ENTREPRENEURS DEDICATED EXCLUSIVELY BDC IS THE

ENTREPRENEURS DEDICATED EXCLUSIVELY BDC IS THE
BDC IS THE
ONLY BANK
DEDICATED
EXCLUSIVELY
TO
ENTREPRENEURS
ANNUAL
REPORT
2015
What We Are
What We Do
Why We Do It
We are the only bank in Canada
that is dedicated exclusively
to entrepreneurs.
We offer services that support
Canadians who are creating,
managing and growing small
and medium-sized businesses:
When entrepreneurs succeed,
Canadians benefit. The choices
they make and the risks they
take are incredibly important
to the Canadian economy. They
help decide how ideas become
products and services, how jobs
get created, and how Canada
stays prosperous. From traditional
companies to high-tech start-ups,
every one of them is helping
create value in Canada’s economy.
>
We promote
entrepreneurship, with a
special focus
on small and medium-sized
enterprises.
>
>
>
Financing
Capital
Consulting
We offer these services to
entrepreneurs in every part
of Canada and every sector
of the economy.
2
Message From the Chair of the Board of Directors
4
Message From the President and CEO
7
Management’s Discussion and Analysis
47
Consolidated Financial Statements
111
Corporate Governance
126
Additional Information
BDC is the only bank
dedicated exclusively
to entrepreneurs.
To learn more, visit BDC.ca.
BDC AR15 | 1
MESSAGE FROM THE CHAIR
OF THE BOARD OF DIRECTORS
Dear Minister,
I am pleased to present BDC’s annual financial report for
the fiscal year ended March 31, 2015. In summary BDC
has had another very successful year.
Our clients are doing well and more entrepreneurs are
using our services. We now directly support more than
32,000 of them across Canada. We also support an
additional 7,000 through our securitization services.
Governance at BDC is solid. We board members provide
oversight, insight and foresight. Our core functions relate
to stewardship, the Bank’s strategic direction and the
execution of strategy. This past year, we directors played
a very active role. The main issues we dealt with were
the renewal of BDC’s parliamentary mandate, its future
strategic direction, its delivery of shareholder priorities
and risk management.
In fiscal 2015, Parliament affirmed BDC’s mandate and its
important role in creating the prosperity that Canada needs.
The amended BDC Act, plus BDC’s reach—100 offices,
2,000 employees and 32,000 clients across the country—
position BDC to be a leader in helping make Canadian
companies the most competitive in the world.
BDC AR15 | 2
We know that to meet the challenges of scale, innovation,
productivity and globalization, Canada’s companies must
become more competitive. Our aspiration is to help
make them the most competitive in the world. This is
the context in which we determine and refine BDC’s
future strategic direction, and call upon the innovation and
effectiveness of BDC’s lending, investments and advice.
BDC’s purpose and reach also allow it to deliver
entrepreneurship-related priorities for its sole shareholder,
the Government of Canada. At the request of the
shareholder—which recognizes the economic benefits
that successful tech-based firms create—BDC manages
the Venture Capital Action Plan (VCAP). VCAP is working.
It is helping attract new private sector investors, create
larger, later-stage funds, and, ultimately, increase private
sector venture capital investments to create jobs and
long-term growth.
BDC is striving to better serve women entrepreneurs.
With this objective in mind, we have earmarked
$700 million over three years to lend to women controlled
businesses. We have created a team of BDC development
bankers and consulting managers from across Canada
who have expertise and experience in supporting women
entrepreneurs.
We’ve launched four new awards that promote and
recognize entrepreneurs for mentorship, innovation,
resiliency and serial entrepreneurship. These are in
addition to BDC’s hallmark contest, the BDC Young
Entrepreneur Award, in which entrepreneurs aged 18
to 35 are invited to present a turning point their company
has reached and the solution they propose to take it to
the next level.
Finally, we continue our efforts to help deliver Digital
Canada 150, the shareholder’s national digital strategy.
While working to ensure that entrepreneurs understand
the benefits of applying information and communications
technologies to their businesses, we also support
companies that create these technologies.
For more information on our success in supporting
BDC as it refines its risk management, please see the
appropriate sections of this report’s Management’s
Discussion and Analysis.
Many thanks to Rick Perkins, who left the Board of
Directors after several years of dedicated service.
This year, we welcomed Claude McMaster and
Robert Pitfield. Together, the directors have the sense
of duty, expertise, experience and vision needed to help
BDC meet whatever challenges the future has in store
for Canada’s entrepreneurs.
I want to thank everyone at BDC, from my board
colleagues to the management team and employees.
This—another successful year—is your doing. I offer very
special thanks to outgoing president and chief executive
officer Jean-René Halde. He leaves an admirable legacy:
a strong and vibrant organization, a healthy culture, and
a team of people rallied to BDC’s purpose to support
entrepreneurs. This is an absolutely terrific base from
which to help Canadian companies become the most
competitive in the world.
Should you or any of your colleagues in Cabinet or
in Parliament desire more information about BDC,
I would be pleased to provide it.
Sincerely,
Samuel L. Duboc
BDC AR15 | 3
MESSAGE FROM
THE PRESIDENT AND CEO
I am pleased to present BDC’s annual financial report
for the year that ended March 31, 2015.
The year was another positive one. Our 32,000
entrepreneur clients, a record number, are doing well.
In fiscal 2015, their demand for BDC’s services was strong.
This demand, combined with their financial health, fuelled
our profitability. Indeed, we did better than anticipated;
their financial health resulted in a lower-than-expected
provision for credit losses. Fiscal 2015 was also notable
in that it saw us invest more resources into non-financial
support for entrepreneurs.
Specifically, BDC made a profit of $490.7 million.
This shows that entrepreneurs judge our services to be
relevant and valuable, and that we are efficient. This year’s
results will permit a $62.9 million dividend payment to our
sole shareholder, the Government of Canada.
Overall, I am very pleased with BDC’s performance
in helping entrepreneurs and invite you to peruse the
strategic performance measures on pages 10-15.
We offer loans, equity and advisory services for a broad
spectrum of needs: from people who are creating a new
business or launching a particular business project, to
entrepreneurs who are leading their company’s efforts to
tackle the big, persistent competitive challenges of scale,
innovation, productivity and globalization.
BDC AR15 | 4
We now support
32,000 entrepreneurs
across Canada.
We’re helping businesses of all sizes. I am proud to report
that once again this year, we made more small loans and
more loans to small businesses than ever before. Yet we
also do larger loans to larger companies, as well as large
syndicated loans. These loans range from fully secured
to completely unsecured, covering the breadth of the
risk/reward spectrum.
We help entrepreneurs at every stage of their company’s
development: start-ups, high-growth firms and mature
later-stage companies, as well as entrepreneurs who
want to pass their business successfully into the hands
of new owners. This year, to address the full spectrum
of risk capital, we brought together the two BDC teams
responsible for venture capital and growth and transition
capital, creating BDC Capital. This new team is better
positioned to serve entrepreneurs who require
equity-type investments. It focuses on entrepreneurs’
needs: working capital for growth, transition capital and
capital for acquisitions. BDC now exceeds $1 billion
in venture capital commitments, and fiscal 2015 was
profitable.
Because we know that business success takes expertise
and advice as well as money, we continue to transform
our consulting service, adding to its capacity for
long-term impact. We hired more people—experienced,
knowledgeable and business-savvy people—and
improved processes and work practices. We also
developed 14 standardized methodologies that serve
as the basis of specific consulting services, notably those
to help entrepreneurs increase their firms’ operational
efficiency, integrate technology into their business models
and activities, and globalize.
Because we need to attract and keep the best, right
people to serve entrepreneurs, we were gratified to
be named—for the ninth consecutive year—one of
Canada’s Top 100 Employers. And, given Canada’s diverse
population, we were also gratified to be named one of
Canada’s best diversity employers for the sixth time.
We offer entrepreneurs useful and free information, too.
For example, our new online book—Buying an ERP
system: How to avoid common pitfalls and maximize your
ROI gives Canadian businesses our best tips for selecting
the right software.
This is the last time I will present the annual financial
report as president and chief executive officer of BDC.
I am very proud of how its focus and high performance
are serving Canada’s entrepreneurs. I am also very
confident that it is solid and sophisticated enough to
find new, innovative ways to help entrepreneurs tackle
whatever competitive challenges and opportunities
they will face in the future.
I have no doubt BDC will continue to serve Canadians
well. Its purpose of helping entrepreneurs—which
Parliament reaffirmed in 2014—is precise. Its authorities
are appropriate and allow it to be nimble. Its organizational
culture encourages flexibility and innovation.
The people who work here are extraordinarily capable,
dedicated and well managed. They are motivated by
the powerful sense of accomplishment that comes with
being part of an organization that is making a meaningful,
necessary contribution to society—that is, supporting the
people who help create the prosperity Canada needs.
I am very confident they will keep succeeding.
After 10 years, there are many people to thank. To our
clients, let me say that I and everyone at BDC are proud
to have won your trust and served you. To employees
across Canada: Thank you for the countless ways in which,
every day, you serve BDC’s clients. To my management
colleagues: Thank you for the invaluable support you have
given me over the past 10 years. And finally, to our board
members and especially our chair, Sam Duboc: Thank you
for your dedication, effort and ambitions for BDC.
Sincerely,
Jean-René Halde
BDC AR15 | 5
BDC AR15 | 6
Management’s
Discussion and Analysis
1. The Canadian Economic Environment
2. Performance Measures
3. Analysis of Financial Results
4. Risk Management
5. Accounting and Control Matters
9
10
17
37
45
BDC AR15 | 7
In fiscal 2015, Canada’s
economic environment
was characterized by:
• moderate
economic growth
• historically
low interest rates
•w
eak business
investment
BDC AR15 | 8
1. The Canadian Economic Environment
The pace of Canadian economic growth accelerated
in 2014. Real GDP increased 2.5% following a 2.0%
expansion the previous year.
Household spending rose a solid 2.8% and
households continued to add debt. Low interest
rates stimulated consumption and residential
construction, which also grew 2.8%. The labour
market recorded a net gain of 121,300 jobs,
and the unemployment rate fell slightly to 6.7%
at the end of the year.
For the fourth year in a row, the public sector
did not contribute to economic growth in 2014.
After supporting the economy during the recession,
governments are now focusing on balancing
their budgets.
Plummeting oil prices in the second half of the year
began to impact the economies of certain regions
of Canada in 2014, but the effects are expected
to be broader in 2015. Nonetheless, the decline
triggered the depreciation of the Canadian dollar,
helping exports grow 5.4%, their biggest advance
since 2010. The firming of the U.S. economy also
contributed to this advance.
Mining and oil and gas extraction recorded the
strongest growth in 2014 (6.4%). Transportation and
warehousing, wholesaling and retailing, and finance
and insurance also performed well, with output
volume growing over 3.0%. Manufacturing,
which saw output slip in 2013, rebounded in 2014,
benefitting from a recovery in U.S. demand and
the depreciation of the Canadian dollar.
Growth in non-residential investment by businesses,
which had been rather weak in 2013 (2.2%),
was anemic in 2014, rising only 0.2%. Investments
in non-residential buildings fell 0.1%, while investments
in machinery and equipment only inched up 0.7%.
Credit conditions remained very favourable in 2014,
with interest rates still at historic lows. Credit granted
to businesses by chartered banks was up 9.7% from
the previous year.
In summary, Canadian economic activity improved
in 2014. The strength of the U.S. economy and a
more favourable exchange rate stimulated exports.
The mining, gas and oil extraction sector recorded
robust growth and manufacturing output rebounded.
Unfortunately, non-residential investment by
businesses did not increase despite still-attractive
credit conditions.
BDC AR15 | 9
2. Performance Measures
In our corporate plan, we present performance measures with which we measure
our organizational effectiveness and efficiency.
We track and present our performance against these corporate plan objectives.
Entrepreneurship
Number of loans ≤ $500,000 for
Financing and Growth & Transition
Capital based on commitment
size of ≤ $750,000
Number of authorizations to
new businesses (≤ 2 years) (Financing
and Growth & Transition Capital)
Percentage of BDC-financed
start-ups that survive five years
Client Value Index(1)
Number of transactions
authorized with and from partners
(syndications, pari passu,
loan referrals and alliances)
BDC AR15 | 10
Management’s Discussion and Analysis | Performance Measures
TARGET F2015
ACTUAL F2015
8,000
8,781
This result reflects BDC’s efforts to help small
businesses and ensure their financing needs are met.
1,500
1,935
BDC supports new businesses because they are a
critical part of a healthy entrepreneurial ecosystem.
65%
60%
118
114
2,400
2,809
Today’s start-ups can be tomorrow’s champions;
half of Canadian start-ups are still in business
after five years. BDC helps ensure they succeed.
BDC continues to work to ensure clients
receive efficient, professional and tailored support
that meets their needs.
To reach more entrepreneurs, BDC is strengthening
its efforts to work with private sector financial
institutions and other partners.
BDC strives to measure its impact on Canadian entrepreneurs. As a result, its performance measures continue to evolve to properly capture public policy impacts.
(1)Starting in F2016, we will cease using this Index and replace it with a simpler indicator that measures our success using a barometer of “very satisfied” clients.
BDC AR15 | 11
Management’s Discussion and Analysis | Performance Measures
Productivity
We track the number of loans that
we authorize that entrepreneurs
use to purchase equipment for their
businesses (Equipment Line and
loans with “equipment purchase”
as purpose).
Growth
We track the percentage
of high-growth firms in our
Growth & Transition Capital
portfolio. (High-growth firms
are defined as having annualized
sales growth greater than 20%
per year over a three-year period.)
BDC AR15 | 12
Management’s Discussion and Analysis | Performance Measures
TARGET F2015
2,000
TARGET F2015
30%
ACTUAL F2015
1,932
BDC continues to raise entrepreneurs’ awareness
of the need to improve productivity.
ACTUAL F2015
33%
BDC recognizes the vital contribution that
high-growth firms make to the economy and
has innovated to increase its support for them.
BDC strives to measure its impact on Canadian entrepreneurs. As a result, its performance measures continue to evolve to properly capture public policy impacts.
BDC AR15 | 13
Management’s Discussion and Analysis | Performance Measures
Innovation
Support for Digital Canada 150
Financing: $200M in acceptances
annually to 2017
Venture Capital: $300M
in authorizations by 2017
(% of objective reached)
Venture Capital return
of capital (ROC)
Efficiency
BDC AR15 | 14
BDC Financing’s reported
efficiency ratio
Management’s Discussion and Analysis | Performance Measures
TARGET F2015
ACTUAL F2015
n/a
$276.9M
n/a
44%
We allotted three years to authorize $300 million.
We achieved 44% of this target in year one.
1.00
1.03
To attract private sector investors to the
venture capital market, BDC has worked hard to
demonstrate profitability in its VC operations.
TARGET F2015
39.7%
BDC works to ensure entrepreneurs understand
the business benefits of information and
communication technologies (ICT).
It also supports companies that create ICT.
ACTUAL F2015
38.6%
BDC’s efforts to make its operations more efficient
have improved this ratio.
Note: A decrease represents improved productivity.
BDC strives to measure its impact on Canadian entrepreneurs. As a result, its performance measures continue to evolve to properly capture public policy impacts.
BDC AR15 | 15
Our support for
entrepreneurs is
financially sustainable.
BDC AR15 | 16
3. Analysis of Financial Results
LINES OF BUSINESS
BDC reports on six business lines: Financing, Growth &
Transition Capital, Venture Capital, Consulting, Securitization
and Venture Capital Action Plan (VCAP).
OPERATIONAL CONTEXT IN WHICH
TO EXAMINE BDC’S FINANCIAL RESULTS
In 2014, the global economy recorded modest growth of
3.4%, just as in the previous year. The accelerated growth
in all of the advanced countries was cancelled out by a
global slowdown in the developing economies.
The economy of the United States strengthened considerably
in 2014. Consumption, the main driver of growth, benefitted
from the solid performance of the labour market: An average
of 260,000 jobs per month were created in the United States,
and the unemployment rate fell to 5.6% at the end of the year,
closer to its pre-recession level of 4.6%. Consumption was
also stimulated by rising incomes, lower oil prices and renewed
consumer confidence.
In the euro zone, the recovery ran out of steam during the
year. The unemployment rate remained high, and consumer
and business confidence deteriorated. Even though the
negative impact of the budget austerity measures abated,
the state of public finances in many of the zone’s member
countries remains a subject of concern. In Japan, economic
growth was zero in 2014 due to flagging consumption
following the hike in the value-added tax in April and to a
decline in residential investment.
Growth slowed in all of the developing countries, but the
outcomes differed from one country to another. Although the
Chinese economy was still robust, it weakened in the second
half of the year due to a correction in the real estate market.
Conversely, growth accelerated in India in 2014. This country,
which is a large oil importer, greatly benefitted from the
slump in oil prices. However, that slump played against
the oil-exporting countries, in particular Russia and Brazil.
Canada managed to hold its own in this global economic
context. Its growth rose compared with the previous year.
The economy benefitted from the strengthening of the
U.S. economy, as may be seen from the upturn in factory
shipments and the strength of exports bound for the
United States in 2014. Furthermore, the oil price slump—
which should curb economic growth in 2015—did not have
any major negative impact on the Canadian economy in 2014.
On the contrary, some sectors of the Canadian economy
benefitted from the depreciation of the Canadian dollar
that ensued.
The only cloud in the sky lies in non-residential business
investment growth, which proved to be anemic in 2014
despite credit conditions that were still very favourable.
As the population ages, Canada will increasingly have to rely
on improved productivity to support its economic growth.
Consequently, it is highly desirable that Canadian businesses
invest more, particularly in machinery and equipment.
ACTIVITIES
BDC plays an important role in helping Canadian small
and medium-sized enterprises (SMEs) to become more
competitive, innovate, increase their efficiency and explore
new markets, at home and abroad. As a complementary
long-term lender and investor that takes higher risks and
offers greater flexibility, BDC works to ensure that SMEs
have the opportunity to grow and succeed.
Financing plays a key role in fulfilling this mandate. Clients of Financing accepted a total of $4.7 billion in loans during
the year, compared to $4.1 billion last year. Growth &
Transition Capital continued to support the growth plans of
Canadian entrepreneurs through its diverse product offering,
with clients accepting a total of $231.5 million in financing
this year, compared to $186.6 million last year. To support
innovative Canadian companies and create the conditions
for success in the venture capital ecosystem, Venture Capital
authorized investments totalling $185.4 million, compared
to $154.8 million last year. During the year, BDC continued
the deployment of the Venture Capital Action Plan and
authorized $114.8 million in investments. In late fiscal 2014,
Consulting began operating under a new structure designed
to better help SMEs improve their competitiveness by
accelerating growth, improving productivity and building
organizational capabilities. The first set of changes under
the business transformation plan was launched during the
first quarter of fiscal 2015 and therefore, as anticipated,
consulting revenues, at $17.0 million, were lower than the
$21.7 million recorded last year. BDC also remains active in
the securitization market, where SMEs access financing for the
vehicles and equipment they need to improve productivity.
At March 31, 2015, total asset-backed securities (ABS) stood
at $407.7 million with total disbursements of $210.7 million
for the year.
BDC continued to focus on small loans, while also supporting
the growth of medium-sized firms and participating in financial
transactions with other financial institutions. During fiscal 2015,
based on commitment size of $750,000 or less, 8,781 clients
of Financing and Growth & Transition Capital accepted loans
of $500,000 or less for a total of $879.5 million, compared
to 8,011 clients and $775.0 million last year.
BDC AR15 | 17
Management’s Discussion and Analysis | Analysis of Financial Results
FINANCIAL RESULTS OVERVIEW
For the analysis of financial results, please also refer to
Note 25—Segmented Information to the Consolidated
Financial Statements.
Net income from Financing was $453.4 million, an increase
of $19.6 million from last year. The increase in profitability
was mainly due to higher net interest income, partially offset
by higher provision for credit losses compared to fiscal 2014.
CONSOLIDATED NET INCOME
BDC reported consolidated net income of $490.7 million
this year, compared to $432.6 million in fiscal 2014.
Net income attributable to BDC’s shareholder amounted
to $490.5 million this year and $426.0 million in fiscal 2014,
while that attributable to non-controlling interests amounted
to $0.2 million in fiscal 2015 and $6.6 million in fiscal 2014.
Non-controlling interests relate only to Growth & Transition
Capital and Venture Capital operations.
Net income from Growth & Transition Capital was
$38.5 million, $15.2 million higher than last year.
The increase was due mainly to a higher net change
in unrealized appreciation of investments.
Consolidated net income was generated mostly by Financing.
Fiscal 2015’s increase in net income was mostly due to a
higher net interest income as a result of the increase in the
loans portfolio, a higher net change in unrealized appreciation
of investments and higher net unrealized foreign exchange
gains on investments.
Venture Capital recorded $23.3 million in net income for
the year, compared to a $12.0 million net loss recorded
last year. The increase in net income this year was mostly
attributable to a higher net change in unrealized appreciation
of investments and to higher net unrealized foreign exchange
gains on investments.
Consolidated Net Income—by Business Segment
for the years ended March 31 ($ in millions)
2015
2014
2013
2012
2011
Financing
Growth & Transition Capital
Venture Capital
Consulting
Securitization
Venture Capital Action Plan
Net income
453.4
38.5
23.3
(24.2)
4.0
(4.3)
490.7
433.8
23.3
(12.0)
(16.9)
5.8
(1.4)
432.6
433.1
34.7
(8.6)
(12.4)
11.4
–
458.2
504.7
36.2
(42.7)
(11.0)
46.2
–
533.4
305.6
20.4
(20.8)
(8.9)
70.2
–
366.5
Net income attributable to:
BDC's shareholder
Non-controlling interests
Net income
490.5
0.2
490.7
426.0
6.6
432.6
454.7
3.5
458.2
520.3
13.1
533.4
360.3
6.2
366.5
BDC AR15 | 18
Management’s Discussion and Analysis | Analysis of Financial Results
Consulting reported a net loss of $24.2 million, compared
to a net loss of $16.9 million last year. As part of the
transformation program, BDC has refined its approach and
has improved client offerings. As a result, consulting revenues
are expected to be lower during this transition period.
Net income from Securitization was $4.0 million, $1.8 million
lower than last year, due to lower net interest and fee income
as a result of a decrease in yields. However, the Funding
Platform for Independent Lenders (F-PIL) continues to grow,
with the principal amount increasing from $333.9 million to
$403.4 million over the year, making a larger contribution
to net income.
Venture Capital Action Plan recorded a net loss of $4.3 million,
compared to a net loss of $1.4 million last year, mainly due to
a net change in unrealized depreciation of investments.
Net income attributable to non-controlling interests was
$0.2 million in fiscal 2015 ($2.2 million in net income from
Growth & Transition Capital and $2.0 million in net loss
from Venture Capital), and $6.6 million in fiscal 2014
($7.3 million in net income from Growth & Transition
Capital and $0.7 million in net loss from Venture Capital).
Consolidated comprehensive income for fiscal 2015 was
$460.4 million, compared to $482.2 million last year.
Consolidated comprehensive income comprised $490.7 million
in consolidated net income this year and a $30.3 million loss
in other comprehensive income (OCI). The decrease in OCI
for the year was mostly due to remeasurement loss on the net
defined benefit asset or liability of $32.7 million, compared to a
gain of $52.7 million in fiscal 2014. For the most part, this loss
was caused by lower discount rates used to value the net
defined benefit asset or liability, partially offset by higher returns
on pension plan assets.
For further details, refer to Note 19—Net Defined Benefit
Asset or Liability to the Consolidated Financial Statements.
Consolidated Comprehensive Income
for the years ended March 31 ($ in millions)
Net income
2015
2014
2013
2012
2011
490.7
432.6
458.2
533.4
366.5
1.7
0.3
(4.4)
(19.8)
19.8
Other comprehensive income (loss)
Items that may be reclassified subsequently to net income
Net change in unrealized gains (losses)
on available-for-sale assets
Net change in unrealized gains (losses)
on cash flow hedges
Total items that may be reclassified subsequently to
net income
0.7
(3.4)
(2.2)
10.4
3.8
2.4
(3.1)
(6.6)
(9.4)
23.6
Items that will not be reclassified to net income
Remeasurements of net defined benefit asset or liability
Other comprehensive income (loss)
(32.7)
(30.3)
52.7
49.6
(18.3)
(24.9)
(143.1)
(152.5)
34.7
58.3
Total comprehensive income
460.4
482.2
433.3
380.9
424.8
Total comprehensive income attributable to:
BDC's shareholder
Non-controlling interests
Total comprehensive income
460.2
0.2
460.4
475.6
6.6
482.2
429.8
3.5
433.3
367.8
13.1
380.9
418.6
6.2
424.8
BDC AR15 | 19
Management’s Discussion and Analysis | Analysis of Financial Results
PERFORMANCE AGAINST OBJECTIVES
The consolidated net income of $490.7 million was
$172.4 million more than the corporate plan objective.
Most of the variance is attributable to Financing, which
recorded a net income of $453.4 million, $79.1 million
higher than the corporate plan objective, primarily due to
the lower-than-anticipated provision for credit losses on loans.
Growth & Transition Capital’s net income of $38.5 million was
$16.1 million higher than the corporate plan objective, mainly
due to a lower-than-anticipated net change in unrealized
depreciation of investments. Venture Capital’s net income
of $23.3 million was $63.2 million better than the corporate
plan objective, mainly because of a higher-than-anticipated
net change in unrealized appreciation of investments and
higher-than-anticipated net unrealized foreign exchange
gains on investments. Consulting’s net loss of $24.2 million
was $0.8 million better than expected, mainly as a result of
lower-than-anticipated operating and administrative expenses.
Securitization’s net income of $4.0 million was $2.2 million
lower than expected, mostly due to lower net interest
income. Venture Capital Action Plan’s net loss of $4.3 million
was $15.5 million lower than expected, mostly due to the
lower-than-anticipated net change in unrealized depreciation
of investments.
FINANCING
Financing offers entrepreneurs secured and unsecured term
loans and specialized services tailored to support them as
they create and grow their firms; develop and expand their
markets; invest in intangible assets, such as information
technology; buy equipment to increase productivity; or
transfer their companies to a new generation of owners.
FINANCING PORTFOLIO
Financing’s loan portfolio, before allowance for credit losses,
rose by 6.8% from $17.7 billion a year ago to $18.9 billion
as at March 31, 2015, an increase of $1.2 billion. The closing
portfolio comprised of $18.4 billion in performing loans and
$0.5 billion in impaired loans. As at March 31, 2015, 79.1%
of the performing portfolio was composed of floating-rate
loans, higher than the fiscal 2014 level of 78.2%.
Financing Performing Portfolio
as at March 31 ($ in millions)
21000
21,000
18000
18,000
15000
15,000
12000
12,000
9000
9,000
6,000
6000
3,000
3000
00
2011
2012
2013
n Fixed-rate performing portfolio
2,706
2,843
3,482
n Floating-rate performing portfolio
11,214
11,955
12,436
nnTotal performing portfolio
13,920
14,798
15,918
Total Financing portfolio
14,506
15,349
16,410
BDC AR15 | 20
2014
2015
3,760
3,852
13,513
14,601
17,273
18,453
17,749
18,941
Management’s Discussion and Analysis | Analysis of Financial Results
NET INTEREST AND FEE INCOME
Net interest and fee income reflects interest income and fees
less interest expense on borrowings. Net interest and fee
income reached $900.0 million in fiscal 2015, compared to
$845.2 million in fiscal 2014. The increase of $54.8 million
was mainly the result of continued growth in the portfolio.
The net interest and fee income margin, the ratio of net
interest and fee income over the average loan portfolio,
remained at the same level as last year.
PROVISION FOR CREDIT LOSSES
The provision for credit losses is the amount charged
to income to bring the total allowance for credit losses,
including individual and collective allowances, to a level that
represents management’s best estimate of losses incurred in
the loan portfolio at the statement of financial position date.
In fiscal 2015, Financing recorded a provision for credit losses
of $95.9 million.
Provision for Credit Losses on Loans
Financing Net Interest and Fee Income
for the years ended March 31 ($ in millions)
for the years ended March 31 ($ in millions)
66%
1,050
1050
55%
900
300
300
3.0%
3.0
250
250
2.5%
2.5
200
200
2.0%
2.0
150
150
750
44%
1.5
1.5%
100
100
1.0
1.0%
600
33%
50
50
0.5
0.5%
00
450
22%
0.0
0.0%
-50
(50)
300
-100
(100)
-0.5
(0.5)%
-150
(150)
-1.0
(1.0)%
11%
150
00%
0
2011
2012
2013
n Net interest and fee income
736.4
779.5
796.7
As a % of average loan portfolio
5.25%
5.23%
5.01%
2014
2015
845.2
900.0
4.91%
4.90%
2011
2012
2013
nIndividual
104.0
86.3
69.1
nCollective
–
(124.5)
(50.0)
nnProvision for credit losses on loans
104.0
(38.2)
19.1
As a % of average loan portfolio
0.7%
(0.3%)
0.1%
2014
2015
82.9
85.9
(10.0)
10.0
72.9
95.9
0.4%
0.5%
BDC AR15 | 21
Management’s Discussion and Analysis | Analysis of Financial Results
A significant factor influencing the individual allowance is
the level of loans that were downgraded from performing
to impaired status. When financial conditions deteriorate,
more loans default. When they default, we classify them as
impaired and record an amount equal to the net exposure
as individual allowance. The rate of these downgrades
remained at 2.3% of the performing opening portfolio in
2015. Despite the increase in the provision for credit losses,
the level of losses remained low at 0.5% of the average loan
portfolio. The loan portfolio continued to perform better
than our expected loss rate at origination.
Impaired Portfolio
as at March 31 ($ in millions)
720
720
5%
600
600
4%
480
480
3%
360
360
BDC closely manages the $490.6 million in impaired loans,
which increased by $14.7 million in fiscal 2015, and the
watch list portfolio, which amounted to $724.6 million in
fiscal 2015. The work performed to help entrepreneurs
through difficult situations partly explains our low level
of credit losses. Impaired loans represented 2.6% of the
total portfolio on March 31, 2015, down from 2.7% on
March 31, 2014.
BDC maintains the allowance for credit losses at a level
judged adequate to absorb the credit losses in the portfolio.
This allowance comprises the individual allowance and
the collective allowance. Management determines the
individual allowance by identifying and determining losses
related to individual impaired loans. It determines the
collective allowance by assessing impairments in the existing
performing loan portfolio that are not yet identified.
2%
240
240
1%
120
120
0
0%
2011
2012
2013
2014
n Impaired portfolio
586.2
550.8
491.8
475.9
Impaired portfolio as a % of total loan portfolio
4.0%
3.6%
3.0%
2.7%
2015
490.6
2.6%
For the first time since fiscal 2011, both the individual and
collective allowances for credit losses have increased, reaching
a total of $529.9 million on March 31, 2015, compared to
$508.3 million in fiscal 2014. However, the total allowance
represented 2.8% of the total loans outstanding, slightly lower
than the 2.9% recorded last year. The collective allowance
was increased by $10.0 million during the fourth quarter of
fiscal 2015 to reflect the growth of the portfolio, as well as the
uncertainty resulting from the drop in oil prices.
BDC finances creditworthy projects that are, on average,
riskier than the ones the private sector typically accepts.
In the event of an economic slowdown, BDC stands ready
to increase its response, if required.
To read more about credit risk management, please refer to
Note 23—Risk Management to the Consolidated Financial
Statements.
BDC AR15 | 22
Management’s Discussion and Analysis | Analysis of Financial Results
Allowance for Credit Losses
as at March 31 ($ in millions)
6.0%
6.0
1,000
1000
800
800
4.5%
4.5
600
600
3.0%
3.0
400
400
1.5
1.5%
200
200
00
0.0
0.0%
2011
2012
2013
n Individual allowance
250.2
210.2
188.3
n Collective allowance
524.5
400.0
350.0
nnTotal allowance
774.7
610.2
538.3
Total allowance as a % of loan portfolio
5.3%
4.0%
3.3%
2014
2015
168.3
179.9
340.0
350.0
508.3
529.9
2.9%
2.8%
NET GAINS OR LOSSES ON OTHER
FINANCIAL INSTRUMENTS
Net gains or losses on other financial instruments are mainly
the result of fair value changes to long-term notes and
derivatives due to fluctuations in market conditions.
The realized gains or losses are incurred when financial
instruments are repurchased prior to maturity.
During fiscal 2015, Financing recorded net losses on other
financial instruments of $3.2 million, which included net
realized gains of $0.6 million and net unrealized losses of
$3.8 million. This compared with net gains on other financial
instruments of $0.4 million in fiscal 2014, comprising net
realized gains of $1.2 million and net unrealized losses of
$0.8 million.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses were $347.4 million in
fiscal 2015, $8.5 million higher than the $338.9 million recorded
last year. This was mainly due to higher salaries and benefits
and to higher depreciation of project costs related to BDC’s
investment in its Agility and Efficiency (A&E) project, which also
contributed to increase productivity. However, as a percentage
of the average portfolio, operating and administrative expenses
were 4.1% lower than those recorded in fiscal 2014.
PERFORMANCE AGAINST OBJECTIVES
Financing’s closing portfolio at the end of fiscal 2015, net of
allowance for credit losses, stood at $18.4 billion, which is
in line with the corporate plan objective.
Financing’s net income was $79.1 million higher than
planned. This positive result was mainly due to a lower-thananticipated provision for credit losses.
Net interest, fee and other income was $19.7 million higher
than the $880.3 million anticipated, due mainly to higher
average loans outstanding throughout the year and higher
margin achieved. Total operating and administrative expenses
were $2.6 million lower than the corporate plan objective
driven by our ongoing focus on efficiency.
BDC AR15 | 23
Management’s Discussion and Analysis | Analysis of Financial Results
GROWTH & TRANSITION CAPITAL
Growth & Transition Capital supports high-potential,
growth-oriented firms by providing flexible debt, with or
without convertible features, and equity-type financing
for entrepreneurs. It offers tailored solutions to help
firms that are past the start-up phase and need money
to sustain growth. It takes more risks by accepting less
security and financing intangibles, which is important as
the Canadian economy becomes more knowledge based,
and entrepreneurs finance ideas and concepts rather than
bricks and mortar. In addition, Growth & Transition Capital
helps Canadian firms transition from one owner to the next.
Since fiscal 2004, Growth & Transition Capital activity
has taken place via joint ventures with the Caisse de
dépôt et placement du Québec (the Caisse), starting with
a $300 million (BDC: $150 million) commitment with
AlterInvest Fund L.P. This was followed by a $330 million
(BDC: $165 million) commitment with AlterInvest II Fund L.P.
BDC acts as the general partner of these funds and receives
management fees. In November 2009, AlterInvest II Fund L.P.
reached its authorized capacity and BDC began to fully fund
new subordinate financing transactions through its wholly
owned investment subsidiary, BDC Capital Inc.
