Impact of a Declining Canadian Dollar NBF_FX.pdf · In this report we look at NBF’s Economy and...

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

AGRICULTURE & INFRASTRUCTURE Robert B. Winslow, CFA (416) 869-7937

ENERGY SERVICES Greg Colman (416) 869-6775

OIL & GAS Dan Payne, CFA (403) 290-5441

Matthew Taylor, CFA (403) 290-5625

Kyle Preston, CFA, CMA (403) 290-5102

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

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

FINANCIAL SERVICES Peter Routledge (416) 869-7442

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

SPECIAL SITUATIONS Trevor Johnson, CFA (416) 869-8511

SPECIAL SITUATIONS 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

The Canadian dollar depreciated 3% against the USD (2013 average versus 2012 average), the worst performance since 2009. A more dovish central bank, combined with soft commodity prices and bearish analyst reports caused sentiment to turn against the Canadian currency. The weakness in early 2014 is just an extension of last year’s downtrend. In this report we look at NBF’s Economy and Strategy Group’s forecast for the Cdn$, as well as the impact, if any, of a declining Cdn$ on companies in our coverage universe listed by sector. NBF outlook The large current account deficit, and hence the dependency on capital inflows, leaves the C$ vulnerable to a further decline. Our end-of-Q1 target for USDCAD is 1.10 (90 cents U.S.). The currency could indeed soften further as the Fed accelerates tapering of its QE program in the coming months. But we expect the loonie to stabilize after Q1. We view the market’s expectations of Bank of Canada rate cuts this year (roughly 30% probability as of January 14th) as exaggerated. The economy accelerated in the second half of 2013 and we believe that the labour market is not as bad as depicted by the Labour Force Survey. If we’re correct on the economy, a corresponding upgrade of market expectations would be positive for the loonie. Moreover, we also expect global growth to accelerate to 3.7% this year, something that should offer some support to commodity prices and the C$. Nonetheless, the upside seems limited and we expect USDCAD to average 1.07 in 2014 (93 cents U.S.). If we are right, this would still mark the biggest two-year cumulative depreciation of the CAD (7%) since 1999. We view this development as a net positive for the economy and for S&P/TSX earnings.

-10 -8 -6 -4 -2 0 2 4 6 8

10 12 14 16 18

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Canada: Biggest two-year depreciation since 1999 Two-year change US cents per CAD

NBF Economy & Strategy (data via Bloomberg, NBF forecasts)

%

F

2014 forecast average versus 2012 average

Impact of a Declining Canadian Dollar

January 16, 2014

TABLE OF CONTENTS Technical Analysis 3

Agriculture & Infrastructure 4

Energy Services 6

Oil & Gas 7

Pipelines, Utilities & Energy Infrastructure 9

Financials (Diversified) 12

Financials Services 14

Merchandising & Consumer Products 16

Communications Media & Telecom 17

Real Estate 20

Metals and Mining - Precious Metals 22

Metals and Mining - Base Metals 24

Special Situations 25 & 28

Sustainability & Clean Tech 30

Technology 33

Transportation & Industrial Products 36

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NBFDISCLOSURES

http://www.nbcn.ca/contactus/disclosures.html

TECHNICAL ANALYSIS Analyst: Dennis Mark Major trend turns down on the Canadian dollar

The Canadian dollar relative to the U.S. dollar has completed a major top that

reverses its long-term trend to the downside.

A recent violation of key support at $0.94 broke the chart down from a multi-year top.

Strong downside momentum on the breakdown has longer negative implications.

Next support is around $0.90.

Support below $0.90 is thin to the low to mid-$0.80s.

Targets are $0.88 to $0.90, and $0.85 with potential for further downside tests to the 2009 low.

AGRICULTURE & INFRASTRUCTURE Analyst: Robert Winslow Big winners: Ag Growth International Inc. (AFN) A majority of Company costs are in Cdn$ while a majority of sales are in US$, suggesting that a stronger US$ would be beneficial to financial results. We estimate that a 5% strengthening of the US$ vs. the Cdn$ would raise our F14E EPS a healthy ~6%. Management incorporates US$ forex hedges for periods up to two years.

Moderate winners: Agrium Inc. (AGU) A majority of Company costs are in Cdn$ while a majority of sales are in US$, suggesting that a stronger US$ would be beneficial to financial results. We estimate that a 5% strengthening of the US$ vs. the Cdn$ would raise our F14E EPS a moderate ~4%. Management incorporates US$ forex hedges for periods up to three years. PotashCorp Inc. (POT) A significant proportion of Company costs are in Cdn$ while a majority of sales are in US$, suggesting that a stronger US$ would be beneficial to financial results. However, we estimate that a 5% strengthening of the US$ vs. the Cdn$ would raise our F14E EPS ~2%. Management uses US$ forex hedges for periods less than one year. Vicwest Inc. (VIC) A majority of Company costs are in Cdn$ while a material portion of Company sales are denominated in US$, suggesting that a stronger US$ would be beneficial to Vicwest’s results. We estimate that a 5% strengthening of the US$ vs. the Cdn$ would raise our F14E EPS ~1%-2%. Management has not historically used forex hedges. Losers: None No major impact: AgJunction Inc. (AJX) The majority of costs and sales are in US$ so the Company is naturally hedged. The Company also reports in US$. Management uses US$ forex hedges as needed. Alliance Grain Traders Inc. (AGT) Management largely matches costs to sales in local currencies so the Company is naturally hedged. Management uses US$ forex hedges for periods less than one year. Canam Group Inc. (CAM) The Company benefits from natural hedges since management largely aims to match costs to sales, though the Company does stand to realize some minimal benefit from a stronger US$ given that revenue mix is generally more tilted to a greater proportion of costs/sales in US$. Management uses US$ forex hedges as needed.

Cervus Equipment Corp. (CVL) The majority of costs and sales are in Cdn$ so the Company is minimally impacted by the falling Cdn$. Note that the value of large agri equipment in inventory (i.e., from trade-ins) can increase owing to a rapidly strengthening US$, providing a modest revenue tailwind. Management has not historically utilized forex hedges. MBAC Fertilizer Corp. (MBC) The majority of costs and sales are in US$ and BRL so the Company is minimally affected by a weakening Cdn$. Management reports financial results in US$ and has not historically used forex hedges. SNC-Lavalin Group Inc. (SNC) The Company benefits from natural hedges since management largely matches costs to sales and the majority of costs/sales are in Cdn$. Management incorporates US$ forex hedges for periods up to four years. Stantec Inc. (STN) The Company benefits from natural hedges since management largely matches costs to sales with the majority of costs/sales in Cdn$. Management generally uses a modest level of US$ forex hedging on an as-needed basis. WSP Global Inc. (formerly GENIVAR Inc.; WSP) The Company benefits from natural hedges since management largely matches costs to sales and the majority of costs/sales are in Cdn$. Management uses US$ forex hedges as needed.

ENERGY SERVICES Analyst: Greg Colman Big winners: See below discussion on our services universe with US$ exposure. Moderate winners: Energy Services The majority of our universe can be split between no U.S. exposure and moderate U.S. exposure. For this group U.S. operating bases are established in the various O&G basins the company is active and US$-denominated revenue is largely offset with US$-denominated costs. Some head office overhead would be fixed in Cdn$ but for the most part natural activity hedges are in place with U.S. operations. Outlined in the chart below is the impact of a falling Cdn$ on consolidated EBITDA. The largest winners are CEU with its ramping U.S. production chemicals business and XDC with the majority of its drilling rigs and deep coil units operating in U.S. basins.

