TWST:What is Big Rock Brewery Income Trust?
Mr. Duffin: Big Rock Brewery was founded in 1985 by Ed McNally. He couldn't find a good local beer at the time and he was a barley farmer and a lawyer. He knew we had some of the best barley in the world in Alberta, two-row barley, and he found a brewmaster in Germany and started up basically one of the first craft breweries in North America in 1985. Since then, we went public, and in January 2003, we changed from a stock company to an income trust. We've continued to produce our craft beers and kept our focus on providing all natural varieties of craft beers to the public and our market share continues to grow.
TWST: Give us a broader look at the beer industry in your markets. What is the competitive landscape?
Mr. Duffin: Basically in Canada, and I think in the States too, the beer business is dominated by the big guys. In Canada, that's Molson (NYSE:TAP) and Labatt and they have probably 90% of the beer market; the other 10% is shared among the craft brewers, the smaller brewers and some of the imports that are independent. As with every business, the beer business is very competitive. We think that the consumer is becoming more discriminating and there is again a renaissance in craft breweries. They started around the mid-1980s and craft breweries started gaining momentum because people wanted something different rather than just what we call commercial beer, which is fairly bland, and it's hard to tell the difference from brand to brand. I think that consumers do appreciate the different flavors in the beer and the fact that it's all natural. There are no preservatives and no chemicals. There are only four ingredients in our beer: malted barley, yeast, hops and water. Big Rock does not pasteurize our beers. We micro-filter them, which takes out any yeast or spoilage bacteria. So basically you don't destroy the flavor by pasteurization, and I think that's a benefit that the craft brewers bring to the consumer.
TWST: What has been the performance record over the past two or three years as far as yield, growth and total return to investors?
Mr. Duffin: When we became an income trust in January 2003, we started
distribution out at $0.04 per month per unit. We are now up to $0.11 per month per unit. That's probably about a 9%-10% return based now on the unit price, which has come off a little since the income trust legislation changes. So it's a pretty good return for the unit holder. We've increased that return over the years fairly substantially. There is relatively stable cash flow. So we make a really good model for an income trust.
TWST: What are the key metrics that investors should focus on as they track your performance?
Mr. Duffin: Obviously, distributable cash for income trusts is important. Our cash flow from operations has always been very good and that's a pretty important metric. If some of the income trusts do change back into the stock-based companies, I guess it will change to dividends rather than distributions.
As I say, we have no debt and our brewery was a greenfield brewery built in 1997 and we can expand it relatively cheaply just by adding fermenting tanks. We don't have a lot of capital requirements in order to even double our production here.