impact of a declining canadian dollar - nash family wealth - impact of a declining cdn...1992 1994...

0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.07.5

72768084889296100104108112116120124128132

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

More upside for the U.S. dollarFed funds rate and trade-weighted USD index (USD vs. basket of 26 currencies)

NBF Economics and Strategy (data via Bloomberg)

% Index

USD(right)

Fed funds(left)

80

85

90

95

100

105

110

115

120

125

130

1980 1985 1990 1995 2000 2005 2010

Historical perspective on currency competitivenessReal trade-weighted U.S. dollar index (USD vs. basket of 26 currencies)

NBF Economics and Strategy (data via Federal Reserve)

Index

Impact of a Declining Canadian Dollar The U.S. dollar is on fire as U.S. economic fundamentals continue to improve faster than those of its main trading partners: the U.S. Federal Reserve is guiding towards rate hikes at a time when the euro zone and Japan are looking the other way; the U.S. budget deficit is under better control (only 3% of GDP); and surging U.S. energy production is improving the country’s trade balance. We think the greenback has considerable upside. For the first time since 1994, the Fed could embark on a tightening phase while the US$ is appreciating. For some investors, a stronger greenback combined with Fed rate hikes is synonymous with a double whammy for the U.S. economy and global growth. At this juncture we think these fears are overblown. The broad USD index is still hovering near a generation low in real terms (chart). As for competitiveness, we doubt very much that a 10%-20% appreciation of the currency would jeopardize the U.S. expansion - exports as a percentage of GDP is the lowest among G7 countries at 14% (compared with 31% on average) - especially if offsetting factors are at work. Despite relatively good fundamentals and prospects of a budget surplus in Ottawa, it will become harder for the loonie to resist the headwinds generated by the USD’s ascent, more so considering the latter’s negative implications for commodity prices. We now expect USDCAD to average near 1.15 (85 cents U.S.) next year – the weakest showing since 2005. This level would be within the range of the OECD’s Purchasing Power Parities (PPP) estimate.

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1975 1980 1985 1990 1995 2000 2005 2010

Canada : What is the PPP suggesting?Actual exchange rate vs. purchasing power parity value established by OECD

NBF Economics and Strategy (data via OECD and Datastream)

Actual

PPP

PPP +5

PPP -5

USD per CAD

October 8, 2014

NBF ECONOMY & STRATEGY Stéfane Marion (514) 879-3781

AGRICULTURE Greg Colman (416) 869-6775

ENERGY SERVICES Greg Colman (416) 869-6775

OIL & GAS Dan Payne, CFA (403) 290-5441 Brian Milne (403) 290-5625 Kyle Preston, CFA, CMA (403) 290-5102

PIPELINES, UTILITIES and ENERGY INFRASTRUCTURE Patrick Kenny, CFA (403) 290-5451

FINANCIAL SERVICES Peter Routledge (416) 869-7442

FINANCIALS (Diversified) Shubha Rahman Khan (416) 869-6425

MERCHANDISING & CONSUMER PRODUCTS Vishal Shreedhar (416) 869-7930

COMMUNICATIONS MEDIA & TELECOM Adam Shine, CFA (514) 879-2302

REAL ESTATE Matt Kornack (416) 869-6407 Trevor Johnson, CFA (416) 869-8511

METALS & MINING Steve Parsons, P.Eng. (416) 869-6766 Shane Nagle, CFA (416) 869-7936 Adam Melnyk, P.Eng., CFA (604) 643-2864

SPECIAL SITUATIONS Trevor Johnson, CFA (416) 869-8511 Leon Aghazarian, M.Sc. (514) 879-2574 SUSTAINABILITY AND CLEAN TECHNOLOGY Rupert Merer, PEng, CFA (416) 869-8008 TECHNOLOGY Kris Thompson MBA (416) 869-8049

TRANSPORTATION & INDUSTRIAL PRODUCTS Cameron Doerksen, CFA (514) 879-2579

TABLE OF CONTENTS Technical Analysis 3

Summary of Big Winners in a Declining Canadian Dollar Environment 4

Agriculture 5

Energy Services 6

Oil & Gas 8

Pipelines, Utilities & Energy Infrastructure 10

Financials (Diversified) 13

Financials Services 15

Merchandising & Consumer Products 17

Communications Media & Telecom 18

Real Estate 21

Metals and Mining - Precious Metals 22

Metals and Mining - Base Metals 25

Special Situations 26 & 30

Sustainability & Clean Tech 31

Technology 34

Transportation & Industrial Products 36

TECHNICAL ANALYSIS Analyst: Dennis Mark Major downtrend on the Canadian dollar

The Canadian dollar relative to the U.S. dollar completed a major top formation when

it broke key chart support at $0.94.

A multi-year top was completed around the turn of the year that reverses the bull market to a bear market.

Our initial target of $0.88 to $0.90 has been achieved as the Cdn$ tests support around $0.8860 to $0.89.

A consolidation here will likely be followed by a breakdown of support.

Further downside can be expected when the Cdn$ breaks current support.

Next target is $0.84 to $0.85 with potential for further downside tests to the 2009 low at $0.78 to $0.80.

Source: Thomson Reuters

Summary of Big Winners in a Declining Canadian Dollar Environment

FINANCIAL SERVICES Manulife Financial Corp. (MFC) Sun Life Financial Inc. (SLF)

FINANCIALS (DIVERSIFIED) Element Financial Corp. (EFN)

MERCHANDISING & CONSUMER PRODUCTS Gildan Activewear Inc. (GIL)

METALS AND MINING – PRECIOUS & BASE METALS Agnico-Eagle Mines Ltd. (AEM) AuRico Gold Inc. (AUQ) Copper Mountain Mining (CUM) Lake Shore Gold Corp. (LSG) Teck Resources Limited (TCK.B)

SPECIAL SITUATIONS Boyd Group Income Fund (BYD.un) Cascades Inc. (CAS) Just Energy Group Inc. (JE) Tricon Capital Group Inc. (TCN)

SUSTAINABILITY & CLEAN TECH Algonquin Power & Utilities (AQN) Conifex Timber Inc. (CFF) Newalta Inc. (NAL)

TECHNOLOGY Avigilon Corp. (AVO) TIO Networks (TNC)

TRANSPORTATION & INDUSTRIAL PRODUCTS Bombardier Inc. (BBD.B) CAE Inc. (CAE) Héroux-Devtek Inc. (HRX)

AGRICULTURE Analyst: Greg Colman Big winners: There are no big winners for Agriculture. See below discussion on our agriculture universe with US$ exposure. Moderate winners: Ag Growth International Inc. (AFN-T) experiences an 8% EBITDA lift in 2015 as the majority of company costs are in Cdn$ while a majority of sales are in US$. We note that management incorporates partial US$ FX hedges for periods up to two years which partially offset this advantage. Vicwest Inc. (VIC-T) experiences a 3% EBITDA lift in 2015 as the majority of company costs are in Cdn$ while a material portion of company sales are denominated in US$. Out of the costs which are U.S.-dollar denominated, the largest component would be steel and we note that management recently implemented a U.S. FX hedging program to counteract steel cost escalation.

C$mln (unless otherwise noted)

Company Ticker

Current (1.00

C$/US$)

U.S. Exposure

(%)

Adjusted (1.15

C$/US$)%Chg

Current (1.00

C$/US$)

Adjusted (1.15

C$/US$)%Chg

Ag Growth AFN 98.8$ 80% 106.2$ 8% 7.6x 7.1x -6%Vicwest VIC 34.2$ 21% 35.2$ 3% 8.6x 8.4x -3%Source: Company reports, NBF

AGRICULTURE - MODERATE POSITIVE EXPOSURE TO WEAKENING CAD2015 EBITDA 2015 EV/EBITDA

Losers: None No major impact: Alliance Grain Traders Inc. (AGT-T) has no material impact as the company is operationally hedged with costs and revenues in the same currency. Management uses US$ FX hedges for periods less than one year. Cervus Equipment Corp. (CVL-T) has no material impact as the company is operationally hedged with the majority of costs and sales in Cdn$. There are slight tailwind impacts as: (1) the value of large agri equipment in inventory (i.e., from trade-ins) can increase owing to a rapidly strengthening US$, providing a modest revenue tailwind; and (2) farmer income is more closely tied with US$ (both grain prices and major inputs like fertilizer, seed, diesel are priced in US$) meaning a rising US$ in Cdn$ terms would positively impact Canadian farmers’ Canadian dollar income. Management has not historically utilized forex hedges. Input Capital Corp (INP-V) has no material impact as the company sources funds from and deploys into the Canadian market. We note that the revenue stream of Canola would be positively impacted in the longer term (i.e., – outside of one year which is management’s hedging period) with a weaker Cdn$ as grains are priced in US$. MBAC Fertilizer Corp. (MBC-T) has no material impact as the company is operationally hedged with the majority of costs and sales in US$ or BRL. Management reports financial results in US$ and has not historically used forex hedges.

ENERGY SERVICES Analyst: Greg Colman Big winners: There are no big winners for energy services. See below discussion on our services universe with US$ exposure. Moderate winners: Energy Services Overall, our space experiences an 8% EBITDA tailwind as U.S. operating income is translated back into Canadian dollars. The largest winners include Xtreme (XDC-T) with a 14% EBITDA lift and which has all of its deep coil and 18 out of 21 drilling rigs operating in the United States (or U.S-denominated international jurisdictions), followed by High Arctic (HWO-T) with a 12% EBITDA lift and which brings the majority of income from U.S.-denominated Papua New Guinea, Pason Systems (PSI-T) with an 11% EBITDA lift and which has the majority of its equipment on rigs outside Canada and Canadian Energy Services (CEU-T) with a 10% EBITDA lift and which has a ramping U.S. production chemicals business. We note that our energy services sub-sector is almost entirely operationally hedged, with costs and revenues in each geographic area largely matching up. Partially offsetting this (although not to a degree which would change materially our brief summary below) would be: (a) U.S. operating costs which are financially hedged by purchasing U.S. currency in advance of requirements; and (b) capital costs which would in the longer term trend up as much heavy equipment trades globally in U.S. dollars.

