Canadian Business Trust
Betty Ho
Stephen Wasmuth
Greg Logan
Stella Li
Canadian Business Trust
Agenda:
 Introduction
 Event
(pre-October 31st 2006)
on October 31st
Business Trusts to be Analyzed

Stephen – Inter Pipeline Fund

Greg – Yellow pages Income Fund

Stella – Boston Pizza Royalty Fund
Introduction of Income Trust


A legal entity traded on securities exchange like stocks
ending with the .UN symbol
Hold income-producing assets






Debt or Equity instruments
Royalty Interests
Real Properties
Monthly or quarterly distribution (6%-30% annually) in
the form of interest, royalty or lease payments
Payout to investors on a tax-efficient basis
Also known as Income Funds, Unit Trusts, Investment
Trusts
History of Income Trusts
1985
First business trust conversion(Enermark Income Fund)
1986-1997 Energy trusts and REIT trusts
1998-2000 Trust was neglected
2001
Income trust rediscovered
2002
S&P and TSX commenced 3 Trust Indices
2003-2004 Establishment of limited liability
2005-2006 S&P announces inclusion of trusts in S&P/TSX
Composite Index
History of Income Trusts
Graph from TSX website
History of Income Trusts
Chart taken from globeinvestor
Types of Income Trust
1.
Business Trusts
2.
REITs
3.
Resource Trusts
4.
Utility Trusts
Proportion of trusts per type based on
Total number of trusts = 247
Characteristics of an Business
Income Trust
Mature business cycle
 Require limited capital maintenance
 Stable cash flows (cash/trust units)
 Companies with basic sets of transactions,
year after year

Businesses that are Income Trusts
Typical Investors of Income Trust




Large investor groups
(Canadian Pension Plan
/Ontario Teachers
Pension Plan)
Individual investors
Those who want stable
cash flow
Retirees or baby boomers
preparing for retirement
How Does it Operate?
Unitholders
Unitholders provide funds to the trust.
The trust uses these funds to invest in
income generating assets.
The asset pays a return to the trust.
Trust
Unitholders receive cash distributions and
return on capital
Corporation
Figure taken from www.fin.ge.ca
Reasons to Invest in Income Trusts
Potential higher yield than bonds
 The flow-through tax-efficient structure
generally gives higher distributions than
dividends
 It provides income distribution and
potential gain in value
 When interest rates are low

Reasons to Convert to Income Trust
Reduction in corporate tax
 Raise capital while retaining control
 Deleveraging
 Management discipline
 More efficiency in cash flow allocation
 Elimination of “adverse investment
incentives”
 An announce of intention to convert can
increase share price

Reasons to convert to Income Trust
Risks for Investors
Lack of Diversification
 Surrendering growth opportunity
 No guarantees in distributions or return
on capital
 Sustainable tax benefits is not certain
 Limited liability
 Volatility

Risks for Converting Companies
Slow down in growth opportunity
 Interest rate movements
 Compatibility with business industry
 Companies may need to retain some
capital

Governance of Business Trusts
Declarations of trust (DOTs)
 Canadian Securities Administrators (CSA)

 Policy
41-201
Interim and annual MD&A
 Ontario’s Securities Act
 Internal audit committee

Declaration of Trust

Defined: An agreement between the
trustees of the trust
 Type of business
 Operation of trust
 Rights of unitholders
 Rules and provisions
National Policy 41 – 201
Income Trusts and Other Indirect Offerings

Purpose: to indicate how existing
regulations apply to non-corporate issuers
 Provides guidance and recommendations
on disclosure, accountability and liability
for insider trading
 Vendor liability
 Stability ratings
 Prospectus disclosure
Disclosure and Prospectus
Requirements
Required – Public companies/sole holder of majority of
units
 Source of funding (current and future)
 Specific risk
 Impact of risk
 Approaches to diminish risk
 Goodwill calculation
 Executive compensation
 Restrictive financial covenant
 Done on a timely basis

