A decade in the making This past quarter marked the Donville Kent Capital Ideas Fund ’s 10-year anniversary. The Fund was founded in October 2008 with the clear and concise thesis that investing in a concentrated portfolio of the highest return on equity businesses, if bought at the right multiple and allowed to compound over time, would greatly outperform the market as a whole. This newsletter focuses on how our strategy has done over the past 10 years and reiterates our view that our approach to investing is indeed superior to plainly investing in the market. The excerpt below is from the ROE Reporter that was published exactly 10 years ago: Our philosophy has been and will always be to focus on outstanding companies that will grow their earnings in the long-run at a higher rate of compounding than the market as a whole. Investors who are familiar with the life and times of Warren Buffett will note that he patiently stands by his investments even while “Mr Market” is casting a huge amount of doubt on the merits of a particular investment. Whether it is the irrationality of (high) technology stock prices in 2001 or the irrationality of (low) equity prices in the fourth quarter of 2008, Buffett has always had the ability and resolve to look beyond the market’s short - term schizophrenia and focus on those factors that drive long-term wealth. Did focusing on the factors that drive long-term wealth and ignoring market irrationality pay off? Figure 1 and 2 do a good job of summarizing our returns versus the market ’s returns. Since inception, we have made investors 401% 1 on their capital. Over the years we have had conversations with some of our investors and what has become apparent is that this performance isn’t just a number in a table or a line on a graph, but has caused life changing wealth creation. Aside from our being naturally competitive and aiming to perform well above the industry average, we continue to have a passion for this work because of the feeling of helping VOLUME XLVI January 2019 INVESTMENT ISSUES • STRATEGIES • INSIGHTS FROM DONVILLE KENT

2 ROE REPORTER | DKAM our investors achieve their financial objectives. This is what will continue to drive our performance in DKAM’s next decade. We are obviously proud of our aggregate return and the value we have created for our investors, but we’re equally proud of our outperformance streak. This is what we call our ‘batting average’ and we have now beat the market in 10 of the 11 fiscal years since inception, batting 0.909 or 91%. We are proud of this achievement because it validates our strategy and approach to investing. We have now beat the index in up markets, down markets, and sideways markets. Figure 1. Performance Since Inception (Sept 2008- Dec 2018) Figure.2 Looking back Below is another excerpt taken from the ROE Reporter from 10 years ago.

3 ROE REPORTER | DKAM Focus on outstanding companies - Outstanding companies should be owned at all phases of the economic cycle. So what is an outstanding company? In our view it remains those companies that can earn a high return on equity (ROE) throughout the business cycle without undue use of leverage. This high ROE implies some kind of competitive advantage that will drive the long-term compounding process that results in superior long-term returns for investors. Over the past 10 years the market has fluctuated quite a bit and many other types of investment strategies proved disappointing to say the least. Over this time, we focused on individual companies and more or less ignored the daily gyrations of the market. As long as our investments were compounding their intrinsic value by 20%, or more, then we trusted that the stock prices would, over time, grow accordingly. Since inception, and to this day, we maintain a large database of hundreds of stocks. The database’s main function is to help us screen and rank stocks according to our primary investment drivers. Our intention is to only own the most attractive stocks and this process helps us narrow down our investable universe to only the best of the best. By continually updating the database based on prices, financial model adjustments and new information, we are able optimize our current portfolio while keeping our eyes open for up and coming great companies. Looking back to 2009, figure 3 illustrates the top 20 stocks that were in the database at the time according to our SGR/PE metric (how much growth you get for how much you have to pay). We would like to stress that this is only an initial step in the investing process and that after completing initial screening, we embark on a further research process which allows us to know and understand other qualitative aspects of the business which may disqualify or qualify them for investment. This is how we find out which names are either too cyclical, too indebted or have too much customer concentration to be great long-term compounders. For example, BMTC is too cyclical and their revenue fluctuates too much to be a good investment in our eyes. Similar arguments could be made for not investing in Stuart Olson, Bird Construction, Bombardier, and Rocky Mountain Dealerships.

