PFM Capital Annual Report 2021

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2021 ANNUAL REPORT

A

P R I V A T E

E Q U I T Y

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


YEAR OF RECOVERY AND GROWTH April 5, 2022

Thank you for another year of support of PFM and our investment funds. Despite the ongoing challenges and unique issues

$1 Billion primarily from Saskatchewan investors and

throughout the year, 2021 represented a return to more

we treat that responsibility with our utmost respect.

normal capital markets and represented a strong year for

We continue to be humbled by your support and trust

PFM and our funds under management.

in our team and processes.

We entered the year with cautious optimism, both in

The opportunity for private investment in Saskatchewan

our personal lives, but also professionally, that Covid

and Western Canada continues to be very exciting.

was in the rear-view mirror. Unfortunately, we continued

Our deep network of business relationships and capital

to see the impacts of the pandemic in all of our personal

partners provides a wealth of deal flow that, when

lives throughout 2021. From an economic standpoint,

combined with our disciplined investment approach,

our portfolio companies had a robust year of recovery

provides you, our investors, with unique access to

and growth. The strength of our management teams

middle-market private companies. We are very proud

shone through as our investee companies took

of our track record of providing attractive returns to our

advantage of opportunities in the market to perform

investors by executing on this strategy.

very well.

PFM continues to work diligently to manage the existing

Our new reality, which continues to put pressure on our

portfolios and to crystalize exits in both APEX I and II.

partners, is the volatility in input prices and the increasing

We are eager to see the positive outcomes generate

threat of prolonged inflation. Although demand has been

strong returns for LPs. We also continue to generate

solid for the products and services that our investee

significant deal flow in APEX III, and place capital in

companies produce and provide, cost structures across

exciting opportunities.

the board have been difficult to manage. The strength of our portfolio and partners is something

Thank you for your support of PFM. We will continue diligently to ensure that 2022 will yield good results for

that has taken years (and in some cases decades) for

our investors, and we hope that you and your family

us to build. Our strategic focus on long-term capital

stay healthy and safe.

appreciation and stability within our team have helped create a resilient portfolio. Through that experience, we have built investment processes that focus on understanding and reducing risk while delivering positive returns over the long-term. We remain proud of and committed to our Saskatchewan

Randy Beattie

Rob Duguid

roots. Over the last 20 years, we have raised over

Founding Partner, President

Founding Partner, Chief Executive Officer

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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 – $25 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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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 across different sectors. Sector exposure includes, but is not limited to the following: Industrials & Manufacturing Consumer Discretionary & Staples Energy Production & Midstream Ag Products & Services

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FUND STATISTICS*

Total value invested at cost since inception

Total number of Investees since inception

$91,328,476

33

Value of remaining investments at cost

$6,260,788

Total number of remaining Investees

7

PORTFOLIO ACTIVIT Y BY SECTOR AT COST SINCE INCEP TION

Opportunistic Situations 15.43%

Ag Products & Services 8.73% Consumer 16.25% *as at December 31, 2021

APEX INVESTEE HIGHLIGHT – CALTEX RESOURCES (EXIT) Caltex Resources Ltd. (“Caltex”) is an oil & gas company focused on the exploration, development, and acquisition of heavy oil properties in Saskatchewan and Alberta. Apex LPs initially gained exposure to Caltex through vending in a small heavy oil weighted producer in 2012 and consistently participated in all rounds of subsequent financing and any secondary share transactions when available. Apex fully exited its position in Caltex in the fourth quarter of 2021, yielding a total gross internal rate of return of 16.9% and gross multiple on invested capital of 3.5x.

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Energy (E&P) 32.46%

Industrials 9.18% Energy (Services & Midstream) 17.95%


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 26 of 33 Investees.

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.

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 service company (TSXV: SDI). Stampede provides contract drilling services to oil and gas companies located in the Western Canada Sedimentary Basin. Stampede is also a JV partner with a private co. specializing in the engineering, manufacturing and supply of fully integrated under balanced coil drilling rigs.