C$mln (unless otherwise noted)

Company Ticker

Current (1.00

C$/US$)

U.S. Exposure

(%)

Adjusted (1.15

C$/US$)%Chg

Current (1.00

C$/US$)

Adjusted (1.15

C$/US$)%Chg

Xtreme Drilling XDC 115.6$ 93% 131.7$ 14% 3.9x 3.4x -13%High Arctic HWO 75.2$ 80% 84.1$ 12% 2.9x 2.6x -11%Pason PSI 293.6$ 70% 324.5$ 11% 8.2x 7.5x -9%Canadian Energy Services CEU 205.1$ 65% 225.0$ 10% 11.0x 9.9x -10%Cathedral CET 46.9$ 58% 51.0$ 9% 4.4x 4.1x -7%PHX Energy Services PHX 93.7$ 55% 101.4$ 8% 6.5x 6.0x -7%Savanna SVY 219.8$ 50% 236.3$ 7% 4.5x 4.2x -7%CanElson CDI 144.9$ 48% 155.3$ 7% 4.3x 4.0x -7%Trinidad TDG 301.0$ 46% 321.8$ 7% 4.6x 4.3x -6%Calfrac CFW 453.5$ 42% 482.1$ 6% 5.3x 5.0x -5%Lonestar LSI 16.2$ 20% 16.7$ 3% 6.9x 6.7x -3%Trican TCW 445.8$ 7% 450.7$ 1% 5.7x 5.6x -1%Average 8% -7%Source: Company reports, NBF

2015 EBITDA 2015 EV/EBITDASERVICES - MODERATE POSITIVE EXPOSURE TO WEAKENING CAD

Student Transportation Inc. (STB) STB experiences a slight 2.6% valuation bump (to 7.4x 2015 EV/EBITDA from 7.6x) as a lower EBITDA is more than offset by a lower enterprise value. STB reports in US$ and has ~85% of its owned school bus fleet operating in the United States. A weakening of the Cdn$ to 1.15 CAD/USD reduces the reported US$ amount of revenues and EBITDA contribution from the Canadian operation. The net impact is a 65 bps

reduction in EBITDA to $111.6 mln in fiscal 2016 from our current $112.3 mln; however, the U.S.-denominated enterprise value is also reduced by 4% to $829.3 mln from $864.2 mln. The combination of these two movements results in a modest valuation positive, taking STB’s 2015 EV/EBITDA multiple down by 2.6% to 7.4x from 7.6x.

Losers: We have no companies whose costs are in US$ but revenue is in Cdn$, or which generate Cdn$ cash flow, but trade exclusively on a U.S. exchange. No major impact: A number of companies under our coverage have either zero, or immaterial, U.S. exposure and are unaffected by movement in the exchange rate: Canyon (FRC-T), Horizon North (HNL-T), ENTREC (ENT-T), Essential (ESN-T), Mullen (MTL-T) and Secure (SES-T). As mentioned previously, all of these companies make capital purchases of items which would trade globally in U.S. dollars and as such, over the longer term a lower Canadian dollar would result in modestly lower return on capital as the capital deployed (in Canadian dollars) would increase for the same quantity of goods purchased.

OIL AND GAS Impact of a Weak Cdn$ on Canadian Oil & Gas Producers With a weaker outlook for the Canadian dollar, some investors are wondering what sort of impact this has on Canadian oil and gas producers. All else being equal, a weakening Canadian dollar should have a positive impact on the Canadian oil and gas industry. Given that the underlying commodities are US$-denominated, a depreciating Cdn$ results in higher realized prices/revenue for Canadian oil and gas producers, while the majority of costs are Cdn$-denominated. The specific cash flow impact for each company will also be influenced by the location of assets (i.e., international assets will be less impacted), the type of commodity and currency hedges in place and the type of debt instruments in place (Cdn$ vs. US$). Below we present a cash flow sensitivity which summarizes the impact of a $0.02 depreciation in the Canadian dollar versus the U.S. dollar measured as a percentage change in our 2014 CFPS estimate. Based on our analysis, we estimate an average +2% increase in cash flow across our Energy E&P coverage from a $0.02 depreciation of the Cdn$.

2014 CFPS PERCENTAGE CHANGE (TO $0.02 USD/CAD FX MOVEMENT)

0%

1%

2%

3%

4%

5%

6%

SOG

OIL

SGL

TBE

HY

XPL

T.U

NZA

R CJ

AEI

RE

EGL.

UN

LEG

SPE

MEG SG

YTO

GTV

EC

KE

PGF

WC

PD

TX BTE

LRE

BNE

MQ

LM

EIR

RX

SUD

CK

RTK KE

LPM

TR

MP

NV

AD

EE

ERF

CN

QBX

ESR

XEC

ATO

ULX

EBI

RC

QE

PPY

VET

CR

CPG PS

KFR

UPN

ELT

SC

VE

PWT

CO

SAA

VBN

PTE

TAR

XPE

YH

WK'

A

% C

hang

e 20

15e

CFP

S

Source: NBF, company reports Impact from U.S.-Denominated Debt: Several of the larger Canadian producers have U.S.-denominated debt which means they will likely see higher interest costs and potentially higher debt repayments depending on the timing of debt maturities. We present the following chart showing the total amount of U.S.-denominated debt and the corresponding maturities. Note the impact from US$ interest payments was incorporated in our cash flow sensitivity above.

US$ DEBT MATURITIES – SENIOR / INTERMEDIATE YIELD E&Ps

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

SU ECA

CN

Q

CVE

MEG

PWT

CO

S

PGF

CPG LT

S

ERF

BN

P

AR

X

BTE

PEY

VET

USD

$mln

s

1-2 years 3-5 years 6-10 years 10+ Source: NBF, company reports, Bloomberg

Other FX Nuances Historical Relationship of the “Canadian Petro-Dollar”: Over the past decade or so the Cdn$ has seen a positive relationship with WTI oil prices, during which time the Canadian dollar earned a reputation as a “petro-dollar.” This is a term used to describe a positive relationship between a country’s currency and a corresponding increase in oil prices due to higher oil export trade flows. However, this relationship has deteriorated over the past few years as other economic events and monetary/fiscal policies appear to be playing a bigger role in influencing the Canadian currency.

WTI VERSUS CAD/USD FX

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$0

$20

$40

$60

$80

$100

$120

$140

$160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

CAD

/USD

FX

WTI

(US$

/bbl

)

WTI (US$/bbl) CAD/USD Exchange Rate

Source: NBF, company reports, Bloomberg

PIPELINES, UTILITIES & ENERGY INFRASTRUCTURE Analyst: Patrick Kenny Big Winners: None noted Moderate winners: Veresen Inc. (VSN) ~50% of 2015e AFFO is non-Canadian based (i.e., 50% of Alliance, 100% of Aux Sable, ~50% of Power operations). CAD/USD exchange rate exposure is managed through US$-denominated long-term debt. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~5%. Canexus Corp. (CUS) ~30% of 2015e AFFO is non-Canadian based (U.S. and US$-denominated South American operations). CAD/USD exchange rate exposure is managed through US$-denominated long-term debt, and US$ foreign exchange forward contracts and option contracts. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~4%. Gibson Energy Inc. (GEI) ~25% of 2015e AFFO is non-Canadian based (100% OMNI; 33% Truck Transportation). CAD/USD exchange rate exposure is managed through US$-denominated long-term debt, as well as foreign currency forward exchange contracts. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~3%. AltaGas Ltd. (ALA) ~30% of 2015e AFFO is non-Canadian based (100% SEMCO Utility; Petrogas; California-based Blythe Energy Centre). CAD/USD exchange rate is managed through US$-denominated long-term debt associated with U.S. operations. Overall, US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~2%. Enbridge Inc. (ENB) ~50% of 2015e AFFO is non-Canadian based (U.S.-based Liquids & Gas operations, ~33% interest in Enbridge Energy Partners LP). However, the company hedged ~66% of its US$ exposure through 2018 at US$0.95. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~2%. Emera Inc. (EMA) ~30% of 2015e AFFO is non-Canadian based (U.S. and Caribbean-based Utilities; U.S. power generation). CAD/USD exchange rate exposure is partially hedged through US$-denominated long-term debt. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~2%. Fortis Inc. (FTS) ~35% of 2015e AFFO is non-Canadian based (CH Energy; UNS Energy; Fortis Turks and Caicos, BECOL; FortisUS Energy Corp.). CAD/USD exchange rate exposure is partially hedged through US$-denominated long-term debt and foreign currency forward exchange contracts. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~2%.

Moderate Losers: Brookfield Renewable Energy Partners (BEP) ~65% of AFFO is non-Canadian based (~50% U.S.; ~15% Brazil). However, the company reports in U.S. dollars. As such, a weakening Canadian dollar will have a negative impact on the ~35% of Canadian cash flow translated to U.S. dollars. That said, the impact is partly mitigated through Canadian dollar denominated debt outstanding. Overall, we forecast a ~2% negative impact to our 2015e AFFO for every US$0.10 depreciation of the Canadian dollar. No Major Impact: Superior Plus Corp. (SPB) ~40% of 2015e AFFO is non-Canadian based (pro-forma Construction Products sale; ~33% of Energy Services; ~60% Specialty Chemicals). However, the company has hedged ~65% of its US$ exposure through 2015 at ~US$1.02. Therefore, a US$0.10 deprecation of the Canadian dollar is expected to increase 2015e AFFO by ~1%. TransAlta Corp. (TA) ~20% of 2015e AFFO is non-Canadian based (Centralia and other U.S. operations; Australian operations). CAD/USD exchange rate exposure is managed through US$-denominated long-term debt, as well as foreign currency forward exchange contracts. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~1%. TransCanada Corp. (TRP) ~50% of 2015e AFFO is non-Canadian based. However, CAD/USD exchange rate exposure is hedged through US$-denominated long-term debt, as well as foreign currency forward exchange contracts. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~1%. ATCO Ltd. (ACO.X) ~20% of 2015e AFFO is non-Canadian based (Structures & Logistics; ATCO Australia). Foreign currency exposure is partly hedged through Australian dollar denominated debt outstanding. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2015e AFFO by ~1%. Valener Inc. (VNR) The majority of Valener’s operations are located in eastern Canada (i.e., just ~15% exposure to U.S. currency). Coupled with its hedging program, we don’t view any material impact to our estimates based on a US$0.10 deprecation in the Canadian dollar. Inter Pipeline Ltd. (IPL) The majority of Inter Pipeline’s operations are located in Canada (~10% exposure to the euro via European-based Bulk Liquids Storage). Combined with significant Canadian-based growth stemming from >$3 billion of oil sands related projects through 2017, we do not expect any material impact to our estimates stemming from a US$0.10 depreciation in the Canadian dollar. Keyera Corp. (KEY) The majority of Keyera’s operations are located in Western Canada (under 10% exposure to U.S. currency through NGL / iso-octane sales). Coupled with its foreign currency hedging program, we do not expect a material impact to our estimates based on a US$0.10

depreciation in the Canadian dollar. That said, to the extent a strengthening US$ continues to put downward pressure on commodity prices (crude oil, NGL prices), Keyera’s NGL Marketing profitability may be negatively impacted (~35% of AFFO). Pembina Pipeline Corp. (PPL) The majority of Pembina’s operations are located in western Canada (under 10% exposure to U.S. currency through NGL Marketing). Coupled with its foreign currency hedging program, we do not expect a material impact to our estimates based on a US$0.10 depreciation in the Canadian dollar. That said, to the extent a strengthening US$ continues to put downward pressure on commodity prices (crude oil, NGL prices), Pembina’s Midstream profitability may be negatively impacted (~45% of AFFO). Capital Power Corp. (CPX) The majority of Capital Power’s operations are in Canada (under 1% exposure to U.S. currency through Roxboro and Southport). As such, we do not expect a material impact to our estimates based on a US$0.10 depreciation in the Canadian dollar. Northland Power Inc. (NPI) Northland Power has minimal exposure to U.S. currency (<1% related to gas turbine maintenance). As such, we do not expect any material impact to our estimates based on a US$0.10 depreciation in the Canadian dollar. That said, NPI’s long-term foreign currency exposure (euro) is expected to rise with the addition of EUR€4 billion of offshore wind projects in Europe. Of note, the offshore wind projects have the potential to represent approximately half of Northland Power’s cash flow post 2017. Canadian Utilities Ltd. (CU) All of Canadian Utilities’ operations are located in Canada. As such, we do not expect any impact to our estimates based on a US$0.10 depreciation in the Canadian dollar.

