) % 1.4 % Average total assets(5) $ 68,209 $ 68,194 $ 67,561 – % 1.0 %
NINE MONTHS ENDED 2019 2018 ($ millions) SEP. 30 SEP. 30 % CHANGE
Net sales (redemptions) Mutual funds(2) $ 494 $ 259 90.7 %
ETF net creations 913 1,662 (45.1) IGM FINANCIAL INC. Inter-product eliminations (256) (448) 42.9
Investment funds(3) 1,151 1,473 (21.9) CPART Sub-advisory, institutional and other accounts(4) (1,808) (263) N/M
Total net sales (redemptions) (657) 1,210 N/M Investment returns 6,200 1,628 N/M Net change in assets 5,543 2,838 95.3 Beginning assets 62,728 64,509 (2.8) Ending assets $ 68,271 $ 67,347 1.4 %
Average total assets(5) $ 67,282 $ 66,296 1.5 %
(1) Mackenzie segment excludes investments into Mackenzie mutual funds by IG Wealth Management mutual funds from its assets under management and net sales. (2) During 2018, institutional clients, which include Mackenzie mutual funds within their investment offerings, made fund allocation changes: – Third quarter – resulted in sales of $28 million, redemptions of $293 million and net redemptions of $265 million. – Nine month period – resulted in sales of $409 million, redemptions of $807 million and net redemptions of $398 million. (3) Total investment fund net sales and assets under management exclude Mackenzie mutual fund investments in ETFs. (4) During the third quarter of 2019, MD Financial Management reassigned sub-advisory responsibilities totalling $1.2 billion on mandates advised upon by Mackenzie. (5) Based on daily average investment fund assets and month-end average sub-advisory, institutional and other assets.
26 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 23 mutual funds. This ranks Mackenzie in seventh place in the CHANGE IN ASSETS UNDER Canadian ETF industry for assets under management. MANAGEMENT – 2019 VS. 2018 Mackenzie’s total assets under management at September 30, During the third quarter and early fourth quarter, Mackenzie 2019 were $68.3 billion, an increase of 1.4% from $67.3 billion launched two ETFs as follows: at September 30, 2018. Mackenzie’s sub-advisory, institutional • On July 25, 2019, the Mackenzie Emerging Markets Bond and other accounts at September 30, 2019 were $6.1 billion, a Index ETF was launched to provide investors with broad decrease of 22.1% from $7.9 billion last year. exposure to emerging markets while investing in U.S. Mackenzie’s investment fund assets under management were denominated, emerging market government bonds and $62.2 billion at September 30, 2019, an increase of 4.5% from government related bonds. This ETF hedges foreign currency September 30, 2018. Mackenzie’s mutual fund assets under back to the Canadian dollar. management were $59.3 billion at September 30, 2019, an • On October 24, 2019, the Mackenzie Emerging Markets Local increase of 3.4% from $57.3 billion at September 30, 2018. Currency Bond Index ETF was launched to provide investors Mackenzie’s ETF assets were $4.1 billion at September 30, 2019, with the opportunity to access the strong growth and inclusive of $1.2 billion in investments from Mackenzie mutual diversification benefits of investing in emerging markets. funds, compared to $3.0 billion at September 30, 2018, inclusive of $813 million in investments from Mackenzie mutual funds. Mutual Funds During the third quarter of 2019, Mackenzie announced and In the three months ended September 30, 2019, Mackenzie’s implemented initiatives to simplify and strengthen its product shelf: mutual fund gross sales were $2.3 billion, consistent with the comparative period last year. Mutual fund redemptions in the • Effective September 20, 2019, Mackenzie changed the current quarter were $2.1 billion, a decrease of 8.4% from portfolio management of two of its funds by bringing their last year. Mutual fund net sales for the three months ended investment management in-house. The Mackenzie Fixed September 30, 2019 were $139 million, as compared to net Income Team assumed the management of the Mackenzie redemptions of $57 million last year. In the three months ended Corporate Bond Fund and the Mackenzie North American September 30, 2019, ETF net creations were $597 million Corporate Bond Fund. compared to $377 million last year, inclusive of $245 million • Mackenzie has proposed the merger of Mackenzie Cundill and $62 million, respectively, in investments from Mackenzie US Class into the Mackenzie US Growth Class. This merger is mutual funds. Investment fund net sales in the current quarter subject to regulatory and investor approval and if approved, were $491 million compared to net sales of $258 million last the change will take effect on or about February 7, 2020. year. During the current quarter, investment returns resulted in On October 15, 2019, the Mackenzie International Dividend investment fund assets increasing by $264 million compared to Fund was launched. This fund is designed to provide investors an increase of $543 million last year. with access to high-quality, dividend-paying companies outside During the third quarter of 2018, certain third party programs, PART C PART C of Canada and the U.S. in order to help diversify geographic which include Mackenzie mutual funds, made fund allocation concentration. This fund is managed by Mackenzie’s Global changes resulting in gross sales of $28 million, redemptions of IGM FINANCIAL INC. FINANCIAL IGM Equity & Income Team. $293 million and net redemptions of $265 million. Excluding these transactions in 2018, mutual fund gross sales increased PRICING ENHANCEMENTS 1.3% and mutual fund redemptions increased 4.9% in the three Mackenzie is focused on delivering clear, consistent and months ended September 30, 2019 compared to last year and competitive pricing. Initiatives implemented during the third mutual fund net sales of $139 million in 2019 compared to quarter of 2019 include the following: mutual fund net sales of $208 million last year. • On August 2, 2019, Mackenzie reduced management fees by Total net redemptions for the three months ended September 30, 5 to 15 basis points on the six High Diversification funds sub- 2019 were $680 million, compared to net redemptions of advised by TOBAM, two fixed income mutual funds and five $137 million last year. During the current quarter, investment ETF Portfolios. returns resulted in assets increasing by $343 million compared • On September 20, 2019, Mackenzie reduced management fees to an increase of $531 million last year. During the third quarter on all thirteen traditional index ETFs by 1 to 16 basis points. of 2019, MD Financial Management reassigned $1.2 billion of
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 27
C 24 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 sub-advisory mandates managed by Mackenzie. The pro-forma Mackenzie’s twelve-month trailing redemption rate is comprised impact on Mackenzie’s pre-tax earnings from these mandate of the weighted average redemption rate for front-end load assets, changes is not meaningful. Excluding this change and the mutual deferred sales charge and low load assets with redemption fees, fund allocation changes made by third party programs during and deferred sales charge assets without redemption fees (matured the third quarter of 2018, total net sales were $476 million in the assets). Generally, redemption rates for front-end load assets and current quarter compared to net sales of $128 million last year. matured assets are higher than the redemption rates for deferred sales charge and low load assets with redemption fees. In the nine months ended September 30, 2019, Mackenzie’s mutual fund gross sales were $7.3 billion, a decrease of 4.3% Total net redemptions for the nine months ended September 30, from $7.6 billion in the comparative period last year. Mutual fund 2019 were $657 million, as compared to net sales of $1.2 billion redemptions in the current period were $6.8 billion, a decrease of last year. During the nine months ended September 30, 2019, 7.6% from last year. Mutual fund net sales for the nine months investment returns resulted in assets increasing by $6.2 billion, ended September 30, 2019 were $494 million, as compared to compared to an increase of $1.6 billion last year. Excluding the net sales of $259 million last year. In the nine months ended reassigned MD Financial Management sub-advisory mandates September 30, 2019, ETF net creations were $913 million, during the third quarter of 2019 and the mutual fund allocation inclusive of $256 million in investments from Mackenzie mutual changes in 2018 previously discussed, total net sales were funds, compared to ETF net creations of $1.7 billion, inclusive $499 million for the current period compared to net sales of of $448 million in investments from Mackenzie mutual funds $1.6 billion last year. last year. Investment fund net sales in the current period were $1.2 billion compared to $1.5 billion last year. During the CHANGE IN ASSETS UNDER current period, investment returns resulted in investment fund MANAGEMENT – Q3 2019 VS. Q2 2019 assets increasing by $5.5 billion as compared to an increase of Mackenzie’s total assets under management at September 30, $1.5 billion last year. 2019, were $68.3 billion, a decrease of 0.5% from $68.6 billion at June 30, 2019. Mackenzie’s sub-advisory, institutional and other During the nine months ended September 30, 2018, certain third accounts at September 30, 2019 were $6.1 billion, a decrease party programs, which include Mackenzie mutual funds, made of 15.1% from $7.2 billion at June 30, 2019. The decline in fund allocation changes resulting in gross sales of $409 million, sub-advisory, institutional and other accounts during the third redemptions of $807 million and net redemptions of $398 million. quarter is due to the $1.2 billion reassignment of MD Financial Excluding these transactions in 2018, mutual fund gross sales Management sub-advisory mandates previously discussed. increased 1.2% and mutual fund redemptions increased 3.8% in the nine months ended September 30, 2019 compared to last Mackenzie’s investment fund assets under management were IGM FINANCIAL INC. year and mutual fund net sales were $494 million in the current $62.2 billion at September 30, 2019, an increase of 1.2% from
year compared to $657 million last year. $61.4 billion at June 30, 2019. Mackenzie’s mutual fund assets CPART under management were $59.3 billion at September 30, Redemptions of long-term mutual funds in the three and nine 2019, an increase of 0.7% from $58.9 billion at June 30, 2019. months ended September 30, 2019, were $2.0 billion and Mackenzie’s ETF assets were $4.1 billion at September 30, 2019, $6.5 billion, respectively, as compared to $2.2 billion and $7.1 billion inclusive of $1.2 billion in investments from Mackenzie mutual last year. Redemptions of long-term mutual funds excluding funds compared to $3.5 billion at June 30, 2019, inclusive of mutual fund allocation changes made by third party programs $923 million in investments from Mackenzie mutual funds. were $6.3 billion in the nine months ended September 30, 2018. Mackenzie’s annualized quarterly redemption rate for long-term For the quarter ended September 30, 2019, Mackenzie mutual mutual funds was 13.7% in the third quarter of 2019, compared fund gross sales were $2.3 billion, a decrease of 11.3% from to 15.6% in the third quarter of 2018. Mackenzie’s annualized the second quarter of 2019. Mutual fund redemptions, which quarterly redemption rate for long-term mutual funds excluding totalled $2.1 billion for the third quarter, decreased by 9.4% from rebalance transactions was 13.6% in the third quarter of 2018. the previous quarter. Net sales of Mackenzie mutual funds for Mackenzie’s twelve-month trailing redemption rate for long-term the current quarter were $139 million compared with net sales mutual funds was 15.7% at September 30, 2019, as compared to of $207 million in the previous quarter. 16.4% last year. Mackenzie’s twelve month trailing redemption rate Redemptions of long-term mutual fund assets in the current for long-term funds, excluding rebalance transactions, was 15.0% quarter were $2.0 billion, compared to $2.3 billion in the second at September 30, 2018. The corresponding average twelve-month quarter of 2019. Mackenzie’s annualized quarterly redemption trailing redemption rate for long-term mutual funds for all other rate for long-term mutual funds for the current quarter was members of IFIC was approximately 17.0% at September 30, 2019.
28 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 25 13.7% compared to 15.7% for the second quarter. Net sales second quarter. In the third quarter, ETF net creations were of long-term funds for the current quarter were $88 million inclusive of $245 million in investments from Mackenzie mutual compared to net sales of $158 million in the previous quarter. funds compared to $11 million in the second quarter.
For the quarter ended September 30, 2019, Mackenzie ETF net Investment fund net sales in the current quarter were $491 million creations were $597 million, compared to $88 million in the compared to net sales of $284 million in the second quarter.
REVIEW OF SEGMENT OPERATING RESULTS
The investment management functions of IG Wealth Management fees were impacted by a decline in the average Management and Mackenzie form a single global investment management fee rate, offset by an increase in total average management organization under Mackenzie to support both assets under management of 1.0%. Mackenzie’s average companies. Mackenzie’s segment excludes investment advisory management fee rate was 104.2 basis points during the current mandates to IG Wealth Management funds and investments quarter compared to 104.9 basis points in 2018. into Mackenzie mutual funds by IG Wealth Management mutual Management fees were $523.1 million for the nine months funds and revenue earned on these mandates are not reflected ended September 30, 2019, a decrease of $8.4 million or 1.6% within Mackenzie’s segment revenues. Mackenzie and IG Wealth from $531.5 million last year. The net change in management Management segments reflect their proportionate share of the fees was due to a decline in the average management fee rate, expenses of the investment management function and aligns partially offset by the increase in total average assets under with internal management reporting. management of 1.5%. Mackenzie’s average management Mackenzie’s earnings before interest and taxes are presented in fee rate in the nine months ended September 30, 2019 was Table 14. 104.1 basis points compared to 107.2 basis points in 2018.
The decrease in the average management fee rate in both 2019 VS. 2018 the three and nine month periods was due to a change in the composition of assets under management, including the impact of REVENUES having a greater share in non-retail priced products and Series F. The largest component of Mackenzie’s revenues is management fees. The amount of management fees depends on the level Mackenzie earns administration fees primarily from providing and composition of assets under management. Management services to its investment funds. Administration fees were $25.0 million for the three months ended September 30, 2019, PART C PART C fee rates vary depending on the investment objective and the account type of the underlying assets under management. For an increase of $0.2 million or 0.8% from last year. Administration IGM FINANCIAL INC. FINANCIAL IGM example, equity-based mandates have higher management fees were $72.8 million for the nine months ended September 30, fee rates than fixed income mandates and retail mutual fund 2019, a decrease of $1.8 million or 2.4% from $74.6 million accounts have higher management fee rates than sub-advised last year. and institutional accounts. The majority of Mackenzie’s mutual Mackenzie earns distribution fee income on redemptions of fund assets are purchased on a retail basis. mutual fund assets sold on a deferred sales charge purchase Within Mackenzie’s retail mutual fund offering, certain series are option and on a low load purchase option. Redemption fees offered for fee-based programs of participating dealers whereby charged for deferred sales charge assets range from 5.5% in the dealer compensation on such series is charged directly by the first year and decrease to zero after seven years. Redemption dealer to a client (primarily Series F). As Mackenzie does not pay fees for low load assets range from 2.0% to 3.0% in the first year the dealer compensation, these series have lower management and decrease to zero after two or three years, depending on the fees. At September 30, 2019, these series had $10.2 billion in purchase option. Distribution fee income in the three months assets, an increase of 17.9% from the prior year. ended September 30, 2019 was $1.4 million, a decrease of $0.3 million from $1.7 million last year. Distribution fee income Management fees were $178.6 million for the three months in the nine months ended September 30, 2019 was $4.4 million, ended September 30, 2019, consistent with last year. a decrease of $0.9 million from $5.3 million last year.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 29
C 26 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 TABLE 14: OPERATING RESULTS – MACKENZIE
% CHANGE
THREE MONTHS ENDED 2019 2019 2018 2019 2018 ($ millions) SEP. 30 JUN. 30 SEP. 30 JUN. 30 SEP. 30
Revenues Management fees $ 178.6 $ 176.2 $ 178.6 1.4 % – % Administration fees 25.0 24.5 24.8 2.0 0.8 Distribution fees 1.4 1.6 1.7 (12.5) (17.6) 205.0 202.3 205.1 1.3 – Net investment income and other (1.4) 0.8 (1.1) N/M (27.3) 203.6 203.1 204.0 0.2 (0.2) Expenses Commission 5.4 6.2 5.9 (12.9) (8.5) Trailing commission 67.6 67.3 67.3 0.4 0.4 Non-commission 84.2 84.8 78.1 (0.7) 7.8 157.2 158.3 151.3 (0.7) 3.9 Earnings before interest and taxes $ 46.4 $ 44.8 $ 52.7 3.6 % (12.0) %
NINE MONTHS ENDED 2019 2018 ($ millions) SEP. 30 SEP. 30 % CHANGE
Revenues Management fees $ 523.1 $ 531.5 (1.6) % Administration fees 72.8 74.6 (2.4) Distribution fees 4.4 5.3 (17.0) 600.3 611.4 (1.8) Net investment income and other 3.6 1.2 200.0 603.9 612.6 (1.4) Expenses
Commission 19.2 23.0 (16.5) IGM FINANCIAL INC. Trailing commission 199.8 198.4 0.7
Non-commission 257.8 248.2 3.9 CPART 476.8 469.6 1.5
Earnings before interest and taxes $ 127.1 $ 143.0 (11.1) %
Net investment income and other includes investment returns from $151.3 million in 2018. Expenses for the nine months related to Mackenzie’s investments in proprietary funds. These ended September 30, 2019 were $476.8 million, an increase of investments are generally made in the process of launching $7.2 million or 1.5% from $469.6 million last year. a fund and are sold as third party investors subscribe. Net Mackenzie pays selling commissions to the dealers that sell its investment income and other was ($1.4) million for the three mutual funds on a deferred sales charge and low load purchase months ended September 30, 2019 compared to ($1.1) million option. Commissions paid are expensed as incurred. last year. Net investment income and other was $3.6 million for the nine months ended September 30, 2019, an increase of Commission expense was $5.4 million in the three months ended $2.4 million from $1.2 million last year. September 30, 2019, as compared to $5.9 million last year. Commission expense in the nine months ended September 30, EXPENSES 2019 was $19.2 million compared to $23.0 million in 2018. Mackenzie’s expenses were $157.2 million for the three months Trailing commissions paid to dealers are paid on certain classes ended September 30, 2019, an increase of $5.9 million or 3.9% of retail mutual funds and are calculated as a percentage
30 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 27 of mutual fund assets under management. These fees vary • Average assets under management were $68.2 billion in the depending on the fund type and the purchase option upon current quarter, unchanged from the prior quarter. which the fund was sold: front-end, deferred sales charge or • There was one additional calendar day in the current quarter low load. Trailing commissions were $67.6 million in the three compared to the second quarter, which resulted in an months ended September 30, 2019, an increase of $0.3 million increase of $1.9 million. or 0.4% from $67.3 million last year. Trailing commissions in the • Mackenzie’s average management fee rate was 104.2 basis nine months ended September 30, 2019 were $199.8 million, points in the current quarter compared to 103.9 basis points an increase of $1.4 million or 0.7% from $198.4 million last year. in the prior quarter. The increase in both the three and nine month periods was primarily due to the increase in average mutual fund assets Administration fees were $25.0 million in the current quarter, an offset by a decline in the effective trailing commission rate. increase of 2.0% from $24.5 million in the second quarter. Trailing commissions as a percentage of average mutual fund Net investment income and other includes investment returns assets under management was 45.8 and 46.1 basis points in the related to Mackenzie’s investments in proprietary funds. Net three and nine months ended September 30, 2019 compared investment income and other was ($1.4) million for the current to 46.8 basis points in both the three and nine months ended quarter compared to $0.8 million in the second quarter. September 30, 2018. The decline was due to a change in composition of mutual fund assets towards those series within EXPENSES mutual funds that do not pay trailing commissions. Mackenzie’s expenses were $157.2 million for the current Non-commission expenses are incurred by Mackenzie in the quarter, a decrease of $1.1 million or 0.7% from $158.3 million administration, marketing and management of its assets under in the second quarter. management. Non-commission expenses were $84.2 million Commission expense related to selling commissions paid was in the three months ended September 30, 2019, an increase $5.4 million in the quarter ended September 30, 2019, as of $6.1 million or 7.8% from $78.1 million in 2018. Non- compared to $6.2 million in the second quarter. commission expenses in the nine months ended September 30, 2019 were $257.8 million, an increase of $9.6 million or 3.9% Trailing commissions were $67.6 million in the current quarter, from $248.2 million in 2018. an increase of $0.3 million or 0.4% from $67.3 million in the second quarter. The change in trailing commissions reflects the Q3 2019 VS. Q2 2019 1.3% period over period increase in average mutual fund assets under management, offset in part, by a decline in the effective REVENUES trailing commission rate. The effective trailing commission rate was 45.8 basis points in the current quarter compared to 46.2 Mackenzie’s revenues were $203.6 million for the current quarter, an increase of $0.5 million or 0.2% from $203.1 million basis points in the second quarter. in the second quarter. Non-commission expenses were $84.2 million in the current PART C PART C quarter, compared to $84.8 million in the second quarter. Management fees were $178.6 million for the current quarter, IGM FINANCIAL INC. FINANCIAL IGM an increase of $2.4 million or 1.4% from $176.2 million in the second quarter. Factors contributing to the net increase are as follows:
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 31
C 28 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 CORPORATE AND OTHER REVIEW OF SEGMENT OPERATING RESULTS
The Corporate and Other segment includes net investment The Company also has investments in Wealthsimple Financial income not allocated to the IG Wealth Management or Corporation and Portag3 Ventures LPs. Mackenzie segments, the Company’s proportionate share of Corporate and other earnings before interest and taxes are earnings of its associates, Great-West Lifeco Inc. (Lifeco), China presented in Table 15. Asset Management Co., Ltd. (China AMC) and Personal Capital Corporation (Personal Capital), operating results for Investment Planning Counsel Inc., other income, as well as consolidation 2019 VS. 2018 elimination entries. The proportionate share of associates’ earnings decreased by $10.9 million in the third quarter of 2019 and decreased by On January 24, 2019, the Company invested an additional $25.6 million in the nine months ended September 30, 2019, amount of $66.8 million (USD $50.0 million) in Personal Capital compared to 2018. These earnings reflect equity earnings which increased its voting interest to 22.7%. As a result, the from Lifeco and China AMC for all periods under review and Company began using the equity method to account for from Personal Capital beginning in the first quarter 2019, as its investment in Personal Capital as it exercises significant discussed in the Consolidated Financial Position section of this influence. Significant influence arises from its voting interest MD&A. The decrease resulted primarily from the inclusion of the and board representation.
TABLE 15: OPERATING RESULTS – CORPORATE AND OTHER
% CHANGE
THREE MONTHS ENDED 2019 2019 2018 2019 2018 ($ millions) SEP. 30 JUN. 30 SEP. 30 JUN. 30 SEP. 30
Revenues Fee income $ 71.7 $ 71.8 $ 74.1 (0.1) % (3.2) % Net investment income and other 3.2 3.5 3.8 (8.6) (15.8) Proportionate share of associates’ earnings 28.9 28.2 39.8 2.5 (27.4) 103.8 103.5 117.7 0.3 (11.8) Expenses Commission 44.7 44.8 46.2 (0.2) (3.2) Non-commission 21.9 22.0 21.7 (0.5) 0.9 IGM FINANCIAL INC.
