Crown Investments Corporation 2016-17 ANNUAL REPORT “The Crown sector has once again had a successful year, providing earnings and dividends to the Province at a much needed time. Despite the challenges and setbacks the economic markets have provided, we have embarked on an era of transformational change that will continue to strengthen the sector. We will be looking for positive changes that will leverage the expertise we have in the Crowns and enable continued success for years to come.” Blair Swystun, CFA, President & CEO, CIC Table of Contents Letter of Transmittal 1 Message from the Minister 2 Message from the President 3 Corporate Information Corporate Overview 5 Crown Sector Alignment 8 Operating Context 10 Corporate Performance 21 Organizational Overview Governance 31 CIC Board Members 32 Board of Directors – Tenure 34 CIC Executive 35 Organizational Structure 36 Executive Compensation 38 CIC Consolidated CIC Consolidated Management Discussion & Analysis 41 CIC Consolidated Financial Statements 74 Notes to Consolidated Financial Statements 81 CIC Separate CIC Separate Management Discussion & Analysis 145 CIC Separate Financial Statements 155 Notes to Separate Financial Statements 161 Photo credits: shutterstock.com (pages 4-5; 62; 144) | vectorstock.com (vector images throughout the report) Letter of Transmittal Regina, Saskatchewan July 21, 2017 To Her Honour The Honourable Vaughn Solomon Schoeld, S.O.M., S.V.M. Lieutenant Governor of Saskatchewan Madam: I have the honour to submit herewith the thirty-ninth annual report of the Crown Investments Corporation of Saskatchewan for the twelve months ended March 31, 2017, in accordance with The Crown Corporations Act, 1993. The Consolidated and Separate Financial Statements included in this annual report are in the form approved by the Treasury Board and have been reported on by the auditors. Respectfully submitted, Joe Hargrave Minister of Crown Investments CIC Annual Report 2016-17 1 Minister’s Message 2016-17 was a challenging year for our province. Changing competitive landscapes, environmental impacts, aging infrastructure, and a rapidly advancing digital world put pressures on Saskatchewan, and in particular, the Crown sector. The Crown sector is a powerful economic engine that provides high quality products and rst class customer service to our province’s residents, while contributing millions of dollars in earnings and dividends to the provincial nances. Indeed, Saskatchewan is unique among Canadian provinces in terms of the strength and resilience of its Crown sector. In recent years, the provincial economy has experienced one of the most signicant downturns in decades. Natural resource prices, once so lucrative for our province, have fallen and remained low, putting Saskatchewan in a $1.3 billion decit. However, we do have the Crown sector, and while we know it is an asset that our people are proud of, we must also leverage that asset to help return the province to a balanced budget. Strengthening the Crown sector is an innovative idea that really isn’t all that new. Inviting outside participation by providing investment opportunities and generating liquidity is one of the oldest principles in the nancial market. To enable these opportunities, this spring the government passed Bill 40, The Interpretation Amendment Act, 2016. Bill 40 not only denes what constitutes privatization, but also provides parameters for winding up operations where strengthening is not realistic. This bill provides the provincial government with guidelines for taking advantage of these opportunities. This spring, the government made a very dicult decision regarding the ever-increasing subsidy to the Saskatchewan Transportation Company (STC). On March 22, 2017, we announced that subsidies to STC will end, and the company would be wound up. This is just one example of transformational change that will enable future funds to be put towards government priorities. Our Crown sector provides the kind of investment opportunities that are very attractive in any market, and with the passage of Bill 40, there is now an opportunity to strengthen their economic standing while maintaining public ownership. In short, we could have the best of both worlds. This doesn’t mean we are willing to give up the benets many have worked so hard to achieve. Partnerships will only be considered if they strengthen the Crowns nancially; keep utility rates low; protect and create more jobs in the province; as well as maintain a head oce presence in Saskatchewan. The Crowns are dedicated to keeping Saskatchewan strong and contribute signicantly to the economy. In addition to providing well-paying jobs for residents, aordable utility rates, excellent customer service, and technological advancements, the Crown