brent knudsen
TRANSCRIPT
Corporate Governance & Integrity | 10 November 2011
Brent Knudsen, Founder and Managing Partner, Partnership Capital Growth
The Pursuit of Value AND Values in Merchant Banking
CONFIDENTIAL
• Introduction
• Merchant Banking Approach
Agenda
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CONFIDENTIAL
Principles
Integrity
Mission
Core Values
To create superior economic and social value through advising and investing in great
companies in the areas of healthy, active and sustainable living.
We practice our values through an absolute
commitment to:
• Creating Value by practicing our Values
• Partnership and Teamwork
• Bringing entrepreneurial Passion and creativity
to all that we do
• Focus on the healthy, active and sustainable
living market
• Enjoying what we do!
Some of the keys to our unique approach
include:
• Tabula Rasa: we start with a blank slate, with no
predetermined agenda, and develop
Customized Approaches to suit unique
situations and client needs.
• We leverage our Deep Network and long-
standing relationships to find the right partner
and Bridge the Gap between current ownership
groups and investors to create strong, long-term
partnerships.
Trust Respect BalanceExcellence
Practices
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Introduction - Foundation
CONFIDENTIAL
• Always act in the client’s
best interest
• Choosing clients and
partners wisely
• Clear alignment with
management
• Capital partners who
operate with integrity
INTEGRITY
1) The quality of being honest
and having strong moral principles.
2) The condition of being unified
and unimpaired;
sound in construction.
Clients and Portfolio
Companies
Introduction - Integrity
3
Integrity is a cornerstone of value and values investment banking and private equity investing.
Peers and Partners
Work Product
Self
• Thorough
• Accurate
• Original
• Fact-based
• Transparent
• Based on sound
assumptions
• Integrity is the foundation for
TRUST and RESPECT
among colleagues
• Key to building strong teams
• Ultimate compass is the self
CONFIDENTIAL
Transparency
Introduction - Principles
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With partnerships based on integrity, effective corporate governance is achieved through principles of
transparency, accountability and the alignment of incentives.
Aligned IncentivesAccountability
• Shared upside
• Shared downside
• No moral hazard
• No “back room” deals
• “Daylight” on financial
arrangements
• Clear expectations for all
parties
• Where does the buck stop?
• Trust in teammates
• Appropriate roles for
relevant skills / experience
Effective corporate governance is essential to
the pursuit of VALUE AND VALUES
CONFIDENTIAL
• Introduction
• Merchant Banking Approach
Agenda
5
CONFIDENTIAL
SIPC/FINRA-Licensed Investment Bank
Partnership Capital Growth, LLC is a
licensed broker-dealer able to
complete any private or
public security
transaction.
Capital Structure &
Strategic Consulting
Strategic consulting
services to the healthy,
active and sustainable
living industry focused
on investment transactions.
Fund Management Services
Administrative services and portfolio
management for TBL Capital & Sea Change.
PCGI Fund I
Invested $287 million* in
nine portfolio companies.
PCGI Fund II
Invested $26 million**
– single entity structured
debt fund.
PCGI Fund III
$200 million healthy living fund.
Direct, or with co-investment
partners. Augmented team.
Healthy,
Active and
Sustainable
Living
PCG Investors PCG Advisors
Partnership Capital Growth
Merchant Banking Approach
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Partnership Capital Growth provides investment capital and advisory services to companies in the
healthy, active and sustainable living sector.
* Includes third-party co-investment.
** Includes $1 million from PCGI Fund I.
CONFIDENTIAL
Benefit Corporation
• B Corporations: A new type of company that uses the power of
business to solve social and environmental problems.
• B Corporations:
- Meet high social & environmental standards
- Expand corporate accountability
- Build collective voice for good companies
- PCG donates 10% of its profits to charitable causes in the area of
healthy, active & sustainable living
- PCGA is a Pioneer in the new Impact Ratings System, GIIRS,
through PCGI and our affiliate, TBL Capital.
Learn more here: http://better.bcorporation.net/ and here: http://www.bcorporation.net
Select beneficiaries
is proud to be a
Certified B Corporation
Merchant Banking Approach
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CONFIDENTIAL
• Recent Harvard Business Review article by
Michael Porter and Mark Kramer advocated for
shared value:
– Policies and operating practices that enhance the
competitiveness of a company while
simultaneously advancing the economic and
social conditions in the communities in which it
operates.
• An increasing number of businesses, including
Google, IBM, Johnson & Johnson, Unilever and
Walmart are embracing shared value.