FINANCIALS (DIVERSIFIED) Analyst: Shubha Rahman Khan Big winners: Element Financial Corp. (EFN) EFN’s business mix is rapidly shifting towards U.S. equipment finance portfolios. At the end of 2013, around 26% of earning assets were denominated in U.S. dollars. Six months later, the percentage increased to 38%. With the closing of the PHH Arval acquisition in early July 2014, we estimate that the share of U.S. dollar-denominated earning assets has increased to roughly 70%. As such, EFN has the highest U.S. dollar exposure of any stock in our coverage universe. Since EFN hedges its currency exposure, however, the earnings impact of a strengthening U.S. dollar may be muted in the interim. Moderate winners: AGF Management Ltd. (AGF/B) AGF Management’s U.S. dollar exposure primarily relates to its U.S. and international retail funds, which account for roughly 55% of retail fund AUM. A strengthening U.S. dollar would translate to higher AUM on a Cdn$-basis. However, the resulting increase in management fees would be partially offset by higher trailing commissions. We believe AGF has the most U.S. dollar exposure of the asset managers in our coverage universe. CI Financial Corp. (CIX) As at Sept. 30, 2014, 29% of CI’s AUM was based in U.S. currency. Management estimates that a 10% change in the Cdn$/US$ exchange rate would impact annual pre-tax earnings by approximately $26 million, or $0.07 in EPS (which equates to 4% of our 2014 EPS forecast). Fiera Capital Corp. (FSZ) AUM attributable to the two U.S. private wealth businesses that FSZ acquired accounts for a relatively modest 10% of total AUM. However, these are higher-fee assets relative to Fiera’s institutional and retail sub-advisory AUM. We estimate that ~25% of Fiera’s revenue is attributable to the two U.S. subsidiaries. Consequently, Fiera now has among the highest exposures to US$/Cdn$ exchange rate fluctuations of the asset managers in our coverage universe. IGM Financial Inc. (IGM) Although a significant portion of funds offered by IGM’s two main asset management subsidiaries hold securities that are denominated in U.S. dollars, we believe IGM Financial’s U.S. dollar exposure is the lowest of the peer group. Roughly a third of the Mackenzie subsidiary's AUM is denominated in foreign currencies. U.S. dollar assets held within funds managed by Investors Group are likely to be much lower. Losers: None

No major impact: Intact Financial Corp. (IFC) Intact Financial only writes auto and property insurance in Canada. The company has minimal U.S. dollar exposure within its $13 billion investment portfolio. In any case, IFC hedges its foreign currency exposure. Genworth MI Canada Inc. (MIC) Genworth Canada’s mortgage insurance operations are entirely Canada-based. The company has some U.S. dollar exposure within its $5 billion investment portfolio. However, the vast majority of this portfolio consists of fixed income securities denominated in Canadian dollars. TMX Group (X) TMX Group holds a 53.8% equity interest in the Boston Options Exchange (BOX), which is generating modest (if any) income on the heels of significant market share erosion in 2013. With no meaningful market share recovery expected in the near term, we believe the strengthening U.S. dollar will have a modest impact on earnings. Callidus Capital Corp. (CBL), Canadian Western Bank (CWB), Laurentian Bank (LB), Home Capital Group Inc. (HCG), Equitable Group Inc. (EQB), MCAN Mortgage Corp. (MKP) and First National Financial Corp. (FN) The above-listed financial institutions focus almost exclusively on domestic lending and, as such, do not have significant exposure to movements in exchange rates.

FINANCIAL SERVICES Analyst: Peter Routledge Big winners: Manulife Financial Corp. (MFC) Only 27% of MFC’s assets are denominated in Canadian dollars and the company generated just 13% of its earnings from Canada in f2013, although this has normalized to 29% year-to-date in f2014 owing to one-time items in the prior year. A significant proportion of MFC’s funds under management (57%) and earnings (46%) are denominated in U.S. dollars with the remaining balance in Asian currencies. Accordingly, the upside to MFC from a weakening Canadian dollar originates from its U.S. platform, which is reporting robust growth following management’s restructuring and de-risking of the insurer’s legacy product portfolio and wholesaling platform. To this end, John Hancock’s funds under management have doubled since the end of f2009 driving earnings higher in the life insurer’s U.S. Wealth Management segment. We see nothing to slow this momentum as U.S. wealth management sales have improved 19% y/y in the first half of f2014. Given the majority of MFC’s funds under management are in U.S. dollars, the company’s Canadian dollar book value will also appreciate as, and if, the domestic currency continues to decline in value. Sun Life Financial Inc. (SLF) SLF obtained 42% of its earnings from the United States in f2013 (excluding the divested U.S. annuities business) and 14% from geographies outside Canada (principally the U.K. and Asia). Moreover, we estimate that 45% of SLF’s general fund assets are denominated in foreign currencies. Most importantly, the fastest growing business in SLF’s portfolio is its U.S. investment manager, MFS. Any appreciation in the value of the U.S. dollar relative to the Canadian dollar will amplify MFS’ already strong organic growth (at least on a Canadian dollar basis). Moderate winners: Bank of Nova Scotia (BNS) BNS generated 48% of its net income from its subsidiaries outside Canada in f2013, with the vast majority coming from Latin America and Asia. In addition, we estimate that 40% of BNS’ assets are denominated in foreign currencies – 15% in U.S. dollars and 25% in other currencies. We note BNS’ relatively low level of measured U.S. currency exposure omits the fact that some of the currencies in its operating platform are pegged to the U.S. dollar (e.g., the Hong Kong dollar and several Caribbean and Central American currencies). This indirect exposure enhances BNS’ underlying exposure to an appreciating U.S. dollar. Toronto-Dominion Bank (TD) TD’s U.S. personal & commercial (P&C) banking platform has 1,306 branches (or stores in TD-speak) versus 1,164 branches in Canada. Although the U.S. branch network is not as productive as the Canadian arm, the bank still generated 13% of its earnings in the United States with 30% of its assets in f2013, we estimate, denominated in U.S. dollars. Of note, the bank generated a further 23% of earnings in geographies outside Canada and the United States. As the U.S. economy continues to gain momentum, TD should enjoy healthy acceleration in U.S. dollar earnings growth.

Bank of Montreal (BMO) In f2013, 31% of BMO’s earnings were derived from geographies outside Canada, principally in the United States, with 48% of BMO’s assets denominated in U.S. or other foreign currencies. The bank should benefit from a depreciating Canadian dollar through its well-diversified array of U.S. businesses. Of the US$1 billion in f2013 net income generated from its U.S. operations, BMO sourced 58% from P&C banking, 21% from wealth management and 21% from capital markets activities. Royal Bank of Canada (RY) At the end of f2013, 42% of RY’s assets were from operations outside Canada (21% in the United States, 21% in Europe and Asia combined). That said, the bank generated just 24% of its earnings from outside the country (15% from the United States and 9% from other geographies). While the bank’s international capital markets platform continues to grow at an impressive rate, which will increase the proportion of ex-Canada earnings over time, RY’s earnings profile remains dominated by Canadian Banking, representing over 50% of the bank’s earnings. Losers: None No major impact: Canadian Imperial Bank of Commerce (CM) In the most recently completed fiscal year, CM sourced 17% of its earnings from outside Canada, (with just 4% from the United States). CM remains a Canada-centric institution with a disproportionate share of its earnings (approximately two-thirds) coming from its domestic P&C banking operations. Great-West Lifeco Inc. (GWO) At the end of f2013, nearly 60% of GWO’s balance sheet assets were denominated in foreign currencies (20% U.S. dollar assets and 40% in European currencies). Furthermore, GWO generated 54% of earnings from its Canadian franchise, 31% from Europe and 15% from the United States. Given the relatively lower contribution from U.S. operations relative to other operating geographies, we do not foresee a depreciating Canadian dollar relative to the U.S. dollar providing GWO with the same upside as some Canadian peers. Rather, GWO’s relatively larger exposure to European currencies, such as the U.K. pound sterling and the euro offers a mixed impact with the Canadian dollar appreciating relative to the euro, but depreciating relative to the pound thus far in 2014. National Bank of Canada (NA) NA is another Canada-centric bank with just 6% of its assets allocated to businesses outside Canada (principally the United States). Meanwhile, NA’s foreign operations contributed just 3% of the bank’s f2013 net income. Industrial Alliance (IAG) IAG does not disclose geographic data for earnings and assets but reports that ~14% of its invested assets are domiciled outside of Canada (presumably in the United States). IAG generates the vast majority of its earnings within Canada, with 1% coming from its U.S. operations.

