You Invest We Invest and Québec Prospers
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You invest We invest And Québec prospers JOBS - NET VALUE PER SHARE $23.74 - 2006 ANNUAL REPORT MISSION CREATE, MAINTAIN OR PROTECT JOBS Invest in companies impacting the Québec economy and offer them services to further their development and create, maintain or protect jobs. TRAIN WORKERS Promote economic training for workers so they can increase their influence on the economic development of Québec. DEVELOP THE QUÉBEC ECONOMY Stimulate the Québec economy through strategic investments that benefit both Québec workers and companies alike. PREPARE FOR RETIREMENT Make workers aware of the need to save for retirement and encourage them to do so, as well as encourage them to participate in the development of the economy by purchasing Fund shares. - PROMOTE EMPLOYMENT, TRAIN WORKERS, DEVELOP THE QUÉBEC TABLE OF CONTENTS (01 ) … Highlights (02 ) … Message from the Chairman of the Board (04 ) … Report of the President and Chief Executive Officer (06 ) … Shareholder Base (10 ) … Training (14 ) … Investments (19 ) … Financial Information (82 ) … Glossary (84 ) … Board of Directors and Management Committee (85 ) … Special Boards and Committees, Permanent Employees and Union HIGHLIGHTS KEY DATA For the years ended June 30 May 31 (in millions of dollars, except Class A shares, in thousands) 2002 2003 2004 2005 2006 (11 months) Statement of earnings Revenues (432.9) (209.1) 347.0 386.3 477.8 Net earnings (net loss) (551.5) (325.5) 247.3 271.1 366.5 Balance Sheet Net assets 4,533.9 4,620.2 5,233.3 5,955.2 6,607.1 Class A shares outstanding 204,999 225,956 243,946 264,845 277,466 Ratio2 Operating expenses/Average net assets 2.1% 2.1% 2.0%1 1.8% 1.7% 1. Annualized. 2. The operating expenses ratio does not include capital tax. As at May 31 (except 2002 and 2003, as at June 30) Net value per share Rate of return of the Fund 1, 2 Number of partner companies 3 Number of jobs created, (in dollars) (as a percentage) (Fund and network) maintained or protected in Québec by the Fund and its partners 2002 22.02 2002 (11.4) 2002 1,664 2002 96,641 2003 20.36 2003 (6.9) 2003 1,666 2003 91,694 2004 21.37 2004* 5.2 2004 1,722 2004 96,000 2005 22.41 2005 5.0 2005 1,683 2005 105,596 2006 23.74 2006 6.0 2006 1,681 2006 116,644 Average annual return since inception: 5.0% *(11 months) 1. Earnings (loss) per share divided by the share price at the beginning of the fiscal year. 2. This rate of return does not take into account tax credits for shareholders. 3. In 2006, we reviewed the compilation method of the partner companies, especially in the SOLIDE, and the comparative data was adjusted. However, the effect on jobs is negligible and no adjustment was made. ECONOMY AND HELP WORKERS PREPARE FOR RETIREMENT - - - - Number of shareholders Share issues Redemptions Fair value of investments (in millions of dollars) (in millions of dollars) in partner companies (in millions of dollars) 2002 536,429 2002 869.9 2002 385.3 2002 2,768.6 2003 550,119 2003 724.7 2003 313.0 2003 2,633.5 2004 554,796 2004* 554.2 2004* 188.5 2004 2,695.4 2005 568,383 2005 706.5 2005 255.6 2005 2,544.1 2006 573,086 2006 613.8 2006 328.7 2006 3,006.7 *(11 months) * (11 months) SOLIDARITY FUND QFL ( HIGHLIGHTS ) PAGE 01 MESSAGE FROM THE CHAIRMAN OF THE BOARD Putting words into action THE SOLIDARITY FUND QFL Only government intervention will change things. And it is urgent. The government could, among other things, take full IS FARING WELL, AND WE ARE advantage of the transitional measures already provided for in the World Trade Organization framework to contend with the VERY PROUD TO NOTE JUST lifting of quotas on imports from China, notably. The U.S. is already taking advantage of these measures and the European HOW INVALUABLE THE Union is exerting pressure to force renegotiations or extensions of such transitional measures. We believe that if the ORGANIZATION HAS BECOME governments decided to immediately support manufacturing companies, there would be a little bit more hope for the FOR QUÉBEC’S ECONOMIC workers suffering from the de-industrialization of this sector. During the pre-budget consultation last winter, Minister DEVELOPMENT. Michel Audet stated that, even though jobs had increased slightly in Québec, the public revenues generated by employment had decreased. This precarious situation has a While many people have contributed to this success, this year, clear effect on our quality of life and is a major problem for I would like to especially thank Pierre Genest for his excellent government finances. The less people are paid, the less they work at the helm of the Fund over the past four years. A top- contribute to the