Investment Saskatchewan The Newest Commercial Crown Janet Wightman

Investment Saskatchewan The Newest Commercial Crown Janet Wightman November 15, 2005

Investment Saskatchewan • Commercial Crown operating at arms-length from Gov’t. • Capital available for investments in SK businesses • Client focus by adding value to investee company 3 C’s

Overview Investment Saskatchewan Commercial Crown Capital for Investments Client-Focus

The Gap • GDP growth of 3% in 2004 projected 2. 6% in 2005/2006 • VC activity up 37% in Western Canada • $ 28 million disbursed to 17 SK companies • 21% increase • 2. 9% of deals in Canada • 1. 6% of total Canadian VC dollars invested in SK • Focus on life sciences and traditional sectors • LSVCC account for most VC backing • Local funds typically do smaller deals (<$3 -4 million) Without public capital an equity financing gap exists.

A New Commercial Crown • Created in September 2003 to: • • • Independent private sector board mandated to make decisions at arms-length on: • • invest public capital to encourage economic activity and separate decision making from political system investments/divestments management investment management model Challenge is to balance: • • commercial operations and return shareholder expectations on public policy Unique in its governance structure

Mandate • Invest public capital in SK businesses on commercial terms • Leverage investments in order to encourage private sector investments • Achieve return commensurate with risk on new investments • Maximize return on existing portfolio • Seek private sector management of portfolio Focused Operating Mandate

New Investments • Full Range of investments – Directly or – Through sub-manager • Direct Investments >$3 million – Equal terms with partners – 5 -7 year hold period – Prefer < 40% ownership • Channel other Investments through sub-managers: – Small or specialty niche investments – PFM, Westcap, Primaxis, Foragen, Western Life Sciences, PVF Covers full spectrum of capital needs

Evolution - A New Model • Board’s task was to determine best model for private sector management between: – Existing third party firm – Create investment management company • Open national competitive process involving >50 firms – RFP process completed - no award of contract for variety of reasons • Board is investigating creation of an employee owned IMC (e. g. Greystone): – – Better economics Mind and management in Saskatchewan Retention of expertise and existing investee relationships Add to the investment management industry in SK Outcome - unknown

Investees by Sector Manufacturing And Processing 7% Adv. Tech, Biotech and Pharma 3% Ag and Ag Related 8% Fertilizer 29% Strong client base in diverse businesses Other (Tourism/Culture, Mining, Real Estate) 7% Financial / Insurance 19% Forestry and Related 27%

Direct Investments Beauval • Minds Eye Entertainment Ltd. . • Big Sky Farms Inc. • Pangaea Systems Inc. • Bioriginal • Premium Brands Inc. • Centennial Food Partnership • • Hypor Saskatchewan Valley Potato Corporation • • • Meadow Lake Pulp Limited Partnership • Meadow Lake OSB Limited Partnership • Canadian Western Bank • Great Western Brewing Co. Equity • Debt Properties • Sask. Ferco Products Inc. Solido • HARO Financial Corporation • Kitsaki/Zelensky Sawmill Various Our contribution is unique to each business

Partnering Through Fund-of-funds • Prairie Ventures Limited Partnership – Local fund currently $18. 25 million – fundraising mode • Foragen Technologies Limited Partnership – National early stage Ag biotech – growing value & planning exits Western Life Sciences Ventures Fund Limited Partnership – Western early stage life sciences – growing value & planning exits • Primaxis Technology Ventures Incorporated – National early stage advanced technologies – growing value & exits • WTC/PCF Outsource Contracts – Small investments (< $3 million)- original book $20 m – now <$10 m – Primarily economic development driven investments – Mandate to maximize returns & liquidate as appropriate Complements private sector investment capacity

Overview Investment Saskatchewan Commercial Crown Capital for Investments Client-Focus

Available Capital • Annual allocation of $50 million for new investments – New capital generated from existing portfolio • $459 million assets pooled from previous programs – Each with different mandates (CIC III, SOCO, SEDCO) • Strong cash-flow – Mandate to be self-sustaining • No dependency on appropriation from shareholder – Except if additional capital required for large investment Existing portfolio throws off capital for new investments

2004 Financials • Financials – $ 459 million portfolio reduced from $600 million – $ 19. 3 net income ($7 m budget) – $ 42 million dividend to shareholder (0 budget) – $ 125 million cash Strong portfolio performance

Historic Results • Since 1999 invested $93. 7 million in 8 new projects – levered $284 million of private sector capital • Since 2000 committed $54 million to 4 funds – levered additional $157 million in private sector funds • In 2002 outsourced management of small portfolio – valued at approximately $23 million • Forecast Returns – weighted average 3% IRR – not commercial rates of return

Portfolio Diversification • Restricted geographically therefore diversification is achieved through: • all sectors (forestry, agribusiness, advanced technology, IT, environmental technology, resource extraction & energy) • alll stages (early stage, start-up, expansion, mbo’s, turnarounds, succession) • all financing instruments (equity, common & preferred, sub-debt, mezz etc. ) Portfolio management through diversification

Risk / Return Continuum 35%+ VC 25%+ 20% 16 -18% 10 -15% Prime+ Private Equity Mezz Sub-Debt Stretch Sr. Debt Early Stage Later Stage Critical Factors: Stage of Investment & Industry Sector Risk profile drives return expectations

Overview Investment Saskatchewan Commercial Crown Capital for Investments Client Focus

Focus on the Client • Objective is to grow investee companies – Over 5 -7 year average hold period • Active ownership contributes to growth of investee companies: – On boards and owners committees – With management teams in sharing expertise • • External Board appointees chosen for skills/domain expertise Strong network of strategic and joint venture partners Work in the best interests of investee companies In distress - workout for best return for shareholders Clients access resources which might otherwise be unavailable

Differentiators • Strong knowledge of local market and business environments • Experienced, professional management • Best-in-class governance framework – Policies & investment guidelines – Due diligence, monitoring and reporting protocols – Quarterly valuation reviews and annual re-valuation (CVCA/EVCA standards) • Patient partner with long-term view • Risk adjusted return expectations – no one size fits all • Commercial terms and flexible to “tailor-fit” (e. g. puts/calls, buy -backs, etc. ) “Investment Saskatchewan will make decisions about future investment opportunities independent of the government” (Premier L. Calvert, September 2003)

Key Points to Remember • Commercial Crown corporation – Independent private sector board with delegated authority • Capital - $50 million annually for new investments – Active partnerships and connections with other sources of capital • Client Focused – Growth objective – Active ownership in the best interests of investee company Saskatchewan is business friendly