Taxation of Income Trust - Basics
Resident Unitholders
Non-resident Unitholders
Tax-exempt Unitholders
Income from trust = $39
Tax (38%) = $14.82
Income from trust = $22
Tax (15%) = $3.30
Income from trust = $39
Tax (0%) = $0
Trust
Income from corp. = $100
Tax (45%) = $0
Corporation
Business income = $100
Tax (35%) = $0
Taxation of Income Trust
Corporate
Structure
Income
Trust
$35.00
NIL
Taxable Canadian
$5.70
$14.82
Non-resident
$2.15
$3.30
Tax-exempt
N/A
N/A
$42.85
$18.12
Entity level
Investor level
Total tax
Example from www.fin.gc.ca
Taxation of Income Trust




Income Tax Act under Mutual Funds
Funds retained in trusts are taxed heavily
 Federal tax = 29%
 Provincial tax = 45% average (on federal tax payable)
 Ex. if earnings were $100, federal tax=$29; provincial
tax is 45% x $29=$13.05
Funds retained in companies are taxed at corporate rates
Trust can payout higher than their income in the form of
dividends
Issues
Loss in tax revenue
 Growth in Canada
 Others

Canadian Business Trust Issues –
Loss in tax revenue
Estimated loss in revenue of $300 million
 Government action





Increase tax on trust
Limit amount of trust investment in pension funds
Increase Dividend Tax Credit
Market response
Lost of $23 billion
 Recovered


Jack Mintz of University of Toronto vs. CAIF
Canadian Business Trust Issues –
Growth in Canada

“Trust misallocate capital, the savings of
Canadians and that capital is the primary
source of our economic growth” ~Peter
Godsoe, former chairman and CEO of Bank of Nova
Scotia

Canada’s competitiveness at danger
 No
retained earning for capital expenditures
(plant/equipment/technology)
Canadian Business Trust Issues –
others




Disclosures and Accounting methods
 85% of business trust have accounting issues
 CSA reports
 Trust funding distributions through L/T credit
facilities and reserves
Management must match distribution
 Yield are matched to competitors
 Not according to corporate model
Lack of flexibility in management
 Good?
 Debt covenants are not required to be disclosed
High yields are comparable to junk bonds
 “Canadian junk trust market”
“Tax Fairness Plan”
Distribution Tax
 Decrease in Corporate Income Tax of
0.5% in 2011
 Increase in Age credit amount by $1000
 Permission for income splitting for
pensioners starting 2007

“Tax Fairness Plan” – Distribution Tax
“Specific Investment Flow-Through” (SIFT)



When trust is resident of Canada
Trust units are of OR have investments in a stock exchange or
other public market
When the trust holds one or more “non-portfolio properties”


Canadian Corporation, Resource properties, Timber Resource
properties and Real properties, investments (2 conditions)
Non-portfolio earnings




Business income in Canada
Income or capital gains from “non-portfolio properties”
Not dividends received
No more deduction allowed
“Tax Fairness Plan” – Distribution Tax
Table 6: SIFT Tax Rates: Distributed Non-Portfolio Earnings, 2007-2011
(percent)
2007
2008
2009
2010
2011
Basic rate
(federal)
21.0
20.5
20.0
19.0
18.5
Additional rate
(in lieu of
provincial tax)
13.0
13.0
13.0
13.0
13.0
Total
34.0
33.5
33.0
32.0
31.5
Table from www.fin.bc.ca
**Those amount that is
not distributed will be
taxed at the ordinary
federal and provincial
rate.
“Tax Fairness Plan”
Decrease of Corporate Income Tax rate.
Table 3: Federal Corporate Income Tax Rates, 2007-2011
(percent)
2007 2008 2009 2010 2011
General corporate income
tax rate
21.0
20.5
20.0
19.0
19.0
Proposed rates
21.0
20.5
20.0
19.0
18.5
Table from www.fin.bc.ca
“Tax Fairness Plan”
Increase of Age credit
 Only significant for 65 years or older
 Increase of phase out rate
 Help low to middle class seniors
“Tax Fairness Plan”
Pension income splitting
 Allow those that qualify for pension
income tax credit to transfer this credit to
spouse
“Tax Fairness Plan”