C$mln (unless otherwise noted)

Company Ticker

Current (1.00

C$/US$)

U.S. Exposure

(%)

Adjusted (1.10

C$/US$) %Chg

Current (1.00

C$/US$)

Adjusted (1.10

C$/US$) %ChgCanadian Energy Services CEU 147.2$ 68% 163.1$ 11% 12.2x 10.9x -11%Xtreme Drilling XDC 97.7$ 93% 107.3$ 10% 3.6x 3.2x -11%PHX Energy Services PHX 70.1$ 58% 76.4$ 9% 6.8x 6.1x -10%High Arctic HWO 53.5$ 72% 58.1$ 9% 3.1x 2.8x -9%Cathedral CET 49.2$ 50% 52.9$ 8% 4.6x 4.2x -10%Trinidad TDG 300.9$ 55% 319.4$ 6% 5.3x 4.9x -9%Strad SDY 49.8$ 45% 52.1$ 5% 3.6x 3.4x -5%CanElson CDI 133.8$ 41% 139.9$ 5% 4.6x 4.4x -5%Calfrac CFW 392.3$ 24% 404.6$ 3% 5.4x 5.1x -5%Trican TCW 475.4$ 11% 484.6$ 2% 5.2x 5.2x 0%Average 7% -8%

2014 EBITDA 2014 EV/EBITDASERVICES - MODERATE POSITIVE EXPOSURE TO WEAKENING CAD

Student Transportation Inc. (STB) STB reports in US$ and has ~85% of its owned school bus fleet operating in the United States. A weakening of the Cdn$ to 1.10 CAD/USD reduces the reported US$ amount of revenues and EBITDA contribution from the Canadian operation. The net impact is a 183 bps reduction in EBITDA to $96.6 mln in fiscal 2015 from our current $98.8 mln; however, the U.S.-denominated enterprise value is also reduced, by 6.7% to $752.6 mln from $806.5 mln. The combination of these two movements results in a modest valuation positive, taking STB’s 2015 EV/EBITDA multiple down by 4.9% to 7.8x from 8.2x. Losers: We have no companies whose costs are in US$ but revenue is in Cdn$, or who generates Cdn$ cash flow, but trades 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 Services (FRC-T), Horizon North Logistics (HNL-T), ENTREC (ENT-V), Essential Energy Services (ESN-T), Mullen Group (MTL-T) and Secure Energy Services (SES-T).

OIL AND GAS Impact of a Weak Cdn$ on Canadian Oil & Gas Producers The Canadian dollar has depreciated ~3% since the start of the year, leaving some investors 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 3% 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)

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Average: 3%

Notes: Excludes ECA (earnings are forecasted in US$), INA, MVN, ATH, PMT, HWK’a and restricted companies LRE and SGY 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

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SU ECA

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$mln

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1-2 years 3-5 years 6-10 years 10+

Source: NBF, company reports, Bloomberg

Hedging Impact: Companies that currently hedge a portion of their 2014 production in Canadian dollars may not participate in as much of the upside compared with their unhedged or US$ WTI-hedged peers. Notable companies that fall into this category with significant Canadian-denominated hedging include: Manitok Energy (MEI) (>90% liquids when accounting for swaptions/30% gas), Strategic Oil & Gas (SOG) (42% liquids/0% gas), Twin Butte Energy (TBE) (>60% liquids/66% gas) and Whitecap Resources (WCP) (53% liquids/10% gas). 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 (R2= 0.874 from 2000 to 2013), 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 (R2=0.004 from 2011 to 2013) as other economic events and monetary/fiscal policies appear to be playing a bigger role in influencing the Canadian currency.

CORRELATION WTI VERSUS CAD/USD FX

Source: Bloomberg, NBF

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

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D$/

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$

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

R-squared (2000 to 2013): 0.874

R-squared (2011 to 2013): 0.004

PIPELINES, UTILITIES & ENERGY INFRASTRUCTURE Analyst: Patrick Kenny Big Winners: None noted Moderate winners: Canexus Corp. (CUX) ~40% of 2014e AFFO is non-Canadian based (U.S.-based revenue and US$-denominated South American operations). CAD/USD exchange rate exposure is managed through US$ denominated long-term debt, US$ foreign exchange forward contracts and option contracts. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2014e AFFO by ~6%. That said, non-Canadian based AFFO is expected to decline to ~30% upon full commissioning of the Alberta-based NATO expansion, reducing the sensitivity to an ~4% increase in AFFO for every US$0.10 decline in the Canadian dollar by 2015 onward. Veresen Inc. (VSN) ~50% of 2014e AFFO is non-Canadian based (i.e., 50% of Alliance, 100% of Aux Sable, ~50% of Power operations). CAD/USD exchange rate exposure is managed through US$ denominated long-term debt. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2014e AFFO by ~4%. Gibson Energy Inc. (GEI) ~25% of 2014e AFFO is non-Canadian based (100% OMNI; 33% of Truck Transportation). CAD/USD exchange rate exposure is managed through US$ denominated long-term debt, as well as foreign currency forward exchange contracts. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2014 FFO by ~3%. Of note, Gibson’s non-Canadian based exposure is expected to decline as the majority of capital spend (~75%) is Canadian-based through 2015. Enbridge Inc. (ENB) ~50% of 2014e AFFO is non-Canadian based (U.S.-based Liquids & Gas operations, ~33% interest in Enbridge Energy Partners LP). However, the company has hedged ~77% of its US$ exposure through 2017 at US$0.95. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2014e AFFO by ~2%. Emera Inc. (EMA) ~25% of 2014e AFFO is non-Canadian based (U.S. and Caribbean-based Utilities). CAD/USD exchange rate exposure is partially hedged through US$ denominated long-term debt. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2014e AFFO by ~2%. No major impact: AltaGas Ltd. (ALA) ~25% of 2014e AFFO (pro-forma full year’s contribution from B.C.-based Forrest Kerr) is non-Canadian based (100% SEMCO Utility; California-based Blythe Energy Centre). CAD/USD exchange rate exposure is managed through US$ denominated long-term debt associated with U.S. operations. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2014e AFFO by ~1%.

Superior Plus Corp. (SPB) ~45% of 2014e AFFO is non-Canadian based (~33% of Energy Services; ~60% of Specialty Chemicals; ~50% of Construction Products). However, the Company has hedged ~80% of its US$ exposure through 2015 at US$1.01. Therefore, a US$0.10 depreciation of the Canadian dollar is expected to increase 2014e AFFO by ~1%. TransAlta Corp. (TA) ~20% of 2014e AFFO is non-Canadian based (Centralia and other U.S. operations, Australian operations). CAD/USD exchange rate exposure is managed through US$ denominated long-term debt, as well as foreign currency forward exchange contracts. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2014e AFFO by ~1%. TransCanada Corp. (TRP) ~50% of 2014e AFFO is non-Canadian based. However, CAD/USD exchange rate exposure is hedged through US$ denominated long-term debt, as well as foreign currency forward exchange contracts. Overall, a US$0.10 depreciation of the Canadian dollar is expected to increase 2014e AFFO by ~1%. ATCO Ltd. (ACO.X) ATCO recently divested of its US$-denominated South American operations. As such, ~20% of 2014e 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 2014e 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 do not view any material impact to our estimates based on a US$0.10 depreciation 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 $3.0 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 (~40% of AFFO).