By the end of fiscal 2014, AlterInvest Fund L.P. had
completed the liquidation of all of its investments. Those
investments that were not reimbursed were transferred into
AlterInvest II Fund L.P. at fair value. Since the partners of
both AlterInvest Fund L.P. and AlterInvest II Fund L.P. are the
same, there was no change in ownership interest as a result
of these transactions.
SUBORDINATE FINANCING
INVESTMENT PORTFOLIO
BDC’s subordinate financing investment portfolio increased by
11.5%, from $576.7 million in fiscal 2014 to $642.8 million in
fiscal 2015, mostly due to total disbursements of $218.3 million
in fiscal 2015.
The fair value of the portfolio as a percentage of cost stood
at 97.7%, an indication that the portfolio remained healthy.
BDC AR15 | 24
Subordinate Financing Investment Portfolio
as at March 31 ($ in millions)
720
720
120%
120
600
600
100%
100
480
480
8080%
360
360
6060%
240
240
4040%
120
120
2020%
0
0 0%
2011
2012
2013
2014
2015
n Fair value
387.1
457.4
557.8
576.7
642.8
nCost
402.5
468.5
566.0
601.4
658.0
Fair value as % of cost
96.2%
97.6%
98.6%
95.9%
97.7%
NET INCOME FROM GROWTH
& TRANSITION CAPITAL
Growth & Transition Capital’s net income of $38.5 million
for the year was $15.2 million higher than in fiscal 2014.
The increase was due mainly to a higher net change in
unrealized appreciation of investments. Net income included
$2.2 million attributable to non-controlling interests in
fiscal 2015, and $7.3 million last year. The decrease is due to
the final liquidation of all investments in AlterInvest Fund L.P.
Net interest income of $52.6 million was 5.8% higher than
the $49.7 million recorded last year, due to the growth of the
portfolio. Net realized losses on investments of $23.0 million
were $17.1 million higher than last year, mainly due to
write-offs. In addition, fee and other income was up $4.3
million from last year. Refer to Note 25—Segmented
Information for more details.
Management’s Discussion and Analysis | Analysis of Financial Results
In fiscal 2015, Growth & Transition Capital recorded a
net change in unrealized appreciation of investments of
$9.5 million, a $26.1 million higher appreciation than the
$16.6 million net change in unrealized depreciation recorded
last year. The net change in unrealized appreciation of
investments included:
>> a $8.5 million net fair value depreciation of the portfolio
($16.7 million depreciation in 2014); and
>> a reversal of net fair value depreciation due to realized
losses totalling $18.0 million (a reversal of net fair value
depreciation due to net realized losses of $0.1 million
in 2014).
Operating and administrative expenses increased by
$0.9 million from last year. Even with the growth in the
portfolio, operating and administrative expenses as a
percentage of the average portfolio outstanding have
decreased from 4.6% to 4.5%, as BDC continues to find
operational efficiencies, resulting in part from the Agility
and Efficiency (A&E) project.
PERFORMANCE AGAINST OBJECTIVES
Net income from Growth & Transition Capital of $38.5 million
in fiscal 2015 was higher than the corporate plan objective of
$22.4 million, as BDC continues to contribute to the success
of entrepreneurs as it takes on more risks. This difference was
mainly due to a lower-than-anticipated net change in unrealized
depreciation of investments.
VENTURE CAPITAL
Venture Capital is a major investor in Canada, active at every
stage of a firm’s development cycle, from seed through
expansion. As the environment for venture capital (VC)
remains challenging, Venture Capital’s objective is to help
return the VC industry to health, where potential for
profitability attracts private sector investors. To achieve this,
it is investing in innovative, technology-driven Canadian
companies directly; investing indirectly through external
private sector venture funds; and undertaking strategic
initiatives and making targeted investments.
In its direct investing activities, BDC focuses on innovative,
technology-based companies that have high growth potential,
offer unique products or services, and are positioned to
become dominant players in their markets. Venture Capital
invests primarily in companies involved in the areas of
industrial/clean/energy-tech, health care and information
technology sectors.
To help rebuild and re-energize the VC ecosystem, we
created the Strategic Investments and Partnerships (SIP)
team. It is developing innovative initiatives to reinforce key
areas of the VC ecosystem and is making investments in
specialized funds, accelerators and graduates of accelerators.
VENTURE CAPITAL PORTFOLIO
The fair value of the portfolio increased from $495.1 million
in fiscal 2014 to $709.6 million this year. The portfolio is
composed of $428.6 million of direct investments and
$281.0 million of investments in 44 funds. The increase
in the portfolio fair value was mainly due to higher
disbursements for investments and to gains on conversion
of the U.S. dollar portfolio.
The fair value of the portfolio as a percentage of cost was
102.9% as at March 31, 2015, compared to 92.6% last year,
mainly due to the investments in funds.
Venture Capital Portfolio—Total Investments
as at March 31 ($ in millions)
900
120%
120
750
100%
100
600
8080%
450
6060%
300
4040%
150
2020%
0
0 0%
2011
2012
n Fair value
413.8
359.0
n Portfolio (cost)
498.4
474.4
Fair value as % of cost
83.0%
75.7%
2013
2014
2015
456.7
495.1
709.6
531.1
534.6
689.9
86.0%
92.6%
102.9%
BDC AR15 | 25
Management’s Discussion and Analysis | Analysis of Financial Results
The total VC commitment to clients, which represents the
portfolio outstanding at cost plus undisbursed commitments,
amounted to $1,027.0 million as at March 31, 2015. This
represents $461.5 million committed to direct investments
and $565.5 million to private sector investment funds.
As planned, our commitments to private sector investment
funds are greater than those committed to direct investments.
We have committed most of the undisbursed portion to
private funds and expect to invest it over the next few years.
Total Venture Capital Commitments
as at March 31 ($ in millions)
1,200
1200
NET INCOME FROM VENTURE CAPITAL
The measure of success for BDC’s work in the VC market
is its impact. For example, BDC’s initiatives and investments
in early- and seed-stage funding, including its role in the
Venture Capital Strategic Investment Plan (VCSIP), have had
a significant impact. VCSIP has already helped improve direct
investment activities by allowing the VC ecosystem to expand
its geographical scope and make direct investments in firms
that have graduated from accelerators that it supports.
In fiscal 2015, Venture Capital recorded a net income of
$23.3 million, compared to a $12.0 million net loss last year.
A higher net change in unrealized appreciation was recorded
in fiscal 2015, in addition to higher unrealized foreign
exchange gains on the U.S. dollar portfolio.
Net realized losses on investments amounted to $12.1 million
this year, compared to net realized losses of $19.0 million
last year. Fiscal 2015 results included $0.6 million in net
realized gains from sales and $12.7 million in write-offs.
The net realized losses on investments had minimal impact
on results, as the changes in fair value on these investments
made in prior periods were reversed at the time of exit.
1,000
1000
800
600
400
BDC recorded a net change in unrealized appreciation
of investments of $31.3 million (compared to unrealized
appreciation of investments of $20.3 million last year),
which included the following:
200
0
2011
2012
2013
2014
n Portfolio (cost)
498.4
474.4
531.1
534.6
n Undisbursed commitment
228.1
261.1
290.8
327.3
nnTotal commitment to venture capital clients
726.5
735.5
821.9
861.9
2015
689.9
337.1
1,027.0
>> $19.5 million in net fair value appreciation of the
portfolio ($5.6 million in net fair value appreciation
last year); and
>> a reversal of net fair value depreciation on divested
investments and write-offs totalling $11.8 million
(reversal of net fair value depreciation and write-offs
of $14.7 million last year).
Net unrealized foreign exchange gains of $28.0 million on
investments were due to foreign exchange fluctuations on
the U.S. dollar. During the third quarter, BDC discontinued
hedging U.S. dollar investments and only uses foreign
exchange contracts to hedge U.S. dollar proceeds to be
received.
Operating and administrative expenses were $21.5 million,
lower than the $22.6 million recorded last year.
Venture Capital’s net loss attributable to non-controlling
interests was $2.0 million for the year, $1.3 million higher
than last year.
BDC AR15 | 26
Management’s Discussion and Analysis | Analysis of Financial Results
PERFORMANCE AGAINST OBJECTIVES
Venture Capital’s net income of $23.3 million was higher
than the $39.9 million net loss anticipated in the corporate
plan. This was largely due to a higher-than-anticipated net
change in unrealized appreciation on investments. Operating
and administrative expenses were lower than the corporate
plan objective. Net loss attributable to non-controlling
interests of $2.0 million was $0.6 million higher than
anticipated.
CONSULTING
Consulting offers business consulting services at a cost
entrepreneurs can afford. It strives to provide entrepreneurs
with the support they need to grow their business and
enhance their competitiveness in local and global markets.
Consulting Revenue
for the years ended March 31 ($ in millions)
30 30
25 25
20 20
15 15
10 10
5 5
In late fiscal 2014, Consulting began operating under a new
structure designed to better help small and medium-sized
businesses improve their competitiveness by accelerating
growth, improving productivity and building organizational
capabilities. A multi-year business transformation plan was
created, and the first set of changes was launched during
the first quarter of fiscal 2015.
NET LOSS FROM CONSULTING
Consulting revenues of $17.0 million were $4.7 million
lower than the revenues of $21.7 million recorded last year.
As part of the transformation program, BDC has refined
its approach and improved client offerings. As a result,
Consulting revenues are expected to be lower during this
transition period. Operating and administrative expenses of
$41.3 million were $2.8 million higher than those recorded
in fiscal 2014, mainly due to increased staff levels needed
to support the new business strategy and associated
transformation program.
The net loss for the year was $24.2 million, $7.3 million
higher than the $16.9 million net loss recorded in fiscal 2014.
We continue to focus our efforts on the transformation
of our consulting services and therefore, as anticipated,
Consulting’s net loss was higher in fiscal 2015 than in
fiscal 2014.
PERFORMANCE AGAINST OBJECTIVES
For fiscal 2015, the net loss of $24.2 million in Consulting
was slightly lower than the corporate plan estimate of
$25.0 million.
0 0
2011
2012
2013
2014
2015
24.6
22.4
24.0
21.7
17.0
SECURITIZATION
BDC is maintaining its role in the securitization market,
where SMEs access financing for the vehicles and equipment
they need to improve productivity.
The Funding Platform for Independent Lenders (F-PIL,
formerly known as the Multi-Seller Platform for Small
Originators, or MSPSO) is a program under Securitization,
which is aimed at helping entrepreneurs grow their businesses
through indirect financing. The F-PIL targets small and
medium-sized financing companies in different sectors,
including vehicles, machinery and equipment. The program
leverages existing private sector financing structures, and is
an efficient and effective way to complement BDC’s direct
financing of these assets.
SECURITIZATION PORTFOLIO
As at March 31, 2015, total asset-backed securities (ABS)
stood at $407.7 million, compared to $336.5 million in
fiscal 2014. The increase in the portfolio was mainly due
to disbursements totalling $210.7 million.
Revenues were $17.0 million, which was $4.3 million
lower than anticipated. On the other hand, operating and
administrative expenses were lower than anticipated.
BDC AR15 | 27
Management’s Discussion and Analysis | Analysis of Financial Results
NET INCOME FROM SECURITIZATION
Securitization recorded net income of $4.0 million for the
year, $1.8 million lower than last year, mainly due to lower
net interest income as a result of a slight decrease in the
yield. Operating and administrative expenses amounted to
$2.0 million in fiscal 2015, slightly higher than last year.
PERFORMANCE AGAINST OBJECTIVES
Net income of $4.0 million was $2.2 million lower than
anticipated, mostly due to lower net interest income as a result
of both lower-than-anticipated outstanding ABS and yield.
Asset-Backed Securities Portfolio
as at March 31 ($ in millions)
NET LOSS FROM VENTURE CAPITAL ACTION PLAN
Venture Capital Action Plan recorded a net loss of
$4.3 million, mostly as a result of a net change in unrealized
depreciation of investments of $3.6 million. These losses
were anticipated early in the program.
Operating and administrative expenses were $0.9 million,
similar to last year’s level.
PERFORMANCE AGAINST OBJECTIVES
Net loss of $4.3 million was $15.5 million better than
anticipated, mostly due to a lower-than-anticipated net change
in unrealized depreciation of investments as a result of lower
disbursements.
CONSOLIDATED FINANCIAL POSITION
AND STATEMENT OF CASH FLOWS
Total assets of $21.1 billion increased by $1.5 billion from a
year ago, largely due to the $1.2 billion increase in our loans
portfolio, combined with a $66.1 million increase in the
subordinate financing investment portfolio, a $256.9 million
increase in the venture capital and venture capital action plan
investment portfolios, and a $71.2 million increase in ABS.
3,500
3500
2,800
2800
2,100
2100
Total Assets—BDC
1,400
1400
as at March 31 ($ in millions)
700
700
24,000
24000
20,000
20000
00
2011
2012
2013
2014
2015
3,069
763
437
336
408
16,000
16000
12,000
12000
VENTURE CAPITAL ACTION PLAN
During fiscal 2015, BDC continued the deployment of the
Venture Capital Action Plan (VCAP), a federal government
initiative to invest $400 million to increase private sector
venture capital financing through four funds of funds and
four high-performing funds for high-potential, innovative
Canadian businesses.
VENTURE CAPITAL ACTION PLAN PORTFOLIO
Venture Capital Action Plan authorized $114.8 million
in fiscal 2015, compared to $210.0 million last year.
During fiscal 2015, three funds of funds and one
high-performing fund were closed. As at March 31, 2015,
the total portfolio stood at $47.6 million, up from
$5.2 million last year.
BDC AR15 | 28
8,000
8000
4,000
4000
00
2011
2012
2013
2014
2015
18,400
17,220
18,184
19,570
21,129
Management’s Discussion and Analysis | Analysis of Financial Results
The ABS portfolio stood at $407.7 million as at March 31, 2015,
compared to $336.5 million as at March 31, 2014. The increase
in the portfolio is mainly due to net disbursements of securities
purchased under the F-PIL program.
At $18.4 billion, the loan portfolio represented BDC’s
largest asset ($18.9 billion in gross portfolio net of $0.5 billion
allowance for credit losses). The gross loan portfolio has
grown by 6.8% since March 31, 2014, mostly due to an
increase in net disbursements. BDC remained committed
to actively supporting SMEs’ needs and helping them improve
competitiveness, while continuing to identify and address
market gaps in financing across Canada.
As for BDC’s investment portfolios, the subordinate
financing investment portfolio stood at $642.8 million,
representing growth of 11.5% since March 31, 2014.
The increase in the subordinate financing investment
portfolio is mainly due to net disbursements. The venture
capital portfolio was $709.6 million as at March 31, 2015,
compared to $495.1 million as at March 31, 2014.
Net disbursements and unrealized appreciation on
investments accounted for most of the increase in the
venture capital portfolio. The venture capital action plan
portfolio stood at $47.6 million as at March 31, 2015,
compared to $5.2 million as at March 31, 2014. Investment
disbursements accounted for most of the increase.
Derivative assets of $53.3 million and derivative liabilities
of $7.5 million reflect the fair value of derivative financial
instruments as at March 31, 2015. Net derivative fair
value increased by $2.0 million compared to the value
as at March 31, 2014, primarily as a result of a decrease in
interest rates, partially offset by maturities and redemptions.
BDC acquires derivative financial instruments to manage
exposures to interest, currency and other market risks.
BDC does not hold derivatives for speculative or trading
purposes.
BDC holds cash and cash equivalents in accordance
with its treasury risk policy. The Bank’s liquidities, which
ensure funds are available to meet BDC’s cash outflows,
totalled $667.1 million as at March 31, 2015, compared
to $676.5 million as at March 31, 2014.
Borrowings
as at March 31 ($ in millions)
24,000
24000
24000
20,000
20000
20000
16,000
16000
16000
12,000
12000
12000
8,000
8000
8000
4,000
4000
4000
00
0
2011
n Liquid assets
653
nPortfolios(1)
17,601
Borrowings
14,125
2012
2013
2014
2015
741
702
677
667
16,319
17,324
18,654
20,222
13,224
13,868
14,832
15,984
(1)Includes net portfolios, investments and ABS.
As at March 31, 2015, BDC recorded a net defined benefit
asset of $100.4 million related to the registered pension plan,
and a net defined benefit liability of $219.7 million for the other
plans, for a total net defined benefit liability of $119.3 million.
This represents an increase of $14.6 million compared to the
net defined benefit liability as at March 31, 2014, mostly as
a result of remeasurement losses recorded during the year.
For further information, refer to Note 19—Net Defined Benefit
Asset or Liability to the Consolidated Financial Statements.
BDC AR15 | 29
Management’s Discussion and Analysis | Analysis of Financial Results
For the year ended March 31, 2015, cash flow used by
investing activities amounted to $367.3 million. Financing
activities provided $1,079.3 million in cash flow, as long-term
notes were repaid for $384.2 million and short-term notes
were issued for $1,380.3 million. Operating activities used
$721.5 million in cash flows.
As at March 31, 2015, BDC funded its portfolios and liquidities
with borrowings of $16.0 billion and total equity of $4.7 billion.
Borrowings comprised $15.5 billion in short-term notes and
$0.5 billion in long-term notes.
DIVIDENDS
BDC pays dividends to its sole shareholder, the Government
of Canada. A total dividend of $54.6 million was paid in
fiscal 2015. Based on fiscal 2015 performance, BDC will
make a payment of $62.9 million in dividends on common
shares, which will be declared and paid after March 31, 2015.
Dividends
for the years ended March 31 ($ in millions)
70 70
As at March 31, 2015, total equity consisted of $4.7 billion
attributable to BDC’s shareholder and $34.5 million
attributable to non-controlling interests.
60 60
BDC’s return on common equity (ROE) reached 10.6%
in fiscal 2015, above our benchmark of the 10-year moving
average cost of capital of 2.2% for the Government of
Canada’s three-year bonds.
40 40
Total Equity
2015
ROE(2)
2014
2013
2011(1)
2012
20 20
0 0
2011
2,138.4 2,138.4 2,088.4
27.8
27.8
27.8
2,570.5 2,167.3 1,748.1
7.9
5.5
8.6
4,744.6 4,339.0 3,872.9
34.5
51.1
82.8
4,779.1 4,390.1 3,955.7
10.6% 10.2%
12.0%
2,088.4 2,514.4
27.8
27.8
1,378.6 1,046.4
15.2
24.6
3,510.0 3,613.2
115.3 146.6
3,625.3 3,759.8
13.7%
10.8%
(1)Based on IFRS, BDC’s $230 million in outstanding preferred shares as at
March 31, 2011, were reclassified as liabilities. These preferred shares were
fully repurchased in fiscal 2012.
(2)ROE is calculated based on equity attributable to BDC’s shareholder
(see the glossary on page 134 for a detailed definition).
BDC AR15 | 30
30 30
10 10
as at March 31 ($ in millions)
Equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive
income
Equity attributable to
BDC’s shareholder
Non-controlling interests
Total equity
50 50
2012
2013
n Preferred dividends declared
5.0
4.5
–
n Common dividends declared(1)
–
45.1
68.6
nn Total dividends declared
5.0
49.6
68.6
(1)Based on previous year’s performance.
2014
2015
–
–
59.6
54.6
59.6
54.6
Management’s Discussion and Analysis | Analysis of Financial Results
Cumulative Dividends Paid
as at March 31 ($ in millions)
440440
400400
360360
320320
280280
240240
200200
160160
120120
80 80
40 40
0 0
1998-2005
2006
n Preferred dividends paid
77.3
86.4
n Common dividends paid
3.8
11.5
nnTotal dividends paid
81.1
97.9
2007
2008
2009
2010
2011
2012
2013
2014
2015
95.1
104.5
114.0
122.9
129.3
138.8
138.8
138.8
138.8
23.6
35.7
42.7
50.6
50.6
95.7
164.3
223.9
278.5
118.7
140.2
156.7
173.5
179.9
234.5
303.1
362.7
417.3
CAPITAL MANAGEMENT
STATUTORY LIMITATIONS
The BDC Act requires that the aggregate of borrowings and
contingent liabilities in the form of guarantees provided by
BDC may not exceed 12 times its equity. This ratio excludes
accumulated other comprehensive income. BDC’s debt-toequity ratio as at March 31, 2015, was 3.4:1, unchanged from
March 31, 2014.
In addition, the paid-in capital, the contributed surplus
and any proceeds that have been prescribed as equity
(such as hybrid capital instruments) must not at any time
exceed $3.0 billion. As at March 31, 2015, these amounts
totalled $2.2 billion, unchanged from March 31, 2014.
BDC AR15 | 31
Management’s Discussion and Analysis | Analysis of Financial Results
Debt-to-Equity Ratio
as at March 31
12 12
12
10 10
10
8
8
8
6
6
6
4
4
4
2
2
2
0
0
0
2011
2012
2013
2014
2015
3.8
3.6
3.4
3.4
12.0
12.0
12.0
12.0
nActual
3.7
Statutory limit
12.0
CAPITAL ADEQUACY
Treasury Board of Canada Secretariat provides guidelines
to BDC on its capital adequacy ratios. BDC must maintain
overall capital and loss provisions sufficient to ensure that
it can withstand unfavourable economic circumstances
without needing government funding.
Adequate capital ratios reflect the relative risk of BDC’s
assets. The recommended capital is 10% for asset-backed
securities; 10% for term loans and 25% for quasi-equity
loans, net of allowance for credit losses; 25% for subordinate
financing investments; and 100% for venture capital and
VCAP investments. BDC has also established capital
adequacy ratios for loan guarantees and letters of credit
to reflect their relative risk. BDC operated in accordance
with its capital guidelines during the year. For further details,
refer to Note 22—Capital Management to the Consolidated
Financial Statements.
In addition to these minimum capital ratios, the capital level
is also internally managed to ensure that BDC can honour its
commitments as they become due. The reserved capital for
loans and investments already committed to entrepreneurs
but not yet disbursed by BDC was $655 million as at
March 31, 2015.
In addition, BDC reserves capital for the investments it
expects to make in its Venture Capital portfolio, including
VCSIP, for which the government requested that BDC set
aside $100 million in capital.
BDC also uses an economic capital model to internally
assess its capital adequacy. The economic capital model
uses methodologies consistent with industry practices. It is
calculated for various types of risks: credit, business, pension
plan, interest rate and operational risks. Models are based
on advanced quantification methods and internal risk-based
assumptions. It is calculated over a one-year time horizon at
a given confidence level, based on the solvency standard set
in our risk appetite statement.
In keeping with industry practices and the core tenets of
sound financial and risk management, BDC also ensures that
the level of capital is sufficient to remain financially sustainable
during a recessionary scenario, using stress-testing analyses.
BDC conducts enterprise-wide stress tests on its significant
risks and portfolios to determine an appropriate level of
capital needed to withstand a sustained economic downturn.
BDC’s economic capital status (available capital less required
capital) stood at $328 million at the end of fiscal 2015
($267 million as at March 31, 2014). This status considers
capital reserves for undisbursed commitments and
Venture Capital initiatives, as well as a capital reserve to
withstand a sustained economic downturn.
NET DEFINED BENEFIT ASSET OR LIABILITY
BDC’s pension plan, supplemental plans and other
employee future benefits are based on actuarial valuations
and assumptions detailed in Note 19—Net Defined Benefit
Asset or Liability to the Consolidated Financial Statements.
Several factors, particularly the discount rate used to value
future liabilities, influence the calculation of those obligations.
For accounting measurement purposes, the discount rate
used at each measurement date is based on market interest
rates for long-term, high-quality debt instruments.
BDC’s employer contributions to the registered pension
plan totalled $60.1 million in fiscal 2015, compared to
$79.6 million in fiscal 2014.
BDC AR15 | 32
Management’s Discussion and Analysis | Analysis of Financial Results
We fund our registered pension plan in accordance with
applicable federal pension legislation and actuarial standards
of practice in Canada to ensure proper funding of employee
benefit obligations. As of March 31, 2015, the funded status
of the registered pension plan was in a surplus position on
a going-concern basis and in a deficit position on a solvency
basis. We will continue to contribute to the pension fund in
future years to manage our funded status, as prescribed by
the applicable federal pension legislation.
Since fiscal 2006, BDC has funded the supplemental plans on
a voluntary basis. Other employee future benefits plans are
unfunded.
OUTLOOK FOR 2016
Canada’s growth in recent years has been modest.
Even though the fall in oil prices will negatively impact the
Canadian economy, a more robust U.S. economy and
a lower Canadian dollar should benefit export-driven
industries. With credit conditions remaining favourable
to Canadian businesses, BDC will help to ensure that
Canadian SMEs become more competitive and will
continue to play its important complementary role.
BDC’s consolidated net income is expected to reach
$423 million in fiscal 2016, of which $424 million will be
attributable to BDC’s shareholder. The decrease in net
income is mainly due to the higher expected losses in
Venture Capital, VCAP and Consulting, as BDC makes
the investments required to fully play its role in catalyzing
the entrepreneurial ecosystem and supporting the
competitiveness of Canadian SMEs. BDC is forecasting
dividend payments of $60 million in 2016.
FINANCING
Financing will continue to assist small businesses, including
those that have difficulty accessing financing due to their
location, sector or demographic. It is maintaining a focus
on small loans, often for less than $250,000, to help
entrepreneurs buy equipment to increase productivity,
innovate through ICT, and grow and explore new markets.
BDC expects net financing acceptances to increase by
2.1% to $4.8 billion in fiscal 2016, and the gross portfolio is
expected to grow by 7.9% to $20.4 billion in fiscal 2016.
Financing is expected to generate net income of $458 million
in fiscal 2016, reflecting the growth in the portfolio and
the return of impairment losses to more typical levels.
BDC projects the impairment losses on loans will amount
to $138 million or 0.7% of the average outstanding financing
portfolio. Net interest income is expected to increase to
$958 million in fiscal 2016. As a result of BDC’s efforts to
reduce costs and find efficiencies, including through its Agility
and Efficiency (A&E) project, Financing’s operating expenses
as a percentage of the average portfolio outstanding are
expected to remain unchanged at 1.9%, even with additional
investments made in support of Canada’s SMEs.
GROWTH & TRANSITION CAPITAL
Growth & Transition Capital is playing an increasingly important
role in supporting the growth plans of SMEs through flexible
financing solutions and a diverse product offering.
Growth & Transition Capital will continue to address the needs
of high-growth firms and companies in transition through its
specialized subordinate financing products. The volume of
acceptances is expected to reach $240 million in fiscal 2016,
up from $232 million in fiscal 2015. The fair value of the
portfolio is expected to grow from $643 million in fiscal 2015
to $732 million in fiscal 2016. Even with the growth in the
portfolio, operating expenses as a percentage of the average
outstanding portfolio will remain unchanged at 4.5% in
fiscal 2016.
Net income from Growth & Transition Capital is projected
to be $34 million. After a few years of exceptionally low
losses on investments, losses are expected to be at more
representative levels for the risk being taken in BDC’s
subordinate financing portfolio.
BDC AR15 | 33
Management’s Discussion and Analysis | Analysis of Financial Results
VENTURE CAPITAL
As one of the most active investors in the market, Venture
Capital is helping to demonstrate the viability of the Canadian
VC industry, by carrying out its strategy of direct and indirect
investing, and by creating the conditions for success through its
Strategic Investments and Partnerships (SIP) team.
To support innovative Canadian companies and create
the conditions for success in the VC ecosystem, Venture
Capital estimates that, in fiscal 2016, it will authorize
$210 million in investments, including $82 million in direct
investments and $128 million in indirect investments.
The fair value of the venture capital portfolio is forecast
to be $668 million by March 31, 2016.
For fiscal 2016, Venture Capital forecasts a net loss of
$14 million, including a net loss of $1 million attributable
to non-controlling interests. Operating and administrative
expenses are projected to be $24 million.
CONSULTING
BDC believes that entrepreneurs need to take advantage
of professional, qualified advisory services to grow, innovate,
create efficiencies and ultimately become more competitive.
However, from its experience in the market, BDC has found
that small business owners have unmet needs for a broad
range of these services, and often have trouble identifying
and addressing their own requirements. To address this
market gap, BDC is investing in advisory services that will
maximize its impact on the competitiveness of Canadian
entrepreneurs by enabling them to take advantage
of growth, productivity and innovation projects. In its role
as a development bank, BDC assumes a portion of the
costs associated with the provision of such services. This will
ensure they are affordable and accessible to a variety of
SMEs. As a result of the transition to the new approach,
the net loss from BDC Consulting is expected to increase
to $30 million for fiscal 2016.
BDC AR15 | 34
SECURITIZATION
By partnering with private sector financing companies in
the securitization market, BDC improves the availability
of financing and enables SMEs to purchase vehicles and
equipment to support productivity. The Funding Platform
for Independent Lenders (F-PIL) ensures that smaller
financing companies can provide financing for the vehicle
and equipment needs of businesses and consumers.
Under the F-PIL program, BDC forecasts authorizations
of $450 million in fiscal 2016. Securitization’s total portfolio
is expected to close at a fair value of $460 million as at
March 31, 2016. Total net income for fiscal 2016 is projected
to be $3 million.
VENTURE CAPITAL ACTION PLAN
Recognizing the importance of VC to Canada’s economic
prosperity, in Economic Action Plan 2012, the government
announced $400 million to help increase private sector
investment in early-stage risk capital and to support the
creation of large-scale VC funds led by the private sector.
In January 2013, the Prime Minister announced the Venture
Capital Action Plan (VCAP), a comprehensive strategy for
deploying the new capital. BDC was asked to carry out
certain duties and functions to support the operations of
this new business line.
BDC will continue the deployment of the VCAP program.
For fiscal 2016, BDC anticipates that $99 million will be
disbursed and forecasts that it will incur losses of $21 million,
as the VCAP program is in the early stages of implementation.
BDC believes that the combined effect of VCAP, the Venture
Capital Strategic Investment Plan and its own VC investing
activities will have a significant positive impact on the
VC market in Canada.
Management’s Discussion and Analysis | Analysis of Financial Results
OPERATIONAL EFFICIENCY
As can be seen in the graph, operational efficiency is a
longstanding, ongoing objective at BDC.
Over the years, BDC has made a concerted effort to
achieve efficiencies while fulfilling its role as a development
bank. It is continuing this tradition and observing the intent
of the government’s strategic review by carefully managing
operating expenses, identifying and gaining efficiencies,
and improving its efficiency ratio, that is, the expenses
incurred to earn each dollar of revenue. (The lower the
ratio, the better.) As a result, the financing efficiency ratio has
improved from 41.4% in fiscal 2011 to 38.6% in fiscal 2015.
Financing Efficiency Ratio(1)
for the years ended March 31
50%
50
40%
40
30%
30
20%
20
10%
10
0%0
2011
2012
2013
2014
2015
41.4%
40.3%
43.5%
40.0%
38.6%
(1) A lower ratio indicates improved efficiency.
For the definition of efficiency ratio, refer to the Glossary on page 133.
BDC AR15 | 35
We take risk to support clients.
We price for this risk.
And we manage it well.
BDC AR15 | 36
4. Risk Management
BDC takes on risk while remaining
financially sustainable. Our strong risk
management practices enable us to
take appropriate risks while offering
relevant services.
ENTERPRISE RISK MANAGEMENT POLICY
The enterprise risk management (ERM) policy codifies
the integrated, enterprise-wide process we use to
identify, analyze, accept, mitigate, monitor and report
risks. It also defines the roles and responsibilities of
board members, management, functional units and
employees in implementing the policy.
We manage our risks by using formal
risk reviews and rigorous processes.
These include defining our risk appetite,
developing risk policies and setting
delegated authorities and limits.
BDC’s Board of Directors reviews and approves
the policy at least every two years.
Risk is a defining, unavoidable feature of the financial
services sector. It is inherent in virtually all of BDC’s
activities.
Risk is also a defining feature of entrepreneurial
activity. And as we enter into business relationships
with Canada’s entrepreneurs, we must identify and
manage several kinds of risk—to the greatest degree
possible—for entrepreneurs to succeed.
RISK APPETITE STATEMENT
Our ERM framework includes a risk appetite statement
that enables us to articulate and continuously monitor
our risk profile against our defined risk appetite and
related limits, taking actions as needed to maintain
an appropriate balance of risk and return.
BDC’s risk appetite statement articulates in written
form, and communicates in qualitative statements and
quantitative measures, the board’s vision for managing
significant risks that BDC is willing to accept or avoid
in the execution of its strategy.
BDC’s Board of Directors reviews and approves the
risk appetite statement annually.
BDC has strong risk management practices that
emphasize risk identification, risk management,
transparency and accountability.
Our Board of Directors provides essential,
independent oversight of BDC’s exposure to risk.
BDC’S PRINCIPLES OF ENTERPRISE
RISK MANAGEMENT
1. Risk management is everyone’s responsibility,
from the Board of Directors to employees.
2. We manage risk by balancing it with appropriate
return, in line with our risk appetite.
3. We integrate risk management into key business
processes, such as strategic business and budget
planning, lending, investing and consulting activities.
4. The ERM policy codifies a comprehensive, disciplined
and continuous process that we use to identify,
analyze, accept, mitigate, monitor and report risks
within approved risk tolerances.
5. In the risk appetite statement and risk managementrelated policies, the board sets the acceptable levels
of risk that BDC will tolerate.
6. BDC’s policies and processes are consistent with
ERM best practices.
BDC AR15 | 37
Management’s Discussion and Analysis | Risk Management
THE BOARD OF DIRECTORS
AND ITS GOVERNANCE
BOARD OF DIRECTORS
Governance and
Nominating Committee
Human Resources
Committee
Pension Funds Investment
Committee
Board Credit and
Risk Committee
Board Investment
Committee
Audit
Committee
BDC MANAGEMENT
President and
Chief Executive Officer
Internal Audit
Senior Management
Committee
Disclosure
Committee
RISK COMMITTEES
BDC AR15 | 38
Risk
Management
Credit Risk
Valuation
Compliance
and Security
RISK MANAGEMENT FUNCTIONS
Credit Risk
Management
Enterprise Risk
Management
Portfolio and Treasury
Risk Management
Management’s Discussion and Analysis | Risk Management
THE BOARD OF DIRECTORS
The board and its committees oversee governance and
risk management.
In addition to approving the risk appetite statement,
the board also approves risk policies and strategies; ensures
BDC’s risk management is effective; reviews portfolio and
treasury risks; reviews capital adequacy and stress-testing
analysis; sets clear levels of delegation of authority for
transactions; and ensures an appropriate link between
risk and reward.
BDC MANAGEMENT:
RISK COMMITTEES AND FUNCTIONS
The Senior Management Committee (SMC) comprises
the president and chief executive officer, the executive
financial/risk and operating officers, and designated senior
vice presidents. It ensures that BDC establishes and
respects sound risk management strategies and practices.
It makes sure that BDC has an integrated vision to address
key strategic, financial (credit, market and liquidity) and
operational risks. It also, through the Disclosure Committee,
oversees BDC’s disclosure obligations and practices.
Although all committees consider risk in their deliberations,
as appropriate, three committees—the Board Credit and
Risk Committee, the Board Investment Committee and the
Audit Committee—have specific responsibilities for managing
risk. For full details on the board and its committees,
please see the Corporate Governance section, starting
on page 111.
