2004 Crown Investments Corporation of Saskatchewan Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSISSASKATCHEWAN GOVERNMENT GROWTH FUNDMANAGEMENT CORPORATION2004 ResultsEarnings of $0.5 million (2003 - $0.4 million).Revenues of $3.2 million (2003 - $3.6 million) reflect a declining investment portfolio upon which themanagement fee rate is based.Expenses of $2.4 million (2003 - $2.9 million) reflect the decline in costs of the fund manager to administerthe investment portfolio.No payments were made during 2004 to the remaining 31 investors in SGGF II. Future payments to theseinvestors are dependent on the ability of the fund to liquidate its remaining investments.SGGF III , IV, and V identified potential investment liquidity problems that have forced the Funds to reducerepayments to investors at maturity. When the equity investments in question are liquidated, it is expectedthat additional payments will be made.The remaining three funds (SGGF VI, VII and VIII) have an overall lower risk profile on their portfolios due to aheavier weighting of lease-related investments. This lowers fund returns and may reduce note repayments.To the end of 2004, SGGF had, through its fund companies, invested more than $270 million in 71 new orexpanding businesses.Total net earnings in the fund companies for the year is $2.0 million (2003 - loss of $4.9 million) due to achange in accounting policy for Fund Companies to recognize unrealized gains on investments.1.0Earnings ($ millions)0.50.50.40.02004 20032005 OutlookAlthough each of SGGF’s fund companies is at a different stage in its investment life cycle, there are two generalcategories of funds:The first group of funds (SGGF I through V) is focused on managing investments to achieve the bestliquidation proceeds possible in order to repay investors as notes mature.The second group of funds (SGGF VI, VII, and VIII) is focused on supporting investment projects with a view todeveloping the venture businesses and increase investment value.SGGF fund companies have provided an important source of venture capital financing in Saskatchewan to assistin economic development in the Province. As more funds reach maturity, increasing focus will be placed onextracting the most value from its remaining investments in order to maximize payments to its investors.Key Factors Affecting PerformanceAbility of the fund companies to liquidate their investment portfolios at values and in the timeframe necessary toprovide for full repayment of investor capital at maturity.Ability of the fund companies to recover their costs of operation from the revenues earned on investment fundsunder managementSGGF operates primarily on a cost-recovery basis and hence operates at or near break-even.61 C I C