66.6 66.8 67.9 (0.3) (1.9) CPART Earnings before interest and taxes $ 37.2 $ 36.7 $ 49.8 1.4 % (25.3) %
NINE MONTHS ENDED 2019 2018 ($ millions) SEP. 30 SEP. 30 % CHANGE
Revenues Fee income $ 213.5 $ 219.1 (2.6) % Net investment income and other 12.7 11.8 7.6 Proportionate share of associates’ earnings 89.8 115.4 (22.2) 316.0 346.3 (8.7) Expenses Commission 134.7 137.8 (2.2) Non-commission 66.6 65.8 1.2 201.3 203.6 (1.1) Earnings before interest and taxes $ 114.7 $ 142.7 (19.6) %
32 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 29 Company’s proportionate share of Personal Capital’s losses of Q3 2019 VS. Q2 2019 $4.3 million and $12.3 million in the three and nine months of The proportionate share of associates’ earnings was $28.9 million 2019, as well as a decrease in Lifeco’s earnings of $8.0 million in the third quarter of 2019, an increase of $0.7 million from and $14.4 million in the three and nine months of 2019. Net the second quarter of 2019 primarily resulting from an increase investment income and other decreased to $3.2 million in the in Lifeco’s earnings. Net investment income and other was third quarter of 2019 compared to $3.8 million in 2018. For the $3.2 million in the third quarter of 2019, compared to $3.5 million nine month period, net investment income and other increased in the second quarter. to $12.7 million compared to $11.8 million in 2018. Earnings before interest and taxes related to Investment Earnings before interest and taxes related to Investment Planning Counsel were $0.5 million higher in the third quarter Planning Counsel were $0.6 million lower in the third quarter of 2019 compared to the prior quarter. of 2019 compared to the same period in 2018 and were $0.7 million lower in the nine month period. PART C PART C IGM FINANCIAL INC. FINANCIAL IGM
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 33
C 30 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 IGM FINANCIAL INC. CONSOLIDATED FINANCIAL POSITION
IGM Financial’s total assets were $15.6 billion at September 30, FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL) 2019, unchanged from December 31, 2018. Securities classified as FVTPL include equity securities and proprietary investment funds. Gains and losses are recorded OTHER INVESTMENTS in Net investment income and other in the Consolidated Statements of Earnings. The composition of the Company’s securities holdings is detailed in Table 16. Certain proprietary investment funds are consolidated where the Company has made the assessment that it controls the FAIR VALUE THROUGH OTHER investment fund. The underlying securities of these funds are COMPREHENSIVE INCOME (FVTOCI) classified as FVTPL. Gains and losses on FVTOCI investments are recorded in Other comprehensive income. LOANS The composition of the Company’s loans is detailed in Table 17. Corporate Investments Corporate investments is primarily comprised of the Company’s Loans consisted of residential mortgages and represented 48.2% investments in Wealthsimple Financial Corporation, and Portag3 of total assets at September 30, 2019, compared to 49.6% at Ventures LP and Portag3 Ventures II LP. In January 2019, the December 31, 2018. Company made an additional investment of $66.8 million Loans measured at amortized cost are primarily comprised of (USD $50.0 million) in Personal Capital Corporation which residential mortgages sold to securitization programs sponsored increased its voting interest to 22.7% resulting in the by third parties that in turn issue securities to investors. An reclassification of $217.0 million on the Consolidated Balance offsetting liability, Obligations to securitization entities, has Sheet from Corporate investments to Investment in associates. been recorded and totalled $7.2 billion at September 30, 2019, Portag3 Ventures LP and Portag3 Ventures II LP (Portag3) compared to $7.4 billion at December 31, 2018. are early-stage investment funds dedicated to backing The Company holds loans pending sale or securitization. Loans innovating financial services companies and are controlled measured at fair value through profit or loss are residential by the Company’s parent, Power Financial Corporation. As mortgages held temporarily by the Company pending sale. at September 30, 2019, the Company had invested a total of Loans held for securitization are carried at amortized cost. Total $46.9 million in Portag3, including $12.8 million which was loans being held pending sale or securitization are $356.3 million invested in 2019. at September 30, 2019 compared to $363.9 million at IGM FINANCIAL INC. Wealthsimple Financial Corporation (“Wealthsimple”) is an December 31, 2018.
online investment manager that provides financial investment CPART Residential mortgages originated by IG Wealth Management are guidance. As at September 30, 2019, the Company had invested funded primarily through sales to third parties on a fully serviced a total of $181.5 million in Wealthsimple through a limited basis, including Canada Mortgage and Housing Corporation partnership controlled by the Company’s parent, Power Financial (CMHC) or Canadian bank sponsored securitization programs. Corporation. The Company invested a total of $46.5 million in IG Wealth Management services $12.3 billion of residential the nine month period of 2019. mortgages, including $2.4 billion originated by subsidiaries of Lifeco.
TABLE 16: OTHER INVESTMENTS
SEPTEMBER 30, 2019 DECEMBER 31, 2018
($ millions) COST FAIR VALUE COST FAIR VALUE
Fair value through other comprehensive income Corporate investments $ 237.7 $ 295.2 $ 303.6 $ 372.4 Fair value through profit or loss Equity securities 1.5 1.8 17.0 12.9 Proprietary investment funds 79.1 78.4 78.5 74.6 80.6 80.2 95.5 87.5 $ 318.3 $ 375.4 $ 399.1 $ 459.9
34 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 31 TABLE 17: LOANS
2019 2018 ($ millions) SEPTEMBER 30 DECEMBER 31
Amortized cost $ 7,493.6 $ 7,734.5 Less: Allowance for expected credit losses 0.7 0.8 7,492.9 7,733.7 Fair value through profit or loss 12.1 4.3 $ 7,505.0 $ 7,738.0
SECURITIZATION ARRANGEMENTS INVESTMENT IN ASSOCIATES Through the Company’s mortgage banking operations, residential Great-West Lifeco Inc. (Lifeco) mortgages originated by IG Wealth Management mortgage At September 30, 2019, the Company held a 4% equity interest planning specialists are sold to securitization trusts sponsored in Lifeco. IGM Financial and Lifeco are controlled by Power by third parties that in turn issue securities to investors. The Financial Corporation. Company securitizes residential mortgages through the CMHC sponsored National Housing Act Mortgage-Backed Securities The equity method is used to account for IGM Financial’s (NHA MBS) and the Canada Mortgage Bond Program (CMB investment in Lifeco, as it exercises significant influence. Changes Program) and through Canadian bank-sponsored asset-backed in the carrying value for the nine months ended September 30, commercial paper (ABCP) programs. The Company retains 2019 compared with 2018 are shown in Table 18. servicing responsibilities and certain elements of credit risk and In April 2019, the Company participated on a proportionate prepayment risk associated with the transferred assets. The basis in the Lifeco substantial issuer bid by selling 2,400,255 of Company’s credit risk on its securitized mortgages is partially its shares in Lifeco for proceeds of $80.4 million. The Company’s mitigated through the use of insurance. Derecognition of financial 4% interest in Lifeco remains substantially unchanged. assets in accordance with IFRS is based on the transfer of risks and rewards of ownership. As the Company has retained In June 2019, Lifeco recorded a one-time loss in relation to prepayment risk and certain elements of credit risk associated the sale of substantially all of its United States individual life with the Company’s securitization transactions through the insurance and annuity business. The Company’s after-tax CMB and ABCP programs, they are accounted for as secured proportionate share of this loss was $8.0 million. borrowings. The Company records the transactions under these programs as follows: i) the mortgages and related obligations China Asset Management Co., Ltd. (China AMC) are carried at amortized cost, with interest income and interest
PART C PART C Founded in 1998 as one of the first fund management expense, utilizing the effective interest rate method, recorded over companies in China, China AMC has developed and maintained IGM FINANCIAL INC. FINANCIAL IGM the term of the mortgages, ii) the component of swaps entered a position among the market leaders in China’s asset into under the CMB Program whereby the Company pays management industry. coupons on Canada Mortgage Bonds and receives investment returns on the reinvestment of repaid mortgage principal, are China AMC’s total assets under management, excluding recorded at fair value, and iii) cash reserves held under the ABCP subsidiary assets under management, were RMB¥ 918.1 billion program are carried at amortized cost. ($175.1 billion) at June 30, 2019, representing an increase of 4.4% (CAD$ increase of 0.6%) from RMB¥ 879.7 billion In the third quarter of 2019, the Company securitized loans ($174.5 billion) at December 31, 2018. through its mortgage banking operations with cash proceeds of The equity method is used to account for the Company’s 13.9% $462.5 million compared to $531.5 million in 2018. Additional equity interest in China AMC, as it exercises significant influence. information related to the Company’s securitization activities, Changes in the carrying value for the nine months ended including the Company’s hedges of related reinvestment and September 30, 2019 are shown in Table 18. The change in other interest rate risk, can be found in the Financial Risk section of comprehensive income in the nine month period of 2019 was this MD&A and in Note 5 to the Interim Financial Statements. due to a 6.6% depreciation of the Chinese yuan relative to the Canadian dollar.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 35
C 32 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 TABLE 18: INVESTMENT IN ASSOCIATES
SEPTEMBER 30, 2019 SEPTEMBER 30, 2018
PERSONAL ($ millions) LIFECO CHINA AMC CAPITAL TOTAL LIFECO CHINA AMC TOTAL
THREE MONTHS ENDED Carrying value, July 1, 2019 $ 910.1 $ 662.3 $ 204.9 $ 1,777.3 $ 959.5 $ 669.9 $ 1,629.4 Proceeds from substantial issuer bid – – – – – – – Dividends received (15.4) – – (15.4) (15.5) – (15.5) Proportionate share of: Earnings (losses)(1) 25.5 7.7 (4.3) 28.9 33.5 6.3 39.8 Associate’s one-time loss(1) – – – – – – – Other comprehensive income (loss) and other adjustments (21.5) (18.8) 2.2 (38.1) (10.1) (34.9) (45.0) Carrying value, end of period $ 898.7 $ 651.2 $ 202.8 $ 1,752.7 $ 967.4 $ 641.3 $ 1,608.7
NINE MONTHS ENDED Carrying value, January 1, 2019 $ 967.8 $ 683.5 $ – $ 1,651.3 $ 901.4 $ 647.9 $ 1,549.3 Transfer from corporate investments (FVTOCI) – – 217.0 217.0 – – – Proceeds from substantial issuer bid (80.4) – – (80.4) – – – Dividends received (47.2) (10.3) – (57.5) (46.4) (12.2) (58.6) Proportionate share of: Earnings (losses)(1) 79.2 22.9 (12.3) 89.8 93.6 21.8 115.4 Associate’s one-time loss(1) (8.0) – – (8.0) – – – Other comprehensive income (loss) and other adjustments (12.7) (44.9) (1.9) (59.5) 18.8 (16.2) 2.6 Carrying value, end of period $ 898.7 $ 651.2 $ 202.8 $ 1,752.7 $ 967.4 $ 641.3 $ 1,608.7 IGM FINANCIAL INC.
(1) The proportionate share of earnings from the Company’s investment in associates is recorded in Net investment income and other in the Corporate and other reportable segment (Tables 2, 3 and 4). CPART
Personal Capital Corporation (Personal Capital) Tracked Account Value (TAV), the net value of assets and Founded in 2009 in the United States, Personal Capital is a liabilities aggregated by registered users, was USD $784 billion leading digital wealth manager that has experienced significant as at September 30, 2019, representing an increase of 25.3% growth since its inception. from USD $626 billion at September 30, 2018 and an increase of 4.9% from USD $748 billion as at June 30, 2019. As at September 30, 2019, Personal Capital had 2.32 million registered users, individuals who have signed up to use Personal The equity method is used to account for the Company’s 24.8% Capital’s free dashboard platform, representing an increase of equity interest in Personal Capital, as it exercises significant 20.4% from 1.92 million at September 30, 2018 and an increase influence. IGM Financial’s equity earnings from Personal Capital of 4.3% from 2.22 million at June 30, 2019. includes its proportionate share of Personal Capital’s net loss adjusted by IGM Financial’s amortization of intangible assets Personal Capital’s total assets under management were USD that it recognized as part of its investment in the company. $10.8 billion as at September 30, 2019, representing an increase Changes in the carrying value for the nine months ended of 34.4% from USD $8.0 billion at September 30, 2018 and an September 30, 2019 are shown in Table 18. increase of 6.5% from USD $10.2 billion as at June 30, 2019.
36 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 33 CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY nine months ended September 30, 2019, EBITDA before sales Cash and cash equivalents totalled $683.2 million at September 30, commissions totalled $957.5 million compared to $1,036.2 million 2019 compared with $650.2 million at December 31, 2018 and for the comparative period of 2018. EBITDA before sales $586.7 million at September 30, 2018. Cash and cash equivalents commissions excludes the impact of both commissions paid and related to the Company’s deposit operations were $2.4 million at commission amortization (refer to Table 1). September 30, 2019, compared to $2.4 million at December 31, Earnings before interest, taxes, depreciation and amortization 2018 and $3.5 million at September 30, 2018, as shown in after sales commissions (EBITDA after sales commissions) Table 19. totalled $298.9 million in the third quarter of 2019 compared to Working capital, which consists of current assets less current $320.3 million in the third quarter of 2018 and $286.5 million liabilities, totalled $462.0 million at September 30, 2019 in the second quarter of 2019. For the nine months ended compared with $366.1 million at December 31, 2018 and September 30, 2019, EBITDA after sales commissions totalled $319.9 million at September 30, 2018 (Table 20). $837.6 million compared to $888.9 million for the comparative period of 2018. EBITDA after sales commissions excludes the Working capital is utilized to: impact of commission amortization (refer to Table 1).
• Finance ongoing operations, including the funding of sales Refer to the Financial Instruments Risk section of this MD&A commissions. for information related to other sources of liquidity and to • Temporarily finance mortgages in its mortgage banking the Company’s exposure to and management of liquidity and operations. funding risk. • Pay interest and dividends related to long-term debt and preferred shares. CASH FLOWS • Maintain liquidity requirements for regulated entities. Table 21 – Cash Flows is a summary of the Consolidated Statements of Cash Flows which forms part of the Interim • Pay quarterly dividends on its outstanding common shares. Financial Statements for the three and nine month periods • Finance common share repurchases, retirement of long-term ended September 30, 2019. Cash and cash equivalents increased debt and redemption of preferred shares. by $81.9 million in the third quarter of 2019 compared to a IGM Financial continues to generate significant cash flows from decrease of $135.0 million in 2018. For the nine months ended its operations. Earnings before interest, taxes, depreciation and September 30, 2019, cash and cash equivalents increased by amortization before sales commissions (EBITDA before sales $33.0 million compared to a decrease of $380.1 million in 2018. commissions) totalled $337.1 million for the third quarter of Adjustments to determine net cash from operating activities 2019 compared to $360.8 million for the third quarter of 2018 during the three and nine month periods of 2019 compared and $324.5 million for the second quarter of 2019. For the PART C PART C
IGM FINANCIAL INC. FINANCIAL IGM TABLE 19: DEPOSIT OPERATIONS – FINANCIAL POSITION
2019 2018 2018 ($ millions) SEP. 30 DEC. 31 SEP. 30
Assets Cash and cash equivalents $ 2.4 $ 2.4 $ 3.5 Client funds on deposit 489.9 546.8 446.1 Accounts and other receivables 13.1 8.8 6.6 Loans 23.1 21.3 21.7 Total assets $ 528.5 $ 579.3 $ 477.9
Liabilities and shareholders’ equity Deposit liabilities $ 516.8 $ 568.8 $ 466.4 Other liabilities 0.6 0.5 0.6 Shareholders’ equity 11.1 10.0 10.9 Total liabilities and shareholders’ equity $ 528.5 $ 579.3 $ 477.9
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 37
C 34 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 TABLE 20: WORKING CAPITAL
2019 2018 2018 ($ millions) SEP. 30 DEC. 31 SEP. 30
Current assets Cash and cash equivalents $ 683.2 $ 650.2 $ 586.7 Client funds on deposit 489.9 546.8 446.1 Accounts receivable and other assets 347.2 311.9 364.9 Current portion of mortgages and other 1,501.1 1,280.1 1,239.9 3,021.4 2,789.0 2,637.6 Current liabilities Accounts and other payables 622.7 644.7 648.4 Deposits and certificates 510.2 562.4 459.3 Current portion of long-term liabilities 1,426.5 1,215.8 1,210.0 2,559.4 2,422.9 2,317.7 Working Capital $ 462.0 $ 366.1 $ 319.9
to 2018 consist of non-cash operating activities offset by cash • The add-back of one-time adjustments in the three and operating activities: nine month periods of 2018, which included a restructuring provision and other. • The add-back of amortization of capitalized sales commissions • The deduction of restructuring provision cash payments. offset by the deduction of capitalized sales commissions paid. • The add-back of amortization of capital and intangible assets. Financing activities during the third quarter of 2019 compared • The deduction of investment in associates’ equity earnings to 2018 related to: offset by dividends received. • An increase in obligations to securitization entities of • The add-back of pension and other post-employment benefits $445.9 million and repayments of obligations to securitization offset by cash contributions. entities of $585.4 million in 2019 compared to an increase • Changes in operating assets and liabilities and other. in obligations to securitization entities of $527.2 million IGM FINANCIAL INC. PART CPART
TABLE 21: CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
($ millions) 2019 2018 % CHANGE 2019 2018 % CHANGE
Operating activities Earnings before income taxes $ 261.7 $ 255.6 2.4 % $ 717.2 $ 760.1 (5.6) % Income taxes paid (37.7) (11.3) (233.6) (180.4) (94.9) (90.1) Adjustments to determine net cash from operating activities 18.7 (0.6) N/M (8.0) (84.3) 90.5 242.7 243.7 (0.4) 528.8 580.9 (9.0) Financing activities (282.4) (452.0) 37.5 (631.7) (1,024.9) 38.4 Investing activities 121.6 73.3 65.9 135.9 63.9 112.7
Change in cash and cash equivalents 81.9 (135.0) N/M 33.0 (380.1) N/M Cash and cash equivalents, beginning of period 601.3 721.7 (16.7) 650.2 966.8 (32.7) Cash and cash equivalents, end of period $ 683.2 $ 586.7 16.4 % $ 683.2 $ 586.7 16.4 %
38 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 35 and repayments of obligations to securitization entities of Investing activities during the nine months ended September 30, $666.5 million in 2018. 2019 compared to 2018 primarily related to:
• The payment of regular common share dividends which • The purchases of other investments totalling $110.5 million and totalled $134.0 million in 2019 compared to $135.5 million sales of other investments with proceeds of $61.5 million in in 2018. 2019 compared to $93.2 million and $67.4 million, respectively, The third quarter of 2018 also included the following in 2018. Purchases included corporate investments of financing activities: $59.4 million in 2019 and $51.2 million in 2018. • An increase in loans of $1,277.6 million with repayments of • Payment of perpetual preferred share dividends which totalled loans and other of $1,513.4 million in 2019 compared to $2.2 million. $1,300.3 million and $1,441.8 million, respectively, in 2018 • Issuance of debentures of $200.0 million. primarily related to residential mortgages in the Company’s • Repayment of debentures of $375.0 million. mortgage banking operations. Financing activities during the nine months ended September 30, • Net cash used in additions to intangible assets and acquisitions 2019 compared to 2018 related to: was $50.4 million in 2019 compared to $43.7 million in 2018. • An additional investment in Personal Capital of $66.8 million • An increase in obligations to securitization entities of in the first quarter of 2019. $1,185.7 million and repayments of obligations to securitization entities of $1,393.0 million in 2019 compared to an increase • Proceeds of $80.4 million from the sale of 2,400,255 Lifeco shares in 2019 as a result of the Company’s participation in in obligations to securitization entities of $1,238.3 million and repayments of obligations to securitization entities of the Lifeco substantial issuer bid. $1,530.8 million in 2018. • Issuance of debentures of $250.0 million in 2019, compared CAPITAL RESOURCES to the issuance of debentures of $200.0 million in 2018. The Company’s capital management objective is to maximize • Repayment of debentures of $525.0 million in 2018. shareholder returns while ensuring that the Company is • Redemption of preferred shares of $150.0 million in the capitalized in a manner which appropriately supports regulatory second quarter of 2019. capital requirements, working capital needs and business expansion. The Company’s capital management practices • The purchase of 2,762,788 common shares in 2019 under are focused on preserving the quality of its financial position IGM Financial’s normal course issuer bid at a cost of by maintaining a solid capital base and a strong balance $100.0 million. There were no purchases in 2018. sheet. Capital of the Company consists of long-term debt, • The payment of perpetual preferred share dividends which perpetual preferred shares and common shareholders’ equity totalled $4.4 million in 2019 compared to $6.6 million in 2018. which totalled $6.5 billion at September 30, 2019, unchanged • The payment of regular common share dividends which from December 31, 2018. At December 31, 2018, capital PART C PART C totalled $405.0 million in 2019 compared to $406.3 million included perpetual preferred shares of $150 million which in 2018. IGM FINANCIAL INC. FINANCIAL IGM were redeemed in April 2019. The Company regularly assesses Investing activities during the third quarter of 2019 compared to its capital management practices in response to changing 2018 primarily related to: economic conditions.
