PFM Capital Annual Report 2020 by pfmcapital

2020

A N N U A L

P R I V A T E

E Q U I T Y

R E P O R T

I N V E S T M E N T

M A N A G E M E N T

C O M P A N Y

PFM Capital Inc. was established to provide a home grown solution to the lack of capital available for Saskatchewan businesses, aiming to provide companies with the resources required to execute their strategic goals while adding long-term value to the benefit of all stakeholders. We hold all of our partners and investees in the highest regard and personally invest in all of the funds that we manage. We make it a point to align our interests with those of our partners and are committed to building long-term mutually-beneficial relationships. Randy Beattie Founding Partner, President

C U R R E N T

F U N D S

U N D E R

M A N A G E M E N T

SERIES OF FUNDS

ADAPTING TO UNPRECEDENTED TIMES As we celebrate 20 years of managing private funds, we reflect on our ability to adapt while remaining consistent with our conservative approach. Thank you for another year of support of PFM and our investment funds. With the onset of the pandemic, 2020 brought some unique challenges and presented new opportunities. Twelve months ago, we were in the early stages of the pandemic and there was a great deal of uncertainty across all sectors. Now that we appear to be on the road to recovery, we understand the economic situation much better, and several sectors are showing signs of getting back to normal and even expanding. We continue to believe that economic recovery will come intermittently, and persistent work is needed to reach full recovery. Agriculture and energy are rebounding nicely and are key to the Saskatchewan and Western Canadian economies; however, we are seeing the beginnings of long-term effects of a historic health crisis that will have an impact for a long time. We believe that it is at times like these that our internal stability and patience are very important. The majority of our investment team has been together for close to 15 years and PFM as a Fund Manager has been active in the industry and province for over 20 years. Through that experience, we have built investment processes that focus on understanding and reducing risk. Over the last half of 2020, we focused on follow-on investments with current portfolio companies, as these are companies that we know and understand well. To that end, there were some opportunistic investments that were made in this time period. As we have moved into 2021, our emphasis is shifting to new transactions given our comfort that the existing portfolio is stabilized and reacting well to circumstances. We continue to exercise patience and prudence as we add investments to the portfolio and also work to exit some of our longer-tenured portfolio companies. Since the Fall of 2020, deal flow opportunities have been very strong. As we apply our investment processes to the

opportunities, we will focus on the shape of the recovery within each sector. As we have seen in the past, times of uncertainty can provide exceptional return opportunities during the recovery, provided risk is managed. We continue to believe that the quality of our portfolio management teams is perhaps the strongest indicator of success for our investments. We have been extremely proud of our management teams over the past year as they have gone above and beyond to ensure their employees and customers are safe and that their businesses are running smoothly. PFM has managed private funds for 20 years! We are grateful for the trust that our Limited Partners and shareholders have placed in us over that time period. An economic impact study has been commissioned that will provide some data next year to reinforce that not only have we been able to provide attractive returns to investors, but we also (collectively) have made a difference in the province and region. Twenty years ago, PFM’s dream to establish a homegrown private fund came true. Prairie Ventures Investment Fund (PVLP) was PFM’s first private fund, and its final proceeds were distributed in 2020. This closes a chapter in PFM’s ongoing journey, and we want to again thank everyone for their role in the success of PVLP. Thank you for your support of PFM. We will continue diligently to ensure that 2021 will yield good results for our investors, and we hope that you and your family stay healthy and safe.

Randy Beattie

Rob Duguid

Founding Partner, President

Founding Partner, Chief Executive Officer

PF M CA PITA L INC.

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OUR STRATEGY PFM Capital invests in mid-market businesses, with the objective of achieving long-term capital appreciation. By strategically focusing on both yield and growth, we are able to structure our investments in a way that suits both our investors and our portfolio companies. We use a broad range of securities, from common equity to subordinated debt, which ensures that our investees are able to grow and execute on their business plan without ever impeding the balance sheet.

