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SGF Records a Net Loss of $261 Million in 2008
SGF’s results were affected directly by the financial crisis, especially the difficulties in the petrochemical and forest products sectors
Montréal, April 9, 2009 – Société générale de financement du Québec (SGF) was not immune to the difficult economic context in 2008 and recorded a net loss of $261 million. This loss represents a rate of return of -14.3%. SGF also invested $176 million in economic development projects during the year.
“The speed and scope of this crisis that hit us in 2008 was unprecedented. The manufacturing sector, which was already struggling in 2007, was severely shaken. This sharp decline had a direct impact on our results,” stated Pierre Shedleur, President and General Manager of SGF. “Even so, we succeeded in maintaining the most stringent investment and management criteria to ensure that SGF and its partners can weather the crisis and prepare for the recovery.”
Results linked to a difficult context
As part of its mission to take part in economic development projects in Québec, SGF is exposed to substantial risks, which it must contend with. Its portfolio consists of equity investments in companies and involves a high level of risk. Most of SGF’s portfolio companies are exposed to global economic conditions and are subject to such factors as fluctuating exchange rates and changes in the prices of commodities and substitute products. An unfavourable variation in any of these factors can have a major impact on the value of the portfolio companies. Moreover, many of SGF’s partners depend partially on exports and were affected directly by the decrease in demand, especially from the United States.
More than 80% of SGF’s portfolio consists of manufacturers that were hit hard by the crisis. In 2007, these companies were already experiencing significant difficulty as a result of the surging price of oil and the slowing of the U.S. economy. In 2008, SGF had to contend once again with the difficulties experienced by companies in these sectors.
In this respect, SGF recorded a loss of $238 million solely as a result of operating losses, closure costs and the writedown of its investments in the petrochemical companies Pétromont and PTT Poly Canada and in the forest products company Temlam. Without these losses, SGF’s rate of return would have been -1.2%.
Moreover, in terms of its cash management, SGF had to increase to 41% the writedown of the $138-million held in non-bank asset-backed commercial paper (ABCP), which represents an additional loss of $37 million in 2008.
SGF would like to point out that its operating expenses did not increase in 2008, holding steady at $34 million.
Moreover, some of SGF’s partners recorded positive results despite the crisis. SGF’s investments overall improved their profitability, with investment results of $36 million in 2008, versus $29 million in 2007.
SGF’s main investments in 2008
During the year, SGF invested $176 million in growth and support projects, in accordance with the three strategic orientations of its development plan.
More specifically, SGF invested $60 million in TPG Capital’s acquisition of Axcan Pharma Inc., thereby participating in the $1.3-billion transaction to take the company private.
Axcan is a leading multinational pharmaceutical company focused on gastroenterology. The company develops and markets a broad line of prescription products to treat a range of gastrointestinal diseases and disorders, such as inflammatory bowel disease, irritable bowel syndrome, cholestatic liver diseases and complications related to pancreatic insufficiency. Axcan's products are marketed by its own specialized sales forces in North America and Europe and through commercial collaborations in many markets around the world.
Axcan, whose head office is in Mont-Saint-Hilaire, Québec, employs more than 450 people, including 150 in Québec. It also has offices in the United States and Europe.
SGF also invested in Médiamed Technologies on Montréal’s South Shore. SGF purchased 30% of the information technology and communications company, also located in Mont-St-Hilaire. MédiaMed designs and develops innovative software solutions for the management of clinical information by hospitals and health care and social services centres. In addition to superior technological solutions, MédiaMed offers consulting services adapted to the realities of Québec’s health care system.
Also, SGF reinvested $4 million in the Ungava project. In partnership with Stornoway Diamond Coporation, this investment aims at the development of a diamond deposit located north of the Otish Mountains.
Government confidence
In January 2009, the Québec government announced that it would make a special contribution of $1 billion over two years to SGF’s capital to help companies with a positive development outlook withstand the financial crisis. With this special mandate, SGF was authorized to go beyond its traditional role as an equity investor by offering complementary solutions, such as loans, debentures or preferred share investments.
Moreover, when the government brought down its budget in March 2009, it announced the creation of a $500-million business recovery emergency fund. This fund also involves SGF. It will be managed jointly by SGF and the Solidarity Fund QFL and will support medium-sized and large businesses affected by the economic conditions and short-term liquidity problems.
This announcement is a strong vote of confidence on the part of SGF’s shareholder in recognition of the work done by SGF’s employees in recent years.
As a result of this renewed confidence, SGF is now in an excellent position to help its partners weather the crisis and prepare for the recovery.
Société générale de financement du Québec (www.sgfqc.com), an industrial and financial holding company, has a mission to carry out economic development projects, with emphasis on the industrial sector, in co-operation with partners and on standard profitability conditions, in accordance with the economic development policy of the Québec government.
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Source:
Marie-Claude Lemieux
Senior Adviser
Communications and Media Relations
Société générale de financement du Québec
(514) 876-9368
mclemieux@sgfqc.com
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