MERCHANDISING & CONSUMER PRODUCTS Analyst: Vishal Shreedhar Big winners: Gildan Activewear Inc. (GIL) We estimate that Gildan’s U.S. operations represent ~90% of total earnings. We estimate that the strengthening of the US$ by five percent relative to the Cdn$ would have a very slight negative impact on Gildan’s earnings because the company reports in US$ and its Canadian operations only represent an estimated four percent of total earnings. Although the impact on earnings is negligible, we calculate that a five percent increase in the US$ relative to the Cdn$ would support the shares (trading on the TSX) by slightly more than four percent due to exchange rate translation. Moderate winners: Saputo Inc. (SAP) We estimate that Saputo’s U.S. operations represent ~45% of total earnings. We estimate that the strengthening of the US$ by five percent relative to the Cdn$ would support Saputo’s annualized earnings and shares by two-to-three percent. Note that Saputo reports in Cdn$. Alimentation Couche-Tard Inc. (ATD.B) We estimate that Alimentation Couche-Tard’s U.S. operations represent ~50% of total earnings. We estimate that the strengthening of the US$ by five percent relative to the Cdn$ would reduce Alimentation Couche-Tard’s annual EPS by approximately one percent because the company reports in US$ and its Canadian operations, which represent approximately 17% of total earnings, would be negatively affected by exchange rate translation. Although the impact on earnings is slightly negative, we calculate that a five percent increase in the US$ relative to the Cdn$ would support the shares by two-to-three percent due to exchange rate translation. Losers: No significant losers. No major impact: Canadian Tire (CTC.A); Jean Coutu (PJC.A); Loblaw (L); Metro (MRU); Empire (EMP.A); RONA (RON); Dollarama (DOL): Potential weakness in purchasing power is expected to be largely negated by FX hedging contracts where applicable and merchandising offer adjustments. We were not able to find empirical evidence that weakness in the Cdn$ relative to the US$ largely impacted financial and/or share price performance. Notwithstanding, with the grocers (Loblaw, Metro, Empire) we did notice that foreign exchange weakness aided food inflation; however, the benefit was not material and a highly competitive environment has somewhat limited the pass through of food inflation to consumers.

COMMUNICATIONS MEDIA & TELECOM Analyst: Adam Shine Modest Positive Impact: Thomson Reuters Corp. TRI reports in US$. While the company generates less than 3% of its revenues from Canada, it has $3.2 billion of debt denominated in Cdn$, with $600 million maturing in 2014. The net effect of the Cdn$ is immaterial to TRI's earnings. Where things get more interesting is with respect to TRI's share price on the S&P/TSX which pushes steadily above that of its NYSE-listed stock as the Cdn$ declines. A $0.01 decline in the Cdn$ should add $0.37 of upside to TRI's Canadian-listed stock as well as provide an upward bias to our target (a $0.05 move equates to a material $1.85). No Impact (Immaterial Positive Skew) Transcontinental TCL generates an estimated 14.2% of its consolidated revenues from the United States (6.1% from exports from Canada and 8.1% from U.S. operations) and approximately $60 million or 17.5% of its total EBITDA. It designates some of its debt denominated in US$ as a hedge of an equivalent portion of its net investment in its foreign operations, with the designated amount having varied between US$20 million and US$41 million prior to its purchase of Capri Packaging on May 3. Excluding the net effect of hedges, a 1 cent drop in the Cdn$ would benefit TCL's EPS by about half a cent. As such, a potential $0.05 decline in the Cdn$ would add an estimated $0.02-$0.03 or 1%-1.3% to our f2015 forecast. TCL could benefit from more export work as the Cdn$ depreciates. Cogeco Cable Inc. Following the closing of acquisitions of Atlantic Broadband and Peer 1 during the company's f2013, CCA derives approximately 27.0% of consolidated revenues and 19.3% of EBITDA from the United States. While a 1 cent drop in the Cdn$ vs. the US$ benefits EPS by about $0.02, it increases interest costs by a penny for a net positive impact of just below $0.01. Should the Cdn$ decline a further $0.05, the current extrapolated EPS benefit for f2015 would be just above $0.04 or 0.8% of our f2015 estimate. Supremex SXP generates approximately 11.0% of its consolidated revenues from the United States, but given recent contract wins south of the border, we expect this percentage to rise toward 17.5% in 2015. A potential $0.05 decline in the Cdn$ would only likely contribute an extra $0.01 or 3% to our 2015 EPS estimate, but would be expected to position SXP for potential new contract wins in the United States. Cineplex Following the purchase of EK3 Technologies Inc. on Aug. 30, 2013, CGX now generates about 2.0% of its consolidated revenues and 1.8% of total EBITDA from the United States. A potential $0.05 decline in the Cdn$ would be expected to contribute less than $0.01 or under 1.0% to our 2015 EPS estimate. Corus CJR generates about 7% of its revenues from outside of Canada through its Nelvana operation. The company is exposed to FX risk through its international content distribution platform and US$-denominated programming purchasing. CJR noted in its last Annual Report that a 10% change in exchange rates would not have any material impact on its earnings.

DHX Media We estimate that 10.6% of DHX’s f2015 revenue is exposed to the US$. A potential $0.05 decline in the Cdn$ would add 0.5% or about $0.5 million to EBITDA, with no material benefit to EPS. No Impact (Immaterial Negative Skew) Aimia AIM generates approximately 14.3% of its gross billings and 15.7% of its consolidated revenues from its U.S. & APAC operations. In terms of Adjusted EBITDA, we forecast this region producing $7.3 million in 2014 and $8.4 million in 2015. Additionally, we've got dividends from PLM, included in Adjusted EBITDA, adding $14.4 million in 2014 and $18.0 million in 2015. Acknowledging these items, a decline of 1% in the Cdn$ would benefit EPS negligibly, with a potential $0.05 decline in the Cdn$ adding an estimated $1.1 million to Adjusted EBITDA and $0.01 to Adjusted EPS. AIM's Aeroplan operation in Canada, however, incurs expenses in US$ for such items as air, hotel and car rental rewards issued to redeeming loyalty members. The company doesn't disclose what its US$ exposure is to what we estimate will be $849 million in costs of rewards in Canada in 2014. If it's at least 25%, then a 1% decline in the Cdn$ would impact Adjusted EBITDA by $2.1 million and Adjusted EPS by $0.01, with a $0.05 drop in the Cdn$ impacting results by $10.5 million and $0.05, respectively. The estimated net impact of all these items following a possible $0.05 decline in the Cdn$ would appear to be $9.4 million for Adjusted EBITDA (2.8% of 2015 forecast) and $0.04 for Adjusted EPS (4.4% of 2015 estimate). Postmedia PNC has US$268.6 million of 12.5% Second-Lien Notes due July 2018 which represent approximately 58.6% of the company’s outstanding debt. A potential $0.05 decline in the Cdn$ would impact EPS by about $0.04 and add to the $0.95 loss we’re forecasting for f2015. Sirius XM Canada XSR is exposed to fluctuations of the Cdn$ in relation to the US$ due to its current liabilities in respect of the NHL and other payments to parent Sirius XM which are in US$. The company notes that a 1% decline in the Cdn$ has less than a $0.3 million impact on its cash flows. A potential $0.05 decline in the Cdn$ would be expected to impact EBITDA by 1.7%, with the EPS impact at $0.01 or 3.3% of our f2015 estimate. Quebecor QBR's operations are entirely in Canada. Like other telcos and cablecos, it has US$ exposure mostly related to capex associated with the purchase of telecom equipment and set-top boxes. It has some exposure to wireless handsets whose related subsidies are expensed. QBR hedges approximately 50% of its overall US$ purchases on a rolling 12-month basis. Meanwhile, its US$-denominated debt is fully hedged. While a $0.01 drop in the Cdn$ impacts our 2015 FCF estimate by about 1%, the effect on earnings is even less. A potential $0.05 decline in the Cdn$ would impact our 2015 EPS forecast by $0.01 or less than 1%.

No Impact BCE BCE operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. Bell Aliant BA operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. BA’s purchase by BCE is expected to close by the end of October 2014. Manitoba Telecom Systems MTS operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. Rogers RCI operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. Shaw Following the closing of its acquisition of ViaWest Inc. on Sept. 2, 2014, we estimate that SJR will derive approximately 3.7% of its consolidated revenues and 3.6% of its total EBITDA from the U.S. in f2015, with US$370 million of non-recourse debt related to ViaWest. The company’s FX exposure is immaterial. TeraGo TGO operates in Canada and has no material exposure to fluctuations in the Cdn$. TELUS T operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. Torstar TS derives 27% of its consolidated revenues from the international operations of Harlequin and an estimated 33% of EBITDA, with the most significant currency exposure to movements in the US/Cdn exchange rate. TS has sold US$40 million under forward foreign exchange contracts in 2014 at an average rate of 1.05 or 0.9524 Cdn/US and US$20 million in 2015 at 1.07 or 0.9346 Cdn/US. Using prevailing rates which reflect a $0.05 decline vs. the average US/Cdn rate in 2013, we estimate a net EBITDA benefit of $2.2 million or 2.2% of our 2014 forecast and an EPS benefit of approximately $0.02 which equates to about 2% of our 2014 estimate. TVA The company doesn’t have material FX exposure.

REAL ESTATE Analyst: Trevor Johnson Analyst: Matt Kornack Moderate winners: Artis REIT Artis currently derives over 20% of its NOI from properties in the United States. In recent quarters, the REIT has been accumulating office / industrial buildings and development land in rapidly growing U.S. markets. On the hedging front, the REIT utilizes FX forwards from time to time and has secured US$ debt, convertible debentures and preferred units to finance a portion of its portfolio, providing it with a natural hedge against currency changes. Management indicated in the past that this offers protection for approximately 70% of its U.S. exposure, somewhat limiting the near-term upside to recent US$ appreciation. H&R REIT H&R REIT generates over 20% of its NOI from properties in the United States with a combined IFRS value of over $2.9 billion. In Q2 2014, H&R was active on the capital recycling front, selling interests in three shopping centres and an office property in Canada with the goal of partially redeploying the proceeds in a multi-phase apartment development project in Long Island City, NY. Like Artis, the REIT has a partial natural hedge through the use of US$ debt in financing its portfolio – on its U.S. properties LTV at June 30, 2014 was ~54%. The REIT also employs foreign exchange forward contracts to partially protect against currency changes. Pure Industrial RET In June 2014, PIRET acquired six income-producing properties in the United States (5) and Montreal (1), and five development properties in the United States for US$235 million (~15% of IFRS value, pro-forma acquisition), setting up a beachhead for further expansion, particularly in Texas, Florida and the Carolinas. The REIT has a partial natural hedge through the use of US$ debt in financing its portfolio – LTV at ~50%. No major impact: HealthLease Properties REIT (HLP.un) HealthLease has over 60% of its assets in the United States and generates significant rental revenue from properties in the Midwest, Mid-Atlantic and Southern U.S. Although HealthLease’s operations continue to be affected by currency movements, the recently announced acquisition by Health Care REIT has a fixed takeout price in Canadian dollars. Remaining Coverage Universe Other than the broader impact that Cdn$ depreciation has on the strength of the Canadian economy (export-driven industries should benefit) and the REIT’s specific tenants, the remaining companies in our coverage have limited direct currency exposure. Note that we are restricted on Milestone Apartments REIT so we have excluded it from this analysis.