• The purchases of other investments totalling $13.0 million The Company’s capital is primarily utilized in its ongoing and sales of other investments with proceeds of $5.3 million business operations to support working capital requirements, in 2019 compared to $10.9 million and $24.1 million, long-term investments made by the Company, business respectively, in 2018. expansion and other strategic objectives. Subsidiaries subject to regulatory capital requirements include investment dealers, • An increase in loans of $526.8 million with repayments of mutual fund dealers, exempt market dealers, portfolio managers, loans and other of $673.7 million in 2019 compared to investment fund managers and a trust company. These $444.5 million and $520.4 million, respectively, in 2018 subsidiaries are required to maintain minimum levels of capital primarily related to residential mortgages in the Company’s based on either working capital, liquidity or shareholders’ equity. mortgage banking operations. The Company’s subsidiaries have complied with all regulatory • Net cash used in additions to intangible assets and acquisitions capital requirements. was $13.5 million in 2019 compared to $14.7 million in 2018.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 39
C 36 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 The total outstanding long-term debt was $2.1 billion at These ratings are not a recommendation to buy, sell or hold September 30, 2019, compared to $1.9 billion at December 31, the securities of the Company and do not address market price 2018. Long-term debt is comprised of debentures which are or other factors that might determine suitability of a specific senior unsecured debt obligations of the Company subject to security for a particular investor. The ratings also may not standard covenants, including negative pledges, but which do reflect the potential impact of all risks on the value of securities not include any specified financial or operational covenants. The and are subject to revision or withdrawal at any time by the net increase in long-term debt resulted from the issuance on rating organization. March 20, 2019 of $250.0 million 4.206% debentures maturing The A rating assigned to IGM Financial’s senior unsecured March 21, 2050. debentures by S&P is the sixth highest of the 22 ratings used The net proceeds from the issuance of the debenture was used for long-term debt. This rating indicates S&P’s view that the by the Company in part to fund the redemption of $150 million Company’s capacity to meet its financial commitment on the 5.90% Non-Cumulative First Preferred Shares, Series B and for obligation is strong, but the obligation is somewhat more general corporate purposes. The Company redeemed the Series susceptible to the adverse effects of changes in circumstances and B Preferred Shares on April 30, 2019. economic conditions than obligations in higher rated categories.
The Company purchased 2,762,788 common shares during The A (High) rating assigned to IGM Financial’s senior unsecured the nine months ended September 30, 2019 at a cost of debentures by DBRS is the fifth highest of the 26 ratings used $100.0 million under its normal course issuer bid (refer to for long-term debt. Under the DBRS long-term rating scale, Note 8 to the Interim Financial Statements). The Company debt securities rated A (High) are of good credit quality and the commenced a normal course issuer bid on March 26, 2019 to capacity for the payment of financial obligations is substantial. purchase up to 4 million of its common shares to provide the While this is a favourable rating, entities in the A (High) category flexibility to manage its capital position while generating value may be vulnerable to future events, but qualifying negative for shareholders. factors are considered manageable.
In connection with its normal course issuer bid, the Company has established an automatic securities purchase plan for FINANCIAL INSTRUMENTS its common shares. The automatic securities purchase plan Table 22 presents the carrying amounts and fair values of provides standard instructions regarding how IGM Financial’s financial assets and financial liabilities. The table excludes fair common shares are to be purchased under its normal course value information for financial assets and financial liabilities not issuer bid during certain pre-determined trading blackout measured at fair value if the carrying amount is a reasonable periods. Outside of these pre-determined trading blackout approximation of fair value. These items include cash and IGM FINANCIAL INC. periods, purchases under the Company’s normal course issuer
cash equivalents, accounts and other receivables, certain other CPART bid will be completed based upon management’s discretion. financial assets, accounts payable and accrued liabilities and certain other financial liabilities. Other activities in 2019 included the declaration of perpetual preferred share dividends of $2.2 million or $0.36875 per share Fair value is determined using the following methods and common share dividends of $403.5 million or $1.6875 per and assumptions: share. Changes in common share capital are reflected in the • Other investments and other financial assets and liabilities Consolidated Statements of Changes in Shareholders’ Equity. are valued using quoted prices from active markets, when Standard & Poor’s (S&P) current rating on the Company’s senior available. When a quoted market price is not readily available, unsecured debentures is “A” with a stable outlook. Dominion Bond valuation techniques are used that require assumptions Rating Service’s (DBRS) current rating on the Company’s senior related to discount rates and the timing and amount of future unsecured debentures is “A (High)” with a stable rating trend. cash flows. Wherever possible, observable market inputs are used in the valuation techniques. Credit ratings are intended to provide investors with an independent measure of the credit quality of the securities of • Loans classified as held for trading are valued using market a company and are indicators of the likelihood of payment and interest rates for loans with similar credit risk and maturity, the capacity of a company to meet its obligations in accordance specifically lending rates offered to retail borrowers by with the terms of each obligation. Descriptions of the rating financial institutions. categories for each of the agencies set forth below have been • Loans classified as amortized cost are valued by discounting obtained from the respective rating agencies’ websites. the expected future cash flows at prevailing market yields.
40 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 37 TABLE 22: FINANCIAL INSTRUMENTS
SEPTEMBER 30, 2019 DECEMBER 31, 2018
($ millions) CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
Financial assets recorded at fair value Other investments – Fair value through other comprehensive income $ 295.2 $ 295.2 $ 372.4 $ 372.4 – Fair value through profit or loss 80.2 80.2 87.5 87.5 Loans – Fair value through profit or loss 12.0 12.0 4.3 4.3 Derivative financial instruments 20.1 20.1 16.4 16.4 Financial assets recorded at amortized cost Loans – Amortized cost 7,492.9 7,582.3 7,733.7 7,785.5 Financial liabilities recorded at fair value Derivative financial instruments 22.8 22.8 29.0 29.0 Other financial liabilities – – 8.2 8.2 Financial liabilities recorded at amortized cost Deposits and certificates 516.8 517.2 568.8 569.0 Obligations to securitization entities 7,186.4 7,298.5 7,370.2 7,436.9 Long-term debt 2,100.0 2,493.6 1,850.0 2,050.3
• Obligations to securitization entities are valued by discounting instruments with similar characteristics and maturities, or the expected future cash flows at prevailing market yields for discounted cash flow analysis. securities issued by these securitization entities having similar See Note 13 of the Interim Financial Statements which provides terms and characteristics. additional discussion on the determination of fair value of • Deposits and certificates are valued by discounting the financial instruments. contractual cash flows using market interest rates currently offered for deposits with similar terms and credit risks. Although there were changes to both the carrying values and fair values of financial instruments, these changes did not have • Long-term debt is valued using quoted prices for each debenture available in the market. a material impact on the financial condition of the Company for the nine months ended September 30, 2019. • Derivative financial instruments are valued based on quoted market prices, where available, prevailing market rates for PART C PART C IGM FINANCIAL INC. FINANCIAL IGM
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 41
C 38 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 RISK MANAGEMENT
The Company is exposed to a variety of risks that are inherent and Conduct Review Committee which oversees conflicts of in its business activities. Its ability to manage these risks is key interest as well as the administration of the Code of Business to its ongoing success. The Company emphasizes a strong risk Conduct and Ethics for Directors, Officers and Employees management culture and the implementation of an effective (Code of Conduct). risk management approach. The risk management approach Management oversight for risk management resides with the coordinates risk management across the organization and its executive Risk Management Committee which is comprised of business units and seeks to ensure prudent and measured risk- the President and Chief Executive Officer, IGM Financial and taking in order to achieve an appropriate balance between risk IG Wealth Management, the President and Chief Executive and return. Fundamental to our enterprise risk management Officer, Mackenzie Investments, the Chief Financial Officer, the program is protecting and enhancing our reputation. General Counsel, the Chief Operating Officer and the Executive Vice President Chief Strategy and Corporate Development RISK MANAGEMENT FRAMEWORK Officer. The committee is responsible for providing oversight The Company’s risk management approach is undertaken of the Company’s risk management process by: i) establishing through its Enterprise Risk Management (ERM) Framework and maintaining the risk framework and policy, ii) defining the which includes five core elements: risk governance, risk appetite, Company’s risk appetite, iii) ensuring the Company’s risk profile risk principles, a defined risk management process, and risk and processes are aligned with corporate strategy and risk management culture. The ERM Framework is established under appetite, and iv) establishing “tone at the top” and reinforcing a the Company’s ERM Policy, which is approved by the Risk strong culture of risk management. Management Committee. The Chief Executive Officers of the operating companies have overall responsibility for overseeing risk management of their RISK GOVERNANCE respective companies. The Company’s risk governance structure emphasizes a comprehensive and consistent framework throughout the The Company has assigned responsibility for risk management Company and its subsidiaries, with identified ownership of using the Three Lines of Defence model, with the First Line risk management in each business unit and oversight by an reflecting the business units having primary responsibility for executive Risk Management Committee accountable to the risk management, supported by Second Line risk management Board of Directors. Additional oversight is provided by the functions and a Third Line Internal Audit function providing Enterprise Risk Management (ERM) Department, compliance assurance and validation of the design and effectiveness of the groups, and the Company’s Internal Audit Department. ERM Framework. IGM FINANCIAL INC.
The Board of Directors provides primary oversight and carries First Line of Defence PART CPART out its risk management mandate. The Board is responsible The leaders of the various business units and support functions for the oversight of enterprise risk management by: i) ensuring have primary ownership and accountability for the ongoing that appropriate procedures are in place to identify and manage risk management associated with their respective activities. risks and establish risk tolerances, ii) ensuring that appropriate Responsibilities of business unit and support function leaders policies, procedures and controls are implemented to manage include: i) establishing and maintaining procedures for the risks, and iii) reviewing the risk management process on a identification, assessment, documentation and escalation regular basis to ensure that it is functioning effectively. of risks, ii) implementing control activities to mitigate risks, Other specific risks are managed with the support of the iii) identifying opportunities for risk reduction or transfer, and following Board committees: iv) aligning business and operational strategies with the risk culture and risk appetite of the organization as established by • The Audit Committee has specific risk oversight responsibilities the Risk Management Committee. in relation to financial disclosure, internal controls and the control environment as well as the Company’s Second Line of Defence compliance activities. The Enterprise Risk Management (ERM) Department provides • Other committees having specific risk oversight oversight, analysis and reporting to the Risk Management responsibilities include: i) the Human Resource Committee Committee on the level of risks relative to the established risk which oversees compensation policies and practices, ii) the appetite for all activities of the Company. Other responsibilities Governance and Nominating Committee which oversees include: i) developing and maintaining the enterprise risk corporate governance practices, and iii) the Related Party management program and framework, ii) managing the
42 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 39 enterprise risk management process, and iii) providing guidance We use a consistent methodology across our organizations and training to business unit and support function leaders. and business units for identification and assessment of risks. Risks are assessed by evaluating the impact and likelihood of The Company has a number of committees of senior business the potential risk event after consideration of controls and any leaders which provide oversight of specific business risks, risk transfer activities. The results of these assessments are including the Financial Risk Management and Operational Risk considered relative to risk appetite and tolerances and may Management committees. These committees perform critical result in action plans to adjust the risk profile. reviews of risk assessments, risk management practices and risk response plans developed by business units and support functions. Risk assessments are monitored and reviewed on an ongoing basis by business units and by oversight areas including the ERM Other oversight accountabilities reside with the Company’s Department. The ERM Department promotes and coordinates corporate and compliance groups which are responsible for communication and consultation to support effective risk ensuring compliance with policies, laws and regulations. management and escalation. The ERM Department regularly reports on the results of risk assessments and on the assessment Third Line of Defence process to the Risk Management Committee and to the Board The Internal Audit Department is the third line of defence and of Directors. provides independent assurance to senior management and the Board of Directors on the effectiveness of risk management RISK MANAGEMENT CULTURE policies, processes and practices. Risk management is intended to be everyone’s responsibility within the organization. The ERM Department engages RISK APPETITE AND RISK PRINCIPLES all business units in workshops to foster awareness and The Risk Management Committee establishes the Company’s incorporation of our risk framework into our business activities. appetite for different types of risk through the Risk Appetite Framework. Under the Risk Appetite Framework, one of four We have an established business planning process which appetite levels is established for each risk type and business reinforces our risk management culture. Our compensation activity of the Company. These appetite levels range from those programs are typically objectives-based, and do not encourage where the Company has no appetite for risk and seeks to or reward excessive or inappropriate risk taking, and often are minimize any losses, to those where the Company readily accepts aligned specifically with risk management objectives. exposure while seeking to ensure that risks are well understood Our risk management program emphasizes integrity, ethical and managed. These appetite levels guide our business units as practices, responsible management and measured risk-taking they engage in business activities, and inform them in establishing with a long-term view. Our standards of integrity and ethics are policies, limits, controls and risk transfer activities. reflected within our Code of Conduct which applies to directors, A Risk Appetite Statement and Risk Principles provide further officers and employees. guidance to business leaders and employees as they conduct risk PART C PART C management activities. The Risk Appetite Statement’s emphasis KEY RISKS OF THE BUSINESS
IGM FINANCIAL INC. FINANCIAL IGM is to maintain the Company’s reputation and brand, ensure The Company identifies risks to which its businesses and financial flexibility, and focus on mitigating operational risk. operations could be exposed considering factors both internal and external to the organization. These risks are broadly RISK MANAGEMENT PROCESS grouped into six categories. The Company’s risk management process is designed to foster:
• Ongoing assessment of risks and tolerance in a changing 1) FINANCIAL RISK operating environment. LIQUIDITY AND FUNDING RISK • Appropriate identification and understanding of existing and Liquidity and funding risk is the risk of the inability to generate emerging risks and risk response. or obtain sufficient cash in a timely and cost-effective manner • Timely monitoring and escalation of risks based upon to meet contractual or anticipated commitments as they come changing circumstances. due or arise.
Significant risks that may adversely affect the Company’s ability The Company’s liquidity management practices include: to achieve its strategic and business objectives are identified • Maintaining liquid assets and lines of credit to satisfy near through the Company’s ongoing risk management process. term liquidity needs.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 43
C 40 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 • Ensuring effective controls over liquidity management processes. Program is that securitized loans be insured by an insurer that • Performing regular cash forecasts and stress testing. is approved by CMHC. The availability of mortgage insurance is dependent upon market conditions and is subject to change. • Regular assessment of capital market conditions and the Company’s ability to access bank and capital market funding. As part of ongoing liquidity management during 2019 and 2018, • Ongoing efforts to diversify and expand long-term mortgage the Company: funding sources. • Continued to assess additional funding sources for the • Oversight of liquidity management by the Financial Risk Company’s mortgage banking operations. Management Committee, a committee of finance and other • Repaid the $150 million 6.58% debentures in March 2018. business leaders. • Issued $200 million of 30 year 4.174% debentures in July A key funding requirement for the Company is the funding of 2018. The net proceeds were used by IGM Financial, together Consultant network compensation paid for the distribution of with a portion of IGM Financial’s existing internal cash financial products and services. This compensation continues to resources, to fund the early redemption in August of all of its be paid from operating cash flows. $375 million aggregate principal amount of 7.35% debentures The Company also maintains sufficient liquidity to fund and due April 8, 2019. temporarily hold mortgages pending sale or securitization • Issued $250 million 4.206% debentures in March 2019 to long-term funding sources and to manage any derivative maturing March 21, 2050. The net proceeds were used by the collateral requirements related to the mortgage banking Company to fund the redemption of $150 million 5.90% Non- operation. Through its mortgage banking operations, residential Cumulative First Preferred Shares, Series B and for general mortgages are sold to third parties including certain mutual funds, corporate purposes. The Company redeemed the Series B institutional investors through private placements, Canadian Preferred Shares on April 30, 2019. bank-sponsored securitization trusts, and by issuance and sale of • Participated in the Lifeco substantial issuer bid by selling National Housing Act Mortgage-Backed Securities (NHA MBS) 2,400,255 of its shares in Lifeco for proceeds of $80.4 million. securities including sales to Canada Housing Trust under the CMB The Company’s contractual obligations are reflected in Table 23. Program. The Company maintains committed capacity within certain Canadian bank-sponsored securitization trusts. Capacity In addition to IGM Financial’s current balance of cash and for sales under the CMB Program consists of participation in new cash equivalents, liquidity is available through the Company’s CMB issues and reinvestment of principal repayments held in lines of credit. The Company’s lines of credit with various the Principal Reinvestment Accounts. The Company’s continued Schedule I Canadian chartered banks totalled $825 million at ability to fund residential mortgages through Canadian bank- September 30, 2019, unchanged from December 31, 2018. The IGM FINANCIAL INC.
sponsored securitization trusts and NHA MBS is dependent on lines of credit at September 30, 2019 consisted of committed CPART securitization market conditions and government regulations that lines of $650 million and uncommitted lines of $175 million, are subject to change. A condition of the NHA MBS and CMB unchanged from December 31, 2018. The Company has
TABLE 23: CONTRACTUAL OBLIGATIONS
AS AT SEPTEMBER 30, 2019 LESS THAN 1-5 AFTER ($ millions) DEMAND 1 YEAR YEARS 5 YEARS TOTAL
Derivative financial instruments $ – $ 6.3 $ 15.8 $ 0.7 $ 22.8 Deposits and certificates 502.4 7.8 5.4 1.2 516.8 Obligations to securitization entities – 1,394.2 5,791.9 0.3 7,186.4 Long-term debt – – – 2,100.0 2,100.0 Leases(1) – 26.5 57.4 25.9 109.8 Pension funding(2) – 6.5 – – 6.5 Total contractual obligations $ 502.4 $ 1,441.3 $ 5,870.5 $ 2,128.1 $ 9,942.3
(1) Includes future minimum lease payments related to office space and equipment used in the normal course of business. (2) The next required actuarial valuation will be completed based on a measurement date of December 31, 2020. Pension funding requirements beyond 2019 are subject to significant variability and will be determined based on future actuarial valuations. Pension contribution decisions are subject to change, as contributions are affected by many factors including market performance, regulatory requirements, changes in assumptions and management’s ability to change funding policy.
44 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 41 accessed its uncommitted lines of credit in the past; however, CREDIT RISK any advances made by a bank under the uncommitted lines Credit risk is the potential for financial loss to the Company if a of credit are at the bank’s sole discretion. As at September 30, counterparty to a transaction fails to meet its obligations. 2019 and December 31, 2018, the Company was not utilizing The Company’s cash and cash equivalents, other investment its committed lines of credit or its uncommitted lines of credit. holdings, mortgage portfolios, and derivatives are subject to The actuarial valuation for funding purposes related to the credit risk. The Company monitors its credit risk management Company’s registered defined benefit pension plan, based on a practices on an ongoing basis to evaluate their effectiveness. measurement date of December 31, 2017, was completed in May 2018. The valuation determines the plan surplus or deficit Cash and Cash Equivalents on both a solvency and going concern basis. The solvency basis At September 30, 2019, cash and cash equivalents of $683.2 million determines the relationship between the plan assets and its (December 31, 2018 – $650.2 million) consisted of cash liabilities assuming that the plan is wound up and settled on balances of $62.0 million (December 31, 2018 – $81.8 million) the valuation date. A going concern valuation compares the on deposit with Canadian chartered banks and cash equivalents relationship between the plan assets and the present value of of $621.2 million (December 31, 2018 – $568.4 million). Cash the expected future benefit cash flows, assuming the plan will equivalents are comprised of Government of Canada treasury be maintained indefinitely. Based on the actuarial valuation, the bills totalling $19.0 million (December 31, 2018 – $103.5 million), registered pension plan had a solvency deficit of $47.2 million provincial government treasury bills and promissory notes of compared to $82.7 million in the previous actuarial valuation, $290.4 million (December 31, 2018 – $76.2 million), bankers’ which was based on a measurement date of December 31, 2016. acceptances and other short-term notes issued by Canadian The decrease in the solvency deficit resulted primarily from higher chartered banks of $299.4 million (December 31, 2018 – assets due to contribution and investment returns and is required $364.3 million), and highly rated corporate commercial paper of to be funded over five years. The registered pension plan had a $12.4 million (December 31, 2018 – $24.4 million). going concern surplus of $46.1 million compared to $24.4 million in the previous valuation. The next required actuarial valuation The Company manages credit risk related to cash and cash will be based on a measurement date of December 31, 2020. equivalents by adhering to its Investment Policy that outlines The Company has made contributions of $18.9 million in 2019 credit risk parameters and concentration limits. The Company (2018 – $34.7 million). The Company utilized $10.5 million of regularly reviews the credit ratings of its counterparties. The the payments made during 2018 to reduce its solvency deficit maximum exposure to credit risk on these financial instruments and increase its going concern surplus. The Company expects is their carrying value. to make further contributions of approximately $6.5 million in The Company’s exposure to and management of credit risk 2019. Pension contribution decisions are subject to change, as related to cash and cash equivalents and fixed income securities contributions are affected by many factors including market have not changed materially since December 31, 2018. performance, regulatory requirements, changes in assumptions PART C PART C and management’s ability to change funding policy. Mortgage Portfolio
IGM FINANCIAL INC. FINANCIAL IGM Management believes cash flows from operations, available As at September 30, 2019, residential mortgages, recorded on cash balances and other sources of liquidity described above are the Company’s balance sheet, of $7.5 billion (December 31, sufficient to meet the Company’s liquidity needs. The Company 2018 – $7.7 billion) consisted of $7.1 billion sold to securitization continues to have the ability to meet its operational cash programs (December 31, 2018 – $7.3 billion), $356.3 million flow requirements, its contractual obligations, and its declared held pending sale or securitization (December 31, 2018 – dividends. The current practice of the Company is to declare $363.9 million) and $27.3 million related to the Company’s and pay dividends to common shareholders on a quarterly basis intermediary operations (December 31, 2018 – $25.6 million). at the discretion of the Board of Directors. The declaration of The Company manages credit risk related to residential dividends by the Board of Directors is dependent on a variety mortgages through: of factors, including earnings which are significantly influenced by the impact that debt and equity market performance has on • Adhering to its lending policy and underwriting standards; the Company’s fee income and commission and certain other • Its loan servicing capabilities; expenses. The Company’s liquidity position and its management • Use of client-insured mortgage default insurance and mortgage of liquidity and funding risk have not changed materially since portfolio default insurance held by the Company; and December 31, 2018.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 45
C 42 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 • Its practice of originating its mortgages exclusively through its and recent trends, ii) current portfolio credit metrics and other own network of Mortgage Planning Specialists and IG Wealth relevant characteristics, and iii) regular stress testing of losses Management Consultants as part of a client’s IG Living Plan. under adverse real estate market conditions.