Capital Power Corp. (CPX) Following the company’s recent US$541-mln divestiture of its New England assets, the company’s cash flow is now predominantly Canadian-based (<1% exposure to U.S. currency). As such, we do not expect any material impact to our estimates based on a US$0.10 depreciation in the Canadian dollar. Northland Power Inc. (NPI) Northland Power’s operations are predominantly Canadian-based. 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, should management proceed with construction of the $3.8-bln Gemini offshore wind project (Netherlands), NPI’s long-term foreign currency exposure may rise. Of note, Gemini has the potential to represent approximately one-third 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 material impact to our estimates based on a US$0.10 depreciation in the Canadian dollar. Enbridge Income Fund (ENF) All of Enbridge Income Fund’s operations are located in Canada. As such, we do not expect any material impact to our estimates based on a US$0.10 depreciation in the Canadian dollar. 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 expect a -2% impact to our 2014e AFFO/sh estimate for every US$0.10 depreciation of the Canadian dollar. Big Losers: None noted

FINANCIALS (DIVERSIFIED) Analyst: Shubha Rahman Khan Big winners: None

Moderate winners: Element Financial Corp. (EFN) EFN’s business mix is rapidly shifting towards U.S. leasing portfolios. At the end of 2013 only around 18% of finance receivables were denominated in U.S. dollars. By the end of 2014, however, this is expected to rise to nearly 42%. As such, EFN will soon have the highest U.S. dollar exposure of any stock in our coverage universe. However, since the company matches both the duration and currency of lease receivables and funding liabilities, U.S. revenues are subject to a higher tax rate, and EFN hedges its currency exposure, the earnings impact of a strengthening U.S. dollar will be muted in the interim. CI Financial Corp. (CIX) As at Sept. 30, 2013, 21% 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 $18 million, or $0.05 in EPS (which equates to 3% of our 2013 EPS forecast). AGF Management Ltd. (AGF.B) AGF Management’s U.S. dollar exposure primarily relates to its U.S. and international retail funds, which account for roughly 33% of retail fund AUM. A strengthening U.S. dollar would translate to higher AUM on a Cdn$-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. Fiera Capital Corp. (FSZ) Prior to the recent purchase of two U.S.-based private wealth managers, less than 1% of Fiera’s revenue was in U.S. dollars. AUM attributable to the two U.S. acquisitions accounts for ~11% 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 will now be attributable to the two U.S. subsidiaries. Consequently, Fiera now has among the highest exposures to USD/CAD 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: TMX Group Inc. (X) TMX Group holds a 53.8% equity interest in the Boston Options Exchange (BOX). After a year in which BOX experienced significant market share erosion, the business is incurring net losses. With no market share recovery expected in the near term, we believe the strengthening U.S. dollar will amplify the magnitude of these losses.

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 $12 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. 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 28% of MFC’s assets are denominated in Canadian dollars and the company generated just 11% of its earnings from Canada in f2013 YTD. Half of MFC’s assets and earnings are denominated in U.S. dollars with the balance in Asian currencies. Therefore, much of the upside to MFC of a weakening Canadian dollar resides in its U.S. platform which did suffer mightily during the financial crisis and its aftermath. But, MFC’s management has largely de-risked its legacy product portfolio and renewed, rather impressively, its wholesaling platform. That is, despite de-risking its product portfolio in the United States (by reducing or eliminating features that were attractive to its clients), MFC grew its U.S. wealth management and life insurance sales 43% and 3%, respectively, over the past year. With nearly 60% of its general fund assets denominated 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. Great-West Lifeco Inc. (GWO) GWO would not have made it to the “Big Winners” category last year but the life insurer’s recent acquisition of the Irish Life Group (ILG) vaults it into this category. As at Sept. 30, 2013, nearly 60% of GWO’s assets are denominated in foreign currencies (20% U.S. dollar assets and 40% in European currencies). Next year, we expect GWO to generate just 50% from its Canadian franchise, 33% from Europe and 17% from the United States. We also point out that GWO acquired ILG at a near-distressed valuation from the Irish government at a deal priced in February 2013 when one euro was worth Cdn$1.35. Today, it is worth Cdn$1.47. While GWO hedged a portion of the euro-denominated ILG purchase price, it has not hedged ILG’s future earnings. Moderate winners: Sun Life Financial Inc. (SLF) SLF generates 33% of its earnings from the United States (excluding the recently divested U.S. annuities business) and 16% from geographies outside Canada (principally the U.K. and Asia). Moreover, we estimate that 44% 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). 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 hasten to add that 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). Nonetheless, we point out that the Canadian dollar has declined by less relative to Latin American and Asian currencies than to the U.S. dollar.

Toronto-Dominion Bank (TD) TD’s U.S. personal & commercial (P&C) banking platform has 1,317 branches (or stores in TD-speak) versus 1,179 branches in Canada. Although the U.S. branch network is not as productive as the Canadian arm, the bank still generates 13% of its earnings in the United States with 30% of its assets, we estimate, denominated in U.S. dollars. Of note, the bank generates a further 23% of earnings in geographies outside Canada and the United States. The low-yield, slow loan growth environment has inhibited TD’s earnings growth in the United States. If those headwinds abate further, as we expect, then TD will enjoy a healthy acceleration in U.S. dollar earnings growth (4% in f2014 and 12% in f2015). Bank of Montreal (BMO) BMO generates 31% of its net income from geographies outside Canada, principally in the United States. Moreover, the bank has a well-diversified array of U.S. businesses. Of the US$1 billion in f2013 net income, BMO sourced 58% from P&C banking, 21% from wealth management and 21% from capital markets activities. Finally, 48% of BMO’s assets are denominated in U.S. or other foreign currencies. Royal Bank of Canada (RY) While 42% of RY’s assets are from operations outside Canada (21% in the U.S., 21% in Europe and Asia combined), the bank generates just 24% of its earnings from outside the country (15% from the United States and 9% from other geographies). As we have written in the past, RY’s greatest risk remains the bank’s over-reliance on Canadian Banking which provides over 50% of the bank’s earnings. Losers: NONE No major impact: Canadian Imperial Bank of Commerce (CM) CIBC allocated 11% of its assets to operations outside Canada which, in turn, generated 17% of the bank’s earnings. CM remains a Canada-centric institution with a disproportionate share of its earnings (approximately 2/3) coming from its domestic P&C banking operations. 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 has about 10% of its insurance liabilities (and, presumably, invested assets) domiciled in the United States and generates the vast majority of its earnings in Canada.

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 ~50% 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$. Alimentation Couche-Tard Inc. (ATD.B) We estimate that Alimentation Couche-Tard’s U.S. operations represent ~45% of total earnings. We estimate that the strengthening of the US$ 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 18% 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); Shoppers Drug Mart (SC); 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.

COMMUNICATIONS MEDIA & TELECOM Analyst: Adam Shine Modest Positive Impact: Thomson Reuters Corp. (TRI) TRI reports in US$. While the company generates less than 10% of its revenues from Canada, it has US$2.7 billion of debt denominated in Cdn$, with US$369 million maturing in 2014. The net effect of the Cdn$ 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. Based on current trading levels, a $0.01 decline in the Cdn$ should add about $0.38 of upside to TRI's Canadian-listed stock as well as provide an upward bias to our target. No Impact (Immaterial Positive Skew) Torstar Corp. (TS.B) 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 $0.02 which equates to about 2% of our 2014 estimate. Cogeco Cable Inc. (CCA) Following the closing of acquisitions of Atlantic Broadband and Peer 1 during the company's f2013, CCA derives approximately 25.1% of consolidated revenues and 22.7% of EBITDA from the United States. While a 1 cent drop in the Cdn$ vs. the US$ benefits EPS by about $0.02, it increases interest costs by less than a penny for a net positive impact of just over $0.01. Following a $0.06 decline in the Cdn$ vs. the average US/Cdn rate in CCA's f2013, the current extrapolated EPS benefit for f2014 appears to be $0.07 or 1.5% of our f2014 estimate. Transcontinental Inc. (TCL.A) TCL generates 11.5% of its consolidated revenues from the United States (6.5% from exports from Canada and 5% from U.S. operations) and approximately $45 million or 13% of its total EBITDA. It designates some of its debt denominated in US$ as a hedge of an equivalent portion of its net investment in its foreign operations, with the designated amount varying between US$20 million and US$41 million in f2013. Excluding the net effect of hedges, a 1 cent drop in the Cdn$ would benefit TCL's EPS by less than half a cent. As such, the roughly $0.05 decline in the Cdn$ vs. the average US/Cdn rate in the company's f2013 would add an estimated $0.02 or 1% to our f2014 forecast. Of course, TCL could incrementally benefit from more export work as the Cdn$ depreciates. Supremex Inc. (SXP) SXP generates approximately 8.5% of its consolidated revenues from the United States. Using prevailing rates which reflect a $0.05 decline vs. the average US/Cdn rate in 2013, we estimate the positive impact to be less than $0.01, though SXP faces the prospect of additional U.S. business given the weaker Cdn$.

