Annual Report 2014 bdc.ca Bu sin

Annual Report 2014 bdc.ca Bu sin
Annual Report 2014
3
Message From the Chair of the Board of Directors
4
Message From the President and CEO
9
Management’s Discussion and Analysis
49
Consolidated Financial Statements
111
Corporate Governance
125
Additional Information
BDC is the only bank
dedicated exclusively
to entrepreneurs.
To learn more, visit BDC.ca.
BDC AR14 | 1
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
>> Subordinate Financing
>> Consulting
>> Venture Capital
>> Securitization
We offer these services to
entrepreneurs in every part
of Canada and every sector of
the economy.
BDC AR14 | 2
Message from the Chair
of the Board of Directors
Dear Minister,
I was honoured to have been appointed chair of the
Board of Directors of BDC in January 2014.
While only several months into this role, I am pleased
to report that BDC is a stable, effective and efficient
organization that is fulfilling its parliamentary mandate to
support Canadian entrepreneurs. I can also confidently
assure you that together, we board members have
the expertise and experience needed to steward and
oversee BDC. (For more information on our governance
framework, please see pages 111–124.)
BDC had a successful year. I would encourage you
to review the strategic performance measures on
pages 12–17. These are inspired by BDC’s exclusive
dedication to entrepreneurs, and seek to demonstrate
how BDC turns its organizational purpose into relevant,
effective and efficient support.
Stability, effectiveness and efficiency also permit BDC
to deliver on particular priorities of importance to the
Government of Canada, such as increasing the number
of Canadian firms that innovate by ensuring that young
start-ups have access to the venture capital they need
to grow. They also permit BDC to promote other
entrepreneurial activities that are in the broad national
interest, such as exporting and globalizing. For these, BDC
uses its own expertise and means, plus collaboration with
other partners, notably other financial institutions, Export
Development Canada and Government of Canada trade
commissioners.
I believe BDC is uniquely positioned to be a powerful lever
to help drive Canada’s economy. Its more than 30,000 direct
relationships with Canadian small and medium-sized
businesses give it unrivalled access to and insights into the
minds of the people who are responsible for much of the
prosperity created in the Canadian marketplace. Its financial
strength and efficiency make it a reliable partner in helping
deliver government priorities. And BDC has proven itself up
to the task of helping tackle new challenges. In sum, I believe
that with even more strategic creativity, BDC’s usefulness as
a tool of public policy will grow.
I would like to thank Tom Spencer, who served very
ably as interim chair in the months preceding my arrival.
Many thanks to Tom and Jean Martel, both of whom left
the board after several years of dedicated service. I am
thankful for their contributions and to all of my board
colleagues; their dedication, expertise and work ethic are
a solid base upon which to build even greater success in
the future.
Heartfelt thanks as well to everyone at BDC, from the
senior management team to the employees who knock
on entrepreneurs’ doors from St. John’s to Whitehorse
to Victoria. They are the heart and soul of this organization,
a development bank with a purpose, of which Parliament
and Canada can be proud.
Should you or your parliamentary or Cabinet colleagues
want more information on these or other topics, I would
be pleased to meet to discuss them.
Sincerely,
Samuel L. Duboc
BDC AR14 | 3
Message from
the President and CEO
I am very happy to present BDC’s annual financial
report for the fiscal year that ended March 31, 2014.
In recent years, we have observed that the public’s
interest in the information we put on www.bdc.ca has
eclipsed use of our paper reports. We want to reach
as many Canadians as possible, so we will do this year’s
annual reporting in two ways: 1) this paper financial
report to Parliament; and 2) the same report on bdc.ca—
accompanied by additional, non-financial information
about what we do for entrepreneurs.
For its readers, this report should confirm that BDC is
fulfilling its mandate to support entrepreneurship, with
a special focus on the needs of small and medium-sized
enterprises. Also, it should show that BDC does this with
services that entrepreneurs judge to be relevant, effective
and efficient enough that they will pay for them.
We had a good year. We are now supporting more than
30,000 entrepreneurs in every part of Canada and every
sector of the economy.
We provided more small loans and more loans to
new businesses than ever before. This is essential
to the grassroots and future health of Canada’s small
and medium-sized business community.
We helped entrepreneurs who want to grow their
firms and paid particular attention to high-growth firms
because—when these firms succeed—they make an
outsized contribution to job creation, gross domestic
product and the value of exports.
We helped entrepreneurs finance investments in
information and communications technologies. It is crucial
for them to do this if they want to make their firms more
innovative and productive, and better able to compete in
the Internet-driven, automated world.
We continued to support entrepreneurs who are developing
tech-based companies, whose success will permit Canada
to derive economic benefit from investments in research
and development. Our investments and initiatives in venture
capital are having a positive effect in a tough market, through
both our direct and indirect approaches.
You’ll find our performance indicators for these and other
objectives on pages 12–17 of the Management’s Discussion
and Analysis section. I strongly encourage you to read these.
BDC AR14 | 4
We also see certain awards as valid third-party
endorsements and indicators of success. This past year,
we were awarded the Canadian Venture Capital and
Private Equity Association (CVCA) Deal of the Year,
the fourth time in six years we’ve won it. We also won
the 2014 RBC Champions of Immigrant Success Award
for our co-creation of the Entrepreneur Connections
program.
As you will see in this report, BDC’s financial position
is solid. Our ongoing profitability is testimony to effective
balance: being efficient and effectively managing risk.
Our commercial viability will produce a $54.6 million
dividend to our sole shareholder, the Government of
Canada. Solid financial footing is critical because it ensures
BDC is able to fulfill its parliamentary mandate without
requiring support from taxpayers.
Finally, we were very pleased to become the only
financial institution in Canada to be certified as a Beneficial
Corporation (B Corp). This certification is part of a
growing international movement to use the power of
business for broader societal good. It is based on an
assessment that grades organizations’ purposes—in
our case, supporting entrepreneurs—transparency and
accountability to stakeholders.
In sum, I believe Canadians can have confidence in the
relevance and effectiveness of the support that BDC
provides Canadian entrepreneurs.
Jean-René Halde
We also supported entrepreneurs in other, indirect but
powerful ways, which included producing substantive
reports of relevance to them—Mapping Your Future
Growth: Five Game-Changing Consumer Trends and Advisory
Boards: An Untapped Resource For Businesses—as well as
free online books. We also use awards to celebrate them:
BDC Small Business Week awards, the Young Entrepreneur
Award, and—launched in 2014—awards for mentorship,
innovation, entrepreneurial resilience and championing of
entrepreneurs. (For these reports and information on these
events, I encourage you to visit bdc.ca.)
BDC AR14 | 5
Fiscal 2014 in numbers and facts
Total entrepreneurs served
30,000
Employees dedicated to entrepreneurs
2,000
Locations across Canada
100
What we’ve committed to clients
$22 billion
Small loans
8,010
Loans to new businesses
1,519
Venture capital funds we invest in
39
BDC AR14 | 6
Awards
• Canadian Start-up Award for Venture Capital Firm of the Year
• Canada’s Top 100 Employers (2014)
• Canada’s Top Diversity Employers (2014)
• 2014 RBC Champions of Immigrant Success Award
Certification
• The only certified Beneficial Corporation (B Corp) bank in Canada(1)
(1) BDC is now the only financial institution in Canada to be certified as a Beneficial Corporation. This certification is part of
a growing international movement to use the power of business for broader societal good. It is based on an assessment
that grades organizations’ purposes—in our case, supporting entrepreneurs—transparency and accountability to
stakeholders.
BDC AR14 | 7
BDC AR14 | 8
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
11
12
19
39
47
BDC AR14 | 9
In fiscal 2014, Canada’s
economic environment
was characterized by:
>> modest economic growth
>> modest business investment and
>> stimulative business credit conditions.
BDC AR14 | 10
1. The Canadian Economic Environment
Overall, the Canadian economy enjoyed modest
expansion in 2013. Real GDP grew by 2.0%.
Consumption remained the key driver of this growth.
Household spending grew by a small degree: 2.2%,
up from 1.9% in 2012. This is because household
disposable income improved and the overall
household debt level stabilized. The market saw
a net gain of employment (100,000); at year’s end,
the unemployment rate was at its lowest level
since the recession: 7.2%.
The main contributors to GDP growth were the mining,
oil and gas extraction, and agriculture sectors. Finance
and insurance, education, health, accommodation and
food services, and retail and wholesale trade also
improved. However, this overall improvement was
tempered by a slight decrease in manufacturing (-1.2%).
Business investment was also modest. Nonresidential business investment grew by 2.4%.
Manufacturers reported little change in capital
spending during the year compared to 2012.
The overall productivity of the business sector
improved. Investment in new housing moderated
in 2013. This was expected, considering signs of
over-construction in some residential markets.
Business confidence held firm and was supported
by a rise in the demand for Canadian goods enabled
by improvements in the U.S. economy.
In 2013, business credit conditions were favourable.
The cost of borrowing remained at historically
low levels. Business credit available from financial
institutions continued to expand at a steady pace.
By the end of the year, business credit from chartered
banks had grown by 8.6%.
In sum, 2013 was characterized by economic growth,
modest business investment and stimulative business
credit conditions.
Investment in non-residential buildings grew by 4.1%,
while investment in machinery and equipment stayed
stable compared to 2012. Increases in investment in
the agriculture and construction sectors were offset by
lower spending in mining, oil and gas.
BDC AR14 | 11
2. Performance Measures
In our corporate plan, we present performance measures with which we measure
our organizational effectiveness and efficiency.
Entrepreneurship
We track and present our performance against these corporate plan objectives.
Increase
entrepreneurial
intensity in Canada
For Canada’s economy to thrive, it needs
the constant creation of new firms that
bring new, innovative ideas to market.
However, early-stage companies
often have difficulty finding financing.
BDC support is key, be it venture capital
or term financing. We’re pleased with
our performance in terms of small loans.
Number of loans of $500,000
or less for BDC Financing and
BDC Subordinate Financing
based on commitment size of
$750,000 or less
Number of authorizations to
new businesses (younger than
two years) (BDC Financing and
BDC Subordinate Financing)
Percentage of BDC-financed start-ups
that survive at least five years
Partnerships
Client Value Index (BDC Financing
and BDC Consulting)
BDC AR14 | 12
Work with partners
to increase
collective impact
Entrepreneurs are surrounded by various
support entities, from organizations that
act as their advocates and meeting places
to other financial institutions that also
serve them. For BDC to be effective
while acting as a complementary lender,
we must work closely in partnership
with these key stakeholders.
Number of transactions authorized
with and from partners (syndications,
pari passu, loan referrals and alliances)
Management’s Discussion and Analysis | Performance Measures
Target 2014
Actual 2014
Comments
6,500
8,010
A continued focus on small loans is helping
to ensure the needs of small businesses
are being met.
1,400
1,519
Financing new businesses is one way
in which BDC contributes to a healthy
entrepreneurial ecosystem.
65%
60%
New firms face many competitive pressures;
many succumb. BDC strives to help them
survive so they can contribute to prosperity.
100
116
A focus on the client experience is resulting
in a faster, easier, more pleasant experience
for entrepreneurs.
Target 2014
Actual 2014
2,000
2,252
Comments
BDC continues to extend its reach to
entrepreneurs across Canada through
partnerships, including those with
private sector financial institutions.
BDC AR14 | 13
Productivity
Innovation
Management’s Discussion and Analysis | Performance Measures
BDC AR14 | 14
Support the creation
and adoption of
innovation
The ability to innovate is a key
differentiator for Canadian small and
medium-sized enterprises (SMEs);
hence, the importance of BDC support.
One concrete way of innovating is by
using information and communications
technologies (ICT). We launched a
variety of supports and services to
promote the use of ICT, and are
very pleased to see so many
entrepreneurs using them.
Facilitate
firm-level efficiency
improvements
Given the challenges firms face in
terms of productivity performance,
BDC strives to encourage Canadian SMEs
to aquire new machinery and equipment.
While the objective was unmet, we will
continue to encourage SMEs in this vein,
via both financing and consulting.
Number of ICT “interventions,”
which include online web and ICT
assessments; consulting mandates;
financing and subordinate financing
authorizations; downloads of eBooks
and other informational materials
from BDC.ca; and attendance at
BDC-hosted ICT events
Venture Capital return of capital(1)
Number of loans authorized for
equipment purchase (Equipment
Line and loans with “equipment
purchase” as purpose)
Management’s Discussion and Analysis | Performance Measures
Target 2014
Actual 2014
35,000
60,530
(1)Return on each #$ disbursed (includes both direct and funds investments).
1.00
1.01
Target 2014
Actual 2014
2,000
1,684
Comments
BDC’s ICT strategy and emphasis on
digital technology adoption continue
to resonate with entrepreneurs who
want to learn about and apply ICT
to their business.
The investments and initiatives of BDC
Venture Capital are having a positive
impact in a challenging market.
Comments
More work needs to be done to raise
entrepreneurs’ awareness of the
productivity improvement benefits
of new machinery and equipment.
(1)Return on each dollar disbursed (includes both direct and funds investments).
BDC AR14 | 15
BDC Efficiency
Growth
Management’s Discussion and Analysis | Performance Measures
BDC AR14 | 16
Enable clients
to achieve their
full potential
Fast-growing companies are critically
important to future economic vitality;
when they succeed to become mediumsized, they make a disproportionate
contribution to job creation, gross
domestic product and the value of
Canada’s exports; hence, it is very
important to support them.
Be more efficient
Operational efficiency is an ongoing
priority at BDC. We carefully manage our
operating expenses, constantly seek ways
to be more efficient and are pleased that
our financing efficiency ratio continues
to improve.
Percentage of high-growth firms
in the BDC Subordinate Financing
portfolio (a high-growth firm is
defined as having annualized sales
growth greater than 20% per year
over a three-year period)
BDC Financing reported
efficiency ratio
Management’s Discussion and Analysis | Performance Measures
Target 2014
Actual 2014
30%
30%
Target 2014
Actual 2014
42.5%
40.0%
Comments
High-growth firms contribute significantly
to economic growth and BDC Subordinate
Financing is well suited to supporting them.
Comments
BDC continues to find efficiencies that
result in fewer expenses being incurred
to earn each dollar of revenue. The lower
the ratio, the better.
BDC AR14 | 17
Our support for
entrepreneurs is
financially sustainable.
BDC AR14 | 18
3. Analysis of Financial Results
LINES OF BUSINESS
BDC reports on six business lines: Financing, Subordinate
Financing, Venture Capital, Consulting, Securitization and
Venture Capital Action Plan (VCAP).
The operational context in which
to examine BDC’s Financial Results
The global economy recorded modest growth in fiscal 2014,
but the climate improved during the year, particularly in
advanced economies. Europe gradually emerged from the
longest recession in its history. While the debt problems
of member countries are far from being solved, the will of
the European authorities to consolidate public finances and
stabilize financial markets helped to restore confidence.
The economic situation improved significantly in the U.S. The
housing sector continued to recover. Consumers significantly
improved their balance sheets: their debt ratio decreased
and their net wealth rose in proportion to their income.
Consequently, the pace of growth in consumption increased.
Business investment gradually accelerated during the year, as
business confidence firmed. Reduced government spending,
however, slowed growth. Actually, without this fiscal drag,
U.S. economic growth would have been quite strong last year.
Emerging market economies continued to drive global
economic growth in fiscal 2014, but their pace of growth
remained lower than that observed during the first decade
of the 2000s. The slower growth in emerging markets
has several causes, including the slowing of growth in
advanced economies and structural problems arising from
industrialization (such as higher wages, rising inflation, labour
shortages and low productivity). Moreover, some emerging
countries have been severely affected by the tapering of the
monetary stimulus by the U.S. Federal Reserve. They now
face higher interest rates that hamper their economic growth.
The global economic situation obviously greatly influenced
the performance of the Canadian economy during fiscal 2014.
Even if growth is less vigorous than before in emerging countries,
it is still high enough to support the demand for commodities
produced in Canada. As a result, the mining, oil and gas
extraction sector continued to grow and to stimulate economic
activity in many other industries. In addition, Canada benefitted
from improved confidence generated by the recovery of the
European economy and the strengthening of the U.S. economy.
That said, business investment and non-commodity exports
were not as strong as hoped, given the low cost of credit and
the depreciation of the Canadian dollar against the U.S. dollar.
Competition faced by businesses is fierce. To benefit from global
growth, Canadian firms need to improve their productivity and
increase their efforts to penetrate emerging countries, which are
attractive markets for their exports.
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.
BDC Financing plays a key role in fulfilling this mandate.
Clients of BDC Financing accepted a total of $4.1 billion
in loans during the year, similar to the total loans accepted
in fiscal 2013. BDC Subordinate Financing continued to
support the growth plans of Canadian entrepreneurs
through its diverse product offering, with clients accepting
a total of $186.6 million in financing this year, compared
to $189.8 million last year. In venture capital, where
BDC is working to rebuild and re-energize the asset
class, BDC Venture Capital authorized $154.8 million in
investments. As part of its role in implementing the Venture
Capital Action Plan, BDC authorized $210.0 million in
investments. BDC Consulting played a key role in assisting
Canadian entrepreneurs to manage their operations
effectively and started 2,505 consulting mandates this year.
BDC also remains active in the securitization market to
help ensure availability of financing for SMEs, and as at
March 31, 2014, total asset-backed securities (ABS) stood at
$336.5 million with total disbursements of $200.4 million for
the year. All ABS issued under the Canadian Secured Credit
Facility (CSCF) program were fully repaid in October 2013.
BDC continued to focus on small loans, while also supporting
the growth of medium-sized firms and participating in larger
financial transactions through syndication. During fiscal 2014,
6,517 clients accepted loans of $250,000 or less for a total of
$501.7 million, compared to 4,905 clients and $375.1 million
last year.
BDC AR14 | 19
Management’s Discussion and Analysis | Analysis of Financial Results
FINANCIAL RESULTS OVERVIEW
For the analysis of financial results, please also refer to
Note 26—Segmented Information to the Consolidated
Financial Statements.
CONSOLIDATED NET INCOME
BDC reported consolidated net income of $432.6 million
this year, compared to $458.2 million in fiscal 2013.
