On June 12, 2013, Financement-Québec extended its Sustainable Development Action Plan (2009-2015) (the Plan) until March 31, 2015, in accordance with the government’s sustainable development strategy and the Sustainable Development Act (CQLR, chapter D-8.1.1). The Plan presents Financement-Québec’s objectives and actions to achieve them.
The Plan includes the following three government objectives:
Government objective 1:
promote the sustainable development initiative
by sensitizing and training personnel
Financement-Québec has a service agreement with the Ministère des Finances. During 2013-2014, activities to sensitize its employees were carried out by the Ministère des Finances.
Government objective 6:
foster the application of concrete
environmental management and eco-responsible procurement practices
Financement-Québec continued the revision of financial documentation to streamline documentation requirements for the funding of organizations and reduce the quantity of paper. In addition, Financement-Québec encourages payments by electronic transfer and pre-authorized withdrawal as well as the use of new technologies for the transmission of documents.
Financement-Québec also contributes to the actions of the Ministère des Finances for eco-responsible procurement, minimum use of paper, reduced energy consumption, reuse and recycling of resources.
Government objective 17: leave healthy public finances for future
generations
As a result of its mission, Financement-Québec is involved in a continuous process of support and services to its customers in connection with the oversight of financial transactions stipulated in the
Financial Administration Act (CQLR, chapter A-6.001) and related regulations with the aim of
MANAGEMENT’S REPORT
The financial statements of Financement-Québec have been drawn up by management, which is responsible for their preparation and their presentation, including significant judgements and estimates. This responsibility includes the selection of appropriate accounting methods that satisfy Canadian public sector accounting standards. The financial information contained in the operational report agrees with the information given in the financial statements.
To carry out its responsibilities, management maintains a system of internal accounting controls designed to provide reasonable assurance that assets are protected and that operations are correctly accounted for in a timely fashion, are duly approved and are such as to produce reliable financial statements.
The Corporation acknowledges that it is responsible for managing its affairs in accordance with the laws and regulations that govern it.
The Board of Directors oversees how the Corporation’s management carries out its responsibilities in terms of financial information and it approves the financial statements.
The Auditor General of Québec has audited the Corporation's financial statements in accordance with Canadian generally accepted accounting standards. His independent auditor’s report sets out the nature and extent of this audit and expresses his opinion.
The Auditor General of Québec may, without limitation, meet the Board of Directors to discuss anything concerning his audit.
Original French version signed
__________________________________ Executive Vice-President
Original French version signed
__________________________________ President and Chief Executive Officer
To the Minister of Finance
Report on the Financial Statements
I have audited the accompanying financial statements of Financement-Québec, which comprise the statement of financial position as at March 31, 2014, and the statement of income and accumulated surplus, statement of remeasurement gains and losses, statement of change in net financial assets and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information included in the notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion
In my opinion, the financial statements present fairly, in all material respects, the financial position of Financement-Québec as at March 31, 2014, and the results of its operations, its remeasurement gains and losses, changes in its net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.
Report on Other Legal and Regulatory Requirements
As required by Auditor General Act (CQLR, chapter V-5.01), I report that, in my opinion, the accounting principles in these standards have been applied on a basis consistent with that of the preceding year.
Original French version signed
__________________________________ Michel Samson, CPA Auditor, CA
Acting Auditor General of Québec Québec City, June 16, 2014
FINANCIAL STATEMENTS
Income and accumulated surplus for the fiscal year ended March 31, 2014
(thousands of dollars) 2014 2013 Budget Actual results Actual results Net interest income
Interest on loans 780 384 751 347 800 524
Interest on investments 428 1 395 4 610
780 812 752 742 805 134
Interest on borrowings and advances (note 3) (741 164) (720 310) (768 015)
39 648 32 432 37 119
Gains (losses) on derecognition of financial derivatives 3 725 3 904 (1 739)
43 373 36 336 35 380
Operation and administration expenses
Wages, salaries and allowances 953 883 919
Depreciation of fixed assets 2 115 2
Service agreement with the Financing Fund 35 (70) 30
Other 93 32 60
1 083 960 1 011
SURPLUS FOR THE YEAR 42 290 35 376 34 369
ACCUMULATED SURPLUS AT THE BEGINNING 234 249 199 880
Operations on accumulated surplus (note13) (17 512) -
ACCUMULATED SURPLUS AT THE END 252 113 234 249
36 Financement-Québec Statement of remeasurement gains and losses
for the fiscal year ended march 31, 2014
(thousands of dollars)
2014 2013
ACCUMULATED REMEASUREMENT GAINS AT THE BEGINNING
OF THE YEAR 158 076 73 327
Unrealized (losses) gains attributable to the following:
Fair value – financial derivatives (32 382) 83 010
Exchange rate – financial derivatives - (2 125)
Exchange rate – borrowing - 2 125
Reclassified amounts in the income statement:
Fair value – financial derivatives (3 904) 1 739
Exchange rate – financial derivatives - (276 012)
Exchange rate – borrowing - 276 012
NET REMEASUREMENT (LOSSES) GAINS FOR THE YEAR (36 286) 84 749
ACCUMULATED REMEASUREMENT GAINS AT THE END OF THE YEAR 121 790 158 076
Statement of financial position as at March 31, 2014 (thousands of dollars) 2014 2013 Financial assets Loans (note 4) 20 542 918 25 345 223
Accrued interest on loans 213 436 214 622
Cash position 33 85 Investments - 44 673 Accounts receivable 3 263 38 614 Financial derivatives 291 106 466 954 21 050 756 26 110 171 Liabilities
Borrowings and advances (note 5) 20 326 139 25 196 785
Net accrued interest on borrowings and advances 206 373 202 537
Financial derivatives 145 702 289 035
Accounts payable 393 30 778
20 678 607 25 719 135
Net financial assets 372 149 391 036
Non-financial assets
Tangible fixed assets 1 854 1 389
CAPITAL STOCK (NOTE 10) 100 100
ACCUMULATED SURPLUS 373 903 392 325
Accumulated surplus consists of: (thousands of dollars)
2014 2013
Accumulated surplus 252 113 234 249
Accumulated remeasurement gains 121 790 158 076
TOTAL 373 903 392 325
The notes are an integral part of the financial statements.
