Industry Committee on Oct. 19th, 2016

[The Chair, Liberal, Dan Ruimy]

Good afternoon, everybody.

This is meeting number 28 of the Standing Committee on Industry, Science and Technology.

Today we're actually doing two groups. That's just the way it happened to work out. We also have half an hour at the end carved out for some business.

Right up front now, we have, from the BDC, Jérôme Nycz, Susan Rohac, and William Ciprick.

Before we get into that, you had a question, Mr. Nuttall.

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

Thank you.

Through you to the analyst, yesterday, the Canadian Manufacturers and Exporters association, in conjunction with, I think, the Canadian Manufacturing Coalition released a report with 20-some recommendations to improve manufacturing in Canada.

Do you have a copy of that yet?

[André Léonard, Analyst]

No.

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

I'll get my office to forward that.

I actually thought that maybe it was—

[Lloyd Longfield, Liberal, Guelph, ON]

It was just released today. They said they'd send it electronically.

[The Chair, Liberal, Dan Ruimy]

Can we get that as a submission?

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

I thought that maybe we should talk afterwards about whether we should invite them in to talk about their report.

[The Chair, Liberal, Dan Ruimy]

We have half an hour carved out towards the end.

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

Yes.

[The Chair, Liberal, Dan Ruimy]

Why don't we put that onto that agenda, if we're okay with it?

We're going to jump right into BDC. We're excited to have you here. You all look nice and refreshed.

Who will be the MC of this event?

Go ahead.

[Jérôme Nycz, Executive Vice-President, BDC Capital, Business Development Bank of Canada (BDC)]

Thank you, Mr. Chairman.

I want to begin by commending the committee on its study of Canada's manufacturing sector. There can be no disagreement that manufacturing is a strategic sector for economic development.

Manufacturing activities are the economic driver for many regions and communities in Canada. The national manufacturing footprint goes from large concentrations of businesses in large metropolitan regions to isolated communities where prosperity depends on a single manufacturer.

Canada's manufacturing future lies in shifting capital and labour up the value chain. I therefore want to strongly associate with the committee's focus on the importance of innovation in manufacturing. How well we perform will ultimately reflect how innovative we are as a country and how responsive we are to opportunities in the global consumer marketplace. Over and over we hear that talent is critical in this regard.

Businesses thrive under visionary, passionate leaders who recruit and invest in skilled personnel and with an executive team that has the capabilities and bench strength to fully exploit emerging market opportunities. The greater degrees to which we have C-level executives in Canada capable of scaling firms and being open to best practices, the greater success we'll achieve.

Some members of this committee have recently met with representatives from BDC in order to better know our services and our model. We want to thank you for your time and interest. We have one overall aspiration, which is to help make Canadian entrepreneurs among the most competitive in the world. BDC seeks to tailor business solutions according to the circumstances of particular companies, taking financial risks that other financial service providers do not. We provide advisory services aimed at boosting business innovation, productivity, and competitiveness.

We are a bank, and we make credit decisions within given parameters. The most important parameter is an expectation that the enterprises in which we invest will prove economically viable such that the monies lent will be repaid with a return reflecting the risks taken. This means that we are self-sustaining, not dependent upon the taxpayers of Canada. It also means that we can relend to entrepreneurs who need it.

BDC goes to great lengths to stretch the envelope through various financing instruments, often in partnership with other financial service providers. However, we are bound by the mandate that Parliament has given us and the capital framework maintained by the Government of Canada of the day. That mandate entails maintaining a laser focus on serving entrepreneurs throughout Canada. We carry out research on the challenges and opportunities they face; we listen to our 42,000 plus clients; and we seek to provide them with solutions responsive to their particular circumstances.

Let me give you some examples pertinent to manufacturers. Many face challenges in scaling up the companies while boosting productivity. They know that improvements are needed on the plant floor but aren't entirely sure how they benchmark with others and how investments may pay off. This week, as mentioned, as part of Small Business Week in Canada, BDC has launched a free online productivity diagnostic tool that will allow businesses to compare their rate of productivity with those of other firms. Similarly, BDC has sought to increase uptake of information and communications technologies, ICTs, by manufacturing companies. By taking our online technology assessments, companies receive a free personalized report identifying and prioritizing areas needing improvement.

Turning to financing, in the past 10 years BDC has made over 1,800 start-up loans to manufacturers, for a total of $270 million. Many of them have grown and obtained follow-on investment. In fact, BDC has more than 6,500 manufacturing clients, large and small. The portfolio stands today at close to $6 billion, having increased year after year from $4.5 billion in 2013. The number of manufacturing businesses we finance as a percentage of all manufacturing businesses in Canada has grown markedly, from 5.9% in 1999 to 12.9% today. In other words, BDC has more than doubled its share of manufacturing companies supported.

I would like to conclude my remarks with a few words on manufacturing using advanced technology.

An event organized by the Canadian Manufacturers and Exporters was held today in Ottawa, and various questions on this matter were raised. One of them was the following: how can Canada improve its performance in the innovation of products and processes, marketing of products and expanding businesses?

The solutions to these issues reside in part in investing in Canadian technology companies that want to sell their products to manufacturing companies, and in establishing relationships between the two groups.

National technology platforms, including business accelerators related to sources of research and development, play a crucial role in this regard.