• This new approach blurs the traditional profit /
nonprofit boundary:
– Revolution Foods provides 60,000 fresh,
nutritious meals to students daily – and does so at
a higher gross margin than its competitors.
– Walmart lowered carbon emissions by reducing
packaging and eliminating 100M miles from the
delivery routes of its trucks – and simultaneously
saved $200M in costs.
There is increasing recognition that pursuing social & environmental impact provides competitive
advantage and improves company value.
Shared Value Serves People, Planet, and Profits
Source: Michael Porter and Mark Kramer, “The Big Idea: Creating Shared Value.” Harvard Business Review, January-February 2011.
The Connection Between Competitive
Advantage and Social Benefit
Merchant Banking Approach
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CONFIDENTIAL
PCG Fund, TBL Capital executes a specific Triple Bottom Line mission (people, planet, profit).
TBL Portfolio - Social & Environmental Impact Overview
People• Income
generation for
agents leasing
Solios to rural
households
• Financial
savings for
Solio users
replacing
kerosene,
batteries, and
cell charging at
kiosks
• Improved
health for
consumers
• Increased
income
generation for
fish farmers
and wild
harvesters
• Improved
health for
consumers
• Housing,
transportation,
visa
assistance,
and fair wages
for foreign
farm workers
on the Gaia
Farm
• Improved
health for
consumers
due to nutrition
benefits of
goat’s milk
over cow’s
milk
• Enables time
savings and
incremental
funding for
nonprofits
addressing
social issues
• Increased
income
generation for
tea farmers in
developing
countries
Planet• In Kenya,
carbon
emission
reductions
from the
replacement of
kerosene
• Sustainable
manufacturing
and packaging
• Improved
aquaculture
and fishing
practices
protect and
preserve
ecosystems
• Energy, land,
and water
conservation
through
organic
farming
• Reduced
methane
emissions ,
land usage,
and water
usage from
using dairy
goats instead
of cows
• Enables time
savings and
incremental
funding for
nonprofits
addressing
environmental
issues
• Energy, land,
and water
conservation
through
organic
farming and
eco-friendly
packaging
Merchant Banking Approach
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CONFIDENTIAL
Our impact measurement system was designed with several key objectives and attributes in mind.
Comprehensive System for Measuring
Social & Environmental Impact
Measure quantitatively the
value of the social and
environmental impact
created
Objective #1
In addition to financial returns, what social
and environmental returns are generated as a
result of this investment?
Attributes of the System:
Customized for each portfolio company – Each
company has its own dashboard, reflecting
unique products and services
Fully integrated with financial reporting –
Social impact updates are reported alongside
financial updates in TBL’s quarterly report
dashboards
Estimate the bottom-line
impact of companies’
socially and environmentally
responsible practices
Objective #2
How have the financial returns from this
investment been increased by the company’s
social and/or environmental focus?
Value of Impact Data at Exit:
Goals: Maximize company value at exit by
leveraging aggregate quantitative data
demonstrating social & environmental impacts.
If social & environmental impacts are proven
drivers of profitability tied to growth / future
value of Co. to strategic buyer or financial
investor
Screen for Sustainability at Scale: Means to test
if target partner for growth is aligned with social
and environmental objectives of Co. in long term
Merchant Banking Approach
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CONFIDENTIAL 11
TBL has articulated key impact objectives across its three focus areas
People Planet Profits
Impact Objectives • For Producers:
Improve livelihoods by
increasing income
and economic
opportunity for
producers and workers
in the supply and
distribution chain
• For Consumers:
Promote improved
health and wellness
through the provision of
healthy products and
services to consumers
• Generate
environmental benefit
to land, water, air
through:
• Eco-friendly
products,
services, and
corporate
practices
• Producer/supplier
practices (e.g.