Our Typical Investment At PFM we are able to structure our transactions using a variety of instruments and ownership stakes to match the needs of our investee companies. While our flexibility allows us to invest in a wide range of companies and industries, our business partners typically exhibit the following attributes:

Well-aligned, experienced management teams,

Market segments with growth potential,

5-8 year investment timeframe,

A clear identifiable exit opportunity,

EBITDA of $2 – $10 MM and/or enterprise value of $10 – $50 MM. If a company matches our investment criteria, we would typically invest $5 – $20 MM in a single financing. We will invest more or less than our typical transaction amount depending on the circumstances of the particular investment opportunity.

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2020 ANNUAL REPORT

APEX SERIES The Apex Series of Funds offer institutional and accredited investors exposure to a professionally managed, diversified portfolio of private companies. Building on the success of Apex Investment Fund Limited Partnership, Apex II and Apex III targets mature companies with established operations that can provide high growth and/or yield potential in the energy, value-added agriculture, real estate, consumer discretionary, industrials and manufacturing sectors.

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FUND STATISTICS

Total value invested at cost since inception

$91,328,476

Total number of investments since inception

Value of remaining investments at cost

$13,049,509

Total number of remaining investments

PORTFOLIO ACTIVIT Y BY SECTOR AT COST SINCE INCEP TION Oil & Gas Production 32.46%

Oil & Gas Services & Infrastructure 17.95% Industrials 9.18% Value-Added Agriculture 8.73%

Consumer & Other 19.88%

APEX INVESTEE HIGHLIGHT – SPUR PETROLEUM (EXIT) Spur Petroleum Ltd. has oil and gas assets in Central Alberta and is well-regarded for its operating efficiency. Apex gained exposure to the company through its previous iteration, Spur Resources, which was one of a few producers to generate strong returns and achieve a successful liquidity event during the previous energy market downturn. The management team was able to generate similar success in Spur Petroleum, and Apex fully exited its position in the secondary market after realizing significant gains.

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Real Estate 11.8%

PORTFOLIO HOLDINGS

Apex is the first iteration of PFM’s diversified private equity fund. A non-brokered raise in 2007 resulted in committed capital of $95.3 million. The Apex Investment Fund has been fully drawn as at December 31, 2015 and to date, Apex has successfully exited 37 of 46 companies.

Avalon Oil and Gas is a heavy oil-focused exploration and production company with operations in the Lloydminster area. Avalon’s principals have extensive sector-specific experience and have created value for shareholders through their two previous entities.

Caltex Resources engages in heavy oil and natural gas exploration in Western Canada. The company’s management team created substantive value with its most recent heavy oil iteration and will deploy a similar combination of strategic acquisitions and organic growth through economic and technically-robust plays.

Fire Sky Energy Inc. is an exploration, development, production and acquisition company with oil and natural gas assets. Headquartered in Estevan, Saskatchewan, Fire Sky benefits from a strong land position and a mangement team committed to establishing operating efficiencies.

Hi-Tec Profiles Inc. is a Regina-based steel-processing company that provides pre-cut input material for large agricultural and industrial equipment manufacturers. Founded in 1995, Hi-Tec provides the material input for large agricultural implements, electrical transformers, and equipment used in potash mines and steel mills, as well as numerous miscellaneous items.

Lazar Equipment is an agricultural, yard maintenance and light construction equipment dealership located in Meadow Lake, Saskatchewan. Founded in 1955, the company has grown from a General Motors Dealership to Western Canada’s largest New Holland single-story hay equipment dealer.

Stampede Drilling Inc. is a Calgary-based publicly traded energy services company (TSXV: SDI). Stampede provides contract drilling services to oil and gas companies located in the Western Canadian Sedimentary Basin and the Permian Basin in the U.S.

The Wireless Age through its retail and commercial divisions, is a multi-dimensional participant in the Canadian Wireless Industry. As a SaskTel authorized dealer, The Wireless Age markets communications solutions, products and services of supplier partners to end users in both the consumer and business markets.

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FUND STATISTICS

Total value invested at cost since inception

Total number of investments since inception

$91,279,555

Value of remaining investments at cost

$82,605,280

Total number of remaining investments

PORTFOLIO ACTIVIT Y BY SECTOR AT COST SINCE INCEP TION Industrials 24.63%

Value-Added Agriculture 3.4% Real Estate 11.46%

Oil & Gas Services & Infrastructure 27.13%

APEX II INVESTEE HIGHLIGHT – TAM INTERNATIONAL Founded in 2004 and based in Saskatoon, Saskatchewan, with satellite offices in Whitby, Ontario; Vancouver, British Columbia; Paducah, Kentucky; Chester, England; and New Delhi, India, TAM is a global freight forwarder focused on providing a full scope of logistics solutions for Class 7 and other specialized material around the world.