In certain instances, credit risk is also limited by the terms and The Company’s exposure to and management of credit risk nature of securitization transactions as described below: related to mortgage portfolios have not changed materially since December 31, 2018. • Under the NHA MBS program totalling $4.1 billion (December 31, 2018 – $4.2 billion), the Company is obligated Derivatives to make timely payment of principal and coupons irrespective The Company is exposed to credit risk through derivative of whether such payments were received from the mortgage contracts it utilizes to hedge interest rate risk, to facilitate borrower. However, as required by the NHA MBS program, securitization transactions and to hedge market risk related 100% of the loans are insured by an approved insurer. to certain stock-based compensation arrangements. These • Credit risk for mortgages securitized by transfer to bank- derivatives are discussed more fully under the Market Risk sponsored securitization trusts totalling $3.0 billion section of this MD&A. (December 31, 2018 – $3.1 billion) is limited to amounts held in cash reserve accounts and future net interest income, To the extent that the fair value of the derivatives is in the fair values of which were $73.5 million (December 31, a gain position, the Company is exposed to credit risk 2018 – $74.1 million) and $40.9 million (December 31, that its counterparties fail to fulfil their obligations under 2018 – $35.6 million), respectively, at September 30, 2019. these arrangements. Cash reserve accounts are reflected on the balance sheet, The Company’s derivative activities are managed in accordance whereas rights to future net interest income are not reflected with its Investment Policy which includes counterparty limits on the balance sheet and will be recorded over the life of and other parameters to manage counterparty risk. The the mortgages. This risk is further mitigated by insurance aggregate credit risk exposure related to derivatives that are with 4.9% of mortgages held in ABCP Trusts insured at in a gain position of $20.3 million (December 31, 2018 – September 30, 2019 (December 31, 2018 – 8.3%). $19.4 million) does not give effect to any netting agreements or At September 30, 2019, residential mortgages recorded on collateral arrangements. The exposure to credit risk, considering balance sheet were 59.3% insured (December 31, 2018 – netting agreements and collateral arrangements and including 61.5%). As at September 30, 2019, impaired mortgages on rights to future net interest income, was $1.0 million at these portfolios were $3.1 million, compared to $3.3 million at September 30, 2019 (December 31, 2018 – nil). Counterparties December 31, 2018. Uninsured non-performing mortgages over are all Canadian Schedule I chartered banks and, as a result, IGM FINANCIAL INC. management has determined that the Company’s overall credit 90 days on these portfolios were $2.1 million at September 30, CPART 2019, compared to $1.8 million at December 31, 2018. risk related to derivatives was not significant at September 30, 2019. Management of credit risk related to derivatives has not The Company also retains certain elements of credit risk on changed materially since December 31, 2018. mortgage loans sold to the Investors Mortgage and Short Term Income Fund and to the Investors Canadian Corporate Additional information related to the Company’s securitization Bond Fund through an agreement to repurchase mortgages activities and utilization of derivative contracts can be found in in certain circumstances benefiting the funds. These loans are Note 5 to the Interim Financial Statements and Notes 2, 6 and not recorded on the Company’s balance sheet as the Company 21 to the Annual Financial Statements. has transferred substantially all of the risks and rewards of ownership associated with these loans. MARKET RISK Market risk is the potential for loss to the Company from The Company regularly reviews the credit quality of the mortgages changes in the values of its financial instruments due to changes and the adequacy of the allowance for expected credit losses. in foreign exchange rates, interest rates or equity prices. The Company’s allowance for expected credit losses was $0.7 million at September 30, 2019, compared to $0.8 million Interest Rate Risk at December 31, 2018, and is considered adequate by The Company is exposed to interest rate risk on its mortgage management to absorb all credit-related losses in the mortgage portfolio and on certain of the derivative financial instruments portfolios based on: i) historical credit performance experience used in the Company’s mortgage banking operations.
46 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 43 The Company manages interest rate risk associated with its Equity Price Risk mortgage banking operations by entering into interest rate The Company is exposed to equity price risk on its equity swaps with Canadian Schedule I chartered banks as follows: investments which are classified as either fair value through other comprehensive income or fair value through profit or loss. • The Company has in certain instances funded floating rate The fair value of the equity investments was $375.4 million at mortgages with fixed rate Canada Mortgage Bonds as part September 30, 2019 (December 31, 2018 – $459.9 million), as of the securitization transactions under the CMB Program. shown in Table 16. As previously discussed, as part of the CMB Program, the Company is party to a swap whereby it is entitled to receive The Company sponsors a number of deferred compensation investment returns on reinvested mortgage principal and arrangements for employees where payments to participants is obligated to pay Canada Mortgage Bond coupons. This are deferred and linked to the performance of the common swap had a negative fair value of $7.4 million (December 31, shares of IGM Financial Inc. The Company hedges its exposure 2018 – positive $4.9 million) and an outstanding notional to this risk through the use of forward agreements and total amount of $0.9 billion at September 30, 2019 (December 31, return swaps. 2018 – $0.9 billion). The Company enters into interest rate swaps with Canadian Schedule I chartered banks to Foreign Exchange Risk hedge the risk that the interest rates earned on floating The Company is exposed to foreign exchange risk on its rate mortgages and reinvestment returns decline. The fair investments in Personal Capital and China AMC. Changes value of these swaps totalled $1.0 million (December 31, to the carrying value due to changes in foreign exchange 2018 – negative $11.0 million), on an outstanding notional rates on both of these investments are recognized in Other amount of $1.9 billion at September 30, 2019 (December 31, comprehensive income. A 5% appreciation (depreciation) in 2018 – $1.7 billion). The net fair value of these swaps of Canadian currency relative to foreign currencies would decrease negative $6.4 million at September 30, 2019 (December 31, (increase) the aggregate carrying value of foreign investments 2018 – negative $6.1 million) is recorded on the balance by approximately $40.4 million ($44.6 million). sheet and has an outstanding notional amount of $2.8 billion The Company’s proportionate share of China AMC’s and (December 31, 2018 – $2.6 billion). Personal Capital’s earnings (losses), recorded in Proportionate • The Company is exposed to the impact that changes in share of associates’ earnings in the Consolidated Statement of interest rates may have on the value of mortgages committed Earnings, is also affected by changes in foreign exchange rates. to or held pending sale or securitization to long-term A 5% appreciation (depreciation) in Canadian currency relative funding sources. The Company enters into interest rate to foreign currencies would decrease (increase) the Company’s swaps to hedge the interest rate risk related to funding proportionate share of earnings by approximately $0.1 million costs for mortgages held by the Company pending sale ($0.2 million). or securitization. Beginning in 2018, hedge accounting is applied to the cost of funds on certain securitization
PART C PART C RISKS RELATED TO ASSETS UNDER MANAGEMENT activities. The effective portion of fair value changes of the At September 30, 2019, IGM Financial’s total assets under
IGM FINANCIAL INC. FINANCIAL IGM associated interest rate swaps are initially recognized in Other management were $162.5 billion compared to $149.1 billion at comprehensive income and subsequently recognized in Net December 31, 2018. investment income and other over the term of the related Obligations to securitization entities. The fair value of these The Company’s primary sources of revenues are management, swaps was nil (December 31, 2018 – negative $1.8 million) administration and other fees which are applied as an annual on an outstanding notional amount of $207.4 million at percentage of the level of assets under management. As a result, September 30, 2019 (December 31, 2018 – $249.9 million). the level of the Company’s revenues and earnings are indirectly exposed to a number of financial risks that affect the value of As at September 30, 2019, the impact to annual net earnings assets under management on an ongoing basis. These include of a 100 basis point increase in interest rates would have been market risks, such as changes in equity prices, interest rates and a decrease of approximately $0.7 million (December 31, 2018 foreign exchange rates, as well as credit risk on debt securities, – decrease of $0.5 million). The Company’s exposure to and loans and credit exposures from other counterparties within our management of interest rate risk have not changed materially client portfolios. since December 31, 2018. Changing financial market conditions may also lead to a change in the composition of the Company’s assets under management
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 47
C 44 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 between equity and fixed income instruments, which could Operational risk affects all business activities, including the result in lower revenues depending upon the management fee processes in place to manage other risks. As a result, operational rates associated with different asset classes and mandates. risk can be difficult to measure, given that it forms part of other risks of the Company and may not always be separately The Company’s exposure to the value of assets under identified. Our Company is exposed to a broad range of management aligns it with the experience of its clients. Assets operational risks, including information technology security under management are broadly diversified by asset class, and system failures, errors relating to transaction processing, geographic region, industry sector, investment team and style. financial models and valuations, fraud and misappropriation of The Company regularly reviews the sensitivity of its assets under assets, and inadequate application of internal control processes. management, revenues, earnings and cash flow to changes in The impact can result in significant financial loss, reputational financial markets. The Company believes that over the long term, harm or regulatory actions. exposure to investment returns on its client portfolios is beneficial to the Company’s results and consistent with stakeholder The Company’s risk management framework emphasizes expectations, and generally it does not engage in risk transfer operational risk management and internal control. The Company activities such as hedging in relation to these exposures. has a very low appetite for risk in this area.
The business unit leaders are responsible for management of the 2) OPERATIONAL RISK day to day operational risks of their respective business units. Operational risks relating to people and processes are mitigated Specific programs, policies, training, standards and governance through policies and process controls. Oversight of risks and processes have been developed to support the management of ongoing evaluation of the effectiveness of controls is provided by operational risk. the Company’s Compliance Department, ERM Department and Internal Audit Department. The Company has a business continuity management program to support the sustainment, management and recovery of critical The Company has an insurance review process where it operations and processes in the event of a business disruption. assesses and determines the nature and extent of insurance that is appropriate to provide adequate protection against TECHNOLOGY AND CYBER RISK unexpected losses, and where it is required by law, regulators or Technology and cyber risk driven by systems are managed contractual agreements. through controls over technology development and change management. Information security is a significant risk to our OPERATIONAL RISK industry and our Company’s operations. The Company uses
Operational risk is the risk of loss resulting from inadequate IGM FINANCIAL INC. systems and technology to support its business operations and or failed internal processes or systems, human interaction or the client and financial advisor experience. As a result, we are external events, but excludes business risk. CPART exposed to risks relating to technology and cyber security such
TABLE 24: IGM FINANCIAL ASSETS UNDER MANAGEMENT – ASSET AND CURRENCY MIX
AS AT SEPTEMBER 30, 2019 INVESTMENT FUNDS TOTAL
Cash 1.3 % 1.4 % Short-term fixed income and mortgages 5.4 5.3 Other fixed income 27.2 26.9 Domestic equity 21.7 21.8 Foreign equity 41.6 41.9 Real Property 2.8 2.7 100.0 % 100.0 %
CAD 56.9 % 56.8 % USD 28.0 27.8 Other 15.1 15.4 100.0 % 100.0 %
48 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 45 as data breaches, identity theft and hacking, including the risk and other regulatory bodies regularly adopt new laws, rules, of denial of service or malicious software attacks. Such attacks regulations and policies that apply to the Company and its could compromise confidential information of the Company subsidiaries. These requirements include those that apply to and that of clients or other stakeholders, and could result IGM Financial as a publicly traded company and those that in negative consequences including lost revenue, litigation, apply to the Company’s subsidiaries based on the nature of their regulatory scrutiny or reputational damage. To remain resilient activities. They include regulations related to the management to such threats, the Company has established enterprise-wide and provision of financial products and services, including cyber security programs, benchmarked capabilities to sound securities, insurance and mortgages, and other activities carried industry practices, and has implemented threat and vulnerability on by the Company in the markets in which it operates. assessment and response capabilities. Regulatory standards affecting the Company and the financial services industry are significant and continually evolve. The THIRD PARTY SERVICE PROVIDERS Company and its subsidiaries are subject to reviews as part of the The Company regularly engages third parties to provide normal ongoing process of oversight by the various regulators. expertise and efficiencies that support our operational activities. Failure to comply with laws, rules or regulations could lead to Our exposure to third party service provider risk could include regulatory sanctions and civil liability, and may have an adverse reputational, regulatory and other operational risks. Policies, reputational or financial effect on the Company. The Company standard operating procedures and dedicated resources, manages legal and regulatory compliance risk through its efforts including a supplier code of conduct, have been developed and to promote a strong culture of compliance. The monitoring of implemented to specifically address third party service provider regulatory developments and their impact on the Company is risk. Due diligence and monitoring activities are performed by overseen by the Regulatory Initiatives Committee chaired by the Company prior to entering into contractual relationships the Executive Vice-President, General Counsel. The Company with third party service providers and on an ongoing basis. As also continues to develop and maintain compliance policies, our reliance on external service providers continues to grow, we processes and oversight, including specific communications continue to enhance resources and processes to support third on compliance and legal matters, training, testing, monitoring party risk management. and reporting. The Audit Committee of the Company receives regular reporting on compliance initiatives and issues. MODEL RISK The Company uses a variety of models to assist in: the IGM Financial promotes a strong culture of ethics and integrity valuation of financial instruments, operational scenario through its Code of Conduct approved by the Board of Directors, testing, management of cash flows, capital management, and which outlines standards of conduct that apply to all IGM Financial assessment of potential acquisitions. These models incorporate directors, officers and employees. The Code of Conduct internal assumptions, observable market inputs and available incorporates many policies relating to the conduct of directors, market prices. Effective controls exist over the development, officers and employees, and covers a variety of relevant topics, such as anti-money laundering and privacy. Individuals subject PART C PART C implementation and application of these models. However, changes in the internal assumptions or other factors affecting to the Code of Conduct attest annually that they understand the IGM FINANCIAL INC. FINANCIAL IGM the models could have an adverse effect on the Company’s requirements and have complied with its provisions. consolidated financial position. Business units are responsible for management of legal and regulatory compliance risk, and implementing appropriate LEGAL AND REGULATORY COMPLIANCE policies, procedures and controls. The Company’s Compliance Legal and regulatory compliance risk is the risk of not complying Departments are responsible for providing oversight of all with laws, contractual agreements or regulatory requirements. regulated compliance activities. The Internal Audit Department This includes distribution compliance, investment management also provides oversight and investigations concerning regulatory compliance, accounting and internal controls, and reporting compliance matters. and communications.
IGM Financial is subject to complex and changing legal, taxation CONTINGENCIES and regulatory requirements, including the requirements of The Company is subject to legal actions arising in the normal agencies of the federal, provincial and territorial governments course of its business. In December 2018, a proposed class in Canada which regulate the Company and its activities. The action was filed in the Ontario Superior Court against Mackenzie Company and its subsidiaries are also subject to the requirements which alleges that the company should not have paid mutual of self-regulatory organizations to which they belong. These fund trailing commissions to order execution only dealers.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 49
C 46 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 Although it is difficult to predict the outcome of any such legal The Company is exposed to the risk of changes in laws, taxation actions, based on current knowledge and consultation with legal and regulation that could have an adverse impact on the counsel, management does not expect the outcome of any of Company. Particular regulatory initiatives may have the effect these matters, individually or in aggregate, to have a material of making the products of the Company’s subsidiaries appear to adverse effect on the Company’s consolidated financial position. be less competitive than the products of other financial service providers, to third party distribution channels and to clients. 3) GOVERNANCE, OVERSIGHT AND STRATEGIC RISK Regulatory differences that may impact the competitiveness Governance, oversight and strategic risk is the risk of potential of the Company’s products include regulatory costs, tax adverse impacts resulting from inadequate or inappropriate treatment, disclosure requirements, transaction processes or governance, oversight, management of incentives and conflicts, other differences that may be as a result of differing regulation and strategic planning. or application of regulation. Regulatory developments may also impact product structures, pricing, and dealer and advisor IGM Financial believes in the importance of good corporate compensation. While the Company and its subsidiaries actively governance and the central role played by directors in monitor such initiatives, and where feasible comment upon or the governance process. We believe that sound corporate discuss them with regulators, the ability of the Company and its governance is essential to the well-being of the Company subsidiaries to mitigate the imposition of differential regulatory and its shareholders. treatment of financial products or services is limited. Oversight of IGM Financial is performed by the Board of Directors directly and through its five committees. The Company’s CLIENT FOCUSED REFORMS President and Chief Executive Officer has overall responsibility On October 3, 2019, the Canadian Securities Administrators for management of the Company. The Company’s activities are (the CSA) published final rule amendments to implement carried out principally by three operating companies – Investors enhancements to the obligations owed by registrants to their Group Inc., Mackenzie Financial Corporation and Investment clients (the Client Focused Reforms). Planning Counsel Inc. – each of which are managed by a The Client Focused Reforms include rule amendments that, President and Chief Executive Officer. when implemented, will require registrants to: The Company has a business planning process that supports • Address all material conflicts of interest in the best interest of development of an annual business plan, approved by the Board the client; of Directors, which incorporates objectives and targets for the Company. Components of management compensation are • Put the client’s interest first when making a suitability
associated with the achievement of earnings targets and other determination; and IGM FINANCIAL INC. objectives associated with the plan. Strategic plans and direction • Do more to clarify for clients what they should expect from PART CPART are part of this planning process and are integrated into the their registrants. Company’s risk management program. The rule amendments are expected to come into force on December 31, 2019, with a phased transition period spanning ACQUISITION RISK over a two year period. The Company believes it is well The Company is also exposed to risks related to its acquisitions. positioned to implement the Client Focused Reforms. The Company undertakes thorough due diligence prior to completing an acquisition, but there is no assurance that the 5) BUSINESS RISK Company will achieve the expected strategic objectives or cost GENERAL BUSINESS CONDITIONS and revenue synergies subsequent to an acquisition. Subsequent General business conditions risk refers to the potential for an changes in the economic environment and other unanticipated unfavourable impact on IGM Financial resulting from competitive factors may affect the Company’s ability to achieve expected or other external factors relating to the marketplace. earnings growth or expense reductions. The success of an acquisition is dependent on retaining assets under management, Global economic conditions, changes in equity markets, clients, and key employees of an acquired company. demographics and other factors including geopolitical risk and government instability, can affect investor confidence, income 4) REGULATORY DEVELOPMENTS levels and savings decisions. This could result in reduced sales of Regulatory development risk is the potential for changes to IGM Financial’s products and services and/or result in investors regulatory, legal, or tax requirements that may have an adverse redeeming their investments. These factors may also affect impact upon the Company’s business activities or financial results. the level and volatility of financial markets and the value of the
50 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 47 Company’s assets under management, as described more fully investment performance relative to benchmarks or peers under the Risks Related to Assets Under Management section of could reduce the level of assets under management and sales this MD&A. and asset retention, as well as adversely impact our brands. Meaningful and/or sustained underperformance could affect The Company, across its operating subsidiaries, is focused on the Company’s results. The Company’s objective is to cultivate communicating with clients and emphasizing the importance of investment processes and disciplines that provide it with a financial planning across economic cycles. The Company and the competitive advantage, and does so by diversifying its assets industry continue to take steps to educate Canadian investors under management and product shelf by investment team, on the merits of financial planning, diversification and long-term brand, asset class, mandate, style and geographic region. investing. In periods of volatility, Consultants and independent financial advisors play a key role in assisting investors in BUSINESS/CLIENT RELATIONSHIPS maintaining perspective and focus on their long-term objectives. Business/Client relationships risk refers to the risk potential for Redemption rates for long-term funds are summarized in unfavourable impacts on IGM Financial resulting from changes Table 25 and are discussed in the IG Wealth Management and to other key relationships. These relationships primarily include Mackenzie Segment Operating Results sections of this MD&A. IG Wealth Management clients and Consultants, Mackenzie retail distribution, strategic and significant business partners, PRODUCT/SERVICE OFFERING clients of Mackenzie funds, and sub-advisors and other There is potential for unfavourable impacts on IGM Financial product suppliers. resulting from inadequate product or service performance, IG Wealth Management Consultant network – IG Wealth quality or breadth. Management derives all of its mutual fund sales through its IGM Financial and its subsidiaries operate in a highly competitive Consultant network. IG Wealth Management Consultants have environment, competing with other financial service providers, regular direct contact with clients which can lead to a strong investment managers and product and service types. Client and personal client relationship based on the client’s confidence development and retention can be influenced by a number of in that individual Consultant. The market for financial advisors factors, including products and services offered by competitors, is extremely competitive. The loss of a significant number of key relative service levels, relative pricing, product attributes, Consultants could lead to the loss of client accounts which could reputation and actions taken by competitors. This competition have an adverse effect on IG Wealth Management’s results of could have an adverse impact upon the Company’s financial operations and business prospects. IG Wealth Management is position and operating results. Please refer to The Competitive focused on strengthening its distribution network of Consultants Landscape section of this MD&A for further discussion. and on responding to the complex financial needs of its clients by delivering a diverse range of products and services in the The Company provides Consultants, independent financial context of personalized financial advice, as discussed in the advisors, as well as retail and institutional clients with a high IG Wealth Management Review of the Business section of
PART C PART C level of service and support and a broad range of investment this MD&A. products, with a focus on building enduring relationships.