The Risk Management Committee includes senior key
leaders from multiple business units. Its mandate focuses
on oversight. As such, the committee ensures that BDC has
an adequate and effective ERM framework to identify and
evaluate trends in critical issues; to evaluate or quantify their
probable impact; and to ensure that BDC is mitigating them
within its risk appetite.
The Board Credit and Risk Committee advises the board
on how BDC is effectively identifying and managing significant
risks and reviews reports on BDC’s risk profile, including
the risk appetite statement measures, targets and limits.
It regularly reviews risk management policies and reports.
The committee also approves transactions above a certain
threshold.
More specifically, the committee reviews the migration
of risk and quality in the loan portfolio, the securitization
portfolio, and venture capital and subordinate financing
investments. It also reviews financial performance, capital
adequacy and BDC’s risk appetite statement; ensures that
treasury activities and related asset liability management
comply with BDC policy; and oversees the investments
of BDC’s pension funds.
The Board Investment Committee advises the board
on how effectively BDC is managing its Venture Capital,
Venture Capital Action Plan and Growth & Transition Capital
investment activities. It also approves transactions above a
certain threshold.
The Audit Committee advises the board on BDC’s oversight
and objective assessment of its financial performance and
financial statements, internal controls, financial reporting,
accounting standards and disclosure controls. It also keeps
the board informed of the quality and independence of
BDC’s internal and external audit functions.
The committee focuses on significant risks requiring
immediate attention. It reports to the SMC and the board
on these risks and plans to mitigate them.
The Credit Risk and Investment Committee includes
senior key leaders. They adjudicate and approve transactions
within prescribed limits. For larger transactions, they make
recommendations to the Board Credit and Risk Committee
or the Board Investment Committee.
The Valuation Committee oversees the assessment and
determination of the fair value of a portfolio of investments.
It includes senior key leaders and an external chartered
business valuator.
The Compliance and Security Committee reviews
and recommends actions related to security, information
management, BDC’s policies and corporate directives
framework, and compliance with applicable laws.
BDC AR15 | 39
Management’s Discussion and Analysis | Risk Management
BDC’s three risk management functions are ERM, credit risk
management and portfolio risk management, which includes
treasury risk management. These three functions:
The ERM policy outlines the way BDC manages risk by
identifying and assessing significant risks, and managing
them on an enterprise-wide basis, while our risk appetite
statement ensures a consistent understanding of our
risk tolerance and limits.
>> ensure that BDC applies appropriate risk management
principles, policies and corporate directives to manage
significant and emerging risks, according to risk
thresholds;
IDENTIFY
Every quarter, we identify, assess, document and classify
risks at the corporate and functional levels. Then we present
them to the Risk Management Committee, the SMC and
the Board of Directors for discussion. We also assess and
discuss risks related to all significant projects, new products
or services, and policy changes.
>> develop tools to measure, monitor and report on
these risks; and
>> provide timely and complete reports on these risks
to the organization’s risk management committees.
The Internal Audit Department promotes sound risk
management practices, which are outlined in BDC’s
corporate risk management policies. Through its risk-based
annual audit plan, it works to ensure that BDC follows
these practices.
ANALYZE AND MEASURE
We quantify and qualitatively assess the significant risks that
our activities pose. BDC updates related tools and models,
taking into consideration best practices in the financial
services industry. We measure risks across the organization
to ensure they reflect BDC’s policies, corporate directives,
standards and tolerance limits. Board members and senior
managers use this information to understand BDC’s risk
profile and portfolio performance.
THE ERM FRAMEWORK
Ide
nt i f y
>
An
al y
CONTROL AND MITIGATE
We set risk tolerance thresholds that reflect BDC’s objectives
and strategies. We also use policies and guidelines to codify
our governance and risk management culture.
z
an
>
e
lose and re
>
>> adequate and clear roles, responsibilities, processes,
policies, corporate directives and procedures;
sc
r, di
u re
eas
p or
t
dm
RISK
MANAGEMENT
BDC has the following lines of defence for mitigating its risks:
ig
a
te
M
o
o
n it
>> risk management functions and committees that provide
oversight and monitoring;
C o nt r
o
d
l an
m
it
>
Using an ERM framework helps BDC protect itself by
managing risk exposure, resolving uncertainty and building
reputational equity. It ensures that BDC makes risk-related
decisions in a methodical, consistent way.
BDC AR15 | 40
>> risk mitigation activities, such as hedging, insurance
risk management, business continuity planning,
information technology recovery planning, and
anti-fraud and anti-money laundering programs; and
>> business quality reviews and internal audits to ensure that
BDC is using appropriate and sound risk management
practices (every quarter, the Internal Audit Department
presents the results of these audits to the Audit
Committee).
Management’s Discussion and Analysis | Risk Management
MONITOR, DISCLOSE AND REPORT
We monitor activities affecting BDC’s risk profile, material
risk exposures and loss events, and act to align risk exposures
with risk appetites.
Risk process owners monitor, disclose and report risks,
with support and oversight from the Risk Management
Committee and risk management functions. They prepare
monthly or quarterly reports on all significant risks, and
they meet through risk management and board committees
to report and discuss the risks they manage.
MAJOR RISK CATEGORIES
STRATEGIC RISK
Strategic risk is the risk that BDC will set inappropriate
objectives, will adopt strategies based on inaccurate
knowledge of the market or will not allocate enough
resources to achieve its objectives.
Managing strategic risk
Our dedicated team annually updates our five-year corporate
plan using a rigorous process. The plan reflects BDC’s
knowledge, which is based on its research capacity and on its
relationships with knowledgeable stakeholders and more than
32,000 entrepreneurs. Senior management, the Board of
Directors and our shareholder, the Government of Canada,
approve the plan. BDC releases a public summary of the plan.
Capital adequacy
BDC ensures that it operates with an appropriate level of
capital in accordance with the nature and level of risks taken.
Our internal capital adequacy process evaluates capital
adequacy on both a regulatory (Treasury Board guidelines)
and an economic capital basis, and is used to establish capital
thresholds in line with our risk appetite.
BDC allocates capital among lines of business based
on needs and assessed risks in order to support new
and existing corporate activities and to consider capital
implications in its strategic and transactional decision-making.
In keeping with industry practices, and the core tenets of
sound financial and risk management, BDC also ensures that
the level of capital is sufficient to remain financially sustainable
during a recessionary scenario, using stress-testing analyses.
BDC conducts enterprise-wide stress tests on its significant
risks and portfolios to determine an appropriate level of capital
needed to withstand a sustained economic downturn.
BDC’s stress-testing framework seeks to ensure that we
are adequately capitalized, given the risks we take, and
supports the determination of limits that are used to manage
the risk levels and capital requirements, in line with BDC’s
risk appetite.
Please refer to page 32 of the annual report and Note 22—
Capital Management to the Consolidated Financial
Statements for additional information on BDC capital
management and adequacy.
FINANCIAL RISK
BDC is exposed to the following financial risks: credit risk,
market risk and liquidity risk. This section should be read
in conjunction with Note 23—Risk Management to the
Consolidated Financial Statements, which details BDC’s
financial risk management policies and measurements.
Credit risk
Credit risk is the direct or indirect risk of loss related to an
investee, or of loss due to default by a borrower, a counterparty
with whom BDC does business or an asset issuer.
Managing credit risk
The most important risk for BDC to manage is the credit risk
related to its commercial term lending—the largest part of
BDC’s portfolio.
It is at the business centre level, with the support of credit
risk adjudication, that we choose to take, mitigate or avoid
risk on individual transactions. All of our managers are
trained to assess overall credit risk. We base our decisions
on our experience with similar clients, and we use policies,
corporate directives, guidelines, business rules and
risk assessment tools to help us make these decisions.
Our adjudication process includes assigning a borrower rating
that reflects our estimate of the probability of default (PD)
over the life of the loan. PD estimates are calibrated using
a through-the-cycle approach. BDC uses internal risk
classification and scoring systems that consider quantitative
and qualitative criteria. Such criteria include an assessment
of the borrower’s financial strength, management quality,
financial flexibility and competitive strength. The quantitative
model output can be modified in some cases by expert
judgement, as prescribed within our credit policies.
Our internal risk classification is also used for portfolio
risk management, risk limit setting, product pricing and the
determination of economic capital.
BDC AR15 | 41
Management’s Discussion and Analysis | Risk Management
The table below, based on the annual PD, maps our internal
ratings to the ratings used by external ratings agencies.
While BDC follows leading risk management practices,
we generally assume more risk than a typical financial
institution, due to our mandate and risk appetite. As a
result, most of BDC’s risk profile is non-investment grade.
Please refer to Note 10—Loans to the Consolidated Financial
Statements for further information on loans outstanding by
grade equivalent.
BDC Loans Portfolio Credit Risk Exposure
BDC rating
Annual PD
Grade equivalent
S&P equivalent
Moody’s equivalent
0.5 - 1.0
1.5 - 2.0
2.5 - 4.0
4.5 - 5.0
5.5
6.0 or higher
0.1% - 0.3%
0.3% - 10.1%
Investment grade
Non-investment grade
10.1% - 99.9%
100%
Watchlist
Default
BBB+ to BBBBB+
BB to BBB+ to BCCC+ to CC
D
Baa1 to Baa3
Ba1
Ba2 to Ba3
B1 to B3
Caa1 to Ca
C
BDC Loans Performing Portfolio Classified by Credit Risk Exposure
as at March 31, 2015 (as a percentage of gross performing financing portfolio)
60
60%
45
40%
30
20%
15
0
0%
BBB+ to BBBInvestment grade
7%
BDC AR15 | 42
BB+
26%
BB to BBNon-investment grade
49%
B+ to B-
CCC+ to CC
Watchlist
14%
4%
Management’s Discussion and Analysis | Risk Management
The most common method used to mitigate credit risk
at the transaction level is to obtain quality collateral from
borrowers. Obtaining collateral cannot replace a rigorous
assessment of a borrower’s ability to meet its obligations,
but it is an important complement. Collateral is not required
in all cases; it depends upon the type of loan granted.
Please refer to Note 10—Loans for further information
about principal collateral pledged as security and our level
of security coverage.
In addition to managing credit risk on an individual,
transactional basis, BDC manages it on a portfolio basis.
Through monitoring, analysis and risk reports, portfolio
risk management ensures that the overall risk in the portfolio
is well diversified and consistent with BDC fulfilling its
mandate while achieving its financial objectives, in line with
its risk appetite.
Market risk
Market risk is the risk of financial loss that may arise from
developments in marketplace dynamics or from our inability
to forecast poor economic conditions quickly enough
to mitigate losses in our portfolio. It represents market
value fluctuations of BDC’s assets and liabilities arising
from volatility in interest rates, equity and foreign currency
levels. For BDC, market risk also arises from volatile and
unpredictable market events affecting the value of venture
capital and venture capital action plan investments.
Managing market risk
BDC applies a sound asset/liability framework in its funding
strategy and uses derivatives to manage and mitigate
exposure to equity markets, foreign currencies and
interest rates.
Liquidity risk
Liquidity risk is the risk that BDC could be unable to honour
all of its contractual commitments as they become due.
Managing liquidity risk
To avoid business disruptions, BDC invests in highly liquid
and high-quality securities with active secondary markets
that it can sell to a wide range of counterparties.
OPERATIONAL RISK
Operational risk is the risk of losses from day-to-day errors
caused by people, breakdowns in processes or systems, or
events beyond our control, such as natural disasters. It includes
but is not limited to the following four categories of risk:
human capital, reputational, environmental, and legal and
regulatory risks.
Operational risk is present in all daily operations at BDC.
As such, all of BDC’s policies and corporate directives
help BDC identify, analyze, mitigate and monitor this risk.
They govern the way BDC manages its human capital and
processes, safeguards information, administers loans and
investments, and carries out its business and corporate
activities. These activities are subject to internal audits.
In addition, BDC has implemented an internal control
framework based on the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)
and an internal control certification process.
Human capital risk
BDC’s long-term business success depends on its people.
Its ability to attract, develop and engage the right people
dictates its organizational capacity and enables it to fulfill
its mission to help Canadian entrepreneurs succeed.
Managing human capital risk
To achieve optimal performance levels, we continuously
assess the workforce factors and human resources practices
that could affect performance. We develop strategies
and plans to address these issues, including appropriate
compensation, and mitigate human capital risks.
Learning and development are powerful means to prepare
employees to achieve their full professional potential, as well
as foster engagement. They also ensure BDC has the right
qualified people it needs to achieve its strategic objectives
and adapt to the dynamic, challenging business environment.
Reputational risk
Reputational risk is the risk that the activities or relationships
of BDC or its employees will breach, or appear to breach,
its mandate, culture or values, or applicable laws. That could
damage BDC’s reputation and affect its ability to do business.
BDC AR15 | 43
Management’s Discussion and Analysis | Risk Management
BDC must meet Canadians’ expectations in various ways,
including:
>> meeting the shareholder’s expectation that BDC
will support entrepreneurship;
>> the eligibility corporate directive, which includes the
United Nations Global Compact principles and the
OECD Guidelines for Multinational Corporations;
>> the venture capital policy and corporate directive;
>> carrying out its mandate effectively;
>> the disclosure policy and corporate directive; and
>> meeting legal and broadly held ethical standards;
>> the policy on the handling of referrals and enquiries
from members of Parliament, senators, ministerial staff
and BDC directors.
>> refusing to support clients who fail to meet societal
expectations of responsible behaviour; and
>> doing business in an environmentally responsible manner.
Managing reputational risk
Complying with BDC’s ERM principles is the cornerstone
of managing reputational risk.
BDC uses its corporate social responsibility framework with
strategic purpose and rigour to manage reputational risk.
At a corporate level, BDC tracks the interests of key opinion
leaders and stakeholders through dialogue and media
monitoring, including social media monitoring.
BDC considers reputational risk when considering potential
loans or investments. It screens the potential client, and does
due diligence for the potential transaction. Our procedures
detect whether a potential client is involved in money
laundering or terrorist activities. We also ensure he or she
meets requirements related to transparency and disclosure,
environmental performance, ethics, and credit eligibility.
Reputational risk management is part of our corporate risk
policies and corporate directives, which include the following:
>> the Board Code of Conduct;
>> the BDC Employee Code of Conduct, Ethics and Values
(including the policy on the disclosure of wrongdoing,
the anti-fraud corporate directive, and the anti-money
laundering and anti-terrorist financing corporate
directive);
>> the policy on personal trading for employees and
the policy on personal trading for directors;
>> the charter of client rights;
>> the policy and corporate directives on authorization
limits and levels of authority;
>> the ERM policy;
>> the credit risk management policy;
>> the policy on the environment;
BDC AR15 | 44
Environmental risk
Environmental risk is the risk of damage to the environment
or reputational harm caused when BDC’s operations or
financing fail to meet applicable laws or society’s expectations
of environmental stewardship. It is often embedded in other
risks, such as credit, legal or regulatory risk.
Managing environmental risk
BDC has well-defined processes to identify, assess and
mitigate environmental risk throughout the loan and
investment lifecycle. These processes minimize direct losses
due to environmental impairment of assets under BDC’s
charge and ensure that BDC deals only with clients who
respect environmental regulations and best practices. They
also ensure that BDC, in accordance with its responsibilities
under the Canadian Environmental Assessment Act, does not
fund projects that could significantly harm the environment.
Legal and regulatory risk
Legal and regulatory risk is the risk that our failure to comply
with laws, regulations, public sector guidelines, industry
codes, corporate governance or ethical standards will harm
our business activities, earnings, regulatory relationships
or reputation. It includes the effectiveness with which we
prevent and handle litigation.
Managing legal and regulatory risk
BDC’s Legal Affairs and Corporate Secretariat, through a
legislative compliance framework, helps BDC employees and
management comply with laws and regulations, and manages
all litigation involving BDC. It gives the Board of Directors
the information it needs to comply with laws and corporate
governance, and to oversee BDC’s management of its legal
and regulatory risk.
BDC is undergoing a review of risk management and
governance practices by the Office of the Superintendent of
Financial Institutions (OSFI). OSFI is the prudential regulator
and supervisor for federally regulated financial institutions in
Canada. Results from the review will be used to strengthen
and enhance BDC’s management of risk.
5. Accounting and Control Matters
SIGNIFICANT ACCOUNTING POLICIES
BDC’s significant accounting policies are described in Note 3
to the Consolidated Financial Statements. Certain of these
policies, as well as estimates and assumptions made in
applying such policies, are considered critical, as they require
significant judgements by management. BDC has established
control procedures, including formal representations and
certification by senior officers, to ensure that accounting
policies, estimates and assumptions are reviewed and applied
consistently from period to period.
FUTURE CHANGES IN ACCOUNTING POLICIES
The final version of IFRS 9, Financial Instruments, was
published on July 24, 2014. IFRS 9 is effective for our fiscal
year beginning on April 1, 2018. As a result, it has not been
applied in preparing our Fiscal 2015 Consolidated Financial
Statements.
On May 28, 2014, the final version of IFRS 15, Revenue
from Contracts with Customers, was published. The new
standard is effective for our fiscal year beginning on
April 1, 2017. As a result, it has not been applied in
preparing our Fiscal 2015 Consolidated Financial Statements.
Information on IFRS 9 and IFRS 15 is provided in Note 4
to the Consolidated Financial Statements.
JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
BDC’s significant accounting judgements, estimates and
assumptions are described in Note 5 to the Consolidated
Financial Statements. Critical accounting estimates that have
the most significant effect on the amounts recognized in
the Consolidated Financial Statements include those related
to the allowance for credit losses, the fair value of financial
instruments, qualifying hedge relationships, post-employment
benefits, impairment of available-for-sale assets and
consolidation.
CONTROLS AND PROCEDURES
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as well as
appropriate disclosure controls and procedures.
Disclosure controls and procedures are designed to provide
reasonable assurance that all relevant information is gathered
and reported to senior management on a timely basis so that
BDC can make appropriate decisions about public disclosure.
BDC has a certification regime to evaluate the design and
effectiveness of our internal control over financial reporting
and our disclosure controls and procedures. This certification
regime is based on the Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
BDC is using the updated Internal Control Framework
dated May 14, 2013.
BDC has reached the following conclusion regarding
the design and effectiveness of internal control over
financial reporting:
As of March 31, 2015, certifying officers evaluated the design
and effectiveness of internal control over financial reporting.
Based on the results of the evaluation, they concluded
that internal control over financial reporting is adequately
designed and operates effectively to provide reasonable
assurance about the reliability of financial reporting and
of financial statements prepared in accordance with IFRS.
BDC has reached the following conclusion regarding
the design and effectiveness of disclosure controls
and procedures:
As of March 31, 2015, certifying officers evaluated the design
and effectiveness of disclosure controls and procedures.
Based on the results of the evaluation, they concluded that
disclosure controls and procedures are adequately designed
and operate effectively to provide reasonable assurance
that material information disclosed is recorded, processed,
summarized and presented within the requested timeframe,
and that it is communicated to management on a timely basis
for decision-making purposes.
Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and of financial statements prepared for external
purposes in accordance with IFRS. However, because of its
inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.
BDC AR15 | 45
BDC AR15 | 46
Consolidated
Financial Statements
Management’s Responsibility for Financial Information
Independent Auditors’ Report
Consolidated Statement of Financial Position
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
48
49
50
51
52
53
54
55
BDC AR15 | 47
Consolidated Financial Statements
Management’s Responsibility for Financial Information
The Consolidated Financial Statements of the Business Development Bank of Canada (BDC) were prepared and presented by
management in accordance with International Financial Reporting Standards. The information contained therein normally includes
amounts requiring estimations that have been made based upon informed judgement as to the expected results of current transactions
and events. The financial information presented elsewhere in this annual report is consistent with the Consolidated Financial Statements.
In discharging its responsibility for the integrity, fairness and quality of the Consolidated Financial Statements and for the accounting
systems from which they are derived, management maintains a system of internal control designed to provide reasonable assurance
that transactions are authorized, assets are safeguarded and proper records are maintained. BDC has a certification regime to
evaluate the design and effectiveness of its internal control over financial reporting and its disclosure controls and procedures.
This certification regime is based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Refer to the Management’s Discussion and Analysis section of the annual report for additional
information (p. 45).
The system of internal controls is supported by internal audit staff who conduct periodic reviews of different aspects of BDC’s operations.
In addition, the Chief Audit Executive, Internal Audit and the external auditors have full and free access to the Audit Committee of the
Board of Directors, which is responsible for overseeing and reviewing management’s internal control and reporting responsibilities.
The Board of Directors, through the Audit Committee, which is entirely composed of independent directors, is responsible for
reviewing and approving the audited annual Consolidated Financial Statements.
BDC’s independent auditors, Deloitte s.e.n.c.r.l., Chartered Professional Accountants, and the Auditor General of Canada have audited
BDC’s Consolidated Financial Statements and their report indicates the scope of their audit and their opinion on the Consolidated
Financial Statements.
Jean-René Halde
President and Chief Executive Officer
Montreal, Canada
June 10, 2015
BDC AR15 | 48
Paul Buron, cpa, ca
Executive Vice President
and Chief Financial and
Risk Officer (CFRO)
Consolidated Financial Statements
Independent Auditors’ Report
To the Minister of Industry
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial
statements of Business Development Bank of Canada, which
comprise the consolidated statement of financial position as
at 31 March 2015, and the consolidated statement of income,
consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of
cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the
Consolidated Financial Statements
Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We conducted our
audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of
the consolidated financial statements.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Business
Development Bank of Canada as at 31 March 2015, and its
financial performance and its cash flows for the year then ended
in accordance with International Financial Reporting Standards.
Other Matter
The consolidated financial statements of Business Development
Bank of Canada for the year ended 31 March 2014 were audited
by the Auditor General of Canada and another auditor who
expressed an unmodified opinion on those consolidated statements
on 11 June 2014.
Report on Other Legal and Regulatory Requirements
As required by the Financial Administration Act, we report that,
in our opinion, the accounting principles in International Financial
Reporting Standards have been applied on a basis consistent with
that of the preceding year.
Further, in our opinion, the transactions of Business Development
Bank of Canada and its wholly-owned subsidiary that have come to
our notice during our audit of the consolidated financial statements
have, in all significant respects, been in accordance with Part X
of the Financial Administration Act and regulations, the Business
Development Bank of Canada Act, the charter and by-laws of the
Business Development Bank of Canada and its wholly-owned
subsidiary and the directives issued pursuant to Section 89 of the
Financial Administration Act described in Notes 1 and 19 to the
consolidated financial statements.
Maurice Laplante, CPA auditor, CA
Assistant Auditor General
for the Auditor General of Canada
1
1 CPA
auditor, CA, public accountancy permit No. A116129
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
10 June 2015
Montréal, Canada
BDC AR15 | 49
Consolidated Financial Statements
Consolidated Statement of Financial Position
Notes
March 31,
2015
March 31,
2014
7
8
667,084
53,322
676,529
54,501
9
10
11
12
13
407,731
18,414,044
642,810
709,639
47,643
20,221,867
24,435
48,961
100,429
12,919
21,129,017
336,477
17,241,064
576,677
495,096
5,169
18,654,483
26,418
58,280
83,527
16,219
19,569,957
101,996
7,515
106,027
10,706
15,435,747
548,709
15,984,456
219,664
36,266
16,349,897
14,056,623
775,340
14,831,963
188,221
42,991
15,179,908
2,138,400
27,778
2,570,454
7,934
4,744,566
34,554
4,779,120
21,129,017
2,138,400
27,778
2,167,279
5,453
4,338,910
51,139
4,390,049
19,569,957
(in thousands of Canadian dollars)
ASSETS
Cash and cash equivalents
Derivative assets
Loans and investments
Asset-backed securities
Loans
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
Total loans and investments
Property and equipment
Intangible assets
Net defined benefit asset
Other assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Accounts payable and accrued liabilities
Derivative liabilities
Borrowings
Short-term notes
Long-term notes
Total borrowings
Net defined benefit liability
Other liabilities
Total liabilities
Equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Equity attributable to BDC’s shareholder
Non-controlling interests
Total equity
Total liabilities and equity
Guarantees and contingent liabilities (Note 26)
Commitments (Note 27)
The accompanying notes are an integral part of these Consolidated Financial Statements.
Brian Hayward
Jean-René Halde
DirectorDirector
Chairperson, Audit Committee President and Chief Executive Officer
BDC AR15 | 50
14
15
19
16
17
8
18
19
20
21
Consolidated Financial Statements
Consolidated Statement of Income
For the year ended March 31 (in thousands of Canadian dollars)
2015
Interest income
Interest expense
Net interest income
Net realized gains (losses) on investments
Consulting revenue
Fee and other income
Net realized gains (losses) on other financial instruments
Net revenue
Provision for credit losses
Net change in unrealized appreciation (depreciation) of investments
Net unrealized foreign exchange gains (losses) on investments
Net unrealized gains (losses) on other financial instruments
Income before operating and administrative expenses
Salaries and benefits
Premises and equipment
Other expenses
Operating and administrative expenses
Net income
Net income attributable to:
BDC’s shareholder
Non-controlling interests
Net income
2014
1,070,441
127,166
943,275
(35,064)
17,044
43,767
(5,285)
963,737
(95,923)
37,217
27,974
(2,076)
930,929
303,527
46,171
90,541
440,239
490,690
1,020,165
132,813
887,352
(24,885)
21,684
41,394
(8,031)
917,514
(72,881)
3,201
14,584
(1,043)
861,375
293,677
40,611
94,475
428,763
432,612
490,516
174
490,690
425,968
6,644
432,612
The accompanying notes are an integral part of these Consolidated Financial Statements.
Note 24 provides additional information on the Consolidated Statement of Income and Note 25 provides segmented information.
BDC AR15 | 51
Consolidated Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended March 31 (in thousands of Canadian dollars)
2015
2014
490,690
432,612
Other comprehensive income (loss)
Items that may be reclassified subsequently to net income
Net change in unrealized gains (losses) on available-for-sale assets
1,740
290
Net unrealized gains (losses) on cash flow hedges
Reclassification to net income of losses (gains) on cash flow hedges
Net change in unrealized gains (losses) on cash flow hedges
1,155
(414)
741
(2,169)
(1,236)
(3,405)
Total items that may be reclassified subsequently to net income
2,481
(3,115)
Net income
Items that will not be reclassified to net income
Remeasurements of net defined benefit asset or liability
Other comprehensive income (loss)
(32,728)
(30,247)
52,748
49,633
Total comprehensive income
460,443
482,245
Total comprehensive income attributable to:
BDC’s shareholder
Non-controlling interests
Total comprehensive income
460,269
174
460,443
475,601
6,644
482,245
The accompanying notes are an integral part of these Consolidated Financial Statements.
BDC AR15 | 52
Consolidated Financial Statements
Consolidated Statement of Changes in Equity
For the year ended March 31 (in thousands of Canadian dollars)
Balance as at March 31, 2014
Share
capital
Contributed
surplus
2,138,400
27,778
Accumulated other comprehensive income (loss) Equity
attributable Non
to BDC’s controlling Total
Retained AvailableCash flow
earnings for-sale assets
hedges
Total shareholder interests equity
2,167,279
2,207
3,246
5,453
4,338,910
51,139
4,390,049
490,516
174
490,690
Total comprehensive income
490,516
Net income
Other comprehensive income (loss)
Net change in unrealized gains (losses)
on available-for-sale assets
Net change in unrealized gains (losses) on cash flow hedges
Remeasurements of net defined benefit asset or liability
Other comprehensive income (loss)
–
–
Total comprehensive income
Dividends on common shares
Distributions to non-controlling interests
Capital injections from non-controlling interests
Transactions with owner, recorded
directly in equity
Balance as at March 31, 2015
741
1,740
741
–
(32,728)
(32,728)
1,740
741
2,481
1,740
741
(32,728)
(30,247)
–
457,788
1,740
741
2,481
460,269
(54,613)
–
–
2,138,400
27,778
Share
capital
Balance as at March 31, 2013
1,740
(54,613)
2,570,454
–
174
(54,613)
–
–
–
3,947
3,987
7,934
(54,613)
4,744,566
1,740
741
(32,728)
(30,247)
460,443
(20,163)
3,404
(54,613)
(20,163)
3,404
(16,759)
(71,372)
34,554
4,779,120
Accumulated other comprehensive income (loss) Equity
attributable NonContributed Retained Available
to BDC’s controlling Total
Cash flow
surplus earnings for-sale assets
hedges
Total shareholder interests equity
2,088,400
27,778
1,748,156
1,917
6,651
8,568
3,872,902
82,773
3,955,675
425,968
6,644
432,612
–
290
(3,405)
52,748
49,633
6,644
482,245
(41,232)
2,954
(59,593)
(41,232)
2,954
50,000
Total comprehensive income
425,968
Net income
Other comprehensive income (loss)
Net change in unrealized gains (losses)
on available-for-sale assets
Net change in unrealized gains (losses) on cash flow hedges
Remeasurements of net defined benefit asset or liability
Other comprehensive income (loss)
–
–
52,748
52,748
Total comprehensive income
–
478,716
–
Dividends on common shares
Distributions to non-controlling interests
Capital injections from non-controlling interests
Issuance of common shares
50,000
Transactions with owner, recorded
directly in equity
50,000
Balance as at March 31, 2014
2,138,400
290
(3,405)
290
(3,405)
290
(3,405)
(3,115)
290
(3,405)
52,748
49,633
290
(3,405)
(3,115)
475,601
(59,593)
(59,593)
50,000
–
(59,593)
–
–
–
(9,593)
(38,278)
(47,871)
27,778
2,167,279
2,207
3,246
5,453
4,338,910
51,139
4,390,049
The accompanying notes are an integral part of these Consolidated Financial Statements.
BDC AR15 | 53
Consolidated Financial Statements
Consolidated Statement of Cash Flows
For the year ended March 31 (in thousands of Canadian dollars)
Operating activities
Net income
Adjustments to determine net cash flows
Interest income
Interest expense
Net realized losses (gains) on investments
Provision for credit losses
Net change in unrealized depreciation (appreciation) on investments
Net unrealized foreign exchange losses (gains) on investments
Net unrealized losses (gains) on other financial instruments
Defined benefits funding in excess of amounts expensed
Depreciation of property and equipment, and amortization of intangible assets
Loss (gain) on sale of property and equipment
Other
Interest expense paid
Interest income received
Disbursements for loans
Repayments of loans
Changes in operating assets and liabilities
Net change in accounts payable and accrued liabilities
Net change in other assets and other liabilities
Net cash flows provided (used) by operating activities
2015
2014
490,690
432,612
(1,070,441)
127,166
35,064
95,923
(37,217)
(27,974)
2,076
(18,186)
17,193
54
(27,965)
(129,633)
1,046,060
(4,225,955)
3,009,127
(1,020,165)
132,813
24,885
72,881
(3,201)
(14,584)
1,043
(33,803)
12,055
–
(14,049)
(133,625)
1,006,820
(4,047,973)
2,631,482
(4,031)
(3,425)
(721,474)
(413)
(4,218)
(957,440)
(210,666)
141,182
(218,335)
139,376
(190,004)
23,175
(46,165)
100
(5,496)
(466)
17
(367,282)
(200,426)
301,643
(156,923)
115,485
(118,274)
97,388
(5,702)
–
(7,977)
(27,791)
–
(2,577)
Financing activities
Net change in short-term notes
Issue of long-term notes
Repayment of long-term notes
Distributions to non-controlling interests
Capital injections from non-controlling interests
Issuance of common shares
Dividends paid on common shares
Net cash flows provided (used) by financing activities
1,380,330
154,600
(384,247)
(20,163)
3,404
–
(54,613)
1,079,311
1,325,967
192,435
(535,663)
(41,232)
2,954
50,000
(59,593)
934,868
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(9,445)
676,529
667,084
(25,149)
701,678
676,529
Investing activities
Disbursements for asset-backed securities
Repayments and proceeds on sale of asset-backed securities
Disbursements for subordinate financing investments
Repayments of subordinate financing investments
Disbursements for venture capital investments
Proceeds on sale of venture capital investments
Disbursements for venture capital action plan investments
Proceeds on sale of venture capital action plan investments
Acquisition of property and equipment
Acquisition of intangible assets
Proceeds from sale of property and equipment
Net cash flows provided (used) by investing activities
The accompanying notes are an integral part of these Consolidated Financial Statements.
BDC AR15 | 54
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
1.
ACT OF INCORPORATION, OBJECTIVES AND
OPERATIONS OF THE CORPORATION
The Business Development Bank of Canada is a Crown corporation that was established by an Act of Parliament on December 20, 1974,
as the Federal Business Development Bank and continued under its current name by an Act of Parliament that was enacted on
July 13, 1995. The Business Development Bank of Canada is incorporated in Canada and wholly owned by the Government of Canada.
The Corporation’s head office is located at 5 Place Ville Marie, Suite 400, Montreal, Quebec, Canada.
The objectives of the Business Development Bank of Canada and its subsidiaries (together, BDC) are to promote and assist in the
establishment and development of business enterprises in Canada, with a focus on small and medium-sized enterprises, by providing
a range of complementary lending, investment and consulting services. BDC offers Canadian companies services tailored to meet
their current needs while earning an appropriate return on equity, which is used to further BDC’s activities.
BDC does not receive appropriations from the Government of Canada. To finance its objectives, BDC borrows funds from
Her Majesty the Queen in Right of Canada acting through the Minister of Finance. Prior to April 21, 2008, BDC issued debt instruments,
which were secured by the Government of Canada. The Business Development Bank of Canada Act (BDC Act) also allows the use of
hybrid capital instruments to provide the capital required for its operations. The Crown would not be liable for payment of amounts
owing under such capital instruments, none of which were outstanding as at March 31, 2015, and March 31, 2014.
BDC is for all purposes an agent of Her Majesty the Queen in Right of Canada. BDC is also named in Part I of Schedule III to the
Financial Administration Act (FAA) and is accountable for its affairs to Parliament through the Minister of Industry. Pursuant to section 89
of the FAA, BDC, together with a number of other Crown corporations, has to comply with a directive issued in 2008 to ensure
that Crown corporations give due consideration to the personal integrity of those they lend to or provide benefits to, in accordance
with the government’s policy to improve the accountability and integrity of federal institutions. In fiscal 2009, BDC completed the
implementation of the requirements of section 89 and confirms that the directive has been met since then.
2.
BASIS OF PREPARATION
STATEMENT OF COMPLIANCE
BDC has prepared its Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS).
These Consolidated Financial Statements were approved for issue by the Board of Directors on June 10, 2015.
BASIS OF PRESENTATION AND MEASUREMENT
The Consolidated Financial Statements have been prepared on a historical cost basis, except for the following:
>> available-for-sale financial assets, financial assets and financial liabilities at fair value through profit or loss, and derivative financial
instruments have been measured at fair value; and
>> the net defined benefit asset or liability in respect of post-employment benefits has been recognized as the present value of the
defined benefit obligation less the fair value of the plans’ assets.