Glacier Media Inc. (GVC) GVC derives just over 5% of its revenues and EBITDA from the United States. A $0.01 drop in the Cdn$ benefits its pre-tax earnings by $0.2 million. The $0.05 drop in the Cdn$ vs. GVC's average US/Cdn rate in 2013 equates to about $0.01 of upside in EPS. Cineplex Inc. (CGX) Following the purchase of EK3 on Aug. 30, 2013, CGX now generates about 2.2% of its consolidated revenues and 1.9% of total EBITDA from the United States. The company's currency risk is negligible, with the $0.05 decline in the Cdn$ vs. CGX's average US/Cdn in 2013 amounting to less than $0.01. Corus Entertainment Inc. (CJR.B) CJR generates about 7% of its revenues from outside of Canada through its Nelvana operation. The company is exposed to FX risk through its international content distribution platform and US$-denominated programming purchasing. CJR notes in its 2013 Annual Report that a 10% change in exchange rates as at Aug. 31, 2013 would not have any material impact on its earnings. No Impact (Immaterial Negative Skew) Sirius XM Canada (XSR) 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. With a $0.06 decline in the Cdn$ vs. the average US/Cdn rate in XSR's f2013, the current implied EBITDA impact is around 2%, with the EPS impact at less than $0.02 or 6.6% of our f2014 estimate (XSR is not valued on a P/E basis). AIMIA Inc. (AIM) AIM generates approximately 15% of its gross billings and consolidated revenues from its US & APAC operations. In terms of Adjusted EBITDA, we have this region reverting from estimated losses of $8.5 million in 2013 to gains of $19.3 million in 2014. Additionally, we've got dividends from PLM, included in Adjusted EBITDA, adding $14.2 million in 2013 and $16 million in 2014. Related to these items, a decline of 1% in the Cdn$ would benefit EPS negligibly, with the $0.05 decline in the Cdn$ vs. the average US/Cdn rate in 2013 adding an estimated $1.8 million to Adjusted EBITDA and just $0.01 to Adjusted EPS. AIM's Aeroplan operation in Canada, however, incurs expenses in US$ 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 $636 million in costs of rewards in Canada in 2014. If its around 25%, then a 1% decline in the Cdn$ would impact Adjusted EBITDA by $1.6 million and Adjusted EPS by less than $0.01, with the current $0.05 decline in the Cdn$ resulting in an extrapolated impact of $8 million and $0.03, respectively. The estimated net impact of these items following a $0.05 decline in the Cdn$ would appear to be $6.2 million for Adjusted EBITDA (1.9% of 2014 forecast) and $0.02 for Adjusted EPS (2.2% of 2014 estimate). Quebecor Inc. (QBR.B) QBR's operations are entirely in Canada. Like other telcos and cablecos, it has US$ 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, but this is not material. 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 2014 FCF estimate by about 1%, the effect on earnings is immaterial. The $0.05 decline in the Cdn$ vs. QBR's average US/Cdn in 2013 appears to amount to 1.5 cents or less than 1% of our 2014 EPS forecast.

No Impact BCE Inc. (BCE) BCE operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. Bell Aliant Inc. (BA) BA operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. Manitoba Telecom Services Inc. (MBT) MTS operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. Rogers Communications Inc. (RCI.B) RCI operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. Shaw Communications Inc. (SJR.B) SJR operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$. TELUS Corp. (T) T operates in Canada. It hedges its FX exposure, with no material impact on earnings from a declining Cdn$.

REAL ESTATE Analyst: Trevor Johnson Analyst: Matt Kornack Moderate winners: American Hotel Income Properties (HOT.un) Minimal translation impact since bulk of costs are US$ and is a US$ reporter. Small benefit from Cdn$ distributions; payout ratio naturally declines. Cost of U.S. acquisitions financed with Cdn$ equity is less favourable. Management states, “a strong US$ helps us from a distribution perspective, given that our dividends are paid in Canadian dollars. However, as our acquisitions will be predominantly in U.S. dollars, we have to factor in the exchange rate to ensure such acquisitions will be accretive to our Canadian unitholders. Following our IPO, we exchanged our cash earmarked for acquisitions into U.S. dollars to ensure that our acquisition ability was not eroded by a weakness in the Canadian dollar.” Artis REIT (AX.un) Artis now derives over 20% of its NOI from properties in the United States. While it doesn’t employ direct hedging, its use of USD debt, convertible debentures and preferred units to finance a portion of its U.S. portfolio provides a natural hedge against currency changes. Management indicated in the past that this offers protection for approximately 73% of its U.S. exposure, somewhat limiting the upside to recent USD appreciation. 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. Like Milestone, the REIT put hedges in place at the time of IPO and following sizeable acquisitions in order to provide greater certainty around its ability to pay Cdn$ distributions. USD debt provides a partial natural hedge against currency fluctuations from a NAV perspective. It should be noted that the market’s reluctance to attribute value to USD appreciation, if it persists, could have negative consequences as financing ongoing accretive acquisition activity in the United States will become more difficult. H&R REIT (HR.un) H&R REIT generates over 20% of its NOI from properties in the United States with a combined IFRS value of over $2.7 billion. Like Artis, the REIT has a partial natural hedge through the use of USD debt in financing its portfolio – on its larger landmark U.S. properties loan-to-value (LTV) at Sept. 30, 2013 was ~50%. The REIT also employs foreign exchange forward contracts to partially protect against currency changes. Milestone Apartments REIT (MST.un) 100% of Milestone’s assets are located in the United States and rental income is generated entirely in USD. The REIT’s management put hedges in place at the time of IPO, expiring in 2015, to ensure that they would be capable of meeting future distribution requirements. Hedging will limit the cash flow impact of the strengthened USD and will have a limited mark-to-market impact on NAV; however, current Cdn$ pricing doesn’t fully reflect the appreciation in property values (net of USD debt – 57% leverage) attributable to the currency movement. It should be noted that the market’s reluctance to attribute value to USD appreciation, if it persists, could have negative consequences as financing ongoing accretive acquisition activity in the United States will become more difficult.