IGM FINANCIAL INC. FINANCIAL IGM The Company’s subsidiaries also continually review their Mackenzie – Mackenzie derives the majority of its mutual fund respective product and service offering and pricing to ensure sales through third party financial advisors. Financial advisors competitiveness in the marketplace. generally offer their clients investment products in addition to, and in competition with Mackenzie. Mackenzie also derives The Company strives to deliver strong investment performance sales of its investment products and services from its strategic on its products relative to benchmarks and peers. Poor
TABLE 25: TWELVE MONTH TRAILING REDEMPTION RATE FOR LONG-TERM FUNDS
2019 2018 SEP. 30 SEP. 30
IGM Financial Inc. IG Wealth Management 10.2 % 8.8 % Mackenzie 15.7 % 16.4 % Counsel 20.9 % 16.8 %
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 51
C 48 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 alliance and institutional clients. Due to the nature of the Responsibility Statement approved by the Board of Directors. distribution relationship in these relationships and the relative The Board’s risk management oversight includes environmental size of these accounts, gross sale and redemption activity can be and social risks. more pronounced in these accounts than in a retail relationship. Our commitment to responsible management is demonstrated Mackenzie’s ability to market its investment products is highly through various mechanisms – including our Code of Conduct dependent on continued access to these distribution networks. for our employees, contractors, and directors; our Supplier Code The inability to have such access could have a material adverse of Conduct for the firms that do business with us; our Respectful effect on Mackenzie’s operating results and business prospects. Workplace Policy; our Diversity Policy; our Environmental Policy; Mackenzie is well positioned to manage this risk and to continue and other related policies. to build and enhance its distribution relationships. Mackenzie’s diverse portfolio of financial products and its long-term investment IG Wealth Management and Mackenzie Investments are performance record, marketing, educational and service support signatories to the Principles for Responsible Investment (PRI). has made Mackenzie one of Canada’s leading investment Under the PRI, investors formally commit to incorporate management companies. These factors are discussed further in the environmental, social and governance (ESG) issues into their Mackenzie Review of the Business section of this MD&A. investment decision making and active ownership processes. In addition, IG Wealth Management, Mackenzie Investments and PEOPLE RISK Investment Planning Counsel have implemented Responsible People risk refers to the potential inability to attract or retain Investing Policies outlining the practices at each company. key employees or Consultants, develop to an appropriate level We believe that financial services companies have an important of proficiency, or manage personnel succession or transition. role to play in addressing climate change. IGM Financial is Management, investment and distribution personnel play an a long-standing participant in the CDP (formerly Carbon important role in developing, implementing, managing and Disclosure Project), which promotes corporate disclosures on distributing products and services offered by IGM Financial. greenhouse gas emissions and climate change management The loss of these individuals or an inability to attract, retain and and includes reporting of our emissions and targets. For the motivate sufficient numbers of qualified personnel could affect 2018 survey, IGM was recognized by CDP as a corporate IGM Financial’s business and financial performance. leader in climate change disclosure with a position on their Climate Change A List. IGM Financial also reports annually on 6) ENVIRONMENTAL AND SOCIAL RISK its environmental, social and governance management and Environmental and social risk is the risk of financial loss or performance in its Corporate Responsibility Report available on reputational damage resulting from environmental or social issues our website. The information in these reports does not form a IGM FINANCIAL INC. part of this document. The Financial Stability Board’s Task Force
arising from our business operations or investment activities. CPART on Climate-related Financial Disclosures (TCFD) was established Environmental risks include issues such as climate change, in response to investor demand for information on climate- biodiversity, pollution, waste, and the unsustainable use of water related risks and opportunities. We are evaluating the TCFD and other resources. Social risks include issues such as human recommendations which include a framework for consistent, rights, diversity, and community impacts. voluntary climate-related financial disclosures that provide IGM Financial has a long-standing commitment to responsible decision-useful information to investors and other stakeholders. management, as articulated in the Company’s Corporate
52 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 49 OUTLOOK
THE FINANCIAL SERVICES ENVIRONMENT IGM Financial, who offer both financial planning and investment Canadians held $4.4 trillion in discretionary financial assets with management services. financial institutions at December 31, 2018 based on the most Canadian banks distribute financial products and services recent report from Investor Economics. The nature of holdings through their traditional bank branches, as well as through their was diverse, ranging from demand deposits held for short-term full service and discount brokerage subsidiaries. Bank branches cash management purposes to longer-term investments held for continue to place increased emphasis on both financial planning retirement purposes. Approximately 65% ($2.9 trillion) of these and mutual funds. In addition, each of the “big six” banks has financial assets are held within the context of a relationship with one or more mutual fund management subsidiaries. Collectively, a financial advisor, and this is the primary channel serving the mutual fund assets of the “big six” bank-owned mutual fund longer-term savings needs of Canadians. Of the $1.5 trillion held managers and affiliated firms represented 46% of total industry outside of a financial advisory relationship, approximately 63% long-term mutual fund assets at September 30, 2019. consisted of bank deposits. The Canadian mutual fund industry continues to be very Financial advisors represent the primary distribution channel for concentrated, with the ten largest firms and their subsidiaries the Company’s products and services, and the core emphasis representing 75% of industry long-term mutual fund assets of the Company’s business model is to support these financial and 75% of total mutual fund assets under management at advisors as they work with clients to plan for and achieve their September 30, 2019. Management anticipates continuing financial goals. Multiple sources of emerging research show consolidation in this segment of the industry as smaller significantly better financial outcomes for Canadians who participants are acquired by larger organizations. use financial advisors compared to those who do not. The Company actively promotes the value of financial advice and Management believes that the financial services industry will the importance of a relationship with an advisor to develop and continue to be influenced by the following trends: remain focused on long-term financial plans and goals. • Shifting demographics as the number of Canadians in their Approximately 40% of Canadian discretionary financial assets or prime savings and retirement years continue to increase. $1.8 trillion resided in investment funds at December 31, 2018, • Changes in investor attitudes based on economic conditions. making it the largest financial asset class held by Canadians. • Continued importance of the role of the financial advisor. Other asset types include deposit products and direct securities • Public policy related to retirement savings. such as stocks and bonds. Approximately 77% of investment • Changes in the regulatory environment. funds are comprised of mutual fund products, with other • An evolving competitive landscape. product categories including segregated funds, hedge funds, pooled funds, closed end funds and exchange traded funds. • Advancing and changing technology. With $158 billion in investment fund assets under management at September 30, 2019, the Company is among the country’s THE COMPETITIVE LANDSCAPE
PART C PART C largest investment fund managers. Management believes that IGM Financial and its subsidiaries operate in a highly competitive investment funds are likely to remain the preferred savings
IGM FINANCIAL INC. FINANCIAL IGM environment. IG Wealth Management and Investment Planning vehicle of Canadians. Investment funds provide investors Counsel compete directly with other retail financial service with the benefits of diversification, professional management, providers, including other financial planning firms, as well as full flexibility and convenience, and are available in a broad range of service brokerages, banks and insurance companies. IG Wealth mandates and structures to meet most investor requirements Management, Mackenzie and Investment Planning Counsel and preferences. compete directly with other investment managers for assets Competition and technology have fostered a trend towards under management, and their products compete with stocks, financial service providers offering a comprehensive range bonds and other asset classes for a share of the investment of proprietary products and services. Traditional distinctions assets of Canadians. between bank branches, full service brokerages, financial Competition from other financial service providers, alternative planning firms and insurance agent sales forces have become product types or delivery channels, and changes in regulations obscured as many of these financial service providers strive or public preferences could impact the characteristics of product to offer comprehensive financial advice implemented through and service offerings of the Company, including pricing, product access to a broad product shelf. Accordingly, the Canadian structures, dealer and advisor compensation and disclosure. The financial services industry is characterized by a number of Company monitors developments on an ongoing basis, and large, diversified, vertically-integrated participants, similar to
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 53
C 50 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 engages in policy discussions and develops product and service Counsel, IGM Financial has, through Mackenzie, access to responses as appropriate. distribution through over 30,000 independent financial advisors. Mackenzie also, in its growing strategic alliance business, IGM Financial continues to focus on its commitment to provide partners with Canadian and U.S. manufacturing and distribution quality investment advice and financial products, service complexes to provide investment management to a number of innovations, effective management of the Company and long- retail investment fund mandates. term value for its clients and shareholders. Management believes that the Company is well-positioned to meet competitive BROAD PRODUCT CAPABILITIES challenges and capitalize on future opportunities. IGM Financial’s subsidiaries continue to develop and launch The Company enjoys several competitive strengths, including: innovative products and strategic investment planning tools to assist advisors in building optimized portfolios for clients. • Broad and diversified distribution with an emphasis on those channels emphasizing comprehensive financial planning ENDURING RELATIONSHIPS through a relationship with a financial advisor. IGM Financial enjoys significant advantages as a result of • Broad product capabilities, leading brands and quality sub- the enduring relationships that advisors enjoy with clients. In advisory relationships. addition, the Company’s subsidiaries have strong heritages and • Enduring client relationships and the long-standing heritages cultures which are challenging for competitors to replicate. and cultures of its subsidiaries. • Benefits of being part of the Power Financial group BENEFITS OF BEING PART OF THE of companies. POWER FINANCIAL GROUP OF COMPANIES As part of the Power Financial group of companies, IGM Financial BROAD AND DIVERSIFIED DISTRIBUTION benefits through expense savings from shared service IGM Financial’s distribution strength is a competitive advantage. arrangements, as well as through access to distribution, products In addition to owning two of Canada’s largest financial planning and capital. organizations, IG Wealth Management and Investment Planning IGM FINANCIAL INC. PART CPART
54 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 51 CRITICAL ACCOUNTING ESTIMATES AND POLICIES
SUMMARY OF CRITICAL • Accounted for leases for which the remaining lease term ends ACCOUNTING ESTIMATES within 12 months of the date of initial application as a short- There were no changes to the Company’s assumptions related term lease. to critical accounting estimates from those reported at • Relied on its assessment of whether leases are onerous applying December 31, 2018. IAS 37, Provisions, Contingent Liabilities and Contingent Assets, immediately before the date of initial application as an CHANGES IN ACCOUNTING POLICIES alternative to performing an impairment review. IFRS 16 LEASES (IFRS 16) Amortization expense increased due to the amortization of the right-of-use asset and interest expense increased due to the As of January 1, 2019, the Company adopted IFRS 16 using imputed interest on the lease liability; however total expenses the modified retrospective method with no restatement of are not noticeably different due to the offsetting decrease to comparative financial information. Under this approach, the operating lease expense. Company recognized a lease liability of $105.5 million equal to the present value of the remaining lease payments discounted Table 26 details the impact of IFRS 16 on the Consolidated using the Company’s incremental borrowing rate at January 1, Balance Sheet as at January 1, 2019. 2019. The weighted average discount rate applied was 4.4%. A right-of-use asset of $96.1 million representing the Company’s FUTURE ACCOUNTING CHANGES property leases was also recognized at its carrying amount as if IFRS 16 had been applied since each lease commencement The Company continuously monitors the potential changes date, net of the accumulated amortization that would have proposed by the International Accounting Standards Board been recognized up to January 1, 2019. The difference between (IASB) and analyzes the effect that changes in the standards the right-of-use asset and the lease liability of $9.4 million may have on the Company’s operations. was recognized as an adjustment to retained earnings as at January 1, 2019. The following practical expedients were applied OTHER on transition: The IASB is currently undertaking a number of projects which will result in changes to existing IFRS standards that may affect • Applied a single discount rate to a portfolio of leases with the Company. Updates will be provided as the projects develop. reasonably similar characteristics.
TABLE 26: IMPACT OF IFRS 16 ON BALANCE SHEET
ADJUSTMENT DUE TO ($ millions) DECEMBER 31, 2018 ADOPTION OF IFRS 16 JANUARY 1, 2019 PART C PART C Assets Other assets(1) $ 46.5 $ (0.1) $ 46.4 IGM FINANCIAL INC. FINANCIAL IGM Capital assets 138.6 96.1 234.7 $ 96.0 Liabilities Accounts payable and accrued liabilities(1) $ 397.4 $ (1.9) $ 395.5 Lease obligations – 105.5 105.5 Deferred income taxes 295.7 (2.0) 293.7 Retained earnings 2,840.6 (5.6) 2,835.0 $ 96.0
(1) Write-off of free rent inducement on capitalized leases.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS 55
C 52 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 INTERNAL CONTROL OVER FINANCIAL REPORTING
During the third quarter of 2019, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
OTHER INFORMATION
TRANSACTIONS WITH RELATED PARTIES of which 5,585,141 were exercisable. As at October 29, There were no changes to the types of related party transactions 2019, outstanding common shares totalled 238,270,283 from those reported at December 31, 2018. For further and outstanding stock options totalled 10,648,563 of which information on transactions involving related parties, see Notes 8 5,579,342 were exercisable. and 25 to the Company’s Annual Financial Statements. SEDAR OUTSTANDING SHARE DATA Additional information relating to IGM Financial, including Outstanding common shares of IGM Financial as at the Company’s most recent financial statements and Annual September 30, 2019 totalled 238,268,097. Outstanding Information Form, is available at www.sedar.com. stock options as at September 30, 2019 totalled 10,654,362, IGM FINANCIAL INC. PART CPART
56 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 / MANAGEMENT’S DISCUSSION AND ANALYSIS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 53 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 (unaudited) (in thousands of Canadian dollars, except per share amounts) 2019 2018 2019 2018
Revenues Management fees $ 574,083 $ 573,825 $ 1,686,729 $ 1,693,207 Administration fees 104,433 109,054 310,260 323,711 Distribution fees 91,075 93,344 274,584 276,561 Net investment income and other 17,580 15,974 55,672 48,760 Proportionate share of associates’ earnings (Note 6) 28,902 39,793 81,816 115,360 816,073 831,990 2,409,061 2,457,599 Expenses Commission 272,367 270,073 822,886 826,335 Non-commission 254,257 268,676 788,346 774,448 Interest 27,764 37,703 80,628 96,737 554,388 576,452 1,691,860 1,697,520 Earnings before income taxes 261,685 255,538 717,201 760,079 Income taxes 59,208 55,172 159,884 166,045 Net earnings 202,477 200,366 557,317 594,034 Perpetual preferred share dividends – 2,213 2,213 6,638 Net earnings available to common shareholders $ 202,477 $ 198,153 $ 555,104 $ 587,396
Earnings per share (in dollars) (Note 14) – Basic $ 0.85 $ 0.82 $ 2.32 $ 2.44 – Diluted $ 0.85 $ 0.82 $ 2.32 $ 2.44
(See accompanying notes to interim condensed consolidated financial statements.) PART C PART C IGM FINANCIAL INC. FINANCIAL IGM
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 57
C 54 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 (unaudited) (in thousands of Canadian dollars) 2019 2018 2019 2018
Net earnings $ 202,477 $ 200,366 $ 557,317 $ 594,034
Other comprehensive income (loss), net of tax Items that will not be reclassified to Net earnings Fair value through other comprehensive income investments Other comprehensive income (loss), net of tax of $244, $164, $(1,829) and $1,059 (1,567) (1,032) 11,714 (6,784) Employee benefits Net actuarial gains (losses), net of tax of $1,095, $(4,742), $14,550 and $(7,426) (2,965) 12,818 (39,352) 20,081 Investment in associates – employee benefits and other Other comprehensive income (loss), net of tax of nil (5,256) 4,349 (15,151) 2,918
Items that may be reclassified subsequently to Net earnings Investment in associates and other Other comprehensive income (loss), net of tax of $2,072, $4,866, $5,191 and $3,024 (30,357) (45,018) (31,091) 4,944 (40,145) (28,883) (73,880) 21,159 Total comprehensive income $ 162,332 $ 171,483 $ 483,437 $ 615,193
(See accompanying notes to interim condensed consolidated financial statements.) IGM FINANCIAL INC. PART CPART
58 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 55 CONSOLIDATED BALANCE SHEETS
(unaudited) SEPTEMBER 30 DECEMBER 31 (in thousands of Canadian dollars) 2019 2018
Assets Cash and cash equivalents $ 683,153 $ 650,228 Other investments (Note 3) 375,379 459,911 Client funds on deposit 489,893 546,787 Accounts and other receivables 364,785 319,609 Income taxes recoverable 12,801 9,316 Loans (Note 4) 7,504,953 7,738,031 Derivative financial instruments 20,092 16,364 Other assets 51,513 46,531 Investment in associates (Note 6) 1,752,731 1,651,304 Capital assets (Note 2) 223,800 138,647 Capitalized sales commissions 132,788 105,044 Deferred income taxes 79,588 75,607 Intangible assets 1,222,660 1,191,068 Goodwill 2,660,267 2,660,267 $ 15,574,403 $ 15,608,714
Liabilities Accounts payable and accrued liabilities $ 454,706 $ 397,379 Income taxes payable 5,132 51,894 Derivative financial instruments 22,818 28,990 Deposits and certificates 516,800 568,799 Other liabilities 466,356 444,173 Obligations to securitization entities 7,186,407 7,370,193 Lease obligations (Note 2) 96,609 – Deferred income taxes 299,553 295,719 Long-term debt (Note 7) 2,100,000 1,850,000 11,148,381 11,007,147 Shareholders’ Equity Share capital Perpetual preferred shares – 150,000 PART C PART C Common shares 1,596,910 1,611,263 Contributed surplus 47,869 45,536 IGM FINANCIAL INC. FINANCIAL IGM Retained earnings 2,922,389 2,840,566 Accumulated other comprehensive income (loss) (141,146) (45,798) 4,426,022 4,601,567 $ 15,574,403 $ 15,608,714
These interim condensed consolidated financial statements were approved and authorized for issuance by the Board of Directors on October 31, 2019.
(See accompanying notes to interim condensed consolidated financial statements.)
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 59
C 56 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30
SHARE CAPITAL
ACCUMULATED PERPETUAL OTHER PREFERRED COMMON COMPREHENSIVE TOTAL (unaudited) SHARES SHARES CONTRIBUTED RETAINED INCOME (LOSS) SHAREHOLDERS’ (in thousands of Canadian dollars) (Note 8) (Note 8) SURPLUS EARNINGS (Note 11) EQUITY
2019 Balance, beginning of period As previously reported $ 150,000 $ 1,611,263 $ 45,536 $ 2,840,566 $ (45,798) $ 4,601,567 Change in accounting policy (Note 2) IFRS 16 – – – (5,568) – (5,568) As restated 150,000 1,611,263 45,536 2,834,998 (45,798) 4,595,999
Net earnings – – – 557,317 – 557,317 Other comprehensive income (loss), net of tax – – – – (73,880) (73,880) Total comprehensive income – – – 557,317 (73,880) 483,437
Redemption of preferred shares (150,000) – – – – (150,000) Common shares Issued under stock option plan – 4,161 – – – 4,161 Purchased for cancellation – (18,514) – – – (18,514) Stock options Current period expense – – 2,556 – – 2,556 Exercised – – (223) – – (223) Perpetual preferred share dividends – – – (2,213) – (2,213) Common share dividends – – – (403,548) – (403,548) Transfer out of fair value through other comprehensive income – – – 21,468 (21,468) – Common share cancellation excess & other – – – (85,633) – (85,633) IGM FINANCIAL INC.
Balance, end of period $ – $ 1,596,910 $ 47,869 $ 2,922,389 $ (141,146) $ 4,426,022 CPART
2018 Balance, beginning of period $ 150,000 $ 1,602,726 $ 42,633 $ 2,620,797 $ (71,113) $ 4,345,043
Net earnings – – – 594,034 – 594,034 Other comprehensive income (loss), net of tax – – – – 21,159 21,159 Total comprehensive income – – – 594,034 21,159 615,193
Common shares Issued under stock option plan – 7,105 – – – 7,105 Stock options Current period expense – – 2,773 – – 2,773 Exercised – – (707) – – (707) Perpetual preferred share dividends – – – (6,638) – (6,638) Common share dividends – – – (406,384) – (406,384) Other – – – (5,385) – (5,385) Balance, end of period $ 150,000 $ 1,609,831 $ 44,699 $ 2,796,424 $ (49,954) $ 4,551,000
(See accompanying notes to interim condensed consolidated financial statements.)
60 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 57 CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30 (unaudited) (in thousands of Canadian dollars) 2019 2018
Operating activities Earnings before income taxes $ 717,201 $ 760,079 Income taxes paid (180,446) (94,939) Adjustments to determine net cash from operating activities Capitalized sales commission amortization 15,902 10,132 Capitalized sales commissions paid (43,646) (42,467) Amortization of capital and intangible assets 59,557 41,697 Proportionate share of associates’ earnings, net of dividends received (24,263) (58,046) Pension and other post-employment benefits (1,584) (18,253) Restructuring provisions and other – 22,758 Changes in operating assets and liabilities and other 9,905 4,400 Cash from operating activities before restructuring provision payments 552,626 625,361 Restructuring provision cash payments (23,884) (44,487) 528,742 580,874 Financing activities Net increase (decrease) in deposits and certificates 545 (806) Increase in obligations to securitization entities 1,185,701 1,238,291 Repayments of obligations to securitization entities and other (1,393,012) (1,530,838) Repayments of lease obligations (19,511) – Issue of debentures 250,000 200,000 Repayment of debentures – (525,000) Redemption of preferred shares (150,000) – Issue of common shares 3,940 6,398 Common shares purchased for cancellation (99,963) – Perpetual preferred share dividends paid (4,425) (6,638) Common share dividends paid (405,020) (406,290) (631,745) (1,024,883) Investing activities Purchase of other investments (110,499) (93,160) Proceeds from the sale of other investments 61,546 67,420 PART C PART C Increase in loans (1,277,625) (1,300,332)
IGM FINANCIAL INC. FINANCIAL IGM Repayment of loans and other 1,513,354 1,441,776 Net additions to capital assets (14,066) (8,167) Net cash used in additions to intangible assets and acquisitions (50,379) (43,701) Investment in Personal Capital Corporation (66,811) – Proceeds from substantial issuer bid (Note 6) 80,408 – 135,928 63,836 Increase (decrease) in cash and cash equivalents 32,925 (380,173) Cash and cash equivalents, beginning of period 650,228 966,843 Cash and cash equivalents, end of period $ 683,153 $ 586,670
Cash $ 62,026 $ 63,703 Cash equivalents 621,127 522,967 $ 683,153 $ 586,670
Supplemental disclosure of cash flow information related to operating activities Interest and dividends received $ 228,262 $ 222,977 Interest paid $ 203,927 $ 222,920
(See accompanying notes to interim condensed consolidated financial statements.)
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 61
C 58 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2019 (unaudited) (In thousands of Canadian dollars, except shares and per share amounts)
NOTE 1 CORPORATE INFORMATION
IGM Financial Inc. (the Company) is a publicly listed company (TSX: IGM), incorporated and domiciled in Canada. The registered address of the Company is 447 Portage Avenue, Winnipeg, Manitoba, Canada. The Company is controlled by Power Financial Corporation.