organic farming,
sustainable
seafood farming)
• Increase portfolio
company profitability
and returns upon exit
due to the adoption of
socially and
environmentally
responsible products
and practices
• Support companies
whose impact grows
as they scale
BeneficiariesSuppliers/Distributors
ConsumersEnvironment
Portfolio Companies
Industry
The new system provides a high-level summary of TBL’s impact on
people, planet, and profits
Merchant Banking Approach
CONFIDENTIAL 12
Numi Tea Impact Measurement
People
Description of Impact
• Increased income for tea farmers
in developing countries due to
Numi’s commitment to Fair Trade
• 44% of all tea purchased to date is
socially-certified
• Fair trade wages paid result in a
46% increase in income to farmers
to date
• Health benefits for consumers from
drinking high quality, pure tea
• >300M servings of Numi tea sold to
consumers to-date
• Health benefit for producers and
consumers from harvesting and
drinking tea free from pesticides
and synthetic fertilizers
Planet Profits
• Environmental benefits from
organic farming
• To-date, use of 3,000 lbs of
pesticides and 7M lbs of synthetic
fertilizer averted
• Environmental benefits from
recycling and eco-friendly
packaging
• To-date, 27,000 trees saved, 1.7M
pounds of landfill reduced, 14.5B
BTUs of energy reduced, 12.2M
gallons of wastewater reduced, and
2.5M lbs of greenhouse gases
reduced
• Numi Tea products command a
price premium over other
premium tea brands
• Average retail price premium of
46%
• Numi makes business decisions
that are both environmentally
friendly AND contribute to the
bottom line
• Example calculation is cost savings
from environmentally beneficial
shipping and routing decisions
Numi’s commitment to social and environmental impact benefits suppliers,
consumers, the planet and the company’s bottom line
Merchant Banking Approach
CONFIDENTIAL 13
Sample Inputs
INPUTS FROM NUMI TEA
Description Units
Sales
1 Unit sales, boxed tea (16 bag ct) Number
2 Unit sales, loose leaf tea (4 oz cannisters) Number
3 Unit sales, bottled tea (12-pack) Number
Tea Purchasing
4 Total tea purchased Pounds
5 Total organic tea purchased Pounds
a) Organic tea purchased from India Pounds
b) Organic tea purchased from China Pounds
c) Organic tea purchased from South Africa Pounds
d) Organic tea purchased from Egypt Pounds
e) Organic tea purchased from other locations Pounds
6 Total socially-certified tea purchased Pounds
a) Socially-certified tea purchased from India Pounds
b) Socially-certified tea purchased from China Pounds
c) Socially-certified tea purchased from South Africa Pounds
d) Socially-certified tea purchased from Egypt Pounds
e) Socially-certified tea purchased from other locations Pounds
7 Total fair trade premiums paid US$
a) Fair trade premiums paid to India US$
b) Fair trade premiums paid to China US$
c) Fair trade premiums paid to South Africa US$
d) Fair trade premiums paid to Egypt US$
e) Fair trade premiums paid to other countries US$
Packaging
Using the Environmental Paper Network tool (www.papercalculator.org):
8 Trees (wood use) saved due to eco-friendly packaging Trees
9 Landfill (solid waste) reduced due to eco-friendly packaging Pounds
10 Energy reduced due to eco-friendly packaging BTUs
11 Wastewater reduced due to eco-friendly packaging Gallons
12 Greenhouse gases reduced due to eco-friendly packaging Pounds, CO2 equiv.
Sample Outputs
Merchant Banking Approach
OUTPUTS
Description Units
PEOPLE
Benefit to Suppliers
Fair Labor Practices
Total socially-certified tea purchased Pounds
1 Socially-certified tea, as a proportion of all tea purchased (by weight) Percent
2 Total incremental Numi income generated by farmers in top supplier countries $US
3 Total fair trade premiums paid to supplier communities (same as below) $US
Organic Farming (same as below)
4 Organic tea, as a proportion of all tea purchased (by weight) Percent
5 Total pesticide use averted by organic farming in top supplier countries Pounds
6 Total synthetic fertilizer use averted by organic farming in top supplier countries Pounds
7 Organic tea from top supplier countries as a % of total tea purchased Percent
8 Organic tea from top supplier countries as a % of total organic tea purchased Percent
Benefit to Consumers
9 Servings of Tea Sold to Consumers Number
a) Servings, bag tea Number
b) Servings, loose-leaf tea Number
c) Servings, bottled tea Number
Organic Farming (same as above)