New Income Trusts (after Oct 31, 2006)
 This

applies on 2007 taxation year
Existing Income Trusts
 This
applies on 2011 taxation year
“Tax Fairness Plan”
Table 2: Simplified Comparison of Investor Tax Rates in 2011
New System
Current System
Investor
FTE
Large
(NonCorporation Portfolio
(Dividend)
Earnings)
FTE
(Income)
Taxable
Canadian (*)
Canadian
tax-exempt
Taxable U.S.
investor (**)
Table from www.fin.bc.ca
Large
Corporation
(Dividend)
46%
46%
45.5%
45.5%
0%
32%
31.5%
31.5%
15%
42%
41.5%
41.5%
Impact of “Tax Fairness Plan”
Impact of “Tax Fairness Plan”
“Tax Fairness Plan”
Inter Pipeline Fund (IPL.UN)
Year
2006 (Q3)
2005
2004
2003
2002
2001
Units
outstanding
(Millions)
201.4
184
180
128
73.8
73.2
Market Cap $1.7 Billion
IPL.UN – One Year (Daily)
P/E≈ 15
P/E = 12.20
P/E Expansion?
IPL.UN – 5 year (weekly)
Earnings Growth?
Company Overview


Created 1997 in Calgary Alberta
Owns and Operates four business
segments:
• Conventional Gathering
• Oil Sands Transportation
• NGL Extraction
• Simon Storage Limited
Conventional Gathering
•
•
Transported approx. 201,400 b/d of crude in 2005
Moves crude oil from producer owned batteries and truck
terminals to key market hubs is Alberta and Saskatchewan.
Oil Sands Transportation



Sole transporter of
Cold Lake bitumen
production.
It has the capacity
to transport
435,000 b/d
Can be cost
effectively
expanded to
705,000 b/d.
NGL Extraction


Processes pipeline
quality natural gas to
remove natural gas
liquids (NGL)
comprised of ethane,
propane, butanes and
pentanes-plus
Uses shrinkage gas,
profit comes from
spread between
selling all NGL’s
seperately and the
cost Shrinkage Gas.
NGL Extraction con’t


Inter Pipeline's extraction business
consists of 100% ownership
interests in the Cochrane and
Empress II Plants and a 50%
ownership interest in the Empress
V Plant
NGL’s are generally used directly
as an energy product and as a
feedstock for the petrochemical
and crude oil refining industries.
Simon Storage Limited



Wholly owned subsidiary of Inter Pipeline
Fund
Multi site operator of bulk liquid storage,
handling and distribution in the United
Kingdom, Germany and Ireland
On January 1, 2006 Simon acquired
Tanklager-Gesellschaft (TLG) (2nd largest
independent petrochemical storage
business in germany.
Simon Storage con’t

Also provides complementary services
through its bulk liquid trucking,
engineering, training and facilities
management divisions.
Directors and Officers



David W. Fesyk
President and CEO
Highlights:
• 20 years experience in industry
• Responsible for doubling the size of
the company with the Cold Lake
Pipeline acquisition.
• Bachelors in Earth Science, Arizona
State, 1984
• MBA from University of Calgary in
1993.
Directors and Officers




John F. Driscoll
Director & Chairman of the Board
since October 22, 2002
Founder of JF Driscoll Investment
Corp., where he has served as
President since 1981.
Many years of advising, managing,
and consulting services in the oil and
natural gas industry.
Steady Growth
Purchase of
Simon Storage
Purchase of NGL
plants
Key Accomplishments (2005)



Purchased Simon Storage for $250 million
and TGL for $38 million
Entered 20-year contract with Greenergy
Biofuel Ltd. To store and handle biofuel
products at the Simon Storage
Immingham facilities.
Established a new $500 million revolving
credit facility to provide greater financial
flexibility.
Strategies for future growth

Expand storage segment in Europe
• Not clear if this will be through new
developments or more acquisitions

Organic Growth and Development
• Conventional Oil Pipelines: Improve operating
efficiencies, not volume (mature region)

New oil battery connections, better infrastructure,
more efficient pumps
• NGL Extraction: Improve NGL recovery rates
• Oil Sands Transportation: Expand capacity to
meet future needs of Imperial Oil, EnCana, and
CNR.
Where they plan to put there
money