These Consolidated Financial Statements are presented in Canadian dollars, which is BDC’s functional currency as well as the functional
currency of its subsidiaries. Unless otherwise specified, the figures presented in the Consolidated Financial Statements are stated in
thousands of Canadian dollars.
BDC AR15 | 55
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
2. BASIS OF PREPARATION (continued)
BASIS OF CONSOLIDATION
BDC conducts business through a variety of entities, including a wholly owned subsidiary, and several investment funds and other
entities that are considered to be subsidiaries for financial reporting purposes.
The Consolidated Financial Statements of BDC comprise the financial statements of the parent entity and the consolidated financial
statements of the subsidiaries referred to above as of March 31, 2015 and March 31, 2014. The financial statements of the subsidiaries
are prepared using uniform accounting policies and valuation methods for similar transactions.
SUBSIDIARIES
For financial reporting purposes, subsidiaries are defined as entities controlled by BDC. BDC controls an entity when it is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the entity. Control is presumed when BDC directly or indirectly holds the majority of the voting rights. The existence and effect
of potential voting rights are considered when assessing whether BDC controls another entity.
In instances where BDC does not hold a majority of the voting rights, further analysis is performed to determine whether or not BDC
has control of the entity. BDC is deemed to have control when, according to the terms of the shareholder’s and/or limited partnership
agreements, it makes most of the decisions affecting relevant activities.
Subsidiaries are fully consolidated from the date that control begins until the date that control ceases. No subsidiary has been acquired
or disposed of during the reporting periods. Intercompany transactions and balances are eliminated upon consolidation.
The following entities have been consolidated in BDC’s Consolidated Financial Statements.
Country of
incorporation
and residence
Proportion of
ownership and
voting power held
Basis of control
Entity
Principal activity
BDC Capital Inc.
Holding company structure
for investment activities
Canada
100%
Voting power
AlterInvest Investment Fund Inc.
Investments in
subordinate financing
Canada
50%
Voting power and
contractual agreements
AlterInvest Fund L.P.
Investments in
subordinate financing
Canada
50%
Voting power and
contractual agreements
AlterInvest II Fund L.P.
Investments in
subordinate financing
Canada
50%
Voting power and
contractual agreements
Go Capital L.P.
Investments in
venture capital
Canada
20%
Voting power and
contractual agreements
GO CAPITAL L.P.
Although BDC owns less than half of Go Capital L.P. and holds less than half of the voting power, management has determined,
based on the terms of the agreement under which Go Capital L.P. was established, that BDC controls this entity. As the general
partner, BDC has the current ability to direct the relevant activities of Go Capital L.P. and has the power to affect the variable returns,
to which BDC is exposed.
Go Capital L.P.’s year-end date is December 31, as agreed upon by the partners at the time this entity was established. Consequently,
additional financial information regarding this entity is prepared for the interim period for the purposes of consolidation.
BDC AR15 | 56
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
2. BASIS OF PREPARATION (continued)
ALTERINVEST II FUND L.P.
During fiscal 2014, having reached the end of their intended lives, AlterInvest Fund L.P. and AlterInvest Investment Fund Inc.
began liquidating their investments. Those investments that were not reimbursed by their respective clients were transferred into
AlterInvest II Fund L.P. As each partner has equal interest in all of the funds, their partnership interest in AlterInvest II Fund L.P. did not
change as a result of these transactions. During fiscal 2015, all investments were fully liquidated, and these entities will be dissolved.
As at March 31, 2014, the total fair value of investments transferred to AlterInvest II Fund L.P. was $5.6 million (cost $7.7 million),
calculated as per the fair value methodology described in Note 3—Significant Accounting Policies. These transactions were non-cash
and had no impact on profit or loss.
During fiscal 2015, there were no investments transferred to AlterInvest II Fund L.P.
NON-CONTROLLING INTERESTS
Interests in the equity of subsidiaries not attributable to the parent entity are reported in consolidated equity as non-controlling
interests. Net income and each component of other comprehensive income are attributed to BDC’s shareholder and to non-controlling
interests in accordance with their respective shareholdings, even if this results in the non-controlling interests having a deficit balance.
ASSOCIATES
Associates are those entities in which BDC has significant influence, but not control, over the financial and operating policies. Subordinate
financing and venture capital investments in associates that are held as part of BDC’s investment portfolio by BDC Capital Inc.
are carried in the Consolidated Statement of Financial Position at fair value. This treatment is permitted by International Accounting
Standard (IAS) 28, Investments in Associates, which permits investments in an associate held by an entity that is a venture capital
organization or other similar entity to elect to measure these investments at fair value through profit or loss in accordance with
IAS 39, Financial Instruments: Recognition and Measurement.
3.
SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below.
These policies have been consistently applied to all periods presented in these Consolidated Financial Statements and have been
applied consistently by all entities consolidated by BDC.
FINANCIAL INSTRUMENTS
RECOGNITION AND MEASUREMENT OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognized when BDC becomes party to the contractual provisions of the financial instrument.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and
all substantial risks and rewards are transferred. A financial liability is derecognized when the related contractual obligation is extinguished,
discharged or cancelled, or when it expires.
Financial instruments are recognized and derecognized using settlement date accounting.
On initial recognition, financial instruments are measured at fair value. Fair value on initial recognition includes transaction costs directly
attributable to the acquisition or issue of financial instruments, except for financial instruments carried at fair value through profit or loss,
for which transaction costs are recognized in net income in the period when they are incurred.
BDC AR15 | 57
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS (continued)
RECOGNITION AND MEASUREMENT OF FINANCIAL INSTRUMENTS (continued)
Financial instruments are measured in subsequent periods either at fair value or at amortized cost using the effective interest rate method,
depending on the financial instrument classification.
The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the
financial asset or liability to its carrying amount. When calculating the effective interest rate, BDC estimates future cash flows, considering all
contractual terms of the financial instrument.
CLASSIFICATION OF FINANCIAL INSTRUMENTS
Fair value through profit or loss
Financial instruments carried at fair value through profit or loss include financial instruments that are either (i) classified as
held-for-trading, or (ii) designated as at fair value through profit or loss upon initial recognition if they meet certain conditions.
Financial instruments classified as held-for-trading
A financial instrument is classified as held-for-trading if:
>> it is acquired or incurred principally for the purpose of selling or repurchasing instruments in the near term; or
>> at initial recognition, it is part of a portfolio of identified financial instruments that are managed together and for which there is
evidence of a recent actual pattern of short-term profit-taking.
Derivative financial instruments are also classified as held-for-trading unless they are designated as hedging instruments.
Financial instruments designated as at fair value through profit or loss
A financial instrument can be designated as at fair value through profit or loss in the following circumstances:
>> the asset or liability is managed, evaluated and reported internally on a fair value basis;
>> the designation eliminates or significantly reduces an accounting mismatch that would otherwise arise; or
>> the asset or liability contains an embedded derivative that is separable and significantly modifies the cash flows that would
otherwise be required under the contract.
A description of the basis for each designation is set out in the major types of financial instruments section of this note.
Subsequent to initial recognition, financial instruments classified or designated as at fair value through profit or loss are measured at
fair value with the variation of unrealized gains or losses being recognized in the Consolidated Statement of Income as:
>> net change in unrealized appreciation or depreciation of investments, or net unrealized foreign exchange gains or losses on
investments, when related to asset-backed securities, subordinate financing, venture capital investments and venture capital
action plan investments; or
>> net unrealized gains or losses on other financial instruments when related to derivatives and borrowings.
Gains and losses upon the sale, disposal or write-off of these financial instruments are included directly in the Consolidated Statement
of Income and are reported as:
>> net realized gains or losses on investments when related to asset-backed securities, subordinate financing, venture capital
investments and venture capital action plan investments; or
>> net realized gains or losses on other financial instruments when related to derivatives and borrowings.
BDC AR15 | 58
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS (continued)
CLASSIFICATION OF FINANCIAL INSTRUMENTS (continued)
Available-for-sale financial assets
Available-for-sale assets are non-derivative financial assets that are:
>> intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity, or changes in interest
rates, exchange rates or equity prices; and
>> not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.
Subsequent to initial recognition, available-for-sale assets are measured at fair value, with unrealized gains and losses recorded in other
comprehensive income (OCI) until the asset is derecognized, with the exception of impairment losses, which are recorded in the
Consolidated Statement of Income during the period in which the asset is determined to have become impaired.
Upon disposal of available-for-sale assets, the accumulated fair value adjustments recognized in OCI are reclassified to the Consolidated
Statement of Income and are reported as net realized gains or losses on investments.
Cash flow hedges
BDC designates certain derivatives held for risk management as cash flow hedges. BDC documents all hedging relationships and its
risk management objectives, along with its strategy for carrying out the hedge transactions. BDC assesses whether the derivatives
used in hedging transactions are highly effective in offsetting changes in cash flow of hedged items, both at inception and over the life
of the hedge.
Subsequent to initial recognition, derivatives designated as cash flow hedges are measured at fair value. The effective portion of changes
in fair value of these derivatives is recognized in OCI and accumulated other comprehensive income (AOCI), while changes related
to the ineffective portion are recorded in the Consolidated Statement of Income as net unrealized gains or losses on other financial
instruments. Amounts in AOCI are recycled to the Consolidated Statement of Income in the periods where the hedged items affect
net income. They are recorded in the financial statement lines associated with the related hedged items.
If these hedging instruments expire, are sold or no longer meet the criteria for hedge accounting, the amounts previously recognized
in OCI are reclassified to the Consolidated Statement of Income as net realized gains or losses on other financial instruments during
the periods when the variability in the cash flows of the hedged item affects net income. However, if a forecasted transaction is no
longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Consolidated
Statement of Income under net realized gains or losses on other financial instruments.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest rate method.
Financial liabilities measured at amortized cost
Financial liabilities that are not carried at fair value through profit or loss fall into the financial liabilities category and are measured
subsequently at amortized cost using the effective interest rate method.
BDC AR15 | 59
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS (continued)
MAJOR TYPES OF FINANCIAL INSTRUMENTS
Cash equivalents
Cash equivalents include short-term bank notes that, at the original acquisition date, have maturities of less than three months and
are used to manage liquidity risk.
Cash equivalents have been classified as loans and receivables.
Asset-backed securities
The asset-backed securities (ABS) portfolio consists of investment-grade senior and subordinated notes issued by way of prospectus
or private placement.
Investment-grade senior ABS are classified as available-for-sale assets and subordinated ABS notes are designated as at fair value
through profit or loss on the basis that they are reported to and evaluated by senior management on a fair value basis. ABS presented
on the Consolidated Statement of Financial Position include accrued interest receivable.
The fair value of ABS is calculated using forecasted cash flows and an estimated yield curve that is derived from the Canadian
government yield curve and ABS spread for comparable transactions. The result is adjusted to reflect the risk of the underlying assets
and deal structure.
A loss or gain on initial recognition of ABS is recorded if there is a difference between the security’s yield and the market-demanded
yield for similar investments. This loss or gain is deferred and amortized over the life of the security using the effective interest rate
method and recognized in interest income.
Impairment of asset-backed securities
At each reporting date, BDC reviews ABS classified as available-for-sale for possible impairments or reversals of previously recognized
impairments. BDC determines that ABS are impaired when there is objective evidence of impairment as a result of one or more events
that occurred after the initial recognition of the asset and when that loss event (or events) has an impact on the estimated future cash
flows of the financial asset or group of financial assets that can be reliably estimated. Refer to Note 5—Significant Accounting Judgements,
Estimates and Assumptions, for more information regarding the criteria used to determine whether an impairment has occurred.
Impairment losses and reversals of impairment losses are recognized in the Consolidated Statement of Income during the period in
which objective evidence of impairment or reversal of impairment is identified.
Loans
Loans are classified as loans and receivables. They are measured at amortized cost using the effective interest rate method, less
allowance for credit losses. Loans presented on the Consolidated Statement of Financial Position include accrued interest receivable.
Allowance for credit losses
The allowance for credit losses is maintained at a level considered adequate to absorb the credit losses existing in the portfolio at the
financial reporting date. Allowances for credit losses are established at both the individual and collective levels.
BDC reviews its loan portfolio on an individual asset basis to assess credit risk and determines whether there is any objective evidence
of impairment for which a loss should be recognized in the Consolidated Statement of Income. For BDC, there is objective evidence
of impairment when the interest or principal of the loan is more than three consecutive months in arrears or if there is reason to
believe that a portion of the principal or interest cannot be collected.
BDC AR15 | 60
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS (continued)
MAJOR TYPES OF FINANCIAL INSTRUMENTS (continued)
Loans (continued)
Allowance for credit losses (continued)
When a loan is deemed impaired, interest accrual recognition ceases and the carrying amount of the loan is reduced to the present
value of its estimated future cash flows discounted using (i) the initial effective interest rate of the loan for fixed rate loans or (ii) the rate
at time of impairment for floating rate loans. If cash flows cannot be reasonably determined, the estimated fair value of any underlying
collateral is used, whether or not foreclosure is probable.
The carrying amounts of impaired loans are first reduced through the use of an allowance account, and then written off if and when
all collection efforts have been exhausted and no further prospect of recovery is likely. The amounts of the initial impairment losses,
as well as any subsequent increases or reversals of these impairment losses, are recognized in the provision for credit losses in the
Consolidated Statement of Income.
Loans for which an individual allowance has not been established are then included in groups of assets having similar credit risk
characteristics and collectively assessed for any impairment that has been incurred but not yet identified.
Refer to Note 5—Significant Accounting Judgements, Estimates and Assumptions, for more information regarding the criteria used to
determine the amount of the allowance.
Subordinate financing, venture capital and venture capital action plan investments
Upon initial recognition, subordinate financing, venture capital and venture capital action plan (VCAP) investments are designated as at
fair value through profit or loss on the basis that they are part of a portfolio that is reported to and evaluated by senior management
on a fair value basis, in accordance with a documented investment and risk management strategy.
BDC’s valuation process for fair value measurement of subordinate financing, venture capital and VCAP investments has been derived
from the International Private Equity and Venture Capital Valuation Guidelines. Based on the type of investments being valued, BDC
uses (i) market-based methodologies, such as the quoted share price or the price of recent similar investments; (ii) discounted earnings
or cash flow approaches; or (iii) liquidation or asset-based methods. These fair values are updated at least twice a year by internal
valuators and are then reviewed by a valuation committee, which includes an external member who is a Chartered Business Valuator.
VCAP includes fund-of-fund transactions that provide for certain other limited partners to receive a preferred return on the initial cost
of their investment, later timing of cash calls and preference in the distributions. The impact of these terms and conditions is taken into
account in the fair value calculation by applying an adjustment to the attributed net asset value of each fund.
Borrowings
Short-term notes are measured at amortized cost.
BDC has two types of long-term notes: unstructured and structured. Unstructured long-term notes are recorded at amortized cost.
Structured notes are notes for which interest or principal, or both, are linked to fluctuations in equity indices, currency rates, swap
rates and other market references. These structured notes have been designated as at fair value through profit or loss, as they contain
embedded derivatives that would otherwise need to be separated, given that they significantly modify the cash flows required under
the host debt contract.
The fair value of structured notes is determined by using observable market data together with recognized valuation techniques.
Observable market data are sourced from leading inter-dealer brokers and include interest rates, foreign exchange rates, equity prices
and other market references.
Interest accrued on borrowings is included in the carrying amount of both short- and long-term notes.
BDC AR15 | 61
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS (continued)
MAJOR TYPES OF FINANCIAL INSTRUMENTS (continued)
Derivatives
Derivative financial instruments are financial contracts that derive their value from underlying changes in interest rates, foreign exchange
rates, stock market indices, commodity prices or other financial instrument measures. BDC acquires derivative financial instruments
to manage exposures to interest, currency and other market risks. BDC does not hold derivatives for speculative or trading purposes.
Derivatives are either designated as cash flow hedges or classified as held-for-trading.
All BDC derivatives are over-the-counter and are mainly composed of swaps and foreign exchange forwards. The fair value of swaps
is determined using pricing models that take into account current market and contractual prices of the underlying instrument, as well
as time value, the yield curve, or volatility factors underlying the position and embedded options. The fair value of foreign exchange
forwards is calculated by discounting the notional amount using the yield curves of the respective currencies. Inputs to both these
calculations are market-observable data sourced from leading inter-dealer brokers, together with industry-standard valuation models
for estimating fair value.
Embedded derivatives that are not closely related to the host contract must be separated and classified as held-for-trading
financial instruments, unless the hybrid instrument is designated as at fair value through profit or loss. As at March 31, 2015, and
March 31, 2014, BDC had no embedded derivatives that needed to be separated from a host contract.
INTEREST INCOME, INTEREST EXPENSE AND FEE INCOME
Interest income and expense for interest-bearing financial instruments are recognized in interest income and interest expense in the
Consolidated Statement of Income using the effective interest rate method, with the exception of subordinate financing investments,
for which interest income is recognized using the contractual rate of the instrument. Interest on impaired loans continues to be
recognized based on the reduced carrying amount using the interest rate used to discount the future cash flows for the purposes of
measuring the impairment loss.
Subordinate financing investments also bear non-interest returns, such as royalties and interest bonuses, which are recognized in fee
and other income in the Consolidated Statement of Income when it is probable that they will be received and the amounts can be
measured reliably.
Fees that are integral to originating or renegotiating a loan are deferred and recognized as interest income over the expected term of
the loan using the effective interest rate method. All other fees are recognized in net income as the related services are performed.
Premiums and discounts on borrowings are amortized in interest expense over the life of the obligation using the effective interest rate.
CONSULTING REVENUE
Consulting provides advisory services to entrepreneurs. Consulting revenues are recognized as revenue when the services are rendered.
BDC AR15 | 62
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment and intangible assets are carried at cost less accumulated depreciation, accumulated amortization and
accumulated impairment losses, if any.
The cost of an item of property and equipment includes its purchase price and any costs directly attributable to bringing the asset to
the location and condition necessary for it to operate in the manner intended by management.
Property and equipment are depreciated using the straight-line method over the estimated useful life of the asset, as follows:
>> computer and telecommunications equipment
>> furniture, fixtures and equipment
>> leasehold improvements
4 years
10 years
lease term
Intangible assets primarily comprise systems and software applications, the cost of which includes the purchase price plus any costs
incurred to prepare them for their intended internal use. The intangible assets’ lives are finite and are amortized using the straight-line
method over their estimated useful economic lives, which range from three to seven years. Costs related to projects in progress are
not subject to amortization until the related intangible asset is available for use. The amortization expense is included in the premises
and equipment expense in the Consolidated Statement of Income.
The residual values, depreciation and amortization methods, as well as useful lives of items of property and equipment and intangible
assets, are reviewed, and adjusted if appropriate, at least at each financial reporting date.
These assets are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. Irrespective of whether there is any indication of impairment, an impairment test is also performed annually for
projects in progress related to intangible assets. When impairment tests indicate that the carrying amount of an asset (or group of
assets) is greater than its estimated recoverable amount, the carrying amount is written down immediately to its recoverable amount.
The recoverable amount is the higher of the asset’s fair value less costs to sell and its value in use.
NET DEFINED BENEFIT ASSET OR LIABILITY
BDC maintains a registered defined benefit pension plan, supplemental defined benefit pension plans and other post-employment
defined benefits (which include health, dental, critical illness and life insurance coverage) for eligible employees.
The net defined benefit asset or liability is the present value of the defined benefit obligation less the fair value of plan assets.
BDC’s defined benefit obligation in respect of retirement benefit plans is calculated separately for each plan by estimating the amount
of future benefits employees have earned in return for their services in the current and prior periods.
The defined benefit obligation is calculated for each plan using the projected unit credit method. In determining the present value
of its defined benefit obligation, and the related current service cost and past service cost, BDC attributes the benefit to periods of
service under the plan’s benefit formula. The present value of the defined benefit obligation is calculated by discounting the estimated
future cash outflows using interest rates of high-quality corporate and provincial bonds that have terms to maturity approximating
the terms of the obligation.
BDC determines the net interest expense (income) on the net defined benefit asset or liability for the period by applying the discount
rate used to measure the defined benefit obligation at the beginning of the annual reporting period to both the defined benefit
obligation and the plan assets. When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed
benefit related to past service by employees, or the gain or loss on curtailment, is recognized immediately in profit or loss when the
plan amendment or curtailment occurs.
Remeasurements, which include actuarial gains and losses, as well as differences between the return on plan assets and interest
income on plan assets, are recognized immediately in OCI. Remeasurements recognized in OCI are reflected immediately in retained
earnings and are not reclassified to net income. Current service costs, past service costs, gain or loss on curtailment, and net interest
on the net defined benefit asset or liability are recognized in net income.
BDC AR15 | 63
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
EQUITY ATTRIBUTABLE TO BDC’S SHAREHOLDER
Share capital represents the par value of common shares issued and in circulation. Contributed surplus represents the value of assets
transferred to BDC by the shareholder without issuance of shares.
Unrealized gains and losses on financial instruments classified as available-for-sale assets are included in AOCI until such time as the
financial instruments are derecognized or impaired, at which time these gains or losses are reclassified to net income. Unrealized gains
and losses on derivative financial instruments designated as hedging instruments are included in AOCI until such time as the hedged
forecasted cash flows are reclassified to net income.
Retained earnings include all current and prior periods’ net income and remeasurements of net defined benefit asset or liability,
net of dividends paid.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies, all of which are monetary, are translated into Canadian dollars at exchange
rates prevailing at the reporting date. Revenues and expenses denominated in foreign currencies are translated into Canadian dollars
using the exchange rate at the date of each transaction. Foreign exchange gains and losses are included in net income.
SEGMENTED INFORMATION
BDC has the following operating segments, which are based on differences in products and services: Financing, Growth & Transition
Capital, Venture Capital, Consulting, Securitization, and Venture Capital Action Plan.
The operating segments are reported in a manner consistent with the way BDC presents and discloses information that is regularly
reviewed by the senior management team and the Board of Directors in assessing performance.
All transactions between business segments are recognized on an arm’s-length basis. Income and expenses directly associated with
each segment are included in determining business segment performance.
4.
FUTURE ACCOUNTING CHANGES
At the date of authorization of these financial statements, certain new standards, amendments and interpretations to existing standards
had been published by the International Accounting Standards Board (IASB) but were not yet effective and had not been adopted
early by BDC. These standards include IFRS 9, Financial Instruments and IFRS 15, Revenue from Contracts with Customers, described
below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on BDC’s
financial statements.
IFRS 9, FINANCIAL INSTRUMENTS
On July 24, 2014, the IASB issued the final version of IFRS 9, Financial Instruments, bringing together the classification and measurement,
impairment, and hedge accounting phases of the IASB’s project to replace IAS 39, Financial Instruments: Recognition and Measurement
and all previous versions of IFRS 9. It amends classification and measurement of financial assets, adds new requirements for
the accounting of financial liabilities and for general hedge accounting, and introduces a new expected loss impairment model. The IASB
is continuing to work on its macro hedge accounting project. IFRS 9 is effective for annual periods beginning on or after January 1, 2018,
and shall be applied retrospectively, subject to certain exceptions.
BDC is currently assessing the impact of the adoption of IFRS 9.
BDC AR15 | 64
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
4. FUTURE ACCOUNTING CHANGES (continued)
IFRS 15, REVENUE FROM CONTRACTS WITH CUSTOMERS
On May 28, 2014, the IASB issued a new standard, IFRS 15, Revenue from Contracts with Customers, replacing IAS 18, Revenue.
The new standard is effective for annual periods beginning on or after January 1, 2017. The core principle of the standard is that an
entity will recognize revenue when it transfers promised goods or services to customers, in an amount that reflects the consideration
to which the entity is expected to be entitled in exchange for those goods and services.
BDC is currently assessing the impact of the adoption of IFRS 15.
5.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
Preparation of the Consolidated Financial Statements as per IFRS requires management to make judgements and use estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.
Significant changes in the underlying assumptions could result in significant changes to these estimates. Consequently, management
reviews these assumptions regularly. Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future period affected.
Information about the significant judgements, estimates and assumptions that have the most significant effect on the amounts recognized
in the Consolidated Financial Statements are summarized below.
ESTIMATES AND ASSUMPTIONS
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses on loans represents management’s estimate of the losses incurred in the loan portfolio at the reporting
date and is established at both the individual and collective asset levels.
BDC reviews its significant loans individually to assess whether an impairment loss should be recorded. The process requires BDC
to make assumptions and judgements by carrying out certain activities, including assessing the impaired status and risk of a loan, and
estimating future cash flows and collateral values.
Loans that have been assessed individually and found not to be impaired, and all other loans, are then collectively assessed for any
impairment that has been incurred but not yet identified. In assessing collective impairment, BDC uses statistical modelling of historical
portfolio trends, such as default rates and loss rates, adjusted to reflect management’s judgement as to whether current economic
and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling.
Changes in these assumptions, or the use of other reasonable judgements, can materially affect the allowance level. Refer to
Note 10—Loans, for more information on the allowance for credit losses.
BDC AR15 | 65
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
5. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued)
ESTIMATES AND ASSUMPTIONS (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Where the fair value of financial assets and financial liabilities recorded in the Consolidated Statement of Financial Position cannot be
derived from active markets (i.e., from quoted market prices or dealer price quotations), it is determined using valuation techniques,
including discounted cash flow models.
The inputs to these models, such as interest rate yield curves, equity prices, commodity and currency prices and yields, volatilities
of underlying assumptions, and correlations between inputs, are taken from observable markets where possible. Where this is not
feasible, a degree of judgement is required in establishing fair values.
These judgements include considerations of inputs such as the discount rate, the expected rate of return by level of risk and
the weighted forecast of cash flows. Changes to these inputs could affect the reported fair value of financial instruments. Refer to
Note 3—Significant Accounting Policies, for more information about the valuation techniques used for each type of financial
instrument and to Note 6—Classification and Fair Value of Financial Instruments, for additional information on fair value hierarchy levels.
QUALIFYING HEDGE RELATIONSHIPS
In designating financial instruments in qualifying hedge relationships, BDC has determined that it expects the hedges to be highly
effective over the period of the hedging relationship. In accounting for derivatives as cash flow hedges, BDC has determined that the
hedged cash flow exposure relates to highly probable future cash flows.
NET DEFINED BENEFIT ASSET OR LIABILITY
The cost of defined benefit pension plans and other post-employment benefits, and the present value of the related obligations, are
determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates used to measure the
obligations, expected future salary increases, expected retirement age, expected mortality rates, expected health care cost trends,
expected inflation and expected future pension increases. Due to the long-term nature of these plans, such estimates are subject to
significant uncertainty. Actual results will differ from results that are estimated based on assumptions.
Refer to Note 19—Net Defined Benefit Asset or Liability, for additional information about the key assumptions.
JUDGEMENTS
IMPAIRMENT OF AVAILABLE-FOR-SALE ASSETS
BDC determines that asset-backed securities are impaired when there is objective evidence of impairment. Objective evidence that
a financial asset or group of assets is impaired may include such events as the financial difficulty or probable bankruptcy or financial
reorganization of the issuer, a default or adverse change in status or concession with respect to payments, measurable decreases
in the estimated future cash flows from the assets, and a deterioration of correlated economic conditions. Since a combination of
factors may cause an impairment, management judgement is required to determine if and when an impairment must be recognized.
CONSOLIDATION
A key judgement that has been used in the preparation of the Consolidated Financial Statements is that BDC has the power to control
certain investment funds (refer to Note 2—Basis of Preparation, for additional information). BDC has assessed that it has the current
ability to direct the funds’ activities that most significantly affects their returns, and that BDC is exposed to these returns. Consequently,
these funds have been fully consolidated rather than accounted for using the equity accounting approach.
BDC AR15 | 66
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
6.
CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS
CLASSIFICATION OF FINANCIAL INSTRUMENTS
The following tables summarize the classification of BDC’s financial instruments as at March 31, 2015, and March 31, 2014.
March 31, 2015
Measured at fair value
Measured at amortized cost
FVTPL(1)
Held-for- Designated AvailableNote trading as at FVTPL for-sale
Financial assets
Cash and cash equivalents
Derivative assets
Asset-backed securities
Loans
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
Other assets(2)
Total financial assets
7
8
9
10
11
12
13
16
Financial liabilities
Accounts payable and accrued liabilities
Derivative liabilities
Short-term notes
Long-term notes
Other liabilities(2)
Total financial liabilities
17
8
18
18
20
Cash flow Loans and Financial
hedges receivables liabilities
667,084
49,666
3,656
3,688
404,043
18,414,044
642,810
709,639
47,643
49,666
1,403,780
404,043
3,656
8,200
19,089,328
–
101,996
7,515
304,453
7,515
304,453
–
–
–
15,435,747
244,256
27,568
15,809,567
Total
667,084
53,322
407,731
18,414,044
642,810
709,639
47,643
8,200
20,950,473
101,996
7,515
15,435,747
548,709
27,568
16,121,535
(1) Fair value through profit or loss.
(2) Certain items within the other assets and other liabilities categories on the Consolidated Statement of Financial Position are not considered to be financial instruments.
BDC AR15 | 67
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
6. CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
CLASSIFICATION OF FINANCIAL INSTRUMENTS (continued)
March 31, 2014
Measured at fair value
Measured at amortized cost
FVTPL(1)
Held-for- Designated AvailableNote trading as at FVTPL for-sale
Financial assets
Cash and cash equivalents
Derivative assets
Asset-backed securities
Loans
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
Other assets(2)
Total financial assets
7
8
9
10
11
12
13
16
Financial liabilities
Accounts payable and accrued liabilities
Derivative liabilities
Short-term notes
Long-term notes
Other liabilities(2)
Total financial liabilities
17
8
18
18
20
Cash flow Loans and Financial
hedges receivables liabilities
676,529
51,717
2,784
4,750
331,727
17,241,064
576,677
495,096
5,169
51,717
1,081,692
331,727
2,784
9,265
17,926,858
–
106,027
10,706
500,794
10,706
500,794
–
–
–
14,056,623
274,546
31,617
14,468,813
Total
676,529
54,501
336,477
17,241,064
576,677
495,096
5,169
9,265
19,394,778
106,027
10,706
14,056,623
775,340
31,617
14,980,313
(1) Fair value through profit or loss.
(2) Certain items within the other assets and other liabilities categories on the Consolidated Statement of Financial Position are not considered to be financial instruments.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table provides a comparison of the carrying and fair values of BDC’s financial instruments that are not carried at fair
value in the Consolidated Financial Statements and for which the carrying values are not reasonable approximations of their fair value.
March 31,
2015
Financial assets classified as loans and receivables
Loans
Financial liabilities classified as financial liabilities
Short-term notes
Long-term notes
BDC AR15 | 68
March 31,
2014
Fair value
hierarchy
level
Fair
value
Carrying
value
Fair value
hierarchy
level
Fair
value
Carrying
value
2
18,474,040
18,414,044
2
17,238,394
17,241,064
1
2
15,431,869
244,552
15,435,747
244,256
1
2
14,055,883
274,916
14,056,623
274,546
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
6. CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
FINANCIAL INSTRUMENTS CARRIED AT AMORTIZED COST
Loans classified as loans and receivables
The carrying value of performing floating-rate loans is a reasonable approximation of their fair value because the carrying value reflects
changes in interest rates since the loan was originated. For performing fixed-rate loans, fair value is determined using a discounted cash
flow calculation that uses market interest rates prevailing at the end of the period charged for similar new loans with corresponding
remaining maturity.
For impaired loans, the fair value is equal to the carrying value determined in accordance with the valuation methods described in
Note 3—Significant Accounting Policies, under the heading Allowance for credit losses.
Short-term notes classified as financial liabilities
The fair value of short-term notes classified as financial liabilities is determined using a quoted market price.
Long-term notes classified as financial liabilities
The fair value of long-term notes classified as financial liabilities is determined using a discount cash flow calculation that uses market
interest rates based on the remaining time to maturity.
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The assumptions and methods used to estimate the fair value of those financial assets and liabilities that are measured at fair value are
disclosed in Note 3—Significant Accounting Policies.
All financial instruments measured at fair value must be categorized into one of three hierarchy levels for disclosure purposes.
Each level is based on the observability of the inputs used to measure the fair value of assets and liabilities, and is defined below:
>> Level 1—Fair values based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities;
>> Level 2—Fair values based on inputs other than quoted prices in active markets that are either directly or indirectly observable; and
>> Level 3—Fair values based on valuation techniques with one or more significant unobservable market inputs.
There have been no transfers between levels 1 and 2 or between levels 2 and 3 in the reporting periods. BDC’s policy is to recognize
transfers between levels 1 and 3 when private investments become publicly traded or public investments become private investments
during the reporting periods.
BDC AR15 | 69
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
6. CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE (continued)
The following tables present financial instruments carried at fair value categorized by hierarchy levels.
Assets
Derivative assets
Asset-backed securities
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
March 31, 2015
Fair value measurements using
Total
Level 1
Level 2
Level 3 fair value
53,322
407,731
607
1,871
2,478
461,053
–
7,515
304,453
311,968
Liabilities
Derivative liabilities
Long-term notes designated as at fair value through profit or loss
Assets
Derivative assets
Asset-backed securities
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
–
7,515
304,453
311,968
March 31, 2014
Fair value measurements using
Total
Level 1
Level 2
Level 3 fair value
54,501
336,477
684
6,058
6,742
390,978
–
10,706
500,794
511,500
Liabilities
Derivative liabilities
Long-term notes designated as at fair value through profit or loss
BDC AR15 | 70
642,203
707,768
47,643
1,397,614
53,322
407,731
642,810
709,639
47,643
1,861,145
575,993
489,038
5,169
1,070,200
54,501
336,477
576,677
495,096
5,169
1,467,920
–
10,706
500,794
511,500
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
6. CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE (continued)
The following table presents the changes in fair value measurement for financial instruments included in level 3 of the fair value hierarchy.
The procedures and valuation techniques used to determine the fair values of subordinate financing, venture capital and venture capital
action plan investments included in level 3 are described in Note 3—Significant Accounting Policies. These valuation techniques draw
upon diverse unobservable inputs, none of which, with the exception of the risk-free interest rate, is individually significant enough to
have a material impact on BDC’s net earnings if it varied within reasonable possible ranges. For subordinate financing investments, the
impact of a 1% variation in the risk-free rate would result in a gain or loss of $9.8 million in the current period and an equivalent change
in retained earnings ($10.6 million in 2014). Venture capital and venture capital action plan investments are not risk-free rate sensitive.
