2004 Crown Investments Corporation of Saskatchewan Annual Report

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MANAGEMENT’S DISCUSSION AND ANALYSISManaging Capital Resources in the Crown SectorA key priority for CIC is to manage the capital resources within the consolidated group of entities to optimizevalue in the Crown sector and also provide a return to the GRF. CIC manages this priority through its capitalallocation framework that is developed from two integrated policies. The policies are based on the principle thatthere are three potential uses for cash profits:Reinvestment in our businesses to sustain infrastructure and operations, to grow and diversify revenues,and support public policy initiatives and economic development;Dividends to the holding company to be used in accordance with the CIC Dividend Policy; andDebt reduction to support the financial flexibility of CIC’s businesses.The first policy, the Subsidiary Dividend Policy, focuses on managing capital resources to support the investmentneeds and business viability of the various business segments. The second policy, CIC Dividend Policy, ensuresthat the investments into businesses provide a return to the government of Saskatchewan to support programspaid for from the GRF.Subsidiary Dividend PolicyEach commercial Crown’s ability to pay dividends isdetermined after the CIC Board allocates a portionof cash profits to reinvestment and debt reduction.The CIC Board has approved debt and capitalstructure targets for CIC’s subsidiaries based onindustry benchmarks. Therefore, for subsidiariesthat pay dividends, the amount paid is determinedin relation to a business’ target capital structurecompared to actual capital structure.ReinvestmentCrown CorporationCash ProfitsDividends to CICDebt Reduction ifnecessaryCIC Dividend PolicyIn a similar way, cash paid by subsidiary Crowncorporations is used by CIC for reinvestment,debt reduction, and dividends to the GRF. CIC,as a holding company, does not have any debt.Therefore, cash is used to pay dividends to theGRF. As well, CIC uses funds to support publicpolicy initiatives, such as providing Saskatchewanhouseholds with the lowest cost utility bundle.New InvestmentsCICCash ProfitsDividend to GRFand Public PolicyExpendituresDebt ReductionCIC’s ability to pay regular dividends to the GRF mainly depends on the level of Crown dividends to CIC lessCIC’s operating costs. These costs include support to non-dividend paying Crown corporations and publicpolicy expenditures. Crown dividend levels depend on their net earnings and capital structure. In addition tocash constraints, CIC’s ability to declare dividends to the GRF depends on its retained earnings (a company’sretained earnings are the aggregate amount of undistributed income since its inception). CIC’s earnings and,hence, dividend capacity outlook are sensitive to adverse developments in its operating expenditures and Crownearnings forecasts.C I C40
MANAGEMENT’S DISCUSSION AND ANALYSISCapital Structures of Commercial Crown CorporationsThe following table summarizes the long-term target capital structure of CIC’s commercial Crown corporationsand the dividend payout rate in relation to actual capital structure.CapitalStructureMeasureCapitalStructureTarget2004 ActualCapitalStructureDividendPayoutRateSaskPowerSaskTel (1)SaskEnergySGI (2)Investment Saskatchewan (3)Debt RatioDebt RatioDebt RatioNet Risk RatioSelf-supportingDebt Level60%45%65%2.0$15 Million58%36%68%2.7$15 Million90%90%65%65%90%1. SaskTel also paid a special dividend of $3 million to CIC in support of Saskatchewan Centennial celebrations.2. An indicator of financial flexibility used in the insurance industry.3. Investment Saskatchewan also paid a $25 million special dividend in support of CAIS funding by the GRF; this dividend was funded froma significant loan repayment in the year.LiquidityCIC and its subsidiary Crown corporations borrowfrom the GRF, which in turn, borrows in capitalmarkets. With strong credit ratings, the GRF hasample access to capital for anticipated borrowingrequirements.Province of Saskatchewan Credit RatingsMoody’s Investor ServiceAa3Standard & Poor’sAA-Dominion Bond Rating Service AOver the past three years, the Province has had itscredit rating upgraded. CIC has been a contributingfactor to the Province’s improved financial health.“Over the past several years, the Province has markedly reduced its stock of debt and relateddebt service costs. Much of the progress stems from CIC, the provincial Crown holding company,improving its performance by rationalizing and restructuring operations and investments.”Moody’s Investors Service, August 2002As CIC has strengthened its financial position, higher dividends to the GRF have been possible. CIC has been ableto increase its regular GRF dividend over time from $50 million in 1997 to $188 million in 2004 (2004 dividendadjusted for public policy expenditures). In addition, cash from asset sales has enabled special dividends of$180.0 million and equity repayments of $266.3 million since 1998.100%75%50%25%0%Consolidated Debt Ratio350 Dividends Declared to the GRF3001005002000 2001 2002 2003 20042000 2001 2002 2003 2004Regular Special 2000 Deferred$Millions25020015041 C I C
Page 2 and 3: 2004 Financial HighlightsCrown Sect
Page 4 and 5: Table Of Contents2004 HighlightsLet
Page 6 and 7: Chair’s MessageSaskatchewan’s C
Page 8 and 9: Corporate ProfileCIC is the financi
Page 10 and 11: Corporate ProfileCIC ManagementThe
Page 12 and 13: Corporate ProfileFinancial and Publ
Page 14 and 15: Corporate ProfileCIC’s Holdings20
Page 16 and 17: Corporate ProfileSASKATCHEWAN GOVER
Page 18 and 19: Corporate ProfileSaskatchewan Telec
Page 21: Policy and ProgramsUtility Bundle C
Page 24 and 25: Policy and ProgramsCommitment to Gr
Page 26: Policy and ProgramsCommitment to Yo
Page 30: GovernanceFor the purposes of this
Page 33 and 34: Strategic Direction and Performance
Page 41 and 42: Management’s Discussion and Analy
Page 43: MANAGEMENT’S DISCUSSION AND ANALY
Page 47 and 48: MANAGEMENT’S DISCUSSION AND ANALY
Page 65: MANAGEMENT’S DISCUSSION AND ANALY
Page 68 and 69: Consolidated Statement of Financial
Page 70 and 71: Consolidated Statement of Cash Flow
Page 72 and 73: Notes to Consolidated Financial Sta
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Notes to Consolidated Financial Sta
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Notes to Consolidated Financial Sta
Page 99 and 100:
Non-Consolidated Statement of Finan
Page 101 and 102:
Non-Consolidated Statement of Cash
Page 103 and 104:
Notes to Non-Consolidated Financial
Page 105 and 106:
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Pat AtkinsonMinisterPrinted in Sask
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2004 Crown Investments Corporation of Saskatchewan Annual Report

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