Investment SaskatchewanThe Newest Commercial Crown

Janet WightmanNovember 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:• invest public capital to encourage economic activity and • separate decision making from political system

• Independent private sector board mandated to make decisions at arms-length on: • 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 SectorAdv. Tech, Biotech and Pharma3% Other (Tourism/Culture,

Mining, Real Estate)7%

Financial / Insurance19%

Forestry and Related27%

Fertilizer29%

Ag and Ag Related8%

ManufacturingAnd Processing7%

Strong client base in diverse businesses

Direct Investments • Beauval

• Big Sky Farms Inc.

• Bioriginal

• Centennial Food Partnership

• Hypor

• Meadow Lake Pulp Limited Partnership

• Meadow Lake OSB Limited Partnership

• Canadian Western Bank

• Great Western Brewing Co.

• Various

Equity

Debt

Properties

• Minds Eye Entertainment Ltd..

• Pangaea Systems Inc.

• Premium Brands Inc.

• Saskatchewan Valley Potato Corporation

• SaskFerco Products Inc.

• Solido

• HARO Financial Corporation

• Kitsaki/Zelensky Sawmill

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 ($7m 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

VC Private Equity Mezz Sub-Debt Stretch Sr. Debt

35%+ 25%+ 20% 16-18% 10-15% Prime+

Critical Factors: Stage of Investment & Industry Sector

Early Stage Later Stage

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