METALS AND MINING – PRECIOUS METALS

FIGURE 1: CURRENCY DECLINES, LED BY BRAZILIAN REAL, ARGENTINEAN PESO AND AUSTRALIA DOLLAR AND MORE RECENTLY THE CANADIAN DOLLAR PROVIDE SCOPE FOR COST RELIEF

% Change CDN AUD ARS MXN CLP BRL PEN RUB Average2014 Last / Q3 -2.5% -5.7% -2.0% -2.8% -4.0% -7.4% -2.3% -8.0% -4.3%

Q3/Q2 0.2% -0.8% -2.9% -0.9% -3.9% -1.9% -1.0% -3.5% -1.8%Q2/Q1 1.1% 4.0% -5.7% 1.8% -0.6% 6.0% 0.6% 0.2% 1.0%YTD -4.6% -1.8% -23.0% -3.4% -12.6% -3.7% -3.1% -16.6% -8.6%

MXN,CDN

AUD

ARS

CLP

BRL

PEN

RUB

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

Last

% Change

CDN AUD ARS MXN CLP BRL PEN RUB

Source: Bloomberg

FIGURE 2: OPERATING COST EXPOSURE TO LOCAL CURRENCIES, AFTER ACCOUNTING FOR CURRENCY HEDGES CDN AUD ARS MXN CLP BRL PEN RUB EUR USD MRO GHS

(Canada) (Australia) (Argentina) (Mexico) (Chile) (Brazil) (Peru) (Russia) (Euro) (US) (Mauritania) (Ghana) (Other)YRI 12% 0% 10% 4% 23% 13% 0% 0% 0% 0% 0% 0% 0%AEM 53% 0% 0% 9% 0% 0% 0% 0% 10% 0% 0% 0% 0%

K 0% 0% 0% 0% 1% 5% 0% 4% 0% 25% 2% 6% 0%NGD 29% 15% 0% 10% 0% 0% 0% 0% 0% 30% 0% 0% 0%DGC 80% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%TMM 0% 0% 0% 15% 0% 0% 0% 0% 0% 0% 0% 0% 0%LGC 0% 0% 0% 0% 0% 51% 0% 0% 0% 0% 0% 0% 0%IMG 3% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%GSC 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 12% 0%ASR 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 50%BTO 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 15%KGI 95% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%LSG 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%SMF 4% 0% 0% 0% 0% 0% 0% 0% 58% 0% 0% 0% 0%OGC 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 17%AGI 0% 0% 0% 40% 0% 0% 0% 0% 0% 0% 0% 0% 0%AUQ 66% 0% 0% 13% 0% 0% 0% 0% 0% 0% 0% 0% 0%SVL 0% 0% 0% 50% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Highest ExposureAEM, DGC, AUQ NGD YRI YRI NGD, K

LSG, KGI AGI, SVL LGC SMF ASR* Local currency exposure factors in 1) the % of the company opex in local currency, 2) the % of total opex incurred in the specific country and 3) the currency hedges in place.** When unavailable we assume 80% of opex incurred in local currency.

Source: Company Reports, NBF Estimates

Summary: The weakening of the Canadian dollar (Cdn$) is a direct consequence of broad-based strength in the U.S. dollar (US$). As it has been this time round, US$ strength is typically met with an immediate and material downturn in commodity prices that is amplified for gold and silver. While this exercise is meant to highlight those companies poised to benefit from a weaker Cdn$, we are reluctant to classify any companies as “winners” per se since the overarching tone is dictated by weaker commodity prices and resultant decline in operating margins.

That being said, there is a degree of reprieve for those companies exposed to currency declines at their operations. For the purpose of the mining review we have expanded the scope of analysis beyond the Cdn$ to take into account the international exposure of producers in our coverage universe, noting that other currencies, such as the Brazilian real and Argentinean peso, weakened sooner and more significantly than the Cdn$. In the case of the Brazil real and Argentinean peso the currency declines have been met with significant in-country inflation, whereas a decline in the Canadian (and Australian) provides more direct cost relief. The latter is our preference. With respect to our currency winners, we take into account the company’s exposure to local currencies and the effect of currency hedges. Royalty companies are excluded from our analysis on the basis that the companies do not have material operating costs other than corporate G&A that provide currency exposure. As well, we excluded Sprott Resource Corp. for similar reasons. Winners: Agnico-Eagle Mines Ltd. (AEM) We estimate that ~53% of AEM’s operating costs are exposed to the Cdn$ with the estimate buoyed by the 2014 addition of Malartic and three underground mines, with the latter bringing to bear a higher proportion of labour costs in local currency terms over open pit mines. Agnico’s Cdn$ exposure is among the highest of the large intermediate producers. This coupled with AEM’s go-to status for risk-averse investors suggests to us that AEM could be among the biggest beneficiaries of weaker operating currencies in the context of a negative backdrop for gold prices. AuRico Gold Inc. (AUQ) The Young-Davidson (Y-D) underground mine provides AuRico with significant leverage to a weakening Cdn$. AuRico indicates that 95% of its operating costs and 95% of its capex at Y-D are in Canadian dollars. Including the El Chanate mine in Mexico, based on our estimates, ~66% of company-wide operating costs and 74% of 2015 capex (US$90 mln at Y-D and US$25 mln at El Chanate) are exposed to the Cdn$. Based on this leverage, AuRico is well positioned to benefit from a depreciating Cdn$. A 5% decrease in the Cdn$ would increase our 2015 CFPS forecast by ~7% and decrease our 2015 capex estimate by 4% - the net effect would be a ~US$10 mln (~US$0.04/share) increase in our estimated 2015 free cash flow. Lake Shore Gold Corp. (LSG) The rally in the share price for LSG in 2014 has been driven by strong operational performance and an improving balance sheet. While the recent decline in gold prices will have a negative impact it will be partly offset by the beneficial impact of a depreciating Cdn$ given the company has its operations in Canada. We estimate that a 5% depreciation in the Cdn$ increases our 2015 CFPS by ~15%. Moderate winners: Kirkland Lake Gold Inc. (KGI) With KGI expected to turn the corner in terms of reducing cash costs in fiscal 2015 (April year end) and beyond, the depreciating Cdn$ will be a much needed relief in an otherwise weak gold price environment given that 100% of KGI’s production is from Canada. We note that a 5% depreciation in the Cdn$ increases our fiscal 2015 CFPS estimate by ~13%.

Detour Gold Corp. (DGC) ~80% of DGC’s operating costs are exposed to the Canadian dollar. While Detour’s late-stage ramp-up status and balance sheet updates through year-end 2014 are likely to dictate near-term share price performance, we suggest that investor response to the benefits of a weaker Canadian dollar may intensify in Q4/14 and into 2015 on the back of expected production improvements, notably for mill availabilities and mining rates. A 5% drop in the Cdn$ increases our 2015 CFPS estimate by ~10% while adding ~$25 mln to our YE2015 cash balance forecast. New Gold Inc. (NGD) We estimate that ~29% of NGD’s operating costs are exposed to the Canadian dollar by way of its flagship New Afton Cu/Au mine, which we estimate contributes ~52% of the company’s EBITDA. With a high proportion of base metal revenue compared with its peers, a back-end loaded production profile in 2014 and US$414 mln in cash at June 30, 2014, we believe that New Gold is well positioned to navigate spot gold prices and an increasing capex spend at the Rainy River project. For 2015 we forecast project capex of over US$300 mln as compared with ~US$105 mln in 2014. No major impact: Golden Star Resources, SEMAFO, IAMGOLD, Kinross Gold (muted by hedges), Alacer Gold and Timmins Gold

METALS AND MINING – BASE METALS

FIGURE 3: SENSITIVITY OF 2015E CFPS TO 10% CHANGE IN CAD/USD FOR BASE METAL PRODUCERS

2%

16%

19%

28%

32%

0% 5% 10% 15% 20% 25% 30% 35%

CS-T

HBM-T

TKO-T

TCK'B-T

CUM-T

Source: NBF estimates

Big winners: Copper Mountain Mining With production growth, no exposure to rising TC/RCs and the potential for ongoing weakness in the Cdn$, CUM is well positioned looking ahead to Q4/14 and 2015. We estimate that a 5% drop in the Cdn$ increases our CFPS estimate by 32% - the highest of our producer universe. Teck Resources We continue to remain cautious on TCK’B in the near term, given weak fundamentals for metallurgical coal and the potential for a credit downgrade, as major rating agencies have recently revised to a negative outlook. That being said, we estimate that the impact of a 10% decline in the Cdn$ on cash flow from its Canadian-based operations (Coal, Highland Valley, Duck Pond and Trail) will translate into a meaningful positive impact (+28%) on the company’s consolidated CFPS. Moderate winners: Taseko Mines The story for TKO in H2/14 and into 2015 should be one of solid free cash flow supported by depreciating Cdn$ and contract TC/RCs at lower rates than benchmark. We estimate that a 5% drop in the Cdn$ increases our CFPS estimate by 19%. We estimate that in H2/15 TKO will be exposed to a step-change increase in cash taxes at Gibraltar with the depletion of capital cost allowances (NBF est). If this is not the case then a 5% drop in the Cdn$ would result in closer to a 29% increase in CFPS. HudBay Minerals Looking forward to 2015, HBM will remain largely focused on the ramp-up of operations at its Constancia project in Peru which requires modest conservation of cash from its Canadian operations. As such, we anticipate that the impact of a 10% decline in the Cdn$ on cash flow from its Manitoba business units will have a moderate positive impact (16%) on the company’s consolidated CFPS. No major impact We see no major impact from a 10% decline in the Cdn$ on the following companies: Capstone Mining, First Quantum Minerals and Lundin Mining.

SPECIAL SITUATIONS Analyst: Trevor Johnson

Winners: Boyd Group Bulk of revenue is in US$ (90% 2014e) but reporting currency is Cdn$, so benefits from financial statement translation. US$ costs and hedging program mitigate some of BYD’s favourable FX exposure, but still positive for cash flows flowing to Canadian investors. Head office costs are Cdn$, but relatively small. Payout ratio naturally declines given Cdn$ distributions and majority US$ cash flows. Bulk of acquisition growth is in the United States in US$, so cost of transactions financed with Cdn$ equity/debt less favourable.