Net income attributable to BDC’s shareholder amounted
to $426.0 million this year and $454.7 million in fiscal 2013,
while that attributable to non-controlling interests amounted
to $6.6 million in fiscal 2014 and $3.5 million in fiscal 2013.
Non-controlling interests relate only to BDC Subordinate
Financing and BDC Venture Capital operations.
Consolidated net income was generated mostly by
BDC Financing. Fiscal 2014’s decrease in net income
was mostly due to higher unrealized depreciation of
investments, lower consulting revenues and lower
net interest income as a result of the decrease in the
ABS portfolio.
Net income from BDC Financing was $433.8 million,
an increase of $0.7 million from last year. The increase
in profitability was mainly due to higher net interest income
and lower project costs related to increased capitalization
of expenses mostly related to the Agility and Efficiency
project, a major investment to modernize business delivery
aimed at improving internal efficiencies and increasing
client satisfaction. However, these were partially offset
by lower impairment reversals on loans.
Net income from BDC Subordinate Financing was
$23.3 million, $11.4 million lower than last year.
The drop was due mainly to a lower net change in
unrealized appreciation of investments.
BDC Venture Capital recorded a $12.0 million net loss for
the year, compared to an $8.6 million net loss recorded last
year. Last year’s results were favourably impacted by the
divestiture of two investee companies with excellent returns,
whereas a lower net change in unrealized appreciation was
recorded in fiscal 2014.
Consolidated Net Income—by Business Segment
for the years ended March 31 ($ in millions)
2014
2013
(1)
2012
2011
2010
Canadian GAAP
IFRS
Financing
Subordinate Financing
Venture Capital
Consulting
Securitization
Venture Capital Action Plan
Net income
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
76.2
10.2
(74.1)
(4.6)
(1.6)
–
6.1
Net income attributable to:
BDC's shareholder
Non-controlling interests
Net income
426.0
6.6
432.6
454.7
3.5
458.2
520.3
13.1
533.4
360.3
6.2
366.5
6.1
n/a
6.1
(1)Restated; refer to Note 4—Application of New and Amended International Financial Reporting Standards.
BDC AR14 | 20
Management’s Discussion and Analysis | Analysis of Financial Results
BDC Consulting reported a net loss of $16.9 million, compared
to a net loss of $12.4 million last year. Since BDC undertook a
transformation of its consulting group in fiscal 2013 to refine its
approach to providing value-added and complementary services
to entrepreneurs, revenues were expected to be lower and
costs higher during the transition period. This is due to our
efforts to ensure that consulting services are affordable and
accessible to SMEs.
Net income from BDC Securitization was $5.8 million,
$5.6 million lower than last year, due to lower net interest
and fee income. The decrease represented the successful
completion of the CSCF program and the full repayment
of the related asset-backed securities. However, the
F-PIL program (Funding Platform for Independent Lenders)
continues to grow, with the principal amount increasing
from $233.0 million to $333.9 million over the year, making
a larger contribution to net income.
For its first year of operation, Venture Capital Action Plan
recorded a loss of $1.4 million, mainly due to operating
expenses, as resources were allocated to this new business line.
Net income attributable to non-controlling interests was
$6.6 million in fiscal 2014 ($7.3 million in net income from
BDC Subordinate Financing and $0.7 million in net loss
from BDC Venture Capital), and $3.5 million in fiscal 2013
($5.9 million in net income from BDC Subordinate Financing
and $2.4 million in net loss from BDC Venture Capital).
Consolidated comprehensive income for fiscal 2014 was
$482.2 million, compared to $433.3 million last year.
Consolidated comprehensive income comprised $432.6 million
in consolidated net income this year and $49.6 million in other
comprehensive income (OCI). The increase in OCI for the
year was mostly due to remeasurement gains on the net
defined benefit asset or liability of $52.7 million, compared to
a loss of $18.3 million in fiscal 2013. For the most part, these
gains were caused by higher returns on pension plan assets and
higher discount rates used to value the net defined benefit asset
and liability. However, these were partially offset by the negative
impact of the change in mortality tables.
For further details, refer to Note 20—Net Defined Benefit
Asset or Liability to the Consolidated Financial Statements.
Consolidated Comprehensive Income
for the years ended March 31 ($ in millions)
2014
2013
(1)
2012
2011
2010
Canadian GAAP
IFRS
Net income
432.6
458.2
533.4
366.5
6.1
0.3
(4.4)
(19.8)
19.8
6.4
(3.4)
(2.2)
10.4
3.8
(0.7)
(3.1)
(6.6)
(9.4)
23.6
5.7
52.7
(18.3)
(143.1)
34.7
–
49.6
(24.9)
(152.5)
58.3
5.7
Total comprehensive income
482.2
433.3
380.9
424.8
11.8
Total comprehensive income attributable to:
BDC's shareholder
Non-controlling interests
Total comprehensive income
475.6
6.6
482.2
429.8
3.5
433.3
367.8
13.1
380.9
418.6
6.2
424.8
11.8
n/a
11.8
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
Items that will not be reclassified to net income
Remeasurements of net defined benefit asset or liability
Other comprehensive income (loss)
(1)Restated; refer to Note 4—Application of New and Amended International Financial Reporting Standards.
BDC AR14 | 21
Management’s Discussion and Analysis | Analysis of Financial Results
PERFORMANCE AGAINST OBJECTIVES
The consolidated net income of $432.6 million was
$84.6 million more than the corporate plan objective. Most of
the variance is attributable to BDC Financing, which recorded
a net income of $433.8 million, $91.8 million higher than the
corporate plan objective, primarily due to the lower-thananticipated impairment losses on loans. A collective impairment
reversal on loans of $10.0 million was recorded to reflect the
improved financial condition of the portfolio.
BDC Subordinate Financing’s net income of $23.3 million
was $16.7 million lower than the corporate plan objective,
mainly due to a higher-than-anticipated net change in
unrealized depreciation of investments.
BDC Venture Capital’s net loss of $12.0 million was
$8.0 million better than the corporate plan objective, mainly
because of a higher-than-anticipated net change in unrealized
appreciation of investments.
BDC Consulting’s net loss of $16.9 million was $1.1 million
better than expected, mainly as a result of lower-thananticipated operating and administrative expenses.
BDC Securitization’s net income of $5.8 million was
$4.2 million lower than expected, mostly due to lower net
interest income.
Venture Capital Action Plan’s net loss of $1.4 million was
$4.6 million lower than expected, mostly due to the timing
of the implementation of the program.
BDC FINANCING
BDC 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
BDC Financing’s loan portfolio, before allowance for
credit losses, rose by 7.9% from $16.4 billion a year ago
to $17.7 billion as at March 31, 2014, an increase of
$1.3 billion. The closing portfolio comprised of $17.2 billion
in performing loans and $0.5 billion in impaired loans.
As at March 31, 2014, 78.2% of the performing portfolio
was composed of floating-rate loans, slightly higher than
the fiscal 2013 level of 78.1%.
Financing Performing Portfolio
as at March 31 ($ in millions)
18000
18,000
15000
15,000
12000
12,000
9000
9,000
6000
6,000
3000
3,000
00
2010
Canadian GAAP
2011
2012
n Fixed-rate performing portfolio
2,861
2,706
2,843
n Floating-rate performing portfolio
9,829
11,214
11,955
nnTotal performing portfolio
12,690
13,920
14,798
Total BDC Financing portfolio
13,311
14,506
15,349
BDC AR14 | 22
2013
2014
3,482
3,760
12,436
13,513
15,918
17,273
16,410
17,749
IFRS
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 $845.2 million in fiscal 2014, compared to
$796.7 million in fiscal 2013. The increase of $48.5 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,
slightly fell from last year, mainly reflecting a lower interest
rate environment.
IMPAIRMENT LOSSES (REVERSALS) ON LOANS
Impairment losses (reversals) on loans 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 2014, BDC Financing recorded impairment losses
on loans of $72.9 million.
Impairment Losses (Reversals) on Loans
Financing Net Interest and Fee Income
for the years ended March 31 ($ in millions)
for the years ended March 31 ($ in millions)
66%
900
900
2.1
0.7
-0.3
0.1
0.4
750
750
600
600
55%
3.0%
3.0
250
250
2.5%
2.5
200
200
2.0%
2.0
150
150
44%
450
450
33%
300
300
22%
150
150
11%
00
00%
2010
Canadian GAAP
300
300
1.5%
1.5
100
100
1.0%
1.0
50
50
0.5%
0.5
00
2011
2012
n Net interest and fee income
663.1
736.4
779.5
As a % of average loan portfolio
5.43%
5.25%
5.23%
2013
2014
IFRS
796.7
845.2
5.01%
4.91%
0.0%
0.0
(50)
-50
(100)
-100
(0.5)%
-0.5
(150)
-150
(1.0)%
-1.0
2010
Canadian GAAP
2011
2012
nIndividual
180.9
104.0
86.3
nCollective
79.8
–
(124.5)
nnImpairment losses (reversals) on loans
260.7
104.0
(38.2)
As a % of average loan portfolio
2.1%
0.7%
(0.3%)
2013
2014
69.1
82.9
(50.0)
(10.0)
19.1
72.9
0.1%
0.4%
IFRS
BDC AR14 | 23
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 slightly
increased, from 2.1% of the performing opening portfolio
in fiscal 2013 to 2.3% in fiscal 2014. Despite the increase in
impairment losses, the level of losses remained low at 0.4%
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 $475.9 million in impaired loans,
which decreased by $15.9 million in fiscal 2014, and the
watch list portfolio, which amounted to $709.0 million in
fiscal 2014. The work performed to help entrepreneurs
through difficult situations partly explains our low level
of credit losses. Impaired loans represented 2.7% of the
total portfolio on March 31, 2014, down from 3.0% on
March 31, 2013.
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
2010
Canadian GAAP
0%
2011
2012
2013
2014
IFRS
n Impaired portfolio
620.5
586.2
550.8
491.8
Impaired portfolio as a % of total loan portfolio
4.7%
4.0%
3.6%
3.0%
475.9
2.7%
Since peaking in fiscal 2010, both the individual and collective
allowances have declined. The significant drop in the collective
allowance follows the considerable downward trend in loans
downgraded to impaired status observed in our portfolio
during fiscal 2012 and 2013, and the continued positive
performance of our clients in fiscal 2014.
On March 31, 2014, the total allowance was $508.3 million
or 2.9% of total loans outstanding, compared to $538.3 million
or 3.3% of total loans outstanding in fiscal 2013. This decrease
reflects the improved financial conditions of our clients and the
relatively positive economic environment in Canada.
BDC finances creditworthy projects that are, on average,
riskier than the ones the private sector typically accepts.
In the event of an economic slowdown, BDC stands ready
to increase its response, if required.
To read more about credit risk management, please refer to
Note 24—Risk Management to the Consolidated Financial
Statements.
BDC AR14 | 24
Management’s Discussion and Analysis | Analysis of Financial Results
Allowance for Credit Losses
as at March 31 ($ in millions)
1,000
1000
7.5
7.5%
800
800
6.0
6.0%
600
600
4.5
4.5%
400
400
3.0
3.0%
200
200
1.5
1.5%
00
0.0
0.0%
2010
Canadian GAAP
2011
2012
2013
2014
188.3
168.3
350.0
340.0
538.3
508.3
3.3%
2.9%
IFRS
n Individual allowance
260.9
250.2
210.2
n Collective allowance
524.5
524.5
400.0
nnTotal allowance
785.4
774.7
610.2
Total allowance as a % of loan portfolio
5.9%
5.3%
4.0%
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 2014, BDC Financing recorded net gains on
other financial instruments of $0.4 million, which included
net realized gains of $1.2 million and net unrealized losses
of $0.8 million. This compared with net gains on other
financial instruments of $2.7 million in fiscal 2013, comprising
net realized gains of $1.5 million and net unrealized gains of
$1.2 million.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses were $338.9 million
in fiscal 2014, $8.3 million lower than the $347.2 million
recorded last year, mainly as a result of lower expenses
due to capitalization of project costs related to the Agility
and Efficiency project (A&E), an investment to modernize
business delivery and to increase efficiency, offset by higher
pension costs. BDC is striving to continuously improve its
efficiency and A&E supports this objective.
PERFORMANCE AGAINST OBJECTIVES
BDC Financing’s closing portfolio, net of allowance for credit
losses, stood at $17.2 billion, which is 2.2% higher than the
corporate plan objective.
BDC Financing’s net income was $91.8 million higher than
planned. This positive result was mainly due to lower-thananticipated impairment losses on loans. The resilience of our
clients and the positive economic environment were major
factors contributing to the decrease in our impaired loans and
allowance for credit losses.
Net interest, fee and other income was $5.2 million higher
than the $840.0 million anticipated, due mainly to higher
average loans outstanding. Total operating and administrative
expenses were $18.1 million lower than the corporate
plan objective, driven by our ongoing focus on efficiency
management activities, and lower pension and project costs.
BDC AR14 | 25
Management’s Discussion and Analysis | Analysis of Financial Results
BDC SUBORDINATE FINANCING
BDC Subordinate Financing 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, BDC Subordinate Financing helps
Canadian firms transition from one owner to the next.
Subordinate Financing Portfolio
Since fiscal 2004, BDC’s Subordinate Financing 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 LP. This was followed by a $330 million
(BDC: $165 million) commitment with AlterInvest II Fund LP.
BDC acts as the general partner of these funds and receives
management fees. In November 2009, AlterInvest II Fund LP
reached its authorized capacity and BDC began to fully fund
new subordinate financing transactions through its wholly
owned investment subsidiary, BDC Capital Inc.
240
240
During fiscal 2014, AlterInvest Fund LP began liquidating its
investments. Those investments that were not reimbursed
were transferred into AlterInvest II Fund LP at fair value.
Since the partners of both AlterInvest Fund LP and
AlterInvest II Fund LP are the same, there was no change
in ownership interest as a result of these transactions.
SUBORDINATE FINANCING PORTFOLIO
BDC Subordinate Financing’s portfolio increased by 3.4%,
from $557.8 million in fiscal 2013 to $576.7 million in fiscal 2014,
mostly due to total disbursements of $156.9 million in
fiscal 2014.
The fair value of the portfolio as a percentage of cost stood
at 95.9%, an indication that the portfolio remained healthy.
Under IFRS, BDC is required to consolidate its participation
in the joint ventures with the Caisse. This explains the higher
amount of the portfolio recorded under IFRS than under
Canadian GAAP.
BDC AR14 | 26
as at March 31 ($ in millions)
600
600
120%
120
100%
100
480
480
8080%
360
360
6060%
4040%
120
120
2020%
0 0%
0
2010
Canadian GAAP
2011
2012
2013
2014
IFRS
n Fair value
193.2
387.1
457.4
557.8
576.7
nCost
200.0
402.5
468.5
566.0
601.4
Fair value as % of cost
96.6%
96.2%
97.6%
98.6%
95.9%
INCOME FROM SUBORDINATE FINANCING
BDC Subordinate Financing’s net income of $23.3 million
for the year was $11.4 million lower than in fiscal 2013.
The drop was due mainly to a lower net change in unrealized
appreciation of investments. Net income included $7.3 million
attributable to non-controlling interests in fiscal 2014, and
$5.9 million last year. Net interest income of $49.7 million
was 5.7% higher than the $47.0 million recorded last year,
due to the growth of the portfolio. Net realized losses on
investments of $5.9 million were $6.2 million lower than last
year. In addition, fee and other income was up $2.5 million
from last year.
Management’s Discussion and Analysis | Analysis of Financial Results
In fiscal 2014, BDC Subordinate Financing recorded a
net change in unrealized depreciation of investments of
$16.6 million, a $19.5 million higher depreciation than the
$2.9 million net change in unrealized appreciation recorded
last year. The net change in unrealized depreciation of
investments included:
>> a $16.7 million net fair value depreciation of the
portfolio ($3.1 million depreciation in 2013); and
>> a reversal of net fair value depreciation due to realized
income totalling $0.1 million ($6.0 million in 2013).
Operating and administrative expenses increased by
$3.2 million from last year, mainly due to increased staff
levels to support entrepreneurs.
PERFORMANCE AGAINST OBJECTIVES
Net income from BDC Subordinate Financing of $23.3 million
in fiscal 2014 was lower than the corporate plan objective
of $40.3 million, as BDC continues to take on more risks in
order to support entrepreneurs. This difference was mainly
due to a higher-than-anticipated net change in unrealized
depreciation of investments.
BDC VENTURE CAPITAL
BDC Venture Capital is a major investor in Canada, active at
every stage of a firm’s development cycle, from seed through
expansion. As the environment for venture capital remains
challenging, BDC Venture Capital’s objective is to help return
the venture capital industry to health, where potential for
profitability attracts private sector investors. To achieve this,
it is investing in innovative, technology-driven Canadian
companies directly; investing indirectly through external
private sector venture funds; and undertaking strategic
initiatives and making targeted investments.
BDC Venture Capital Portfolio—Total Investments
as at March 31 ($ in millions)
800
800
100%
100
640
640
8080%
480
480
6060%
320
320
4040%
160
160
2020%
00
0 0%
2010
Canadian GAAP
2011
n Fair value
362.3
413.8
n Portfolio (cost)
512.4
498.4
Fair value as % of cost
70.7%
83.0%
2013
2014
359.0
456.7
495.1
474.4
531.1
534.6
75.7%
86.0%
92.6%
2012
IFRS
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. BDC Venture
Capital invests primarily in companies involved in the areas
of energy/clean tech, health care and information technology.
To help rebuild and re-energize the venture capital (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 that fill gaps, focusing on
company creation platforms, niche funds and accelerators.
BDC AR14 | 27
Management’s Discussion and Analysis | Analysis of Financial Results
VENTURE CAPITAL PORTFOLIO
The fair value of the portfolio increased from $456.7 million in
fiscal 2013 to $495.1 million this year. The portfolio is composed
of $315.7 million of direct investments and $179.4 million of
investments in 39 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 92.6%
as at March 31, 2014, compared to 86.0% last year.
The total venture capital commitment to clients, which
represents the portfolio outstanding at cost plus undisbursed
commitments, amounted to $861.9 million as at March 31, 2014.