March 31, 2015
Subordinate
financing
investments
Fair value at April 1, 2014
Net realized gains (losses) on investments
Net change in unrealized appreciation (depreciation) of investments
Net unrealized foreign exchange gains (losses) on investments
Disbursements for investments
Repayments of investments and other
Transfers from level 3 to level 1
Fair value as at March 31, 2015
575,993
(23,010)
9,600
–
218,335
(138,715)
–
642,203
Venture
capital
investments
489,038
(8,873)
30,118
27,737
190,004
(16,385)
(3,871)
707,768
Venture capital
action plan
investments
5,169
–
(3,591)
–
46,165
(100)
–
47,643
Total
1,070,200
(31,883)
36,127
27,737
454,504
(155,200)
(3,871)
1,397,614
March 31, 2014
Fair value at April 1, 2013
Net realized gains (losses) on investments
Net change in unrealized appreciation (depreciation) of investments
Net unrealized foreign exchange gains (losses) on investments
Disbursements for investments
Repayments of investments and other
Transfers from level 3 to level 1
Fair value as at March 31, 2014
Subordinate
financing
investments
Venture
capital
investments
Venture capital
action plan
investments
Total
556,031
(9,970)
(16,582)
–
156,239
(109,725)
–
575,993
424,047
(22,027)
21,762
13,454
118,274
(62,718)
(3,754)
489,038
–
–
(533)
–
5,702
–
–
5,169
980,078
(31,997)
4,647
13,454
280,215
(172,443)
(3,754)
1,070,200
The following table presents total gains or losses for financial instruments included in level 3 that can be attributable to assets held at
the end of the reporting periods.
2015
Net realized gains (losses) on investments
Net change in unrealized appreciation (depreciation) of investments
Net unrealized foreign exchange gains (losses) on investments
Total gains (losses) related to level 3 assets still held at the end of the reporting period
(2,271)
28,230
27,784
53,743
2014
(52,049)
24,471
12,693
(14,885)
BDC AR15 | 71
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
7.
CASH AND CASH EQUIVALENTS
As at March 31, 2015, and March 31, 2014, there are no restrictions on cash and cash equivalents. Cash and cash equivalents include
the following components.
Cash
Short-term bank notes, commercial paper and other
Cash and cash equivalents
March 31, 2015
March 31, 2014
10,576
656,508
667,084
16,977
659,552
676,529
8.
DERIVATIVE FINANCIAL INSTRUMENTS
In compliance with BDC’s treasury risk policy, BDC uses the following derivative financial instruments to mitigate its foreign exchange rate
risk, as well as its interest rate and equity market risk. BDC’s policy is not to use derivative financial instruments for speculative purposes.
BDC enters into master netting agreements with counterparties but does not proceed with netting financial assets and liabilities.
SWAPS
Swaps are contractual obligations to exchange a series of cash flows on a specific notional amount for a predetermined period.
The various swap agreements that BDC enters into are as follows:
>> interest rate swaps, which involve exchange of fixed- and floating-rate interest payments;
>> cross-currency interest rate swaps, which involve the exchange of both interest and notional amounts in two different currencies;
>> equity-linked swaps, where one of the payments exchanged represents the variation in an equity index over time, and the other
is based on agreed fixed or floating rates; and
>> futures swaps, where the return of the swap is linked to the performance of a portfolio of futures contracts and bonds.
The main risk associated with these instruments is related to movements in interest rates, foreign currencies and equity prices.
FORWARDS
Forwards are contractual agreements to either buy or sell currencies or financial instruments at specified prices and dates in the future.
They are customized contracts transacted in the over-the-counter market.
The main risks associated with these instruments arise from the possible inability of over-the-counter counterparties to meet the
terms of the contracts, and from movements in interest rates and foreign exchange rates.
FOREIGN EXCHANGE RATE RISK
BDC economically hedges its long-term borrowings with cross-currency interest-rate swaps, and its loans and subordinate financing
investments with foreign exchange forward contracts. These instruments have been classified as held-for-trading. Venture capital
investments are economically hedged following the occurrence of a liquidity event.
BDC AR15 | 72
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
8. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
INTEREST RATE AND EQUITY MARKET RISKS
BDC enters into interest rate swaps to hedge the financial impact of future interest rate fluctuations in relation to changes in the loan portfolio
mix. These contracts have been designated as cash flow hedges. There was no significant ineffectiveness of cash flow hedges in 2015 and 2014.
BDC also uses derivative financial instruments as an economic hedge for its structured notes. These instruments include interest rate swaps,
cross-currency interest rate swaps, equity-linked swaps, and futures swaps. These instruments have been classified as held-for-trading.
The following tables provide the fair value of BDC’s derivatives portfolio as represented by gross assets and gross liabilities values.
Gross assets
Gross liabilities
March 31, 2015
Net amount
3,656
3,656
–
–
3,656
3,656
Held-for-trading
Interest rate swap contracts
Cross-currency interest rate swap contracts
Foreign exchange forward contracts
Total held-for-trading
48,423
824
419
49,666
5,793
228
1,494
7,515
42,630
596
(1,075)
42,151
Total
53,322
7,515
45,807
Gross assets
Gross liabilities
March 31, 2014
Net amount
2,784
2,784
–
–
2,784
2,784
Held-for-trading
Interest rate swap contracts
Equity-linked swap contracts
Cross-currency interest rate swap contracts
Foreign exchange forward contracts
Total held-for-trading
49,838
244
1,175
460
51,717
6,584
309
1,835
1,978
10,706
43,254
(65)
(660)
(1,518)
41,011
Total
54,501
10,706
43,795
Hedging
Interest rate swap contracts
Total hedging
Hedging
Interest rate swap contracts
Total hedging
BDC AR15 | 73
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
8. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The following table summarizes the notional amount, by term to maturity or repricing date, of derivative instruments.
Notional amounts, which are provided solely for comparative purposes, are not recorded as assets or liabilities on the Consolidated
Statement of Financial Position, as they represent the face amount of the contract to which a rate or a price is applied to determine
the amount of cash flows to be exchanged.
Within
1 year
Hedging
Interest rate swap contracts
$CDN receivable-fixed
% receivable-fixed
Total hedging
Held-for-trading
Interest rate swap contracts
$CDN payable-fixed
% payable-fixed
$CDN receivable-fixed
% receivable-fixed
Equity-linked swap contracts
173,000
2.19
173,000
55,000
1.31
55,000
120,000
1.42
120,000
Over
5 years
–
60,000
4.17
16,222
4.38
223,288
4.61
March 31,
2015
Notional
amount
March 31,
2014
Notional
amount
348,000
213,000
348,000
213,000
60,000
110,000
239,510
326,341
16,222
60,000
–
223,288
–
299,510
105,650
541,991
16,222
10,875
70,875
–
7,254
230,542
18,129
317,639
25,196
567,187
190,664
206,886
379,886
70,875
125,875
–
120,000
230,542
230,542
190,664
508,303
856,303
257,534
824,721
1,037,721
Cross-currency interest rate swap contracts
Foreign exchange forward contracts
Total held-for-trading
Total
Term to maturity or repricing
1 to 3
3 to 5
years
years
The rates represent the weighted average interest rates that BDC has contracted to pay or to receive up to maturity or repricing.
The floating side for almost all of the Canadian dollar swap contracts is based on one- or three-month Canadian bankers’ acceptance
rates. All amounts in foreign currencies are converted into the Canadian dollar equivalent using the rate of exchange of the
derivative contracts.
BDC AR15 | 74
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
9.
ASSET-BACKED SECURITIES
The following table summarizes asset-backed securities by classification of financial instruments. As at March 31, 2015, no asset-backed
securities had maturities of less than five years (none as at March 31, 2014) and $407,731 had maturities over five years ($336,477 as at
March 31, 2014). The asset-backed securities may be redeemed by the issuing trust at par depending on the terms of the securitization
deal if the balance of the underlying assets or, in some cases, the balance of the notes, amortizes below 10% of the original balance
at issuance. No asset-backed securities were impaired as at March 31, 2015, and 2014. Refer to Note 23—Risk Management,
for additional information on credit risk associated with the asset-backed securities portfolio.
Available-for-sale Principal amount
Cumulative fair value appreciation (depreciation)
Carrying value
Yield
Fair value through profit or loss
Principal amount
Cumulative fair value appreciation (depreciation)
Carrying value
Yield
Asset-backed securities
March 31, 2015
March 31, 2014
400,096
3,947
404,043
2.02%
329,521
2,206
331,727
2.24%
3,609
79
3,688
7.65%
407,731
4,651
99
4,750
8.06%
336,477
10.
LOANS
The following tables summarize loans outstanding by contractual maturity date.
2015
Within 1 to 5 Over Total gross Collective Individual Total Total net
1 year years 5 years amount allowance allowance allowance amount
Performing
Impaired
Loans as at March 31, 2015
186,646
7,856
194,502
2,078,792
62,270
2,141,062
16,187,973
420,430
16,608,403
18,453,411
490,556
18,943,967
(350,000)
–
(350,000)
–
(179,923)
(179,923)
(350,000) 18,103,411
(179,923)
310,633
(529,923) 18,414,044
2014
Within 1 to 5 Over Total gross Collective Individual Total Total net
1 year years 5 years amount allowance allowance allowance amount
Performing
Impaired
Loans as at March 31, 2014
166,594
9,226
175,820
1,865,370
49,330
1,914,700
15,241,401
417,393
15,658,794
17,273,365
475,949
17,749,314
(340,000)
–
(340,000)
–
(168,250)
(168,250)
(340,000) 16,933,365
(168,250)
307,699
(508,250) 17,241,064
BDC AR15 | 75
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
10. LOANS (continued)
IMPAIRED LOANS
Impaired at beginning of year
Downgraded
Upgraded
Write-offs
Liquidation and other
Balance at end of year
March 31, 2015
March 31, 2014
475,949
392,313
(87,493)
(71,983)
(218,230)
490,556
491,774
362,517
(104,835)
(103,258)
(170,249)
475,949
March 31, 2015
March 31, 2014
508,250
(71,983)
(12,788)
10,521
434,000
95,923
529,923
538,338
(103,258)
(12,485)
12,774
435,369
72,881
508,250
ALLOWANCE FOR CREDIT LOSSES
Balance at beginning of year
Write-offs
Effect of discounting
Recoveries and other
Provision for credit losses
Balance at end of year
CREDIT RISK
The principal collaterals pledged as security if a loan defaults and other credit enhancements for loans include (i) various security on
assets; (ii) personal and corporate guarantees; (iii) letters of credit; (iv) assignments of life insurance; (v) assignments or hypothec of
third-party loans; and (vi) assignments of lease.
As at March 31, 2015, $28.4 million ($30.9 million as at March 31, 2014) of the impaired loans was secured by assets that BDC had the
power to sell in order to satisfy borrower commitments. BDC’s policy is to have these assets sold when other avenues of resolution have
been exhausted.
The following table summarizes performing loans outstanding by client credit risk exposure based on BDC classification.
BDC rating
Grade equivalent
0.5 to 1.0
1.5 to 2.0
2.5 to 4.0
4.5 to 5.0
5.5
Performing loans outstanding
Investment grade
Non-investment grade
Watchlist
March 31, 2015
1,358,539
4,732,851
9,080,623
2,556,838
724,560
18,453,411
7%
26%
49%
14%
4%
100%
March 31, 2014
1,004,868
3,847,699
9,474,214
2,237,592
708,992
17,273,365
6%
22%
55%
13%
4%
100%
The following table summarizes performing loans outstanding, classified by secured risk exposure coverage.
Secured risk exposure
Secured financing(1)
Partially secured financing(2)
Leverage financing(3)
Performing loans outstanding
(1)% of security shortfall at authorization is less than 30%.
(2)% of security shortfall at authorization is between 31% and 60%.
(3)% of security shortfall at authorization is over 60%.
BDC AR15 | 76
March 31, 2015
14,557,282
1,852,881
2,043,248
18,453,411
79%
10%
11%
100%
March 31, 2014
13,848,368
1,684,851
1,740,146
17,273,365
80%
10%
10%
100%
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
10. LOANS (continued)
CREDIT RISK
(continued)
BDC considers a loan past due when a client has not made a payment by the contractual due date. The following table presents the
carrying value of loans that are past due but not classified as impaired because they are either less than three months past due or
collection efforts are reasonably expected to result in repayment.
Loans past due but not impaired
As at March 31, 2015
As at March 31, 2014
Within 1 to 3 Over 3
1 month months months Total
90,282
93,139
48,802
39,995
29,275
18,935
168,359
152,069
Concentrations of the total loans outstanding, by province and territory and by industry sector, are set out in the tables below.
The largest concentration in one individual or closely related group of clients was less than 1% as at March 31, 2015, and March 31, 2014.
Geographic distribution
Newfoundland and Labrador
Prince Edward Island
Nova Scotia
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Yukon
Northwest Territories and Nunavut
Total loans outstanding
Industry sector
Manufacturing
Wholesale and retail trade
Tourism
Service industries
Commercial properties
Construction
Transportation and storage
Resources
Other
Total loans outstanding
March 31,
2015
March 31,
2014
790,243
53,344
490,936
469,044
6,243,857
4,812,779
600,946
633,566
2,644,485
2,080,226
97,397
27,144
18,943,967
741,843
44,517
447,837
486,006
5,977,771
4,681,243
502,059
532,345
2,325,621
1,881,972
97,598
30,502
17,749,314
March 31,
2015
March 31,
2014
4,186,626
3,843,068
2,491,385
2,455,093
2,183,966
1,560,146
1,089,428
680,730
453,525
18,943,967
4,025,056
3,578,289
2,305,724
2,278,685
2,050,634
1,478,046
1,023,372
584,266
425,242
17,749,314
BDC AR15 | 77
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
11.
SUBORDINATE FINANCING INVESTMENTS
BDC maintains a medium- to high-risk portfolio of subordinate financing investments. The following table summarizes outstanding
subordinate financing investments by their contractual maturity date. Both floating- and fixed-rate investments are classified based on
their contractual maturity date.
Within 1 to 5 Over Total Total
1 year years 5 years cost fair value
As at March 31, 2015
As at March 31, 2014
80,350
77,268
480,167
442,633
97,460
81,477
657,977
601,378
642,810
576,677
Subordinate financing investments have subordinate status in relationship to the other debt issued by a company. The principal collaterals
pledged as security and other credit enhancements related to subordinate financing investments include (i) various security on assets;
(ii) personal and corporate guarantees; (iii) assignments of life insurance; and (iv) postponements of third-party loans. When possible,
BDC security also includes a first-rank lien on the intellectual property of the borrower.
The concentrations of subordinate financing investments by geographic and industry distribution are set out in the tables below.
The largest concentration in one individual or closely related group of clients as at March 31, 2015, was 2.3% of total subordinate
financing investments at cost (2.5% as at March 31, 2014). Subordinate financing’s portfolio is composed primarily of debentures.
Geographic distribution
Newfoundland and Labrador
Nova Scotia
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Yukon
Northwest Territories and Nunavut
Subordinate financing investments
Industry sector
Manufacturing
Service industries
Wholesale and retail trade
Construction
Resources
Information industries
Transportation and storage
Tourism
Educational services
Real estate and rental and leasing
Other
Subordinate financing investments
BDC AR15 | 78
Fair value
March 31,
2015
Cost
Fair value
March 31,
2014
Cost
5,063
15,888
22,352
253,105
212,234
11,617
6,462
88,517
23,855
2,613
1,104
642,810
3,831
16,592
20,355
269,482
212,103
8,270
5,485
92,540
25,470
2,744
1,105
657,977
8,033
13,297
11,756
249,660
182,588
8,050
5,108
72,071
22,173
2,715
1,226
576,677
6,697
14,636
11,806
271,927
186,901
6,062
3,659
73,103
22,417
2,915
1,255
601,378
Fair value
March 31,
2015
Cost
Fair value
March 31,
2014
Cost
223,059
135,614
107,962
51,697
48,732
21,526
11,071
9,756
4,038
3,033
26,322
642,810
225,962
142,482
108,233
47,244
52,293
24,068
11,494
10,111
3,922
3,128
29,040
657,977
204,022
114,686
97,007
44,004
34,524
21,079
9,426
12,808
7,130
8,918
23,073
576,677
205,280
129,493
99,523
46,798
35,346
22,552
10,138
11,882
7,674
8,539
24,153
601,378
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
12.
VENTURE CAPITAL INVESTMENTS
BDC maintains a high-risk portfolio of venture capital investments that is focused on early-stage and fast-growing technology companies
having promising positions in their respective marketplaces and strong growth potential. Venture capital investments, which are held
for a longer term, are non-current assets. The concentrations by industry sector are listed below. The largest single investment within
these sectors as at March 31, 2015, was 7.41% of total venture capital investments at cost (7.86% as at March 31, 2014).
Fair value
March 31,
2015
Cost
Fair value
March 31,
2014
Cost
Information technology
Electronics
Biotechnology and pharmacology
Medical and health
Communications
Energy
Industrial
Other
Total direct investments
160,551
89,219
73,709
40,121
32,241
16,628
12,673
3,447
428,589
151,208
91,774
81,218
45,522
33,664
20,635
18,331
2,512
444,864
106,228
77,976
53,383
33,765
25,872
8,259
9,690
500
315,673
114,000
78,241
62,834
42,485
24,282
16,065
14,042
500
352,449
Funds
Venture capital investments
281,050
709,639
245,021
689,885
179,423
495,096
182,173
534,622
Fair value
March 31,
2015
Cost
Fair value
March 31,
2014
Cost
Common shares
Preferred shares
Debentures
Total direct investments
40,061
336,898
51,630
428,589
70,027
321,239
53,598
444,864
29,340
248,090
38,243
315,673
68,745
243,132
40,572
352,449
Funds
Venture capital investments
281,050
709,639
245,021
689,885
179,423
495,096
182,173
534,622
Industry sector
The following table presents a summary of the venture capital portfolio, by type of investment.
Investment type
13.
VENTURE CAPITAL ACTION PLAN INVESTMENTS
Venture Capital Action Plan is a federal government initiative to invest $400 million to increase private sector venture capital financing
for high-potential, innovative Canadian businesses.
Venture Capital Action Plan invests primarily in early-stage and mid-stage venture capital funds, and directly in companies across Canada.
Venture Capital Action Plan supports the creation of large private sector-led funds of funds and also assists existing high-performing
funds in partnership with institutional investors, corporate strategic investors and interested provinces.
As at March 31, 2015, the fair value of venture capital action plan investments stood at $47,643 ($5,169 as at March 31, 2014),
and their cost was $51,767 ($5,702 as at March 31, 2014).
BDC AR15 | 79
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
14.
PROPERTY AND EQUIPMENT
2015
Computer and Furniture,
telecommunications fixtures and
equipment equipment
Leasehold
improvements
Total
Cost
Balance as at March 31, 2014
Additions
Derecognition(1)
Disposals
Balance as at March 31, 2015
33,812
2,695
(10,866)
–
25,641
23,793
1,242
(6,440)
(193)
18,402
44,092
1,559
(13,028)
–
32,623
101,697
5,496
(30,334)
(193)
76,666
Accumulated depreciation
Balance as at March 31, 2014
Derecognition(1)
Disposals
Depreciation
Balance as at March 31, 2015
Property and equipment as at March 31, 2015
23,302
(10,866)
–
4,383
16,819
8,822
16,087
(6,440)
(122)
1,151
10,676
7,726
35,890
(13,028)
–
1,874
24,736
7,887
75,279
(30,334)
(122)
7,408
52,231
24,435
(1) Derecognition of $30.3 million relates to fully depreciated property and equipment no longer in use.
2014
Computer and Furniture,
telecommunications fixtures and
equipment equipment
Leasehold
improvements
Total
Cost
Balance as at March 31, 2013
Additions
Balance as at March 31, 2014
27,324
6,488
33,812
23,077
716
23,793
43,319
773
44,092
93,720
7,977
101,697
Accumulated depreciation
Balance as at March 31, 2013
Depreciation
Balance as at March 31, 2014
Property and equipment as at March 31, 2014
18,932
4,370
23,302
10,510
14,987
1,100
16,087
7,706
34,130
1,760
35,890
8,202
68,049
7,230
75,279
26,418
No property and equipment was impaired as at March 31, 2015 and 2014. In addition, as at March 31, 2015 and 2014, BDC had no
significant contractual commitments to acquire property and equipment.
BDC AR15 | 80
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
15.
INTANGIBLE ASSETS
2015
Cost
Balance as at March 31, 2014
Additions, separately acquired
Derecognition(1)
Available for use
Balance as at March 31, 2015
Accumulated amortization
Balance as at March 31, 2014
Derecognition(1)
Amortization
Balance as at March 31, 2015
Intangible assets as at March 31, 2015
Acquired systems and
software applications
Projects in
progress
Total
65,625
–
(12,926)
45,489
98,188
45,023
466
–
(45,489)
–
110,648
466
(12,926)
–
98,188
52,368
(12,926)
9,785
49,227
48,961
–
–
–
–
–
52,368
(12,926)
9,785
49,227
48,961
Acquired systems and
software applications
Projects in
progress
Total
60,448
–
5,177
65,625
22,409
27,791
(5,177)
45,023
82,857
27,791
–
110,648
47,543
4,825
52,368
13,257
–
–
–
45,023
47,543
4,825
52,368
58,280
March 31, 2015
March 31, 2014
1,742
889
5,569
8,200
4,719
12,919
2,514
1,377
5,374
9,265
6,954
16,219
(1) Derecognition of $12.9 million relates to fully amortized intangible assets no longer in use.
2014
Cost
Balance as at March 31, 2013
Additions, separately acquired
Available for use
Balance as at March 31, 2014
Accumulated amortization
Balance as at March 31, 2013
Amortization
Balance as at March 31, 2014
Intangible assets as at March 31, 2014
16.
OTHER ASSETS
Financial instruments
Interest receivable on derivatives
Accounts receivable from consulting clients
Other
Prepaids
Other assets
BDC AR15 | 81
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
17.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
March 31, 2015
March 31, 2014
48,115
2,850
16,544
67,509
34,487
101,996
48,987
6,768
15,980
71,735
34,292
106,027
Current
Salaries and benefits payable
Accounts payable
Other
Long-term accrued liabilities
Accounts payable and accrued liabilities
18.
BORROWINGS
The table below presents the outstanding short-term notes.
Maturity date
Short-term notes
2015
2016
Total short-term notes
Effective rate
Currency
0.73% - 1.14%
0.51% - 0.60%
0.00%
CAD
CAD
USD
March 31,
2015
Principal
Carrying
amount (1)
value
15,432,000
303
15,435,363
384
15,435,747
(1) The principal amount is presented in the original currency.
As at March 31, 2015, and March 31, 2014, no short-term notes were funding asset-backed securities.
BDC AR15 | 82
March 31,
2014
Principal
Carrying
amount (1)
value
14,052,050
–
14,056,623
–
14,056,623
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
18. BORROWINGS (continued)
The table below presents the outstanding long-term notes by maturity. Some long-term notes may be redeemable. As at
March 31, 2015, long-term notes of $4,234 were redeemable prior to maturity ($37,878 as at March 31, 2014).
Maturity date
Long-term notes /
financial liabilities
2015
2016
2017
2018
2015
Effective rate (1)
0.96% - 1.20%
0.98% - 1.16%
Currency
0.98% - 1.16%
0.45% - 1.12%
0.55%
1.22% - 1.60%
CAD
CAD
CAD
CAD
0.70%
0.76%
0.73% - 0.75%
0.65% - 2.46%
0.94%
0.92% - 0.95%
0.92%
0.99%
0.95% - 0.97%
0.87% - 4.31%
JPY
CAD
CAD
JPY
JPY
CAD
Long-term notes
designated as at fair value
through profit or loss
2015
2016
2018
2021
2022
2014
Effective rate (1)
Total long-term notes
March 31,
2015
Principal
Carrying
amount (2)
value
145,600
92,500
5,600
16,222
1,000,000
660,000
223,288
145,934
92,722
5,600
244,256
16,662
11,461
7,027
269,303
304,453
March 31,
2014
Principal
Carrying
amount (2)
value
94,699
89,100
94,933
89,258
90,000
90,355
274,546
500,000
122,396
16,994
1,000,000
660,000
292,601
5,605
123,207
18,010
11,878
7,003
335,091
500,794
548,709
775,340
(1) The effective rates on long-term notes are established after giving effect to swap contracts, when applicable, and refer to yield to maturity for fixed-rate issues and yield
to reset for floating-rate issues.
(2) The principal amount is presented in the original currency.
The total carrying value of the long-term notes designated as at fair value through profit or loss as at March 31, 2015, was
$47,416 higher than the total principal amount due at maturity given respective exchange rates (as at March 31, 2014,
it was $42,396 higher).
As at March 31, 2015, long-term notes designated as financial liabilities included $244,256 of funding for asset-backed securities
($184,191 as at March 31, 2014).
The table below presents the long-term notes by type.
Interest-bearing notes
Notes linked to equity indices
Notes linked to currency rates
Other structured notes
Total long-term notes
March 31, 2015
March 31, 2014
530,221
–
11,461
7,027
548,709
644,820
40,064
17,483
72,973
775,340
BDC AR15 | 83
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
19.
NET DEFINED BENEFIT ASSET OR LIABILITY
BDC offers defined benefit plans that provide pension and other post-employment benefits to eligible employees. The defined benefit
pension plans provides benefits based on years of service and average earnings at retirement, fully or partially indexed to the Consumer
Price Index depending on the option chosen by eligible employees. Other post-employment benefit plans include health, dental,
critical illness and life insurance coverage, as well as a retirement allowance program for a closed group of employees who meet
certain conditions.
Pursuant to section 89 of the Financial Administration Act, BDC received a directive from the Governor General in Council
(P.C. 2014-1378) requesting that BDC review its current pension plan and ensure that it remains affordable, financially sustainable
and consistent with the terms of the Public Service Pension Plan. These changes are intended to ensure that pension plans of Crown
Corporations provide a 50:50 current service cost-sharing ratio between employee and employer for pension contributions as well
as raise the normal age of retirement to 65 years. Consequently, to comply with this directive, BDC implemented modifications to
the existing defined benefit pension plan to be phased in for all eligible employees by December 31, 2017. The revised plan offers
three different options: two options include some features of the old plan design and a third option offers a completely new benefit
structure. Eligible employees as at December 31, 2014, could enroll in the option of their choice, whereas employees hired on or
after January 1, 2015, were automatically enrolled in the third option.
These defined benefit plans expose BDC to actuarial risks, such as longevity risk, interest rate risk, inflation risk and market (investment)
risk. The interest rate risk arises because each year the present value of the defined benefit obligation is calculated using a discount
rate determined by reference to current market yields of high-quality corporate and provincial bonds, which may vary in the future.
The investment risk arises because the actual return on the plan assets may not be sufficient to fulfill future obligations. The longevity
risk arises because the present value of the obligation is calculated using projected cash flows based on a life expectancy table reflecting
current expectations, which may change over time, and the inflation risk arises because the actual inflation rate in a given year may be
different than the rate used for estimation purposes. For each of these risks, an unfavourable variance in any given year will result in
an increase in the present value of the obligation, and ultimately in higher costs. The risk that such unfavourable variances might arise
is considered by the actuaries and management when reviewing the inputs to the annual actuarial valuation report.
BDC is the legal administrator of these plans and has implemented a governance structure, as follows:
>> The Human Resources Committee (“HR Committee”) of the BDC Board of Directors (“board”) is responsible for design,
funding, administration, communications and compliance related to the plans. The HR Committee reports directly to the board
and comprises independent board members.
>> The Pension Funds Investment Committee of the Board (“Investment Committee”) is responsible for overseeing all
activities related to the investments of the funds of the Pension Plan for Employees of the Business Development
Bank of Canada (the “registered pension plan”) and BDC’s supplemental pension plans (jointly referred to as the “fund”).
The Investment Committee reports directly to the board and comprises board members and one pensioner acting as an observer.
The Investment Committee is supported by BDC’s Risk Management Committee.
>> The board is responsible for overall monitoring of the plans and the fund, and for approving recommendations from the
HR Committee and the Investment Committee.
The registered pension plan is governed according to applicable federal legislation, such as the Pension Benefits Standards Act and the
Income Tax Act. The plan is under the jurisdiction of the Office of the Superintendent of Financial Institutions. Participants contribute
a fixed percentage of their earnings to the plan, while BDC contributes the amount needed to maintain adequate funding, as dictated
by the prevailing regulations. BDC may be required to take measures to offset any funding and solvency deficit by increasing its
contributions. In addition, BDC pays the entire cost of the supplemental pension plans. The Investment Committee is responsible
for the investment and funding policies related to the registered and supplemental pension plans.
The registered pension plan is either partly or wholly funded in accordance with actuarially determined amounts required to satisfy
employee benefit entitlements. Benefits accruing to members of the contributory component of the registered pension plan are
also funded by contributions by plan participants. BDC’s best estimate of contributions to be paid for fiscal 2016 for the registered
pension plan is $45.1 million. The supplemental pension plans are partly funded by BDC and BDC’s best estimate of contributions
for fiscal 2016 is $5.2 million. The other benefit plans are wholly unfunded. Estimated BDC-paid benefits for other post-employment
benefit plans (including the retirement allowance plan) for fiscal 2016 amount to $5.7 million.
BDC AR15 | 84
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
19. NET DEFINED BENEFIT ASSET OR LIABILITY (continued)
The following tables present, in aggregate, information concerning the defined benefit plans.
Defined benefit obligation
at beginning of year
Current service cost
Interest expense
Benefit payments from plan
Benefit payments from employer
Participant contributions
Remeasurements
Effect of changes in
demographic assumptions
Effect of changes in
financial assumptions
Effect of experience adjustments
Defined benefit obligation
at end of year
Fair value of plan assets
at beginning of year
Interest income
Employer contributions
Participant contributions
Benefit payments from plan
Administrative expenses paid
from plan assets
Remeasurements
Return on plan assets
(excluding interest income)
Fair value of plan assets
at end of year
Total net defined benefit
(asset)
Total net defined benefit
liability
Registered Supplemental
pension plan pension plans
2015
2014
2015
2014
1,029,218
40,145
46,385
(41,675)
–
11,198
948,111
40,767
40,964
(34,211)
–
10,699
99,642
2,449
4,503
(3,500)
–
–
2015
Other plans Total
2014
2015
2014
92,131
2,193
3,981
(3,343)
–
–
143,607
5,174
6,480
–
(4,384)
–
134,308
4,645
5,788
–
(4,424)
–
1,272,467
47,768
57,368
(45,175)
(4,384)
11,198
1,174,550
47,605
50,733
(37,554)
(4,424)
10,699
(103)
77,266
4,214
61,239
135
6,950
(4,452)
9,077
109,662
6,377
(45,575)
7,224
10,903
3,437
(3,056)
786
18,913
(2,025)
(4,411)
(1,376)
139,478
7,789
(53,042)
6,634
1,205,524
1,029,218
117,569
99,642
163,313
143,607
1,486,406
1,272,467
1,112,745
51,838
60,075
11,198
(41,675)
934,894
42,343
79,617
10,699
(34,211)
55,028
2,647
5,813
–
(3,500)
48,411
2,215
4,890
–
(3,343)
–
–
–
–
–
–
–
–
–
–
1,167,773
54,485
65,888
11,198
(45,175)
983,305
44,558
84,507
10,699
(37,554)
(1,275)
(1,231)
(159)
(117)
–
–
(1,434)
(1,348)
113,047
80,634
1,389
2,972
–
–
114,436
83,606
1,305,953
1,112,745
61,218
55,028
–
–
1,367,171
1,167,773
(83,527)
–
–
–
–
(100,429)
(83,527)
–
56,351
44,614
163,313
143,607
219,664
188,221
(100,429)
–
BDC AR15 | 85
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
19. NET DEFINED BENEFIT ASSET OR LIABILITY (continued)
Expense recognized in
net income
Current service cost
Interest expense on
defined benefit obligation
Interest income on plan assets
Administrative expenses
Expense recognized
in net income
Remeasurements
recognized in OCI
Effect of changes in
demographic assumptions
Effect of changes in financial
assumptions
Effect of experience
adjustments
Return on plan assets
(excluding interest income)
Remeasurement loss (gain)
recognized in OCI
BDC AR15 | 86
Registered Supplemental
pension plan pension plans
2015
2014
2015
2014
2015
Other plans Total
2014
2015
2014
40,145
40,767
2,449
2,193
5,174
4,645
47,768
47,605
46,385
(51,838)
1,275
40,964
(42,343)
1,231
4,503
(2,647)
159
3,981
(2,215)
117
6,480
–
–
5,788
–
–
57,368
(54,485)
1,434
50,733
(44,558)
1,348
35,967
40,619
4,464
4,076
11,654
10,433
52,085
55,128
4,214
61,239
135
6,950
(4,452)
9,077
109,662
(45,575)
10,903
(3,056)
18,913
(4,411)
139,478
(53,042)
6,377
7,224
3,437
786
(2,025)
(1,376)
7,789
6,634
(80,634)
(1,389)
(2,972)
–
–
(57,746)
13,086
1,708
12,436
3,290
(113,047)
7,206
(103)
77,266
(114,436)
(83,606)
32,728
(52,748)
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
19. NET DEFINED BENEFIT ASSET OR LIABILITY (continued)
Plan assets for BDC’s registered and supplemental pension plans can be broken down into the following major categories of investments.
March 31,
2015
Investment type
Cash
Short-term investments
Bonds
Government of Canada
Canadian provinces
Canadian corporate and municipal
Equity investments
Canadian equities
U.S. equities
Foreign equities
Pooled equity funds
Private equity
Derivatives
Other
Fair value of plan assets
Quoted
on active
market
March 31,
2014
Unquoted
Total
Quoted
on active
market
24,651
–
17,327
24,651
17,327
21,537
–
–
8,039
21,537
8,039
–
–
–
288,127
168,598
56,870
288,127
168,598
56,870
–
–
–
237,697
124,625
47,458
237,697
124,625
47,458
383,714
17,950
(1,598)
28,219
959,207
208,783
104,145
70,385
383,714
17,950
(1,598)
28,219
1,367,171
197,933
97,825
70,178
–
–
–
–
387,473
–
–
–
314,017
19,687
2,483
26,294
780,300
197,933
97,825
70,178
314,017
19,687
2,483
26,294
1,167,773
208,783
104,145
70,385
–
–
–
–
407,964
Unquoted
Total
The investment objective for the plan assets of the registered pension plan is to outperform, in the long term, the pension obligation
growth rate to compensate for the risk taken. The Pension Funds Investment Committee has established an investment policy that
stipulates a diversification strategy, an acceptable level of investment risk and a commensurate rate of return. The policy allows the
use of derivatives for the purpose of managing currency risks. The plan assets must be invested in a portfolio of diversified securities,
according to the investment policy established and approved by the Investment Committee. These investments must be well diversified
by industrial sector, based on the industry classification of specific identified indices. According to the policy, the portfolio can be
divided into two large categories of investments: equity and fixed income assets. The target for fixed income assets is set at 40% of
the fair market value of the portfolio. Investments in equity should represent approximately 60% of the fund’s investments (30% in
foreign equity, 27.5% in domestic equity and 2.5% in private markets, the latter planned to increase to 7.5%). The positioning of the
asset mix is reviewed on a monthly basis to assess the need for a rebalancing exercise.
BDC AR15 | 87
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
19. NET DEFINED BENEFIT ASSET OR LIABILITY (continued)
The significant actuarial assumptions adopted in measuring BDC’s defined benefit obligation at year-end are as follows.