Putting larger amount
(proportionate to
earnings) into oil sands
and Europe. GOOD.
Investing in areas of
highest growth potential
2005 Balance Sheet
2005 Income Statement
60% of
Expenses
2005 Statement of Cash Flows
Industry Comparison
Ratio
IPL.UN
Industry
P/E
12.20
19.01
ROE
11.97
18.37
ROA
7.05
8.51
D/E
.58
1.04
12.88
-3,318.08
Net Profit Margin
Taken from www.reuters.com
Note on Hedging Activity
Hedge
Profit / (Loss)
(millions of dollars)
NGL Contracts
(4.1)
Natural Gas Contracts
(12.0)
Foreign Currency
0.1
Heat Rate Swap
(0.3)
Electricity Price Swap
0.9
Interest Rate Swaps
4.3
Total Unrecognized P/L
(11.1)
Conclusions

Financially sound
• Growing profits, intelligent acquisitions,
clear and informative financials


Recently undervalued due to external
factors (fair tax law).
Positioned to make money in oil
sands and oil service industry for
many years into the future.
Basic Financials
As of November 10, 2006
•
•
•
•
•
•
•
•
•
Yellow Pages Income Fund
Listed on: TSX
Symbol: YLO.UN-T
Price: $12.87
EPS: $0.70
P/E: 18.4
Annual Dividend: $1.09 per unit
Monthly Distribution: $0.08583 per unit
Yield: 8.46%
Basic Financials Cont’
•
•
•
•
•
52 week high: $17.2
52 week low: $11.550
Market Cap: $6.5 Billion
# Units outstanding: 532,000,000
Over 2000 employees
5 Year Monthly Chart
1 Year Daily Chart
~90% return: IPO to 2005
Agenda
• Company Overview
–
–
–
–
•
•
•
•
History
Management
Products/Businesses
Strategy
Income Trust Model
Financial Analysis
New Tax Implications
Recommendation
Company Overview
•
Yellow Pages Group (YPG) is Canada’s largest directory publisher
•
YPG owns Canada’s most visited online directories: YellowPages.ca,
Canada411.ca, SuperPages.ca, and CanadaTollFree.ca
•
YPG also owns CanadaPlus.ca: a net work of 7 local sites that include
MontrealPlus.ca, QuebecPlus.ca, TorontoPlus.ca, EdmontonPlus.ca,
OttawaPlus.ca, and VancouverPlus.ca
•
They are also the exclusive owner of YellowPages, Pages Jaunes, and
Walking Fingers Design trademarks in Canada
History
•
•
•
•
•
•
•
•
•
YPG published its first directory in 1908
They operated as a division of Bell Canada until 1971 when it was
incorporated as Tele-Direct (Publications) Inc.
Company initially limited its publishing activities to Canada but by 1980
began expanding into international markets
By mid 1990’s the company sold off investments in Hong Kong, Behran,
Egypt, Jordan, Cayman Islands, and the US to focus on Canadian Market
In 1999 Tele-Direct changed its name to Bell ActiMedia
In 2002 Bell ActiMedia sold its directory business: YPG
In August 1 2003 YPG, through Yellow Pages Income Fund, completed its
initial public offering
Yellow Pages Income fund initially owned 30.6%
In June 2004 Yellow Pages Income Fund became 100% owner of YPG
Key Management
• Marc P. Tellier - President and CEO
–
–
–
–
President and CEO of YPG and CEO of Trader Corporation
Previously CEO of Bell ActiMedia
Helped complete the largest IPO ever in the income trust sector in 2003
Began with Bell in 1990 after graduating from University of Ottawa with
Bachelors in Economics
– In 2000 named one of Canada’s “Top forty under forty”
• Christian M. Paupe – Executive VP of Corporate Services and CFO
– Before Joining YPG, Paupe was Executive VP, Chief Administrative officer, and
CFO at Quebecor World Inc. from 1999-2003
– Harvard MBA and BBA from Royal Military College in St. Jean Quebec
•
Jean Pascal Lion – VP of Marketing
– Was VP of electronic directories up to June 2006
– Was VP of local markets at Sympatico-Lycos Inc
– Headed the tem that made that made YellowPages.ca the #1 online directory in
Canada
– MBA from Cancordia’s John Molson School of Business
Products and Businesses
• Print Directories
• Online Directories
• Vertical Media: Trader Corp.
Print Directories
• YPG Publishes more than 340 Yellow Pages and
residential directories
• These make for a combined circulation of approximately
30 million copies
• Cover 97% of the Canadian population
Print Directories Cont’
• Yellow Pages Directories
– Facilitates search for products and services
– Host of features such as local attractions, maps, event calendars,