No major impact: Amica Mature Lifestyles Inc. (ACC) 100% domestic operations so little FX exposure. Growth strategy expected to focus on Ontario and B.C., U.S. not on the radar. Management states, “impact on Amica is nominal as no U.S. operations and our US$ purchases are nominal. Believe it helps Ontario economy but impact on our business would be longer term.” Choice Properties REIT (CHP.un) Both revenues and costs are in Cdn$ so virtually no impact re: translation of financials. Acquisition / growth strategy expected to focus exclusively on domestic opportunities so again no impact. Loblaw (revs & costs in Cdn$) accounts for 90%+ of CHP’s annual base minimum rent so minimal expected impact on the key tenant due to FX. Pure Multi-Family REIT (RUF.un) 100% of assets are located in the United States, and the company is a US$ reporter, so essentially no translation impact (modest benefit as head office costs are generally Cdn$). Pure Multi is a US$ listing and its distributions are in US$, so no payout impact from FX movements. New equity capital is raised in US$, so no impact on acquisition strategy as well. Temple Hotels Inc. (TPH) No material revenues or costs in US$ so minimal impact on financials. Growth strategy expected to focus exclusively on domestic opportunities; U.S. not yet on radar. Potential modest benefit from improved hotel occupancy from a weaker Cdn$. WPT Industrial REIT (WIR.un) 100% of assets are located in the United States, and the company is a US$ reporter, so essentially no translation impact (a very small amount of head office costs are Cdn$). Pure Multi is a US$ listing and its distributions are in US$, so no payout impact from FX movements. New equity capital is raised in US$, so no impact on acquisition strategy as well. Remaining Coverage Universe Other than the broader impact that Cdn$ appreciation 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.

METALS AND MINING – PRECIOUS METALS

More Recently the Canadian Dollar Provide Scope for Cost Relief

FIGURE 1

CDN AUD ARS MXN CLP BRL PEN RUB Averageqtd /q4 (%) -2.5% -3.5% -8.2% -0.4% -2.5% -4.1% -0.7% -1.8% -3.0%q4/q3 (%) -1.0% 1.2% -8.0% -0.9% -1.9% 0.4% 0.1% 0.7% -1.2%q3/q2 (%) -1.5% -7.6% -8.3% -5.1% -6.3% -12.5% -6.3% -5.3% -6.6%q2/q1 (%) -1.5% -4.6% -2.8% 2.8% -2.5% -3.4% -3.3% -3.9% -2.4%

CDN

AUD

ARS

MXN, CLP

BRL

PEN

RUB

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2010Q

1

2010Q

2

2010Q

3

2010Q

4

2011Q

1

2011Q

2

2011Q

3

2011Q

4

2012Q

1

2012Q

2

2012Q

3

2012Q

4

2013Q

1

2013Q

2

2013Q

3

2013Q

4

2014Q

1

% 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 0% 0% 10% 4% 25% 20% 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% 7% 5% 0% 3% 0% 22% 2% 6% 0%

NGD 25% 20% 0% 11% 0% 0% 0% 0% 0% 25% 0% 0% 0%DGC 80% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%OSK 65% 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 6% 0% 0% 0% 0% 0% 0% 0% 2% 0% 0% 0% 0%GSC 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 45% 0%ASR 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 45%BTO 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 5%

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 0% 0% 0% 0% 0% 0% 0% 0% 32% 0% 0% 0% 0%

AUQ 70% 0% 0% 9% 0% 0% 0% 0% 0% 0% 0% 0% 0%Highest Exposure

AEM, NGD NGD YRI YRI K NGD KLSG, KGI TMM LGC SMF GSC 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: While producers anxiously await a drop in input prices and rework mine plans to focus on higher grades, a more immediate benefit to operating costs has materialized via weaker fx rates. For the purpose of the mining review we expanded the scope of analysis beyond the Canadian dollar 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 Canadian dollar.

With respect to our currency winners, we take into account the company’s exposure to local currencies and the effect of currency hedges. In the case of the Brazil real and Argentinean peso the currency decline has only started to outpace the rate of in-country inflation, whereas a decline in the Australian and Canadian dollars has provided more direct cost relief. This, too, has been taken into account for our selections. Winners: Agnico-Eagle Mines Ltd. (AEM) We estimate that ~70% of AEM’s operating costs are exposed to the Canadian dollar. This is among the highest of its peer group. This, coupled with AEM’s go-to status for risk-averse investors, suggest that AEM could be among the biggest beneficiaries of weaker operating currencies in the context of the current gold market. Detour Gold Corp. (DGC) ~80% of DGC’s operating costs are exposed to the Canadian dollar. While Detour’s ramp-up status and tenuous working capital position are likely to dictate share price performance in H1/14, we suggest that investor response to the benefits of a weaker Canadian dollar may intensify in H2/14 on the back of production and balance sheet improvements. A 5% drop in the Cdn$ increases our 2014 CFPS estimate by ~15% while adding ~$25 mln to our YE2014 cash balance forecast. Lake Shore Gold Corp. (LSG) With LSG expected to turn the corner in terms of record production and cash costs in 2014, the depreciating Cdn$ will be an added bonus. Given that 100% of LSG’s production is from Canada, a 5% depreciation in the Cdn$ increases our 2014 CFPS estimate by ~15%. Moderate winners: New Gold Inc. (NGD) We estimate that ~25% of NGD’s operating costs are exposed to the Canadian dollar by way of its flagship New Afton Cu/Au mine. With a strong balance sheet and a lower capex year ahead in 2014, we expect NGD to benefit from lower all-in sustaining costs further supported by weakness in the Cdn$. Yamana Gold Inc. (YRI) YRI exposure to depreciating currencies (BRL, CLP, ARS) is tempered by the company’s currency hedging program and in-country inflation. With respect to the latter, our analysis suggests that the currency declines are now starting to outpace inflation. Still, YRI is exposed to the currencies with the most significant depreciation vis-à-vis the US$. To that end, we look for YRI to eek out cost benefits in 2014. No major impact: Golden Star Resources Ltd. (GSC), Alacer Gold Corp. (ASR), SEMAFO Inc. (SMF), IAMGOLD Corp. (IMG), Kinross Gold Corp. (K; muted by hedges) and Timmins Gold Corp. (TMM).

METALS AND MINING – BASE METALS

FIGURE 3 – BASE METAL PRODUCERS 2014 CFPS SENSITIVITY TO 10% CHANGE CAD/USD

2014E CF

4%

22%

27%

32%

34%

0% 10% 20% 30% 40%

CS-T

TCK'B-T

HBM-T

CUM-T

TKO-T

Source: NBF estimates

Big winners: Taseko Mines Ltd. (TKO) The story for TKO in 2014 should be one of robust free cash flow supported by depreciating Cdn$ and contract treatment and refining charges (TC/RCs) at lower rates than benchmark. We estimate that a 5% drop in the Cdn$ increases our CFPS estimate by 15%. Copper Mountain Mining Corp. (CUM) With production growth, no exposure to rising TC/RCs and the potential for ongoing weakness in the Cdn$, CUM is well positioned for 2014. We estimate that a 5% drop in the Cdn$ increases our CFPS estimate by 15%. Moderate winners: HudBay Minerals Inc. (HBM) In a year where HBM is focused on the development of Constancia and requires conservation of cash from its Canadian operations, the positive impact of a declining Cdn$ on free cash flow from its Manitoba business units has a moderate positive impact on the overall balance sheet. No major impact Sherritt International Corp. (S), First Quantum Minerals Ltd. (FM) and Lundin Mining Corp. (LUN).

SPECIAL SITUATIONS Analyst: Trevor Johnson

Big winners: Boyd Group Income Fund (BYD.un) Bulk of revenues is in US$ but reporting currency is in Cdn$; head office costs are in Cdn$. US$ costs and hedging program mitigate some of the exposure, but still quite positive. Payout ratio naturally declines given Cdn$ distributions. Cost of U.S. acquisitions financed with Cdn$ equity/debt is less favourable.