This represents $370.3 million committed to direct investments
and $491.6 million to private sector investment funds.
As planned, our commitments to private sector investment
funds are greater than those committed to direct investments.
We have committed most of the undisbursed portion to
private funds and expect to invest it over the next few years.
Total Commitment to Venture Capital Clients
as at March 31 ($ in millions)
1,000
1000
LOSS FROM VENTURE CAPITAL
The measure of success for BDC’s work in the VC market is
in 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 on the VC ecosystem but do not generate
profits for BDC. VCSIP has already had an impact on direct
investment activities by allowing it to expand its geographical
scope and make direct investments in graduate firms of
supported accelerators.
In fiscal 2014, BDC Venture Capital recorded a net loss of
$12.0 million, compared to an $8.6 million net loss last year.
The divestiture of two investee companies generated
excellent returns in fiscal 2013. A lower net change in
unrealized appreciation was recorded in fiscal 2014,
partially offset by higher unrealized foreign exchange gains
on the U.S. dollar portfolio.
Net realized losses on investments amounted to $19.0 million
this year, compared to net realized losses of $34.6 million
last year. Fiscal 2014 results included $42.2 million in net
realized gains from sales and $61.2 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.
BDC recorded a net change in unrealized appreciation
of investments of $20.3 million (compared to unrealized
appreciation of investments of $38.9 million last year),
which included the following:
800
600
>> $5.6 million in net fair value appreciation of the portfolio
($3.2 million in net fair value depreciation last year); and
400
>> a reversal of net fair value depreciation on divested
investments and write-offs totalling $14.7 million
(reversal of net fair value depreciation and write-offs
of $42.1 million last year).
200
0
2010
Canadian GAAP
2011
2012
2013
n Portfolio (cost)
512.4
498.4
474.4
531.1
n Undisbursed commitment
222.6
228.1
261.1
290.8
nnTotal commitment to venture capital clients
735.0
726.5
735.5
821.9
BDC AR14 | 28
2014
IFRS
534.6
327.3
861.9
Net unrealized foreign exchange gains of $14.6 million on
investments were due to foreign exchange fluctuations on
the U.S. dollar. BDC monitors currency fluctuations and
uses foreign exchange contracts to partially hedge U.S. dollar
investments. As a result, $9.5 million in net losses on foreign
exchange contracts partially offset gains recognized due to
U.S. dollar fluctuations.
Management’s Discussion and Analysis | Analysis of Financial Results
Operating and administrative expenses were $22.6 million,
compared to $19.9 million last year, mainly due to increased
staff levels to support entrepreneurs.
BDC Venture Capital net loss attributable to non-controlling
interests was $0.7 million for the year, $1.7 million lower
than last year.
PERFORMANCE AGAINST OBJECTIVES
BDC Venture Capital’s net loss of $12.0 million was lower than
the $20.0 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 slightly lower than the corporate
plan objective. Net loss attributable to non-controlling interests
of $0.7 million was $2.3 million lower than anticipated.
BDC CONSULTING
BDC Consulting offers business consulting services at a cost
entrepreneurs can afford. It strives to provide entrepreneurs
with the support they need to grow their business and enhance
their competitiveness in local and global markets.
Consulting Revenue
for the years ended March 31 ($ in millions)
30 30
25 25
20 20
15 15
10 10
5 5
0 0
2010
Canadian GAAP
28.1
LOSS FROM CONSULTING
BDC Consulting revenues of $21.7 million were $2.3 million
lower than the revenues of $24.0 million recorded last year.
Although the total number of mandates increased by 15%
in fiscal 2014 compared to fiscal 2013, the average mandate
size decreased. We also discontinued some services as part
of our efforts to strengthen the overall consulting service.
Together, these explain the declining revenue. Operating and
administrative expenses of $38.5 million were $2.0 million
higher than those recorded in fiscal 2013.
The net loss for the year was $16.9 million, $4.5 million
higher than the $12.4 million net loss recorded in fiscal 2013.
Investments to refine the consulting model partly explain the
increase in net losses.
PERFORMANCE AGAINST OBJECTIVES
For fiscal 2014, the net loss of $16.9 million in BDC
Consulting was slightly lower than the corporate plan
estimate of $18 million.
Revenues were $21.7 million, which was $2.3 million
lower than anticipated. On the other hand, operating and
administrative expenses were in line with expectations.
2011
2012
2013
2014
24.0
21.7
IFRS
24.6
22.4
BDC SECURITIZATION
BDC played an important role during the economic crisis
at the request of the Government of Canada by working
with private sector partners to offer the Canadian Secured
Credit Facility (CSCF). The objectives of the program were
to provide funding to automotive and equipment financing
companies that needed it, and to restart the securitization
market in Canada. The CSCF program is now over and the
portfolio has been fully repaid.
The Funding Platform for Independent Lenders (F-PIL, formerly
known as the Multi-Seller Platform for Small Originators, or
MSPSO) is another program under BDC 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, 2014, total asset-backed securities stood at
$336.5 million, compared to $437.5 million in fiscal 2013.
The decrease in the portfolio was mainly due to the full
repayment of the CSCF portfolio. Total disbursements for
the year under the F-PIL program were $200.4 million.
BDC AR14 | 29
Management’s Discussion and Analysis | Analysis of Financial Results
INCOME FROM SECURITIZATION
BDC Securitization recorded net income of $5.8 million
for the year, $5.6 million lower than last year, mainly due to
lower net interest income as a result of the decline of the
portfolio. The decrease represented the successful completion
of the CSCF program and the full repayment of the related
asset-backed securities.
VENTURE CAPITAL ACTION PLAN PORTFOLIO
In its first year after implementation, Venture Capital Action
Plan authorized $210.0 million.
Operating and administrative expenses amounted to
$1.7 million in fiscal 2014, similar to last year’s level.
Loss FROM VENTURE CAPITAL ACTION PLAN
In its first year of operations, BDC started allocating the
resources required for the comprehensive, multi-year
Venture Capital Action Plan. This produced a loss of
$1.4 million, mostly due to operating and administrative
expenses.
PERFORMANCE AGAINST OBJECTIVES
Net income of $5.8 million was $4.2 million lower than
anticipated, mostly due to lower net interest income due
to the lower average amount outstanding.
PERFORMANCE AGAINST OBJECTIVES
Net loss of $1.4 million was $4.6 million better than
anticipated, mostly due to the timing in the implementation
of the program.
Asset-Backed Securities Portfolio
CONSOLIDATED FINANCIAL POSITION
AND STATEMENT OF CASH FLOWS
Total assets of $19.6 billion increased by $1.4 billion from
a year ago, largely due to the $1.3 billion increase in our
loans portfolio, combined with a $57.3 million increase in
the subordinate financing and venture capital investment
portfolios, offset by the $101.0 million decrease in
asset-backed securities (ABS).
as at March 31 ($ in millions)
3,500
3500
2,800
2800
Total Assets—BDC
2,100
2100
as at March 31 ($ in millions)
1,400
1400
20,000
20000
700
700
16,000
16000
00
12,000
12000
2010(1)
2011
2012
Canadian GAAP
3,277
2013
2014
IFRS
3,069
763
8,000
8000
437
336
(1) Restated to include accrued interest.
VENTURE CAPITAL ACTION PLAN
In Economic Action Plan 2012, the federal government
indicated it would invest $400 million to increase private sector
venture capital financing for high-potential, innovative Canadian
businesses. In January 2013, the Prime Minister announced the
Venture Capital Action Plan (VCAP), a comprehensive strategy
for deploying new capital. The government has requested
BDC’s support and advice in the deployment of VCAP.
In fiscal 2014, BDC began allocating resources to support
the operations of this new business line.
BDC AR14 | 30
4,000
4000
00
2010
Canadian GAAP
17,680
2011
2012
2013
2014
18,184
19,570
IFRS
18,400
17,220
Management’s Discussion and Analysis | Analysis of Financial Results
The ABS portfolio stood at $336.5 million as at March 31, 2014,
compared to $437.5 million at March 31, 2013. The decrease
in the portfolio is mainly due to the full repayment of the CSCF
portfolio, partially offset by an increase in the F-PIL portfolio.
At $17.2 billion, the loan portfolio represented BDC’s
largest asset ($17.7 billion in gross portfolio net of $0.5 billion
allowance for credit losses). The gross loan portfolio has
grown by 7.9% since March 31, 2013, 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 for financing across Canada.
As for BDC’s investment portfolios, the BDC Subordinate
Financing portfolio stood at $576.7 million, representing
growth of 3.4% since March 31, 2013. The increase in
the subordinate financing portfolio is mainly due to net
disbursements, offset by unrealized depreciation on investments.
The BDC Venture Capital portfolio was $495.1 million at
March 31, 2014, compared to $456.7 million at March 31, 2013.
Net disbursements and unrealized appreciation on investments
accounted for most of the increase in the venture capital
portfolio.
Derivative assets of $54.5 million and derivative liabilities
of $10.7 million reflect the fair value of derivative financial
instruments as at March 31, 2014. Net derivative fair
value decreased by $22.2 million compared to the value
at March 31, 2013, mainly as a result of an increase in
interest rates.
Borrowings
as at March 31 ($ in millions)
20,000
20000
20000
16,000
16000
16000
12,000
12000
12000
8,000
8000
8000
4,000
4000
4000
00
2010
Canadian GAAP
n Liquid assets
1,014
nPortfolios(1)
16,358
Borrowings
13,736
0
2011
2012
2013
2014
IFRS
653
741
702
677
17,601
16,319
17,324
18,654
14,125
13,224
13,868
14,832
(1)Includes net portfolios, investments and asset-backed securities.
As at March 31, 2014, BDC recorded a net defined benefit
asset of $83.5 million related to the registered pension plan,
and a net defined benefit liability of $188.2 million for the other
plans, for a total net defined benefit liability of $104.7 million.
This represents a decrease of $86.5 million compared to the
net defined benefit liability as at March 31, 2013. This significant
decrease in the total net defined benefit liability was the result
of remeasurement gains recorded during the year. For further
information, refer to Note 20—Net Defined Benefit Asset or
Liability to the Consolidated Financial Statements.
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
$676.5 million at March 31, 2014, compared to $701.7 million
at March 31, 2013.
BDC AR14 | 31
Management’s Discussion and Analysis | Analysis of Financial Results
For the year ended March 31, 2014, cash flow used by
investing activities amounted to $2.6 million. Financing activities
provided $934.9 million in cash flow, as long-term notes were
repaid for $535.7 million and short-term notes were issued
for $1,326.0 million. Operating activities used $957.4 million
in cash flows.
At March 31, 2014, BDC funded its portfolios and
liquidities with borrowings of $14.8 billion and total equity
of $4.4 billion. Borrowings comprised $14.0 billion in
short-term notes and $0.8 billion in long-term notes.
As at March 31, 2014, total equity consisted of $4.3 billion
attributable to BDC’s shareholder and $51.1 million
attributable to non-controlling interests.
DIVIDENDS
BDC pays dividends to its sole shareholder, the Government
of Canada. A total dividend of $59.6 million was paid in
fiscal 2014.
Based on fiscal 2014 performance, BDC will make a payment
of $54.6 million in dividends on common shares, which will
be declared and paid after March 31, 2014.
Dividends
for the years ended March 31 ($ in millions)
70 70
60 60
BDC’s return on common equity (ROE) reached 10.2% in
fiscal 2014, above the 10-year moving average cost of capital
of 2.5% for the Government of Canada’s three-year bonds.
50 50
Total Equity
30 30
as at March 31 ($ in millions)
40 40
20 20
2014
2013(2) 2012
IFRS
2011(1) 2010
Canadian
GAAP
10 10
0 0
Equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive
income
Equity attributable to
BDC’s shareholder
Non-controlling interests
Total equity
4,339.0 3,872.9 3,510.0
51.1
82.8 115.3
4,390.1 3,955.7 3,625.3
3,613.2 3,643.0
146.6
n/a
3,759.8 3,643.0
ROE(3)
10.2% 12.0%
10.8%
2,138.4 2,088.4 2,088.4
27.8
27.8
27.8
2,167.3 1,748.1 1,378.6
5.5
8.6
15.2
13.7%
2,514.4 2,744.4
27.8
27.8
1,046.4 869.8
24.6
1.0
0.0%
(1)Based on IFRS, BDC’s $230 million in outstanding preferred shares as at
March 31, 2011, have been reclassified as liabilities. These preferred shares
were fully repurchased in fiscal 2012.
(2)Restated; refer to Note 4—Application of New and Amended International
Financial Reporting Standards.
(3)ROE is calculated based on equity attributable to BDC’s shareholder
(see the Glossary on page 132 for a detailed definition).
BDC AR14 | 32
2010
Canadian GAAP
2011
2012
2013
2014
–
–
68.6
59.6
68.6
59.6
IFRS
n Preferred dividends declared
6.4
5.0
4.5
n Common dividends declared(1)
7.9
–
45.1
nn Total dividends declared
14.3
5.0
49.6
(1)Based on the previous year’s performance.
Management’s Discussion and Analysis | Analysis of Financial Results
Cumulative Dividends Paid
as at March 31 ($ in millions)
400400
360360
320320
280280
240240
200200
160160
120120
80 80
40 40
0 0
1998–2004
2005
n Preferred dividends paid
67.1
77.3
n Common dividends paid
0.4
3.8
nnTotal dividends paid
67.5
81.1
2006
2007
2008
2009
2010
2011
2012
2013
2014
86.4
95.1
104.5
114.0
122.9
129.3
138.8
138.8
138.8
11.5
23.6
35.7
42.7
50.6
50.6
95.7
164.3
223.9
97.9
118.7
140.2
156.7
173.5
179.9
234.5
303.1
362.7
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 at March 31, 2014, was 3.4:1, compared to 3.6:1
at March 31, 2013.
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, 2014, these amounts totalled $2.166 billion,
compared to $2.116 billion as at March 31, 2013.
BDC AR14 | 33
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
2010
Canadian GAAP
0
2011
(1)
2012
2013
2014
IFRS
nActual
3.8
Statutory limit
12.0
3.7
3.8
3.6
3.4
12.0
12.0
12.0
12.0
(I) Restated; refer to Note 4—Application of New and Amended International
Financial Reporting Standards.
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 at least 5% for
asset-backed securities under the CSCF program and 10%
for those under the F-PIL program; 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
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 23—Capital Management to the Consolidated
Financial Statements.
While BDC is not required to meet the requirements of the
Basel Capital Accord, we use an economic capital model
to internally assess the capital needed to sustain concurrent
multiple risk events. 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. Economic capital is calculated
for various types of risk—credit, market, operational and
business—and models are based on advanced quantification
methods, as advocated under the Basel Guidelines.
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 20—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 $79.6 million in fiscal 2014, compared to $87.6 million
in fiscal 2013.
BDC AR14 | 34
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, 2014, 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 2015
Following a strong rebound in the wake of the financial crisis,
Canada’s growth in recent years has been modest, waiting
for the economic performance of its main trading partners to
improve. As the U.S. economy finds its footing and emerging
markets present fresh opportunities, Canada is poised for
improved growth. With improved economic conditions, BDC
is turning its attention to the pressing need for Canadian SMEs
to become more competitive and will continue to play its
important complementary role.
BDC’s net income is expected to reach $317 million in
fiscal 2015, of which $315 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 $48 million in 2015.
BDC FINANCING
BDC Financing will continue to proactively identify and address
market gaps in financing, a task that will include providing
support to medium-sized firms and participating in larger
transactions through syndication. BDC is also maintaining
its focus on small loans, often for less than $250,000, which
entrepreneurs use to buy equipment to increase productivity,
apply innovation to their business through ICT, and grow and
explore new markets.
BDC expects net financing acceptances to increase by 3.6%
to $4.3 billion in fiscal 2015. Due to faster disbursement
periods associated with small loans, and lower payments and
prepayments, the gross portfolio is expected to grow by 6.8%
to $18.9 billion in fiscal 2015.
BDC Financing is expected to generate net income of
$374 million in fiscal 2015, as impairment losses return to more
typical levels. BDC projects the impairment losses on loans will
amount to $156 million or 0.9% of the average outstanding
financing portfolio. Net interest income is expected to increase
to $865 million in fiscal 2015. As a result of BDC’s efforts to
reduce costs and find efficiencies, including through its Agility
and Efficiency (A&E) project, BDC Financing’s operating
expenses as a percentage of the average portfolio outstanding
will decrease from 2.0% to 1.9%, even though smaller loans
tend to be more costly to manage.
BDC SUBORDINATE FINANCING
BDC Subordinate Financing is playing an increasingly important
role in supporting the growth plans of SMEs through flexible
financing solutions and a diverse product offering.
BDC Subordinate Financing will continue to address the
needs of high-growth firms through its specialized subordinate
financing product. The volume of acceptances is expected
to reach $220 million in fiscal 2015, from $187 million in
fiscal 2014. The fair value of the portfolio is expected to grow
from $577 million in fiscal 2014 to $622 million in fiscal 2015.
Even with the growth in the portfolio, operating expenses as
a percentage of the average portfolio at fair value will decrease
from 4.6% to 4.5% in fiscal 2015, as BDC continues to find
operational efficiencies.
Net income from BDC Subordinate Financing is projected
to be $22 million, including net income attributable to
non-controlling interests of $3 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 AR14 | 35
Management’s Discussion and Analysis | Analysis of Financial Results
BDC VENTURE CAPITAL
As one of the most active investors in the market,
BDC Venture Capital is helping to demonstrate the viability
of the Canadian VC industry, particularly with its direct
investments and by creating the conditions for success
through its Strategic Investments and Partnerships (SIP) team.
BDC Venture Capital believes that the Venture Capital
Action Plan (VCAP) and the Venture Capital Strategic
Investment Plan (VCSIP), as announced by the government
in Economic Action Plan 2013, will play a large part in helping
to restore the VC market to health and profitability.
BDC Venture Capital estimates that, in fiscal 2015, it will
authorize $160 million, including $60 million in direct
investments, $65 million in indirect investments and $35 million
in SIP (including $20 million in VCSIP). The fair value of the
venture capital portfolio is expected to reach $559 million by
March 31, 2015.
