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Chairman's Letter

Dear Fellow Shareholders,

2015 was a disappointing year for the capital markets and for GMP, particularly from an earnings and share price performance perspective. We faced significant operating challenges — many of which were beyond our control. This included a precipitous decline in business activity in the mining and oil and gas sectors resulting from the prolonged imbalance in global supply and demand dynamics and heightened risk aversion. At the same time, competition across our core businesses has intensified.

2015 was also an important year for the firm. It marked GMP’s 20th Anniversary, and, while certainly not without challenges, GMP continued to evolve its franchise by undertaking fundamental organizational change in response to permanent structural and regulatory changes in the industry.

For two decades, GMP has proven itself resilient. Our differentiating strength is having the conviction to take a leading role in reshaping the competitive landscape. Together, with management, we made considerable progress toward reshaping and streamlining the firm for the future, maintaining a strong balance sheet, prudently managing capital and enhancing the Board’s independent risk management oversight.

Reshaping GMP

The pace of technological upheaval in the trading business and breadth of regulatory change facing the financial services industry has been astounding. When combined with a shrinking pool of deals, it became clear that bold steps were needed. The capital markets landscape turned decidedly “Darwinian” — you either adapt or cease to be viable. Adapting with an eye to the future is precisely what GMP did.

As a Board, we spent considerable time working closely with management on strategic initiatives designed not only to reshape the firm, but to reshape the competitive landscape in the independent brokerage space. These actions included a sharpened focus on our larger North American operations, exiting non-core or underperforming businesses affected by the ongoing challenging operating environment and optimizing operations by substantially reducing both fixed costs and headcount across the entire franchise. This decisive response positions us well to succeed in the “new reality” marketplace.

Leadership

The single most important factor underlying GMP’s success has always been the exceptional people that go up and down the elevators each day. As such, one of the Board’s primary responsibilities is overseeing an effective and transparent succession planning process. 2015 emphasized the importance of leadership succession, extending beyond just the CEO. Succession is more than just a one-year commitment. It is an ongoing process where we assess and constructively debate the breadth and depth of the firm’s talent pool. Under Harris’ leadership, I am confident we have the right management team in place as we move forward.

Shareholder Alignment

Over the past several years, the Board directed considerable focus toward ensuring Directors’ interests are better aligned with those of shareholders. These efforts include the introduction of a Director Deferred Share Unit Plan, last year. In early 2016, the Board approved a 10% reduction to annual Directors’ fees effective January 1, 2016. This decision was prudent in the context of GMP’s restructuring and is consistent with the 10% salary reduction implemented for certain senior management in late 2015. I believe these decisions are an integral component in maintaining shareholder trust and ensuring that Directors’ interests remain aligned with those of shareholders.

Capital

The Board is committed to maintaining a conservative approach to capital across all business cycles. The firm’s capital position is actively discussed at each Board meeting. The Board prides itself on prudent capital management. In total, we returned $18 million in capital to shareholders in 2015 through a combination of share repurchases and dividends. In connection with the broader restructuring of the firm’s Capital Markets business and following extensive discussions, the Board decided to suspend the firm’s quarterly common share cash dividend. The decision was prudent in the context of the magnitude of the restructuring. We remain conservatively capitalized.

Closing

The competitive playing field has been reshaped, and GMP has taken a leading role. GMP is a much stronger, leaner and more focused franchise. We have the right business model, a highly motivated and entrepreneurial workforce and a strong balance sheet. We remain on the right course.

I would like to thank my fellow Board members for their insight, sound judgment and commitment during these challenging times. On behalf of the Board, I would also like to thank our shareholders for their support. We remain committed to working on your behalf.

DONALD A. WRIGHT
Chair of the Board of Directors of GMP Capital Inc.