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Consumer & Other 15.56% Oil & Gas Production 17.83%

PORTFOLIO HOLDINGS

Building on the success of Apex Investment Fund Limited Partnership, Apex II targets mature companies with established operations that can provide high growth and/or yield potential in the energy, value-added agriculture, real estate, consumer discretionary, industrials and manufacturing sectors.

All-Fab Group designs, manufacturers and distributes structural wood building components for residential, commercial and agricultural applications as well as ready-to-move homes and buildings in Canada and the United States. The company operates under five brands: All-Fab, Olympic, Nu-Fab, Pacific and Littfin, with manufacturing facilities in Canada and the United States.

Aureus Energy Services provides water management, water treatment, heating and hot oil services to oil and gas companies that operate in Western Canada and the United States.

Burgess Creek is a junior oil and natural gas exploration company that primarily focuses on lower risk conventional drilling prospects. The Burgess Creek management team has generated strong returns in two prior companies across a variety of commodity cycles. The company raised capital for the start-up and growth of a Southeastern Saskatchewan focused E&P company.

Certarus Ltd. Is a Calgary-based provider of integrated compressed natural gas (“CNG”) services to energy and industrial clients located throughout North America. Apex II gained exposure to Certarus through a combination of equity raise participation and secondary market share acquisitions.

Chronos Resources Ltd. Is an oil and gas exploration and development company with operations focused in Southwest Saskatchewan. The company plans to take advantage of lower asset prices in the area to efficiently develop a large resource base.

CORE Linepipe is a manufacturing and service company that specializes in the development, manufacturing and installation of a proprietary corrosion resistant pipeline system. CORE developed and manufactures a liner which is inserted into conventional steel pipe, and developed and manufactures a mechanical pipe joining system.

FOUNDATION DEVELOPMENTS

Foundation Developments consists of a portfolio of four commercial buildings with a total of 159,111 square feet of office space in Regina, Saskatchewan. The buildings have a low vacancy rate, are secured with long-term leases by high-quality tenants, and were purchased opportunistically.

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Harbour Landing Village is a greenfield senior housing development located in south Regina. The offering consists of independent, assisted and supportive senior living as well as childcare services. Additional amenities include an onsite restaurant and coffee shop open to the public, home care services, wellness activities and social events.

Karve Energy is an E&P company operating in east central Alberta that Apex II initially gained exposure to in July 2014 through an equity raise. The company was recapitalized in June 2016 when a new management team was brought in.

The Parkside Townhomes investment was used for the development and construction of 80 townhouse rental units in the Evergreen subdivision of Saskatoon with Innovative Residential Inc.

Prairie Soil Services provides a variety of value-added services to farming operations in the Yorkton/Canora area, working alongside producers to streamline their input purchases and establish efficiencies in accounting and seeding processes.

Spur Petroleum Ltd. has oil and gas assets in Central Alberta and is well-regarded for its operating efficiency. Its previous iteration was one of few producers to generate strong returns during the downturn and achieve a successful liquidity event during the previous energy market downturn.

Steel Reef Infrastructure Corp. is a midstream energy infrastructure company with operations focused in Saskatchewan, Alberta and North Dakota. The company has developed a cohesive mix of high-quality processing, gathering/transportation and storage related assets secured with long term take-or-pay contracts.

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Founded in 2004 and based in Saskatoon, Saskatchewan, with satellite offices in Whitby, Ontario; Vancouver, British Columbia; Paducah, Kentucky; Chester, England; and New Delhi, India, TAM is a global freight forwarder focused on providing a full scope of logistics solutions for Class 7 and other specialized material around the world.

Urban Heights was established for the development and construction of 62 townhouse rental units in the Evergreen subdivision of Saskatoon with Innovative Residential Inc.

WindRiver’s focus is on developing and operating commercial wind power generation and run-of-river hydro generation projects. WindRiver is currently developing projects in Alberta and British Columbia and is committed to the communities that host the generation facilities.