4 ROE REPORTER | DKAM Figure 3. Donville Kent Stock Screener from 2009 The performance of these stocks since 2009 is even more interesting. As you can see, 6 of the 20 companies were acquired, 3 of the companies had a negative return but on average the group greatly outperformed the rest of the market. We view this type of ranking as an integral initial step in our investing process. Figure 4. Donville Kent Stock Screener from 2009 Company ROE (%) PE (x) Payout Ratio (%) *SGR (%) SGR/PE 1 Carfinco 34 1.3 57 14.6 11.21 2 BMTC Group 41 3.6 15 34.9 9.61 3 Boyd Group 39 3.1 32 26.5 8.44 4 Pethealth 38 5.0 0 38.0 7.58 5 Logibec 50 7.5 0 50.0 6.68 6 Home Capital Group 28 3.8 15 23.8 6.24 7 Stuart Olson 27 5.3 0 27.0 5.05 8 Quebecor 23 5.0 4 22.1 4.41 9 Glentel 24 3.1 45 13.2 4.23 10 Constellation Software 30 7.5 6 28.2 3.75 11 Bird Construction 39 6.7 40 23.4 3.49 12 Evertz Technologies 44 10.8 23 33.9 3.13 13 MTY Food Group 23 8.1 5 21.9 2.69 14 Blackberry 39 14.7 0 39.0 2.66 15 Badger Daylighting 29 3.5 69 9.0 2.55 16 Paladin labs 14 5.6 0 14.0 2.52 17 Bombardier 20 7.7 14 17.2 2.24 18 Alimentation Couche-Tard 21 12.0 8 19.3 1.61 19 Rocky Mountain Dealerships 23 13.6 17 19.1 1.41 20 Direct Cash 19 4.2 74 4.9 1.17 *SGR - Sustainable Growth Rate - Represents how much capital is left for growth after paying dividends Company Performance Q4 2008-2018* Annualize d Re turn Notes 1 Carfinco 3218% 72% Acquired 03/10/2015 2 BMTC Group 59% 5% 3 Boyd Group 4186% 44% 4 Pethealth 227% 26% Acquired 11/19/2014 5 Logibec 53% 26% Acquired 08/04/2010 6 Home Capital Group 28% 2% 7 Stuart Olson -16% -2% 8 Quebecor 368% 16% 9 Glentel 597% 34% Acquired 05/22/2015 10 Constellation Software 3462% 42% 11 Bird Construction 22% 2% 12 Evertz Technologies 49% 4% 13 MTY Food Group 709% 23% 14 Blackberry -86% -18% 15 Badger Daylighting 458% 18% 16 Paladin labs 1321% 63% Acquired 03/03/2014 17 Bombardier -56% -8% 18 Alimentation Couche-Tard 1402% 30% 19 Rocky Mountain Dealerships 6% 1% 20 Direct Cash 234% 16% Acquired 01/10/2017 *Includes dividends

5 ROE REPORTER | DKAM Looking forward Some of our most popular newsletters are those that contain an overview of our screening process plus our top picks at the time. As we illustrated above, focusing on companies with high quality ROEs, while not overpaying, can have outstanding long-term capital returns. So what does that list look like today? We’ll break it down below, but remember this is only an initial step in the investing process and many of these names are either too cyclical, too indebted or have too much customer concentration but a number of these will turn out to be some of the best investments over the next one, five and ten years. Figure. 5 Donville Kent Stock Screener 2019 Market Outlook We have written and spoken multiple times about how growth going forward will be fueled by knowledge-based industries. For example, software as a service, cloud computing, artificial intelligence, and 5G communication. The proprietary nature of these businesses, plus the scalability and minimal capital requirements breeds high growth with high margins – the perfect ingredients for high ROE businesses. The issue we have in Canada is the lack of businesses that fit this description. Only 9 companies make up 97% of the Canadian Info Technology Index, while 154 companies comprise 97% of the US Info Technology Index. As a stock picker in Canada, this leaves us with minimal options to choose from. Figure 6 depicts this information in table form, which Company ROE (%) PE (x) Payout Ratio (%) *SGR (%) SGR/PE 1 Linamar 20 4 5 19 4.8 2 Evergreen Gaming 25 7 0 25 3.6 3 NamSys 34 12 0 34 2.8 4 Colliers 32 11 14 28 2.5 5 Unisync 22 9 0 22 2.4 6 goeasy 21 7 20 16 2.3 7 BRP Inc 30 12 13 26 2.2 8 Spin Master 28 13 0 28 2.2 9 RediShred Capital Corp 21 11 0 21 1.9 10 Photon Control 20 11 0 20 1.8 11 Tucows 30 17 0 30 1.8 12 People Corp 21 12 0 21 1.8 13 Aritzia 25 15 0 25 1.7 14 Hamilton Thorne 20 13 0 20 1.5 15 Pollard Banknote 23 15 8 22 1.5 16 Alimentation Couche-Tard 22 14 11 20 1.4 17 BioSyent 23 17 0 23 1.4 18 Great Canadian Gaming 20 15 0 20 1.3 19 Dollarama 24 17 9 22 1.3 20 Constellation Software 28 20 11 25 1.3 *SGR - Sustainable Growth Rate - Represents how much capital is left for growth after paying dividends