State’s coffers and at the same time, the less notch manager, Pierre Genest allowed the Fund to get back on they contribute to improve Québec’s collective wealth. the growth track. Although Mr. Genest retired in February, he We must continue to promote the creation, maintenance and still holds, among other things, the position of Chairman of the protection of quality jobs if we do not want a hardship economy. Board of Directors of SSQ Groupe Financier, one of the Fund’s This is why the Fund exists. And if it did not already exist, we partner companies. I would also like to mention Yvon Bolduc’s would have to create it, because the current economic situation appointment as the Fund’s President and CEO. A member of is, in some respects, very similar to the one that prevailed when the organization since 2002, his expertise, human approach the Fund was created. The Fund’s economic development and keen business sense made Yvon Bolduc the ideal mission, focused on employment, is therefore more relevant candidate to replace Pierre Genest. Gaétan Morin, who has than ever. been outstanding in the various positions he has held since 1989, has taken over from Yvon Bolduc as Executive Vice- And, as though these troubles were not enough, the Canadian President, Investments. dollar continues to rise, and gas has never been so expensive. Things are not looking good, and honestly, I do not see how, in Thanks to men and women of action, the Fund continued to a context of such fierce global competition, Québec companies grow during the past year. However, while significant and vital, in the lumber, clothing, textile, sports equipment and furniture our investments alone could not boost economic activity in the industries can survive unless emergency measures are taken Québec manufacturing sector. And regardless of our best to help them. intentions, we will not, on our own, be able to stem the disturbing erosion of quality jobs in this industry. In my view, At this time, Canada is split in two: western Canada is booming Québec’s biggest economic problem today is its struggling and its economy is heating up while eastern Canada is manufacturing industry. suffering major economic woes, precisely because the Bank of Canada’s decisions are made based on the wealth enjoyed PAGE 02 SOLIDARITY FUND QFL ( MESSAGE FROM THE CHAIRMAN OF THE BOARD ) by the West. These decisions, notably with regards to interest companies under loan guarantee programs, for example, they rate hikes, are, in some respects, sabotaging our economic could help them renew their technology equipment so that they growth efforts. can become more productive and competitive. Without help, our companies will not be able to take this step, and while this The problems have been caused more by the speed of the kind of support would not solve all their problems, it would at dollar’s ascent than its actual rise. Still, we continue to hope least allow them to take some of the necessary measures. We that some of our companies will be able to benefit from a are not losing hope. strong dollar, for example, to buy more energy-efficient equipment that promotes sustainable development and In closing, I would like to thank everyone who contributed protects the environment. We also hope that training in the this year to the successes of the Solidarity Fund QFL and its workplace will continue to remain a priority, because this is the vast regional, local and specialized investment network. only way we will be able to meet the challenges of providing a Thank you, because without you, these successes would not new generation of qualified labour in certain sectors. have been possible. I reiterate, it is clear that in this context, the Fund’s role is critical. The Fund is there for companies that want to modernize, grow and put odds in their favour. Québec’s economic development remains our priority and it will continue to dictate our investment decisions. Henri Massé Chairman of the Board of Directors Our entrepreneurs are creative, ingenious and seasoned, and most of our companies are solid. If the two levels of government would adopt certain measures to support the manufacturing sector, we could get our heads above water. By supporting SOLIDARITY FUND QFL ( MESSAGE FROM THE CHAIRMAN OF THE BOARD ) PAGE 03 REPORT OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER Our vision, the key to our future success OUR VISION Our successes are owed to the vision we have adopted and that will greatly influence the development of our organization over PLACE PRIORITY ON the next few years. Moreover, our other investments portfolio (bonds, listed CREATING AND MAINTAINING shares and others) yielded a return of 7.1% during the past year.