For fiscal 2015, BDC Venture Capital forecasts a net loss
of $40 million, including a net loss of $1 million attributable
to non-controlling interests. Operating and administrative
expenses are projected to be $23 million.
BDC CONSULTING
In fiscal 2013, BDC undertook a review of its consulting group
to refine its approach to providing value-added advisory
services to entrepreneurs. As a result, in fiscal 2014, BDC
Consulting began organizing its internal resources under three
pillars that comprise solutions designed to help SMEs improve
competitiveness by accelerating growth, improving productivity
and building organizational capabilities.
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 recognizes
that entrepreneurs often cannot find quality, affordable services
tailored to their needs. To address this market gap, BDC is
investing in advisory services that will maximize its impact on
the competitiveness of Canadian entrepreneurs. In its role as
a development bank, BDC will assume most costs associated
with the provision of such services—particularly for SMEs
outside of urban centres, where these are higher. 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 $25 million for
fiscal 2015.
BDC AR14 | 36
BDC SECURITIZATION
The Canadian Secured Credit Facility (CSCF) program is now
over and the portfolio has been fully repaid. While the CSCF
helped to resolve some of the challenges experienced by the
market, other deficiencies remained, especially for smaller
players. To address this, BDC partnered with the private sector
to create the Multi-Seller Platform for Small Originators, now
known as the Funding Platform for Independent Lenders (F-PIL).
BDC will continue to operate the F-PIL, aimed at providing
vehicle, machinery and equipment financing to smaller financing
companies. In fiscal 2015, BDC anticipates continued growth
in the F-PIL program through $205 million in acceptances.
The BDC Securitization total portfolio is expected to close at a
fair value of $498 million as at March 31, 2015. Total net income
for fiscal 2015 is projected to be $6 million.
VENTURE CAPITAL ACTION PLAN (VCAP)
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 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.
For fiscal 2015, BDC anticipates that $175 million will be
authorized and forecasts that it will incur losses of $20 million,
as the VCAP program is in the early stages of implementation.
BDC believes that the combined effect of VCAP, VCSIP 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. 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, i.e., 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 43.7%
in fiscal 2010 to 40.0% in fiscal 2014.
BDC Financing Efficiency Ratio(1)
for the years ended March 31
50%
50
46%
46
42%
42
38%
38
34%
34
30%
30
2010
Canadian GAAP
43.7%
2011
2013(2)
2012
2014
IFRS
41.4%
40.3%
43.5%
40.0%
(1) A lower ratio indicates improved efficiency.
(2)Restated; refer to Note 4—Application of New and Amended International
Financial Reporting Standards.
For the definition of efficiency ratio, refer to the Glossary on page 131.
BDC AR14 | 37
We take risk to support clients.
We price for this risk.
And we manage it well.
BDC AR14 | 38
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.
We manage our risks by using formal
risk reviews and rigorous processes.
These include developing risk policies,
defining our risk appetite and setting
delegated authorities and limits.
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.
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.
BDC’s Board of Directors reviews and approves the policy
at least every two years.
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 AR14 | 39
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
Venture Capital
Investment Committee
Audit
Committee
BDC management
President and
Chief Executive Officer
Internal Audit
Senior Management
Committee
Disclosure
Committee
RISK COMMITTEES
Risk
Management
Credit Risk
Valuation
Compliance
and Security
BDC AR14 | 40
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
various 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 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 Venture Capital 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 reporting on BDC’s risk profile, including
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:
The Venture Capital Investment Committee advises
the board on how effectively BDC is managing its venture
capital and Venture Capital Action Plan 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.
>> 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 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 Venture Capital 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 AR14 | 41
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:
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.
>> ensure that BDC applies appropriate risk management
principles, policies and corporate directives to manage
significant and emerging risks, according to risk
thresholds;
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.
>> 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.
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.
The ERM Framework
Ide
nt i f y
>
An
al y
BDC has the following lines of defence for mitigating its risks:
z
an
>
e
>> adequate and clear roles, responsibilities, processes,
policies, corporate directives and procedures;
u re
lose and re
eas
p or
t
dm
>
Risk
management
ig
a
te
M
o
C o nt r
ol a
m
nd
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.
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.
BDC AR14 | 42
>> 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
o
n it
sc
r, di
>> risk management functions and committees that provide
oversight and monitoring;
>> quality reviews and 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).
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.
Management’s Discussion and Analysis | Risk Management
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 30,000 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 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.
BDC also conducts stress-testing analysis on BDC’s capital
to assess the impact of different adverse scenarios to ensure
BDC has sufficient capital to withstand unfavourable economic
conditions.
Please refer to Note 23—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 24—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 throughthe-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 management, risk limit setting, product
pricing and the determination of economic capital.
BDC AR14 | 43
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 11—Loans to the Consolidated Financial Statements for
further information on loans outstanding by grade equivalent.
BDC Financing 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% - 0.5%
0.5% - 11.1%
Investment grade
Non-investment grade
11.1% - 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 Financing Performing Portfolio Classified by Credit Risk Exposure
as at March 31, 2014 (as a percentage of gross performing financing portfolio)
60
60%
45
40%
30
20%
15
0
0%
BBB+ to BBBInvestment grade
6%
BDC AR14 | 44
BB+
22%
BB to BBNon-investment grade
55%
B+ to B-
CCC+ to CC
Watchlist
13%
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 11—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 commodity prices, 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, commodity prices, 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 (2013) (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 market-based,
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 AR14 | 45
Management’s Discussion and Analysis | Risk Management
BDC must meet Canadians’ expectations in various ways,
including:
>> the credit risk management policy;
>> meeting the shareholder’s expectation that BDC
will support entrepreneurship;
>> carrying out its mandate effectively;
>> the eligibility corporate directive, which includes the
United Nations Global Compact principles and the
OECD Guidelines for Multinational Corporations;
>> meeting legal and broadly held ethical standards;
>> the venture capital policy and corporate directive;
>> refusing to support clients who fail to meet societal
expectations of responsible behaviour; and
>> the disclosure policy and corporate directive; 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;
BDC AR14 | 46
>> the policy on the environment;
>> the policy on the handling of referrals and enquiries
from members of Parliament, senators, ministerial staff
and BDC directors.
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.
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
A new standard, IFRS 9, Financial Instruments, has been
published but is not yet effective for the year ended
March 31, 2014. As a result, it has not been applied in
preparing our fiscal 2014 Consolidated Financial Statements.
Information on IFRS 9, which is expected to affect BDC,
is provided in Note 5 to the Consolidated Financial
Statements. Revisions made to this standard could potentially
have a significant impact on BDC’s financial statements in
the coming years.
JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
BDC’s significant accounting judgements, estimates and
assumptions are described in Note 6 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, impairment of available-for-sale assets,
qualifying hedge relationships, post-employment benefits 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.
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.
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 (2013) (COSO).
During fiscal 2014, BDC started using the updated Internal
Control Framework dated May 2013.
BDC has reached the following conclusion regarding the
design and effectiveness of internal control over financial
reporting:
As of March 31, 2014, 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, 2014, 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.
BDC AR14 | 47
BDC AR14 | 48
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
50
51
52
53
54
55
56
57
BDC AR14 | 49
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 (2013) (COSO). Refer to the Management’s Discussion and Analysis section of the annual report for
additional information (page 47).
The system of internal control is augmented 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 independent 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 comprises directors who are not employees of BDC,
is responsible for reviewing and approving the audited annual Consolidated Financial Statements.
BDC’s independent auditors, Raymond Chabot Grant Thornton LLP, 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 11, 2014
BDC AR14 | 50
Paul Buron, cpa, ca
Executive Vice President
and Chief Financial Officer
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 2014, 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.
Auditors’ 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 auditors’
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 auditors
consider 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.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
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 2014, and its
financial performance and its cash flows for the year then ended
in accordance with International Financial Reporting Standards.
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, after giving retrospective
effect to the change in method of accounting for employee benefits
as explained in Note 4 to the consolidated financial statements,
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 directive issued pursuant to Section 89 of the
Financial Administration Act described in Note 1 to the consolidated
financial statements.
Sylvain Ricard, CPA auditor, CA
Assistant Auditor General
for the Auditor General of Canada
1
1 CPA
auditor, CA public accountancy permit no. A125741
11 June 2014
Montréal, Canada
BDC AR14 | 51
Consolidated Financial Statements
Consolidated Statement of Financial Position
Notes
March 31,
2014
8
9
676,529
54,501
701,678
82,159
740,667
87,681
10
11
12
13
14
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
437,453
15,871,635
557,840
456,708
–
17,323,636
25,671
35,314
–
15,447
18,183,905
763,200
14,739,271
457,369
358,951
–
16,318,791
25,171
32,094
–
15,478
17,219,882
106,027
10,706
106,440
16,212
89,229
17,244
14,056,623
775,340
14,831,963
188,221
42,991
15,179,908
12,731,629
1,136,267
13,867,896
191,245
46,437
14,228,230
11,214,813
2,008,943
13,223,756
218,378
44,223
13,592,830
2,138,400
27,778
2,167,279
5,453
4,338,910
51,139
4,390,049
19,569,957
2,088,400
27,778
1,748,156
8,568
3,872,902
82,773
3,955,675
18,183,905
2,088,400
27,778
1,380,408
15,185
3,511,771
115,281
3,627,052
17,219,882
(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
15
16
20
17
18
9
19
20
21
22
Guarantees and contingent liabilities (Note 27)
Commitments (Note 28)
The accompanying notes are an integral part of these Consolidated Financial Statements.
(1)Restated; refer to Note 4—Application of New and Amended International Financial Reporting Standards.
Brian Hayward
Jean-René Halde
DirectorDirector
Chairperson, Audit Committee President and Chief Executive Officer
BDC AR14 | 52
March 31, April 1,
2013(1) 2012(1)
Consolidated Financial Statements
Consolidated Statement of Income
For the year ended March 31 (in thousands of Canadian dollars)
2014
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
Impairment reversals (losses) on loans
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
2013(1)
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
967,791
124,302
843,489
(46,685)
24,042
38,838
4,140
863,824
(19,076)
41,940
2,056
(2,415)
886,329
283,973
38,050
106,151
428,174
458,155
425,968
6,644
432,612
454,661
3,494
458,155
The accompanying notes are an integral part of these Consolidated Financial Statements.
Note 25 provides additional information on the Consolidated Statement of Income and Note 26 provides segmented information.
(1)Restated; refer to Note 4—Application of New and Amended International Financial Reporting Standards.
BDC AR14 | 53
Consolidated Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended March 31 (in thousands of Canadian dollars)
2014
Net income
Other comprehensive income (loss)
Items that may be reclassified subsequently to net income
Net change in unrealized gains (losses) on available-for-sale assets
2013(1)
432,612
458,155
290
(4,434)
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
(2,169)
(1,236)
(3,405)
(695)
(1,488)
(2,183)
Total items that may be reclassified subsequently to net income
(3,115)
(6,617)
Items that will not be reclassified to net income
Remeasurements of net defined benefit asset or liability
Other comprehensive income (loss)
52,748
49,633
(18,289)
(24,906)
Total comprehensive income
482,245
433,249
Total comprehensive income attributable to:
BDC’s shareholder
Non-controlling interests
Total comprehensive income
475,601
6,644
482,245
429,755
3,494
433,249
The accompanying notes are an integral part of these Consolidated Financial Statements.
(1)Restated; refer to Note 4—Application of New and Amended International Financial Reporting Standards.
BDC AR14 | 54
Consolidated Financial Statements
Consolidated Statement of Changes in Equity
For the year ended March 31 (in thousands of Canadian dollars)
Balance as at April 1, 2013(1)
Share
capital
Contributed
surplus
2,088,400
27,778
Accumulated other comprehensive income (loss) Equity
attributable NonCash flow
to BDC’s controlling Total
Retained Availablehedges
Total shareholder interests equity
earnings(1) for-sale assets
1,748,156
1,917
6,651
8,568
3,872,902
82,773
3,955,675
425,968
6,644
432,612
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)
–
–
Total comprehensive income
Balance as at April 1, 2012(1)
(3,405)
290
(3,405)
–
52,748
52,748
290
(3,405)
(3,115)
–
478,716
290
(3,405)
(3,115)
(59,593)
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
290
290
(3,405)
52,748
49,633
475,601
290
(3,405)
52,748
49,633
–
6,644
482,245
(59,593)
(41,232)
2,954
(59,593)
(41,232)
2,954
50,000
(38,278)
(47,871)
50,000
–
2,138,400
27,778
Share
capital
Contributed
surplus
2,088,400
27,778
(59,593)
2,167,279
–
–
–
2,207
3,246
5,453
(9,593)
4,338,910
51,139
4,390,049
Accumulated other comprehensive income (loss) Equity
attributable NonCash flow
to BDC’s controlling Total
Retained Availablehedges
Total shareholder interests equity
earnings(1) for-sale assets
1,380,408
6,351
8,834
15,185
3,511,771
115,281
3,627,052
454,661
3,494
458,155
–
(4,434)
(2,183)
(18,289)
(24,906)
3,494
433,249
(39,517)
3,515
(68,624)
(39,517)
3,515
Total comprehensive income
454,661
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)
–
–
(18,289)
(18,289)
Total comprehensive income
–
436,372
–
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, 2013
(4,434)
(2,183)
(4,434)
(2,183)
(4,434)
(2,183)
(6,617)
(4,434)
(2,183)
(18,289)
(24,906)
(4,434)
(2,183)
(6,617)
429,755
(68,624)
(68,624)
–
–
(68,624)
–
–
–
(68,624)
(36,002)
(104,626)
2,088,400
27,778
1,748,156
1,917
6,651
8,568
3,872,902
82,773
3,955,675
The accompanying notes are an integral part of these Consolidated Financial Statements.
(1)Restated; refer to Note 4—Application of New and Amended International Financial Reporting Standards.
BDC AR14 | 55
Consolidated Financial Statements
Consolidated Statement of Cash Flows
For the year ended March 31 (in thousands of Canadian dollars)
2014
Operating activities
Net income
Adjustments to determine net cash flows
Interest income
Interest expense
Net realized losses (gains) on investments
Impairment losses (reversals) on loans
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
Derecognition of intangible assets
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
432,612
2013(1)
458,155
(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
(967,791)
124,302
46,685
19,076
(41,940)
(2,056)
2,415
(45,422)
10,694
8,284
(6,373)
(122,841)
960,248
(3,717,375)
2,575,803
(413)
(4,218)
(957,440)
17,211
2,245
(678,680)
(200,426)
301,643
(156,923)
115,485
(118,274)
97,388
(5,702)
(7,977)
(27,791)
(2,577)
(193,355)
514,573
(195,062)
85,832
(115,591)
26,871
–
(7,016)
(15,682)
100,570
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
1,325,967
192,435
(535,663)
(41,232)
2,954
50,000
(59,593)
934,868
1,515,432
200,929
(1,072,614)
(39,517)
3,515
–
(68,624)
539,121
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(25,149)
701,678
676,529
(38,989)
740,667
701,678
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
Acquisition of property and equipment
Acquisition of intangible assets
Net cash flows provided (used) by investing activities
The accompanying notes are an integral part of these Consolidated Financial Statements.
(1)Restated; refer to Note 4—Application of New and Amended International Financial Reporting Standards.
BDC AR14 | 56
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(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, 2014, and March 31, 2013.
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 11, 2014.
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 to 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. The figures presented in the Consolidated Financial Statements are stated in thousands of Canadian dollars.
BDC AR14 | 57
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(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, 2014, March 31, 2013 and April 1, 2012. 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 impacting 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. Inter-company 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 shareholders 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 AR14 | 58
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(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. The partnership interests of each partner in the funds involved did not change as a result of these transactions.
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 7—Fair Value of Financial Instruments. These transactions were
non-cash and had no impact on profit or loss.
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.
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.
BDC AR14 | 59
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
3. SIGNIFiCANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Classification of financial instruments
The following table summarizes the classification of BDC’s financial instruments as at March 31, 2014, and March 31, 2013.
March 31, 2014
Measured at fair value
Note
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
8
9
10
11
12
13
14
17
Financial liabilities
Accounts payable and accrued liabilities
Derivative liabilities
Short-term notes
Long-term notes
Other liabilities(2)
Total financial liabilities
18
9
19
19
21
FVTPL(1)
Held-for- Designated
trading as FVTPL
Measured at amortized cost
Availablefor-sale
Cash flow
hedges
Loans and
receivables
Financial
liabilities
Total
–
676,529
54,501
336,477
17,241,064
576,677
495,096
5,169
9,265
19,394,778
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
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.
March 31, 2013
Measured at fair value
Note
Financial assets
Cash and cash equivalents
Derivative assets
Asset-backed securities
Loans
Subordinate financing investments
Venture capital investments
Other assets(2)
Total financial assets
8
9
10
11
12
13
17
Financial liabilities
Accounts payable and accrued liabilities
Derivative liabilities
Short-term notes
Long-term notes
Other liabilities(2)
Total financial liabilities
18
9
19
19
21
FVTPL(1)
Held-for- Designated
trading as FVTPL
Measured at amortized cost
Availablefor-sale
Cash flow
hedges
Loans and
receivables
Financial
liabilities
Total
–
701,678
82,159
437,453
15,871,635
557,840
456,708
9,714
18,117,187
701,678
76,757
5,402
3,725
433,728
15,871,635
557,840
456,708
76,757
1,018,273
433,728
5,402
9,714
16,583,027
106,440
16,102
110
630,249
16,102
630,249
–
110
–
12,731,629
506,018
35,175
13,379,262
106,440
16,212
12,731,629
1,136,267
35,175
14,025,723
(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 AR14 | 60
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
3. SIGNIFiCANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Classification of financial instruments (continued)
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 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 fair value through profit or loss
A financial instrument can be designated as 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 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.
Available-for-sale financial assets
Available-for-sale investments 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 financial 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.
BDC AR14 | 61
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
3. SIGNIFiCANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Classification of financial instruments (continued)
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, 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 accumulated other comprehensive income 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 (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.