Just Energy Group Inc. (JE) Benefits from the translation of US$ into Cdn$ in terms of revenue and EBITDA. Modest positive operating impact; payout ratio on Cdn$ dividend naturally declines; acquiring U.S. assets / marketing platforms with Cdn$ debt/equity less attractive. JE management states, "a weakening Canadian dollar has a positive impact on Just Energy’s reported results. It results in a positive impact on our gross margin with a partially offsetting negative impact from our U.S. expenditures. A 1% weakening of the Canadian dollar is estimated to have a positive impact on our results in excess of $1 million."

Moderate winners: Alaris Royalty Corp. (AD) Benefits from the translation of US$ into Cdn$. Minimal operational impact; hedges in place for the partners’ distributions, which are known in advance. Acquiring U.S. royalties with Cdn$ debt/equity is less attractive. Management states, “we take a fairly conservative approach to U.S. FX as we can buy forward contracts to match our monthly distributions. We buy 100% of current year and 75% of following year to try to minimize the impact of a change in rates keeping with our theme of low volatility. Having said that, we see strength in the US$ as a positive as we have more opportunities in front of us that are U.S.-based.”

Davis + Henderson Corp. (DH) No material costs in US$ so minimal impact re: translation of financials. Minimal operational impact; healthier U.S. economy is positive given Mortgagebot offering. Acquiring U.S. fintech assets with Cdn$ debt/equity is less attractive. Management states, “most of our customers and suppliers are Canadian businesses so we are fortunate that any weakness in the Canadian dollar would have a very minimal impact to the majority of our operations. I also believe that a strengthening U.S. dollar is underpinned by a recovering U.S. economy which would further support sustainable growth within our U.S. operations.”

Exchange Income Corp. (EIF) Benefits from the translation of US$ into Cdn$; majority of revs/cash flow going forward expected from the United States. Negative for aviation margins given US$ purchases, but offsetting is higher manufacturing margins. Acquiring U.S. assets with Cdn$ debt/equity is less attractive. Management states, “EIC’s business model is built to create a stable growing cash flow stream. A critical success factor to achieve this is to limit risk through diversification, not just diversification of our operations, but also diversification around critical risk factors like foreign exchange. Our Canadian operations are short USDs, driven largely by the need for aircraft parts and specialty manufacturing products from the United States. While our U.S. operations repatriate USDs to Canada providing a natural hedge to help offset this exposure. Our Canadian operations will begin to experience some margin pressure in their business if the USD were to strengthen;

however, this pressure would be offset by our U.S. operations repatriating their profits to our Canadian operations. This natural hedge enables EIC to reduce the risk of a significant change in the USD.”

IBI Group Inc. (IBG) Small benefit from US$ translation. Ability to fund Cdn$ debt naturally improves given U.S. exposure. Cost of U.S. acquisitions financed with Cdn$ equity/debt is less favourable, but investors not expecting IBI to be acquisitive.

Liquor Stores N.A. Ltd. (LIQ) Small benefit from the translation of US$ into Cdn$ in terms of revs; less so for EBITDA given meaningful margin differential. Acquiring U.S. assets / marketing platforms with Cdn$ debt/equity is less attractive. Management states, “US$ has very little impact on our business. The risk is for the most part related to repatriation of U.S. Earnings.”

Medical Facilities Corp. (DR) Minimal translation impact since bulk of costs US$ and it is a US$ reporter. Small benefit from Cdn$ distributions, but management hedges; payout ratio naturally declines. Cost of U.S. acquisitions financed with Cdn$ equity is less favourable. Management states, “all income & expenses are in US$, with dividends being the main Cdn$ expense. A decline in the Cdn$ leaves us with a higher CAFD in Cdn$ assuming that generation of US$ from operations is stable or increasing. We have a hedging program to cover the conversion of US$ operating cash flow into Cdn$ for a period of two to three years forward, so impact of a sudden decline in Cdn$ versus US$ would not be evident in reported Cdn$ CAFD until the current hedges run their course.”

Morneau Shepell Inc. (MSI) Benefits from the translation of US$ into Cdn$ in terms of both revenue & EBITDA. Minimal operational impact; low Cdn$ translating to higher domestic employment a long-term benefit. Acquiring U.S. assets with Cdn$ debt/equity is less attractive. Management states, “in the short term, a weaker Cdn$ would have a slightly positive impact as we have more US$-based revenue than expenses, although the impact is modest as we have more than 90% of our revenue in Canada. In the longer term, a weaker Canadian dollar could lead to more employment in Canada, which would be positive for us since much of our revenue is based on employment levels at our clients.”

Parkland Fuel Corp. (PKI) Modest benefits from the translation of US$ into Cdn$ in terms of both revenue and EBITDA via acquisition of Elbow River Marketing. Minimal operational impact; acquiring U.S. assets with Cdn$ debt/equity is less attractive, but U.S. acquisitions are not a priority. Management states, “direct effect will be very minimal but can indirectly affect the Commercial side of the business as a weaker Cdn$ will have an impact on the oil patch (and its related business) to whom PKI sells to.”

Rogers Sugar Inc. (RSI) Small benefit from the translation of US$ into Cdn$ in terms of both revenue and EBITDA. Natural gas purchased in US$ is a primary input in the refining process, this negative mitigated by RSI's hedging strategy. Acquiring US assets with Cdn$ debt/equity is less attractive; however, RSI is not expected to be acquisitive. Management expects minimal impact stating, “one of the key inputs in the refining process is natural gas, which is bought in US$ and makes for a small headwind but is expected to be mitigated by the positive impact of US$ refined sugar sales.”

WesternOne Inc. (WEQ) Modest benefit from the translation of US$ into Cdn$; the potential impact on the WCSB is negative, offset by film benefits. Small U.S. exposure is positive for payout ratio to continue grinding lower. Acquiring U.S. assets / investments in Britco with Cdn$ debt/equity is less attractive. Management believes WEQ “should be able to retain sufficient cash flow in the U.S. business to fund targeted U.S. growth, which is largely expected to consist of organic Britco investments. The translation effect should be a modest positive, but largely immaterial.”

Losers: Bauer Performance Sports Ltd. (BAU) Unfavourable translation impact as ~50% revs Cdn$ and reporting currency US$; Partially mitigated by material Cdn$ costs. Does not yet pay a dividend so no impact on payout; operational impact believed modest, particularly given hedging strategy. Cost of U.S. acquisitions financed with Cdn$ equity is less favourable. BAU states, “with approximately half of our revenues denominated in CAD, a weaker CAD will result in lower reported revenues and gross margin for the company, but that impact will be partially mitigated by lower operating costs denominated in CAD as well as currency hedges that we have put in place over the next year or two.” New Flyer Industries Inc. (NFI) Modest negative translation impact on Cdn$ revs / EBITDA given US$ reporting. Small benefit from Cdn$ distributions, but management hedges; payout ratio naturally declines. Cost of U.S. acquisitions financed with Cdn$ equity is less favourable.

No major impact: K-Bro Linen Inc. (KBL) 100% domestic operations so little FX exposure. Potential modest benefit from improved hotel occupancy from a weaker Cdn$. Management states, “K-Bro has limited exposure to and impact from the weakening Canadian dollar in comparison to the U.S. dollar. Foreign exchange risk on significant U.S. dollar denominated expenditures such as the acquisition of the production equipment for the development of our new Edmonton plant, are typically hedged through forward contracts.”

