Money working for people
Copyright © 1996-2008, Fédération des caisses Desjardins du Québec. All rights reserved.
Centre des congrès de Québec, March 29, 2008
(Actual speech may differ from this text)
Esteemed Members of the Board of Directors,
Caisse Delegates, Distinguished Guests,
Ladies and Gentlemen,
What an inspiration!
And it's only a beginning-because last week, we closed another major deal to invest three point eight million dollars in CIF Métal, an aluminum foundry in the Thetford Mines area. Just like our experience with Fempro-the arrangement has led to substantial spin offs for Desjardins totalling eleven million dollars-with six point five of that being new business!
In 2005, together with the Caisses de L'Amiante Business Centre, we supported three employees and the general manager in acquiring the business so they could continue operations. Less than three years later, management wanted to secure a portion of their capital and team more closely with a partner that had greater financial capabilities. Actually, as entrepreneurs, they faced a tough choice-stay on as the majority shareholders and continue operations as they were, or partner with a strategic investor that would take a controlling interest in the business for a few years and allow them to grow, expanding their facilities and increasing their production capacity. These managers chose to grow!
Both of these examples lead me to tell you first about the four business lines we implemented last year to respond to the needs of the nine funds we have under management and-first and foremost-to confront the many challenges Québec companies now face.
Setting up that type of operational structure demonstrates how able we are to adapt rapidly and develop financial solutions that reflect a fast changing economic environment.
The first business line is major investments-five million dollars and more-that positions us to take part in the sustained growth of profitable companies in the traditional sectors. Another objective is to acquire companies to ensure their continuity or to strengthen promising sectors. In becoming the owner of a business, we form the bridge between two generations of entrepreneurs:
This is a field we had moved out of several years ago, but the current economic situation being what it is-and looking like it might continue similarly for the next few years-brought home to us that Desjardins had an obligation to take up the gauntlet to keep the ownership or our companies here in Québec. It would be unthinkable to let things go and lose what we've put forty years into building.
Today, consolidated investments in this business line represent twelve percent of our assets. Within four years from now, we intend to double that percentage. For 2007, the portfolio recorded a return of four point eight percent. Given the youth of the business line, this is an excellent return.
Investments in resource regions and cooperatives were made throughout the year. They were all carried out jointly with a business centre and, in some cases, with the caisses in the region. With the strength of an entire network as backdrop, certain transactions have even brought Desjardins major accounts. C.T.M.A in Îles-de-la Madeleine is certainly a fine example-we made the largest employer in the Islands a proposal that met its expectations on every level. The business centre, the caisses in the region and our investment professionals all came seamlessly together to bring the transaction to a successful close-and believe me, every possibility was scrutinized to bring the partnership to reality.
The business line has a very special mission. It has to comply with the legal requirements of our main fund under management-Capital régional et coopératif Desjardins. With the various problem sets we see in the different regions of today's Québec, we have to be extremely creative and flexible.
While we topped Capital régional's standard of twenty-one percent of total net assets, the line accounted for ten point four percent of the manager's assets. Within the next four years, the percentage should rise to around thirteen percent.
Given the nature of the portfolio itself, it includes several start-ups. Naturally, this type of investment results in much more highly volatile returns. In 2007, the portfolio recorded a negative return of seven percent.
Venture capital is a well understood field. Investing allows us to take an active part in growing SMEs in the more traditional industries. During the year, we added the healthcare services and medical equipment sectors because, while these businesses operate in the health industry, they have more in common with manufacturing businesses or traditional services.
The investments in this business line are an excellent complement to the business centres. And, the majority of our professionals are located in business centres, or in the Greater Montréal Desjardins Mid-Market Business Centre. During the year, we set out a joint business development plan with each of the business centres to further enhance Desjardins' competitive advantage.
Among the business line's concrete achievements is the one point five million dollar investment in Marquis Imprimeur that's a prime example of Desjardins complementarity. The capital injection resulted in positive spin offs for other Desjardins entities such as the Côte-du-Sud Business Centre, which extended the company a two-and-a-half million dollar line of credit and a term loan of three point six million dollar.
Accounting for six point seven percent of total assets at the end of 2007, the business line generated a return of ten point three percent. Of course, we hope to maintain our position in that line.
Venture capital focused primarily on increasing the value of businesses. Moreover, certain strategic decisions in this direction resulted in refocusing the business line's portfolio. In this area, our teams concentrated on growing our investments in the information technology and telecommunication sectors.