APEX INVESTEE HIGHLIGHT – THE WIRELESS AGE (EXIT) IM Wireless Communications Ltd. operates retail cellular and telecommunications outlets in Saskatchewan as a SaskTel authorized dealer through its retail division, Wireless Age. The Company’s other division, Wireless Source, distributes two-way radio products, wireless accessories, and various ancillary products. There are 15 locations in total across Saskatchewan, including 5 in Regina, 4 in Saskatoon as well as single store locations in Emerald Park, Martensville, Humboldt, Yorkton, Esterhazy and Meadow Lake. Apex’s initial investment of just under $3.0 MM occurred in 2009 as a combination of subordinated debt and equity. Over the 12 year holding period, IM Wireless substantially increased their market share and customer base, increasing sales revenue and EBITDA by more than double, through both organic growth and tuck-in acquisitions. Apex fully exited its position in IM Wireless in August 2021, yielding a total gross internal rate of return of 35% and gross multiple on invested capital of 3.4x blended across both subordinated debt and equity investments.

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FUND STATISTICS*

Total value invested at cost since inception

Total number of Investees since inception

$93,534,860

27

Value of remaining investments at cost

$76,143,618

Total number of remaining Investees

21

PORTFOLIO ACTIVIT Y BY SECTOR AT COST SINCE INCEP TION Industrials 20.29%

Opportunistic Situations 21.64% Ag Products & Services 3.31%

Consumer Discretionary 4.89%

Energy (Services & Midstream) 32.46%

Energy (E&P) 17.40%

*as at December 31, 2021

APEX II INVESTEE HIGHLIGHT – CERTARUS LTD. Certarus is the North American leader in providing low carbon energy solutions through a fully integrated compressed natural gas, RNG and hydrogen platform. Certarus safely delivers clean burning fuels to energy, utility, agricultural and industrial customers not connected to a pipeline. Ceratus’ entire fleet is completely interchangeable between compressed natural gas (CNG) and renewable natural gas (RNG), resulting in no additional capital requirements to transport RNG from a production facility to a sales pipeline. RNG can have carbon intensity ranging from half that of conventional natural gas, to negative in the case of some agricultural projects. In December of 2021, Certarus announced a partnership with Plug Power Inc. on green hydrogen supply and expansion of mobile distribution infrastructure. The partnership will leverage both companies expertise in hydrogen production, mobile energy distribution and related technologies, helping to make hydrogen fuel an affordable and convenient option for companies looking to reduce carbon emissions.

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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 services across North America. They provide technical solutions throughout the life cycle of water management which are designed to lower emissions, conserve water and create cost saving for clients.

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 is the North American leader in providing low carbon energy solutions through a fully integrated compressed natural gas, RNG and hydrogen platform. Certarus safely delivers clean burning fuels to energy, utility, agricultural and industrial customers not connected to a pipeline. By displacing more carbon intensive fuels, Certarus is leading the energy transition and helping customers lower operating costs and improve environmental performance.

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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CONTINUED

Hi-Tec Profiles LP is a Regina-based still processing company with an additional location in Saskatoon. Hi-Tec was established in 1995 and provides steel cutting, bending and materials used in the production of agricultural equipment, mining equipment, electrical transformers and numerous miscellaneous items.

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. is a private oil & gas company focused on the development, exploration and acquisition of oil & gas properties in central Alberta (Clearwater Medium Fairway). Spur Petroleum has become a dominant land owner and producer in the region with a well regarded reputation for operating efficiency. The previous iteration, Spur Resources, which was sold to Tamarack Valley in January 2017, was one of few producers to generate strong returns during the downturn and achieve a successful liquidity event.

Steel Reef Infrastructure Corp. is a privately held business that acquires and builds midstream assets involved in gathering/transportation, processing and storage of petroleum products, with operations primarily focused in Saskatchewan and North Dakota. The team is primarily comprised of former Keyera and midstream executives and complimented by a board and advisory team with extensive experience in the oil & gas sector.

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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 6 of 27.