6 ROE REPORTER | DKAM emphasizes that the US not only has more high ROE businesses, but they have a much larger menu of cheap, high ROE businesses. Figure 6. The reason we mention this is because we have decided that it is nearly time for the Capital Ideas Fund to evolve into a North American Fund. The fund will be a best ideas fund, with no set geographic split. This will enable us and our investors to tap into more growth with better long-term prospects. There is no set timeline for this but we believe we will begin this shift in investing sometime in 2019 or 2020. As an aside, the majority of the fund’s current stocks have Canadian headquarters but derive most if not all of their revenue from the U.S and abroad. Our best investments over the life of the fund have been headquartered in Canada but their revenue has been US focused. Top Picks All of our top picks have high ROEs, improving margins, rock solid balance sheets and great management teams. At this stage in the economic cycle, we think it is imperative to own businesses that will not only survive a downturn, but will thrive through one. As you’ ll see, each of these businesses appear to have slightly declining ROEs, however what is actually happening, is their margins are increasing at a time when they are deleveraging (leverage factors are decreasing). This has led to each of these companies having rock solid balance sheets at a point in time when opportunities for them to deploy that capital are now accelerating. Spin Master Corp. (TSX:TOY) - Based in Toronto, Spin Master creates, designs, manufactures and markets toys, games and entertainment properties. Spin Master doesn’t get the credit it deserves for being an innovator and disruptor in the sector. TOY has more Innovative Toy of the Year nominations than any other competitor. This has led them to grow revenues at a 19% CAGR and expand their SKUs to more than 3,000 since 2012 (fig.7) while Hasbro has grown at 3% over that time and Mattel has shrunk by 3%. The fact that they own a majority of the intellectual property in the toys they sell has translated into growing margins every year since 2012 (fig.8). Consistently improving

7 ROE REPORTER | DKAM margins is one of the best ways to spot a high ROE business and measure the strength of its competitive advantage. Figure 7. Figure 8. Toys “R” Us went bankrupt in the U.S last year due to their private equity owners saddling the business with too much debt. As you can see in Spin Master’s stock price (fig.9), all toy companies sold off on the news in 2018. This is where their balance sheet of millions of dollars of cash becomes useful. A lot of the small to medium sized toy companies used Toy “R” Us as their main distribution source. Wal-Mart and Target are aiming to fill the void for toys, however they only want to deal with the large manufacturers and limit their supply chain. This leaves a lot of the small players on the outside looking in. The small companies are now vulnerable at a time when Spin Master is at its strongest. Figure 9.

8 ROE REPORTER | DKAM Boyd Group (TSX:BYD/U) - Based in Winnipeg, Boyd Group operates collision repair shops in Canada and the United States. Boyd services a very resilient and steady market where vehicles need to be repaired regardless of what is going on in the economy. This combined with the shifting dynamics within the industry has led to constant and impressive growth (fig.10). Figure 10. We think the most important aspect of the investment thesis for Boyd are the relationship between the car owner, the insurance company, and the repair shop. After an accident, the insurance company dictates the choice of the repair shop. This choice is a highly data dependent decision based on cost, turn- around time, and customer satisfaction. Insurance companies get to be very granular and can look at per location metrics across the country. This type of business makes up more than 90% of Boyd’s revenue and their relationships with large insurance companies is gaining momentum. Due to being one of the biggest 3 players, Boyd benefits from scale and gets better pricing, which allows them to be a leader on cost. Their focus on operations and best practices has led them to be the industry leader in both efficiency and customer service and in turn the partner of choice for insurance companies. Again, the small shops are left on the outside looking in because they can no longer compete effectively. This is where Boyd’s strong balance sheet comes into play because they continue to consolidate the market which is extremely fragmented. 65% of the market is still single shop independents. Each time Boyd acquires another shop, they become even more valuable to the insurance companies and the remaining independents become more ineffective. The pace of acquisitions has accelerated recently for Boyd and w e don’t expect it to slow down anytime soon. Again, we’ll stress that the best indicator of the strength of an ROE are the underlying margins. Just like Spin Master, Boyd’s margins continue to increase at the same time as their leverage declines (fig.11) . Boyd’s stock performance has been the most consistent and impressive we have probably ever seen and we don’t expect that trend to end (fig.12).

