Industry Committee on May 3rd, 2016

[Michael Denham]

I don't know that. I'll have to take some time and give you the proper—

[Chandra Arya, Liberal, Nepean, ON]

Please, can you give that to the committee?

I'll move to the Canadian Space Agency, which is a great thing. One of the statements you made is that Canada could be highly competitive in the next generation of disruptive technologies. For me, the key words are “could be highly competitive”.

You also mentioned Canada is positioned to be at the forefront of commercialization. How much commercial exploitation have you achieved up to now?

[Sylvain Laporte]

In the particular context of my presentation, I'm referring to what's called new space. In new space, we have commercial ventures, and not government ventures, that are out there and looking at commercializing space. It brings about a totally different paradigm when businesses are contracting out for services in space than when a government agency is. With respect to positioning, Canadian companies have always done well in winning—

[Chandra Arya, Liberal, Nepean, ON]

I'm sorry, my context for the question is in your mandate. In the legislation that established you, it was mentioned the agency shall “encourage commercial exploitation of space capabilities, technology, facilities and systems”. How much commercialization revenue have you achieved?

[Sylvain Laporte]

With respect to encouraging the commercialization, we have a number of programs that look at making some of the businesses more competitive, such as grants and contribution programs, and something called STDP, where a business can approach us and look for funding, so it can develop to position itself better to win a commercial contract.

[Chandra Arya, Liberal, Nepean, ON]

Okay, I was thinking this would lead to some sort of revenue generation like some other countries are exploiting with their space technology. Am I incorrect in understanding that?

[Sylvain Laporte]

We don't generate revenue from that—

[Chandra Arya, Liberal, Nepean, ON]

No, what I am saying is that you help commercialize the capabilities we have developed in the space sector. You're saying it's not your agency that does it, but that you help private industry.

[Sylvain Laporte]

If the technology is born out of grants and contributions work, then the industry, or the recipient, looks at commercializing the goods themselves. If the goods have been developed through some kind of a mission-specific contract we have given them, in terms of developing their expertise, we open up the intellectual property and the data rights to make sure they can license the technology properly, and they can be well positioned to commercialize that technology.

[Chandra Arya, Liberal, Nepean, ON]

Thank you.

Back to BDC, this will be a bit of an unfair question for this session because this morning the Auditor General submitted their report on the venture capital action plan. The Auditor General was quite critical that the government chose a fund manager even though the firm did not respond to the call for expression of interest. The Auditor General also noted BDC was actively involved in managing the process of evaluation of potential candidates.

Why do you think a manager who did not respond was selected? That's number one.

Number two, the Auditor General also stated that no feedback was given to the applicants who were not chosen. Can I have your comments?

[Jérôme Nycz]

Thank you for your question.

BDC's role in the program is as a program manager. The selection process was run out of the Department of Finance with Industry Canada, and using an external panel. Questions related to the selection of the funds of funds would be best directed to them.

In terms of the performance of the fund and the economic impact of the fund, we could—

[Chandra Arya, Liberal, Nepean, ON]

The Auditor General said that BDC followed its investment procedures in its evaluation of potential candidates throughout the process. That's number one.

The AG also reported no feedback. I guess that should be for the ministry of finance, in terms of why no feedback was given to the managers who were not selected.

[Jérôme Nycz]

Yes.

The selection process was run by the Department of Finance. The funds that were selected were referred to BDC, and we did apply our criteria that we use for funds investment and fund of funds. We went through the due diligence, the evaluation, the team assessment, and the likelihood of being able to deploy the capital in the fashion that the program requires. We went through the standard board approval process.

Once we got referred—

[Chandra Arya, Liberal, Nepean, ON]

It means that you just went after the fund manager was selected.

[Jérôme Nycz]

That is correct.

[Chandra Arya, Liberal, Nepean, ON]

Okay, thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We'll be moving along to Mr. Nuttall. You have five minutes.

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

Thank you.