Major types of financial instruments
Cash equivalents
Cash equivalents include short-term bank notes and reverse repurchase agreements that, at the original acquisition date, have maturities
of less than three months and are used to manage liquidity risk. Reverse repurchase agreements are short-term transactions where
BDC purchases assets, normally federal government bonds, from a counterparty, generally a financial institution, and simultaneously
agrees to resell them on a specified date and at a specified price. Since by virtue of the reverse repurchase agreement, the counterparty
retains the risks and rights associated with the ownership of the financial assets involved, these transactions are accounted for by BDC
as secured assets.
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 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.
BDC AR14 | 62
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
3. SIGNIFiCANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Major types of financial instruments (continued)
Asset-backed securities (continued)
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 6—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 level.
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.
The carrying amount of an impaired 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 impairment losses or reversals on loans
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 6—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 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.
BDC AR14 | 63
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
3. SIGNIFiCANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Major types of financial instruments (continued)
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 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.
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 fair value through profit or loss. As at March 31, 2014, and March 31, 2013,
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.
BDC AR14 | 64
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(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 on an annual
basis for projects in process 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 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 other comprehensive income. Remeasurements recognized in other comprehensive
income 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 AR14 | 65
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(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 accumulated other comprehensive
income 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
accumulated other comprehensive income 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, Subordinate Financing,
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.
APPLICATION OF NEW AND AMENDED INTERNATIONAL
FINANCIAL REPORTING STANDARDS
On April 1, 2013, BDC adopted the following new amendments and standards:
>>
>>
>>
>>
>>
IAS 1, Presentation of Financial Statements;
IAS 19, Employee Benefits;
IFRS 10, Consolidated Financial Statements;
IFRS 12, Disclosures of Interest in Other Entities; and
IFRS 13, Fair Value Measurement.
IAS 1, Presentation of Financial Statements, was amended to require entities to group items presented in OCI in two categories
depending on whether those items will or will not be reclassified to net income in the future. IAS 1 is a presentation standard whose
objective is to provide information to allow users to better understand financial statements. The adoption of the amendments to this
standard did not have an impact on BDC’s results or financial position.
IFRS 10, Consolidated Financial Statements, replaces Standing Interpretations Committee (SIC) 12, Consolidation—Special Purpose
Entities, and parts of IAS 27, Consolidated and Separate Financial Statements. The new standard builds on existing principles by
identifying the concept of control as the factor that determines whether an entity should be included in a company’s consolidated
financial statements. The standard provides additional guidance to assist in the determination of control where it is difficult to assess.
The adoption of IFRS 10 did not have any impact on BDC’s results or financial position.
BDC AR14 | 66
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
4. APPLICATION OF NEW AND AMENDED INTERNATIONAL
FINANCIAL REPORTING STANDARDS (continued)
IFRS 12, Disclosures of Interests in Other Entities, sets out the required disclosures for entities applying IFRS 10, IFRS 11 and IAS 28,
Investments in Associates and Joint Ventures (as amended in 2011). The new standard combines, enhances and replaces the disclosure
requirements for subsidiaries, associates, joint arrangements and unconsolidated structured entities. IFRS 12 is a new standard on
disclosure whose adoption had no impact on BDC’s results or financial position.
IFRS 13, Fair Value Measurement, provides a common definition of fair value and sets out a framework for measuring fair value using
the assumptions that market participants would use when pricing the asset or liability under current market conditions, including
assumptions about risk. The adoption of IFRS 13 did not have a significant impact on BDC’s results or financial position.
The amendments to IAS 19, Employee Benefits, affected amounts reported in these Consolidated Financial Statements, the presentation
of balances and related disclosures, as described below.
Amendments to IAS 19, Employee Benefits
The amendments to IAS 19, which the Internal and Accounting Standards Board (IASB) issued in June 2011, changed the accounting
for defined benefit plans. An adjustment of $1,791 was required as at April 1, 2012, and an adjustment of $11,468 was required for
the year ended March 31, 2013, because the assumption used for the valuation of benefits payable on termination of employment
under the registered pension plan and one of the supplemental pension plans terms was modified on application of the new standard.
In addition to these adjustments, the most significant change for BDC was the requirement for interest income on plan assets to be
computed by applying the discount rate used to measure the plan obligation, as opposed to applying management’s best estimate
of the expected long-term rate of return on plan assets. The cost of managing plan assets is recorded against the actual return on
plan assets, while other administration costs are recorded in net income. Finally, there is an increase in disclosure requirements.
Refer to Note 20—Net Defined Benefit Asset or Liability, for more detail.
These amendments were applied retrospectively to these Consolidated Financial Statements.
The impact of these amendments on the comparative figures is as follows.
Consolidated Statement of Financial Position
Net defined benefit liability
Retained earnings
As at April 1, 2012
As previously
reported
Amended
IAS 19 effects
Restated
220,169
1,378,617
(1,791)
1,791
218,378
1,380,408
Consolidated Statement of Financial Position
As previously
reported
Net defined benefit liability
Retained earnings
202,713
1,736,688
Consolidated Statement of Comprehensive Income
As previously
reported
Operating and administrative expenses
Net income
Remeasurements of net defined benefit asset or liability
Other comprehensive income
Comprehensive income
418,018
468,311
(38,122)
(44,739)
423,572
As at March 31, 2013
Amended
IAS 19 effects
Restated
(11,468)
11,468
191,245
1,748,156
Year ended March 31, 2013
Amended
IAS 19 effects
Restated
10,156
(10,156)
19,833
19,833
9,677
428,174
458,155
(18,289)
(24,906)
433,249
BDC AR14 | 67
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
5.
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 IASB but were not yet effective, and had not been adopted early by BDC. These standards include IFRS 9,
Financial Instruments, 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
The IASB aims to replace IAS 39, Financial Instruments: Recognition and Measurement in its entirety. The replacement standard
(IFRS 9) is being issued in phases. To date, the chapters dealing with recognition, classification, measurement, and derecognition of
financial assets and liabilities, as well as the chapter on hedge accounting, have been issued. Further chapters dealing with impairment
methodology are still being developed. The tentative effective date for IFRS 9 is January 1, 2018.
BDC is currently assessing the impact of the adoption of IFRS 9. The application of all phases of this standard is expected to be
retrospective.
6.
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 on a regular basis. 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 level.
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 11—Loans, for more information on the allowance for credit losses.
BDC AR14 | 68
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
6. 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 7—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 20—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 AR14 | 69
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
7.
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,
2014
Financial assets classified as loans and receivables
Loans
Financial liabilities classified as financial liabilities
Short-term notes
Long-term notes
March 31,
2013
Fair value
hierarchy
level
Fair
value
Carrying
value
Fair value
hierarchy
level
Fair
value
Carrying
value
2
17,238,394
17,241,064
2
15,928,340
15,871,635
1
2
14,055,883
274,916
14,056,623
274,546
1
2
12,731,743
506,623
12,731,629
506,018
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 AR14 | 70
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
7. 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, 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 fair value through profit or loss
Assets
Derivative assets
Asset-backed securities
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
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
March 31, 2013
Fair value measurements using
Total
Level 1
Level 2
Level 3 fair value
82,159
437,453
1,809
32,661
34,470
519,612
–
16,212
630,249
646,461
Liabilities
Derivative liabilities
Long-term notes / designated as fair value through profit or loss
556,031
424,047
–
980,078
82,159
437,453
557,840
456,708
–
1,534,160
–
16,212
630,249
646,461
BDC AR14 | 71
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
7. 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 reasonably possible ranges. For subordinate financing, the impact
of a 1% variation in the risk-free rate would result in a gain or loss of $10.6 million in the current period and an equivalent change in
retained earnings ($9.9 million in 2013). Venture capital and venture capital action plan investments are not risk-free rate sensitive.
March 31, 2014
Subordinate
financing
investments
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 at March 31, 2014
556,031
(9,970)
(16,582)
–
156,239
(109,725)
–
575,993
Venture
capital
investments
424,047
(22,027)
21,762
13,454
118,274
(62,718)
(3,754)
489,038
Venture capital
action plan
investments
–
–
(533)
–
5,702
–
–
5,169
Total
980,078
(31,997)
4,647
13,454
280,215
(172,443)
(3,754)
1,070,200
March 31, 2013
Fair value at April 1, 2012
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 at March 31, 2013
Subordinate
financing
investments
Venture
capital
investments
Venture capital
action plan
investments
Total
455,847
(12,114)
2,623
–
195,062
(85,387)
–
556,031
337,282
(21,703)
30,578
2,385
115,341
(17,322)
(22,514)
424,047
–
–
–
–
–
–
–
–
793,129
(33,817)
33,201
2,385
310,403
(102,709)
(22,514)
980,078
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.
2014
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
BDC AR14 | 72
(52,049)
24,471
12,693
(14,885)
2013
(36,164)
31,343
1,963
(2,858)
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
8.
CASH AND CASH EQUIVALENTS
As at March 31, 2014, and March 31, 2013, there were no restrictions on cash and cash equivalents. The collateral in the form of
government bonds and similar securities held in respect of reverse repurchase agreements approximated their carrying amounts for
all reporting periods. Cash and cash equivalents included the following components.
Cash
Short-term bank notes and commercial paper
Reverse repurchase agreements
Cash and cash equivalents
March 31, 2014
March 31, 2013
16,977
627,822
31,730
676,529
9,654
657,306
34,718
701,678
9.
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.
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 investments with
foreign exchange forward contracts. These instruments have been classified as held-for-trading.
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 2014 and 2013.
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.
BDC AR14 | 73
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
9. DERIVATIVE FiNANCIAL INSTRUMENTS (continued)
The following table provides the fair value of BDC’s derivatives portfolio as represented by gross assets and gross liabilities values.
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
Gross assets
Gross liabilities
March 31, 2013
Net amount
5,402
5,402
110
110
5,292
5,292
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
68,464
4,780
1,791
1,722
76,757
10,191
1,452
2,366
2,093
16,102
58,273
3,328
(575)
(371)
60,655
Total
82,159
16,212
65,947
Hedging
Interest rate swap contracts
Total hedging
Hedging
Interest rate swap contracts
Total hedging
BDC AR14 | 74
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
9. 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
Term to maturity or repricing
1 to 3
3 to 5
years
years
Over
5 years
March 31,
2014
Notional
amount
March 31,
2013
Notional
amount
90,000
1.86
90,000
123,000
2.53
123,000
–
–
213,000
428,000
–
–
213,000
428,000
50,000
4.31
16,746
4.24
105,650
172,396
–
–
110,000
110,000
16,994
4.38
–
16,994
60,000
4.17
–
326,341
350,676
–
60,000
292,601
4.62
–
292,601
105,650
541,991
177,650
638,326
Cross-currency interest rate swap contracts
7,067
179,463
–
16,994
10,875
70,875
7,254
299,855
25,196
567,187
40,233
678,559
Foreign exchange forward contracts
Total held-for-trading
Total
257,534
436,997
526,997
–
16,994
139,994
–
70,875
70,875
–
299,855
299,855
257,534
824,721
1,037,721
229,042
907,601
1,335,601
Held-for-trading
Interest rate swap contracts
$CDN payable-fixed
% payable-fixed
$CDN receivable-fixed
% receivable-fixed
Equity-linked swap contracts
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 AR14 | 75
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
10.
ASSET-BACKED SECURITIES
The following table summarizes asset-backed securities by classification of financial instruments. As at March 31, 2014, no asset-backed
securities had maturities of one to five years ($203,100 as at March 31, 2013) and $336,477 had maturities over five years
($234,353 as at March 31, 2013). The asset-backed securities have a clean-up option that allows them to be redeemed by the issuing
trust at par 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, 2014, and 2013. Refer to Note 24—Risk Management,
for additional information on credit risk associated with the asset-backed securities portfolio.
Available-for-sale Principal amount
Unamortized loss on initial recognition
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, 2014
March 31, 2013
329,521
–
2,206
331,727
2.24%
431,853
(41)
1,916
433,728
2.64%
4,651
99
4,750
8.06%
336,477
3,680
45
3,725
9.20%
437,453
11.
LOANS
The following table summarizes loans outstanding by contractual maturity date.
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
2013
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, 2013
BDC AR14 | 76
142,594
8,503
151,097
1,692,541
62,679
1,755,220
14,083,064
420,592
14,503,656
15,918,199
491,774
16,409,973
(350,000)
–
(350,000)
–
(188,338)
(188,338)
(350,000) 15,568,199
(188,338)
303,436
(538,338) 15,871,635
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
11. LOANS (continued)
Impaired loans
Impaired at beginning of year
Downgraded
Upgraded
Write-offs
Liquidation and other
Balance at end of year
March 31, 2014
March 31, 2013
491,774
362,517
(104,835)
(103,258)
(170,249)
475,949
550,783
305,287
(72,602)
(90,558)
(201,136)
491,774
March 31, 2014
March 31, 2013
538,338
(103,258)
(12,485)
12,774
435,369
72,881
508,250
610,167
(90,558)
(12,876)
12,529
519,262
19,076
538,338
Allowance for credit losses
Balance at beginning of year
Write-offs
Effect of discounting
Recoveries and other
Impairment losses (reversals) on loans
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, 2014, $30.9 million ($27.4 million at March 31, 2013) 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, 2014
1,004,868
3,847,699
9,474,214
2,237,592
708,992
17,273,365
6%
22%
55%
13%
4%
100%
March 31, 2013
1,027,604
3,573,912
8,693,537
2,035,827
587,319
15,918,199
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
March 31, 2014
13,848,368
1,684,851
1,740,146
17,273,365
80%
10%
10%
100%
March 31, 2013
13,029,798
1,524,246
1,364,155
15,918,199
82%
10%
8%
100%
(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 AR14 | 77
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
11. 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, 2014
As at March 31, 2013
Within 2 to 3 Over 3
1 month months months Total
136,150
153,378
77,727
30,156
90,881
40,780
304,758
224,314
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% at March 31, 2014, and March 31, 2013.
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
Other
Total loans outstanding
BDC AR14 | 78
March 31,
2014
March 31,
2013
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
664,217
48,014
380,785
470,993
5,584,253
4,511,112
449,771
429,878
1,984,704
1,760,439
98,955
26,852
16,409,973
March 31,
2014
March 31,
2013
4,025,056
3,578,289
2,305,724
2,278,685
2,050,634
1,478,046
1,023,372
1,009,508
17,749,314
3,838,018
3,412,386
2,004,692
2,039,675
1,988,542
1,319,525
939,056
868,079
16,409,973
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
12.
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, 2014
As at March 31, 2013
77,268
78,598
442,633
377,602
81,477
109,834
601,378
566,034
576,677
557,840
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 at March 31, 2014, was 2.5% of total subordinate financing
investments at cost (2.2% at March 31, 2013). 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
Business services
Wholesale and retail trade
Construction
Mining, oil and gas extraction
Information industries
Tourism
Transportation and storage
Real estate and rental and leasing
Educational services
Other
Subordinate financing investments
Fair value
March 31,
2014
Cost
Fair value
March 31,
2013
Cost
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
12,818
13,175
10,238
253,416
177,129
9,601
3,888
51,792
22,521
3,262
–
557,840
14,283
13,257
10,021
265,001
176,260
8,198
3,899
48,868
22,729
3,518
–
566,034
Fair value
March 31,
2014
Cost
Fair value
March 31,
2013
Cost
204,022
114,686
97,007
44,004
34,524
21,079
12,808
9,426
8,918
7,130
23,073
576,677
205,280
129,493
99,523
46,798
35,346
22,552
11,882
10,138
8,539
7,674
24,153
601,378
199,833
119,468
98,297
34,400
25,084
19,758
6,538
12,267
7,934
10,230
24,031
557,840
201,329
128,518
96,070
33,321
23,141
18,831
5,685
13,405
7,924
10,488
27,322
566,034
BDC AR14 | 79
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
13.
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 at March 31, 2014, was 7.86% of total venture capital investments at cost (7.15% at March 31, 2013).
Fair value
March 31,
2014
Cost
Fair value
March 31,
2013
Cost
Information technology
Biotechnology and pharmacology
Electronics
Medical and health
Communications
Industrial
Energy
Other
Total direct investments
106,228
53,383
77,976
33,765
25,872
9,690
8,259
500
315,673
114,000
62,834
78,241
42,485
24,282
14,042
16,065
500
352,449
113,289
80,995
53,490
40,257
29,509
6,049
5,836
500
329,925
101,279
94,701
66,992
51,230
46,092
15,715
5,544
500
382,053
Funds
Venture capital investments
179,423
495,096
182,173
534,622
126,783
456,708
149,050
531,103
Fair value
March 31,
2014
Cost
Fair value
March 31,
2013
Cost
Common shares
Preferred shares
Debentures
Total direct investments
29,340
248,090
38,243
315,673
68,745
243,132
40,572
352,449
61,266
224,238
44,421
329,925
99,668
234,816
47,569
382,053
Funds
Venture capital investments
179,423
495,096
182,173
534,622
126,783
456,708
149,050
531,103
Industry sector
The following table presents a summary of the venture capital portfolio, by type of investment.
Investment type
BDC AR14 | 80
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
14.
VENTURE CAPITAL ACTION PLAN investments
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.
At March 31, 2014, the fair value of venture capital action plan investments stood at $5,169 (nil at March 31, 2013), and their cost was
$5,702 (nil at March 31, 2013).
15.
PROPERTY AND EQUIPMENT
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
2013
Computer and Furniture,
telecommunications fixtures and
equipment equipment
Leasehold
improvements
Total
Cost
Balance as at March 31, 2012
Additions
Balance as at March 31, 2013
24,108
3,216
27,324
21,261
1,816
23,077
41,335
1,984
43,319
86,704
7,016
93,720
Accumulated depreciation
Balance as at March 31, 2012
Depreciation
Balance as at March 31, 2013
Property and equipment as at March 31, 2013
15,181
3,751
18,932
8,392
14,038
949
14,987
8,090
32,314
1,816
34,130
9,189
61,533
6,516
68,049
25,671
No property and equipment were impaired as at March 31, 2014 and 2013. In addition, as at March 31, 2014 and 2013, BDC had
no significant contractual commitments to acquire property and equipment.
BDC AR14 | 81
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
16.