Apex II completed its final close on June 19, 2014 with total committed capital of $88 million. The fund was fully drawn as at June 30, 2019 and has successfully exited 5 of 27 companies.

APEX II INVESTEE HIGHLIGHT – PRAIRIE SOIL SERVICES LTD.

PF M CA PITA L INC.

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FUND STATISTICS

Total value invested at cost since inception

$27,530,649

Total number of investments since inception

Value of remaining investments at cost

$27,530,649

Total number of remaining investments

PORTFOLIO ACTIVIT Y BY SECTOR AT COST SINCE INCEP TION

Oil & Gas Production 4.14%

Oil & Gas Services & Infrastructure 51.95%

Consumer & Other 17.44% Industrials 26.48%

APEX III INVESTEE HIGHLIGHT – LIFT AUTO GROUP Lift Auto Group is a Kelowna-based consolidator of automotive collision repair centres across Canada. The company currently has twelve locations across British Columbia, Alberta and Saskatchewan with plans to expand its footprint East across the rest of Canada. Lift is wellpositioned to become a leading player in a highly fragmented industry and Apex III’s investment will help accelerate the company’s growth by providing the financing for future acquisitions.

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PORTFOLIO HOLDINGS

Apex III Investment Fund provides institutional and accredited investors with access to participate in equity, near-equity or subordinated debt investments in mid-market private Western Canadian based companies that offer the potential for substantial capital appreciation or income generation. Apex III is the third iteration of PFM’s diversified private equity fund.

Certarus Ltd. Is a Calgary-based provider of integrated compressed natural gas (“CNG”) services to energy and industrial clients located throughout North America.

Lift Auto Group is a Kelowna-based consolidator of automotive collision repair centres across Canada. The company currently has twelve locations across British Columbia, Alberta and Saskatchewan with plans to expand its footprint East across the rest of Canada. Lift is wellpositioned to become a leading player in a highly fragmented industry and Apex III’s investment will help accelerate the company’s growth by providing the financing for future acquisitions.

Apex III completed its final close on November 1, 2019 with total committed capital of $103.4 million. Apex III has maintained consistency with Apex I and Apex II’s mid-market investment philosophy. As at December 31, 2020, approximately 26% of the total committed captial has been placed.

PF M CA PITA L INC.

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OUR RESULTS AS AT DECEMBER 31, 2020, PFM HAD:

More than

$966

million

of capital raised

Invested

Exited 86 companies for

in 134 portfolio companies

in realized gains

$935

OUR ACTIVITY Special Situations 20.8%

million

$492 million

PFM disbursed since inception (as at December 31, 2020)

Energy (E & P) 25%

Energy Services 6.2%

Ag Products & Services 10.9%

Energy Midstream 13.1% Consumer Discretionary 10.8%

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Industrials 13.1%

OUR TEAM

PFM Capital Inc. is an employee-owned investment firm. Founded in 1989 as a corporate finance company, PFM has been managing private equity and venture capital funds since 1993. With more than 20 years of experience each and 15+ years of working together in Private Equity fund management, our senior management team has been active in our network for years and has experience in all major industries that drive growth in the prairies.

Randy Beattie

Rob Duguid

Chris Selness

Founding Partner, President

Founding Partner, Chief Executive Officer

VP – SaskWorks, President – TopSoil & TopSoil II

Mike Merth

Jeff Linner

Johanna Salloum

Jason Moser

Jardin Schnurr

Partner, Chief Financial Officer

Partner, Chief Investment Officer

Partner, Senior Director – Investments

Director – Investments

Ghalib Hemnani

Adam Laprairie

Dilan Elgert

Noah Picton

Mounika Bairneni

Investment Associate

Investment Analyst

Compliance & Governance Analyst

Office Manager

Janet Zakresky

Marga Bos

Sarah Laxdal

Ben Findlay

Austin Bentz

Controller

Accountant

Communications Manager

Associate Director Investor Relations

Investor Relations Analyst

2 nd Floor, Assiniboia Club Building, 1925 Victoria Avenue, Regina, SK S4P 0R3 TEL 306.791.4855 | FA X 306.791.4848 | EMAIL pfm@pfm.ca | WEB pfm.ca