The example of Câble Axion Digitel in Magog is a good illustration. In under two years, with our investment, this cable distribution company grew to the point where it became a highly attractive buyout target for a provincial consolidation move. Beyond the investment itself, we acted as the buyers' sole business banker and pooled the expertise of the entire Desjardins family.
The new buyers, Déry Télécom from the Saguenay and Cooptel of Valcourt, continued to do business with the Estrie and Saguenay business centres, and Desjardins Venture Capital completed the financing with a capital injection of five million dollars. The transaction generated total spin offs of more than forty million dollars for Desjardins.
Elsewhere, strategy in the biotech sector underwent a review. Given the amount of capital these companies need to continue growing, and to be in the position to support the industry in the ways it needs, we decided to appoint BioScience Managers Limited to follow up and increase the value of eight of our portfolio businesses. The partnership will allow our partner companies to access a wide business network and strategic investors in every part of the world. The decision was favourably received by the entrepreneurs, who see in it unparalleled room for development.
At the close of the 2007 fiscal year, venture capital accounted for eighteen point four percent of our assets under management. Within the next four years, and given the mandate to bring Desjardins limited partnership into being, the percentage will be reduced to around twelve percent. As at December 31, the portfolio recorded a negative return of fourteen point three percent.
Beyond the allocation of our investment assets by business line, management of our liquid portfolio assets was transferred during the year to Desjardins Global Asset Management. In addition to enhancing the Desjardins synergy, this strategy provides us access to a team of professionals with a proven track record in the field. Remember that as at December 31, 2007, fifty percent of our total assets was in the form of guaranteed investments. This type of investment allows us to both balance portfolio risk and ensure liquidity to respond to redemption requests by Capital régional et coopératif Desjardins shareholders. Now, let's take a look at our achievements!
As our thirty-fourth year of operations in the field of venture capital begins, Desjardins can be proud of our activities to date, and of our achievements over the past year.
The manager of nine economic development-directed funds, Desjardins Venture Capital takes an active part in growing two hundred and ninety-six companies and funds for commitments of more than five hundred and fifty-seven million dollars.
As at December 31, 2007, the assets of funds under management grew nine point three percent over 2006, rising from seven hundred and seventy-six million dollars to eight hundred and forty-eight million. The growth is attributable to the increase of the provincial income tax credit to fifty percent on the purchase of shares of Capital régional. The new provision was beneficial to the annual capital raising, which reached one hundred and two million dollars in 2007 compared with seventy-nine million in 2006. The funds of this public company now represent eighty-six point five percent of assets under management.
Qualified a strategic partner for economic development by the Québec government, Capital régional obtained significant amendments allowing it to continue its mission well beyond 2011. Actually, had it not been for this measure, we would have begun the year by disinvesting the portfolio and would not have been able to continue supporting companies and cooperatives. For that, I would like to thank both the ministère des Finances du Québec and the Minister, because these provisions open the way into the future for us.
In 2007, we committed one hundred and twenty million dollars to investments in one hundred and fifteen Québec companies and cooperatives. Capital régional and Desjardins - Innovatech commitments represented ninety-four percent of investment activities.
A closer relationship with the business centres and our synergy with the other Desjardins entities were certainly key in most of these transactions-and we are very proud of this. We have continued to be active in developing new products to better meet to their needs. In that area, we amended the minimum risk rating for the Privilege Loan and developed Privilege Continuum Financing to give us a fast track approval process for financing business transfers.
For our manager, 2008 will be noteworthy for the challenges it presents:
In fact, the billing rate for CRCD management fees will drop from three point zero percent to two point five percent starting in 2009, which represents nearly four million dollars less in revenues on a total expense budget of twenty-two million.
With a team of a hundred and thirteen people in twenty-four business offices located in different regions of Québec and a close complementary relationship with the business centres, Desjardins Venture Capital offers entrepreneurs coaching and financial packages that perfectly match their needs.
I will close by thanking the Board of Directors and the members of all the committees that contribute to growing Desjardins Venture Capital.
I would like to thank Mr. Alban D'Amours, whose trust and support have been deeply appreciated.
I would also like to congratulate Ms. Monique Leroux who, as of today, will direct Canada's largest cooperative financial institution.
Many are the challenges that await you, but they're also exciting-and highly strategic. As you turn to meet them, you know you can count on Desjardins Venture Capital's cooperation.
And last... I'd like to thank my team. You're all professionals and, like me, developing our economy is dear to your hearts. We are so fortunate because we get to walk with the companies that create prosperity for Québec as they develop-and we're so very proud of them!
Money working for people
Copyright © 1996-2008, Fédération des caisses Desjardins du Québec. All rights reserved.