APEX II INVESTEE HIGHLIGHT – ALL-FAB GROUP

All-Fab Group serves a wide range of leading building contractors, regional dealers and building owners with a quality portfolio consisting of roof truss systems, floor systems, wall systems, engineered beams, laminated posts and stairs. The Investment provides exposure to a stable product in Saskatchewan, and Western Canada with a positive growth outlook.

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FUND STATISTICS*

Total value invested at cost since inception

$47,945,329

Total number of Investees since inception

6

Value of remaining investments at cost

$47,733,342

Total number of remaining Investees

6

PORTFOLIO ACTIVIT Y BY SECTOR AT COST SINCE INCEP TION

Consumer Discretionary 51.30%

Industrials 9.04% *as at December 31, 2021

APEX III INVESTEE HIGHLIGHT – BONE & BISCUIT Founded in 2008 and headquartered in Kelowna, British Columbia, Bone & Biscuit is a pet retail franchise that offers a range of food and products including high quality raw, dry and canned foods, an abundant selection of natural treats, homeopathic supplements, unique artisan baked goods, clothing and a comprehensive range of toys and general care items for everyday use. With over 50 store locations across Canada, the Company continues to grow with the mission to provide pet owners the education and knowledge to make informed product decisions for their beloved companions.

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Energy (E&P) 2.38%

Energy (Services & Midstream) 37.28%


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.

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.

Bone & Biscuit Co. Holdings Inc. is the franchisor of over 55 retail boutique pet stores located across Canada. Based out of Kelowna, BC, the Company also owns and operates four corporate locations, two in Fort McMurray and two in Grand Prairie.

Certarus Ltd. is a privately held Calgary-based provider of integrated compressed natural gas (“CNG”) services to North American commercial, industrial and energy markets. Certarus has demonstrated the ability to successfully displace diesel and propane projects by offering a more cost effective and environmentally sustainable solution.

Lift Auto Group is a Kelowna-based consolidator of automotive collision repair centres across Canada. The Company currently has 24 locations across British Columbia, Alberta, Saskatchewan, and Ontario. Lift is well-positioned 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.

Spur Petroleum Ltd. is a private oil & gas company focused on the development, exploration and acquisition of oil & gas properties in central Alberta (Clearwater Medium Fairway). Spur Petroleum has become a dominant land owner and producer in the region with a well regarded reputation for operating efficiency. The previous iteration, Spur Resources, which was sold to Tamarack Valley in January 2017, was one of few producers to generate strong returns during the downturn and achieve a successful liquidity event.

Steel Reef Infrastructure Corp. is a privately held business that acquires and builds midstream assets involved in gathering/transportation, processing and storage of petroleum products, with operations primarily focused in Saskatchewan and North Dakota. The team is primarily comprised of former Keyera and midstream executives and complimented by a board and advisory team with extensive experience in the oil & gas sector.

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, 2021, approximately 49% of the total committed capital has been placed.

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OUR RESULTS AS AT DECEMBER 31, 2021, PFM HAD:

Raised more than

$1,011

million

of capital

Invested

Exited 85 companies for

in 138 portfolio companies

in realized gains

$985

OUR ACTIVITY Opportunistic Situations 29.15%

million

$561 million

PFM disbursed since inception (as at December 31, 2021)

Energy (E&P) 31.99%

Energy (Services & Midstream) 27.61%

Ag Products & Services 14.54%

Consumer Discretionary 20.14%

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Industrials 17.83%


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 15 years of experience each and 12+ 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

Mike Merth

Jeff Linner

Johanna Salloum

Founding Partner, President

Founding Partner, Chief Executive Officer

Partner, Chief Financial Officer

Partner, Chief Investment Officer

Partner, Senior Director – Investments

Jason Moser

Shayne Barrie

Janice Brunas

Ghalib Hemnani

Adam Laprairie

Partner, Senior Director – Investments

Director - Investments

Director - Fund Operations

Director - Investments

Director - Investments

Dilan Elgert

Noah Picton

Mounika Bairneni

Marga Bos

Austin Bentz

Investment Associate

Compliance & Investment Analyst

Office Manager

Controller

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