entertainment info and more
• Yellow Pages Neighborhood Directories
– Provide relevant local information for Montreal, Toronto, Vancouver, and
Quebec city
• Residential Directories
– Includes residential and government listings
Online Directories
• YellowPages.ca
– Online business directory
• PagesJaunes.ca
– French equivalent of YellowPages.ca
• Canada411.ca
– Helps to find a person or business in French or English listings
• SuperPages.ca
– An extended Version of YellowPages.ca
• CanadaTollFree.ca
– Find any toll free number in Canada
• CanadaSansFrais.ca
– The French equivalent of CnadaTollFree.ca
Online Directories Cont’
• CanadaPlus.ca
– A network of 7 local sites as seen below
Trader Corporation
• On June 8, 2006 YPG bought all outstanding shares of Trader
Corporation for $767 million
• Trader is a leader in print and online vertical media
• Trader publishes approx 200 publications and 20 websites covering
4 product verticals: automotive, real estate, general merchandise,
and employment
• Some of the brands include Auto Trader, Buy & Sell, and Homebase
• A great acquisition for YPG
YPG Business Strategy
•
•
•
Goal: “Yellow Pages Group’s goal in directing and managing its
business is to enhance unitholder value and operate with honesty
and integrity”
Mission: “We are aligning print and online strategies in a
continuous effort to find the best seller for each buyer”
Basic strategy is differentiation through two avenues
1.
Organic growth
2.
External growth
Strategy Cont’
• Organic Growth
– Enhance and extend print and online product and service
offerings
– Introduce enhancements to existing product offerings to create
new revenue and cross-selling opportunities
• External Growth
– Invest in or acquire businesses which complement core business
– Preference for geographic presence in Canada
– Expand into related media that complement YPG’s traditional directory
advertising
YPG Core Competencies
YPG’s Key Priorities for 2006-2007
1. Expand business with national and
regional advertisers
2. Continued focus on customer
relationship management
3. Extension of the directory category
4. Gain a stronger presence in vertical
media
Why Income Trust Model?
• YPG is a mature business with relatively high
stable, cash flows
• YPG’s business holds income producing assets
that engage in a similar set of transactions each
year
• Not too focused on high growth
• Assets are stable and long lasting
• Converted to avoid paying corporate taxes
• Provide higher more frequent distributions to
investors than traditional dividends
Corporate Strategy Moves
• Supply chain management
– Quebecor World Inc
– Transcontinental Inc
• Acquisitions
– MTS Media
$1 Billion Deal with Quebecor
World Inc
• Signed $1 billion contract on Oct 19, 2006 with
Quebecor
• Extends directory printing contracts in eastern, western,
and central Canada through to 2020
• Cover over 300 directory titles
• Solidifies long-term supply chain relationship
• Quebecor World provides high quality print solutions to
leading publishers, retailers, catalogers, and other
businesses with advertising activities
$115 Million Trader Contract
• On Oct 20, 2006 YPG’s Trader Corp awarded a 10 year
contract to Transcontinental Inc
• Contract valued at $115 million decomposed into:
– $75 million for extension of contract to print vertical guides in the
Atlantic provinces, Quebec, and Manitoba
– $40 million in new business for Ontario, Saskatchewan, and
Manitoba
• Secure Traders long term relationship with top printer in
Canada
• Transcontinental is the largest printer in Canada and
ranks as the country’s largest publisher of consumer
magazines
MTS Media Acquisition
• On Oct 2, 2006 YPG acquired MTS Media from
MTS Allstream Inc
• $275 million price tag
• Makes YPG the #1 directory publisher in
Canada’s 10 largest markets
• In alignment with external growth strategy
• MTS Media is largest directory publisher in
Manitoba
– Publishes 11 different titles with circulation of 1.7
million
Financial Analysis
Financial Statements
• Annual Statement: 2005
• Quarterly Statements: 2006 3rd Quarter