IGM Financial Inc. is a wealth and asset management company which serves the financial needs of Canadians through its principal subsidiaries, each operating distinctly within the advice segment of the financial services market. The Company’s wholly-owned principal subsidiaries are Investors Group Inc. and Mackenzie Financial Corporation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited Interim Condensed Consolidated Financial Statements of the Company (Interim Financial Statements) have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, using the accounting policies as set out in this note and in Note 2 to the Consolidated Financial Statements for the year ended December 31, 2018. The Interim Financial Statements should be read in conjunction with the Consolidated Financial Statements in the 2018 IGM Financial Inc. Annual Report.
CHANGES IN ACCOUNTING POLICIES
IFRS 16 LEASES (IFRS 16) As of January 1, 2019, the Company adopted IFRS 16 using the modified retrospective method with no restatement of comparative financial information. Under this approach, the Company recognized a lease liability of $105.5 million equal to the present value of the remaining lease payments discounted using the Company’s incremental borrowing rate at January 1, 2019. The weighted average discount rate applied was 4.4%. A right-of-use asset of $96.1 million representing the Company’s property leases was also recognized at its carrying amount as if IFRS 16 had been applied since each lease commencement date, net of the accumulated amortization that would have been recognized up to January 1, 2019. The difference between the right-of-use asset and the lease liability of $9.4 million was recognized as an adjustment to retained earnings as at January 1, 2019. The following practical expedients were applied on transition:
• Applied a single discount rate to a portfolio of leases with reasonably similar characteristics. IGM FINANCIAL INC. • Accounted for leases for which the remaining lease term ends within 12 months of the date of initial application as a short-term lease. PART CPART • Relied on its assessment of whether leases are onerous applying IAS 37, Provisions, Contingent Liabilities and Contingent Assets, immediately before the date of initial application as an alternative to performing an impairment review.
Amortization expense increased due to the amortization of the right-of-use asset and interest expense increased due to the imputed interest on the lease liability; however total expenses are not materially different due to the offsetting decrease to operating lease expense.
62 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 59 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CHANGES IN ACCOUNTING POLICIES (continued)
IFRS 16 LEASES (IFRS 16) (continued) Impact of the changes in accounting policies on the Consolidated Balance Sheet:
ADJUSTMENT DUE TO DECEMBER 31, 2018 ADOPTION OF IFRS 16 JANUARY 1, 2019
Assets Other assets(1) $ 46,531 $ (61) $ 46,470 Capital assets 138,647 96,065 234,712 $ 96,004 Liabilities & Shareholders’ Equity Accounts payable and accrued liabilities(1) $ 397,379 $ (1,958) $ 395,421 Lease obligations – 105,539 105,539 Deferred income taxes 295,719 (2,009) 293,710 Retained earnings 2,840,566 (5,568) 2,834,998 $ 96,004
(1) Write-off of free rent inducement on capitalized leases
LEASES For contracts that contain a lease, the Company recognizes a right-of-use asset and a lease liability. The right-of-use asset is depreciated using the straight-line method from the commencement date to the end of the lease term and is recorded in Non-commission expense. Imputed interest on the lease liability is recorded in Interest expense.
Lease payments included in the measurement of the lease liability comprises fixed payments less any lease incentives receivable, variable payments that depend on an index or a rate, and payments or penalties for terminating the lease, if any. The lease payments are discounted using the Company’s incremental borrowing rate, which is applied to portfolios of leases with reasonably similar characteristics.
The Company does not recognize a right-of-use asset or lease liability for leases that, at commencement date, have a lease term of 12 months or less, and leases for which the underlying asset is of low value. The Company recognizes the payments associated with these leases as an expense on a straight-line basis over the term of the lease. PART C PART C IGM FINANCIAL INC. FINANCIAL IGM
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 63
C 60 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 NOTE 3 OTHER INVESTMENTS
SEPTEMBER 30, 2019 DECEMBER 31, 2018
FAIR FAIR COST VALUE COST VALUE
Fair value through other comprehensive income (FVTOCI) Corporate investments $ 237,657 $ 295,159 $ 303,619 $ 372,396 Fair value through profit or loss (FVTPL) Equity securities 1,560 1,767 16,976 12,915 Proprietary investment funds 79,068 78,453 78,504 74,600 80,628 80,220 95,480 87,515 $ 318,285 $ 375,379 $ 399,099 $ 459,911
In January 2019, the Company invested an additional amount of $66.8 million (USD $50.0 million) in Personal Capital Corporation which increased its voting interest to 22.7% and resulted in reclassification of the investment in Personal Capital Corporation from FVTOCI to the equity method (Note 6).
The Company invested a total of $46.5 million in Wealthsimple Financial Corporation in the nine month period of 2019.
The Company invested a total of $12.8 million in Portag3 Ventures LP and Portag3 Ventures II LP in the nine month period of 2019.
NOTE 4 LOANS
CONTRACTUAL MATURITY
SEPTEMBER 30 DECEMBER 31 1 YEAR 1 – 5 OVER 2019 2018 OR LESS YEARS 5 YEARS TOTAL TOTAL
Amortized cost Residential mortgages $ 1,483,355 $ 6,001,930 $ 8,315 $ 7,493,600 $ 7,734,529
Less: Allowance for expected credit losses 675 801 IGM FINANCIAL INC.
7,492,925 7,733,728 CPART Fair value through profit or loss 12,028 4,303 $ 7,504,953 $ 7,738,031
The change in the allowance for expected credit losses is as follows:
Balance, beginning of period $ 801 $ 806 Write-offs, net of recoveries (556) (326) Provision for credit losses 430 321 Balance, end of period $ 675 $ 801
Total credit impaired loans as at September 30, 2019 were $3,075 (December 31, 2018 – $3,271).
Total interest income on loans was $164.8 million (2018 – $159.2 million). Total interest expense on obligations to securitization entities, related to securitized loans, was $130.6 million (2018 – $122.6 million). Gains realized on the sale of residential mortgages totalled $2.6 million (2018 – $1.5 million). Fair value adjustments related to mortgage banking operations totalled negative $4.5 million (2018 – negative $7.5 million). These amounts were included in Net investment income and other. Net investment income and other also includes other mortgage banking related items including portfolio insurance, issue costs, and other items.
64 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 61 NOTE 5 SECURITIZATIONS
The Company securitizes residential mortgages through the Canada Mortgage and Housing Corporation (CMHC) sponsored National Housing Act Mortgage-Backed Securities (NHA MBS) Program and Canada Mortgage Bond (CMB) Program and through Canadian bank-sponsored asset-backed commercial paper (ABCP) programs. These transactions do not meet the requirements for derecognition as the Company retains prepayment risk and certain elements of credit risk. Accordingly, the Company has retained these mortgages on its balance sheets and has recorded offsetting liabilities for the net proceeds received as Obligations to securitization entities which are recorded at amortized cost.
The Company earns interest on the mortgages and pays interest on the obligations to securitization entities. As part of the CMB transactions, the Company enters into a swap transaction whereby the Company pays coupons on CMBs and receives investment returns on the NHA MBS and the reinvestment of repaid mortgage principal. A component of this swap, related to the obligation to pay CMB coupons and receive investment returns on repaid mortgage principal, is recorded as a derivative and had a negative fair value of $7.4 million at September 30, 2019 (December 31, 2018 – positive $4.9 million).
Under the NHA MBS and CMB Program, the Company has an obligation to make timely payments to security holders regardless of whether amounts are received from mortgagors. All mortgages securitized under the NHA MBS and CMB Program are insured by CMHC or another approved insurer under the program. As part of the ABCP transactions, the Company has provided cash reserves for credit enhancement which are recorded at cost. Credit risk is limited to these cash reserves and future net interest income as the ABCP Trusts have no recourse to the Company’s other assets for failure to make payments when due. Credit risk is further limited to the extent these mortgages are insured.
OBLIGATIONS TO SECURITIZED SECURITIZATION SEPTEMBER 30, 2019 MORTGAGES ENTITIES NET
Carrying value NHA MBS and CMB Program $ 4,104,154 $ 4,128,827 $ (24,673) Bank sponsored ABCP 3,017,727 3,057,580 (39,853) Total $ 7,121,881 $ 7,186,407 $ (64,526) Fair value $ 7,213,595 $ 7,298,527 $ (84,932)
December 31, 2018 Carrying value NHA MBS and CMB Program $ 4,246,668 $ 4,250,641 $ (3,973) Bank sponsored ABCP 3,102,498 3,119,552 (17,054)
PART C PART C Total $ 7,349,166 $ 7,370,193 $ (21,027)
IGM FINANCIAL INC. FINANCIAL IGM Fair value $ 7,405,170 $ 7,436,873 $ (31,703)
The carrying value of Obligations to securitization entities, which is recorded net of issue costs, includes principal payments received on securitized mortgages that are not due to be settled until after the reporting period. Issue costs are amortized over the life of the obligation on an effective interest rate basis.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 65
C 62 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 NOTE 6 INVESTMENT IN ASSOCIATES
PERSONAL LIFECO CHINA AMC CAPITAL TOTAL
SEPTEMBER 30, 2019 Balance, beginning of period $ 967,829 $ 683,475 $ – $ 1,651,304 Transfer from corporate investments (FVTOCI) – – 216,952 216,952 Proceeds from substantial issuer bid (80,408) – – (80,408) Dividends received (47,252) (10,301) – (57,553) Proportionate share of: Earnings (losses) 79,231 22,864 (12,279) 89,816 Associate’s one-time loss (8,000) – – (8,000) Other comprehensive income (loss) and other adjustments (12,710) (44,841) (1,829) (59,380) Balance, end of period $ 898,690 $ 651,197 $ 202,844 $ 1,752,731
SEPTEMBER 30, 2018 Balance, beginning of period $ 901,405 $ 647,880 $ – $ 1,549,285 Dividends received (46,374) (12,156) – (58,530) Proportionate share of: Earnings 93,598 21,762 – 115,360 Other comprehensive income (loss) and other adjustments 18,769 (16,162) – 2,607 Balance, end of period $ 967,398 $ 641,324 $ – $ 1,608,722
The Company uses the equity method to account for its investments in Great-West Lifeco Inc., China Asset Management Co., Ltd. and Personal Capital Corporation as it exercises significant influence.
GREAT-WEST LIFECO INC. (LIFECO) At September 30, 2019, the Company held 37,337,133 (December 31, 2018 – 39,737,388) shares of Lifeco, which represented an equity interest of 4.0% (December 31, 2018 – 4.0%).
In April 2019, the Company participated on a proportionate basis in the Lifeco substantial issuer bid by selling 2,400,255 of its shares in Lifeco for proceeds of $80.4 million. IGM FINANCIAL INC.
In June 2019, Lifeco recorded a one-time loss in relation to the sale of substantially all of its United States individual life insurance and CPART annuity business. The Company’s after-tax proportionate share of this loss was $8.0 million.
CHINA ASSET MANAGEMENT CO., LTD. (CHINA AMC) China AMC is an asset management company established in Beijing, China and is controlled by CITIC Securities Company Limited.
As at September 30, 2019, the Company held a 13.9% equity interest in China AMC (2018 – 13.9%).
PERSONAL CAPITAL CORPORATION (PERSONAL CAPITAL) In January 2019, the Company invested an additional amount of $66.8 million (USD $50.0 million) in Personal Capital which increased its voting interest to 22.7% and, combined with its board representation, resulted in the Company exercising significant influence.
As at September 30, 2019, the Company held a 24.8% equity interest in Personal Capital. IGM Financial’s equity earnings from Personal Capital includes its proportionate share of Personal Capital’s net loss adjusted by IGM Financial’s amortization of intangible assets that it recognized as part of its investment in the company.
66 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 63 NOTE 7 LONG-TERM DEBT
On March 20, 2019, the Company issued $250.0 million 4.206% debentures maturing March 21, 2050. The net proceeds were used by the Company to fund the redemption of $150.0 million of its issued and outstanding 5.90% Non-Cumulative First Preferred Shares, Series B and for general corporate purposes. The Company redeemed the Series B Preferred Shares on April 30, 2019.
NOTE 8 SHARE CAPITAL
AUTHORIZED Unlimited number of: First preferred shares, issuable in series Second preferred shares, issuable in series Class 1 non-voting shares Common shares, no par value
ISSUED AND OUTSTANDING SEPTEMBER 30, 2019 SEPTEMBER 30, 2018
STATED STATED SHARES VALUE SHARES VALUE
Perpetual preferred shares – classified as equity: First preferred shares, Series B – $ – 6,000,000 $ 150,000 Common shares: Balance, beginning of period 240,885,317 $ 1,611,263 240,666,131 $ 1,602,726 Issued under Stock Option Plan 145,568 4,161 168,389 7,105 Purchased for cancellation (2,762,788) (18,514) – – Balance, end of period 238,268,097 $ 1,596,910 240,834,520 $ 1,609,831
PERPETUAL PREFERRED SHARES The Company redeemed the $150.0 million First preferred shares, Series B on April 30, 2019.
NORMAL COURSE ISSUER BID
PART C PART C The Company commenced a normal course issuer bid on March 26, 2019 which is effective until the earlier of March 25, 2020 and the date on which the Corporation has purchased the maximum number of common shares permitted under the Normal Course Issuer IGM FINANCIAL INC. FINANCIAL IGM Bid. Pursuant to this bid, the Company may purchase up to 4.0 million or 1.7% of its common shares outstanding as at March 14, 2019. The Company’s previous normal course issuer bid expired on March 19, 2018.
In the nine months ended September 30, 2019, there were 2,762,788 shares (2018 – nil) purchased at a cost of $100.0 million. The premium paid to purchase the shares in excess of the stated value was charged to Retained earnings.
In connection with its normal course issuer bid, the Company has established an automatic securities purchase plan for its common shares. The automatic securities purchase plan provides standard instructions regarding how the Company’s common shares are to be purchased under its normal course issuer bid during certain pre-determined trading blackout periods. Outside of these pre-determined trading blackout periods, purchases under the Company’s normal course issuer bid will be completed based upon management’s discretion.
IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 67
C 64 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 NOTE 9 CAPITAL MANAGEMENT
The capital management policies, procedures and activities of the Company are discussed in the Capital Resources section of the Company’s Management’s Discussion and Analysis contained in the Third Quarter 2019 Report to Shareholders and in Note 17 to the Consolidated Financial Statements in the 2018 IGM Financial Inc. Annual Report and have not changed significantly since December 31, 2018.
NOTE 10 SHARE-BASED PAYMENTS
STOCK OPTION PLAN SEPTEMBER 30 DECEMBER 31 2019 2018
Common share options – Outstanding 10,654,362 9,701,894 – Exercisable 5,585,141 4,742,050
In the third quarter of 2019, the Company did not grant any options to employees (2018 – 725). In the nine months ended September 30, 2019, the Company granted 1,511,540 options to employees (2018 – 1,336,990). The weighted-average fair value of options granted during the nine months ended September 30, 2019 has been estimated at $1.82 per option (2018 – $2.56) using the Black-Scholes option pricing model. The weighted-average closing share price at the grant dates was $34.35. The assumptions used in these valuation models include:
NINE MONTHS ENDED SEPTEMBER 30
2019 2018
Exercise price $ 34.34 $ 39.28 Risk-free interest rate 2.07% 2.35% Expected option life 7 years 6 years Expected volatility 18.00% 17.00% Expected dividend yield 6.55% 5.73% IGM FINANCIAL INC.
Expected volatility has been estimated based on the historic volatility of the Company’s share price over seven years which is reflective CPART of the expected option life. Options vest over a period of up to 7.5 years from the grant date and are exercisable no later than 10 years after the grant date.
68 IGM FINANCIAL INC. THIRD QUARTER REPORT 2019 | NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 65 NOTE 11 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
INVESTMENT EMPLOYEE OTHER IN ASSOCIATES SEPTEMBER 30, 2019 BENEFITS INVESTMENTS AND OTHER TOTAL
Balance, beginning of period $ (149,052) $ 57,234 $ 46,020 $ (45,798) Other comprehensive income (loss) (39,352) 11,714 (46,242) (73,880) Transfer out of FVTOCI – (21,468) – (21,468) Balance, end of period $ (188,404) $ 47,480 $ (222) $ (141,146)
SEPTEMBER 30, 2018
Balance, beginning of period $ (132,529) $ 39,068 $ 22,348 $ (71,113) Other comprehensive income (loss) 20,081 (6,784) 7,862 21,159 Balance, end of period $ (112,448) $ 32,284 $ 30,210 $ (49,954)
Amounts are recorded net of tax.
NOTE 12 RISK MANAGEMENT
The risk management policies and procedures of the Company are discussed in the Financial Instruments Risk section of the Company’s Management’s Discussion and Analysis contained in the Third Quarter 2019 Report to Shareholders and in Note 20 to the Consolidated Financial Statements in the 2018 IGM Financial Inc. Annual Report and have not changed significantly since December 31, 2018.
NOTE 13 FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values are management’s estimates and are calculated using market conditions at a specific point in time and may not reflect future fair values. The calculations are subjective in nature, involve uncertainties and are matters of significant judgment.
All financial instruments measured at fair value and those for which fair value is disclosed are classified into one of three levels that distinguish fair value measurements by the significance of the inputs used for valuation.
Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in the most advantageous PART C PART C market, utilizing a hierarchy of three different valuation techniques, based on the lowest level input that is significant to the fair value
IGM FINANCIAL INC. FINANCIAL IGM measurement in its entirety.
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Observable inputs other than Level 1 quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or corroborated by observable market data; and
Level 3 – Unobservable inputs that are supported by little or no market activity. Valuation techniques are primarily model-based.
Markets are considered inactive when transactions are not occurring with sufficient regularity. Inactive markets may be characterized by a significant decline in the volume and level of observed trading activity or through large or erratic bid/offer spreads. In those instances where traded markets are not considered sufficiently active, fair value is measured using valuation models which may utilize predominantly
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C 66 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 NOTE 13 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
observable market inputs (Level 2) or may utilize predominantly non-observable market inputs (Level 3). Management considers all reasonably available information including indicative broker quotations, any available pricing for similar instruments, recent arm’s length market transactions, any relevant observable market inputs, and internal model-based estimates. Management exercises judgment in determining the most appropriate inputs and the weighting ascribed to each input as well as in the selection of valuation methodologies.
Fair value is determined using the following methods and assumptions:
Other investments and other financial assets and financial liabilities are valued using quoted prices from active markets, when available. When a quoted market price is not readily available, valuation techniques are used that require assumptions related to discount rates and the timing and amount of future cash flows. Wherever possible, observable market inputs are used in the valuation techniques.
Loans classified as Level 2 are valued using market interest rates for loans with similar credit risk and maturity.
Loans classified as Level 3 are valued by discounting the expected future cash flows at prevailing market yields.
Obligations to securitization entities are valued by discounting the expected future cash flows at prevailing market yields for securities issued by these securitization entities having similar terms and characteristics.
Deposits and certificates are valued by discounting the contractual cash flows using market interest rates currently offered for deposits with similar terms and credit risks.
Long-term debt is valued using quoted prices for each debenture available in the market.
Derivative financial instruments are valued based on quoted market prices, where available, prevailing market rates for instruments with similar characteristics and maturities, or discounted cash flow analysis.
Level 1 financial instruments include exchange-traded equity investments and open-end investment fund units and other financial liabilities in instances where there are quoted prices available from active markets.
Level 2 assets and liabilities include fixed income securities, loans, derivative financial instruments, deposits and certificates and long- term debt. The fair value of fixed income securities is determined using quoted market prices or independent dealer price quotes. The
fair value of derivative financial instruments and deposits and certificates are determined using valuation models, discounted cash flow IGM FINANCIAL INC. methodologies, or similar techniques using primarily observable market inputs. The fair value of long-term debt is determined using indicative broker quotes. CPART
Level 3 assets and liabilities include investments with little or no trading activity valued using broker-dealer quotes, loans, other financial assets, obligations to securitization entities and derivative financial instruments. Derivative financial instruments consist of principal reinvestment account swaps which represent the component of a swap entered into under the CMB Program whereby the Company pays coupons on Canada Mortgage Bonds and receives investment returns on the reinvestment of repaid mortgage principal. Fair value is determined by discounting the projected cashflows of the swaps. The notional amount, which is an input used to determine the fair value of the swap, is determined using an average unobservable prepayment rate of 15% which is based on historical prepayment patterns. An increase (decrease) in the assumed mortgage prepayment rate increases (decreases) the notional amount of the swap.
The following table presents the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. The table distinguishes between those financial instruments recorded at fair value and those recorded at amortized cost. The table also excludes fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. These items include cash and cash equivalents, accounts and other receivables, certain other financial assets, accounts payable and accrued liabilities and certain other financial liabilities.
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POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 67 NOTE 13 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
FAIR VALUE
CARRYING VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
SEPTEMBER 30, 2019 Financial assets recorded at fair value Other investments – FVTOCI $ 295,159 $ – $ – $ 295,159 $ 295,159 – FVTPL 80,220 79,601 – 619 80,220 Loans – FVTPL 12,028 – 12,028 – 12,028 Derivative financial instruments 20,092 – 16,229 3,863 20,092 Financial assets recorded at amortized cost Loans – Amortized cost 7,492,925 – 368,666 7,213,595 7,582,261 Financial liabilities recorded at fair value Derivative financial instruments 22,818 – 11,550 11,268 22,818 Other financial liabilities – – – – – Financial liabilities recorded at amortized cost Deposits and certificates 516,800 – 517,186 – 517,186 Obligations to securitization entities 7,186,407 – – 7,298,527 7,298,527 Long-term debt 2,100,000 – 2,493,554 – 2,493,554
DECEMBER 31, 2018 Financial assets recorded at fair value Other investments – FVTOCI $ 372,396 $ – $ – $ 372,396 $ 372,396 – FVTPL 87,515 86,963 – 552 87,515 Loans – FVTPL 4,303 – 4,303 – 4,303 Derivative financial instruments 16,364 – 7,179 9,185 16,364 Financial assets recorded at amortized cost Loans – Amortized cost 7,733,728 – 380,372 7,405,170 7,785,542 Financial liabilities recorded at fair value Derivative financial instruments 28,990 – 24,704 4,286 28,990 Other financial liabilities 8,237 8,235 2 – 8,237 PART C PART C Financial liabilities recorded at amortized cost Deposits and certificates 568,799 – 569,048 – 569,048 IGM FINANCIAL INC. FINANCIAL IGM Obligations to securitization entities 7,370,193 – – 7,436,873 7,436,873 Long-term debt 1,850,000 – 2,050,299 – 2,050,299
There were no significant transfers between Level 1 and Level 2 in 2019 and 2018.
