SGF tables its 2002 Annual Report at the National Assembly
Montréal, June 12, 2003 - The Annual Report of the Société générale de financement du Québec (SGF) for the fiscal year ending December 31, 2002 was tabled today at the Québec National Assembly by the Minister of Economic and Regional Development, Mr. Michel Audet.
SGF ended the year 2002 with a net loss of $172 million, which means a negative performance of 7.4% for the year. On the other hand, for the period of 1998-2002, the average performance of the Société was 1.1%. This performance was mainly due to the depreciation in value of some venture capital investments and to asset devaluations, as well as to poor raw material market conditions and the decline of the stock market, especially in the biotechnology and information technology sectors.
Depreciation in value totaling $324 million in 2002 amounted to a 12% decrease of the net assets of SGF. Suspension of production at Métallurgie Magnola, due to the drop in the price of magnesium, caused a 70% devaluation of the net assets of that company, which in turn means a value loss of $172 million for SGF. Also, there were provisions for loss on investments, namely in Karbomont, Sols plastiques and Mines Jeffrey, as well as $63 million in losses resulting from variation in the market value of its venture capital investments.
On the other hand, sale of certain interests in 2002 generated gains of $219 million. Almost all these gains result from the sale of a first block of Domtar shares held by SGF, as well as from the disposal of its 20% interest in Aluminerie Alouette.
In 2002, sales amounted to $970 million, a 10% increase compared to the preceding year. Operating loss before devaluation and interest sales rose to $67 million, versus $34 million in 2001. During the fiscal year, nearly $700 million were spent by SGF in investments. The assets of SGF total $3.2 on and the owner’s equity for the Société amounts to $2.3 billion. SGF maintains a sound financial situation with a debt-equity ratio of 18%.
The book return of SGF is calculated on the basis of its book value, that is on a pro rata basis of its interest in companies (approximately 90% of its portfolio), and according to the market value of its venture capital investments. This accounting method is typical of large industrial financial holding companies, but is different from the one used by investment funds that adjust solely to market value.
From 1998 to 2002, SGF and its private sector partners invested $10.6 billion in the Québec economy through 221 projects. The capital stock share of SGF totaled $2.3 billion. However, some 60% of the investments were carried out with partners from outside the province of Québec.
SGF and its partners committed themselves to investing $3.08 billion in 2002 in 43 projects. The Société has agreed to inject $636 million in equity into these projects during the next few years.
The mission of SGF is to develop the Québec economy, and it has chosen to concentrate during the past few years on integrated projects that require major investments spread over several years. At the end of 2002, $637 million was invested in equity in projects that were still at the development stage and non‑productive. Investments such as Interquisa Canada, Kruger Wayagamack, Papiers Gaspésia or DSM Biologics are at the construction stage and therefore do not yet generate any profits for SGF or for its private sector partners.
In 2002, SGF has carried out investments in practically all lines of business. More specifically, the rebirth of the Québec petrochemical industry in the East of Montréal should be highlighted. The successive investments by the Spanish company CEPSA, Coastal from Texas and the British-Dutch company Shell have created a significant petrochemical industry in Montréal.
In the transportation industry, the agreement concluded with GM Canada is based on the recognized capacity in Québec to produce light aluminum and magnesium parts as well as parts made of other state‑of‑the‑art light metals. Whether in the forestry sector with major partners such as Tembec or Kruger, in the health sector with DSM from Netherlands, or in high tech industries with Circuit Foil from Luxemburg, SGF’s investments will lead to further developments in the Québec economy.
Last February, the Québec government approved a new five-year plan for the Société for the period of 2002 to 2006. The main objective was to support Québec’s economic development by investing around $12.7 billion with private partners in innovative and promising projects. Under this plan, the capital invested by SGF in these projects amounted to $3 billion, including approximately $750 million in equity in 2003. The budget of the preceding government provided for a share capital subscription of $400 million in 2003 from the shareholder of the Société générale de financement du Québec.
This new plan also confirmed the regional orientation implemented by SGF in early 2002. The ACCORD project (Action Concertée de Coopération Régionale de Développement) involves SGF, the Québec government and 14 Québec regions. Its purpose is to support regional business sectors in established industrial fields.
Mr. Henri Roy, Chairman of the Board and Chief Executive Officer, stated that in a more difficult economic situation, where the risk of depreciation in value of our investments is ever‑, the Québec government, which is the shareholder of SGF, requires that the Société review its five-year plan. He added that while honouring its past commitments, SGF intends to reassess its investment portfolio and review its modes of participation. Mr. Roy concluded that after having witnessed very high growth of its investments over the past few years, SGF is now starting a consolidation phase, and it will consider assessing the avenues most likely to efficiently sustain the growth of the Québec economy, in partnership with the private sector.
The mission of SGF is to implement economic development projects jointly with its partners under normal conditions of profitability. SGF has 70 international partners and its consolidated assets total $3.2 billion (sgfqc.com).
Director, Communications and Public Relations
Société générale de financement du Québec