Just Energy Bulk of revenue is in US$ (~75% f2015e) but reporting currency is Cdn$, so benefits from financial statement translation. Modest positive operating impact as well, as a weakening Cdn$ has a favourable impact on gross margins. Relatively high Cdn$ dividend so payout naturally declines given majority of cash flows US$. Acquiring U.S. assets and/or investing in marketing platforms / other capex with Cdn$ debt/equity less attractive, although JE unlikely to be overly active on the former given its balance sheet health. Tricon Capital ~95% of 2014e revs are expected from the United States and TCN is a Cdn$ reporter, which implies a significant translation benefit. However, there is minor economic impact, as we believe the company will retain most of its US$ for additional investments into U.S. SFR, manufactured housing, land developments and Tricon’s own funds. Acquiring U.S. assets (i.e., manufactured housing, additional SFRs) with Cdn$ debt/equity less attractive, and this is TCN’s primary market and avenue for growth. In as much as a strong US$ currency reflects a healthier/recovering U.S. economy, this is good for SFR, land development and homebuilding. We believe US$ real estate assets are more valued by TSX investors as the Cdn$ weakens.

Modest Positive: Alaris Royalty About one-third of royalty revenue generated in US$, so a modest benefit from translation as AD is a Cdn$ reporter. Minimal operational impact as hedges are in place for the partners’ distributions (typically 100% current year and 75% forward), the amount of which are known in advance. Acquiring U.S. royalties with Cdn$ debt/equity less attractive, and four of AD’s last seven acquisitions have been in the United States. DH Corp. 41%/50% of 2014e revs/EBITDA from the United States and DH is a Cdn$ reporter, so some positive translation benefits. In as much as a strong US$ currency reflects a healthier/recovering U.S. economy, the Mortgagebot / HFS platforms should benefit from increased activity. Acquiring U.S. fintech assets with Cdn$ debt/equity is less attractive, but we expect DH to take a pause from any large-scale U.S. acquisitions near term until HFS is further digested.

Exchange Income ~60%/~35% of 2014e revs/EBITDA from the United States and EIF is a Cdn$ reporter, so some positive translation benefits. Modest negative for margins given US$ purchases of aircraft parts and specialty manufacturing products, but offsetting is the higher repatriation of US$ generated cash flows. Acquiring U.S. assets with Cdn$ debt/equity is less attractive, a modest negative as EIF expects to be active and the United States is a potential target geography. Grenville ~52% of the current partners’ royalty revenue is denominated in US$, so benefits from translation as a Cdn$ reporter. GRC does not hedge its U.S. partners’ distributions, but is constantly reviewing whether a strategy makes sense, so positive operating effect. Acquiring U.S. royalties with Cdn$ debt/equity is less attractive, and six of GRC’s 15 acquisitions to date have been in the United States, reflecting a modest headwind. Liquor Stores 26%/19% of 2014e revs/EBITDA generated from the United States and LIQ is a Cdn$ reporter, so modest translation benefits. Acquiring U.S. assets with Cdn$ debt/equity is less attractive, and management has stated this is where they plan to grow by way of acquisition. Investments in new U.S. stores are more expensive, but healthier US$ economy is positive for existing U.S. footprint. Medical Facilities 100% of revenue and cash flow are generated in the United States and DR is a US$ reporter, so minimal translation impact. Small benefit from Cdn$ distributions and HQ costs, but management has an active hedging strategy (typically two to three years forward) reducing exposure. Cost of U.S. acquisitions financed with Cdn$ equity less favourable, and DR is in a position to grow by way of acquisition if the right specialty hospital opportunity materializes. Morneau Shepell 7%/6% of 2014e revs/EBITDA from the United States and MSI is a Cdn$ reporter, so modest translation benefits. A lower Cdn$ translating to higher domestic employment is a longer-term benefit for MSI, as fees are often tied to employers’ staffing levels. Acquiring U.S. assets with Cdn$ debt/equity is less attractive, but we do not expect MSI to be overly active in this regard. Parkland Fuels 32%/35% of 2014e revs/EBITDA from the United States and PKI is a Cdn$ reporter, so modest translation benefits. Indirectly affects PKI’s commercial segment, as a weaker Cdn$ will have an impact on oil patch customers (and the related / derivative business). Acquiring U.S. assets with Cdn$ debt/equity less attractive, and there is the potential for PKI to be active in this market following its recent large Ontario purchase of Pioneer and existing U.S. footprint with Elbow River and SPF.

Pure Multi-Family 100% of revenue and all costs outside of modest head office expenses are generated in the United States, and RUF is a US$ reporter, so minimal translation impact. US$ distributions match the company’s cash flow profile, and its US$ listing provides a direct currency for acquisitions (and we expect RUF will stay active). The recent Cdn$ listing provides some financing flexibility. We believe US$ real estate assets are more valued by TSX investors as the Cdn$ weakens.

WesternOne 11%/15% of 2014e revs/EBITDA from the United States and WEQ is a Cdn$ reporter, so modest translation benefits. A weaker Cdn$ will have an impact on the oil patch and related Western Canadian businesses, which is WEQ’s primary footprint. Acquiring U.S. assets with Cdn$ debt/equity is less attractive, and there is the potential for WEQ to invest in this geography, although we expect most opportunities to be domestic. We believe there is adequate US$ cash flow being generated to satisfy targeted U.S. growth opportunities at this stage. WPT Industrial 100% of revenue and all costs outside of modest head office expenses are generated in the United States, and WPT is a US$ reporter, so minimal translation impact. US$ distributions match the company’s cash flow profile, and its US$ listing provides a direct currency for acquisitions (and we expect WPT will stay active). We believe US$ real estate assets are more valued by TSX investors as the Cdn$ weakens.

Negative Impact: Performance Sports Group ~35% of f2015e revs from Canada and PSG is a US$ reporter, so negative translation impact, partially mitigated by material Cdn$ costs. Management states that, following the Easton Baseball/Softball acquisition, ~30% of revenues are expected to be in Cdn$ and fluctuations vs. the US$ could materially affect operating results and margins despite various currency hedges in place. PSG’s dual listing provides it flexibility to finance future growth. New Flyer Modest negative translation impact as 13% of revenue is generated in Cdn$ and NFI is a US$ reporter. Small benefit from Cdn$ distributions given majority of cash flows in US$, but management actively hedges, so impact on payout is minor. Cost of U.S. acquisitions and investments financed with Cdn$ equity/debt is less favourable, and although this is NFI’s target growth geography we expect the majority to be organic through production increases and aftermarkets expansion.

No major impact: Amica 100% domestic operator so little FX exposure. Growth strategy expected to remain focused on Ontario and BC, although we do not expect ACC to be overly active given its financial situation. Indirect benefit from a weak Cdn$ on the Ontario economy given this is home to 16 of ACC’s 24 retirement communities. Choice Properties Both revenues and costs are in Cdn$, so no translation impact. CHP’s acquisition / growth strategy expected to focus exclusively on domestic opportunities. Loblaw accounts for 90%+ of CHP’s annual base minimum rent, so minimal expected impact on the key tenant due to FX. IBI Group ~25% of 2014e revs from the United States and IBG is a Cdn$ reporter, so modest translation benefits. Ability to fund Cdn$ debt naturally improves given U.S. exposure. Cost of U.S. acquisitions financed with Cdn$ equity/debt less favourable, but IBI is divesting assets and not harvesting, so minimal expected impact.

K-Bro Linen 100% domestic operations so little FX exposure. Potential modest benefit from improved Canadian hotel occupancy from a weaker Cdn$. Significant U.S. dollar denominated expenditures such as the acquisition of new production equipment are typically hedged through forward contracts. Cost of U.S. acquisitions and investments financed with Cdn$ equity/debt less favourable, but KBL is expected to focus on only Canada for the foreseeable future. Melcor REIT No material revenues or costs in US$, so minimal impact on financials. Growth strategy expected to focus exclusively on domestic opportunities, and we do not believe the United States is yet on the radar. The impact on the WCSB from a weaker Cdn$ could have some negative ripple effects for the financial health of MR’s tenants given its Western Canadian footprint. Mosaic No material revenues or costs in US$, so minimal impact on financials. Growth strategy expected to remain on domestic opportunities, and we do not believe a U.S. entry is yet on the horizon. The impact on the WCSB from a weaker Cdn$ could have some negative ripple effects for the financial health of M’s businesses given its Western Canadian focus. Rogers Sugar ~5% of f2015e revs are from the United States, and RSI is a C$ reporter, so minimal translation benefits. Lower demand from the United States for Canadian sugar given their domestic market conditions limits RSI’s U.S. exposure going forward. Acquiring U.S. assets with Cdn$ debt/equity is less attractive, but RSI is unlikely to be active. Modest headwind is RSI buys natural gas in US$ for its refining process. Temple Hotels 100% domestic operations so little FX exposure. Modest benefit from improved Canadian hotel occupancy from a weaker Cdn$. Cost of U.S. acquisitions and investments financed with Cdn$ equity/debt is less favourable, but TPH is expected to focus on only Canada for the foreseeable future.

SPECIAL SITUATIONS Analyst: Leon Aghazarian Big winners: Cascades Inc. (CAS) Cascades’ manufacturing expenses differ by business segment (Containerboard production is mostly in Canada while Tissue manufacturing is predominately in the United States) while sales are fairly balanced (38% in Canada, 38% in the United States and 24% in Europe and other). The net result of this combination is a positive one in a weakening Cdn$ environment. A move of $0.01 in the Cdn$ vs. the US$ equates to a positive impact of $5 million in EBITDA representing ~1-2% of our 2014e-2015e EBITDA. Moderate winners: Domtar Corp. (UFS) Domtar has numerous manufacturing and converting operations throughout the world and while a hedging program is in place, a declining Cdn$ positively impacts earnings. A drop of $0.01 in the Cdn$ vs. the US$ equates to a positive impact of $9 million in EBITDA representing ~1% of our 2014e EBITDA. Losers: KP Tissue Inc. (KPT) KP sells certain of its products in U.S. dollars (~30% of total sales are made in the United States). A majority of this currency exposure is naturally offset by U.S. dollar expenses and U.S. dollar denominated debt. In addition, the company occasionally enters into foreign currency contracts. However, some exposure remains and, as of June 2014, the net effect from a 5% decline in the Canadian currency would have been a decrease of $2.1 million on net income before tax in Q2/14. Assuming the same for all quarters, this would imply an annualized ~$8 million negative impact, representing roughly 28% of our 2014 estimate and 13% of our 2015 estimate. No major impact: Canam Group (CAM), SNC-Lavalin Group Inc. (SNC), Stantec Inc. (STN), WSP Global Inc. (WSP) The above mentioned Engineering and Construction companies benefit from natural hedges with no material impact on earnings from a declining Cdn$. Dorel Industries (DII.B), Premium Brands Holdings (PBH), Richelieu Hardware (RCH), Stella-Jones (SJ), Uni-Select (UNS) The diverse group of firms highlighted above benefit from natural hedges with no material impact on earnings from a declining Cdn$. Aecon Group Inc. (ARE), Centric Health (CHH), Colabor Group (GCL), Knight Therapeutics (GUD), MTY Food Group (MTY), New Look Eyewear (BCI), Stuart Olson (SOX) The above mentioned companies have very little to no exposure to US$ as the vast majority of their costs as well as their revenues are in Cdn$.