Registered
pension plan
2015
2014
Discount rate
Inflation rate
Rate of salary increase
Rate of pension increase
3.80%
2.00%
3.00%
2.00%
4.60%
2.25%
3.35%
2.25%
Supplemental
pension plans
2015
2014
3.80%
2.00%
3.00%
2.00%
4.60%
2.25%
3.35%
2.25%
2015
Other
plans
2014
3.80%
2.00%
3.00%
n/a
4.60%
2.25%
3.35%
n/a
The average rate of compensation increase is expected to be inflation, plus 0.5% for productivity gains, plus an adjustment for merit
and promotion.
The following mortality table has been used to determine the present value of the benefit obligation:
>> The 2014 Public Sector Mortality Table with mortality improvement Scale CPM-B, from the Canadian Pensioners’ Mortality
(CPM) study published by the Canadian Institute of Actuaries in February 2014, was used for 2014 and 2015.
As at March 31, 2015, the weighted-average duration of the defined benefit obligation was 18.7 years (2014: 17.1 years).
For measurement purposes, health care cost trends were assumed to be as follows:
Medical (drugs)
>> 6.25% in 2015 reducing by 0.125% each year to 4% in 2033
(6.38% in 2014 reducing by 0.125% each year to 4% in 2033)
Other medical costs
>> 3.8% per year
(3.8% per year in fiscal 2014)
Dental costs
>> 4% per year
(4% per year in fiscal 2014)
Weighted-average health care trend
>> 4.9% in 2015 reducing by 0.056% each year to 3.9% in 2033
(5.0% in 2014 reducing by 0.058% each year to 3.9% in 2033)
BDC AR15 | 88
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
19. NET DEFINED BENEFIT ASSET OR LIABILITY (continued)
SENSITIVITY OF ASSUMPTIONS
The present value of the defined benefit obligation is calculated, in the following sensitivity analyses, with the same method
(the projected unit credit method) as the net defined benefit asset or liability recognized in the Consolidated Statement of
Financial Position. The sensitivity analyses are based on a change in one assumption while all other assumptions are held constant.
This analysis may not be representative of the actual change in the defined benefit obligation, as it is unlikely that a change in an
assumption would occur in isolation; some of the assumptions may be correlated.
March 31, 2015
Increase (decrease) of the
present value of the defined
benefit obligation
Registered
pension plan
March 31, 2014
Supplemental
pension plans
Other
plans
Registered
pension plan
Supplemental
pension plans
Other
plans
Discount rate
Impact of: 1% increase
1% decrease
(200,278)
270,649
(17,520)
23,740
(23,294)
29,911
(161,200)
218,131
(13,834)
18,471
(19,213)
24,376
Rate of salary increase
Impact of: 1% increase
1% decrease
27,695
(27,730)
10,436
(6,366)
696
(810)
22,828
(22,327)
7,476
(4,771)
862
(795)
Rate of price inflation
Impact of: 1% increase
1% decrease
251,201
(191,332)
18,631
(14,326)
1,123
(1,137)
203,236
(154,069)
14,871
(11,594)
1,188
(1,046)
Rate of pension increase
Impact of: 1% increase
1% decrease
209,186
(163,866)
21,949
(16,157)
169,992
(132,075)
17,363
(12,958)
–
–
22,994
(18,307)
–
–
–
–
19,189
(15,398)
(4,671)
4,771
(22,733)
22,541
(2,248)
2,219
(3,644)
3,704
Health care cost trend
Impact of: 1% increase
1% decrease
Post-retirement mortality
Impact of: 1 year older
1 year younger
–
–
(28,246)
28,123
–
–
(3,043)
3,025
–
–
BDC AR15 | 89
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
20.
OTHER LIABILITIES
Financial instruments
Deposits from clients
Other(1)
Deferred income
Other(1)
Total other liabilities
March 31, 2015
March 31, 2014
25,144
2,424
27,568
24,957
6,660
31,617
3,937
4,761
36,266
5,822
5,552
42,991
(1)All other liabilities are non-current.
21.
SHARE CAPITAL
An unlimited number of common shares, having a par value of $100 each, is authorized. As at March 31, 2015, there were
21,384,000 common shares outstanding (21,384,000 as at March 31, 2014).
On June 4, 2015, before the date of approval of the fiscal 2015 Consolidated Financial Statements, 1,500,000 common shares for
$150.0 million were issued by BDC. On the date of approval of the fiscal 2015 Consolidated Financial Statements, a dividend in respect
of common shares of $62.9 million was declared, based on fiscal 2015 performance ($54.6 million in 2014). These transactions had
no impact on the fiscal 2015 Consolidated Financial Statements.
In fiscal 2015, no common shares were issued by BDC (500,000 in 2014).
RECONCILIATION OF THE NUMBER OF COMMON SHARES ISSUED AND OUSTANDING
As at the beginning of the year
Shares issued
As at the end of the year
BDC AR15 | 90
2015
2014
21,384,000
–
21,384,000
20,884,000
500,000
21,384,000
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
22.
CAPITAL MANAGEMENT
STATUTORY LIMITATIONS
As per the BDC Act, the debt-to-equity ratio of BDC may not exceed 12:1. This ratio is defined as the aggregate of borrowings
recognized in the Consolidated Statement of Financial Position and contingent liabilities that exist in the form of financial guarantees
issued by BDC over equity attributable to BDC’s shareholder, which excludes accumulated other comprehensive income. BDC’s ratio
as at March 31, 2015, was 3.4:1 (3.4:1 as at March 31, 2014).
In addition, the paid-in capital, the contributed surplus and any proceeds that have been prescribed as equity (such as hybrid capital
instruments) must not at any time exceed $3.0 billion. As at March 31, 2015, these amounts totalled $2.2 billion ($2.2 billion as at
March 31, 2014).
During 2015 and 2014, BDC met both of these statutory limitations.
CAPITAL ADEQUACY
Treasury Board of Canada Secretariat provides guidelines to BDC on its capital adequacy ratios. BDC must maintain overall capital
and allowance for credit losses sufficient to ensure that BDC can withstand unfavourable economic circumstances without requiring
additional government funding. These capital adequacy ratios reflect the relative risk of BDC’s assets.
The recommended capital is 10% for the Funding Platform for Independent Lenders; 10% for term loans and 25% for quasi-equity
loans, net of allowance for credit losses; 25% for subordinate financing investments; 100% for venture capital investments; and 100%
for venture capital action plan investments. BDC has also established capital adequacy ratios for loan guarantees and letters of credit
to reflect their relative risks (refer to Note 26—Guarantees and Contingent Liabilities, for additional information).
In addition to these minimum capital ratios, the capital level is also internally managed to ensure that BDC can honour its commitments
as they become due (refer to Note 27—Commitments, for additional information) and that the level of capital is also sufficient to remain
financially sustainable during a recessionary scenario, using stress-testing analysis. Note that BDC also uses an economic capital model
to internally assess its capital adequacy. Economic capital is calculated for various types of risk, and models are based on advanced
quantification methods and internal risk-based assumptions.
The available capital represents the equity attributable to BDC’s shareholder and is adjusted to exclude accumulated other comprehensive
income on cash flow hedges. In fiscal 2015, BDC has refined its definition of available capital to deduct any net defined benefit asset in
order to minimize the volatility resulting from immediate recognition of actuarial gains and losses. Fiscal 2014 available capital amount
has been revised accordingly.
BDC AR15 | 91
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
22. CAPITAL MANAGEMENT (continued)
The following table presents BDC’s capital status as at March 31, 2015 and 2014. During fiscal 2015 and 2014, BDC complied with
its capital adequacy guidelines.
Asset-backed securities Funding Platform for Independent Lenders
Total asset-backed securities
Loans
Term loans(1)
Quasi-equity(1)
Total loans
Subordinate financing(2)
Venture capital(2)
Venture capital action plan
Loan guarantees(3)
Letters of credit(3)
Total carrying value
Total capital required per
Treasury Board guidelines
March 31, 2015
Minimum
capital required
Carrying
value
Capital
ratio
10 : 1
40,773
40,773
336,477
336,477
10 : 1
33,648
33,648
16,455,294
1,958,750
18,414,044
10 : 1
4:1
1,645,529
489,688
2,135,217
15,588,514
1,652,550
17,241,064
10 : 1
4:1
1,558,851
413,138
1,971,989
618,693
699,203
47,643
4:1
1:1
1:1
154,673
699,203
47,643
534,904
485,731
5,169
4:1
1:1
1:1
133,726
485,731
5,169
1,875
29,785
20,218,974
3:1
10 : 1
625
2,979
1,605
25,997
18,630,947
3:1
10 : 1
535
2,600
Carrying
value
Capital
ratio
407,731
407,731
March 31, 2014
Minimum
capital required
3,081,113
2,633,398
Equity attributable to BDC’s shareholder
Accumulated other comprehensive income
on cash flow hedges
Net defined benefit asset
BDC available capital
4,744,566
4,338,910
3,987
100,429
4,640,150
3,246
83,527
4,252,137
Capital status
1,559,037
1,618,739
(1)March 31, 2014, figures were revised as a result of a more refined segmentation of the loans portfolio implemented in fiscal 2015.
(2)Net of non-controlling interest of $24,117 for subordinate financing and $10,436 for venture capital ($41,773 and $9,365 as at March 31, 2014, respectively).
(3)As the carrying value for letters of credit and loan guarantees is nil, the value above represents the committed amount (refer to Note 26).
BDC AR15 | 92
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
23.
RISK MANAGEMENT
GOVERNANCE
Risk is an inherent feature of the financial sector. BDC has strong risk management practices that emphasize risk identification,
risk management, transparency and accountability.
NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS
BDC is exposed to the following financial risks: credit risk, market risk and liquidity risk. This note provides the definitions of
these risks and describes BDC’s risk management policies and risk measurements.
CREDIT RISK
Credit risk is the risk that a financial loss will be incurred due to the failure of a counterparty in discharging its contractual commitment
or obligation to BDC. For the purposes of credit risk management activities, BDC distinguishes between credit risk arising from
asset-backed securities issuers, borrowers and investees, and counterparties to treasury activities.
Asset-backed securities issuers
The ABS portfolio consists of investment-grade senior and subordinated notes issued by way of private placement. ABS are fully
backed by security consisting of portfolios of loans and leases on vehicles and equipment, as well as dealer floor plan loans, for which
there is no significant concentration risk.
In order to mitigate the credit risk on the underlying asset portfolio, generally, there are structural or credit protections. Also, the
face value of the subordinated notes does not exceed 10% of the senior notes. In addition, securities purchased must be of a certain
grade. At time of purchase, senior note investments purchased by way of private placement must be, at a minimum, an implied
investment grade. The implied rating is calculated by BDC using the same scale as rating agencies. The rating is derived by evaluating
the transaction structure and the credit enhancement supporting the securities.
Subsequently, BDC receives portfolio reports that describe the performance of the securities, along with the cash flows associated
with the collateral, in order to evaluate the securities. In addition, for ABS that were issued by way of private placements, BDC uses
an internal risk rating system to monitor credit risk.
As at March 31, 2015 and 2014, none of the notes were past due and none had suffered a deterioration in their credit rating.
The maximum exposure to credit risk of ABS is limited to the carrying value of the securities. Refer to Note 9—Asset-Backed Securities,
for additional information on this portfolio.
BDC AR15 | 93
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
23. RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Borrowers and investees
BDC uses a number of policies, directives and procedures to manage credit exposures from loans and investments, which include:
>> the use of an internal credit risk rating classification;
>> credit policies, guidelines and directives, communicated to officers whose activities and responsibilities include credit granting
and risk assessment, which ensure early recognition of problem accounts and immediate implementation of steps to protect
BDC’s assets;
>> independent reviews of credit valuation, risk classification and credit management procedures performed by Internal Audit,
which include reporting the results to senior management, the president and chief executive officer, and the Audit Committee;
>> approval of larger transactions by the Board Credit and Risk Committee and the Board Investment Committee, based on
recommendations made by the Credit Risk Committee or the Venture Capital Committee;
>> monitoring of portfolio concentrations to protect BDC from being overly concentrated in any one province or industry sector;
>> monitoring to ensure that exposure to a single borrower or associated borrowers, unless approved by the Board of Directors,
does not represent more than 10% of the shareholder’s equity;
>> an annual review process to ensure appropriate classification of individual credit facilities;
>> the conduct of semi-annual valuations of investments; and
>> a watchlist report recording accounts with evidence of weaknesses, as well as an impaired loan report covering loans that show
impairment.
The maximum exposure to credit risk from borrowers and investees is limited to the carrying amount of the loans, subordinate
financing investments and venture capital investments in debentures. Refer to Note 10—Loans, Note 11—Subordinate Financing
Investments, Note 12—Venture Capital Investments and Note 13—Venture Capital Action Plan Investments for additional information
on loans and investment portfolios.
Counterparties to treasury activities
In order to mitigate the credit risk inherent in treasury activities, the Treasury Risk Management Unit identifies and measures BDC’s
credit risk exposure related to derivative counterparties and issuers of cash equivalents.
The notional amounts of derivative financial instruments held by BDC are not indicative of the credit risk exposure associated with
the contracts. The risk of loss is related to the possibility that a counterparty to a transaction will not perform as agreed. In the event
of default by a counterparty, the risk to BDC in these transactions would be limited to the prevailing currency and/or interest rate
differentials, as represented by the market values of transactions that are in an unrealized gain position.
BDC limits its exposure to credit risk by dealing only with financial institutions that have credit ratings in accordance with the Treasury
Risk Policy. As at March 31, 2015, and March 31, 2014, BDC had no significant concentrations in any individual financial institution.
BDC continually monitors its position and the credit ratings of its counterparties, and seeks to limit its credit exposure with respect
to contracts in a favourable position by entering into master netting agreements with counterparties.
Counterparty credit risk exposure
AA- to AA+
Gross positive replacement cost
Impact of master netting agreements
Replacement cost (after master netting agreements) – March 31, 2015
Replacement cost (after master netting agreements) – March 31, 2014
Number of counterparties
March 31, 2015
March 31, 2014
31,471
–
31,471
23,882
3
3
Counterparty ratings
A- to A+ BBB to BBB+
21,548
(6,722)
14,826
22,087
6
6
303
(191)
112
–
1
1
Total
53,322
(6,913)
46,409
45,969
10
10
Finally, to manage the credit risk arising from an issuer of cash equivalents, the Treasury Risk Management Unit ensures the liquidity
portfolio is composed of securities issued or guaranteed by entities that have a minimum credit rating of A.
BDC AR15 | 94
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
23. RISK MANAGEMENT (continued)
MARKET RISK
Market risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in
financial market variables, such as interest and foreign exchange rates, as well as equity and commodity prices. Market risk for BDC
also arises from volatile unpredictable market events affecting the value of venture capital investments.
Equity market risk
As set out in the treasury risk policy, BDC manages market risk by matching the terms of assets and liabilities. As a result, BDC structured
notes are economically hedged, using derivatives, to eliminate market risks such as exposure to interest rates in foreign markets, equity
prices, and commodity or index fluctuations (refer to Note 8—Derivative Financial Instruments, for additional information). Therefore,
BDC is not exposed to equity price risk, except for its venture capital investments, which is further explained in the venture capital
market risk section of this note.
Interest rate risk
Interest rate risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes
in market interest rates. For BDC, the risk and potential variability in earnings arise primarily when cash flows associated with interestsensitive assets and liabilities have different repricing dates. A positive interest rate gap exists when interest-sensitive assets exceed
interest-sensitive liabilities for a specific maturity or repricing period. A positive gap will result in an increase in net interest income when
market interest rates rise, since assets reprice earlier than liabilities. The opposite impact will occur when market interest rates fall.
To manage the interest rate gap on its asset-backed securities, BDC funds each issuance of asset-backed securities with specific
long-term borrowings. Long-term borrowings have similar payment schedules and repricing periods to mitigate interest rate risk.
Refer to Note 18—Borrowings, for additional information.
To manage the interest rate gap on its other interest-sensitive assets and interest-sensitive liabilities, BDC establishes policy guidelines
for interest rate gap positions, regularly monitors the Bank’s situation and decides future strategies in light of changing market conditions.
The objective is to manage the interest rate risk using sound and prudent guidelines. Interest rate risk policies included in the Treasury
Risk Policy are approved and reviewed at least annually by the Board of Directors.
Exposure to interest rate risk is controlled by managing the size of the static gap positions between interest-sensitive assets and interestsensitive liabilities. Gap analysis is supplemented by computer simulation of the asset liability portfolio structure and by a duration
analysis. The interest rate gap is measured daily.
Exposure to interest rate risk is also monitored using a net interest income sensitivity stress test. A parallel and sustainable 200-basis-point
shock on the Canadian yield curve is simulated and the impact on net interest income has to be less than 10%. As at March 31, 2015,
the impact was 5% or $44 million on net income and equity (5% or $45 million as at March 31, 2014).
BDC AR15 | 95
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
23. RISK MANAGEMENT (continued)
MARKET RISK (continued)
Interest rate risk (continued)
The following tables summarize BDC’s interest rate sensitivity position based on the difference between the carrying value of assets
and the carrying value of liabilities and equity, grouped by the earlier of contractual repricing or maturity date. The effective yield
represents the weighted-average effective yield based on the earlier of contractual repricing or maturity date. This gap analysis is a
static measurement of interest rate-sensitive gaps at a specific time. These gaps can change significantly in a short period of time.
Canadian dollar transactions
Within 4 to 12 1 to 5 Over Non-rate- Allowance
Floating rate 3 months (2)months years 5 years sensitive(3) and fair value Assets
Cash and cash equivalents
Effective yield (%)
Derivative assets
Asset-backed securities
Effective yield (%)
Loans
Effective yield (%)
Subordinate financing
investments
Effective yield(1) (%)
Venture capital investments
Venture capital action plan
investments
Other
8,704
665,212
656,508
0.85
52,079
14,464,132
5.06
225,867
4.88
436,123
5.09
2,385,029
5.04
407,731
2.07
805,440
5.33
147,722
10.33
17,456
11.72
46,242
10.77
314,071
10.32
24,530
11.01
14,620,558
Liabilities and equity
Derivative liabilities
Short-term notes
Effective yield (%)
Long-term notes
Effective yield (%)
Other
Total equity
951,910
482,365
2,699,100
1,237,701
52,079
407,731
490,556
103,965
(527,331) 18,279,816
(15,236)
142,814
1.00
98,322
0.91
638,750
475,097
475,097
47,643
186,744
1,304,005
47,643
186,744
(542,567) 20,753,072
5,793
15,435,363
5,793
15,435,363
0.54
19,782
1.12
Total
530,221
269,303
1.64
357,819
4,779,120
– 21,108,316
15,455,145
142,814
104,115
269,303
357,819
4,779,120
5,136,939
14,620,558
13,488,587
(14,503,235)
(13,056,087)
339,551
397,709
2,594,985
2,253,339
968,398
936,387
(3,832,934)
(3,741,081)
(542,567)
(532,951)
(355,244)
(254,097)
Total derivative position
–
Total gap position March 31, 2015 14,620,558
Total gap position March 31, 2014 13,488,587
(527,510)
(15,030,745)
(13,591,078)
189,222
528,773
454,455
115,000
2,709,985
2,333,333
223,288
1,191,686
1,228,988
–
(3,832,934)
(3,635,431)
–
(542,567)
(532,951)
–
(355,244)
(254,097)
–
Total gap position
before derivatives
March 31, 2015
March 31, 2014
(1)Excludes non-interest return.
(2)This grouping includes asset-backed securities, short-term and long-term notes for which interest rates reset monthly. The short-term and long-term notes are used
to fund floating-rate assets.
(3)Assets, liabilities and equities that are non-rate sensitive have no specific maturity.
BDC AR15 | 96
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
23. RISK MANAGEMENT (continued)
MARKET RISK (continued)
Interest rate risk (continued)
Foreign currency transactions, expressed in Canadian dollars
Within 4 to 12 1 to 5 Over Non-rate- Allowance
Floating rate 3 months (2)months years 5 years sensitive(3) and fair value Assets
Cash and cash equivalents
Effective yield (%)
Derivative assets
Loans
Effective yield (%)
Subordinate financing
investments
Effective yield(1) (%)
Venture capital investments
Total
1,872
1,872
824
(2,592)
1,243
134,228
69
4,060
419
136,820
3.77
3,991
10.03
142,683
Liabilities and equity
Derivative liabilities
Short-term notes
Effective yield (%)
Long-term notes
824
–
–
–
228
384
0.00
234,542
234,961
(2,523)
1,722
384
1,494
18,488
18,488
Effective yield (%)
Other
234,542
375,945
0.75
107
20,701
–
107
1,601
(18,488)
(17,483)
–
(7,003)
233,360
175,250
(2,523)
–
355,244
254,097
11,192
(7,296)
(6,775)
7,539
7,539
64
–
233,360
175,250
–
(2,523)
–
–
355,244
254,097
–
612
–
18,488
Total gap position
before derivatives
March 31, 2015
March 31, 2014
142,683
103,992
212
(659)
–
–
Total derivative position
Total gap position March 31, 2015
Total gap position March 31, 2014
–
142,683
103,992
(18,731)
(18,519)
(23,788)
–
–
5,354
–
(1)Excludes non-interest return.
(2)This grouping includes asset-backed securities, short-term and long-term notes for which interest rates reset monthly. The short-term and long-term notes are used
to fund floating-rate assets.
(3)Assets, liabilities and equities that are non-rate sensitive have no specific maturity.
Total transactions, expressed in Canadian dollars
Within 4 to 12 1 to 5 Over Non-rate- Allowance
Floating rate 3 months months years 5 years sensitive and fair value Total gap position for Canadian
dollar transactions
14,620,558 (15,030,745)
Total gap position for foreign
currency transactions
142,683
(18,519)
Total gap position March 31, 2015 14,763,241 (15,049,264)
Total gap position March 31, 2014 13,592,579 (13,614,866)
Total
528,773
2,709,985
1,191,686
(3,832,934)
(542,567)
(355,244)
–
528,773
459,809
(7,296)
2,702,689
2,326,558
7,539
1,199,225
1,229,052
233,360
(3,599,574)
(3,460,181)
(2,523)
(545,090)
(532,951)
355,244
–
–
BDC AR15 | 97
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
23. RISK MANAGEMENT (continued)
MARKET RISK (continued)
Foreign exchange risk
Foreign exchange risk arises when there is a difference between assets and liabilities held in foreign currencies. Foreign exchange
risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in foreign
exchange rates. BDC’s policy and practice are to economically hedge borrowings, subordinate financing investments and loans in
foreign currencies so that the residual exposure to foreign exchange risk is not significant. Venture capital investments are hedged
following the occurrence of a liquidity event. Refer to Note 8—Derivative Financial Instruments, for more information.
Venture capital market risk
Unpredictable financial markets, as well as the presence and appetite of buyers, dictate the timing of venture capital divestitures.
This timing, in turn, affects the value of BDC venture capital investments. To manage this risk, BDC uses a rigorous selection process
of investments and works closely with its investee companies. BDC also lowers the risk of its venture capital and venture capital action
plan investments by applying conservative valuations when purchasing participation in a company, co-investing with other venture
capital investors and monitoring investments regularly.
The Internal Risk Committees, composed of senior managers, review all investment transactions and approve those within their
delegated limits. For larger transactions, these committees make recommendations to the Venture Capital Investment and Risk
Committee of the board for approval.
LIQUIDITY RISK
Liquidity risk is the risk that BDC will be unable to honour all its contractual cash outflows as they become due. Contractual payments
for BDC represent (i) repayment of debt; (ii) timely disbursement of committed loans, investments and asset-backed securities; and
(iii) payments of dividends, and operating and administrative expenses.
BDC AR15 | 98
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
23. RISK MANAGEMENT (continued)
LIQUIDITY RISK (continued)
The following tables present contractual maturities of financial liabilities and commitments and are based on notional amounts, which
may differ from carrying values.
Accounts payable and accrued liabilities
Derivative liabilities(1)
Short-term notes(2)
Long-term notes(2)
Other financial liabilities
Commitments
Loans
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
Asset-backed securities
Letters of credit and loan guarantees
Total as at March 31, 2015
Accounts payable and accrued liabilities
Derivative liabilities(1)
Short-term notes(2)
Long-term notes(2)
Other financial liabilities
Commitments
Loans
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
Asset-backed securities
Letters of credit and loan guarantees
Total as at March 31, 2014
Within
1 year
1 to 5 years
Over
5 years
No fixed
maturity
Total
67,509
2,501
15,463,311
237,535
–
34,487
5,001
–
446,947
–
–
–
–
324,123
–
–
–
–
–
27,568
101,996
7,502
15,463,311
1,008,605
27,568
2,255,240
67,661
–
–
227,000
–
18,320,757
–
–
–
–
–
–
486,435
–
–
–
–
–
–
324,123
–
–
337,082
272,979
–
31,660
669,289
2,255,240
67,661
337,082
272,979
227,000
31,660
19,800,604
Within
1 year
1 to 5 years
Over
5 years
No fixed
maturity
Total
71,735
3,579
14,095,026
415,189
–
34,292
7,501
–
523,712
–
–
–
–
495,523
–
–
–
–
–
31,617
106,027
11,080
14,095,026
1,434,424
31,617
1,896,622
53,721
–
–
196,000
–
16,731,872
–
–
–
–
–
–
565,505
–
–
–
–
–
–
495,523
–
–
327,259
204,298
–
27,602
590,776
1,896,622
53,721
327,259
204,298
196,000
27,602
18,383,676
(1)Derivative liabilities reflect the interest payments to maturity of derivatives.
(2)Short-term and long-term notes reflect the notional amount that will be paid as per the contractual note agreements.
BDC AR15 | 99
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
23. RISK MANAGEMENT (continued)
LIQUIDITY RISK (continued)
A lack of marketability could make it expensive or even impossible to liquidate the securities held by BDC, which could also compromise
the short-term continuity of normal business. To avoid any liquidity-related disruptions, BDC ensures that cash is invested in highly
liquid and high-quality securities that can be sold to a wide range of counterparties without incurring a substantial discount.
BDC’s liquidity risk management objective is to mitigate this risk by:
>> providing for a minimum level of short-term assets over short-term liabilities to cover commitment, market, systemic and
operational risks;
>> minimizing the unproductive cash balance in the cash account; and
>> achieving a return on liquid assets in excess of cost while protecting BDC’s capital.
The treasury risk policy establishes risk tolerance parameters, provides delegation of authority to BDC’s Treasury Department to
transact in approved products and provides limits related to specific measures. The policy governs management, measurement,
monitoring and reporting requirements related to liquidity. Paragraph 18(3) of the BDC Act defines the instruments in which BDC
may invest its liquidity.
BDC’s liquidity management practices and processes reinforce its risk mitigation strategies by assigning prudent liquidity levels,
concentration requirements and maturity profile requirements, as outlined below:
>> The minimum liquidity level covers at least the net outflows scheduled for the next five working days. The maximum liquidity
level is not to exceed 15 days of net cash outflows.
>> The maturity profile requires 75% of the total liquidity to be invested in securities maturing within 100 days.
>> The concentration profile requires that no more than 50% of the portfolio be invested in securities issued or guaranteed by
Canadian provinces.
The cash and cash equivalents received from derivative counterparties to cover credit risk exposure as per the Credit
Support Annex of the International Swap and Derivatives Association agreements are not included in the liquidity level and limits.
As of March 31, 2015, the carrying amount of these collaterals was $384 ($6,050 as at March 31, 2014).
Liquidity risk for asset-backed securities is managed on a transaction basis due to the large size of each investment included in this
portfolio. Consequently, asset-backed securities are excluded from the regular liquidity management practices and processes.
The following tables show the results of BDC’s liquidity risk management.
Liquidity level (in millions of Canadian dollars)
Minimum
Actual
Maximum
364
544
657
654
1,432
1,576
Limits
March 31, 2015
March 31, 2014
Min 75%
Max 50%
100%
0%
100%
0%
As at March 31, 2015
As at March 31, 2014
Maturity and concentration limits
Cash and cash equivalents maturing within 100 days
Cash and cash equivalents in Canadian provinces
The Treasury Risk Management Unit identifies, measures and monitors these liquidity limits daily. It reports any deviations from these
liquidity limits to the Board of Directors. The Treasury Risk Management Unit determines whether the limits remain valid or whether
changes to assumptions and limits are required in light of internal or external developments. This process ensures that close links are
maintained between liquidity, market and credit risks.
BDC AR15 | 100
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
24.
ADDITIONAL INFORMATION ON THE CONSOLIDATED STATEMENT OF INCOME
ADDITIONAL INFORMATION ON FINANCIAL INSTRUMENTS
2015
Interest income(2)
Interest expense
Fee and other income
FVTPL(1) 2014
60,346
5,996
28,457
58,021
8,692
26,346
Other financial
instrument classification
2015
2014
1,010,095
121,170
15,310
962,144
124,121
15,048
2015
Total
2014
1,070,441
127,166
43,767
1,020,165
132,813
41,394
(1)Fair value through profit or loss.
(2) Interest income includes $35,663 for impaired loans in 2015 ($33,996 in 2014).
2015
FVTPL(1)
Held-for- Designated Available- Cash flow Loans and
trading as at FVTPL for-sale hedges Receivables
Total gains (losses)
Net realized gains (losses) on investments
Net realized gains (losses) on other
financial instruments
Net change in unrealized appreciation
(depreciation) of investments
Net unrealized foreign exchange gains
(losses) on investments
Net unrealized gains (losses) on other
financial instruments
–
Total
–
–
–
–
(35,064)
–
–
641
–
–
(5,285)
–
37,217
–
–
–
–
37,217
–
27,974
–
–
–
–
27,974
(2,809)
27,318
–
–
–
–
–
–
(2,076)
22,766
FVTPL(1)
Held-for- Designated Available- Cash flow Loans and
trading as at FVTPL for-sale hedges Receivables
Other
financial
liabilities
Total
(5,926)
1,020
(4,906)
(35,064)
Other
financial
liabilities
(287)
354
(1)Fair value through profit or loss
2014
Total gains (losses)
Net realized gains (losses) on investments
Net realized gains (losses) on other
financial instruments
Net change in unrealized appreciation
(depreciation) of investments
Net unrealized foreign exchange gains
(losses) on investments
Net unrealized gains (losses) on other
financial instruments
–
(24,885)
–
–
–
–
(24,885)
(9,267)
–
–
1,236
–
–
(8,031)
–
3,201
–
–
–
–
3,201
–
14,584
–
–
–
–
14,584
(19,530)
(28,797)
18,826
11,726
–
–
(339)
897
–
–
–
–
(1,043)
(16,174)
(1)Fair value through profit or loss.
BDC AR15 | 101
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
24. ADDITIONAL INFORMATION ON
THE CONSOLIDATED STATEMENT OF INCOME (continued)
OTHER ADDITIONAL INFORMATION
Amortization/depreciation of
Loss on initial recognition of asset-backed securities included in interest income
Property and equipment included in operating and administrative expenses
Intangible assets included in operating and administrative expenses
Salaries and benefits
Salaries and other benefits
Defined benefit plan expense (Note 19)
2015
2014
–
7,408
9,785
(41)
7,230
4,825
251,442
52,085
303,527
238,549
55,128
293,677
25.
SEGMENTED INFORMATION
BDC has six reportable segments, as described below, which are the Bank’s business lines. Each business line offers different products
and services, and is managed separately based on BDC’s management and internal reporting structure.
The following summary describes the operations in each of the Bank’s reportable segments.
>> Financing provides secured, partially secured and unsecured loans with a focus on small and medium-sized enterprises across Canada.
>> Growth & Transition Capital provides subordinate financing by way of flexible debt with or without convertible features and
equity-type financing.
>> Venture Capital provides investments to cover every stage of a technology-based company’s development cycle, from seed
funding to expansion. BDC also makes indirect investments via venture capital investment funds.
>> Consulting provides consulting services, group programs and other services related to business activities.
>> Securitization purchases investments in asset-backed securities through the Funding Platform for Independent Lenders
(F-PIL, formerly known as the Multi-Seller Platform for Small Originators) and until October 2013 managed the Canadian Secured
Credit Facility investment portfolio. These securities are backed by vehicle and equipment loans and leases, as well as dealer floor
plan loans. BDC also provides fully secured loans to small- and medium-sized finance and leasing companies.
>> Venture Capital Action Plan supports the creation of large private sector-led funds of funds and also assists existing high-performing
funds in partnership with institutional investors, corporate strategic investors and interested provinces.
The assumptions and methodologies used in BDC’s reporting framework are periodically reviewed by management to ensure they
remain valid. The main allocation methods used by BDC are described below.
Interest expense is allocated to each operating segment based on its business portfolio and the capital attributed to the segment.
The attribution of capital to BDC’s business segments is maintained in accordance with the capital adequacy ratios provided
by Treasury Board of Canada Secretariat and is consistently aligned to the economic risks of each specific business segment.
Refer to Note 22—Capital Management, for more information.
Operating and administrative expenses include costs that were incurred directly by the business segments. Indirect costs incurred at
the enterprise level are attributed to each segment using management’s internal reporting framework.
Loan and investment portfolios are managed separately based on BDC’s business segments. None of the other assets or liabilities
are managed by segment.
BDC AR15 | 102
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
25. SEGMENTED INFORMATION (continued)
The following tables present financial information regarding the results of each reportable segment.
BDC
Interest income
Interest expense
Net interest income (expense)
Net realized gains (losses) on investments
Consulting revenue
Fee and other income
Net realized gains (losses) on
other financial instruments
Net revenue (loss)
Provision for credit losses
Net change in unrealized appreciation
(depreciation) of investments
Net unrealized foreign exchange gains (losses)
on investments
Net unrealized gains (losses) on other
financial instruments
Income (loss) before operating and
administrative expenses
Salaries and benefits
Premises and equipment
Other expenses
Operating and administrative expenses
Net income (loss)
Net income (loss) attributable to:
BDC’s shareholder
Non-controlling interests
Net income (loss)
Business segment portfolio as at March 31(1)
Growth &
Transition
Financing Capital
Venture
Capital
March 31, 2015
Venture
Capital
Consulting Securitization Action Plan
1,070,441
127,166
943,275
(35,064)
17,044
43,767
1,002,171
117,396
884,775
2
–
15,239
60,008
7,442
52,566
(23,010)
–
26,512
–
–
–
(12,056)
–
1,671
–
–
–
–
17,044
–
8,262
2,328
5,934
–
–
71
–
–
–
–
–
274
(5,285)
963,737
(95,923)
641
900,657
(95,923)
–
56,068
–
(5,926)
(16,311)
–
–
17,044
–
–
6,005
–
–
274
–
37,217
–
9,523
31,305
–
(20)
(3,591)
27,974
–
–
27,974
–
–
–
(3,863)
–
1,787
–
–
–
930,929
303,527
46,171
90,541
440,239
490,690
800,871
237,766
40,722
68,955
347,443
453,428
65,591
22,510
1,437
3,119
27,066
38,525
44,755
15,420
1,653
4,414
21,487
23,268
17,044
25,515
2,206
13,568
41,289
(24,245)
5,985
1,574
91
355
2,020
3,965
(3,317)
742
62
130
934
(4,251)
490,516
174
490,690
453,428
–
453,428
36,301
2,224
38,525
25,318
(2,050)
23,268
(24,245)
–
(24,245)
3,965
–
3,965
(4,251)
–
(4,251)
20,221,867
18,410,941
642,810
709,639
(2,076)
–
410,834
47,643
(1) Securitization’s portfolio at the end of the period included $3,103 in loans and $407,731 in asset-backed securities.