sector contributed $219.0 million in dividends to the General Revenue Fund in 2016-17. Over the past ve years, the sector contributed $1.4 billion in dividends to the General Revenue Fund. We must be responsible stewards of this powerful engine, but at the same time, we must also look for ways to grow and develop the sector for the betterment of all Saskatchewan people. Our Crown corporations have signicant challenges ahead of them. We are very fortunate to have talented and dedicated professionals working in every sector to meet these challenges head on. I want to thank everyone who has been instrumental to the success of the Crown sector, and in particular, I want to thank the employees of STC who have been dedicated to providing outstanding service to the people of Saskatchewan for many years. I look forward to the continued success of the Crown sector as we move into a new era for Saskatchewan of new structure options and enhanced sector strength. Joe Hargrave Minister of Crown Investments 2 President’s Message 2016-17 was a successful, yet challenging year for the Saskatchewan Crown sector. Crown corporations were able to contribute increased dividends to the Province, while operating in a challenging environment that included turbulent resource markets and increased environmental and competitive pressures. As with all enduring corporations, aging infrastructure and technological advancements, along with competitive and regulatory pressures, continually challenge the potential for growth and maintaining reasonable protability. I am pleased to report that the Crown sector remains strong and is responding to these challenges. It is committed to keeping Saskatchewan strong through innovative thinking, implementing transformational change, and continuing responsible scal management. This is not an easy task. However, in 2016-17, CIC and the Crown sector responded to the province’s challenges by meeting many goals, and in some cases, surpassing them. CIC, on behalf of the sector, contributed a dividend of $219 million to the General Revenue Fund, surpassing the budgeted goal of $204 million. The increased contributions can be attributed, in part, to strong investment earnings and underwriting results at SGI CANADA and an increased dividend from CIC Asset Management Inc. Crown sector net earnings continued to be strong, totalling $398.6 million for the scal year. This is attributable to the sector’s dedication to providing excellent customer products and services and being responsive to the demand for safe, reliable and aordable services. The sector’s dedication to success enabled the Crowns to contribute to the government’s restraint eorts over and above their targeted goals, while still meeting their respective business challenges. The Crowns invested $1.4 billion in infrastructure and technology to meet demands for safety and high quality services. This was a signicant injection into the provincial economy in 2016-17. For the next four years we expect the Crowns to invest an average of $1.9 billion annually to continue their focus on infrastructure and technology and to meet the needs of continued growth in Saskatchewan. As in any business environment, dicult choices must be made from time to time. This is the case regarding Saskatchewan Transportation Company. The government announced on March 22, 2017, that the company would be wound up, ending the annual subsidy provision that had risen to a projected $17 million for 2017-18. With vehicular operations ceasing May 31, 2017, the company will wind up administrative and regulatory responsibilities. Transformational change means adjusting ways of doing business, and this is one of those adjustments. This annual report proles the success of the sector, while highlighting the challenges and recognizing the expertise we have come to expect from Crown corporations. Collectively, we have embarked on an era of transformational change that will allow a fresh perspective while strengthening the nancial position of the Province. I am proud of the successes achieved to date, and look forward to continued success as we chart new ways to keep Saskatchewan strong. Blair Swystun, CFA President & CEO CIC Annual Report 2016-17 3 4 CIC Corporate Information CORPORATE INFORMATION CORPORATE Corporate Overview Crown Investments Corporation (CIC) is the nancially self-sucient holding company for eight subsidiary commercial Crown corporations and ve wholly-owned subsidiaries. In its oversight role of the Crown sector, CIC is responsible for the development and oversight of broad policy initiatives, directing investment and providing dividends to the provincial government’s General Revenue Fund (GRF). CIC oversees and manages a comprehensive framework designed to strengthen governance,