INTANGIBLE ASSETS
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
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
Acquired systems and
software applications
Projects in
progress
Total
59,184
–
–
1,264
60,448
16,275
15,682
(8,284)
(1,264)
22,409
75,459
15,682
(8,284)
–
82,857
43,365
4,178
47,543
12,905
–
–
–
22,409
43,365
4,178
47,543
35,314
2013
Cost
Balance as at March 31, 2012
Additions, separately acquired
Derecognition
Available for use
Balance as at March 31, 2013
Accumulated amortization
Balance as at March 31, 2012
Amortization
Balance as at March 31, 2013
Intangible assets as at March 31, 2013
BDC AR14 | 82
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
17.
OTHER ASSETS
March 31, 2014
March 31, 2013
2,514
1,377
5,374
9,265
6,954
16,219
2,551
1,837
5,326
9,714
5,733
15,447
March 31, 2014
March 31, 2013
48,987
6,768
15,980
71,735
34,292
106,027
48,920
4,433
21,880
75,233
31,207
106,440
Financial instruments
Interest receivable on derivatives
Accounts receivable from consulting clients
Other
Prepaids
Other assets
18.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Current
Salaries and benefits payable
Accounts payable
Other
Long-term accrued liabilities
Accounts payable and accrued liabilities
19.
BORROWINGS
The table below presents the outstanding short-term notes.
Maturity date
Short-term notes
2014
2015
Total short-term notes
Effective rate
Currency
0.92% - 1.16%
0.73% - 1.14%
CAD
CAD
March 31,
2014
Principal
Carrying
amount (1)
value
–
14,052,050
–
14,056,623
14,056,623
March 31,
2013
Principal
Carrying
amount (1)
value
12,726,083
–
12,731,629
–
12,731,629
(1) The principal amount is presented in the original currency.
As at March 31, 2014, no short-term notes were funding asset-backed securities ($35,587 at March 31, 2013).
BDC AR14 | 83
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
19. BORROWINGS (continued)
The table below presents the outstanding long-term notes by maturity. Some long-term notes may be redeemable. As at March 31, 2014,
long-term notes of $37,878 were redeemable prior to maturity.
Maturity date
Long-term notes /
financial liabilities
2014
2015
2016
2018
Long-term notes /
designated as fair value
through profit or loss
2014
2015
2016
2018
2020
2021
2022
2014
Effective rate (1)
0.96% - 1.20%
0.98% - 1.16%
1.22% - 1.60%
0.94%
0.92% - 0.95%
0.92%
0.99%
0.95% - 0.97%
0.87% - 4.31%
2013
Effective rate (1)
Currency
March 31,
2014
Principal
Carrying
amount (2)
value
March 31,
2013
Principal
Carrying
amount (2)
value
1.49% - 1.51%
CAD
CAD
CAD
CAD
–
94,699
89,100
90,000
–
94,933
89,258
90,355
274,546
424,291
31,364
–
50,000
424,515
31,412
–
50,091
506,018
0.92% - 0.95%
0.94%
0.92% - 0.95%
0.92%
0.99%
0.98%
0.95% - 0.97%
0.87% - 4.31%
CAD
JPY
CAD
CAD
JPY
JPY
JPY
CAD
–
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
94,698
500,000
123,294
17,733
1,000,000
1,300,000
660,000
292,601
99,675
5,875
122,528
19,146
12,129
14,189
7,148
349,559
630,249
0.93% - 2.10%
0.96% - 1.13%
Total long-term notes
775,340
1,136,267
(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 fair value through profit or loss as at March 31, 2014, was $42,396 higher
than the total principal amount due at maturity given respective exchange rates (as at March 31, 2013, it was $61,222 higher).
As at March 31, 2014, long-term notes designated as financial liabilities included $184,191 of funding for asset-backed securities
($155,767 at March 31, 2013).
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, 2014
March 31, 2013
644,820
40,064
17,483
72,973
775,340
916,446
68,537
18,004
133,280
1,136,267
BDC also has an available overdraft facility of $75 million. When the daily balance outstanding is in an overdraft position, interest
charges are accumulated at prime.
BDC AR14 | 84
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
20.
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 provide benefits based on years of service and average earnings at retirement, fully indexed to the Consumer Price
Index. Other post-employment benefit plans include health, dental and life insurance coverage, as well as a retirement allowance
program for a closed group of employees who meet certain conditions.
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 the design,
funding, administration, communications and compliance of 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 BDC’s 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 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 Canada. 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 with regard 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 2015 for the registered
pension plan is $61.1 million. The supplemental pension plans are partly funded by BDC and BDC’s best estimate of contributions
for fiscal 2015 is $5.8 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 2015 amount to $5.6 million.
BDC AR14 | 85
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
20. 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
BDC AR14 | 86
Registered Supplemental
pension plan pension plans
2014
2013
2014
2013
948,111
40,767
40,964
(34,211)
–
10,699
853,597
34,379
39,635
(38,337)
–
10,081
92,131
2,193
3,981
(3,343)
–
–
80,841
1,743
3,764
(3,204)
–
–
2014
134,308
4,645
5,788
–
(4,424)
–
Other plans Total
2013
2014
2013
120,296
4,693
5,829
–
(3,693)
–
1,174,550
47,605
50,733
(37,554)
(4,424)
10,699
1,054,734
40,815
49,228
(41,541)
(3,693)
10,081
61,239
(2,485)
6,950
(45,575)
7,224
49,581
1,660
(3,056)
786
4,790
4,215
948,111
99,642
92,131
143,607
134,308
934,894
42,343
79,617
10,699
(34,211)
791,773
38,988
87,578
10,081
(38,337)
48,411
2,215
4,890
–
(3,343)
44,583
2,195
4,331
–
(3,204)
–
–
–
–
–
–
–
–
–
–
983,305
44,558
84,507
10,699
(37,554)
836,356
41,183
91,909
10,081
(41,541)
(1,231)
(1,262)
(117)
(58)
–
–
(1,348)
(1,320)
80,634
46,073
2,972
564
–
–
83,606
46,637
1,112,745
934,894
55,028
48,411
–
–
1,167,773
983,305
–
–
–
–
–
13,217
44,614
43,720
143,607
134,308
1,029,218
(83,527)
–
(18)
9,077
122,741
77,266
120,238
(4,411)
(1,376)
251
(115,809)
(53,042)
6,634
54,622
(109,934)
1,272,467
(83,527)
188,221
1,174,550
–
191,245
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
20. 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
Registered Supplemental
pension plan pension plans
2014
2013
2014
2013
2014
Other plans Total
2013
2014
2013
40,767
34,379
2,193
1,743
4,645
4,693
47,605
40,815
40,964
(42,343)
1,231
39,635
(38,988)
1,262
3,981
(2,215)
117
3,764
(2,195)
58
5,788
–
–
5,829
–
–
50,733
(44,558)
1,348
49,228
(41,183)
1,320
40,619
36,288
4,076
3,370
10,433
10,522
55,128
50,180
61,239
(2,485)
6,950
(18)
9,077
122,741
77,266
120,238
(45,575)
49,581
(3,056)
(53,042)
54,622
7,224
1,660
6,634
(109,934)
(80,634)
(46,073)
(2,972)
(57,746)
2,683
1,708
786
4,790
(4,411)
251
4,215
(1,376)
(115,809)
(564)
–
–
(83,606)
(46,637)
8,423
3,290
7,183
(52,748)
18,289
BDC AR14 | 87
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
20. 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,
2014
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
Unquoted
21,537
–
March 31,
2013
Total
Quoted
on active
market
Unquoted
Total
–
8,039
21,537
8,039
4,510
–
–
15,748
4,510
15,748
–
–
–
237,697
124,625
47,458
237,697
124,625
47,458
–
–
–
205,743
106,498
41,618
205,743
106,498
41,618
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
225,130
79,813
61,574
–
–
–
–
371,027
–
–
–
198,817
17,675
1,112
25,067
612,278
225,130
79,813
61,574
198,817
17,675
1,112
25,067
983,305
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 sectors, 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
(32.5% in foreign equity and 27.5% in domestic equity). The positioning of the asset mix is reviewed on a monthly basis to assess
the need for a rebalancing exercise.
BDC AR14 | 88
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
20. 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
2014
2013
Discount rate
Inflation rate
Rate of salary increase
Rate of pension increase
4.60%
2.25%
3.35%
2.25%
4.40%
2.25%
3.35%
2.25%
Supplemental
pension plans
2014
2013
4.60%
2.25%
3.35%
2.25%
4.40%
2.25%
3.35%
2.25%
2014
Other
plans
2013
4.60%
2.25%
3.35%
n/a
4.40%
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 tables have been used to determine the present value of the benefit obligation:
>> The 1994 Uninsured Pensioner Mortality Table with mortality improvement Scale AA was used for 2013.
>> 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.
As at March 31, 2014, the weighted-average duration of the defined benefit obligation was 17.1 years (2013: 17.5 years).
For measurement purposes, health care cost trends were assumed to be as follows:
Medical (drugs)
>> 6.38% in 2014 reducing by 0.125% each year to 4% in 2033
(6.5% in 2013 reducing by 0.125% each year to 4% in 2033)
Other medical costs
>> 3.8% per year
(3.9% per year in fiscal 2013)
Dental costs
>> 4% per year
(4% per year in fiscal 2013)
Weighted-average health care trend
>> 5.0% in 2014 reducing by 0.058% each year to 3.9% in 2033
(5.2% in 2013 reducing by 0.065% each year to 3.9% in 2033)
BDC AR14 | 89
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
20. 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 changing assumption while not changing all other assumptions. This analysis may not be
representative of the actual change in the defined benefit obligation, as it is unlikely that a change in the assumptions would occur in
isolation; some of the assumptions may be correlated.
Increase (decrease) of the present value of the defined benefit obligation
Registered
pension plan
Supplemental
pension plan
March 31, 2014
Other
plans
Discount rate
Impact of: 1% increase
1% decrease
(161,200)
218,131
(13,834)
18,471
(19,213)
24,376
Rate of salary increase
Impact of: 1% increase
1% decrease
22,828
(22,327)
7,476
(4,771)
862
(795)
Rate of price inflation
Impact of: 1% increase
1% decrease
203,236
(154,069)
14,871
(11,594)
1,188
(1,046)
Rate of pension increase
Impact of: 1% increase
1% decrease
169,992
(132,075)
17,363
(12,958)
Health care cost trend
Impact of: 1% increase
1% decrease
Post-retirement mortality
Impact of: 1 year older
1 year younger
BDC AR14 | 90
–
–
(22,733)
22,541
–
–
(2,248)
2,219
–
–
19,189
(15,398)
(3,644)
3,704
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
21.
OTHER LIABILITIES
Financial instruments
Deposits from clients
Other (1)
Deferred income
Other (1)
Total other liabilities
March 31, 2014
March 31, 2013
24,957
6,660
31,617
28,392
6,783
35,175
5,822
5,552
42,991
5,136
6,126
46,437
(1)All other liabilities are non-current.
22.
SHARE CAPITAL
An unlimited number of common shares, having a par value of $100 each, is authorized. As at March 31, 2014, there were
21,384,000 common shares outstanding (20,884,000 at March 31, 2013).
On the date of the approval of the fiscal 2014 Consolidated Financial Statements, a dividend in respect of common shares of $54.6
million was declared, based on fiscal 2014 performance ($59.6 million in 2013).
In fiscal 2014, BDC issued 500,000 common shares (nil in 2013).
Reconciliation of the number of common shares issued and outstanding
As at the beginning of the year
Shares issued
As at the end of the year
2014
2013
20,884,000
500,000
21,384,000
20,884,000
–
20,884,000
BDC AR14 | 91
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
23.
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
at March 31, 2014 was 3.4:1 (3.6:1 as at March 31, 2013).
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, 2014, these amounts totaled $2.166 billion ($2.116 billion as
at March 31, 2013).
During 2014 and 2013, 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 5% for the Canadian Secured Credit Facility; 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 27—Guarantees and Contingent Liabilities,
for additional information).
The available capital comprises the equity attributable to BDC’s shareholder but excludes accumulated other comprehensive income
on cash flow hedges.
BDC capital status is further adjusted by management to deduct any net defined benefit asset in order to minimize the volatility resulting
from immediate recognition of actuarial gains and losses. In addition, the capital level is also managed to ensure that BDC can honour
its commitments as they become due (refer to Note 28—Commitments for additional information).
BDC AR14 | 92
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
23. CAPITAL MANAGEMENT (continued)
The following table presents BDC’s capital status as at March 31, 2014, and 2013. During fiscal 2014 and 2013, BDC complied with
its capital adequacy guidelines.
Asset-backed securities Canadian Secured Credit Facility
Funding Platform for Independent Lenders
Total asset-backed securities
Loans
Term loans
Quasi-equity
Total loans
Subordinate financing(1)
Venture capital(1)
Venture capital action plan
Loan guarantees(2)
Letters of credit(2)
Total
Available capital
Capital status, per Treasury Board guidelines
Net defined benefit asset
Capital reserved for commitments
Capital status after net defined benefit
asset deduction and capital reserved
for commitments
March 31, 2014
Minimum
capital required
Carrying
value
Capital
ratio
20 : 1
10 : 1
–
33,648
33,648
203,100
234,353
437,453
20 : 1
10 : 1
10,155
23,435
33,590
15,724,639
1,516,425
17,241,064
10 : 1
4:1
1,572,464
379,106
1,951,570
14,670,266
1,201,369
15,871,635
10 : 1
4:1
1,467,027
300,342
1,767,369
534,904
485,731
5,169
4:1
1:1
1:1
133,726
485,731
5,169
483,401
448,374
–
4:1
1:1
–
120,850
448,374
–
1,605
25,997
18,630,947
3:1
10 : 1
535
2,600
2,612,979
1,553
23,894
17,266,310
3:1
10 : 1
518
2,389
2,373,090
Carrying
value
Capital
ratio
–
336,477
336,477
March 31, 2013
Minimum
capital required
4,335,664
1,722,685
3,866,251
1,493,161
83,527
780,521
–
555,044
858,637
938,117
(1)Net of non-controlling interest of $41,773 for subordinate financing and $9,365 for venture capital ($74,439 and $8,334 as at March 31, 2013, respectively).
(2)As the carrying value for letters of credit and loan guarantees is nil, the value above represents the committed amount (refer to Note 27).
BDC AR14 | 93
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
24.
RISK MANAGEMENT
Governance
Risk is an inherent feature of the financial sector. BDC uses an enterprise risk management (ERM) framework to mitigate risks that
could interfere with its financial autonomy and commercial sustainability.
BDC’s overall risk governance structure, and the roles and responsibilities of committees and risk management functions, are described
in the Risk Management section of the annual report (page 39).
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. For discussion of the other major risk categories, refer
to page 43 of the annual report.
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 prospectus or 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 such that 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, investment-grade senior notes purchased by way of a prospectus must be rated AAA by two independent
rating agencies, while 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 asset-backed securities that were issued by way of private placements,
BDC uses an internal risk rating system to monitor credit risk.
As at March 31, 2014, and 2013, none of the notes were past due and none had suffered a deterioration in their credit ratings from
the ratings held at the time the initial investments were made. The maximum exposure to credit risk of ABS is limited to the carrying
value of the securities. Refer to Note 10—Asset-Backed Securities, for additional information on this portfolio.
BDC AR14 | 94
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
24. 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 and by the Credit and Risk Committee and the Venture Capital Investment Committee
of the Board of Directors, 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 for investments; and
>> a watch list 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 11—Loans, Note 12—Subordinate Financing
Investments, Note 13—Venture Capital Investments and Note 14—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, 2014, and March 31, 2013, 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, 2014
Replacement cost (after master netting agreements) – March 31, 2013
Number of counterparties
March 31, 2014
March 31, 2013
24,222
(340)
23,882
38,559
3
3
Counterparty ratings
A- to A+ BBB to BBB+
30,002
(7,915)
22,087
32,337
6
5
277
(277)
–
–
1
1
Total
54,501
(8,532)
45,969
70,896
10
9
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 AR14 | 95
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
24. 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 9—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 19—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, 2014,
the impact was 5% or $45 million on net income and equity (2% or $20 million as at March 31, 2013).
BDC AR14 | 96
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
24. 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
8,904
668,456
659,552
1.11
52,865
13,422,955
5.29
289,792
5.14
446,407
5.49
2,133,965
5.22
336,477
2.32
887,115
5.44
56,728
11.50
12,205
13.18
50,548
10.46
322,873
10.79
47,886
11.62
13,488,587
Liabilities and equity
Derivative liabilities
Short-term notes
Effective yield (%)
Long-term notes
Effective yield (%)
Other
Total equity
Total
1,014,414
496,955
2,456,838
309
14,056,623
0.79
13,569
1.11
708
5,876
98,538
1.06
197,623
1.22
1,271,478
52,865
336,477
475,949
108,350
(508,250) 17,147,933
(24,701)
573,889
318,315
318,315
5,169
184,118
1,091,901
5,169
184,118
(532,951) 19,287,222
6,893
14,056,623
335,091
2.18
106,033
750,854
336,900
4,390,049
– 19,541,319
14,070,501
99,246
203,499
335,091
336,900
4,390,049
4,832,982
13,488,587
12,403,675
(13,056,087)
(11,965,319)
397,709
261,149
2,253,339
2,483,324
936,387
686,628
(3,741,081)
(3,533,855)
(532,951)
(546,532)
(254,097)
(210,930)
Total derivative position
–
Total gap position March 31, 2014 13,488,587
Total gap position March 31, 2013 12,403,675
(534,991)
(13,591,078)
(12,781,645)
56,746
454,455
468,847
79,994
2,333,333
2,621,701
292,601
1,228,988
979,229
105,650
(3,635,431)
(3,356,205)
–
(532,951)
(546,532)
–
(254,097)
(210,930)
–
Total gap position
before derivatives
March 31, 2014
March 31, 2013
(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 AR14 | 97
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
24. 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
Venture capital action plan
investments
Other
Total
8,073
8,073
1,176
1,636
93,131
460
93,131
3.63
2,788
2,788
10.50
176,781
176,781
103,992
Liabilities and equity
Derivative liabilities
Short-term notes
1,176
–
–
–
1,835
326
177,567
–
3,813
–
1,978
Effective yield (%)
Long-term notes
Effective yield (%)
Other
Total equity
17,483
7,003
0.97
0.96
24,486
2,317
–
339
–
28,638
(7,003)
(21,337)
175,250
175,281
–
–
254,097
210,930
7,067
64
362
–
175,250
175,281
–
–
–
–
254,097
210,930
339
–
Total gap position
before derivatives
March 31, 2014
March 31, 2013
103,992
75,565
Total derivative position
Total gap position March 31, 2014
Total gap position March 31, 2013
–
103,992
75,565
1,835
326
282,735
–
17,483
7,003
(659)
(575)
–
–
(17,483)
(18,004)
(23,129)
(23,788)
(40,254)
5,354
5,354
–
10,708
(6,775)
(24)
(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
13,488,587 (13,591,078)
Total gap position for foreign
currency transactions
103,992
(23,788)
Total gap position March 31, 2014 13,592,579 (13,614,866)
Total gap position March 31, 2013 12,479,240 (12,821,899)
BDC AR14 | 98
Total
454,455
2,333,333
1,228,988
(3,635,431)
(532,951)
(254,097)
5,354
459,809
468,847
(6,775)
2,326,558
2,621,677
64
1,229,052
979,591
175,250
(3,460,181)
(3,180,924)
–
(532,951)
(546,532)
254,097
–
–
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
24. 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, investments and loans in foreign currencies so that
the residual exposure to foreign exchange risk is not significant. Refer to Note 9—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 AR14 | 99
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
24. RISK MANAGEMENT (continued)
Liquidity risk (continued)
The following table presents contractual maturities of financial liabilities and commitments and is based on notional amounts, which
may differ from carrying values.