BDC AR15 | 103
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
25. SEGMENTED INFORMATION (continued)
BDC
Interest income
Interest expense
Net interest income (expense)
Net realized gains (losses) on investments
Consulting revenue
Fee and other income
Net realized gains (losses) on
other financial instruments
Net revenue (loss)
Provision for credit losses
Net change in unrealized appreciation
(depreciation) of investments
Net unrealized foreign exchange gains (losses)
on investments
Net unrealized gains (losses) on other
financial instruments
Income (loss) before operating and
administrative expenses
Salaries and benefits
Premises and equipment
Other expenses
Operating and administrative expenses
Net income (loss)
Net income (loss) attributable to:
BDC’s shareholder
Non-controlling interests
Net income (loss)
Business segment portfolio as at March 31
BDC AR15 | 104
Growth &
Transition
Financing Capital
Venture
Capital
Consulting
March 31, 2014
Venture
Capital
Securitization Action Plan
1,020,165
132,813
887,352
(24,885)
21,684
41,394
953,288
123,026
830,262
–
–
14,925
57,669
7,926
49,743
(5,887)
–
22,211
–
–
–
(18,998)
–
4,089
–
–
–
–
21,684
–
9,208
1,861
7,347
–
–
123
–
–
–
–
–
46
(8,031)
917,514
(72,881)
1,236
846,423
(72,881)
–
66,067
–
(9,267)
(24,176)
–
–
21,684
–
–
7,470
–
–
46
–
3,201
–
(16,606)
20,286
–
54
(533)
14,584
–
–
14,584
–
–
–
(830)
–
(213)
–
–
–
861,375
293,677
40,611
94,475
428,763
432,612
772,712
231,613
35,772
71,494
338,879
433,833
49,461
22,384
1,247
2,525
26,156
23,305
10,481
16,344
1,631
4,581
22,556
(12,075)
21,684
21,352
1,886
15,301
38,539
(16,855)
7,524
1,299
75
328
1,702
5,822
(487)
685
–
246
931
(1,418)
425,968
6,644
432,612
433,833
–
433,833
15,966
7,339
23,305
(11,380)
(695)
(12,075)
(16,855)
–
(16,855)
5,822
–
5,822
(1,418)
–
(1,418)
18,654,483
17,241,064
576,677
495,096
–
336,477
5,169
(1,043)
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
26.
GUARANTEES AND CONTINGENT LIABILITIES
FINANCIAL GUARANTEES
LETTERS OF CREDIT AND LOAN GUARANTEES
BDC issues “letters of credit and loan guarantees” (guarantees) to support businesses. Those guarantees represent BDC’s obligation to
make payments to third parties if clients are unable to meet their contractual commitments. Collateral requirements for letters of credit
and loan guarantees are consistent with BDC collateral requirements for loans. The fee income earned is calculated on a straight-line
basis over the life of the instrument and recognized in fee and other income in the Consolidated Statement of Income. The maximum
amount payable under the guarantees totalled $31.7 million as at March 31, 2015 ($27.6 million as at March 31, 2014) and the existing
terms expire within 39 months (within 39 months as at March 31, 2014). The total contractual amount is not representative of the
maximum potential amount of future payments to be required for these commitments.
These financial guarantees were initially recognized at fair value on the date the guarantees were given. The fair value was considered
nil, as all guarantees were agreed to on arm’s-length terms and no initial fee was received. In addition, no receivable for the future
expected fees was recognized. Subsequent recognition of a liability will only occur when it becomes more likely than not that a client
will not meet its contractual commitments. As at March 31, 2015 and 2014, there were no liabilities recognized in BDC’s Consolidated
Statement of Financial Position related to these guarantees.
INDEMNIFICATION AGREEMENTS
In the ordinary course of business, BDC enters into many contracts that contain indemnification provisions, such as purchase contracts,
employment contracts, service agreements and leasing arrangements. In such contracts, BDC may indemnify counterparties to the
contracts for certain aspects of BDC’s past conduct if other parties fail to perform, or if certain events occur, such as changes in laws and
regulations (including tax legislation), changes in the financial condition of third parties, infringements and breaches of representations
and warranties, undisclosed liabilities, and loss caused by the actions of third parties, or as a result of litigation claims by third parties.
These indemnification obligations will vary based upon each contract. In many cases, there are no predetermined amounts or
limits included in these contracts, and the occurrence of contingent events that will trigger payment under them is difficult to predict.
The nature of these indemnification contracts is such that BDC cannot reasonably estimate the maximum potential future amount
that may be payable to counterparties. Historically, BDC has not made any significant payments under these indemnities and there
were no significant provisions for indemnities as of March 31, 2015 and 2014.
CONTINGENT LIABILITIES
Various legal proceedings arising from the normal course of business are pending against BDC. Management believes that should
BDC be found liable pursuant to one or more of these proceedings, the aggregate liability resulting from such proceedings would
not be material.
BDC AR15 | 105
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
27.
COMMITMENTS
LOANS AND INVESTMENTS
LOANS
Undisbursed amounts of authorized loans were $2,255,240 as at March 31, 2015 ($447,183 fixed rate; $1,808,057 floating rate) and are
expected to be disbursed within the next 12 months. The weighted-average effective interest rate was 4.62% on loan commitments
(4.78% as at March 31, 2014). The following tables present undisbursed amounts of authorized loans by location and industry.
Commitments, by geographic distribution
March 31, 2015
March 31, 2014
Newfoundland and Labrador
Prince Edward Island
Nova Scotia
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Yukon
Northwest Territories and Nunavut
Total
88,431
525
55,930
22,499
545,479
643,218
67,579
66,173
568,549
193,659
2,172
1,026
2,255,240
64,956
4,448
60,085
19,685
547,558
500,665
56,729
96,904
352,070
191,288
1,834
400
1,896,622
Commitments, by industry sector
March 31, 2015
March 31, 2014
519,240
322,222
319,899
254,214
248,614
247,874
103,386
91,765
148,026
2,255,240
404,133
263,457
259,707
204,556
228,533
247,274
130,645
121,206
37,111
1,896,622
Manufacturing
Tourism
Wholesale and retail trade
Resources
Service industries
Construction
Commercial properties
Transportation and storage
Other
Total
SUBORDINATE FINANCING INVESTMENTS
Undisbursed amounts of authorized subordinate financing investments were $67,661 as at March 31, 2015 ($25,687 fixed rate;
$41,974 floating rate) and are expected to be disbursed within the next 12 months. The weighted-average effective interest rate was
9.87% on subordinate financing commitments (8.83% as at March 31, 2014), excluding non-interest return. The following tables
present undisbursed amounts of authorized subordinate financing investments, by location and industry.
Commitments, by geographic distribution
Newfoundland and Labrador
Nova Scotia
New Brunswick
Quebec
Ontario
Saskatchewan
Alberta
British Columbia
Total
BDC AR15 | 106
March 31, 2015
March 31, 2014
255
–
–
23,570
32,556
4,400
2,650
4,230
67,661
–
3,554
1,750
13,600
24,442
625
6,100
3,650
53,721
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
27. COMMITMENTS (continued)
LOANS AND INVESTMENTS
(continued)
SUBORDINATE FINANCING INVESTMENTS (continued)
Commitments, by industry sector
Manufacturing
Service industries
Wholesale and retail trade
Resources
Construction
Information industries
Tourism
Transportation and storage
Other
Total
March 31, 2015
March 31, 2014
19,350
16,288
9,832
4,800
4,780
4,061
–
300
8,250
67,661
22,408
10,549
11,859
2,500
1,100
695
800
300
3,510
53,721
VENTURE CAPITAL INVESTMENTS
The undisbursed amounts of authorized venture capital investments were related to the following industry sectors.
Commitments, by industry sector
Medical and health
Information technology
Biotechnology and pharmacology
Electronics
Industrial
Energy
External funds
Total
March 31, 2015
March 31, 2014
7,000
3,750
3,671
1,205
1,000
–
16,626
–
9,238
7,112
639
583
320
17,892
320,456
337,082
309,367
327,259
VENTURE CAPITAL ACTION PLAN INVESTMENTS
The undisbursed amounts of authorized venture capital action plan investments were $272,979 as at March 31, 2015 ($204,298 as
at March 31, 2014).
ASSET-BACKED SECURITIES
The undisbursed amounts of authorized asset-backed securities were $227,000 as at March 31, 2015 ($196,000 as at March 31, 2014).
INTANGIBLE ASSETS
As at March 31, 2015 and March 31, 2014, there were no significant contractual commitments to acquire systems and software.
BDC AR15 | 107
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
27. COMMITMENTS (continued)
LEASES
BDC entered into a number of lease agreements to provide office space for its head office and business centres. BDC’s future minimum
lease commitments under operating leases related to the rental of premises are approximately as follows.
March 31, 2015
March 31, 2014
28,041
87,272
20,734
136,047
27,636
95,255
23,145
146,036
Within 1 year
1 to 5 years
After 5 years
Total
In addition, on June 8, 2015 BDC entered into a new lease agreement covering a fifteen year period commencing in fiscal 2020.
Minimum lease commitments for the fifteen year period amount to approximately $163.6 million.
During the year, lease payments recognized as an expense amounted to $26.3 million ($25.8 million in 2014). This amount consists
of minimum lease payments. No significant sublease payments or contingent rent payments were made or received.
28.
RELATED PARTY TRANSACTIONS
BDC is a Crown corporation that is wholly owned by the Government of Canada and is accountable for its affairs through the
Minister of Industry. BDC is also related to all Government of Canada-created departments, agencies and Crown corporations.
BDC enters into transactions with these entities in the normal course of business, under terms and conditions similar to those that
apply to unrelated parties.
The defined benefit plans referred to in Note 19—Net Defined Benefit Asset or Liability, are also related parties. BDC’s transactions
with these funds include contributions paid to the plans, which are disclosed in Note 19. BDC has no other transactions or balances
related to these defined benefit plans.
BORROWINGS WITH THE MINISTER OF FINANCE
During the reporting periods, BDC has borrowed funds from Her Majesty the Queen in Right of Canada acting through the
Minister of Finance. This borrowing is in accordance with the FAA and the BDC Act and is compliant with (i) BDC’s borrowing plan,
which is approved by the Minister of Finance; and (ii) the Crown Borrowing Program Framework.
The following table presents the transactions and outstanding balances related to the borrowings with the Minister of Finance.
Refer to Note 18—Borrowings, for additional information on short-term and long-term notes.
Short-term notes
2015
2014
Balance at beginning of year
Net change in short-term notes
Net change in accrued interest
Issuance of long-term notes
Repayment of long-term notes
Balance at end of year
14,050,567
1,386,000
(1,204)
–
–
15,435,363
12,714,261
1,337,413
(1,107)
–
–
14,050,567
Long-term notes
2015
2014
274,546
–
(191)
154,600
(184,699)
244,256
506,018
–
384
192,435
(424,291)
274,546
2015
14,325,113
1,386,000
(1,395)
154,600
(184,699)
15,679,619
Total
2014
13,220,279
1,337,413
(723)
192,435
(424,291)
14,325,113
During the year, BDC recorded $127.0 million in interest expense related to these borrowings ($129.0 million in 2014). In addition,
in order to comply with BDC’s risk management policies, certain short-term and long-term notes with the Minister of Finance were
repaid prior to maturity (none were repaid in 2014). This resulted in a net realized loss of $0.5 million in fiscal 2015 (no realized gain
or loss in fiscal 2014).
BDC AR15 | 108
Notes to the Consolidated Financial Statements
For the year ended March 31, 2015
(in thousands of Canadian dollars)
28. RELATED PARTY TRANSACTIONS (continued)
KEY MANAGEMENT PERSONNEL
Key management personnel are defined as those officers having authority and responsibility for planning, directing and controlling
the activities of BDC, including members of the Board of Directors. The following table presents the compensation expense of
key management personnel.
Salaries and short-term employee benefits
Post-employment benefits
Other long-term benefits
Total
2015
2014
4,035
1,058
1,251
6,344
4,539
1,058
924
6,521
The following loans or investments were approved by the BDC Board of Directors as a member of the Board of Directors
either owns an interest in, or is a director or officer of, the BDC client. Said board members disclosed their interest to the board,
were not present when the loan or investment was discussed, and did not vote on the resolution of the Board of Directors to approve
the related transaction.
Name of client
Functionalab Inc.
MedCurrent Corporation
Beyond the Rack
Kira Talent Inc.
Total
Amount of the loan or investment
1,300,000
250,000
1,750,000
150,000
3,450,000
SUBSIDIARIES AND ASSOCIATES
The relationship between BDC and its subsidiaries meets the definition of a related party. All transactions between the Bank and
its subsidiaries have been eliminated on consolidation, and as such are not disclosed as related-party transactions.
In the normal course of business, BDC provides certain services to associates, including equity-type financing and investments.
These transactions meet the definition of related-party transactions and are made on terms equivalent to those that prevail in
arm’s-length transactions.
BDC AR15 | 109
BDC AR15 | 110
Corporate Governance
Committees
115
Board and Board Committee Meetings and Attendance
118
Board of Directors
119
BDC AR15 | 111
Corporate Governance
CORPORATE GOVERNANCE:
ENTREPRENEURS AND TRUST
BDC’s economic responsibility is
to dedicate itself exclusively—and
effectively—to entrepreneurs.
Its social responsibility is to do this
in a manner that builds public trust.
As the Board of Directors oversees
BDC’s efforts to fulfill both
responsibilities, robust corporate
governance is critically important.
WHAT IS ROBUST CORPORATE GOVERNANCE?
Robust corporate governance begins with a clear mandate;
BDC’s mandate to promote entrepreneurship while remaining
complementary, with a special focus on small and mediumsized enterprises, is precise and well understood. It is enabled
by a transparent board governance framework that clearly
defines roles, decision-making and accountability. It is carried
out by a team of dedicated, hard-working people at the board
level whose expertise, integrity and commitment to ethical
business conduct transform principles into policies, decisions
and actions that build trust.
BDC AR15 | 112
Samuel L. Duboc has provided decisive leadership as
Chairperson of the Board. He has guided the board through
an active year that saw the successful coming into force of the
revised Business Development Bank of Canada Act (BDC Act),
the initiation of BDC Advantage, the formalization of BDC’s
Risk Appetite Statement and significant progress on the
Venture Capital strategy.
There were other notable achievements. All of BDC’s
operations in fiscal 2014–15 were within the risk limits
set forth in the Bank’s Risk Appetite Statement, and all of
its activities complied with BDC’s Enterprise Risk Management
Policy and Treasury Risk Policy. As well, the corporate
compliance function implemented a framework that assigned
accountability for defined laws to business owners, to ensure
BDC remains compliant.
Most importantly, the Board recommended criteria to the
Governor-in-Council that would help it to select the best
candidate for the position of President and CEO of the Bank,
as Jean-René Halde chose to retire at the end of the term in
June 2015. BDC sent out a request for proposal to engage
a recruitment firm and the Privy Council Office created a
selection committee to search for a new President and CEO.
The process is ongoing.
In addition, BDC worked with the Minister to recommend
potential board members with the profile and skills to
provide the diversity and talent required to steward BDC.
Robert H. Pitfield, a seasoned banker with strong risk
management expertise, joined the Board on May 9, 2014,
and became the Chairperson of the Board Credit and
Risk Committee. Mary-Alice Vuicic, who has extensive
experience in human resources, became the Chairperson
of the Human Resources Committee. Claude McMaster,
an entrepreneur and financial expert, joined the Board on
March 26, 2015. Rick Perkins, who served seven years
on the Board, left.
Corporate Governance
STATEMENT FROM
THE BOARD OF DIRECTORS
We set BDC’s strategic direction. We also hold senior
management accountable by overseeing its activities to
ensure it achieves its statutory mandate while respecting
its role, all in accordance with the highest standards of
corporate governance.
Except for the President and CEO, we are all independent of
management. We have first-hand experience in governance,
finance, business management, entrepreneurship, risk
management, information systems and human resources.
Together, we have the required mix of skills and experience
needed for our stewardship role.
Our core challenge is to manage the tension associated
with BDC’s role as a development bank to support
entrepreneurs—an inherently risky activity—while prudently
managing risk and remaining commercially viable.
All committee members are independent, with the
exception of the President and CEO, who is a member of
the Board Credit and Risk Committee and of the Board
Investment Committee. These committees review strategies,
new products, and activities, and authorize larger transactions
within defined limits. All committee members disclose their
holdings and any potential conflicts of interest upon joining
the Board and annually thereafter, as part of their regular
affirmation of compliance with the Board Code of Conduct.
We keep abreast of best practices and review our policies,
corporate directives and codes of conduct regularly to
continuously improve BDC’s corporate governance.
OUR DUTIES
Within the parameters set by Parliament and government,
our duties are to:
>> approve BDC’s strategic direction and corporate plan
to meet its public policy mandate
>> set performance targets and monitor progress
BOARD GOVERNANCE
The board’s mandate and Code of Conduct, and the terms
of reference for board committees, define the board’s
governance. We had eight board meetings in fiscal 2014–15.
They were held across Canada so that BDC clients could
meet and seek guidance directly from board members
and so that members could learn more about the unique
challenges Canadian entrepreneurs face in different regions.
In addition, we held 51 committee meetings by conference
call to approve loans and investments. We also held our
customary annual public meeting to support our outreach to
entrepreneurs.
>> ensure that BDC is identifying and managing its risks
We work very closely with senior management but also
meet regularly in camera without their presence.
>> oversee communications and public disclosure
Board committees conduct in-depth reviews of their areas of
responsibility and provide regular reports to us. We regularly
review and revise our Board Profile and the membership of
board committees to ensure that board members have the
skills required to guide the Bank effectively. Board members
have appropriately high levels of financial literacy, as well as
the broader skills and competencies needed to oversee the
management of a large financial organization.
>> ensure the highest standards of corporate governance
>> establish compensation policies
>> review and approve management’s succession plan,
including approving appointments to the senior
management team
>> set the President and CEO’s performance objectives
and evaluate his performance
>> review BDC’s internal controls and management
information systems
>> oversee BDC’s pension plans, and establish its fund
policies and practices
>> approve financing and investment activities beyond
management’s authority
>> review the complementarity of BDC’s market approach
and activities
BDC AR15 | 113
Corporate Governance
BDC’S CORPORATE GOVERNANCE FRAMEWORK
Our principal guidelines derive from parliamentary statutes.
The BDC Act sets out BDC’s purpose, powers and duties.
The Financial Administration Act, sets out the control and
accountability regime for Crown corporations. BDC’s by-laws
prescribe the rules for the functioning of the Bank.
We look to Treasury Board of Canada Secretariat and to
private financial institutions for guidance and expertise on public
sector governance practices. BDC meets or exceeds all of the
governance standards recommended by Treasury Board.
Like other Crown corporations, BDC is subject to many laws
and has developed a Legislative Compliance Framework
to identify key laws and regulations that affect our mandate,
operations and sustainability. The Legislative Compliance
Policy provides for a corporate compliance function led by the
Chief Compliance Officer, who is the Senior Vice President,
Legal Affairs and Corporate Secretary, and in this role reports
directly to the Audit Committee. The mandate of the corporate
compliance function is to implement and maintain the risk-based
Legislative Compliance Framework; monitor compliance with
all applicable legislation and regulations; maintain a thorough
understanding of BDC’s obligations under relevant legislation
and regulations, and develop a Legislative Inventory; identify
areas of vulnerability and assess compliance risk; and assume
accountability for enterprise-wide compliance with legislative
or regulatory requirements that apply to the Bank.
Every year, Parliament receives an update of BDC’s five-year
corporate plan, which has been approved by the Board of
Directors, Treasury Board of Canada Secretariat and the
Minister of Industry. Also every year, Parliament receives
BDC’s annual report. This report contains financial statements
that have been audited by both the Auditor General of
Canada and an external audit firm.
The Auditor General of Canada does a special examination
of BDC at least once every 10 years. This examination is a
performance audit that goes beyond strictly financial issues to
examine systems and practices related to economy, efficiency
and effectiveness. In the most recent examination report
(2009), the auditors favourably reviewed BDC, writing that it
has “sound systems and practices in areas such as governance,
strategic planning, human resources and financing activities.”
At 10-year intervals, the Minister of Industry must review
the provisions and operation of the BDC Act, in consultation
with the Minister of Finance. The Legislative Review was
completed in 2014 and the Act was revised to allow BDC
to increase support for Canadian entrepreneurs who are
BDC AR15 | 114
expanding internationally, to help the Canadian economy
become more competitive. BDC was given more flexibility to
adjust its powers through regulations, to help entrepreneurs
indirectly through not-for-profit organizations and to enhance
its non-financial support through activities such as consulting.
The Senior Management Committee and management
committees have clearly defined roles, and are an integral part
of BDC’s Corporate Governance Framework.
BDC has a Documentation Framework and governance
structure that provides for all policies to be approved by the
Board. The President and CEO or his delegate approves
corporate directives.
Key policies include the Enterprise Risk Management Policy,
the Risk Appetite Statement, the Delegation of Authority Policy
and the Legislative Compliance Policy. There are 35 corporate
directives covering all areas of BDC’s operations, including
information technology (IT) governance and risk management.
Lastly, we rely on the three lines of defence model for risk
management: (i) management controls and internal control
measures; (ii) financial control, security, risk management,
quality, inspection and compliance; and (iii) internal audit.
KEY GOVERNANCE PILLARS: CODES OF CONDUCT
The Employee Code of Conduct, Ethics and Values
affirms BDC’s fundamental tenets: ethical behaviour, client
connection, team spirit, accountability and work/life balance.
The Code applies to all employees and they certify their
compliance with it annually. It sets out the principles that guide
and shape our business activities: compliance with the law,
trust, fairness, objectivity, integrity, and corporate social and
individual responsibility. It is supported by policies on personal
trading, disclosure of wrongdoing, anti-fraud, anti-money
laundering and anti-terrorism financing.
The Board Code of Conduct incorporates the same basic
principles as the Employee Code of Conduct, Ethics and
Values. Every year, all board members affirm that we
have complied with the Code. The segregated roles and
responsibilities of the Chairman and the President, already
documented, reflect current best practices. The Code
is supported by policies on personal trading, director
orientation and continuing education. We have robust
procedures in place to disclose and track potential conflicts
of interest. During the year, the Board also conducted a
very thorough board assessment on the effectiveness
of the Board, its committees and individual members.
This included a peer-to-peer review.
Committees
THE AUDIT COMMITTEE
CHAIRPERSON
Brian Hayward
NUMBER OF MEETINGS
6
THE BOARD CREDIT AND RISK COMMITTEE
MEMBERS
Eric Boyko
Michael Calyniuk
Sue Fawcett
Edward Gordon
This committee promotes an overall corporate culture of quality
financial reporting and ethical behaviour. Its main duties are to:
>> review and advise the board on financial statements before
BDC discloses them to the public
>> review financial reporting and disclosures
>> review the adequacy and effectiveness of internal controls,
and, in particular, major accounting and financial
reporting systems
>> oversee BDC’s standards of integrity and conduct
>> oversee the process for disclosing wrongdoing
>> review the adequacy of internal and external auditors
CHAIRPERSON
Robert H. Pitfield
NUMBER OF MEETINGS
28
MEMBERS
Eric Boyko
Michael Calyniuk
Samuel L. Duboc
Shahir Guindi
Jean-René Halde
Brian Hayward
This committee’s main duties are to:
>> identify and manage BDC’s principal risks;
>> monitor compliance with and assess the effectiveness
of BDC’s Risk Appetite Statement, and the models and
limits contained in it
>> oversee the work of the Chief Risk Officer
>> regularly review the Enterprise Risk Management Policy
and other policies concerning key risks, such as credit,
market, strategic, reputational, operational and other
principal risks
>> give advice and recommendations about the appointments
and terms of auditors and special examiners
>> review reports and indicators related to enterprise risk
management, portfolio risk management, capital adequacy,
treasury operations risks and IT security.
>> oversee the corporate compliance function, which reports
directly to it
>> approve new business activities, products and services,
except those related to venture capital
>> review the scope and terms of engagement of auditors and
special examiners who report directly to the Committee
and are accountable to the Board
>> periodically review the business continuity plan
>> review and advise the Board on the audit of the annual
financial statements, the scope of the special examination
and the special examination report
>> consider the appointment and work of the Chief Audit
Executive, who reports directly to the Committee and
administratively to the President and CEO
>> approve loans and transactions that exceed the delegated
authorities of senior management
>> review policies and guidelines related to the delegation
of authority for all financial products, except venture
capital products
>> review directors’ and officers’ expenses
BDC AR15 | 115
Corporate Governance | Committees
THE GOVERNANCE AND
NOMINATING COMMITTEE
CHAIRPERSON
Samuel L. Duboc
NUMBER OF MEETINGS
6
MEMBERS
Brian Hayward
Prashant Pathak
Mary-Alice Vuicic
This committee helps the Board fulfill its corporate governance
oversight responsibilities. Its main duties are to:
>> continually review best practices and regulations related
to governance in Canada and, if necessary, recommend
changes to BDC’s approach
>> annually review BDC’s corporate governance policies,
including the Board Code of Conduct, and the Employee
Code of Conduct, Ethics and Values
THE HUMAN RESOURCES
COMMITTEE
CHAIRPERSON
Mary-Alice Vuicic
NUMBER OF MEETINGS
6
MEMBERS
Shahir Guindi
Prashant Pathak
Robert H. Pitfield
This committee’s main duties are to:
>> assess the “tone at the top” established by senior
management with respect to integrity and ethics
>> oversee the human resources strategy to ensure
it is aligned with the corporate plan
>> monitor procedures established to detect and manage
potential conflicts of interest
>> review—and, if appropriate, recommend to the
Board for approval—the CEO’s recommendations for
appointments of senior management committee members,
the Chief Audit Executive and the Ombudsman,
as well as any CEO proposal for major changes to
the organization’s structure
>> regularly review the mandates, structures and
memberships of the Board and its committees
>> assess the CEO’s objectives and performance
>> review compensation for senior executives
>> develop selection criteria for the President and CEO
position
>> review and approve the design of compensation
programs and material payments
>> recommend to the Board, for the consideration of the
Minister of Industry, the reappointment of the Chairperson,
the President and CEO, and members
>> approve performance measures and metrics
>> annually assess the board’s compliance with these policies
>> retain a search firm to identify candidates for the positions
of the Chairperson, the President and CEO, and members
>> review and annually approve the list of skills directors
require
>> develop processes to assess the performance of the Board,
its committees and its individual members
>> ensure that comprehensive director orientation and
continuous training programs are in place
BDC AR15 | 116
>> receive and examine actuarial evaluation reports and
financial statements related to BDC pension plans,
as well as recommend funding contributions
>> ensure there is a valid succession plan in place
Corporate Governance | Committees
THE PENSION FUNDS INVESTMENT
COMMITTEE
CHAIRPERSON
Rosemary Zigrossi
NUMBER OF MEETINGS
7
MEMBERS
Sue Fawcett
Edward Gordon
Alan Marquis
(observer and
representative
for BDC retirees)
BOARD INVESTMENT COMMITTEE
(AND VCIC)
CHAIRPERSON
Prashant Pathak
NUMBER OF MEETINGS
23
MEMBERS
Eric Boyko
Sue Fawcett
Jean-René Halde
Rosemary Zigrossi
This committee’s duties are to:
This committee’s main duties are to:
>> monitor, and advise the Board on, all matters related to
the investment of the funds’ assets
>> recommend asset allocation and investment policies and
strategies
>> ensure that investments comply with established policies
>> recommend to the Board the appointment, termination
and replacement of external investment managers
>> review the funds’ actuarial valuation reports and financial
statements
>> monitor the performance of the funds and the managers
>> regularly review the Investment Policy, and other policies
and processes for investment activities and related risks
>> review all strategies, guardrails and capital allocations for all
material investment activities, including venture capital and
private equity
>> approve the business plan of the three venture capital
internal funds, as well as investment strategies, the capital
allocation and guardrails
>> review strategic initiatives aimed at improving the venture
capital ecosystem
>> review and recommend delegations of authority
>> monitor portfolio performance
>> approve investments that exceed the delegated authorities
of senior management
For the mandates of the board committees, please see
www.bdc.ca.
BDC AR15 | 117
Board and Board Committee Meetings and Attendance
Board
Directors
Attendance Total
Samuel L. Duboc(1)
8
8
Eric Boyko(2)
7
8
Michael Calyniuk
8
8
Sue Fawcett
8
8
Edward Gordon
8
8
Shahir Guindi
8
8
Jean-René Halde(2)
8
8
Brian Hayward
7
8
Prashant Pathak
7
8
Rick Perkins(3)
7
8
Robert H. Pitfield(4)
7
7
Mary-Alice Vuicic
8
8
Rosemary Zigrossi
8
8
Claude McMaster(5)
Audit
BCRC
Governance
Human
Resources
Pension Funds
Investment
(6)
VCIC/BIC
Committee Meetings
Percentage Attendance Total Attendance Total Attendance Total Attendance Total Attendance Total Attendance Total Attendance Total Percentage
100%
88%
100%
100%
100%
100%
100%
88%
88%
88%
100%
100%
100%
0
3
6
6
6
0
0
6
0
0
0
0
0
0
6
6
6
6
0
0
6
0
0
0
0
0
22
19
28
0
0
26
20
24
0
0
21
0
0
28
28
28
0
0
28
28
28
0
0
22
0
0
6
0
0
0
0
0
0
6
5
6
0
6
0
6
0
0
0
0
0
0
6
6
6
0
6
0
0
0
0
0
0
6
0
0
5
5
4
6
0
0
0
0
0
0
6
0
0
6
6
4
6
0
0
0
0
7
7
0
0
0
0
6
0
0
7
0
0
0
7
7
0
0
0
0
7
0
0
7
0
13
0
23
0
0
20
0
20
0
0
0
19
0
23
0
23
0
0
23
0
23
0
0
0
23
28
35
34
36
13
32
40
36
30
17
25
12
26
34
57
34
36
13
34
51
40
35
19
26
12
30
(1) As Chairperson of the Board, Mr. Duboc regularly attends additional Board Committee meetings.
(2) Mr. Eric Boyko and Mr. Jean-René Halde are the only Directors who are members of both the Board Investment and Board Credit and Risk Committees,
resulting in a higher number of Committee meetings to attend per year.
(3) Mr. Perkins ceased to be a Director of the Bank on March 26, 2015.
(4) Mr. Robert H. Pitfield was appointed to the Board effective May 9, 2014, and on June 11, 2014, he was appointed as a member of the Board Credit and
Risk Committee and the Human Resources Committee.
(5) Mr. Claude Mc Master was appointed as a Director of the Bank on March 26, 2015, replacing Mr. Rick Perkins. There were no Board or Committee meetings
held in F2015 after his appointment date.
(6) On February 12, 2015, the Venture Capital Investment Committee (VCIC) was renamed the Board Investment Committee (BIC).
BDC AR15 | 118
82%
61%
100%
100%
100%
94%
78%
90%
86%
89%
96%
100%
87%
Board of Directors
(March 31, 2015)
CURRENT MEMBERS
SAMUEL L. DUBOC
Chairperson of the Board
BDC
Toronto, Ontario
JEAN-RENÉ HALDE
President and
Chief Executive Officer
BDC
Montreal, Quebec
Samuel L. Duboc joined the BDC Board of Directors as
Chairperson in January 2014.
Jean-René Halde joined BDC as President and CEO in 2005
and was reappointed in 2010 for a term of five years.
Mr. Duboc has a wealth of experience as an entrepreneur,
investor, venture capitalist and board chair.
Mr. Halde brought more than 30 years of management
and entrepreneurial experience to BDC. He has held
CEO positions at several leading companies, including
Metro-Richelieu Inc., Culinar Inc. and Livingston Group Inc.
He is co-founder and CEO of EdgeStone Capital Partners,
a private equity firm. Recently, Mr. Duboc served as the
Clifford Clark Visiting Economist and Special Advisor on
Venture Capital for the Department of Finance Canada,
leading a team in designing and implementing the
Government of Canada’s Venture Capital Action Plan.
Prior to this, he was a managing director at CIBC Capital
Partners and co-founder and COO of the Loyalty
Group Inc., the parent of the AIR MILES Reward Program.
Mr Duboc is Chair of Stephenson’s Rental Services Inc.
and a member of the board of directors of Porter Aviation
Holdings Inc. and EZShield Parent, Inc.
He is an active member of the community and serves as
Chair of a number of not-for-profit organizations (some
of which he co-founded), including Pathways to Education
Canada and the Pecaut Centre for Social Impact.
Mr. Duboc holds a Bachelor of Science in Chemical
Engineering from Tufts University and an MBA from Harvard
Business School. In 2000, he was recognized as one of
Canada’s Top 40 under 40 and in 2005 he was chosen
as one of the 10 “most influential” alumni of the program.
He currently serves as Past Chairman as well as Chair of
the Governance Committee of the Conference Board of
Canada, and sits on the Board of the Montreal General
Hospital Foundation. He is also a member of the World
Presidents’ Organization (WPO), a global organization of
more than 8,000 business leaders.
Mr. Halde has served as a director of a number of
for-profit companies, including CCL Industries Inc.,
Gaz Metropolitain Inc., Groupe Vidéotron Ltée and
Provigo Inc.; he has also served with numerous non-profit
organizations and acted as Chairman of the Montreal
Heart Institute, the Grocery Products Manufacturers
of Canada and the Association des MBA du Québec.
Mr. Halde holds a Master of Arts in Economics from the
University of Western Ontario and an MBA from Harvard
Business School. He also holds the Corporate Director
(ICD.D) designation from the Institute of Corporate
Directors.
Member of the Board Credit and Risk Committee and
member of the Board Investment Committee.
Chairperson of the Governance and Nominating Committee
and member of the Board Credit and Risk Committee.
As Chairperson of the Board, he is an ex officio member
of all committees.
BDC AR15 | 119
Corporate Governance | Board of Directors
ERIC BOYKO
President and CEO
Stingray Digital Inc.
Montreal, Quebec
MICHAEL CALYNIUK
President
MEC Dynamics Inc.
Vancouver, British Columbia
Eric Boyko joined the BDC Board of Directors in 2007 and
was reappointed in 2011.
Michael Calyniuk joined the BDC Board of Directors in
February 2013.
An entrepreneur with nearly two decades of experience
with start-ups, Mr. Boyko has extensive expertise in
early-stage business innovations.
Mr. Calyniuk has broad audit and consulting experience
in finance, accounting, business processes and technology,
and has directed a large portion of his efforts toward
working with Canadian small and medium-sized enterprises.
He is President and CEO of Stingray Digital Inc., the leading
multi-platform music service provider in the world,
with more than 100 million subscribers in 113 countries.