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C 68 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 NOTE 13 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The following table provides a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis.
GAINS/(LOSSES) GAINS/ INCLUDED IN (LOSSES) OTHER PURCHASES BALANCE INCLUDED IN COMPREHENSIVE AND TRANSFERS BALANCE JANUARY 1 NET EARNINGS(1) INCOME ISSUANCES SETTLEMENTS IN/OUT SEPTEMBER 30
SEPTEMBER 30, 2019 Other investments – FVTOCI $ 372,396 $ – $ 13,542 $ 59,362 $ – $ (150,141)(2) $ 295,159 – FVTPL 552 67 – – – – 619 Derivative financial instruments, net 4,899 (11,226) – (1,551) (473) – (7,405)
SEPTEMBER 30, 2018 Other investments – FVTOCI $ 262,825 $ – $ (7,843) $ 66,197 $ – $ – $ 321,179 – FVTPL 661 49 – – – (101) 609 Derivative financial instruments, net 4,095 125 – 446 (11,004) – 15,670
(1) Included in Net investment income in the Consolidated Statements of Earnings. (2) Reclassification of investment in Personal Capital from Other investments (FVTOCI) to Investment in associates (equity method).
NOTE 14 EARNINGS PER COMMON SHARE
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30
2019 2018 2019 2018
Earnings IGM FINANCIAL INC. Net earnings $ 202,477 $ 200,366 $ 557,317 $ 594,034
Perpetual preferred share dividends – 2,213 2,213 6,638 CPART Net earnings available to common shareholders $ 202,477 $ 198,153 $ 555,104 $ 587,396
Number of common shares (in thousands) Weighted average number of common shares outstanding 238,266 240,829 239,381 240,799 Add: Potential exercise of outstanding stock options(1) 105 137 23 215 Average number of common shares outstanding – diluted basis 238,371 240,966 239,404 241,014
Earnings per common share (in dollars) – Basic $ 0.85 $ 0.82 $ 2.32 $ 2.44 – Diluted $ 0.85 $ 0.82 $ 2.32 $ 2.44
(1) Excludes 1,493 thousand shares for the three months ended September 30, 2019 (2018 – 1,370 thousand) related to outstanding stock options that were anti-dilutive. Excludes 1,784 thousand shares for the nine months ended September 30, 2019 (2018 – 1,139 thousand) related to outstanding stock options that were anti-dilutive.
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POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 69 NOTE 15 SEGMENTED INFORMATION
The Company’s reportable segments are:
• IG Wealth Management • Mackenzie Investments • Corporate and Other
These segments reflect the Company’s internal financial reporting and performance measurement. In the third quarter of 2018, the Company announced that it has rebranded Investors Group as IG Wealth Management.
IG Wealth Management earns fee-based revenues in the conduct of its core business activities which are primarily related to the distribution, management and administration of its investment funds. It also earns fee revenues from the provision of brokerage services and the distribution of insurance and banking products. In addition, IG Wealth Management earns intermediary revenues primarily from mortgage banking and servicing activities and from the assets funded by deposit and certificate products.
Mackenzie Investments earns fee-based revenues from services it provides as fund manager to its investment funds and as investment advisor to sub-advisory and institutional accounts.
Corporate and Other includes Investment Planning Counsel, equity income from its investment in Lifeco, China AMC and Personal Capital (Note 6), net investment income on unallocated investments, other income, and also includes consolidation elimination entries.
2019
IG WEALTH MACKENZIE CORPORATE THREE MONTHS ENDED SEPTEMBER 30 MANAGEMENT INVESTMENTS AND OTHER TOTAL
Revenues Management fees $ 376,241 $ 178,620 $ 19,222 $ 574,083 Administration fees 75,189 24,988 4,256 104,433 Distribution fees 41,421 1,365 48,289 91,075 Net investment income and other 15,850 (1,420) 3,150 17,580 Proportionate share of associates’ earnings – – 28,902 28,902 508,701 203,553 103,819 816,073 Expenses Commission 154,764 73,005 44,598 272,367 Non-commission 148,189 84,149 21,919 254,257 302,953 157,154 66,517 526,624 PART C PART C Earnings before undernoted $ 205,748 $ 46,399 $ 37,302 289,449
IGM FINANCIAL INC. FINANCIAL IGM Interest expense(1) (27,764) Earnings before income taxes 261,685 Income taxes 59,208 Net earnings 202,477 Perpetual preferred share dividends – Net earnings available to common shareholders $ 202,477
(1) Interest expense includes interest on long-term debt and, beginning January 1, 2019, includes interest on leases as a result of the Company’s adoption of IFRS 16, Leases.
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C 70 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 NOTE 15 SEGMENTED INFORMATION (continued)
2018
IG WEALTH MACKENZIE CORPORATE THREE MONTHS ENDED SEPTEMBER 30 MANAGEMENT INVESTMENTS AND OTHER TOTAL
Revenues Management fees $ 374,743 $ 178,577 $ 20,505 $ 573,825 Administration fees 79,645 24,791 4,618 109,054 Distribution fees 42,585 1,694 49,065 93,344 Net investment income and other 13,315 (1,091) 3,750 15,974 Proportionate share of associates’ earnings – – 39,793 39,793 510,288 203,971 117,731 831,990 Expenses Commission 150,627 73,221 46,225 270,073 Non-commission 146,088 78,062 21,768 245,918 296,715 151,283 67,993 515,991 Earnings before undernoted $ 213,573 $ 52,688 $ 49,738 315,999 Interest expense (27,023) Premium paid on early redemption of debentures (10,680) Restructuring and other charges (22,758) Earnings before income taxes 255,538 Income taxes 55,172 Net earnings 200,366 Perpetual preferred share dividends 2,213 Net earnings available to common shareholders $ 198,153 IGM FINANCIAL INC. PART CPART
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POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 C 71 NOTE 15 SEGMENTED INFORMATION (continued)
2019
IG WEALTH MACKENZIE CORPORATE NINE MONTHS ENDED SEPTEMBER 30 MANAGEMENT INVESTMENTS AND OTHER TOTAL
Revenues Management fees $ 1,106,323 $ 523,138 $ 57,268 $ 1,686,729 Administration fees 224,267 72,766 13,227 310,260 Distribution fees 127,172 4,349 143,063 274,584 Net investment income and other 39,410 3,627 12,635 55,672 Proportionate share of associates’ earnings – – 89,816 89,816 1,497,172 603,880 316,009 2,417,061 Expenses Commission 469,216 219,003 134,667 822,886 Non-commission 464,015 257,815 66,516 788,346 933,231 476,818 201,183 1,611,232 Earnings before undernoted $ 563,941 $ 127,062 $ 114,826 805,829 Interest expense(1) (80,628) Proportionate share of associate’s one-time loss (8,000) Earnings before income taxes 717,201 Income taxes 159,884 Net earnings 557,317 Perpetual preferred share dividends 2,213 Net earnings available to common shareholders $ 555,104
Identifiable assets $ 8,748,254 $ 1,150,676 $ 3,015,206 $ 12,914,136 Goodwill 1,347,781 1,168,580 143,906 2,660,267 Total assets $ 10,096,035 $ 2,319,256 $ 3,159,112 $ 15,574,403
(1) Interest expense includes interest on long-term debt and, beginning January 1, 2019, includes interest on leases as a result of the Company’s adoption of IFRS 16, Leases. PART C PART C IGM FINANCIAL INC. FINANCIAL IGM
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C 72 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 NOTE 15 SEGMENTED INFORMATION (continued)
2018
IG WEALTH MACKENZIE CORPORATE NINE MONTHS ENDED SEPTEMBER 30 MANAGEMENT INVESTMENTS AND OTHER TOTAL
Revenues Management fees $ 1,101,376 $ 531,506 $ 60,325 $ 1,693,207 Administration fees 235,196 74,590 13,925 323,711 Distribution fees 126,392 5,301 144,868 276,561 Net investment income and other 35,746 1,172 11,842 48,760 Proportionate share of associates’ earnings – – 115,360 115,360 1,498,710 612,569 346,320 2,457,599 Expenses Commission 467,093 221,434 137,808 826,335 Non-commission 437,671 248,198 65,821 751,690 904,764 469,632 203,629 1,578,025 Earnings before undernoted $ 593,946 $ 142,937 $ 142,691 879,574 Interest expense (86,057) Premium paid on early redemption of debentures (10,680) Restructuring and other charges (22,758) Earnings before income taxes 760,079 Income taxes 166,045 Net earnings 594,034 Perpetual preferred share dividends 6,638 Net earnings available to common shareholders $ 587,396
Identifiable assets $ 8,787,767 $ 1,174,561 $ 2,776,013 $ 12,738,341 Goodwill 1,347,781 1,168,580 143,906 2,660,267 Total assets $ 10,135,548 $ 2,343,141 $ 2,919,919 $ 15,398,608 IGM FINANCIAL INC. PART CPART
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C 74 POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 PART D PARGESA HOLDING SA 1 D nancial results results nancial of Pargesa Holding SA as issued by Pargesa Holding SA. Pargesa by as issued Holding SA of Pargesa POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER PART D PARGESA HOLDING SA HOLDING PARGESA The attached document discloses information relating to the fi to relating attached document discloses information The PART D PARGESA HOLDING SA companies: traded publicly following in the investments and which is listed on the Euronext Exchange (EBR: GBLB). At September 30, 2019, the GBL portfolio was comprised of Pargesa holds an interest in Groupe Bruxelles Lambert (GBL), [6] Indirect holding of GBL in Parques. [ [ [ [ [ 2019 30, September at the group’s structure below reflects chart organization The number of large European companies. Switzerland and its shares are listed on the Swiss Exchange (SIX: PARG). The Pargesa group holds interests in a limited group’s parent Pargesa the (Pargesa), SA Holding Pargesa in interest 55.5% held a 2019, 30, September at that, company,company Netherlands-based representingPower Financial Corporation and the Frère Group of Charleroi, Belgium, each hold a 50.0% interest in Parjointco 75.4% N.V., a of the voting SA rightsPargesa Holding in the company. Pargesa has its head office in Geneva,
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] Market value in millions of euros of the main investments held byGBL at September 30,2019. 2019. 30, September at euros of millions in value ] Estimated ] Comprising shareholdings in alternative investments funds. ] 51.7% of voting rights (and of economic interest), taking in held. capital the of percentage a as expressed are Shareholdings portfolio. the of shareholdings main the shows chart ] The LafargeHolcim (SIX: HOLN and EPA: LHN) – cement, cement, – LHN) EPA: HOLN and (SIX: LafargeHolcim SGS (SIX: SGSN) –testing, inspection and certification Pernod Ricard (EPA: RI) – wines and spirits adidas (XETR: ADS) – design and distribution of sportswear for industry NK) –mineral-based (EPA: Imerys solutions specialty aggregates and concrete concrete and aggregates D Imerys 2 POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 54.0% adidas adidas 6.8% Pernod Ricard Ricard 7.5%
SGS SGS to account the suspended voting rights related to GBL treasury sh treasury GBL to related rights voting thesuspended account to 16.7% 16.7% Lafarge Holcim Holcim 9.3% €17,401 P a a holding company whose head office is in Brussels, Belgium, GBL r
g Umicore Umicore e 50.0% s
[5] [5] a
Parques (BME: PQR) – operation of regional leisure parks parks leisure regional of operation – PQR) (BME: Parques products hygiene ONTEX) –disposable (EBR: Ontex primarily in the food and beverage sectors industries processing of range awide for management project and equipment of –supplier G1A) (XETR: GEA industries chemical and gas oil, – FP) (EPA: Total metals precious of recycling and technology materials – UMI) (EBR: Umicore 18.0% [2]
Total Total 0.6% ӧѴӨ : GEA ares. ares. 8.5%
Ontex 20.0%
Parques Parques Capital €1,696 €1,696 Sienna Sienna 23.3% [4] [4] [3] [6]
PART D PARGESA HOLDING SA
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, Ѷѳ Ѷѳ ѴӝѴ ѶѴѹ ѴѴѶ ѸѳѴ Ѷ , , ѵѳѴѼ from non-consolidated shareholdings, from private equity equity private from shareholdings, non-consolidated from ice of €50.52 per share and at an average forward price of of price forward average an at and per share of €50.52 ice 2019, 0.6% of Total’s capital through forward sales maturing maturing sales forward through capital of Total’s 0.6% 2019, ѹ impact the consolidated net income in 2020, in accordance accordance in 2020, in income net consolidated the impact Ѵѳ adidas’ capital for a net amount of €499 million and generate generate and million of €499 amount a net for capital adidas’ 26% at September 30, 2019 compared to September 30, 2018 2018 30, September to compared 2019 30, September at 26% September in May in 2019 a for total amount €771 of million.capital The gain generated these by [1] d the Parques’ negative contribution. POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER
] ӧѶ
] ӧѵ asset value and market capitalization. capitalization. market value and asset at the end of December 2018 – see “Net asset value” section for details). details). for value” section asset “Net – see 2018 December of at the end (17.7% at the end of 2018), representing a market value of €1,535 million. million. €1,535 of value market a representing of 2018), end the at (17.7% On September 19, 2019, GBL’s board of directors authorised the company to put in place a complementary share buyback buyback share complementary a place in put to company the authorised directors of board GBL’s 2019, September On 19, 2021. until valid is authorization This shares. own of its million €250 to up program economic interest of Pargesa in GBL stands at 51.7% at September 30, 2019, compared to 50.8% at December 31, 2018. 2018. 31, December at 50.8% to compared 2019, 30, September at 51.7% at stands GBL in Pargesa of interest economic in January 2020. Sales were executed at an average spot pr spot average an at executed were Sales 2020. January in prepaid were They share. per €48.37 saleswill amount to €411 million GBL’s at leveland will not sales. forward the of date maturity the until shares disposed the on dividends receive to continues GBL 9. IFRS with GBL completedits share buyback program (announcedin October 2018) €250 of million. Following these purchases,the for cash in paid bid takeover public a voluntary launch to intention its announced S.A.U. Bidco, Piolin 2019, 26, April On the sharesof Parques, alongsideAB EQTand Corporación Financiera Alba ("Alba"). On July 24, 2019, theCNMV (Comisión on closed successfully and 2019 26, July on began which offer, the authorized Valores) de Mercado del Nacional brought Alba and GBL offer, successful a of event the in commitment irrevocable their with line In 2019. 6, September of delisting The of Parques. 23.3% held indirectly GBL offer, the of outcome the At offer. the to shares Parques their Parquesis expected completed be to in fourth the quarter of 2019. This transaction willimplementation the speed up value the of creation strategywithin the Parques group, on focused acquisitions. through particular in portfolio, its diversifying further and parks existing optimizing In a favourable market context, GBL sold,in March and April of 1% monetize to window market this seized also has GBL a capitalof gain which €333 million not does impact income the statement under accounting the standardIFRS 9. At Umicore in stake 18.0% a holds GBL 2019, 30, September At Umicore. in position its strengthen to continued GBL 2019, In Pargesa Holding SA SA Holding Pargesa theof end September 2019, the participationadidas, in being 6.8% the of capital, was valued €3,895at million. 2019, September of end at the SF404 to million amounts debt net the debt; net GBL’s 50% of including (when debt net Pargesa’s Janua in maturity their until position net GBL’s financial impact not does of shares Total sales the forward of The prepayment 2 December and 2019 September between and result, net consolidated the for 2018 September and 2019 September between Variation value portfolio Pargesa’s (ii) to relative debt net direct Pargesa’s (i) of on the basis calculated is value ratio to The loan millions of Swiss francs]
and amounts to SF316 million. The increase in the contribution the in increase The million. SF316 to amounts and ӧѵӨ ӧѴӨ Highlights Market capitalization Market capitalization ӧѴӨ by increased (group share) result net consolidated Pargesa’s Key Financial Data [in [unaudited] share) (group Consolidated net result Net debt Loan to value Net asset value and other investment funds as well as the positive variation in net financial income and expenses was partially offset by the by the offset was partially expenses and income financial net in variation positive as the well as funds investment other and Imerys’ decrease anfrom contribution ӧѶӨ PART D PARGESA HOLDING SA
At the level of Sienna Capital: Capital: Sienna of level the At of maturity on December 30, 2022, except in the event of early redemption. The bonds have been offered at an issue held by at shares the issuer the do date The of bonds the not offering. bear LafargeHolcim haveany aand dateinterest 13.2 million LafargeHolcim shares representing approximately bond exchangeable for existing LafargeHolcim shares guaranteed by GBL. This offering initially relates to approximately million €750 of a Capital Eliott subsidiary by its an offering of completion the September On announced GBL 6, 2019, concluded had it that announced GBL 9, 2019, July on negotiations exclusive into entry the following 2019, 2, August On Pargesa Holding SA proceeds of the offering will be used for GBL’s general corporate purposes. At September 30, 2019, the participation in in participation the 2019, 30, September At purposes. corporate general GBL’s for used be will offering the of proceeds price of 101% of par and will be redeemed at par at maturity, which corresponds to an annual gross yield of -0.3%. The LafargeHolcim, being 9.3% of the issued capital, is valued at €2,584 million. company. Frédéric Jousset and Olivier Duha will remain in their roles asExecutive Chairmen. The acquisition is expected holding acquiring the of capital share the of balance the hold indirectly will and GBL alongside shares their of portion the contract forthe acquisition ofthe Webhelp group, through an investment vehicle controlled byGBL alongside the increasing its exposure to private and controlled assets. assets. and controlled to private exposure its increasing gradually of objective its with line in is value, asset net GBL’s 4% of around represents which billion, to €0.8 up investment, from to a European growthin in to strategy leader. it order its support transition player a external The world and GBL’s aim, in partnership with the co-founders and the management team, is to speed upthe Webhelp group’s organic 2019. of quarter the fourth during approvals, regulatory required the obtaining after be completed, to enterprise value of €2.4 billion. The co-founding shareholders and Webhelp’s management team will reinvest a significant Webhelp on estimated an based vehicle, investment the of acquiring the share capital to 61%of hold up to €0.8 billion co-founding shareholders, Frédéric Jousset and Olivier Duha, and the management team. GBL will invest up to
D in innovation and technology. and technology. innovation in specializing fund hedge aLondon-based LLP, Partners in Marcho million €150 invested Capital Sienna 2019, 16, July On M bodies and representative employee with consultation leisure parks in Europe, to its management team, in partnership with Mubadala Capital. The transaction is subject to In October 2019, Ergon Capital announced its intention to sell Looping, a leading operator of regionally anchored €200 million in this new fund. commitments of €581 million, exceeding the fundraising objective of €500 million. Sienna Capital committed The closing of the Capital Partners IVfund, launched in December 2017, took place at the end of March 2019 with total E €10 million. million. €10 Sienna Capital invested €90 million in the Cepsa transaction, maintaining a residual uncalled commitment of Carlyle International Energy Partners II fund, an investment vehicle specialized in the energy sector. In October 2019, in the million €50 of acommitment made Capital Sienna in 2018. €22billion of sales generating chain, value gas and Petróleos, S.A.U. ("Cepsa"). Headquartered in Spain, Cepsa is (GBL’s share as well as the share of the funds affiliated to the investment company Carlyle) in Compañía Española de funds affiliated to the investment company Carlyle in connection with the acquisition of an approximately 37% stake On September 13, 2019, GBL, through its At September 30, 2019, GBL’s uncalled commitments to Sienna Capital amounted to €561 million (€528 (€528 million to €561 amounted Capital to Sienna commitments uncalled GBL’s 2019, 30, September At million at December 31, 2018). Sienna Capital’s estimated value amounted to €1,696 million at September 30, 2019 (€1,374 million at December 31, 2018). December at 31, million (€1,374 r a g 4 r o c POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 n h
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subsidiary Sienna Capital, undertook to co-invest €100 million, alongside approval by the German merger control authorities. 2.1% of the company’s share capital and nearly 23% ofthe an integrated global player operating throughout the oil
PART D PARGESA HOLDING SA ,
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ѻ Ѷѳӗ ѷӝѵ ѵѹӝѳ Ѹѹӝѵ ҜӾңҡ ѵѳѴ ӯѻѷӝѴ ѷѶѶӝѹ ѶѹѶӝѼ ѹѴѶӝѷ ѹѹѼӝѹ ѵѸѴӝѶ ѴӝѴѹѴ 5 ӯѴѵѹӝѳ ӯѷѴѻӝѶ ѻѷӗѹѻѳ ѷӗѹѻѸӝѵ ӯѷӗѵѸѸӝѻ D September
) ) ) )
Ӷ Ѽ Ѷ . Ѷѳӗ ҡҝ ѹӝѼ . Ѻѳѳ Ѵѹӝѷ ҝ , ѵѳѴ ӯѼѻӝѺ ӯѵѴӝѺ ѷѳѳӝѵ ѶѳѸӝѸ ѸѴѸӝѳ ѺѴѹӝѸ ѺѴѹӝѸ ѶѴѹ ѴӝѴѴѻ ( ѻѷ ѷӗѷѵѼӝѼ ӯѷӗѴѶѴӝѶ September in 2018 represents the contribution from Imerys’ Roofing Roofing Imerys’ from contribution the represents 2018 in SF515.0 million at September 30,2019, compared with millionat September SF515.0 ofit, which notably includes restructuring costs of SF56 million SF56 of costs restructuring includes notably which ofit,
[group share] share] [group s
s n r o e i POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER t d l a r o e h p e r o
a g h n s [before non-controlling interests] interests] non-controlling [before i