Distribution Increase
2006 Distributions
Annual Income Statement
• 45% increase in revenue
• 126% increase in net earnings
EBITDA Growth
Annual Income Statement Cont’
• EPS up 53%
• 124 Million new units issued
– Dilution of existing unitholders?
Annual Cash Flow Statement
• Cash from operation activities up 42%
What’s going on?
• Investing increased more than 3
times
– $2.6 billion in acquisitions
• Results in large financing
activities
– $3.2 billion in new debt issued
– $1.6 billion in new equity
Key Annual Metrics
A More Recent Look
Q3 Statements
2006 3rd Quarter Results
• Adjusted revenue up 33%
• Adjusted EBITDA up 23%
• Distributable cash up 11%
Growth
Q3 Balance Sheet: Assets
• Large build up of cash
– More Acquisitions on the horizon?
• Goodwill Increasing
Q3 Balance Sheet: L + OE
• Large increase in long term debt
– More leverage = greater risk
• Exchangeable debentures: possible dilution to unitholders
Q3 Income Statement
Q3 Income Statement Cont
• $0.8 increase compared with last Q3
• Large increase in units outstanding
Q3 Cash Flow Statement
Q3 Cash Flow Cont
New Tax Announcement
• Announcement came Oct 31, 2006
• Government to impose tax on income trust
distributions
• Existing trusts (YPG) won’t face taxes until
2011
Result of Announcement
A Closer Look
• ~20% drop in one day
Implications for YPG
• Do not have to pay taxes on distributions
until 2011
• YPG still pays the same distributions
• YPG may have to consider new business
model
Opportunity to buy?
• Lower P/E ratio: down from 21.4 to 18.4
– Room for multiple growth
•
•
•
•
•
Distributions remain the same
Market may have overreacted
YPG showing strong financial numbers
Continuing to grow business
Units have recovered 5.5% since
announcement
Fisher’s Dimensions
•
“Superiority in production, marketing, research and financial skills”
–
–
–
•
Clear, accessible financial statements
Continued increase in revenues and earnings
Large investment increase and visible brand and trademarks
“People factor”
–
–
•
Experienced management that repeatedly exceed expectations
CEO named to “top forty under forty”
“Investment Characteristics”
–
–
–
•
Leader in print directories
Leader in online directories
#1 in Canada’s 10 largest markets
“Price”
–
–
Lower P/E ratio due to tax announcement
Drop from 21.4 to 18.4
Recommendation
Company Overview
As of Nov 24, 2006
Price: $14.60
Day High: $14.82
Day Low: $14.50
52 Week High: $20.8
52 Week Low: $13.06
EPS: 1.23
P/E: 11.90
Market Cap: 160.55M
Yield: 8.784%
Units
Outstanding:10.997M
Company: Boston Pizza Royalties Income
Exchange: TSE
Ticker: BPF.UN
IPO: July 17, 2002 (initial P=$10.00)
Historical One Year Price
Latest price (Nov 24, 2006 12:04 EST) $ 14.60, Volume 10,137
Five Year Price vs. S&P
Latest price (Nov 24, 2006 12:04 EST) $ 14.60, Volume 10,137
Structure of the Fund
Focus:
BP Royalties
Income Fund a limited purpose openended trust established
to acquire indirectly,
through Boston Pizza
Royalties Limited
Partnership, certain
trademarks and trade
names used by Boston
Pizza International Inc.
(BPI) in its Boston
Pizza restaurants in
Canada.
BP International Inc.
BPI is the franchisor of the BP concept in CA (since
1982). The company competes in the casual dining
sector of the restaurant industry
# One casual dining brand in Canada
Charges a 7% royalty fee on Franchise Sales for all
full-service BP restaurants and a 5% royalty fee on
Franchise Sales for BP Quick Express restaurants
Pays the Fund a 4% royalty fee based on Franchise
Sales of the specific royalty pool (195 restaurants)
for the use of BP trademarks (“BP rights”)
When new stores are added…
The adjustment for new Franchise Sales
added to the Royalty Pool is designed to
be accretive for Uniholders.
Implications:
BPI aggressively enhances and promotes
the Boston Pizza brand through national
and radio advertising. ( business
strategic)
The Fund
Stable Structure: Provides Uniholders with top-line
royalty from BP restaurants. The Fund has no
capital expenditures.
Distribution Policy: equal distribution payments to
Uniholders on a monthly basis
Nature of Units
Units are hybrids –share certain attributes
