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Hesperian Capital Management Ltd. norrepFUNDS

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  • 1. Randy Oliver, CFA Alex Sasso, CFA June 2007
  • 2. Legal Disclaimer The material contained in this presentation is for information purposes only and does not constitute an advertisement or an offer to sell or a solicitation to buy any securities in any jurisdiction. Such an offer can only be made by prospectus. MUTUAL FUND SHARES OF THE NORREP GROUP OF FUNDS ARE OFFERED FOR SALE BY WAY OF PROSPECTUS ONLY IN THE PROVINCES OF ONTARIO, SASKATCHEWAN, ALBERTA, BRITISH COLUMBIA, MANITOBA AND THE ATLANTIC PROVINCES. Every effort has been made to ensure that the information contained herein is accurate, complete and up-to-date. However, no guarantee, either express or implied, is made that the information in this presentation is accurate, complete or up-to-date. The contents of this presentation are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Indicated rates of return are the historical annual compound total returns including changes in share value and reinvestment of all dividends and do not take into account sales, redemption, distribution or optional charges or income tax payable by any security holder, if any, that would have reduced returns. The rate of return is used to illustrate the effects of the compound growth rate and is not intended to reflect future sales of Norrep Funds or returns on investment in Norrep Funds.
  • 3. Who We Are
    • Hesperian Capital Management Ltd.
    • Niche Managers
      • Small Cap
      • Quantitative
      • Flow-Through (Resources)
    • Established in 1995
    • Began managing the Norrep Fund on Jan. 1, 1999
    • Six seasoned investment professionals
    • Three investment analysts
    • 90 years of cumulative investment experience
  • 4. The Management Team
    • Randy Oliver, CFA
      • Chief Investment Officer, Portfolio Manager and founder of Hesperian
      • Portfolio Manager of the Norrep, Norrep II and the Flow Through Funds
    • Alex Sasso, CFA
      • Vice President, Portfolio Manager and owner/partner of Hesperian
      • Portfolio Manager of the Norrep, Norrep II, Norrep Income Growth and Norrep Q Funds
    • Keith Leslie, CFA
      • Vice President, Portfolio Manager and owner/partner of Hesperian
      • Portfolio Manager of the Norrep Q and the Norrep Income Growth Fund
  • 5. Management Team cont.
    • Craig Millar, CFA
      • Vice President, Portfolio Manager and owner/partner of Hesperian
      • Portfolio Manager of the Norrep Global Small Cap products and the Norrep US Fund
    • Steve Smith, CA
      • Energy Specialist and owner/partner of Hesperian
      • Oversees Hesperian’s energy investments
    • Kamran Khan, CFA
      • Senior Research Analyst and owner/partner of Hesperian
      • Analysis for U.S. and Global mandates
  • 6. Norrep Funds Structure
    • Open-ended mutual fund structure
    • RRSP eligible
    • Minimum initial purchase of $10,000
    • Tax deferred switches amongst funds in the Norrep Opportunities corporate structure
      • Norrep II Class (Closed)
      • Norrep Q Class
      • Norrep US Class
      • Norrep G Class
      • Norrep Income Growth Class
    • 2% management fee (1.65% for Income Growth)
    • Performance bonus payment of 20% of NAV growth measured at market value over a high water mark above the benchmark
  • 7. Norrep FUND Performance value of $10,000 investment since inception At May 31, 2007 * Compound Annual Rates of Return , NorrepFUND inception June 1997 $83,158
  • 8. Norrep II CLASS Performance value of $10,000 investment since inception At May 31, 2007 * Compound Annual Rates of Return, Norrep II Class inception Sept. 2001 $49,656
  • 9. Norrep Q CLASS Performance value of $10,000 investment since inception At May 31, 2007 * Compound Annual Rates of Return, Norrep Q Class inception March 2004 $19,641
  • 10. Norrep Income Growth CLASS Performance value of $10,000 investment since inception At May 31, 2007 * Compound Annual Rates of Return, Norrep Income Growth Class inception December 2005 $13,548
  • 11. Norrep US CLASS Performance value of $10,000 investment since inception At May 31, 2007 * Compound Annual Rates of Return, Norrep US Class inception December 2005 $11,343
  • 12. Norrep G CLASS Performance value of $10,000 investment since inception At May 31, 2007 * Compound Annual Rates of Return, Norrep G Class inception June 2006 $11,799
  • 13. Norrep Global LP Performance value of $10,000 investment since inception At April 30, 2007 * Compound Annual Rates of Return, Norrep Global LP inception June 2005 $15,309
  • 14. Hesperian’s Overriding Philosophy Our Credo We only offer investment products where we can provide “measurably superior investment performance”
  • 15.  
  • 16. Norrep II In A Nutshell
    • Canadian small cap focused product
    • Concentrated holdings of 30-50 stocks
    • Top 10 names will represent roughly 50% of the portfolio
    • The Fund will use the proven Hesperian investment methodology
    • Heavy fundamental emphasis with help from quantitative analysis
    • The benchmark is the weighted BMO Small Cap Equity Only Total Return Index
  • 17. Why Invest In Small Cap Stocks?