Accounts payable and accrued liabilites
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
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
Asset-backed securities
Letters of credit and loan guarantees
Total as at March 31, 2013
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
Within
1 year
1 to 5 years
Over
5 years
No fixed
maturity
Total
75,233
4,657
12,765,270
668,339
–
31,207
11,080
–
603,308
–
–
–
–
583,589
–
–
–
–
–
35,175
106,440
15,737
12,765,270
1,855,236
35,175
1,851,128
39,507
–
472,000
–
15,876,134
–
–
–
–
–
645,595
–
–
–
–
–
583,589
–
–
290,779
–
25,447
351,401
1,851,128
39,507
290,779
472,000
25,447
17,456,719
(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 AR14 | 100
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
24. 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, 2014,
the carrying amount of these collaterals was $6,050 ($17,350 at March 31, 2013).
Liquidity risk for asset-backed securities is managed on a transaction basis due to the large size of each investment included in this porfolio.
Consequently, asset-backed securities are excluded from the regular liquidity management practices and processes.
The following tables represent results of BDC’s liquidity risk management.
Liquidity level (in millions of Canadian dollars)
Minimum
Actual
Maximum
544
433
654
650
1,576
1,485
Limits
March 31, 2014
March 31, 2013
Min 75%
Max 50%
100%
0%
100%
0%
As at March 31, 2014
As at March 31, 2013
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 they remain valid or changes to
assumptions and limits are required in light of internal or external developments. This process ensures that a close link is maintained
between liquidity, market and credit risk.
BDC AR14 | 101
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
25.
ADDITIONAL INFORMATION ON THE CONSOLIDATED STATEMENT OF INCOME
Additional information on financial instruments
2014
Interest income(2)
Interest expense
Fee and other income
FVTPL(1) 2013
58,021
8,692
26,346
55,241
9,020
25,548
Other financial
instrument classification
2014
2013
962,144
124,121
15,048
912,550
115,282
13,290
2014
Total
2013
1,020,165
132,813
41,394
967,791
124,302
38,838
(1)Fair value through profit or loss
(2)Interest income includes $33,996 for impaired loans in 2014 ($33,040 in 2013).
2014
FVTPL(1)
Held-for- Designated Available- Cash flow Loans and
trading as 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
–
–
–
–
(24,885)
–
–
1,236
–
–
(8,031)
–
3,201
–
–
–
–
3,201
–
14,584
–
–
–
–
14,584
18,826
11,726
–
–
–
–
–
–
(1,043)
(16,174)
FVTPL(1)
Held-for- Designated Available- Cash flow Loans and
trading as FVTPL for-sale hedges Receivables
Other
financial
liabilities
Total
(9,267)
(19,530)
(28,797)
(24,885)
Other
financial
liabilities
(339)
897
(1)Fair value through profit or loss
2013
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
(1)Fair value through profit or loss
BDC AR14 | 102
–
(46,685)
–
–
–
–
(46,685)
2,743
–
–
1,488
–
(91)
4,140
–
41,940
–
–
–
–
41,940
–
2,056
–
–
–
–
2,056
2,762
5,505
(4,822)
(7,511)
–
–
(355)
1,133
–
–
–
(91)
(2,415)
(964)
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
25. 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
Derecognition of intangible assets included in other expenses
Salaries and benefits
Salaries and other benefits
Defined benefit plan expense (Note 20)
2014
2013
(41)
7,230
4,825
(159)
6,516
4,178
–
8,284
238,549
55,128
293,677
233,793
50,180
283,973
26.
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.
>> Subordinate Financing provides 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.
>> 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 23—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 AR14 | 103
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
26. SEGMENTED INFORMATION (continued)
The following tables present financial information regarding the results of each reportable segment.
Financing
Subordinate
Financing
Venture
Capital
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
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)
Impairment reversals (losses) on loans
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 AR14 | 104
March 31, 2014
Venture
Capital
Consulting Securitization Action Plan
(1,043)
495,096
–
336,477
5,169
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
26. SEGMENTED INFORMATION (continued)
March 31, 2013
Venture
Capital
Securitization Action Plan
Financing
Subordinate
Financing
Venture
Capital
Consulting
967,791
124,302
843,489
(46,685)
24,042
38,838
895,860
112,109
783,751
–
–
12,965
54,948
7,912
47,036
(12,114)
–
19,746
–
–
–
(34,571)
–
5,802
–
–
–
–
24,042
–
16,983
4,281
12,702
–
–
325
–
–
–
–
–
–
4,140
863,824
(19,076)
1,488
798,204
(19,076)
–
54,668
–
2,743
(26,026)
–
–
24,042
–
(91)
12,936
–
–
–
–
41,940
–
2,937
38,948
–
55
–
2,056
–
–
2,056
–
–
–
1,233
–
(3,648)
–
–
–
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)
Impairment reversals (losses) on loans
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)
886,329
283,973
38,050
106,151
428,174
458,155
780,361
228,306
33,884
85,047
347,237
433,124
57,605
19,984
900
2,036
22,920
34,685
11,330
13,680
1,814
4,395
19,889
(8,559)
24,042
20,718
1,363
14,411
36,492
(12,450)
12,991
1,285
89
262
1,636
11,355
–
–
–
–
–
–
Net income (loss) attributable to:
BDC’s shareholder
Non-controlling interests
Net income (loss)
454,661
3,494
458,155
433,124
–
433,124
28,820
5,865
34,685
(6,188)
(2,371)
(8,559)
(12,450)
–
(12,450)
11,355
–
11,355
–
–
–
17,323,636
15,871,635
557,840
456,708
–
437,453
–
Business segment portfolio as at March 31
(2,415)
BDC AR14 | 105
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
27.
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 totaled $27.6 million as at March 31, 2014 ($25.4 million at March 31, 2013) and
the existing terms expire within 39 months (within 20 months as at March 31, 2013). 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, 2014, and 2013 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, 2014, and 2013.
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. Therefore, no provision has been recorded in respect of litigation for the reporting periods.
BDC AR14 | 106
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
28.
COMMITMENTS
Loans and investments
Loans
Undisbursed amounts of authorized loans were $1,896,622 at March 31, 2014 ($248,262 fixed rate; $1,648,360 floating rate) and are
expected to be disbursed within the next 12 months. The weighted-average effective interest rate was 4.78% on loan commitments
(5.01% at March 31, 2013). The following tables present undisbursed amounts of authorized loans by location and industry.
Commitments, by geographic distribution
March 31, 2014
March 31, 2013
Newfoundland and Labrador
Prince Edward Island
Nova Scotia
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Yukon
Northwest Territories and Nunavut
Total
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
73,891
636
70,179
21,059
570,122
478,959
37,610
83,533
361,516
143,813
8,592
1,218
1,851,128
Commitments, by industry sector
March 31, 2014
March 31, 2013
404,133
263,457
259,707
247,274
228,533
130,645
121,206
241,667
1,896,622
420,234
253,436
262,318
180,845
209,473
207,782
133,080
183,960
1,851,128
Manufacturing
Tourism
Wholesale and retail trade
Construction
Service industries
Commercial properties
Transportation and storage
Other
Total
Subordinate financing
Undisbursed amounts of authorized subordinate financing investments were $53,721 at March 31, 2014 ($40,492 fixed rate;
$13,229 floating rate) and are expected to be disbursed within the next 12 months. The weighted-average effective interest rate
was 8.83% on subordinate financing commitments (10.30% at March 31, 2013), 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
March 31, 2014
March 31, 2013
–
3,554
1,750
13,600
24,442
625
6,100
3,650
53,721
500
–
1,000
9,595
15,459
–
8,703
4,250
39,507
BDC AR14 | 107
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
28. COMMITMENTS (continued)
Loans and investments
(continued)
Subordinate financing (continued)
Commitments, by industry sector
Manufacturing
Business services
Wholesale and retail trade
Mining, oil and gas extraction
Construction
Tourism
Information industries
Transportation and storage
Other
Total
March 31, 2014
March 31, 2013
22,408
10,549
11,859
2,500
1,100
800
695
300
3,510
53,721
22,035
7,733
3,986
3,703
250
100
1,400
300
–
39,507
Venture capital investments
The undisbursed amounts of authorized venture capital investments were related to the following industry sectors.
Commitments, by industry sector
Information technology
Biotechnology and pharmacology
Electronics
Industrial
Energy
Medical and health
Communications
External funds
Total
March 31, 2014
March 31, 2013
9,238
7,112
639
583
320
–
–
17,892
4,175
12,728
2,916
300
381
2,674
308
23,482
309,367
327,259
267,297
290,779
Venture capital action plan investments
The undisbursed amounts of authorized venture capital action plan investments were $204,298 at March 31, 2014 (nil at March 31, 2013).
Asset-backed securities
The undisbursed amounts of authorized asset-backed securities were $196,000 at March 31, 2014 ($472,000 at March 31, 2013).
Intangible assets
As at March 31, 2014, there were no significant contractual commitments to acquire systems and software ($20,203 as at March 31, 2013).
BDC AR14 | 108
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
28. COMMITMENTS (continued)
Leases
BDC has 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, 2014
March 31, 2013
27,636
95,255
23,145
146,036
27,013
96,260
39,596
162,869
Within 1 year
1 to 5 years
After 5 years
Total
During the year, lease payments recognized as an expense amounted to $25.8 million ($24.8 million in 2013). This amount consists
of minimum lease payments. No significant sublease payments or contingent rent payments were made or received.
29.
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 20—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 20. 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 19—Borrowings, for additional information on short-term and long-term notes.
Short-term notes
2014
2013
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
12,714,261
1,337,413
(1,107)
–
–
14,050,567
11,201,950
1,510,785
1,526
–
–
12,714,261
Long-term notes
2014
2013
506,018
–
384
192,435
(424,291)
274,546
1,364,208
–
(218)
200,929
(1,058,901)
506,018
2014
13,220,279
1,337,413
(723)
192,435
(424,291)
14,325,113
Total
2013
12,566,158
1,510,785
1,308
200,929
(1,058,901)
13,220,279
During the year, BDC recorded $129 million in interest expense related to these borrowings ($120 million in 2013). No short-term
and long-term notes with the Minister of Finance were repaid prior to maturity in fiscal 2014 (certain ones were repaid in 2013).
As a result, there was no realized gain or loss in fiscal 2014 ($0.1 million net realized loss in 2013).
BDC AR14 | 109
Notes to the Consolidated Financial Statements
For the year ended March 31, 2014
(in thousands of Canadian dollars)
29. 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
2014
2013
4,539
1,058
924
6,521
4,014
1,073
1,040
6,127
A loan in the amount of $500.0 thousand in favour of Farmer’s Edge Precision Consulting Inc. was approved by the BDC Board of
Directors. A member of the BDC Board of Directors acts as a director on the board of Farmer’s Edge Precision Consulting Inc. and
owns a small interest in the company. Said member of the BDC Board of Directors disclosed his interest to the board, was not present
when the loan was discussed and did not vote on the resolution of the Board of Directors to approve the loan.
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
arms-length transactions.
30.
Comparative figures
In fiscal 2014, BDC began classifying all of its loans and subordinate financing investments outstanding by maturity date. Prior to fiscal
2014, floating-rate loans and subordinate financing investments were classified based on their maturity date, and fixed-rate loans and
subordinate financing investments were classified based on the earlier of their repricing or maturity date.
This change in classification only affected the presentation included in Note 11—Loans and Note 12—Subordinate Financing Investments
and did not have an impact on the Consolidated Financial Statements.
BDC AR14 | 110
Corporate Governance
Committees
115
Board and Board Committee Meetings and Attendance
118
Board of Directors
119
BDC AR14 | 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, robust
corporate governance is critically
important.
WHAT IS ROBUST GOVERNANCE?
Robust governance begins with a clear mandate; BDC’s
mandate to promote entrepreneurship, with a special
focus on small and medium-sized enterprises, is precise
and well-understood. It is enabled by the presence of a
transparent structure that makes roles, decision-making
and accountibility clear. Finally, it is carried out by a team
of dedicated, hard working people whose expertise and
attention convert principles and procedures into decisions
and actions that build trust.
During the year, BDC welcomed Samuel L. Duboc as
chairperson of the board. Mr. Duboc has experience as an
entrepreneur and investor, and has deep knowledge of
venture capital. In addition, BDC worked with the Minister
to recommend potential board members who have the
profile and skills to maintain the diversity and talent required
to steward BDC. Marie-Alice Vuicic, a human resources
expert, and Edward Gordon, a financial advisor, joined its
Board of Directors, replacing Jean Martel, whose mandate
ended, and Thomas Spencer, who resigned.
Lastly, the board started its work to define criteria that
would help it select the best candidate for the position of
president and CEO of the Bank, as the term of the mandate
of Jean-René Halde is scheduled to end in June 2015.
BDC AR14 | 112
Corporate Governance
STATEMENT FROM
THE BOARD OF DIRECTORS
We set BDC’s strategic direction. We also hold BDC
accountable by overseeing its activities to ensure it achieves
its statutory mandate while respecting its statutory role,
all in accordance with the highest standards of corporate
governance.
Except for the president and CEO, we are all independent
of management. None, except the president, is a BDC
employee. We have first-hand experience in governance,
finance, business management, entrepreneurship, risk
management 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 inherent in
BDC’s role. BDC’s mandate is to support entrepreneurs—
an inherently risky activity. BDC must support its shareholder
by offering complementary services to stimulate economic
activity. In doing so, it must remain commercially viable.
Our principal guidelines are parliamentary statutes.
The Business Development Bank of Canada Act sets
out BDC’s purpose, powers and duties. The Financial
Administration Act, Part X, sets out the control and
accountability regime for Crown corporations.
Like other Crown corporations, BDC is subject to other
laws, such as the Federal Accountability Act, the Privacy Act,
the Access to Information Act, the Canadian Environmental
Assessment Act and the Official Languages Act, as well as
numerous regulations.
Every year, Parliament receives a summary of BDC’s annually
updated 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, jointly with an external audit
firm, also does a special examination of BDC at least once
every 10 years. This examination is a performance audit.
It 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. This process is currently
underway.
We look to Treasury Board of Canada Secretariat for
guidance and expertise on public sector governance
practices. BDC meets or exceeds all of the governance
standards that Treasury Board recommends.
We also look to private sector organizations for best
practices to emulate.
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;
>> ensure that BDC is identifying and managing its risks;
>> ensure the highest standards of corporate governance;
>> establish compensation policies;
>> review and approve management’s succession plan, a
task that includes approving appointments to the senior
management team and evaluating the performance of
the president and CEO;
>> review BDC’s internal controls and management
information systems;
>> oversee communications and public disclosure;
>> oversee BDC’s pension plans and establish its fund
policies and practices;
>> approve financing and investment activities beyond
management’s authority; and
>> review the complementarity of BDC’s market approach
and activities.
BDC AR14 | 113
Corporate Governance
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. 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.
All committee members are independent of management,
with one exception: the president and CEO is a member of
the Board Credit and Risk Committee and of the Venture
Capital Investment Committee, which authorize larger
transactions within certain limits. We 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.
The board code of conduct incorporates the same basic
principles as the BDC 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. We declare
possible conflicts of interest, if any.
We keep abreast of best practices and review the codes of
conduct regularly to improve BDC’s internal governance.
The employee code of conduct, ethics and values includes
the policy on personal trading for employees, the policy on
disclosure of wrongdoing in the workplace, the anti-fraud
directive, and the anti-money laundering and anti-terrorism
financing directive.
We work very closely with senior managers but also meet
regularly in camera, without their presence.
If a member of Parliament, senator or director exerts undue
pressure in making a referral to a BDC employee, the BDC
referral policy requires the employee to report this situation
to senior management, which in turn informs the Board of
Directors.
One of the board committees initially examines most of
the work that comes before us. Written terms of reference
codify each committee’s mandate. We regularly review and
revise the membership of these committees to ensure they
reflect the strengths of the entire board.
BDC AR14 | 114
The past year saw the arrival of Chairperson Duboc and
other new members. Committee memberships were
reassessed so that committees could benefit from their
varied expertise and experience.