SUSTAINABILITY & CLEAN TECH Analyst: Rupert Merer Big winners: Algonquin Power & Utilities (AQN, Reports in Cdn$) Following a handful of acquisitions in the United States, including regulated utility assets and wind power assets, AQN generates about 70% of its EBITDA in the United States. With this, AQN shareholders should benefit from an appreciating US$. AQN periodically uses a number of measures to hedge its foreign exchange exposure; for example, it entered into a cross currency swap with its $150 mln debenture offering to convert the Cdn$-denominated offering into US$. Revenue and EBITDA should climb with a weakened Cdn$; investors should further benefit from AQN’s move to pay its dividend in US$. AQN’s shares should benefit more than the other companies in our coverage universe. Conifex Timber (CFF Reports in Cdn$) Most of CFF’s lumber is sold at prices denominated in US$, but nearly all operating costs and expenses are incurred in Cdn$. Therefore, an increase in the value of the US$ relative to the Cdn$ increases revenue in Cdn$ terms, which increases operating margin and cash flow available to fund operations. CFF does not currently hedge its foreign exchange exposure with financial forward or open contracts. Conifex estimates that 1% decrease in the Cdn$ relative to the US$ would increase operating earnings by approximately $1.3 million based upon the level of 2013 shipments. Newalta (NAL, Reports in Cdn$) With growing operations in the United States and exposure to commodity prices in US$, we believe that about 30% (and growing) of EBITDA is exposed to the US$ so a rise in the currency should result in a modest benefit for NAL. According to filings, NAL has not entered into any financial derivatives to manage the risk for foreign currency exposure. NAL has first and second order correlations of earnings to oil prices, which are denominated in US$. Revenue and EBITDA should climb with a weakened Cdn$. Moderate winners: International Forest Products (IFP, Reports in Cdn$) Slightly more than half of IFP’s operations are based in the United States with the balance in Canada. IFP’s Canadian operations sell approximately 75% of their lumber into export markets, with the majority of these sales denominated in foreign currency, predominately US$ (and small amount of YEN). While the Canadian operations also incur some US$-denominated expenses, the majority of expenses are incurred in Cdn$; as a result, an increase in the value of US$ relative to the Cdn$ should boost operating margins and cash flow. Based on IFP’s net exposure to foreign currency resulting from forward contacts at the end of 2013, a $0.01 increase in the US$ relative to the Cdn$ would result in a $2.6 mln increase in net income. Primary Energy Recycling Corp (PRI, Reports in US$) All of Primary Energy’s operations are in the United States and denominated in US$, so Canadian holders should benefit from an appreciating US$. If the Cdn$ remains depressed relative to the US$ for a long period of time, this would result in an ability to pay a higher dividend in Cdn$. DIRTT Environmental Solutions (DRT, Reports in Cdn$) DRT has operations in both Canada and the United States. We estimate that a large majority of its sales and operating costs are realized in the U.S. dollar; as a result, DRT is exposed to currency risk from its US$ transactions and balances. With the assumption that

it is able to pair its revenue and costs in US$, an appreciation relative to the Cdn$ should have a modest benefit to net income. GLV Inc (GLV’A, Reports in Cdn$) With a sizable exposure of operations within the United States (we estimate roughly 40%), we believe GLV would benefit from an appreciating US$, particularly given that it reports in Cdn$. GLV hedges currency for major contracts and it also creates natural hedges by incurring expenses in the same currency as that of the underlying contract where possible. Revenue and EBITDA should climb with a weakened Cdn$. Mason Graphite (LLG, Reports in Cdn$) Once Mason reaches commercial production at is Lac Guéret graphite property located in Quebec, Canada (targeted for 2016) it should benefit, given that graphite prices are denominated in US$ while its cost base is in Cdn$; this should also help the updated economics in its forthcoming feasibility study. This should more than offset the remaining payments for the initial property acquisition that are denominated in US$. Boralex (BLX, Reports in Cdn$) While we believe BLX is in a position to benefit from an appreciating US$, it is not significantly exposed to currency changes as its business units are self-sustaining foreign operations and typically keep liquid assets in their country of origin to pursue their development. Revenue and EBITDA should moderately climb with a weakened Cdn$, relative to both US$ and EUR. TransAlta Renewables (RNW, Reports in Cdn$) Following its expansion into the United States with the acquisition of a wind asset in Wyoming, we estimate RNW will generate roughly 5% of its EBITDA in US$. With this, we anticipate a very modest increase in reported results with a depreciating Cdn$ relative to the US$. Westport Innovations (WPT-T, WPRT-US, Reports in US$) While a majority of its revenues and cost of sales are denominated in US$, many operating expenses, other than cost of sales, are in Cdn$ and EUR. A notable appreciation of the US$ relative to the Cdn$ (or EUR) could positively impact margins and other financial results. WPT does not use foreign exchange contracts to hedge against gains and losses from foreign currency fluctuations. ShawCor Ltd (SCL, Reports in Cdn$) The majority of SCL’s business is outside of Canada, though many subsidiaries are able to match local currency revenues with expenses given ShawCor’s geographic reach. It also has some hedging practices, which help soften upside and downside. We believe a 1% increase in the US$ would translate to <0.5% increase in EBIT. Progressive Waste Solutions (BIN-T, BIN-US, Reports in US$) Progressive Waste reports in US$, but has roughly 40% of its revenue and EBITDA in Canada. With that, BIN’s revenue and EBITDA should be negatively impacted by a stronger US$. Based on its 2014 guidance outlook a 1 cent (~1%) strengthening of the US$ reported revenues will decline by $8.2 mln, EBITDA by $2.5 mln, net income by $1.1 mln and free cash flow by $0.9 mln. BIN has minimal foreign exchange agreements, though has flexible debt repayment (either Cdn$ or US$) and pays some of its dividends in Cdn$; with this, the cash flow impact should be less than the reporting impact. In any case, investors in Canada should benefit from a rise in the US$, but investors in the United States should view BIN’s Canadian operations as a negative.

Atlantic Power (ATP-T, AT-US, Reports in US$) Atlantic Power reports in US$, but generates roughly 30% of its EBITDA in Canada. While translation into US$ should have a negative impact on reported financials, Canadian cash flows provide a natural hedge against Cdn$-denominated obligations, including dividends, and convertible debentures and long-term debt (predominantly in Cdn$). ATP hedged its exposure by entering into forward contracts to purchase Cdn$ at a fixed rate to hedge a portion of its dividend, Cdn$ long-term debt, and convertible debenture interest payments through 2015. Despite lower revenue and EBITDA, after conversion of profits back to Cdn$, Canadian holders should see a net benefit. Shareholders in the United States could view an upward move in the US$ as a negative for AT-US. 5N Plus (VNP, Reports in US$) Most of VNP’s business is conducted in US$ and VNP reports in US$. Most of VNP’s costs are related to the purchase of feedstock, although it has processing plants that incur costs in Cdn$ and EUR (largest currency exposure) and its corporate head office is in Canada. To compensate for its exposure, VNP reports a number of forward exchange forward contracts to sell US$ in exchange of EUR and Cdn$. We believe that after conversion of profits back to Cdn$, Canadian holders should see a net benefit from a rising US$. No major impact: Alterra Power (AXY, Reports in US$) Most of Alterra’s revenues and costs are in Cdn$, with it reporting in US$; though some P/L items come from Iceland, South America and other countries. These would not have a material impact on EBITDA, though one-time adjustments on the value of financial instruments from Iceland will fluctuate. These non-cash items have not affected the share price in the past. Capstone Infrastructure (CSE, Reports in Cdn$) Aside from the majority of its assets located in Canada, foreign operations are located in Britain and Sweden only. As a result, we do not foresee any direct impact from a depreciating Cdn$ relative to the US$. Chemtrade Logistics (CHE.un, Reports in Cdn$) Though there may be unrealized gains or losses, cash flows should not be materially affected. Including the General Chemical acquisition CHE stated it “currently estimates that on an unhedged basis, a one-cent increase in the Canadian/U.S. dollar exchange rate reduces distributable cash after maintenance capital expenditure by less than $0.9 million on an annual basis and vice-versa.” EnerCare (ECI, Reports in Cdn$) With all of its revenues and costs reported in Cdn$ (all operations in Canada), we do not foresee any direct impact from a depreciating Cdn$ relative to the US$. Etrion (ETX Reports in US$) The company reports in US$, with costs in euro, Swiss franc and others. However, changes to the US$ do not materially affect EBITDA. Innergex Renewable Energy (INE, Reports in Cdn$) With nearly all of its revenues and costs reported in Cdn$ (98% of operating capacity in Canada), we do not foresee any direct impact from a depreciating Cdn$ relative to the US$. While some power developers could see cost increases in core equipment that is typically denominated in US$, Innergex has insulated itself from cost increases on its late-stage development projects by entering into fixed price engineering, procurements and construction contracts.

TECHNOLOGY Analyst: Kris Thompson Canadian technology vendors are commonly exposed to swings in the Cdn$ for two reasons: reliance on sales outside of Canada (and often concentrated in the U.S.), and a higher Canadian dollar expense base reflecting headcount at Canadian headquarters. Many Canadian technology vendors choose to report in U.S. dollars in order to minimize revenue noise associated with currency swings. As such, a weakening Cdn$ impacts technology vendor financials differently depending on the chosen reporting currency. Generally speaking a weakening Cdn$ is beneficial to the Canadian technology industry. The impact of currency swings on EPS is much harder to identify as most companies do not provide this level of detail. We use headcount, asset location and discussions with management in order to calculate the cost and expense exposure to currency swings. Our assessment is that investors largely ignore the quarterly impact of currency swings on reported revenue as operating globally is an economic reality, however. When the Cdn$ swiftly moves in either direction investors may reset expectations enough to meaningfully move some stocks. The Cdn$ has been volatile throughout 2014; we don’t expect the recent move to lead to a reset in investor expectations. Big winners: Avigilon Avigilon reports in Cdn$ and generates the majority (>90%) of its revenue outside of Canada. A weakening Cdn$ will be favourable to an already robust rate of revenue growth. Close to 40% of Avigilon’s employees are now based outside Canada compared with 30% at the same time last year. Costs of goods sold will include a large portion of U.S. dollar-based components offsetting some of the employee expense benefit. While EPS is set to benefit in the near term, the company is expanding its global headcount and will approach a more natural hedge from revenue to EPS over time. TIO Networks TIO generates the majority of its total revenue outside of Canada in U.S. dollars and reports in Canadian dollars. While the majority of headcount and costs are denominated in U.S. dollars, a weakening Cdn$ would increase reported revenue. Moderate winners: Axia NetMedia Axia reports in Cdn$ and generates ~35% of its total revenue in euros. That revenue is naturally hedged with euro-denominated costs such that there is only a modest flow-through to EPS. CGI Group CGI reports in Cdn$ and generates ~85% of revenue outside Canada such that a weakening Cdn$ is positive for reported revenue. While this is positive for revenue, IT Services vendors have high natural hedges as headcount needs to be close to the customer. Therefore currency swings do not have a major impact on EPS.