    • Great historical performance
    • Diversification
    • Many companies are under covered by analysts
    • Many are inefficiently priced
    • Disciplined and motivated management teams
    • Large number of investment opportunities
  • 18. The Desired Portfolio Structure Norrep II Class
    • We design an attractive portfolio before we purchase the investments
    • We screen hundreds of companies with these and other attractive attributes to create a workable list of opportunities to examine fundamentally
    1.0% >0% 15.0% 15.0x Norrep II (ideal) 1.2% 2.8% 28.1% 13.0x Norrep II (actual) 0.5% Yield -0.9% Earnings Surprise 11.0% Trailing ROE 34.6x Trailing P/E BMO Small Cap May 31, 2007
  • 19. Hesperian’s Quantitative Process
    • Very effective way to find new stock ideas
    • Assists in monitoring existing holdings
    • Helps identify industry trends
    • All quantitatively derived stock selections also undergo a rigorous and extensive fundamental examination before investment is made
  • 20. Norrep II Class Advantage 1.08 0.35 1.43 Cash Flow to Debt 0.20 0.45 0.25 Debt to Equity 0.63 0.53 1.16 Expected Dividend Yield     5.8 0.8 6.6 Quarterly Cash Flow Momentum 7.7 -0.6 7.1 Quarterly Earnings Momentum 9.6 -12.4 -2.8 Estimate Revisions 3.7 -0.9 2.8 Earnings Surprise 20.1 8.0 28.1 Return on Equity (trailing)     4.9 13.9 9.0 Price to Cash Flow (trailing) 13.4 25.2 11.8 Price to Earnings 21.6 34.6 13.0 Price to Earnings (trailing) Our Advantage BMO Small Cap Index Norrep II Class Fund Attribute:
  • 21. Norrep II Performance vs. Benchmark For the period ending May 31, 2007 * Annualized
  • 22. Norrep II Performance Advantage For the period ending May 31, 2007 * Annualized ** Source: Globefund 10.3% 22.4% n/a n/a 32.7% Since Inception* 9.9% 18.2% 12.6% 15.5% 28.1% 5 Year* 12.0% 22.1% 15.2% 18.9% 34.1% 3 Year* 4.8% 21.9% 10.7% 16.0% 26.7% 1 Year 9.6% 15.7% 10.5% 14.8% 25.3% 6 Month 3.7% 8.6% 3.7% 8.6% 12.3% 3 Month 4.6% 2.7% 4.0% 3.2% 7.3% 1 Month Value Added BMO Small Cap TRI Value Added Peer Group Average** Norrep II Class
  • 23. 2004 Flow-Through Performance * Assumes full cycle investing with all tax deductions taken, sale of investment at June 12, 2007 and all capital gains taxes paid   * Assumes a 45% marginal tax rate 19.03% Total "After tax" Annualized Return 68.97% Total "After Tax" Return     $ 2.15 Taxes Payable if sold at rollover $ 9.54 Closing Value & Distribution $ 8.81 Closing Value of LP     $ 0.73 Total Distributions $ - Distribution #2 $ 0.73 Distribution #1 $ 4.375 After Tax Cost   Flow Through Portion 08-Jun-04 Inception Date 2004 After Tax Numbers
  • 24.
    • Canadian distributor of software products
    • Current valuation
      • 14x Trailing P/E
      • 33% ROE
    • Reasons to own
      • Attractive valuation
      • Strong, dominant operator
      • New products
    SO Softchoice
  • 25.
    • Rents modular structures for workforce accommodations
    • Current valuation (f2007)
      • 6.5x ev/ebitda
      • 55% payout ratio
    • Reasons to own
      • Attractive valuation
      • 3 years of visibility
      • Mgmt owns a large percentage of co.
    BDI-U Black Diamond IF
  • 26. Why Should You Keep your Investment In The Norrep II Fund?
    • Very strong Norrep/Hesperian track record
    • Access to one of Canada’s premier small cap investors
    • Unique product in Canada
    • Focus on great portfolio metrics ensures a very attractive group of stocks
    • Safer way to play Canadian small caps
    • Very disciplined and consistent approach
    • Attractive trailer will grow as the Fund grows
  • 27. Overexposed To Canadian Small Caps?
    • You can make a tax deferred switch within Norrep Opportunities Corporation
    • Consider the following products:
      • Norrep Q Class
      • Norrep Income Growth Class
      • Norrep US Class
      • Norrep G Class
  • 28. Risks Of The Norrep II Class
    • Volatility of small companies vs. large
    • Liquidity (Small Co. vs. Large Co.)
    • Political and regulatory
    • Interest rates
    • Equity risk
    • Slowdown in macro economic growth
    • Currency
  • 29. Thank you www.norrepfunds.com
  • 30. Investment Toolbox
    • Long Term
    • Strategy
    • Management
    • Business Model
    • Competition
    Fundamental Short Term Strategy Economic Currencies Market Trends Quantitative Mass Screening Multiple variables Idea Generator Technical Identify Patterns Opportunistic buying and selling PORTFOLIO FRAMEWORK VALUATION
  • 31. The Sell Decision
    • Has management changed, in person or philosophy?
    • Is the company growing slower and/or trading at higher values relative to its peers?
    • Has the macro situation for the company changed?
    • Does the company still “work” as part of the “Desired Portfolio Structure”?
    • Quantitative analysis highlights necessary reviews.
  • 32. Norrep II Class P/E and ROE ***Source: Globefund