Committees
The Audit Committee
CHAIRPERSON
Brian Hayward
number of meetings
5
THE BOARD CREDIT AND RISK COMMITTEE
Members
Eric Boyko
Michael Calyniuk
Sue Fawcett
Edward Gordon
CHAIRPERSON
Samuel L. Duboc
number of meetings
22
Members
Eric Boyko
Michael Calyniuk
Shahir Guindi
Jean-René Halde
Brian Hayward
This committee promotes an overall corporate culture of quality
financial reporting and ethical behaviour. Its main duties are to:
This committee’s main duties are to:
>> review and advise the board on financial statements before
BDC discloses them to the public;
>> review financial disclosures;
>> regularly review the enterprise risk management policy and
other policies concerning key risks, such as credit, market,
strategic, reputational, operational and other principal risks;
>> review the adequacy and effectiveness of internal control,
and, in particular, major accounting and financial reporting
systems;
>> review reports and indicators related to enterprise risk
management, portfolio risk management, capital adequacy
and treasury operations risks;
>> oversee BDC’s standards of integrity and conduct;
>> approve new business activities, except those related to
venture capital;
>> oversee the process for disclosing wrongdoing;
>> give advice and recommendations about the appointments
and terms of auditors and special examiners;
>> review the terms of engagement of auditors and special
examiners who report directly to the committee and are
accountable to the board;
>> review and advise the board on the audit of the annual
financial statements, the scope of the special examination
and the special examination report;
>> identify and manage BDC’s principal risks;
>> periodically review the business continuity plan;
>> approve loans and transactions that exceed the delegated
authorities of senior management; and
>> review policies and guidelines related to the delegation of
authority for all financial products, except venture capital
products.
>> consider the appointment and work of the chief audit
executive, who reports directly to the committee and
administratively to the president and CEO; and
>> review directors’ and officers’ expenses.
BDC AR14 | 115
Corporate Governance | Committees
THE GOVERNANCE AND
NOMINATING COMMITTEE
CHAIRPERSON
Samuel L. Duboc
number of meetings
6
Members
Brian Hayward
Prashant Pathak
Rick Perkins
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;
>> annually assess the board’s compliance with these policies;
>> regularly review the mandates, structures and
memberships of the board and its committees;
>> develop selection criteria for the president and CEO position;
>> 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; and
>> ensure that comprehensive director orientation and
continuous training programs are in place.
THE HUMAN RESOURCES
COMMITTEE
CHAIRPERSON
Rick Perkins
number of meetings
8
Members
Shahir Guindi
Prashant Pathak
Mary-Alice Vuicic
This committee fulfills its duties by:
>> assessing the “tone at the top” established by senior
management with respect to integrity and ethics;
>> overseeing the human resources strategy to ensure it is
aligned with the corporate plan;
>> reviewing—and, if appropriate, recommending 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;
>> assessing the CEO’s objectives and performance;
>> reviewing compensation for senior executives;
>> reviewing and approving the design of compensation
programs and material payments;
>> approving performance measures and metrics;
>> receiving and examining actuarial evaluation reports and
financial statements related to BDC pension plans, as well
as recommending funding contributions; and
>> ensuring there is a valid succession plan in place.
BDC AR14 | 116
Corporate Governance | Committees
THE PENSION FUNDS INVESTMENT
COMMITTEE
CHAIRPERSON
Rosemary Zigrossi
number of meetings
4
Members
Sue Fawcett
Edward Gordon
Rick Perkins
Alan Marquis
(representative
for retirees)
VENTURE CAPITAL INVESTMENT
COMMITTEE
CHAIRPERSON
Prashant Pathak
number of meetings
18
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; and
>> monitor the performance of these managers.
>> regularly review the venture capital investment policy, and
other policies and processes for venture capital activities
and related risks;
>> approve the business plan of the three venture capital
internal funds, as well as investment strategies and
guardrails;
>> review strategic initiatives aimed at improving the venture
capital ecosystem;
>> review and recommend capital allocations for the
internal funds;
>> review and recommend delegations of authority;
>> monitor portfolio performance; and
>> approve investments that exceed the delegated authorities
of senior management.
For the mandates of the board committees, please see
www.bdc.ca.
BDC AR14 | 117
Board and Board Committee Meetings and Attendance
Board
Directors
Attendance Total
Samuel L. Duboc(1)
3
3
Eric Boyko(2)
10
11
Michael Calyniuk
11
11
Sue Fawcett(3)
11
11
Edward Gordon(4)
4
4
Shahir Guindi(5)
10
11
Brian Hayward
10
11
Jean Martel(6)
7
7
Prashant Pathak
11
11
Rick Perkins
11
11
Thomas Spencer(7)
10
11
Mary-Alice Vuicic(8)
4
5
Rosemary Zigrossi
10
11
Jean-René Halde(2) (9)
11
11
Board Credit Governance
and Risk
and Nominating
Audit
Human
Resources
Pension Funds Venture Capital
Investment
Investment
Committee Meetings
Percentage Attendance Total Attendance Total Attendance Total Attendance Total Attendance Total Attendance Total Attendance Total Percentage
100%
91%
100%
100%
100%
91%
91%
100%
100%
100%
91%
80%
91%
100%
0
1
5
1
0
0
5
3
0
0
5
0
0
0
0
5
5
1
0
0
5
4
0
0
5
0
0
0
2
15
21
0
0
20
18
0
0
0
20
0
0
11
3
22
22
0
0
22
22
0
0
0
22
0
0
22
1
0
0
0
0
0
5
4
6
6
6
2
0
0
1
0
0
0
0
0
6
5
6
6
6
2
0
0
0
0
0
8
1
0
0
4
8
8
0
2
0
0
0
0
0
8
1
0
0
7
8
8
0
2
0
0
0
0
0
3
1
3
0
0
0
4
0
0
3
0
0
0
0
3
1
4
0
0
0
4
0
0
4
0
0
15
0
17
0
0
0
0
18
0
0
0
17
15
0
18
0
18
0
0
0
0
18
0
0
0
18
18
3
31
26
29
2
23
28
11
32
18
31
4
20
26
4
45
27
30
2
26
33
16
32
18
33
4
22
40
75%
69%
96%
97%
100%
88%
85%
69%
100%
100%
94%
100%
91%
65%
(1) Mr. Samuel L. Duboc was appointed chairperson of the board, effective January 2, 2014. He became chairperson of the Governance and Nominating Committee
on January 22, 2014, and a member of the Board Credit and Risk Committee on February 12, 2014. As chairperson of the board, Mr. Duboc may attend any
board committee meeting.
(2) Mr. Eric Boyko and Mr. Jean-René Halde are the only directors who are members of both the Venture Capital Investment Committee and the Board Credit
and Risk Committee, resulting in a higher number of committee meetings to attend per year.
(3) Ms. Sue Fawcett was appointed to the Audit Committee and ceased to be a member of the Pension Funds Investment Committee on November 6, 2013.
On February 12, 2014, she ceased to be a member of the Human Resources Committee and was reappointed to the Pension Funds Investment Committee.
(4) Mr. Edward Gordon was appointed to the Human Resources Committee and to the Pension Funds Investment Committee, effective December 11, 2013.
On February 12, 2014, he was appointed as a member of the Audit Committee and ceased to be a member of the Human Resources Committee.
(5) Mr. Shahir Guindi ceased to be a member of the Pension Funds Investment Committee and was appointed to the Human Resources Committee, effective
February 12, 2014.
(6) Mr. Jean Martel retired from the BDC Board of Directors on December 10, 2013.
(7) Mr. Thomas Spencer was appointed interim chairperson of the Governance and Nominating Committee, effective December 10, 2013, and ceased to be interim
chairperson on January 22, 2014. He resigned from the board effective March 31, 2014.
(8) Ms. Mary-Alice Vuicic was appointed to the Human Resources Committee and to the Governance and Nominating Committee, effective November 6, 2013.
(9) As president and CEO, Mr. Halde may attend all committee meetings (where he is not formally a member). Note that he did not participate in five of the
Board Credit and Risk Committee meetings due to his attendance at the Human Resources Committee meetings held concurrently.
BDC AR14 | 118
Board of Directors
(March 31, 2014)
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 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
chair of EdgeStone Capital Corp., and sits on the board
of 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 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 chairman of the Conference Board
of Canada and director 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 Venture Capital Investment Committee.
Chairperson of the Board Credit and Risk Committee and
chairperson of the Governance and Nominating Committee.
As chairperson of the board, he is an ex officio member of all
committees.
BDC AR14 | 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.
He is a strategic advisor or director of a number of
companies.
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 40.
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.
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).
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.
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.
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.
Member of the Audit Committee, member of the Board Credit
and Risk Committee, and member of the Venture Capital
Investment Committee.
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 AR14 | 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 Venture Capital 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 AR14 | 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 AR14 | 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
Prashant Pathak
President and
Chief Executive Officer
Ekagrata Inc.
Toronto, Ontario
Managing Partner
ReichmannHauer
Capital Partners
Toronto, Ontario
Rick Perkins
Corporate Director
Halifax, Nova Scotia
Prashant Pathak joined the BDC Board of Directors in 2008.
Rick Perkins 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.
Mr. Perkins has over two decades of experience in strategic
marketing, communications, information technology and
public affairs positions in both the public and private sectors.
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.
Most recently, he spent a decade in senior executive roles
with the Nova Scotia Liquor Corporation, leading business
development and marketing.
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.
Before joining McKinsey, he held several management and
operational positions in the energy services industry at
Halliburton and Schlumberger.
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.
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.
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. Perkins was also a co-founder of Genoa Management Inc.,
a Toronto-based capital markets counsel firm specializing in
strategic investor relations for small and mid-cap companies.
Before that, he worked with Newcourt Credit Group Inc.,
the Canadian Imperial Bank of Commerce (CIBC), and
the Government of Canada’s Department of Finance and
Department of Foreign Affairs and International Trade.
At CIBC, he was a member of the business team that created
and introduced the Job Creation Loan Fund, the first initiative
in Canada linking small business credit with job creation.
Mr. Perkins sits on the board of the Nova Scotia Hearing
and Speech Foundation. He is also a member of the Council
for Chief Marketing Executives of the Conference Board of
Canada.
He studied political science and economics at the University
of Toronto. He holds an MBA from the Sobey School of
Business, Saint Mary’s University, and has been inducted into
the latter’s Hall of Academic Excellence.
Chairperson of the Human Resources Committee, member
of the Governance and Nominating Committee, and member
of the Pension Funds Investment Committee.
Chairperson of the Venture Capital Investment Committee,
member of the Governance and Nominating Committee, and
member of the Human Resources Committee.
BDC AR14 | 123
Corporate Governance | Board of Directors
Mary-Alice Vuicic
Chief Administrative Officer
and Executive Vice President
Shoppers Drug Mart
Toronto (Ontario)
Mary-Alice Vuicic joined the BDC Board of Directors in
October 2013.
Ms. Vuicic has more than 20 years of experience working
with large national and international organizations, and
family-owned entrepreneurial businesses.
She is executive vice president, human resources and
labour relations, at Shoppers Drug Mart.
Before joining Shoppers Drug Mart in 2007 as senior
vice president, human resources and organizational
development, Ms. Vuicic was vice president, people, at
Walmart Canada, leading the human resources function
in the organization.
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.
Member of the Human Resources Committee and member
of the Governance and Nominating Committee.
Rosemary Zigrossi
Director
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 Venture Capital Investment Committee.
BDC AR14 | 124
Senior Management Team
Jean-René Halde
President and Chief
Executive Officer
Paul Buron
Executive Vice President
and Chief Financial Officer
Jean-René Halde joined BDC as president and CEO in 2005
and was reappointed in 2010 for a term of five years.
Paul Buron was appointed executive vice president and
chief financial officer in 2006.
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 responsible for finance, risk management, treasury and
securitization, as well as corporate strategy and planning.
He currently serves as chairman of the Conference Board
of Canada and director 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.
In the fall of 2011, Mr. Buron was also appointed interim
executive vice president of 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.
BDC AR14 | 125
Additional Information | Senior Management Team
Pierre Dubreuil
Executive Vice President,
Financing and Consulting
CHANTAL BELZILE
Senior Vice President and
Chief Information Officer
Pierre Dubreuil was appointed executive vice president
of Financing and Consulting in 2012.
Chantal Belzile was appointed senior vice president and
chief information officer in 2012.
In this role, he is responsible for financing, consulting and
operations support across the bank.
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.
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.
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 of 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.
BDC AR14 | 126
Additional Information | Senior Management Team
Michel Bergeron
Senior Vice President,
Marketing and Public Affairs
Mary Karamanos
Senior Vice President,
Human Resources
Michel Bergeron was appointed senior vice president of
Marketing and Public Affairs in 2012.
Mary Karamanos was appointed senior vice president of
Human Resources in 2004.
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.
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. Bergeron has over 20 years of private, public and
parapublic experience, dealing with financial sector issues,
strategic planning, communication, branding and international
trade matters.
Over a 25-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.
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.
Ms. Karamanos joined BDC in October 2002 as vice president
of 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.
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 Finance Montreal, of Futurpreneur
(formerly the CYBF) and of IC2 Technologies. He is also
chairman of The Montreal Group, an international association
of development banks.
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.
Mr. Bergeron holds Law degrees from Laval University and
Dalhousie University, and a Master of International Relations
degree from Laval University.
BDC AR14 | 127
Additional Information | Senior Management Team
Jérôme Nycz
Executive Vice President,
Subordinate Financing
and Venture Capital
Louise Paradis
Senior Vice President,
Legal Affairs and
Corporate Secretary
Jérôme Nycz was appointed executive vice president
of Subordinate Financing and Venture Capital in July 2013.
Louise Paradis was appointed senior vice president of Legal
Affairs and corporate secretary in 2006.
Mr. Nycz has over 20 years of experience in the financial
and public sectors.
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.
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 reviews of subordinate financing
and venture capital (taking on the additional role of interim
executive vice president of 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 of
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 AR14 | 128
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.
Five-Year Operational
and Financial Summary
for the years ended March 31 (in thousands of Canadian dollars)
Operational Statistics(1)
2014
2013
2012
2011
2010
19,723,747
29,929
18,341,604
28,056
16,956,675
27,582
15,913,193
27,989
14,783,510
28,331
4,102,065
10,976
4,110,703
9,195
3,623,075
6,926
3,244,713
9,795
4,343,068
8,014
BDC Subordinate Financing
(includes both BDC and Caisse portion)
Committed to clients(2)
as at March 31
Amount
Number of clients
636,277
427
583,816
400
498,670
385
414,394
352
380,680
348
Acceptances
Amount
Number
186,606
126
189,757
113
163,775
137
106,451
97
97,705
68
BDC Venture Capital(3)
Committed to clients(2)
as at March 31
Amount
Number of clients
861,881
183
821,882
149
735,454
103
726,431
104
734,932
118
Authorizations
Amount
Number
154,754
94
145,267
87
126,751
45
99,377
45
84,591
43
BDC Financing
Committed to clients(2)
as at March 31
Amount
Number of clients
Acceptances
Amount
Number
BDC Consulting
Number of mandates
2,505
2,180
2,236
2,300
2,504
BDC Securitization
Amount committed to clients(2)
as at March 31
530,000
907,048
1,110,024
3,193,441
3,575,327
Amount authorized (cancelled)
(175,000)(4)
265,000
290,000
150,000
3,653,740
Venture Capital Action Plan
Commited to clients(2)
as at March 31
Amount
Number of clients
210,000
5
–
–
–
–
–
–
–
–
Authorizations
Amount
Number
210,000
5
–
–
–
–
–
–
–
–
21,961,905
20,654,350
19,300,823
20,247,459
19,474,449
BDC
Total committed to clients
(1) Data prior to fiscal 2011 are reported using Canadian GAAP.
(2) Amount committed to clients represents portfolio outstanding and amount undisbursed, at cost.
(3) For BDC Venture Capital commitment to clients, please see Note 13—Venture Capital Investments and Note 28—Commitments to the Consolidated Financial Statements.
(4) Amount cancelled includes $25,000 of authorizations and $200,000 of cancellations.
BDC AR14 | 129
Additional Information | Five-Year Operational and Financial Summary
(in thousands of Canadian dollars)
Financial Information
2014
2013(1)
2012
2011
IFRS
2010
Canadian GAAP
Net Income and Comprehensive Income –
by Business Segments(2)
for the years ended March 31
Financing
Subordinate financing
Venture capital
Consulting
Securitization
Venture capital action plan
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
–
76,232
10,214
(74,137)
(4,645)
(1,605)
–
Net income
432,612
458,155
533,447
366,521
6,059
Net income attributable to:
BDC's shareholder
Non-controlling interests
425,968
6,644
454,661
3,494
520,335
13,112
360,292
6,229
6,059
n/a
Net income
432,612
458,155
533,447
366,521
6,059
49,633
(24,906)
(152,486)
58,317
5,710
Total comprehensive income
482,245
433,249
380,961
424,838
11,769
Total comprehensive income attributable to:
BDC's shareholder
Non-controlling interests
475,601
6,644
429,755
3,494
367,849
13,112
418,609
6,229
11,769
n/a
Total comprehensive income
482,245
433,249
380,961
424,838
11,769
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
3,277,291
12,525,521
193,203
362,270
–
17,679,927
14,036,911
Total equity attributable to:
BDC's shareholder
Non-controlling interests
4,338,910
51,139
3,872,902
82,773
3,509,980
115,281
3,613,202
146,645
3,643,016
n/a
Total equity
4,390,049
3,955,675
3,625,261
3,759,847
3,643,016
Other comprehensive income (loss)(3)
Financial Position Information
as at March 31
Asset-backed securities(4)
Loans, net of allowance for credit losses
Subordinate financing investments
Venture capital investments
Venture capital action plan investments
Total assets
Total liabilities
(1) Restated; refer to Note 4—Application of New and Amended International Financial Reporting Standards.
(2)For detailed information on fiscal 2014 and fiscal 2013 segmented information under IFRS, please also refer to Note 26—Segmented information to the
Consolidated Financial Statements.
(3) For detailed information on fiscal 2014 and fiscal 2013 Other comprehensive income, please refer to the Consolidated Statement of Comprehensive Income (page 54).
(4) The fiscal 2010 amount has been restated to include accrued interest.
BDC AR14 | 130
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.)
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.
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.
DIRECT INVESTMENTS
Investments BDC makes directly in investee companies.
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.
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.
IMPAIRMENT LOSSES ON LOANS
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.
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.
BDC AR14 | 131
Additional Information | Glossary
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 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.
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.
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.
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.
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.
SUBORDINATE FiNANCING
A hybrid instrument that brings together some features of
both debt financing and equity financing.
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.
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.
BDC AR14 | 132
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