EXFO EXFO reports in U.S. dollars and generates the bulk of its revenue outside of Canada. The company has a disproportionate number of employees in Canada, which aids EPS when the Cdn$ weakens against global currencies. GuestLogix GuestLogix reports in U.S. dollars and generates most revenue outside of Canada. The company has ~50% of its headcount in Canada such that a weakening Cdn$ is positive for EPS. Mediagrif Interactive Technologies Mediagrif reports in Cdn$ and generates ~30% of its revenue in U.S. dollars. The company benefits from a stronger U.S. dollar, which translates into more Cdn$ to cover operating costs skewed towards Cdn$. Open Text Open Text reports in U.S. dollars and generates the bulk of its revenue outside of Canada with a disproportionate number of employees in Canada. The company provides currency impact to EPS on a quarterly basis, which is normally only a penny or two (not material). Sandvine Sandvine reports in U.S. dollars and generally generates the bulk of revenue outside of Canada. The Cdn$ therefore has little impact on reported revenue. The company does have a disproportionate number of employees in Canada such that a weakening Cdn$ translates into lower U.S. dollar-based expenses. This provides some EPS tailwind from a weakening Cdn$. Losers: None No major impact: Constellation Software Constellation is very well naturally hedged on a global scale and should not be materially impacted from currency swings. Halogen Software Halogen Software reports in U.S. dollars. While a weakening Cdn$ versus the U.S. dollar is a tailwind for EPS, the company is investing in growth and not profitable at this time. FX therefore won’t impact investor sentiment. MacDonald Dettwiler & Associates MDA reports in Cdn$ and generates ~85% of revenue outside of Canada. MDA has about 75% of employees outside of Canada such that the company has a strong natural hedge. MDA also pays subcontractors in US$, which offsets potential bottom-line benefits of a weak Cdn$. Foreign exchange forward contracts are used to hedge MDA’s exposure to currency risk on sales, purchases, cash and loans.

TRANSPORTATION & INDUSTRIAL PRODUCTS Analyst: Cameron Doerksen Big winners: Bombardier (Sector Perform; $4.25 target) For 2014 Bombardier estimates that it will have $3.2 billion in Cdn$ costs in Aerospace (mainly labour). The current Cdn$/US$ exchange rate is roughly 8% more favourable versus the average exchange rate in 2013 ($1.03). If the current rate holds in 2014, the cost reduction benefit for Bombardier excluding any hedging would be more than $250 million for Aerospace, which equates to close to two percentage points to the segment EBIT margin (or about $0.10 in EPS). The company’s hedging program is comprehensive so the full bottom-line benefits will not be seen immediately. As of the end of 2013, Bombardier Aerospace had about 58% of its 2015 f/x exposure hedged at an average rate of roughly $1.05. Bombardier Transportation is also exposed to foreign exchange movements (mainly euro and UK pound), but the impact is mainly translational. CAE (Outperform; $16.00 target) CAE is also well hedged, but on an unhedged basis, a move of $0.01 in the Cdn$ vs. the US$ equates to about $12.6 million in revenue and $4 million in EBIT (or a little more than $0.01 in EPS). In F2014 (ended March), CAE’s average f/x rate was $1.05 so based on the current rate, the EPS tailwind on an unhedged basis is about $0.07 (we forecast EPS of $0.80 this year). A weak Cdn$ should help CAE’s competitiveness in selling simulators as well. Héroux-Devtek (Outperform; $14.00 target) HRX generates the majority of its revenue in US$, but has significant costs in Cdn$ (labour). There are also a large proportion of US$ costs (materials) so the net impact is not overly large, but a weak Cdn$ will definitely boost revenue (which will boost EBITDA margins). HRX has been bidding (and winning) most work at par so the move in the Cdn$ makes the company significantly more competitive. Currently, HRX’s hedges are at an average f/x rate of $1.06 with contracts expiring out to March 2017 so the full benefit of the weaker Cdn$ will take some time to realize. With the acquisition of UK-base APPH earlier this year, HRX now also has exposure to the UK pound, but the impact to the company is mainly translational. The APPH operations account for about 30% of overall company sales. Moderate winners: CN Rail (Sector Perform; $85.00 target) CN generates the majority of its revenue in US$ and has a significant Canadian labour cost base so a weak Cdn$ is positive. A $0.01 change in the FX rates has a net income impact between $10 million and $15 million (approximately $0.015) for CN. At the current exchange rate, the EPS tailwind relative to 2013 is about $0.15 (we currently forecast 2014 EPS of $3.65 for CN). CP Rail (Outperform; $264.00 target) Like CN, CP also generates a large proportion of its revenue in US$, but has significant Cdn$ costs. CP’s sensitivity is a $0.01 change in the exchange rate has an EPS impact of $0.09. On a full-year basis, the tailwind in 2014 relative to 2013 will be about $0.72 in EPS (we forecast CP’s 2014 EPS at $8.64). CP’s target to double its earnings from 2014 to 2018 is based on an exchange rate of $1.10.

BRP (Outperform; $32.00 target) BRP will mainly be helped by translation of U.S. sales (~45% of company total) into Cdn$. In its Q2, for instance, BRP’s total sales were up 26%, but up 20% excluding f/x. However, as there is a large component of US$ material costs as well as significant manufacturing outside of Canada (Mexico, Europe and the United States) the net impact from the weak Cdn$ is small. BRP has a higher degree of net exposure to other currencies such as the Swedish krona, AUD, ruble and others). Manac (Outperform; $11.00 target) Manac does generate a fair amount of sales in US$, but since it has two plants in the United States as well 65% of all material costs in US$, the margin impact from a weak Cdn$ is not significant. However, retail pricing of trailers in Canada is based on US$ and since all Manac’s major competitors have mainly U.S.-based manufacturing, Manac will be more competitive with the weak Cdn$. For Manac, a 5% change in the USD/CAD exchange rate has a $311,000 impact on profit or approximately $0.01 in EPS. TransForce (Outperform; $31.00 target) TFI has about 30% of its revenue coming from the US$ so there will be a translational positive impact. We estimate that a $0.01 change in the exchange rate impacts earnings by about $0.01. What is more difficult to measure is the positive impact a weaker Cdn$ will have on Canadian manufacturing and associated exports to the United States. As a large cross-border shipper, TransForce would stand to benefit from this macro impact. One downside for TransForce from a weaker Cdn$ is that as an M&A growth company, U.S.-based acquisitions will become more expensive. We expect that most of TransForce’s future M&A growth will come in the United States. Losers: Air Canada (Outperform; $11.00 target) From a cost perspective, Air Canada is among the most negatively impacted by a weak Cdn$ in our coverage universe. Firstly, a large proportion of costs are denominated in US$ (fuel, leases and some maintenance). Air Canada’s debt is also mainly denominated in US$ so a weak Cdn$ results in higher debt and interest expense. A $0.01 change in the CAD/USD exchange rate has an impact of $34 million on operating income (plus $2 million in interest expense), or about $0.12 in EPS. However, about 50% of the exposure on f/x is fuel related and the f/x adjusted price of jet fuel is currently Cdn$0.87/litre versus the average of about Cdn$0.89 Air Canada paid in 2013 (and the Cdn$0.93 we forecast for the remainder of the year). Furthermore, Air Canada generates substantial revenue in foreign currencies which provides a significant offset once translated into Cdn$. WestJet (Outperform; $35.00 target) WestJet has significant costs in US$, mainly fuel, some maintenance and aircraft leases. Every $0.01 change in the FX rate impacts operating costs by $12.8 million or about $0.07 in EPS. However, the majority of the exposure (80%) relates to fuel. The current price of jet fuel is Cdn$0.87/litre, which is actually below the average of Cdn$0.90/litre WestJet paid last year and the Cdn$0.95/litre we assume in our model for the remainder of 2014. Transat (Sector Perform; $10.50 target) About 35% of Transat’s costs are US$ based including sun destination hotel costs in most markets, aircraft fuel and aircraft maintenance. A 1% change in the Cdn$ would therefore impact overall costs by about $12 million with greater exposure (~60%) coming in the winter season (November-April). Last winter, Transat’s average FX rate was $1.06 so based on the current FX rate the headwind for the upcoming winter would be about 3% to costs for the season. The good news for Transat is that fuel prices are weaker y/y and the peak booking season for the winter has not yet begun which should allow the company to attempt to price sun destination packages to account for the new exchange rate.

No major impact: Cargojet (Outperform; $25.00 target) While the majority of Cargojet’s revenues and expenses are in Cdn$, it has approximately $1.5-$2.5 million of monthly expenses denominated in US$ for items such as leases, parts and maintenance checks. Fuel costs are passed through to its customers and CJT is thus not exposed to the FX impact on fuel. Chorus Aviation (Sector Perform; $4.25 target) Chorus Aviation will have some benefit from lower costs due to a weak Cdn$, but all non-controllable costs (such as fuel) are straight pass-throughs to Air Canada. In addition, any controllable costs impacted by the weaker Cdn$ may be passed through to AC during the next rate reset negotiations (early 2015). Contrans (Tender; $14.60 target) All of CSS’s operations are Canada-based. There would be some benefit from cross border volumes (which CSS has some exposure to), but we do not see any major FX impact. HNZ Group (Sector Perform; $20.00 target) HNZ has operations globally and its revenue and costs are generally aligned in local currency. Trimac (Outperform; $8.00 target) Trimac’s operations are all based in Canada. While there are some receivables and payables in US$, overall FX does not have a material impact.

impact of a declining canadian dollar - nash family wealth - impact of a declining cdn...1992 1994...

Documents