common to both equity securities and debt
instrument
Units do not represent a direct investment in the
Trust or the Partnership (should not be viewed by
investors as units in the Trust or the Partnership)
Units represent a fractional interest in the Fund
Price per Unit is a fraction of anticipated
distribution of cash
The Restaurant Industry
and Competitors
Performance of the fund is directly dependent
upon the royalty and interest payments received
from BPI.
The performance of BPI is dependent on various
factors that may affect the casual dining sector
of the restaurant industry.
The restaurant industry is intensely competitive
with respect to price, service, location, and food
quality…(Menu, atmosphere, low price at BP)
Other factors including economic conditions
Royalties
Royalties: 4%
Performance of the Fund directly dependent upon the Royalty
and interest payments received from BPI
How much revenue
How many new stores Management: Aggressive vs.
Conservative)
the Funds
Trustees
John L. Cowperthwaite
Retired Partner, Ernst &
Young LLP
Chartered Accountant since
1965
42 years of experience as an
auditor at Ernst & Young LLP
Subsequently became
Chairman of the United Way
of the Lower Mainland and is
currently a governor of SFU
the Funds
Trustees
Robert L. Phillips
Current president of R. L. Phillips
Investments Inc.
President and CEO of BCR Group of
Companies from 2001- 2004
Executive BP of MacMillan Bloedel
Ltd. From 1999 to 2000
President and CEO of Dreco Energy
Services Ltd. From 1994 to 1998
Bachelor of Science, Chemical
Engineering, and Bachelor of Laws
degrees from the University of Alberta
the Funds
Trustees
William C. Brown
VP of BC Sugar Refinery Ltd.
From 1976-1988, President from
1988 to 1997, and CEO from 1990
to 1997. Chairman of BC Sugar
Refinery Ltd. from 1997 to 1998.
Significant experience in
accounting and financial reporting
issues through serving on the audit
committee at Union Gas Ltd. from
2002 to present
Bachelor of Science degree from
the University of New Brunswick.
BP International Inc.
Management Team
Walter J. Treliving
Opened his first
restaurant in 1968
Chairman and owner
Born entrepreneur and
risk taker
BP International Inc.
Management Team
George C. Melville
Joined the company in
1973
Chairman and owner
Entrepreneur
Chartered accountant
degree in 1968 and
worked for the renowned
accounting firm, Peat
Marwick Mitchell & Co. in
Penticton, B.C
The Fund – Cash Flow Statement
BP Intl Inc.-Cash Flow Statement
Key Growth
Statistics
Restaurant Growth:
31 Store Openings in ‘05
0 Store Closures in ‘05
SSSG- Average: 6%
key driver for yield
growth of the Fund
was 10.54% for Q4, 05
increase distribution
for Uniholders
The FundConsolidated Statement of Earnings
BP Intl Inc.Consolidated Statements of Operations and Deficits
Business Strategy
Commitment for franchise profitability
Commitment to continually enhance BP
brand
Commitment to continually improve
customer experience.
What does it mean
for Uniholders…
In 2005 the Fund delivered two increases
in distribution to Uniholders.
Distributions have grown by 21.2% since
IPO
Appendix- Current Operation of BPI
2005 Gross Sales = $513 million
2005 Franchise Sales = $417 million
2005 Avg Gross Sales per Location = $2.3 million
2005 Customer Visits = 30 million
2005 # Locations Currently Open = 250 stores
2005 # Locations in Royalty Pool = 226 stores
zero closure rate in 2005
Appendix-Competitive Strengths
Drivers:
Low food cost
Broad demographic appeal
Single brand focus
Focus on franchising versus corporate
operations.
Award-winning national marketing program
Increasing number of franchises, allowing
Boston Pizza to increase purchasing efficiencies
and to reduce unit cost overhead.
Appendix- A Glance at
BP restaurants
Appendix-Royalty Pool Locations
Outlook
BP International Inc. will continue
aggressive expansion into Eastern
Canada and Quebec, while continuing to
infill markets in Western Canada.
Approximately 40 new BP restaurants in
2006
24-26 renovations are planned in 2006
Recommendation
Confident about future Revenue
Confident about big economy