BDC has partnerships with 13 business accelerators across the country. We directly finance graduate firms from those accelerators and we invest in related seed venture funds to support these graduates.

We invest in some of Canada's most exciting technology companies, many of which provide enabling technologies in support of advanced manufacturing. We currently have invested about $90 million in over 30 companies. These companies have raised, in aggregate, over half a billion dollars from other venture capitalists. To name a few, there's Kitchener-Waterloo's Clearpath Robotics, which describes itself as automating the world's dullest and dirtiest jobs. This robotics company just closed a round of $30 million. Switch Materials, out of B.C., has developed novel organic molecular switching technology for automotive and architectural glass industries. These are just two of many that we support.

How particular industries, manufacturing included, stand to be affected will only be known in the fullness of time. What we do know is that the competitiveness of Canadian manufacturers is a complex, multi-faceted issue. Industry, government, investors, and other parties need to collaborate so that Canada can be at the vanguard of tomorrow's industry. At BDC we are strongly committed to participating in this evolving coalition of interest.

Thank you for the time for these remarks.

[The Chair, Liberal, Dan Ruimy]

Thank you very much, Mr. Nycz. We're going to jump right into questions, because I know we have some good ones.

Mr. Longfield, you have five minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thanks, Mr. Chair.

Thank you to the team from BDC for being here. I met with Kirk Irving in Guelph last week and we discussed the work of BDC, particularly around manufacturing. He provided me with a slide deck, an overview of BDC for parliamentarians, that was put together in summer 2016. If you could submit that for our clerk, I think that would be very helpful for our study. It talks about manufacturing being 23% of your financing portfolio.

We discussed in particular the smaller manufacturers that are just in the early stages, the one-million-dollar to $1.5-million ones, and the ones that are looking for loans of up to $250,000—something that the banks are not interested in. The banks are regulated differently from BDC. You're a stand-alone organization. In our conversation, we discussed the opportunity for a matching program that the federal government might be able to look at. We're preparing for our budget right now. During the credit crisis, there was a similar program. Do you have any details about how matching used to work, and how we might look at that going forward to help the small start-ups?

[Jérôme Nycz]

It's a great question. The accelerator program is very much a process for young entrepreneurs to go through. They're followed for three to six months and sometimes even longer. When they graduate from that program, a convertible note program that BDC has developed allows us to invest in that company alongside angel investors. Often we're the first institutional investor to come in at that stage, and the leverage of our money is often two or three times the money we put in that company. The money is used to bridge them to an A round of financing. This is a bit of matching with angel investors, and we see this a lot. We see it in the venture capital industry as well. When a fund invests, we'll go in and invest in collaboration.

That's the type of matching we do with angel investors at the very early stage. In terms of technology and start-ups, two weeks ago we launched a technology start-up loan that goes up to $500,000. The presentation you had was prior to the launch of that program. We spent some time in Kitchener-Waterloo, and we know that Communitech was vocal in expressing the needs of entrepreneurs, and we were quite responsive to the voice of reason, and we launched that product. We're hoping to scale that across Canada, as the first money those entrepreneurs can receive in taking that first step. A combination of the VC and those technology loans will go a long way, and in terms of manufacturing—

[Lloyd Longfield, Liberal, Guelph, ON]

I don't have the information on that. Could we have that? With Innovation Guelph, we were working on matching through federal development agencies, but this sounds as though it's something that could help us with our manufacturing study.

[Jérôme Nycz]

Perfect.

[Lloyd Longfield, Liberal, Guelph, ON]

I interrupted you. Did you have more to say on that?

[Jérôme Nycz]

No. Just in terms of start-ups, we have a start-up loan of up to $150,000 as well that has been used particularly in the manufacturing sector. We've had quite a few—1,800 transactions in manufacturing start-ups in the last 10 years.

[Lloyd Longfield, Liberal, Guelph, ON]

I have one other question. Usually I have a timer in front of me.

[The Chair, Liberal, Dan Ruimy]

You have a minute and a half.

[Lloyd Longfield, Liberal, Guelph, ON]

Great. Thank you.

Regarding your partnership with Futurpreneur, we had Futurpreneur here and they made a wonderful presentation on what they're doing with start-ups. Could you describe for us how long that program is? Is it growing? Is it stable?

[Jérôme Nycz]

Yes. The last legislative changes to BDC were to enable us to work with such entities as Futurpreneur, and we're able to co-investment with them. The relationship is working really well. It's for smaller loans. It's a bit of a matching, where they put in money and we provide some money. It's doing really well. I have the numbers on Futurpreneur and I'll be able to get them to you.

[Lloyd Longfield, Liberal, Guelph, ON]

Terrific.

[Jérôme Nycz]

The relationship is working really well, and the risk profile is very positive. Our experience is very positive and we're happy. It enables us to reach a community that goes beyond our footprint.

[Lloyd Longfield, Liberal, Guelph, ON]

For the information of fellow MPs, not just those who are in the room but other MPs as well, I received a riding profile that showed BDC's work. It showed 18 manufacturers in Guelph getting assistance through BDC in 2014; 16 in 2015; and 18 in 2016 to date, so it looks as though there is some very good growth in Guelph for manufacturing. The client base went from 63 to 72 to 87, and it will hopefully be over 100 this year, so it looks as though BDC is doing a good job in terms of reaching entrepreneurs who are involved with manufacturing.