Through you, Mr. Chair, to BDC, first I want to say thank you for coming to my office previously and discussing some of my concerns. For some of the things I think I found resolution, and for others I would agree to disagree.

Going through the financial statements, a few things stuck out to me, the first being on page 20, which talks about the performance against objectives. It says:

The consolidated net income of $490.7 million was $172.4 million more than the corporate plan objective.

When I work backwards on that, we have a 54% variance from plan. I know you would probably think, we have a Conservative MP asking about doing better than expected in terms of return, and that's a great thing. I actually believe the opposite. I think your organization is there to provide capital to invest in the marketplace where others can't necessarily compete.

When we are seeing that type of positive variance from plan, it would also suggest that perhaps we can start allocating dollars into areas that are more risky. Can you quickly tell me—maybe a 45-second to a minute-long answer—how we got to a 54% variance from plan?

[Paul Buron]

As you know, variances are mainly explained by two factors. The first factor is in trying to assess a year in advance, when we do the budget process, what the provision for credit losses will be, which is a good reflection of the health of our clients, of the entrepreneurs in Canada. I guess their financial situation was better overall than what we had anticipated, and their results were better; therefore, the provision for credit losses was lower.

Also, in our activities, we need to take into account that we have quite volatile investments. I am referring to the venture capital side of our business, where we do a fair value of our investments on a regular basis. Twice a year, we do it completely, and every three months we do an overview to make sure that we represent fairly their valuation in our portfolio.

As you know, these investments tend to vary a lot and to fluctuate a lot, depending on their results. All of them are early-stage or start-up companies, and their results vary a lot; therefore, the fair value will vary a lot. It is very difficult to assess.

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

I completely understand that. My background is in commercial banking, and I get where you're going with that. However, I would also say the variance between your highest venture capital loss and your last year, which was your gain, is about $70 million in the last five years, and we have a $170-million variance planned. Personally— this is feedback—that's nothing that I want to see. I would like to see those dollars going to places where they are higher risk, where they do create more jobs than perhaps otherwise would be, because those organizations can obviously move into a different space in terms of financing.

I have to be quick, I apologize. Hopefully I'll get more questions.

On page 113, it says “set performance targets and monitor progress”. First of all, I want to commend you because you actually outlined what your targets were and where you were based on plan. We don't see that a lot in government, so I commend you for doing that.

Can you make public what your targets are for this year in advance? Is it possible to get either twice or three times or quarterly results on where we're at on that? Or is that information that we consider to be of a competitive nature?

[Michael Denham]

I started in August. This is my first time through the cycle, but all this is in our corporate plan and corporate plan summary, which I think should be approved before the summer. It's all available through there, with the explicit targets we've set for ourselves for this year and beyond. I think that should give you the information that you've....

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

Therefore, I'll know the targets in advance. It's wonderful to be able to see what we did last year, but it's also great to be able to understand where we're hoping to go, and with your organization, those measurements will hopefully align with your overall—

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

Now we're going to go to Monsieur Arseneault.

You have five minutes.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

Thank you, Mr. Chair.

I am going to share my time with my colleague, Mr. Fergus. I am going to give him the floor now.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Mr. Arseneault.

I am asking for my colleagues' indulgence. I asked to speak first because I have to leave in a few minutes.

I have a question for Mr. Laporte and the Canadian Space Agency.

First of all, thank you very much for coming to meet with us. I had the pleasure of visiting your facilities near Montreal and it was one of the best experiences of my life.

You emphasized the fact that, when calculating its costs and its budget, the Canadian Space Agency will develop a framework for investment. Your organization will not be alone in conducting research or developing tools. You are doing so in partnership with the private sector. That can generate economic benefits down the road, especially in the areas of robotics, as you mentioned, and the vision system. We know that NASA is looking at investing more in the exploration of Mars or the moon.

If you had a bigger budget, which areas do you think that Canada could invest in to develop expertise, not only to facilitate those explorations, but also to produce economic benefits here on earth?