9 ROE REPORTER | DKAM Figure 11. Figure 12. Constellation Software (TSX:CSU) - Based in Toronto, Constellation Software acquires and operates niche vertical market software companies. Constellation has been a staple in the fund almost since the day of inception. The software they provide is mission critical and boosts productivity and efficiency for the end user which makes their relationships very sticky. We don’t think there is another company in North America with a more proven ability to rapidly compound capital. What is impressive is that their acquisition rate appears to be re-accelerating and they should be able to continue their impressive growth trajectory (fig.13). Figure 13.

10 ROE REPORTER | DKAM The scalable nature of their decentralized business model has led to geographic diversification while at the same time their best practices have continually improved margins (fig.14). Figure 14. This cash compounding machine is also sitting on hundreds of millions of dollars of cash and the CEO, Mark Leonard, has referenced how he will be more aggressive in the next downturn than he was in the past. There are also currently 35,000 acquisition targets, within an addressable market of $158B. We think there is nothing stopping Constellation from continuing its impressive performance and view the recent pull-back (fig.15) as a great buying opportunity. Figure 15.

11 ROE REPORTER | DKAM Final Thoughts We would like to sincerely thank the entire Donville Kent family, including all of our investors and employees. The past ten years have proven to be both challenging and rewarding. We have mentioned it before but we can’t stress it enough – that having patient and understanding investors has been a competitive advantage for the fund and has contributed to our ability to invest long-term and to outperform. Thank you for being patient and understanding and hopefully our team can continue to produce market beating returns for the next decade. J.P. Donville & Jesse Gamble info@donvillekent.com All estimates, projections and calculations have been generated by DKAM. This does not constitute advice for personal investments but rather a breakdown of how Donville Kent approaches stock analysis. 1 Time weighted rates of return for Class A Series 1, net of all fees and expenses as of December 31st, 2018. 2 S&P TSX Composite Total Return Index is the Net Total Return version of the S&P/TSX Composite Index. DISCLAIMER Readers are advised that the material herein should be used solely for informational purposes. Donville Kent Asset Management Inc. (DKAM) does not purport to tell or suggest which investment securities members or readers should buy or sell for themselves. Readers should always conduct their own research and due diligence and obtain professional advice before making any investment decision. DKAM will not be liable for any loss or damage caused by a reader's reliance on information obtained in any of our newsletters, presentations, special reports, email correspondence, or on our website. Our readers are solely responsible for their own investment decisions. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase or sale of securities. Our opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. All information contained in our newsletters, presentations or on our website should be independently verified with the companies mentioned. The editor and publisher are not responsible for errors or omissions. Past performance does not guarantee future results. Unit value and investment returns will fluctuate and there is no assurance that a fund can maintain a specific net asset value. The fund is available to investors eligible to invest under a prospectus exemption, such as accredited investors. Prospective investors should rely solely on the Fund's offering documentation, which outlines the risk factors in making a decision to invest. The S&P/TSX Composite Total Return Index ("the index") is similar to the DKAM Capital Ideas Fund LP ("the fund") in that both include publicly traded Canadian equities of various market capitalizations across several industries, and reflect both movements in the stock prices as well as reinvestment of dividend income. However, there are several differences between the fund and the index, as the fund can invest both long and short, can utilize leverage, can take concentrated positions in single equities, and may invest in companies that have smaller market capitalizations then those that are included in the index. In addition, the index does not include any fees or expenses whereas the fund data presented is net of all fees and expenses. The source of the index data is Bloomberg. DKAM receives no compensation of any kind from any companies that are mentioned in our newsletters or on our website. Any opinions expressed are subject to change without notice. The DKAM Capital Ideas Fund, employees, writers, and other related parties may hold positions in the securities that are discussed in our newsletters, presentations or on our website.