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Pargesa Holding SA SA Holding Pargesa e r t n t millions of Swiss francs] p e t o September 30, 2018,30, notably reflects cashing theof interestSeptember default on withholding dividends taxes mentioned on above, the positivein changevalue fair private of equity other and non-consolidated the funds and results from trading activities. The decrease in income from associates and joint ventures relates primarily to the increase of the negative contribution of of contribution negative the of increase the to primarily relates ventures joint and associates from income in decrease The year. last to compared 2019 in Parques million of SF56.2 operations discontinued from profit net The Other financial income and expenses of +SF16.4 million at September 30, 2019, compared with -SF84.1 million at 30, Other2019, financialcompared with income -SF84.1 and expenses +SF16.4of million at September
reimbursements by the French tax authorities of withholding taxes which had been applied to Total and Engie dividends dividends Engie and Total to applied been had which taxes withholding of authorities tax French the by reimbursements the in decrease the compensate than more elements different These million). (SF120.12016 and 2013 between received €/SF exchange rate. division, which was sold in October 2018. investments. The variation is due to the increase in the dividends per share paid by some of the portfolio companies, the the companies, portfolio the of some by paid share per dividends the in increase the to due is variation The investments. and GEA and Umicore in by GBL made investments additional shares, in dividend of LafargeHolcim’s monetization 2018. This change reflects the decrease of Imerys’ operating pr operating Imerys’ of decrease the reflects change This 2018. Basic earnings per share attributable to Pargesa shareholders [SF] [SF] shareholders Pargesa to attributable share per earnings Basic [in of shares thousands] number Average rate exchange €/SF average 30, million 2019, September30, at with comparedoperatingThe million SF433.6 September at profit amounts SF305.5 to Other income and expenses expenses and income Other O investments equity from interest and Dividends Otherincome expenses financial and Taxes ventures Incomejoint and associates from N Net profit from discontinuedoperations C Attributable to interests non-controlling A IFRS with Accordance in Results of Presentation as follows: is IFRS with accordance in statement income consolidated simplified The [in [unau income Operating Operating expenses SF363.9 million at September 30, 2018, comprises the net dividends recorded by the group from its non-consolidatedits net comprises30, the from 2018, dividends group the by recorded million September at SF363.9 The dividends and interest from equity investments of investments from equity interest and dividends The relatedimplementation to the Imerys’ of transformation group program. PART D PARGESA HOLDING SA 2018 and 50.7% at September 30, 2018. Most income comes from GBL, whose results are denominated in euros. At September30, 2019, the average €/SF exchange average€/SF exchange rate Average number thousands] shares of [in share [SF]per N Non-operating company from income holding activities (loss) Non per share [SF] O General expenses and taxes and expenses income Net financial C per share [SF] C C [unaudited] francs] Swiss of millions [in The economic result at September 30, 2019 can be analyzed as follows: results. the of group formation the differently analyse to possible it makes follows that result the economic of presentation The Economic Presentati attributable to non-controlling shareholders) stood at 51.7% at September 51.7% stood atat September shareholders) December to compared 50.8% at to30, non-controlling 2019, attributable 31, the conversion in 2018 ofconvertible bonds issued by GBL, acquisition of treasury shares by GBL in late 2018 and in 2019 (please refer to the section “Highlights” for more details) and rate was 1.118, compared with 1.161 in the nine-month period in 2018, a decrease of -3.7%. Furthermore, following the o o o o o e p p C Other Ontex GEA Pernod Ricard Total Umicore adidas SGS of operating share income LafargeHolcim of operating share income N Parques Imerys C n n n t e Pargesa Holding SA
o o t t t o i -operating income (loss) from consolidated shareholdings from consolidated -operating income (loss) r n r r r a n n n i i i D c b b b t t s - - i o r o c n u u u i m b o l g t t t 6 i i i i d n u
o o o e i POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019 a s n t n n n
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September September ѻѷӗѺѳѳ ѴӝѴѴѻ ѶѴѹӝѶ ѶѸѶӝѳ ѶѺѴӝѷ ӯѶѹӝѺ ӯѵѶӝѷ ѵѳѴѼ ҝӾҡҝ ҞӾқҡ ҞӾҝҢ ѶѼӝѵ ѹѸӝѺ ѴѶӝѺ Ѵѹӝѹ ѴѼӝѼ ѵѷӝѼ Ѹѳӝѷ ѹѷӝѷ ѺѴӝѸ ӯѹӝѷ Ѹӝѳ ѶӝѼ Ѻӝѹ Ѷѳӗ Ӷ ) ) )
September September ѻѷӗѹѻѳ ѴӝѴѹѴ ѵѸѴӝѶ ѵѸѼӝѻ Ѷѳѷӝѻ Ѵѳѳӝѳ ӯѵѷӝѴ ӯѵѳӝѼ ѵѳѴѻ ҜӾңҡ ҝӾҚҡ ҝӾҠҚ ѵѳӝѷ Ѵѵӝѳ ѴѸӝѹ ѴѺӝѼ ѵѳӝѺ ѷѼӝѹ Ѹѻӝѳ ӯѳӝѸ ӯѻӝѳ ӯѶӝѵ ѴӝѼ ѸӝѼ ѹӝѳ Ѷѳӗ ) ) ) ) )
PART D PARGESA HOLDING SA
f - 7 D
30, 2018. Including at September 30, 2018 the contribution contribution the September 2018 at 30, Including 2018. 30, tal, Pernod Ricard, GEA, and Ontex represent Pargesa’s share share Pargesa’s represent Ontex and GEA, Ricard, Pernod tal, ations, in Swiss francs,million30, at September was SF71.5 0.40 per share in the second quarter of 2019 (€0.375 per share share per (€0.375 of 2019 quarter second the in per share 0.40 set by the positive effect of pricing and cost-saving measures. measures. cost-saving and pricing of effect positive by the set in 2018, up 4.0%) reduced by currency effects. effects. currency by reduced 4.0%) up 2018, in (net dividends) nce of €1.35 per share for the previous year. year. previous the for per share of €1.35 nce (full consolidation(full or equity accounting) from current operations (group share) decreased by 14% to €228 million at at million €228 to by 14% decreased share) (group operations current from are for the two interim dividends. dividends. interim two the for are POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER Pargesa Holding SA SA Holding Pargesa especially in the manufacturing sector (iron and steel, industrial equipment, paper, automotive, etc.), which deteriorated deteriorated which etc.), automotive, paper, equipment, industrial steel, and (iron sector manufacturing the in especially of the deconsolidation of the impact negative the (ii) drop; to volumes sales group’s the causing quarter, third the during North American talc subsidiaries; (iii) and the temporaryWillsboroof shutdown the plant in the United States the first in hal of the year. The impactof this decline was only partiallyoff For the six-month period ended on June 30, 2019, Parques’ operating loss stood at €52 million, being -SF6.4 million in in million -SF6.4 being million, €52 at stood loss operating Parques’ 2019, 30, June on ended period six-month For the board of directors of Pernod Ricard will propose at the next annual general meeting to be held on November 8, 2019, the the 2019, 8, November on held be to meeting general annual next the at propose will Ricard Pernod of directors of board 2017 the for share per €2.36 with compared year, financial 2018-2019 full the for share per €3.12 of dividend a of distribution 2018 financialincreasean year, The 32%. of balancethereafter would amount to €1.94 per share recorded (to be during the bala a with compared of 2019), quarter fourth Pargesa’s share (-SF3.2 million for the corresponding period in 2018). 2018). in period corresponding for the million (-SF3.2 share Pargesa’s contribution31, 2019of results third the quarter will 2018, of theIn group. of 2019 be includedin the December Parques’ period ended September 30, 2019 came in at SF13.7 million, compared with SF12.0 million at September 30, 2018. The The 2018. 30, at SF12.0SF13.7 in with came compared 2019 30, September at million million, ended September period contribution to September 30, 2018 also only included the result of the first six months of the year 2018. 2018. year the of months six first the of result the included only also 2018 30, September to contribution 2019, compared with SF100.0 million at September 30, 2018. This lower performance is due to (i) market conditions, conditions, market (i) to is due performance lower This 2018. 30, SF100.0with compared September at 2019, million Pernod Ricard declared for the 2018-2019 financial year an interim dividend of €1.18 per share in the first half of 2019, 2019, of half first the in share per €1.18 of dividend interim an year financial 2018-2019 the for declared Ricard Pernod comparedwith €1.01 perin share the firsthalf 2018, of increase an Pernod 17%. of Ricard’scontribution the nine-month for January1 30, to June 2019,the company as publishesits September results 30 those only afterof result, group. the As a the the final dividend andper €0.66 sh contribution amounts to SF19.9 millionat September 2019, 30, compared SF17.9 to million at September 30, 2018. The contribution from Total was SF16.6 million at September 30, 2019,compared with SF15.6 million at September 30, 2018. The final2018 dividend the two interim first and related to dividends amounted 2019 for respectively to €0.64 share for per Non-Consolidated Shareholdings Shareholdings Non-Consolidated To Umicore, adidas, SGS, LafargeHolcim, from contributions The The 2018. in as amount same the share, per SF2.00 of dividend a declared company the 2019 In 2018. 30, September variance incontribution the reflects the monetizationthe of dividend receivedin shares by GBL and benefiting a from Parques Parques from period the for results Parques’ of share group’s the only represents 2019 30, September at contribution Parques’ Consolidated Shareholdings Imerys income net consolidated) (fully Imerys’ oper current from income net of Imerys’ share rate, Pargesa’s The contribution from SGS came in at SF50.4 million at September 30, 2019, compared with SF49.6 million for the the for million SF49.6 with compared 2019, 30, September at million SF50.4 at in came SGS from contribution The per dividend the in increase the from results year-over-year contribution of the change The 2018. in period corresponding € of dividend 2018 of its payment final the approved Umicore Umicore’s 2018). in share per (€0.35 2019 of quarter third the in share per €0.375 of dividend interim an paid and 2018) in The contribution from LafargeHolcim was SF64.4 million at September 30, 2019, compared with SF58.0 million at at million SF58.0 with compared 2019, 30, September at million SF64.4 was LafargeHolcim from contribution The cash. in received been have would that dividend the to compared premium income defined as Pargesa by amounted €314 million. to Including effect decline the the average of the exchange of €/SF share paid by SGS to GBL (SF78 compared with SF75 with compared (SF78 GBL to SGS by paid share 30, September at million SF20.7 with compared 2019, 30, September at million SF24.9 was adidas from contribution The GBL to company by the paid share per dividend the in increase the reflects mainly contribution the in change The 2018. +29%). or 2018, in vs. €2.60 (€3.35 of net dividends recordedby GBL. The contribution from non-consolidated shareholdings was SF267.1 million at SF187.6 with 2018. 30, compared September at 2019, 30, million September September 30, 2019, compared with €266 million at September from its Roofing division classified as discontinued operations in the IFRS presentation for €48 million, Imerys’ net operating net Imerys’ €48 million, for presentation IFRS the in operations discontinued as classified division Roofing its from PART D PARGESA HOLDING SA The general expenses and taxes line item represents Pargesa’s own general expenses and taxes as well as its share of those andTaxes Expenses General expenses, amounted to +SF5.0 million at September 30, 2019, compared with –SF20.9 million at September 30, 2018, and Net financial income and expenses, which include interest income and expenses, as well asother financial income and Net Financial Income and Expenses September the net At fees. 30, 2019, management and expenses general net of reported is and Capital, Sienna subsidiary its through GBL by held funds the from primarily comes funds investment other and equity private from contribution The Funds Investment Other and Equity Private from Contributions The contribution from GEA was SF7.6 million at September 30, 2019, compared with SF6.0 million at September 30, 2018. of GBL. September 30, 2018). changes in fair value during the period ofthe funds that are SF39.2 was SF20.4 with activities compared these from September million, at million and includes contribution 2018, 30, withholding taxes which had been applied to Total and Engie dividends received between 2013 and 2016. The contribution from Ontex wasSF3.9 million at September30, 2019, compared with SF5.9 million at September30, 2018. at September 30, 2019. reflects the additional investments in GEA made by GBL in the second half of 2018, raising GBL’s economic interest to 8.5% In 2019 the company paid a dividend of €0.85 per share, the same amount as in 2018. The increase of the contribution includeparticular: in The item Other mainly includes reimbursements of SF62.2 million (Pargesa’s share) by the French tax authorities of with €0.60 in the previous year, or -32%). The change mainly reflects the decrease of the annual dividend paid byOntex to GBL (€0.41 pershare in 2019, compared
September 30, 2019, compared to a profit of +SF7.1 million related to GBL’s convertible bonds at September September at bonds of +SF7.1 30, convertible September profit a GBL’s to to compared related million 2019, 30, 2018, LafargeHolcim shares issued byGBL in September 2019 and amounting to -SF4.2 million, Pargesa’s share, at The impact of the marking to market of the derivative instruments implicitly embedded in the exchangeable bonds in derivativesPargesa’s share of realized and unrealized results recorded by GBL from trading used activities (including dividends) and from in managing its portfolio dividends Engie and to Total applied have unduly been taxes which the withholding on interest default of million +SF11.3 forInterest income +SF4.7and expenses recorded byPargesa and million at September 30, 2019, compared with -SF2.3 million at Pargesa Holding SA bonds that have been reimbursed in 2018. September 30, 2018; received between 2013 and 2016. Interest income and expenses million amounted at September to -SF10.3 30, 2018; D 8 POWER FINANCIALCORPORATION — THIRD QUARTER REPORT 2019
not fully consolidated for +SF40.4 million (+SF14.8 million at million for +SF40.4 fully consolidated not (+SF14.8 million GBL of +SF5.8 million at September 30, 2019, including PART D PARGESA HOLDING SA 9 D expenses” amounted to -SF21.3 million, compared to to compared million, -SF21.3 to amounted expenses” activities was nil at September 30, 2019, compared to to compared 2019, 30, September at nil was activities .7 million in Pargesa’s share) of restructuring costs incurred incurred costs restructuring of share) Pargesa’s in .7 million
POWER FINANCIAL CORPORATION — THIRD QUARTER REPORT 2019 REPORT QUARTER FINANCIAL CORPORATION — THIRD POWER SF0.3 million in 2018. 2018. in million SF0.3 “Consolidated Shareholdings”) for €126 million at June 30, 2019, or SF15.4 million in Pargesa’s share, compared with with compared share, Pargesa’s in million SF15.4 or 2019, 30, June at million €126 for Shareholdings”) “Consolidated by Imerys as part of its transformation program and €5 million (or SF1.7 millionPargesa’s in share)million relating the (or to SF1.7 by Imerys part as its of transformationprogram and €5 30, 2019,seecomments under Non-recurring expenses recorded by Parques during the period (endedon June Pargesa Holding SA SA Holding Pargesa and income operating “other Imerys’ of share Pargesa’s temporary shutdown its of Willsboroplant in the United States; -SF7.7 million in 2018. This item includes, €50 million (or SF15 (or million €50 includes, item This 2018. in million -SF7.7
After taking thesevarious itemsintoaccount, Imerys’ income net included economicin the resultshare) (group amounted income net Parques’ period. the over decline 46% a 2018), September 30, at million SF92.3 with (compared million SF50.2 to 2018) andincludes: amounted to -SF21.8 million (group share) compared to -SF3.5 million in 2018. 2018. in million -SF3.5 to compared share) (group million -SF21.8 to amounted The same will apply to the capital gain to be realized by GBL in 2020 on the forward sale of 0.6% of Total’s share capital, capital, share Total’s of 0.6% of sale forward the on 2020 in GBL by realized be to gain capital the to apply will same The half of 2019 amounting to SF194 million (Pargesa’s share) has not been recorded in the income statement, but directly in in directly but statement, income the in recorded been has not SF194 share) to (Pargesa’s amounting million 2019 of half equity. shareholders’ which will generatean estimated profit of million SF326 in Pargesa’s share(including a foreign exchange gain on disposal at Pargesa’s level)andwill which also not impactincome the statement. Non-operating income (loss) from holding company activities The net non-operating income (loss) holding from company (Loss) Income Non-Operating Non-operating income (loss) from consolidated shareholdings 30, September at million (-SF8.0 million -SF36.7 to amounts shareholdings consolidated from (loss) income Non-operating It should be noted that, pursuant to IFRS 9, the gain resulting from the sale byof GBL of 1% adidas’ capital during first the -SF0.5 million at September 30, 2018. 2018. 30, September at million -SF0.5 PART D PARGESA HOLDING SA ӧѵӨ The net asset value is published on a weekly basis on Pargesa’s website. [ ӧѶӨ [ exchange€/SF rate Share price Pargesa per share value asset Net N T O L [unaudited] otherwise noted] [in N The table below provides a detailed view of Pargesa’s net asse Net Asset Value ee tteedo 08(F0. e hr) t a S130 e sae on October 25, 2019. share per SF123.0 was level at the per endshare). of 2018It (SF105.9 Pargesa’s net asset value per per share share wasat September SF122.0 30, 2019, an increase of 15.1% compared with the Capital). listed shareholdings, and on the fair value and current exchange rates for private equity and other investment funds (Sienna assets and liabilities of GBL. The net asset value is calculated based on current market values and exchange rates for the other the and position debt or net net the cash of portfolio, the value the share in Pargesa’s hand, on other the and, GBL) in participation Pargesa’s (excluding of Pargesa liabilities and assets the hand, one on taking, by calculated is value asset net Pargesa’s share price stood at SF76.8 30,on September 2019, comp The net asset value at September 30, 2019 is broken down as follows: down follows: broken as is 2019 30, September at asset value net The At October 25, 2019, the share price closed at SF76.6. ѷ Ѵ i o e s e t This item includes also Pargesa’s in share themarket valueof GBL’s trading portfolio. ] The%of capital represents the%of capital heldby GBLin theshareholdings; theflow-through %of interest represents Parg ] millions of Swiss francs, except as as except francs, Swiss of millions Theownership percentage as well as themarket value of the investment do not yettakeinto account theforward sales of Total Indirect holding of GBLin Parques. t Net cash (debt) Net cash treasury assetsGBL PargesaOther CapitalSienna Other Parques Ontex GEA Total Umicore Imerys LafargeHolcim SGS Pernod Ricard adidas h t t t
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cluded in theitem Netcash (debt) for SF10 million. capital capital ѵ ѵѳӝѳ Ѵѻӝѳ Ѹѷӝѳ ѴѹӝѺ % o ѶӝѶ ѻӝѸ ѳ Ѽ Ѻ ѹӝѻ . . ӝѶ ѹ Ѹ f
ӧѶӨ ӧѴӨ
economic economic interest interest ѴѴӝѺ Ѵѳӝѳ ѵѺӝѳ % of % of ѷӝѶ ѳӝѶ Ѽӝѳ ѷӝѺ ѻӝѷ Ѷӝѻ Ѷӝѷ
ӧѴӨ
t value (on a flow-through basis) at September 30, 2019. The ČyѵӗѷѺѷӝѳ Share price Share price & currency & currency ared with SF70.9 at the end of2018, an increase of 8.3%. ԦѴѹѶӝѷ ԦѵѻѸӝѺ ԦѴѶӝѻ ԦѴѹӝѸ Ԧѵѷӝѻ ԦѷѺӝѼ ԦѶѷӝѹ ԦѶѹӝѼ ԦѷѸӝѴ
Ѵѳӗѷѻѹ ѴѳӗѶѶѳ through through ѴӗѷѳѴ ѴӗѸѹѺ ѴӗѺѹѶ ѵӗѴѴѵ ѴӝѳѻѸ қҜҜ ӯѷѳѷ Flow ҡҠӾҢ value value ѵѷѻ Ѽѵѳ ѴѴѶ Ѵѵѻ ѴѷѺ ѵѳѹ ѷѵѴ ѻѶѶ ѻѸѼ Ѵѹ September September . Қ -
)
Weighting Weighting ѶѳӗѵѳѴѼ of total total of as a % as a % Ѵѳѳ Ѵѳѵ Ѵѷ ѴѸ ѴѺ ѵѳ ӯѷ ѵ Ѵ Ѽ Ѵ Ѵ Ѵ ѵ ѷ ѻ Ѽ esa’s share (50%)of the%esa’s of
)
shares which will mature in December December ѶѴӗѵѳѴѻ through ѴӝѴѵѺ қҚҟӾң ѻӗѼѺѶ Ѽӗѷѵѹ ѴӗѳѴѷ ѴӗѴѸѹ Ѵӗѷѳѳ Ѵӗѹѳѹ ѴӗѹѴѶ ӯѸѹѹ Flow ҡҚӾң value value ѴѴѶ ѺѺѷ Ѵѳѷ Ѵѹѹ ѴѼѸ ѷѵѵ ѻѸѹ ѵѷ Ѽѹ -
)
Corporate Information
POWER FINANCIAL CORPORATION
751 Victoria Square Montréal, Québec, Canada H2Y 2J3 514-286-7430 1-800-890-7440
161 Bay Street, Suite 5000 Toronto, Ontario, Canada M5J 2S1 416-607-2250 www.powerfinancial.com
This document is also available on the Corporation’s website Transfer Agent and Registrar and on SEDAR at www.sedar.com. Computershare Investor Services Inc.
Offices in: Stock Listings Montréal, Québec; Toronto, Ontario Shares of Power Financial Corporation are listed on the www.investorcentre.com Toronto Stock Exchange: COMMON SHARES: PWF Shareholder Services FIRST PREFERRED SHARES: Shareholders with questions relating to the payment of dividends, Series A: PWF.PR.A Series O: PWF.PR.O change of address, share certificates, direct registration and estate Series D: PWF.PR.E Series P: PWF.PR.P transfers should contact the Transfer Agent: Series E: PWF.PR.F Series Q: PWF.PR.Q Series F: PWF.PR.G Series R: PWF.PR.R Computershare Investor Services Inc. Series H: PWF.PR.H Series S: PWF.PR.S Shareholder Services Series I: PWF.PR.I Series T: PWF.PR.T 100 University Avenue, 8th Floor Series K: PWF.PR.K Series V: PWF.PR.Z Toronto, Ontario, Canada M5J 2Y1 Series L: PWF.PR.L Telephone: 1-800-564-6253 (toll-free in Canada and the U.S.) or 514-982-7555 www.computershare.com
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POWER FINANCIAL CORPORATION FINANCIAL POWER 2019 REPORT QUARTER THIRD