10 Total organic tea purchased Pounds
11 Organic tea, as a proportion of all tea purchased (by weight) Percent
12 Total pesticide use averted by organic farming in top supplier countries Pounds
13 Total synthetic fertilizer use averted by organic farming in top supplier countries Pounds
PLANET
Packaging
14 Trees (wood use) saved due to eco-friendly packaging Number
15 Landfill (solid waste) reduced due to eco-friendly packaging Pounds
16 Energy usage reduced due to eco-friendly packaging BTUs
17 Wastewater reduced due to eco-friendly packaging Gallons
18 Greenhouse gases reduced due to eco-friendly packaging Pounds, CO2 equiv.
Organic Farming (same as above)
19 Total organic tea purchased Pounds
20 Organic tea, as a proportion of all tea purchased (by weight) Percent
21 Total pesticide use averted by organic farming in top supplier countries Pounds
22 Total synthetic fertilizer use averted by organic farming in top supplier countries Pounds
Logistics
23 Greenhouse gases reduced due to business decisions Pounds, CO2 equiv.
PROFIT
Price Premium
24 Avg. price premium commanded by Numi products, over value teas (Bigelow, Stash, Celestial) Percent
25 Avg. price premium commanded by Numi products, over other premium teas (Tazo) Percent
26 Revenues generated due to price premium over other premium teas US$
Logistics
27 Cost savings resulting from business decisions with environmental impact US$
CONFIDENTIAL
SELECTED BALANCE SHEET ITEMS SOCIAL & ENVIRONMENTAL IMPACT
Numbers in $000s 3Q2011 3Q2010 % Change PEOPLE
Cash and Cash Equivalents 1,454 3,464 -58% Fair Labor Practices for Producers
Accounts Receivable, net 1,944 1,383 41% Socially-certified tea purchased (lbs)
Inventories 2,939 2,341 26% Socially-certified tea (% of all tea purchased)
Incremental income for farmers from fair trade wages (US$)
Income increase for farmers from fair trade wages (% US$)
TOTAL ASSETS 9,359 9,369 0% Fair trade premiums paid to supplier companies (US$)
Accounts Payable 1,549 964 61%
L/T Loan Payable - Key Bank 989 1,050 -6% Organic Farming Benefits to Producers and Consumers
L/T Loan Payable - RSF 1,397 1,627 -14% Organic tea purchased (lbs)
L/T Nezar Fund 125 125 0% Organic tea (% of all tea purchased)TOTAL LIABILITIES 6,465 5,707 13% Pesticide use averted by organic farming (lbs)1
Owner's Equity, Contribution 0 0 NM Synthetic fertilizer use averted by organic farming (lbs)1
Owner's Equity, Distribution 0 0 NM
Paid In Capital - Series A 1,832 1,832 0% Health Benefits of Product for Consumers
Paid In Capital - Series B 4,945 4,781 3% Servings of tea sold to consumers (bag, loose-leaf, bottled)
Paid In Capital - Common Stock 488 488 0%
Retained Earnings (3,132) (3,143) 0% PLANET
Year-to-date net income (1,239) (297) 317% Eco-Friendly Packaging
TOTAL EQUITY 2,894 3,661 -21% Trees saved
Landfill reduced (pounds)
RATIO ANALYSIS Energy usage reduced (BTUs)
Wastewater reduced (gallons)
2011 2010 Greenhouse gases reduced (pounds, CO2 equiv)
Profit Margin (%) -8% 2%
Inventory Turnover (x) 2.03 2.14 Organic Farming Environmental Benefits
Collection Period (days) 61.0 48.0 See above
Payables Period (days) 93.4 69.1
Debt to Assets (x) 0.44 0.45 Logistics
Debt to EBITDA (x) (5.56) 5.14 Greenhouse gases reduced (pounds CO2 equiv)
Total Liabilities to Equity (x) 2.23 1.56 PROFIT
Current Ratio (x) 1.81 2.64 Price Premium
Avg price premium over other premium teas
Revenues generated due to price premium (US$)
Logistics
Cost savings from business decisions w/ env. impact (US$)
1 In Numi's top supplier countries: India, China, South Africa, and Egypt (80%+ of organic supply)
SUMMARY OF CASH FLOWS
Numbers in $000s
Aug-10 Sep-10 Oct-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11
Cash and Cash Equivalents at End of Period 3,464 3,133 2,863 2,834 2,845 2,443 2,337 1,996 1,831 1,800 1,565 1,454
TBD
TBD TBD
9,819 133,950
46%
Trailing 12 Months
13-Month Trend Analysis
2,834
Nov-10
136,825 2,476,746
46% 46%
$36,041,393$954,721
TBD
Q2 2011 Total/Avg To-Date
71,273 1,003,088
44%62%
58%
317,938
115,476 2,548,084
19,771
100% 96%3,318
1,513 27,384
165
347,177 6,967,477
8,541,056 309,748,104
1,761,24297,298
800,640,000 14,497,640,000
12,277,367678,416
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Key outputs from the impact measurement system are integrated into TBL’s
quarterly reporting process and appear alongside financial updates
Merchant Banking Approach
= Denotes undisclosed sensitive company information
CONFIDENTIAL
Thank you!
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