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 U.S.) while sales are fairly balanced (38% in Canada, 38% in the U.S 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 $6 million in EBITDA representing ~2% of our 2013e EBITDA. Domtar Corp. (UFS) Domtar has numerous manufacturing and converting operations throughout the world and while a hedging program is in place, a declining Cdn$ positively impacts earnings. A drop of $0.01 in the Cdn$ vs. the US$ equates to a positive impact of $9 million in EBITDA representing ~1.5% of our 2013e EBITDA. Moderate winners: Dorel Industries Inc. (DII.B) Dorel’s Juvenile and Recreational/Leisure segments predominately manufacture and record sales in US$. As such, a fluctuation in the Cdn$ does not impact earnings for those two segments. However, the majority of the Home Furnishings Segment’s costs are in Cdn$ while a significant portion of sales is recorded in the United States. Thus, a 5% weakening of the Cdn$ would positively impact pre-tax income by ~$2 million (~$0.06 per share). Stella-Jones Inc. (SJ) SJ’s sales mix leans heavily towards the United States (80%) with Canada making up the difference. In each market, most of its sales and expenses are in local currency which greatly limits the company’s sensitivity to exchange rate variations. However, with SJ reporting in Cdn$, we estimate a positive translational impact on EBITDA of ~$3 million (~2% of annualized EBITDA) for a 5% decline in the Cdn$. Losers: KP Tissue Inc. (KPT) KP sells certain of its products in U.S. dollars (25% of total sales are made in the United States). However, 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. The net effect is actually a small negative impact from the weakness of the Canadian dollar with a 5% decline of the Canadian currency resulting in a $2.3 million decline of pre-tax income ($0.04 per KPLP unit) representing about 4.5% of our 2013e income.

No major impact: MEGA Brands Inc. (MB) MEGA Brands’ products are manufactured mainly in Canada (~50%) and Asia with some in the United States. Products are sold in North America (69%) and internationally (31%). The company’s policy is to stabilize earnings by limiting foreign currency exposure mainly through foreign currency forward contracts. Hedging mechanisms are typically in place for a maximum period of 24 months. Thanks to hedging, a 10% variation of the Cdn$ vs. the US$ would have no impact on earnings. Richelieu Hardware Ltd. (RCH) Richelieu is exposed to variations of the U.S. currency through purchases made in U.S. dollars as well as sales (25% of total sales) made in the United States. However, a 1% fluctuation would have no impact on earnings as the company shields its profits from exchange rate fluctuations through cash flow management and foreign exchange contracts. Uni-Sélect Inc. (UNS) Uni-Sélect, which reports in US$, has operations in the United States (70% of sales) and Canada (30% of sales). In each market, most of its sales and expenses are in local currency which greatly limits the company’s sensitivity to exchange rate variations. The most recent analysis of the Corporation shows that a $0.01 variation in the value of the Canadian dollar versus the U.S. currency would have an impact of $0.015 per share on the Corporation’s results.

SUSTAINABILITY & CLEAN TECH Analyst: Rupert Merer Big winners: Algonquin Power & Utilities (AQN, Reports in Cdn$) Following the closing of a handful of acquisitions in the United States in the past number years, including a number of regulated utility assets and a number of U.S. wind assets, AQN has shifted its weight to the United States and towards regulated utilities. With this, AQN should benefit from an appreciating US$. 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$. Revenue and EBITDA should climb with a weakened Cdn$. AQN appears to benefit more than the other stocks that we looked at here. Newalta Inc. (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$. Revenue and EBITDA should climb with a weakened Cdn$. International Forest Products Ltd. (IFP.A, 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 in 2012, a $0.01 increase in the US$ relative to the Cdn$ would result in a $2.0 mln increase in net income. Conifex Timber Inc. (CFF, Reports in US$) 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 $1.1 million based upon the level of 2012 shipments. Moderate winners: GLV Inc. (GLV.A, Reports in Cdn$) With a sizable exposure of operations within the United States (we estimate roughly 35%), 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$.

Boralex Inc. (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. Primary Energy Recycling Corp. (PRI, Reports in US$) All of its P/L is in US$, 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 a greater ability to pay a higher dividend in Cdn$. TransAlta Renewables Inc. (RNW, Reports in Cdn$) Following its recent 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$. Westport Innovations Inc. (WPT-T, WPRT-Nasdaq, Reports in US$) 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. DIRTT Environmental Solutions (DRT, Reports in Cdn$) DRT has operations in both Canada and the United States. We estimate that a large majority of its sales and operating costs are realized in U.S. dollars; as a result, DRT is exposed to currency risk from the translation of its U$D 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. Progressive Waste Solutions Ltd. (BIN-T, BIN-N, Reports in US$) With roughly 40% of its Revenue and EBITDA in Canada, BIN’s revenue and EBITDA should be negatively impacted by a weaker Cdn$. According to its Q3/13 sensitivity table, with a 1 cent (~1%) strengthening of the US$, reported revenues will decline by $7.8 mln, EBITDA by $2.5 mln and a $0.7 mln impact on net income. BIN has minimal foreign exchange agreements, though it has flexible debt repayment (either Cdn$ or US$) and pays some of its dividends in Cdn$; with this, the cash flow impact should be less than the reporting impact. Atlantic Power Corp. (ATP-T, AT-N, Reports in US$) We estimate that roughly 30% of ATP’s EBITDA will be generated in Cdn$. 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 has hedged its exposure by entering into forward contracts to purchase Cdn$ at a fixed rate to hedge ~71% 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$, Canadian holders should see a net benefit. 5N Plus Inc. (VNP, Reports in US$) 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$. However, before hedging, this business model appears to be the most at risk to FX moves. No major impact: Alterra Power Corp. (AXY, Reports in US$) Most of Alterra’s revenues and costs are in Cdn$, with it reporting in US$, although 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 Corp. (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$. Chemtrade Logistics Income Fund (CHE.un, Reports in Cdn$) Though there may be unrealized gains or losses, cash flows should not be materially affected. Prior to the recent 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 $0.1 million on an annual basis and vice-versa”. EnerCare Inc. (ECI, Reports in Cdn$) 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$. Etrion Corp. (ETX Reports in US$) The company reports in US$, with costs in euros, Swiss francs and others. However, changes to the US$ do not materially affect EBITDA. Innergex Renewable Energy Inc. (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$. While some power developers could see costs increase in core equipment that is typically denominated in US$, Innergex has insulated itself from cost increases on its late-stage development projects by entering into fixed price engineering, procurements and construction contracts. Clean Energy Fuels Corp. (CLNE, Reports in US$) Although the core of CLNE`s business is based in the United States, it does have (minimal) translation risk from some foreign operations. Even with 10% fluctuation in the US$ relative to its foreign currencies, CLNE anticipates the impact would be minimal.

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 US$ 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, as we have experienced in recent weeks, we expect investors may reset expectations enough to move some stocks meaningfully. Big winners: Avigilon Corp. (AVO) 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. Only ~30% of Avigilon’s employees are based outside of Canada. 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. Moderate winners: Axia NetMedia Corp. (AXX) Axia reports in Cdn$ and generates about one-third 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 Inc. (GIB.A) CGI reports in Cdn$ and generates ~85% revenue outside Canada. 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. Computer Modelling Group Ltd. (CMG) CMG reports in Cdn$ and generates ~70% of its revenue in US$. CMG incurs only ~25% of its costs in US$. The company benefits from a stronger US$ vs. Cdn$, which translates into more Cdn$ to cover operating costs incurred in Cdn$. Constellation Software Inc. (CSU) Constellation reports in US$. A weakening Cdn$ is a tailwind for EPS as proportionately more costs are incurred in Cdn$. A weaker Cdn$ would understate expenses when expressed in US$. Constellation will be more exposed to exchange rates in 2014 due to the large European acquisition of Total Specific Solutions completed on Dec. 31. Constellation enters into forward exchange contracts from time to time.

