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Canadian Business Trust. Betty Ho Stephen Wasmuth Greg Logan Stella Li. Canadian Business Trust. Agenda: Introduction (pre-October 31 st 2006) Event on October 31 st. Business Trusts to be Analyzed. Stephen – Inter Pipeline Fund . Greg – Yellow pages Income Fund.

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canadian business trust

Canadian Business Trust

Betty Ho

Stephen Wasmuth

Greg Logan

Stella Li

canadian business trust1
Canadian Business Trust

Agenda:

  • Introduction (pre-October 31st 2006)
  • Event on October 31st
business trusts to be analyzed
Business Trusts to be Analyzed
  • Stephen – Inter Pipeline Fund
  • Greg – Yellow pages Income Fund
  • Stella – Boston Pizza Royalty Fund
introduction of income trust
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
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 trusts1
History of Income Trusts

Graph from TSX website

history of income trusts2
History of Income Trusts

Chart taken from globeinvestor

types of income trust
Types of Income Trust

Proportion of trusts per type based on Total number of trusts = 247

  • Business Trusts
  • REITs
  • Resource Trusts
  • Utility Trusts
characteristics of an business income trust
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
typical investors of income trust
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
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
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
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
risks for investors
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
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
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
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
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
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
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
Taxation of Income Trust

Example from www.fin.gc.ca

taxation of income trust1
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
Issues
  • Loss in tax revenue
  • Growth in Canada
  • Others
canadian business trust issues loss in tax revenue
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
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
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
“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
“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 tax1
“Tax Fairness Plan” – Distribution Tax

Table 6: SIFT Tax Rates: Distributed Non-Portfolio Earnings, 2007-2011

**Those amount that is not distributed will be taxed at the ordinary federal and provincial rate.

Table from www.fin.bc.ca

tax fairness plan1
“Tax Fairness Plan”

Decrease of Corporate Income Tax rate.

Table 3: Federal Corporate Income Tax Rates, 2007-2011

Table from www.fin.bc.ca

tax fairness plan2
“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 plan3
“Tax Fairness Plan”

Pension income splitting

  • Allow those that qualify for pension income tax credit to transfer this credit to spouse
tax fairness plan4
“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 plan5
“Tax Fairness Plan”

Table 2: Simplified Comparison of Investor Tax Rates in 2011

Table from www.fin.bc.ca

inter pipeline fund ipl un
Inter Pipeline Fund (IPL.UN)

Market Cap $1.7 Billion

ipl un one year daily
IPL.UN – One Year (Daily)

P/E≈ 15

P/E = 12.20

P/E Expansion?

company overview
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
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
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
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
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
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
Simon Storage con’t
  • Also provides complementary services through its bulk liquid trucking, engineering, training and facilities management divisions.
directors and officers
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 officers1
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
Steady Growth

Purchase of Simon Storage

Purchase of NGL plants

key accomplishments 2005
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
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
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
slide59

2005 Income Statement

60% of Expenses

industry comparison
Industry Comparison

Taken from www.reuters.com

conclusions
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
Basic FinancialsAs 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
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
agenda
Agenda
  • Company Overview
    • History
    • Management
    • Products/Businesses
    • Strategy
  • Income Trust Model
  • Financial Analysis
  • New Tax Implications
  • Recommendation
company overview1
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
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
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
Products and Businesses
  • Print Directories
  • Online Directories
  • Vertical Media: Trader Corp.
print directories
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
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
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
Online Directories Cont’
  • CanadaPlus.ca
    • A network of 7 local sites as seen below
trader corporation
Trader Corporation
  • On June 8, 2006 YPG bought all outstanding shares of Trader Corporation for $767 million
  • Trader isa 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
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
    • Organic growth
    • External growth
strategy cont
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 s key priorities for 2006 2007
YPG’s Key Priorities for 2006-2007
  • Expand business with national and regional advertisers
  • Continued focus on customer relationship management
  • Extension of the directory category
  • Gain a stronger presence in vertical media
why income trust model
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
Corporate Strategy Moves
  • Supply chain management
    • Quebecor World Inc
    • Transcontinental Inc
  • Acquisitions
    • MTS Media
1 billion deal with quebecor world inc
$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
$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
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 statements
Financial Statements
  • Annual Statement: 2005
  • Quarterly Statements: 2006 3rd Quarter
annual income statement
Annual Income Statement
  • 45% increase in revenue
  • 126% increase in net earnings
annual income statement cont
Annual Income Statement Cont’
  • EPS up 53%
  • 124 Million new units issued
    • Dilution of existing unitholders?
annual cash flow statement
Annual Cash Flow Statement
  • Cash from operation activities up 42%
what s going on
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
a more recent look

A More Recent Look

Q3 Statements

2006 3 rd quarter results
2006 3rd Quarter Results
  • Adjusted revenue up 33%
  • Adjusted EBITDA up 23%
  • Distributable cash up 11%
q3 balance sheet assets
Q3 Balance Sheet: Assets
  • Large build up of cash
    • More Acquisitions on the horizon?
  • Goodwill Increasing
q3 balance sheet l oe
Q3 Balance Sheet: L + OE
  • Large increase in long term debt
    • More leverage = greater risk
  • Exchangeable debentures: possible dilution to unitholders
q3 income statement cont
Q3 Income Statement Cont
  • $0.8 increase compared with last Q3
  • Large increase in units outstanding
new tax announcement
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
a closer look
A Closer Look
  • ~20% drop in one day
implications for ypg
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
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
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
company overview2
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 Overview

Company: Boston Pizza Royalties Income

Exchange: TSE

Ticker: BPF.UN

IPO: July 17, 2002 (initial P=$10.00)

historical one year price
Historical One Year Price
  • Latest price (Nov 24, 2006 12:04 EST) $ 14.60, Volume 10,137
five year price vs s p
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 open-ended 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.

Structure of the Fund
bp international inc
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
  • Paysthe 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
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
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
Nature of Units
  • Units are hybrids –share certain attributes common to both equity securities and debt instrument
  • Units do not represent adirect 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
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
slide134
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)

Royalties

Royalties: 4%

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
Robert L. Phillips

the FundsTrustees

  • 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 trustees1
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.
slide138

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
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
key growth statistics
KeyGrowth Statistics
  • Restaurant Growth:31 Store Openingsin ‘050 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
business strategy
Business Strategy
  • Commitment for franchise profitability
  • Commitment to continually enhance BP brand
  • Commitment to continually improve customer experience.
what does it mean for uniholders
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

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
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.
outlook
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
recommendation1
Recommendation

BUY

Confident about future Revenue

Confident about big economy