Previously, Mr. Boyko founded and was President of
eFundraising.com Corporation, which became a leading
player in the North American fundraising industry. In 2006,
he was named one of Canada’s Top 40 Under 40TM.
Mr. Boyko is also a board member of the Montreal
Development Program, the Young Presidents’ Organization
(YPO), the Montreal Economic Institute and the Société de
développement économique Ville-Marie (SDEVM). He sits
on the board of the Angel Investors of the Junior Chamber
of Commerce of Montreal (JCCM).
A graduate with great distinction of McGill University,
he holds a Bachelor of Commerce, with a specialization
in Accounting and Entrepreneurship. Mr. Boyko became
a Certified General Accountant (CGA) in 1997.
Member of the Audit Committee, member of the Board Credit
and Risk Committee, and member of the Board Investment
Committee.
He is a strategic advisor or director of a number of companies.
Mr. Calyniuk is a retired Partner of PricewaterhouseCoopers
LLP, having held various senior local and global management
positions during his career with the firm, including Global
Chief Information Officer.
He currently serves as Independent Director, Chair of the
Audit Committee and member of the Governance and
Nomination Committee of Mundoro Capital Inc. He is also
the B.C. chapter chair of the Institute of Corporate Directors
(ICD) and Chairman of the board of the Maple Leaf Junior
Golf Tour.
Mr. Calyniuk has previously served as Chairman of the board
of the B.C. Advanced Systems Institute and as Co-Chair of
the B.C. Innovation Council.
A Chartered Accountant, Mr. Calyniuk was named a fellow
by the B.C. Institute of Chartered Accountants (FCA)
in 2009. He holds a Bachelor of Commerce, with an
Information Systems major, from the University of British
Columbia and is a graduate of the Institute of Corporate
Directors (ICD) program.
Member of the Audit Committee and member of the Board
Credit and Risk Committee.
BDC AR15 | 120
Corporate Governance | Board of Directors
SUE FAWCETT
President
Fawcett Financial Inc.
Calgary, Alberta
Sue Fawcett joined the BDC Board of Directors in 2008.
Ms. Fawcett has more than 25 years of experience in the
financial industry in Canada and Asia (Singapore).
She is President of Fawcett Financial Inc., a private firm that
works closely with angel investors and provides strategic
advice to early-stage companies.
Previously a vice president and advisor with CIBC Wood
Gundy, Ms. Fawcett is an associate of Independent
Review Inc., advising Canada’s prominent investment fund
companies on governance issues pertaining to the setting up
and running of independent review committees.
Ms. Fawcett sits on the board of the Alberta Economic
Development Authority, which provides recommendations
and long-term strategic advice on key economic issues to
the premier and cabinet.
Ms. Fawcett has previously served on the boards of the
Ottawa-Carleton Economic Development Corporation,
the Riverside Hospital Foundation and the Ottawa Ballet.
She holds a Bachelor of Commerce from the University
of Calgary and the Corporate Director (ICD.D) designation
from the Institute of Corporate Directors. Ms. Fawcett
is also a Chartered Financial Analyst (CFA).
Member of the Audit Committee, the Pension Funds Investment
Committee and the Board Investment Committee.
EDWARD (TED) GORDON
Financial Security Advisor
Freedom 55 Financial
Ottawa, Ontario
Edward (Ted) Gordon joined the BDC Board of Directors
in December 2013.
Mr. Gordon has more than 35 years of business experience
focusing on financial management, primarily with Northern
Telecom and as a principal with the Cartier Consulting Group.
He is a financial security advisor with Freedom 55 Financial
in Ottawa, a division of the London Life Insurance Company,
where he supports clients through the protection and
growth of their wealth.
Mr. Gordon currently sits on the board of directors of the
Perley and Rideau Veterans’ Health Centre.
He was one of 13 Canadians on the federal government’s
Task Force on Financial Literacy, with the mandate to
create a national strategy to improve the financial literacy
of Canadians. The task force report, titled Canadians and
Their Money, was delivered to the Minister of Finance in
December 2010.
He is a former member of the board of directors of the
Queensway Carleton Hospital, where he chaired the
Audit Committee. He was also a member of the board of
directors of the Ottawa Congress Centre (now the Ottawa
Convention Centre) and the Log Farm Trust Society.
He was a professor in the School of Part-Time Studies at
Algonquin College, where he designed and taught a non-credit,
personal interest course called Personal Financial Literacy.
Mr. Gordon holds an Honours Business Administration
(HBA) degree from the Ivey School of Business at the
University of Western Ontario, as well as the Chartered
Professional Accountant (CPA) and Chartered Accountant
(CA) designations.
Member of the Audit Committee and the Pension Funds
Investment Committee.
BDC AR15 | 121
Corporate Governance | Board of Directors
SHAHIR GUINDI
Managing Partner
Osler, Hoskin &
Harcourt LLP
Montreal, Quebec
BRIAN HAYWARD
President
Aldare Resources
Winnipeg, Manitoba
Shahir Guindi joined the BDC Board of Directors in
December 2012.
Brian Hayward joined the BDC Board of Directors in 2008
and was reappointed in 2011.
Mr. Guindi is a Montreal lawyer with an extensive background
in mergers and acquisitions, corporate finance and private
equity, and venture capital investments and fund formation,
including in the technology and life science sectors. He has
significant experience in cross-border and international
transactions for both Canadian and international clients.
Mr. Hayward has over 16 years of experience as a Chief
Executive Officer in large Canadian companies. He is an
accomplished senior executive with a proven track record
in driving large-scale financial and cultural change to build
organizational effectiveness and profitable growth.
He is currently the Managing Partner of the Montreal office
of Osler, Hoskin & Harcourt LLP and Co-Chair of Réseau
Capital, Quebec’s venture capital and private equity industry
association. He also sits on the boards of several companies
and not-for-profit organizations, such as the St. Peter and
St. Paul Coptic Orthodox Church.
Mr. Guindi is a recipient of the Lexpert® Rising Stars:
Leading Lawyers Under 40 award. He has received significant
industry recognition, including top rankings in six categories
of the Canadian Legal Lexpert® Directory (including M&A,
corporate finance, private equity and corporate mid-market),
and Lawyer of the Year honours in information technology law
and technology law from The Best Lawyers in Canada® 2013.
He was also named Montreal Technology Lawyer of the Year
by The Best Lawyers in Canada® 2012.
Mr. Guindi was admitted to the Barreau du Quebec and the
New York State Bar Association in 1990 and is a member of
the Canadian Bar Association.
A graduate of McGill University, Mr. Guindi has degrees in
Civil Law (B.C.L.) and Common Law (LL.B.).
Member of the Board Credit and Risk Committee and member
of the Human Resources Committee.
BDC AR15 | 122
He is President of Aldare Resources, a business consultancy
that provides business advisory and governance services.
From 2001 until 2007, Mr. Hayward was CEO of Agricore
United, one of the largest agribusinesses in Canada,
exporting to over 50 countries and generating annual sales
of about $4 billion.
Before that, he was CEO of United Grain Growers, the
second-largest agribusiness in Western Canada. In this
position, he successfully negotiated on behalf of his company
the merger that led to the creation of Agricore United.
Mr. Hayward has extensive board experience, serving
on public and private company boards, including those
of Glacier Media Inc. and Ridley Inc. He has also provided
leadership to a number of non-profit organizations,
including the Royal Winnipeg Ballet, the Conference Board
of Canada and the Arthritis Society.
Mr. Hayward has a Master of Agricultural Economics degree
from McGill University. He also holds the Chartered
Director (C.Dir.) designation from the Directors College
of McMaster University’s DeGroote School of Business.
Chairperson of the Audit Committee, member of the Board
Credit and Risk Committee, and member of the Governance
and Nominating Committee.
Corporate Governance | Board of Directors
CLAUDE McMASTER
President and CEO
D-BOX Technologies Inc.
Longueuil, Quebec
Claude McMaster joined the BDC Board of Directors in
March 2015.
Mr. McMaster has more than 20 years of experience in
corporate finance, international business growth, strategic
alliances, mergers and acquisitions, and divestitures, primarily
in the technology and life sciences sectors.
He is President and Chief Executive Officer of D‑BOX
Technologies Inc., a company designing, manufacturing and
commercializing motion simulation systems intended for the
entertainment and industrial markets.
Previously, he worked at Ernst & Young as Vice‑President,
Finance, Mergers and Acquisitions where he led international
projects and multidisciplinary teams, forged strategic alliances
and guided the growth of companies.
PRASHANT PATHAK
President and
Chief Executive Officer
Ekagrata Inc.
Toronto, Ontario
Managing Partner
ReichmannHauer
Capital Partners
Toronto, Ontario
Prashant Pathak joined the BDC Board of Directors in 2008.
Mr. Pathak has extensive international management
and operational experience, having worked in Europe,
the Middle East, Southeast Asia and North Asia.
He is President and CEO of Ekagrata Inc., a private investment
company. He is also Managing Partner of ReichmannHauer
Capital Partners, a private investment firm, where he is
focused on addressing all strategic, financial, operational and
organizational aspects of investments to drive superior returns.
In 2008, he was named one of Canada’s Top 40 Under 40.
Previously, he was a partner at McKinsey & Company Inc.
where, for six years, he advised executives of global
corporations.
Mr. McMaster also founded and headed the management
consulting firm AVINGCO, which was sold to Arthur
Andersen in 1998.
Before joining McKinsey, he held several management
and operational positions in the energy services industry
at Halliburton and Schlumberger.
He currently serves on the boards of D‑BOX Technologies,
Montreal Heart Institute and he is a former board member
of the Biron Groupe Santé. He is also on the advisory board
of Nexio Group.
Mr. Pathak is a member of the Young Presidents’ Organization
(YPO). In his role as Senior Advisor to Project Beyshick,
he supports a program for driving entrepreneurship among
First Nations youth.
Mr. McMaster is a member of Ernst & Young’s alumni advisory
board, Business Development. He is also a member of the
QG100 Network which supports an exclusive group of
Quebec CEOs in their global strategies.
He is a former member of the board of the North York
General Hospital and was a charter member of TiE,
the world’s largest non-profit network dedicated to the
advancement of entrepreneurship.
In 2011, Mr. McMaster was named SGF CEO of the Year,
an award presented to CEOs of Quebec technology companies.
Mr. Pathak holds an MBA with distinction from INSEAD,
and a Bachelor of Technology degree in Electrical Engineering
and a diploma in Fuzzy Logic from the Indian Institute of
Technology (IIT).
Mr. McMaster holds university degrees in engineering, business
administration and law from Montreal’s École Polytechnique,
Laval University and the University of Montreal. He has
completed executive programs in global financial management,
corporate governance and advanced corporate finance from
renowned institutions such as Harvard Business School,
McGill University and INSEAD.
Chairperson of the Board Investment Committee, member
of the Governance and Nominating Committee, and member
of the Human Resources Committee.
BDC AR15 | 123
Corporate Governance | Board of Directors
ROBERT H. PITFIELD
Executive Chairman
of the Board
TravelEdge Group
Toronto, Ontario
MARY-ALICE VUICIC
Executive Vice President,
Human Resources
and Labour Relations
Loblaw Companies Ltd.
Toronto, Ontario
Robert Pitfield joined the BDC Board of Directors
in May 2014.
Mary-Alice Vuicic joined the BDC Board of Directors
in October 2013.
Mr. Pitfield has extensive knowledge of the banking sector,
having spent 30 years in the financial services industry,
overseeing international banking, wealth management
and risk at Scotiabank.
Ms. Vuicic has more than 20 years of experience working
with large national and international organizations,
and family-owned entrepreneurial businesses.
He is Executive Chairman of the Board of TravelEdge,
a privately owned travel company with approximately
$1 billion in sales and over $100 million in operating
revenues.
Prior to joining TravelEdge he was Group Head, Risk and
Chief Risk Officer for Scotiabank.
A former member of the board of Junior Achievement
and of HRH Youth Business International, Mr. Pitfield
currently sits on the board of President’s Circle at the
University of Ottawa.
Mr. Pitfield has a Bachelor of Arts from the University
of Toronto, a law degree from the University of Ottawa,
and is a member of the Law Society of Upper Canada.
Chairperson of the Board Credit and Risk Committee
and member of the Human Resources Committee.
She is Executive Vice President, Human Resources and
Labour Relations, at Loblaw Companies Ltd.
Most recently Executive Vice President, Human Resources
and Labour Relations at Shoppers Drug Mart, she took on
her current position following the acquisition of Shoppers
by Loblaw Companies Ltd. in 2014. Ms. Vuicic joined
Shoppers Drug Mart in 2007 as Senior Vice President,
Human Resources and Organizational Development,
after leading the human resources function at Walmart
Canada as Vice President, People.
Previously, she held human resources executive and
management positions at Chapters/Indigo and Wendy’s
International, Inc.
She is an active member in the community and supports
health and professional causes.
A Certified Human Resources Professional (CHRP), Ms. Vuicic
holds a Bachelor of Arts degree from the University of
Windsor and an Advanced Human Resources certificate
from the University of Toronto, and has completed Harvard
Business School’s Advanced Management Program.
Chairperson of the Human Resources Committee and member
of the Governance and Nominating Committee.
BDC AR15 | 124
Corporate Governance | Board of Directors
ROSEMARY ZIGROSSI
Consultant
Promontory Financial Group
Toronto, Ontario
Rosemary Zigrossi joined the BDC Board of Directors in 2008.
Ms. Zigrossi has almost 30 years of experience in the financial
sector, both in investments and in financial reporting and analysis
at leading Canadian organizations.
Ms. Zigrossi is currently a consultant with Promontory
Financial Group, LLC, a consulting firm for global financial
services companies.
Previously, she was with the Ontario Teachers’ Pension Plan,
the largest single-profession pension plan in Canada. Over the
course of 19 years, she held various positions, including
Vice President, Asset Mix and Risk; Vice President, Venture
Capital (a program she initiated); and Controller. Before that,
Ms. Zigrossi was with J.P. Morgan Bank of Canada and KPMG.
She currently serves on the boards of directors of Sprott Asset
Management and Russell Investment Corporate Class Inc.,
and the board of trustees of the McMichael Canadian Art
Collection. She is also a member of the Investment Committee
of Sustainable Development Technology Canada.
A past governor of Trent University, Ms. Zigrossi currently
serves on its investment and pension committee. She is a
former member of the Council of Canadian Academies Expert
Panel on the State of Industrial Research and Development in
Canada and a former member of the board of the Canadian
Venture Capital Association, and she has served as a member
of the board and chairman of a number of start-up companies.
Ms. Zigrossi is a Chartered Accountant (CA) and a Chartered
Financial Analyst (CFA), and holds the Corporate Director
(ICD.D) designation from the Institute of Corporate Directors.
She earned a Bachelor of Commerce from the University
of Toronto and has completed the Harvard Business School
program for management development.
Chairperson of the Pension Funds Investment Committee and
member of the Board Investment Committee.
BDC AR15 | 125
Senior Management Team
JEAN-RENÉ HALDE
President and Chief
Executive Officer
CHANTAL BELZILE
Senior Vice President and
Chief Information Officer
Jean-René Halde joined BDC as President and CEO in 2005
and was reappointed in 2010 for a term of five years.
Chantal Belzile was appointed Senior Vice President and
Chief Information Officer in 2012.
Mr. Halde brought more than 30 years of management
and entrepreneurial experience to BDC. He has held
CEO positions at several leading companies, including
Metro-Richelieu Inc., Culinar Inc. and Livingston Group Inc.
In this role, she has overall responsibility for developing and
implementing the Bank’s information technology strategy
and services. This includes corporate project portfolio
management, information security and compliance, and
information technology management and solutions delivery.
He currently serves as Past Chairman as well as Chair of the
Governance Committee of the Conference Board of Canada,
and sits on the Board of the Montreal General Hospital
Foundation. He is also a member of the World Presidents’
Organization (WPO), a global organization of more than
8,000 business leaders.
Mr. Halde has served as a director of a number of
for-profit companies, including CCL Industries Inc.,
Gaz Metropolitain Inc., Groupe Vidéotron Ltée and
Provigo Inc.; he has also served with numerous non-profit
organizations and acted as Chairman of the Montreal
Heart Institute, the Grocery Products Manufacturers of
Canada and the Association des MBA du Québec.
Mr. Halde holds a Master of Arts in Economics from the
University of Western Ontario and an MBA from Harvard
Business School. He also holds the Corporate Director
(ICD.D) designation from the Institute of Corporate Directors.
BDC AR15 | 126
Ms. Belzile has over 25 years of experience in technology
and project management roles within large companies,
and joined BDC in 2007 as Vice President, Information
Technology.
Before this, she held various senior management positions
at Air Canada, where she was responsible for aircanada.
com and was involved in key initiatives, including the airline’s
merger with Canadian Airlines and the implementation of
Six Sigma.
Ms. Belzile began her career working for a major information
technology consulting firm, where she had the opportunity
to learn about various industries.
She is a board member of the Montreal Women’s
Y Foundation.
Ms. Belzile holds a Bachelor of Computer Science degree
from the University of New Brunswick and a Master of
Science degree from Queen’s University.
Additional Information | Senior Management Team
MICHEL BERGERON
Senior Vice President,
Marketing and Public Affairs
Michel Bergeron was appointed Senior Vice President,
Marketing and Public Affairs in 2012.
He oversees branding and advertising, client experience,
economic analysis, government relations, internal and
corporate communications, marketing, public and media
relations, research, strategic alliances and partnerships,
and web strategy.
Mr. Bergeron has over 20 years of private, public and
parapublic experience, dealing with financial sector issues,
strategic planning, communication, branding and international
trade matters.
He joined BDC in 1999 and has held a variety of field and
corporate positions during his career with the bank, including
Senior Manager, Loans; Director, Corporate Planning;
Director, Strategic and Business Solutions; and Vice President
of Corporate Relations.
Mr. Bergeron began his career in the federal government,
where he worked in international trade negotiations for
the Department of Finance.
He is a board member of Futurpreneur (formerly the CYBF)
and also Chairman of The Montreal Group, an international
association of development banks.
PAUL BURON
Executive Vice President
and Chief Financial and
Risk Officer (CFRO)
Paul Buron joined BDC in 2006 as Executive Vice President
and Chief Financial Officer. In 2015 he was given the
additional appointment of Chief Risk Officer.
He is responsible for finance, risk management and treasury,
as well as corporate strategy and planning.
In the fall of 2011, Mr. Buron was also appointed Interim
Executive Vice President, Financing and Consulting.
For the following year, he was responsible for financing,
consulting, corporate financing, global expansion services
for entrepreneurs, and operations support across the bank,
in addition to his CFO responsibilities.
Mr. Buron has over 30 years of experience in finance.
Before joining BDC, he held leadership positions in major
corporations, such as Société générale de financement du
Québec, Donohue Inc. and the TVA Group Inc., where he
assumed responsibility for television operations and regional
stations in addition to his role as Senior Vice President and
Chief Financial Officer.
He holds a Bachelor of Business Administration from
HEC Montréal and is a member of the Ordre des
comptables agréés du Québec.
Mr. Bergeron holds Law degrees from Laval University and
Dalhousie University, and a Master of International Relations
degree from Laval University. He also holds the Corporate
Director (ICD.D) designation from the Institute of Corporate
Directors.
BDC AR15 | 127
Additional Information | Senior Management Team
PIERRE DUBREUIL
Executive Vice President,
Financing
MARY KARAMANOS
Senior Vice President,
Human Resources
Pierre Dubreuil joined BDC in 2012. He is Executive
Vice President, Financing.
Mary Karamanos was appointed Senior Vice President,
Human Resources in 2004.
In this role, he is responsible for financing, consulting and
operations support across the bank.
In this role, she works closely with other members of
the senior management team and is responsible for the
development and implementation of BDC’s human capital
strategies, including talent management and leadership
development.
Mr. Dubreuil has over 30 years of commercial and general
banking experience.
Before joining BDC, he was Senior Vice President,
International, at National Bank of Canada. During his
18-year tenure, he held executive positions in key functions
such as syndication, credit, commercial lending, marketing
and business solutions.
After beginning his career with the Federal Business
Development Bank, he also worked at Export Development
Canada and as Vice President, Business Development, at the
Industrial Bank of Japan in Toronto.
Mr. Dubreuil holds a Bachelor of Business Administration
from Laval University and has completed various leadership
and management programs.
BDC AR15 | 128
Over a 30-year career in business, she has acquired
extensive experience in strategic human resources in both
entrepreneurial companies and large global organizations
in the retail, consumer goods and financial sectors.
Ms. Karamanos joined BDC in October 2002 as
Vice President, Human Resources. Prior to this, she held
executive positions at Corby Distilleries in Montreal and
Toronto, and Allied Domecq, Spirits and Wine in Westport,
Connecticut.
A native of Montreal, she is a graduate of McGill University and
holds a Bachelor of Arts degree in Industrial Relations and a
Certified Compensation Professional (CCP) designation from
World at Work. She is active in the community and supports
children’s charities.
Additional Information | Senior Management Team
MICHAEL R. McADOO
Executive Vice President,
BDC Advantage
New photo
on the website
JÉRÔME NYCZ
Executive Vice President,
BDC Capital
Michael R. McAdoo was appointed Executive Vice President,
BDC Advantage in 2015.
Jérôme Nycz was appointed Executive Vice President,
BDC Capital in 2013.
In this role, he is responsible for BDC’s offering of consulting
and other non‑financial services to entrepreneurs.
In this role, he leads the activities of BDC Capital, a subsidiary
of BDC that offers venture capital, equity as well as growth
and business transition capital. He also oversees BDC’s
deployment of the Venture Capital Action Plan.
Over a 30‑year period as an entrepreneur, consultant and
executive, Mr. McAdoo has acquired significant experience
in the areas of strategy, international business and operations.
Before joining BDC, he held several senior strategy and
operational roles during 13 years at Bombardier Inc. and
Bombardier Aerospace, including managing a manufacturing
facility in Mexico. Most recently, he was Vice President, Strategy
and International Business Development at Bombardier
Aerospace. Prior to Bombardier, he was a Principal at the
Boston Consulting Group specializing in manufacturing,
retail economics, distribution and globalization, serving clients
in the NAFTA region and Europe.
He comes from a family of entrepreneurs whose businesses
included retail, distribution, light manufacturing and real estate.
Mr. McAdoo also started his own small business while still
an undergraduate, and ran it for many years while pursuing
his professional career.
He is a co‑founder of the Banff Forum, an annual non‑partisan
public policy conference. He also serves as a board member
of the Montreal Chamber Music Festival.
Mr. McAdoo holds a Bachelor of Arts in Political Studies from
Queen’s University, as well as graduate degrees in International
Affairs and Journalism from Columbia University.
Mr. Nycz has over 20 years of experience in the financial
and public sectors.
He joined BDC in 2002, overseeing corporate strategy and
planning, and shareholder relations. In subsequent years,
he added responsibility for enterprise risk management,
economic analysis and knowledge management to his
portfolio. During this time, he conducted several internal
strategic reviews, including subordinate financing and
venture capital (taking on the additional role of Interim,
Executive Vice President, Venture Capital in 2011), and led
a multidisciplinary team that prepared the Bank’s submission
for the 2010 legislative review of the BDC Act.
Prior to his current role, he was Senior Vice President,
Corporate Strategy and Subordinate Financing.
Mr. Nycz began his career with the federal government as
a senior economist and policy advisor at the Department
of Finance, Industry Canada and National Defence.
He also worked at Export Development Canada and as
an investment officer at the Canadian Consulate in Boston.
Mr. Nycz is a board member of Canada’s Venture Capital
and Private Equity Association (CVCA), Réseau Capital
and CIRANO.
He holds a Bachelor of Arts in Economics and Political
Science from Concordia University and an IMBA from
Hartford University.
BDC AR15 | 129
Additional Information | Senior Management Team
LOUISE PARADIS
Senior Vice President,
Legal Affairs and
Corporate Secretary
Louise Paradis was appointed Senior Vice President of
Legal Affairs and Corporate Secretary in 2006. She is also
BDC’s Chief Compliance Officer.
She provides legal support to all business units, as well as
the Board of Directors, and is responsible for developing
and implementing strategies on records management.
Over a 35-year career in the financial sector, Ms. Paradis has
acquired extensive experience in legal, administration and
compliance matters, as well as human resources, finance
and operations.
Ms. Paradis began her career at BDC in 1976 as Legal
Counsel and re-joined BDC in 2004 as Vice President of
Legal Affairs and Corporate Secretary. Previously, she was
responsible for legal affairs, human resources, the corporate
secretariat and administration at the Canadian office of
Société Générale, and was Director of Operations at Société
Générale for two years.
Ms. Paradis holds a licence in Law from McGill University
and is a member of the Barreau du Québec.
BDC AR15 | 130
Five-Year Operational
and Financial Summary
for the years ended March 31 (in thousands of Canadian dollars)
Operational Statistics
2015
2014
2013
2012
2011
Loans
Committed to clients(1)
as at March 31
Amount
Number of clients
21,256,479
32,213
19,723,747
29,929
18,341,604
28,056
16,956,675
27,582
15,913,193
27,989
4,711,675
12,012
4,102,065
10,976
4,110,703
9,195
3,623,075
6,926
3,244,713
9,795
Subordinate Financing
(includes both BDC and Caisse portion)
Committed to clients(1)
as at March 31
Amount
Number of clients
706,866
471
636,277
427
583,816
400
498,670
385
414,394
352
Acceptances
Amount
Number
231,514
177
186,606
126
189,757
113
163,775
137
106,451
97
1,026,967
209
861,881
183
821,882
149
735,454
103
726,431
104
185,421
101
154,754
94
145,267
87
126,751
45
99,377
45
630,000
530,000
907,048
1,110,024
3,193,441
100,000
(175,000)(3)
265,000
290,000
150,000
324,746
8
210,000
5
–
–
–
–
–
–
114,845
3
210,000
5
–
–
–
–
–
–
23,945,058
21,961,905
20,654,350
19,300,823
20,247,459
Acceptances
Amount
Number
Venture Capital(2)
Committed to clients(1)
as at March 31
Amount
Number of clients
Authorizations
Amount
Number
Asset-backed securities
Amount committed to clients(1)
as at March 31
Amount authorized (cancelled)
Venture Capital Action Plan
Commited to clients(1)
as at March 31
Amount
Number of clients
Authorizations
Amount
Number
BDC
Total committed to clients
(1) Amount committed to clients represents portfolio outstanding and amount undisbursed, at cost.
(2) For venture capital commitment to clients, please see Note 12-Venture Capital Investments and Note 27-Commitments to the Consolidated Financial Statements.
(3) Amount cancelled includes $25,000 in authorizations and $200,000 in cancellations.
BDC AR15 | 131
Additional Information | Five-Year Operational and Financial Summary
(in thousands of Canadian dollars)
Financial Information
2015
2014
2013
2012
2011
Net Income and Comprehensive Income –
by Business Segments(1)
for the years ended March 31
Financing
Growth & Transition Capital
Venture Capital
Consulting
Securitization
Venture Capital Action Plan
453,428
38,525
23,268
(24,245)
3,965
(4,251)
433,833
23,305
(12,075)
(16,855)
5,822
(1,418)
433,124
34,685
(8,559)
(12,450)
11,355
–
504,736
36,212
(42,640)
(11,020)
46,159
–
305,603
20,400
(20,765)
(8,883)
70,166
–
Net income
490,690
432,612
458,155
533,447
366,521
Net income attributable to:
BDC's shareholder
Non-controlling interests
490,516
174
425,968
6,644
454,661
3,494
520,335
13,112
360,292
6,229
Net income
490,690
432,612
458,155
533,447
366,521
Other comprehensive income (loss)(2)
(30,247)
49,633
(24,906)
(152,486)
58,317
Total comprehensive income
460,443
482,245
433,249
380,961
424,838
Total comprehensive income attributable to:
BDC's shareholder
Non-controlling interests
460,269
174
475,601
6,644
429,755
3,494
367,849
13,112
418,609
6,229
Total comprehensive income
460,443
482,245
433,249
380,961
424,838
407,731
18,414,044
642,810
709,639
47,643
21,129,017
16,349,897
336,477
17,241,064
576,677
495,096
5,169
19,569,957
15,179,908
437,453
15,871,635
557,840
456,708
–
18,183,905
14,228,230
763,200
14,739,271
457,369
358,951
–
17,219,882
13,594,621
3,068,949
13,731,011
387,091
413,782
–
18,399,578
14,639,731
Total equity attributable to:
BDC’s shareholder
Non-controlling interests
4,744,566
34,554
4,338,910
51,139
3,872,902
82,773
3,509,980
115,281
3,613,202
146,645
Total equity
4,779,120
4,390,049
3,955,675
3,625,261
3,759,847
Financial Position Information
as at March 31
Asset-backed securities
Loans, net of allowance for credit losses
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
Total assets
Total liabilities
(1)For detailed information on fiscal 2015 and fiscal 2014 segmented information, please also refer to Note 25—Segmented Information to the Consolidated
Financial Statements.
(2)For detailed information on fiscal 2015 and fiscal 2014 other comprehensive income, please refer to the Consolidated Statement of Comprehensive Income (p.52).
BDC AR15 | 132
Glossary
ACCEPTANCE
The point at which the client has agreed to the authorized
financing terms and conditions that BDC has offered him
or her. Client acceptance follows BDC authorization.
(Information on acceptances disclosed in this report is net
of cancellations or reductions after client acceptance.)
ALLOWANCE FOR CREDIT LOSSES
Represents an amount that management deems adequate
to fully provide for impairment in the existing loan portfolio.
Allowance for credit losses can be individual or collective,
and is recorded on the financial position as a deduction
from loans.
ASSET-BACKED SECURITIES
Securities created through the securitization of a pool of
assets. For example, BDC’s securitization contains Canadian
AAA-rated term securities backed by loans and leases on
vehicles and equipment, as well as dealer floor plan loans.
AUTHORIZATION
The point at which BDC has completed its due diligence and
approved the financing request or venture capital investment.
Authorization precedes acceptance. (Information on
authorizations disclosed in this report is net of cancellations
or reductions after BDC authorization.)
COLLECTIVE ALLOWANCE
Established by management to recognize credit losses in the
existing performing loan portfolio that have occurred as at
the financial position date but have not yet been specifically
identified on an individual loan basis.
CONSULTING REVENUE
Fees from services provided by BDC’s national network
of consultants to assess, plan and implement management
solutions.
CROSS-CURRENCY SWAPS
Agreements to exchange payments in different currencies
over pre-determined periods of time.
DEBT-TO-EQUITY RATIO
A measure to ensure BDC operates within its statutory
limitations on debts, calculated as the aggregate of
borrowings and contingent liabilities over the equity
attributable to BDC’s shareholder. It also includes preferred
shares classified as liabilities, and excludes accumulated
other comprehensive income or loss. The statutory limit
of BDC’s debt-to-equity ratio is 12:1.
DERIVATIVE FINANCIAL INSTRUMENTS
Contracts whose value is “derived” from movements in
interest or foreign exchange rates, or equity or commodity
prices. Use of derivatives allows for the transfer, modification
or reduction of current or expected risks from changes in
rates and prices.
DIRECT INVESTMENTS
Investments BDC makes directly in investee companies.
EFFICIENCY RATIO
A measure of the efficiency with which BDC incurs expenses
to generate income on its financing operations. It is calculated
as operating and administrative expenses, as a percentage of
net interest and other income. Other income includes fee
income and net realized gains or losses on other financial
instruments. A lower ratio indicates improved efficiency.
FAIR VALUE
The price that knowledgeable, willing parties—under
no compulsion to act—would agree to in an arm’s-length
transaction. Fair value represents management’s best
estimate of the net worth of an investment at the financial
position date and may not reflect the ultimate realizable
value upon disposal of the investment.
HEDGING
A risk management technique used to insulate financial results
from market, interest rate or foreign currency exchange risk
(exposure) arising from normal banking operations.
IMPAIRED LOANS
Loans where, in management’s opinion, credit quality has
deteriorated so much that there is no longer reasonable
assurance that BDC can collect the full amount of principal
and interest on time.
BDC AR15 | 133
Additional Information | Glossary
INDIVIDUAL ALLOWANCE
An allowance that management establishes to recognize
credit losses in the existing loan portfolios that have occurred
and are identified on an individual loan basis, as at the
financial position date.
INTEREST RATE SWAPS
Agreements to exchange streams of interest payments—
typically, one at a floating rate and the other at a fixed rate—
over a specified period, based on notional principal amounts.
LOSS ON INITIAL RECOGNITION
Represents the difference between the fair value of a financial
instrument and its cost at the time of purchase. Loss on
initial recognition is recognized in net income at the time
of purchase and subsequently amortized through interest
income over the life of the financial instrument, using the
effective interest rate method.
MASTER NETTING AGREEMENT
A standard bilateral contract that enables trading
counterparties to agree to net collateral requirements and,
in a close-out situation, settlement amounts related to
underlying master trading contracts for sales and purchases
of financial instruments. The master netting agreement
offsets positive balances of one transaction with negative
balances of another.
NET CHANGE IN UNREALIZED APPRECIATION
OR DEPRECIATION OF INVESTMENTS
Amount included in income resulting from movements
in the fair value of investments for the period.
NET INTEREST INCOME
The difference between interest revenues generated by
interest-bearing portfolios, as well as cash equivalents and
securities, and the cost of borrowings to fund these assets.
NET REALIZED GAINS OR LOSSES ON INVESTMENTS
Gains realized, net of realized capital losses, upon sale
or write-off of investments, excluding the net change in
unrealized appreciation or depreciation of venture capital and
subordinate financing investments.
BDC AR15 | 134
NET REALIZED GAINS OR LOSSES
ON OTHER FINANCIAL INSTRUMENTS
Amounts that are related to structured notes and their
associated derivatives. Realized gains or losses occur when
financial instruments are repurchased prior to maturity
at a price higher or lower than the original purchase price.
NET UNREALIZED GAINS OR LOSSES
ON OTHER FINANCIAL INSTRUMENTS
Amounts that are related to structured notes and their
associated derivatives. These represent the amounts included
in income resulting from movements in the fair value of
financial instruments for the period.
NON-CONTROLLING INTEREST
The equity in a subsidiary not attributable, directly
or indirectly, to BDC.
PERFORMING PORTFOLIO
Loans for which there is reasonable assurance that BDC
can collect the principal and interest on time.
PROVISION FOR CREDIT LOSSES
A charge to income that represents an amount that
management deems adequate to fully provide for impairment
in the existing loan portfolios, given the composition of
the loan portfolios, the probability of default on the loans,
the economic environment and the allowance for credit
losses already established.
RETURN ON COMMON EQUITY (ROE)
Net income, less preferred share dividends, expressed
as a percentage of average common equity. It excludes
other comprehensive income or loss on post-employment
benefits, accumulated other comprehensive income or loss,
and non-controlling interest.
START-UP
A business that is being established for the first time.
Also included in this category are existing enterprises that
have not yet registered 12 consecutive months of sales.
SUBORDINATE FINANCING
A hybrid instrument that brings together some features
of both debt financing and equity financing.
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