CounterPath Corp. (CCV) CounterPath reports in US$ and generates the majority of its total revenue outside of Canada. A weakening Cdn$ will provide some benefit to EPS given the high gross margins achieved on software sales. EXFO Inc. (EXFO) EXFO reports in US$ 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 Inc. (GXI) GuestLogix reports in US$ and generates most revenue outside of Canada. The company has about half of its headcount in Canada such that a weakening Cdn$ is positive for EPS. Mediagrif Interactive Technologies Inc. (MDF) Mediagrif reports in Cdn$ and generates ~40% of its revenue in US$. The company benefits from a stronger US$, which translates into more Cdn$ to cover operating costs that are primarily incurred in Cdn$. Open Text Corp. (OTEX) Open Text reports in US$ 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). Open Text is engaged in a hedging program to limit potential FX fluctuations incurred on future cash flows relating to a portion of Canadian dollar payroll expenses. Sandvine Inc. (SVC) Sandvine reports in US$ and generally generates the bulk of revenue outside of Canada. The Canadian dollar 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 US$-based expenses. This provides some tailwind from a weakening Cdn$. Losers: None No major impact: Aastra Technologies Ltd. (AAH) Aastra is being acquired by Mitel Networks. We expect the transaction to close in the coming weeks with currency having no impact on the transaction. BlackBerry (BBRY) BlackBerry reports in US$. Currency swings are irrelevant as the company strives to reach profitability. COM DEV International Ltd. (CDV) COM DEV reports in Cdn$. COM DEV generates ~20% of its revenue in Canada, with the majority of remaining sales denominated in US$. While the company benefits from a weaker Cdn$, it is mostly offset from a natural hedge at its U.S. operations.

D-BOX Technologies Inc. (DBO) D-BOX reports in Cdn$ and generates over 50% of total revenue in the United States and Europe. The gains from higher revenue when converted into Cdn$ may be mostly off-set by higher costs of goods sold (seat components) as technology components are often quoted in U.S. dollars. DragonWave Inc. (DWRI) DragonWave reports in US$. Currency swings are irrelevant as the company strives to reach profitability. Halogen Software Inc. (HGN) Halogen Software reports in US$. While a weakening Cdn$ versus the US$ 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 Ltd. (MDA) MDA reports in Cdn$ and generates ~85% 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 Inc. (BBD.B) For 2014 Bombardier estimates that it will have $3.1 billion in Cdn$ costs in Aerospace (mainly labour). The company’s hedging program is comprehensive so the full bottom-line benefits will not be seen immediately (BBD hedges on a rolling basis). The current Cdn$/US$ exchange rate is roughly 8-9% more favourable versus the average exchange rate 2012 (par). 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). CAE Inc. (CAE) CAE is also well hedged, but on an unhedged basis, a move of $0.01 in the Cdn$ vs. the US$ equates to about $10 million in revenue and $3 million in EBIT (or a little less than $0.01 in EPS). So a $0.09 move versus the par that CAE faced last fiscal year would mean about $0.07 in EPS (we forecast EPS of $0.66 this year). A weak Cdn$ should help CAE’s competitiveness in selling simulators as well. Héroux-Devtek Inc. (HRX) HRX generates the majority of its revenue in US$, but has significant costs in Cdn$ (labour). There are also a lot of US$ costs (materials) so the net impact is not overly large (plus HRX is also well hedged over the next 12 months), but a weak Cdn$ will definitely help revenue (which will boost EBITDA margins). We don’t have sensitivities, but we know that HRX has been bidding (and winning) most work at par so the big move in the Cdn$ makes the company a lot more competitive.

Moderate winners: BRP Inc. (DOO) BRP will mainly be helped by translation of U.S. sales (~45% of company total) into Cdn$. However, as there is a large component of US$ 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 and others. Manac Inc. (MA) Manac does generate a fair amount of sales in US$, but since it has two plants in the United States as well as 65% of all material costs in US$, 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$. CN (CNR) CN generates the majority of its revenue in US$ and has a significant Canadian labour cost base so a weak Cdn$ will help. Sensitivity is about $0.03 in EPS for every $0.01 in currency annualized. In 2013, CN’s average rate was about $1.03 so the $0.06 move we have seen in the Cdn$ represents a tailwind of roughly $0.18 in EPS. CP (CP) Similar story for CP to CN as it relates to US$ exposure. Sensitivity is ~$0.03 in EPS for every $0.01 move in the Cdn$. Tailwind in 2014 relative to 2013 will be about $0.18 in EPS.

TransForce Inc. (TFI) TFI has about 30% of revenue coming from the US$ so there will be a translational positive impact. If a weak Cdn$ has the effect of boosting manufacturing in Canada, TFI also stands to benefit, but this impact would probably take a few years. On the other hand, a weak Cdn$ will make M&A more expensive for TFI (as TFI is looking for more U.S.-based P&C acquisitions). Losers: Air Canada (AC.B) AC is most negatively impacted by a weak Cdn$ in our coverage universe. Firstly, a large proportion of costs are denominated in US$ (fuel, leases, some maintenance). The sensitivity to a $0.01 change in the Cdn$ for AC is $33 million in EBIT, or about 6% of our forecast for 2013. AC’s fx assumption for its Q4 guidance was $1.03 so the $0.06 move in the Cdn$ from that Q4 guidance would equate to roughly 35% of our EBIT forecast for the full year all else being equal. About 50% of the exposure on fx is fuel-related. The current jet fuel price is about Cdn$0.98/litre, up from Cdn$0.90 AC paid in Q3 and the Cdn$0.95/litre we are forecasting. AC does hedge both fuel (only 9% of fuel hedged for 2014, though) and fx, but this is going to be an earnings headwind in 2014. AC is also hit by the fact that the majority of its debt is in US$. Thus, a weak Cdn$ means that once translated, debt loads are higher and interest expense is higher for the company. WestJet Airlines Ltd. (WJA) Like AC, WJA has significant costs in US$, mainly fuel, some maintenance and aircraft leases. The sensitivity ex-hedging is about $0.08 in EPS for every $0.01 change. However, the majority of the exposure (70%) relates to fuel. The current price of jet fuel is Cdn$0.98/litre, which is well above the Cdn$0.89/litre paid in Q3 as well as our 2014 assumption of Cdn$0.95. If the Cdn$ stays weak, there will be downward earnings revisions to estimates for WJA. Transat A.T. Inc. (TRZ.B) Transat has significant US$ costs including fuel, leases and hotel costs that are negotiated ahead of the season. TRZ was selling the winter (41% sold as of December) at an exchange rate of $1.04 and was showing costs up 1.5-2.0% y/y. At the current Cdn$ rate, costs are more likely to have increased closer to 2.5%, which would result in winter margins only a little higher than a year ago based on the 3% unit revenue growth on bookings so far. However, TRZ will likely institute an fx surcharge of $35 per package, which should more than offset the Cdn$ impact. Since demand is strong (helped by the cold weather) and competitors will likely follow suit on pricing, the fx impact may be minimized for TRZ this winter. No major impact: Cargojet Inc. (CJT) While the majority of Cargojet’s revenues and expenses are in Cdn$, it has approximately $1-$2 million of monthly expenses denominated in US$ 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 Inc. (CHR.B) CHR 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 AC. Any controllable costs would likely be passed through to AC during the next rate reset negotiations.

Contrans Group Inc. (CSS) 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 Inc. (HNZ.A) HNZ has operations globally and its revenue and costs are generally aligned in local currency. Trimac Transportation Ltd. (TMA) 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.

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