For the board of directors,
Original French version signed
__________________________________ Executive Vice-President
Original French version signed
38 Financement-Québec
Statement of the change in net financial assets for the fiscal year ended March 31, 2014
(thousands of dollars)
2014 2013
Budget Actual results Actual results
NET FINANCIAL ASSETS AT THE BEGINNING 375 569 391 036 199 264
Changes due to tangible fixed assets
Acquisitions (1 359) (580) (675)
Depreciation 2 115 2
(1 357) (465) (673)
Surplus for the year 42 289 35 376 34 369
Operations on accumulated surplus (note 13) - (17 512) -
Accumulated remeasurement (losses) gains 55 509 (36 286) 158 076
(Decrease) increase in net financial assets 96 441 (18 887) 191 772
NET FINANCIAL ASSETS AT THE END 472 010 372 149 391 036
Cash flows
for the fiscal year ended March 31, 2014
(thousands of dollars)
2014 2013
Operating activities
Surplus for the year 35 376 34 369
Items not affecting cash and cash equivalents:
Discounts and premiums on loans (589) (518)
Interest income charged to loans (27 964) (34 091)
Issue expenses on loans (15 717) (15 007)
Administration expenses on loans (3 923) (3 696)
Issue expenses on borrowings and advances 6 253 5 946
Premiums and discounts on borrowings and advances 22 406 38 063
(Gains) losses on derecognition of financial derivatives (3 904) 1 739
Change in futures contracts 58 (1 770)
Depreciation of tangible fixed assets 115 2
12 111 25 037
Change in financial assets and liabilities related to operations (note 11) 3 700 (4 350)
Cash flows from operating activities 15 811 20 687
Investing activities
Loans made (6 219 338) (13 419 743)
Loans transferred (note 13) (763 889) -
Loan repayments 11 852 194 11 595 380
Cash flows from investing activities 4 868 967 (1 824 363)
Fixed assets investment activities
Acquisition of tangible fixed assets and cash flows from fixed asset investment
activities (580) (675)
Financing activities
Short-term borrowings and advances 54 165 358 39 548 334
Long-term borrowings and advances 1 000 000 3 586 276
Repayments of long-term borrowings and advances (3 779 522) (1 868 976)
Repayments of short-term borrowings and advances (56 314 759) (39 416 550)
Cash flows from financing activities (4 928 923) 1 849 084
CHANGE IN CASH AND CASH EQUIVALENTS (44 725) 44 733
CASH AND CASH EQUIVALENTS AT THE BEGINNING 44 758 25
CASH AND CASH EQUIVALENTS AT THE END (NOTE 11) 33 44 758
NOTES TO THE FINANCIAL STATEMENTS
1. Constitution, Purpose and Financing
Financement-Québec (the Corporation) was incorporated under An Act respecting
Financement-Québec (CQLR, chapter F-2.01) which entered into force on October 1, 1999. The
Corporation is a legal person with share capital and is a mandatary of the State.
The Corporation's mission is to supply financial services to public organizations covered by its act of incorporation. It finances them directly by granting them loans or by issuing debt securities on their behalf. It advises them to facilitate their access to credit and to minimize their financing costs and, to that end, it develops financing programs. It may also manage the financial risks of these organizations, in particular cash flow risks and exchange risks. The Corporation may also provide public organizations with technical services regarding financial analysis and management.
The Corporation charges loan issue expenses to borrowers to offset those incurred by the Corporation on borrowings made. The Corporation also charges administration expenses to borrowers. The level of expenses charged is subject to government approval.
The Corporation issues debt securities that are guaranteed by the Québec government. The Corporation is subject neither to Québec nor to Canadian income tax.
2. Main accounting methods
The financial statements are established in accordance with the CPA Canada Public Sector
Accounting Handbook. Use of any other source of generally accepted accounting principles must
be consistent with that Handbook.
In accordance with Canadian generally accepted accounting principles, the preparation of the Corporation’s financial statements requires that management make use of accounting estimates and assumptions. These have an impact on the recognition of assets and liabilities, the presentation of assets and contingent liabilities on the date of the financial statements and the recognition of income and charges of the period presented in the financial statements. The actual results may differ from management’s best estimates.
Financial Instruments
Upon their initial recognition, financial instruments are classified either in the category of financial instruments valued at fair value or in the category of financial instruments valued at cost or at amortized cost.
On the date of the transaction, for financial instruments valued at fair value, issue expenses are expensed while, for financial instruments valued at cost or at amortized cost, they are added to the book value of such instruments.
The Corporation has classified financial derivatives in the category of financial instruments valued at fair value.
The Corporation has classified loans, accrued interest on loans, cash position, short-term investments, accounts receivable, borrowings and advances, accrued interest on borrowings and advances and accounts payable in the category of financial instruments valued at cost or at amortized cost.
42 Financement-Québec A financial instrument is derecognized when the contractual obligations are extinguished at expiration or the Corporation transfers the contractual rights to receive the cash flows linked to the financial instruments under a transaction in which practically all the risks and benefits inherent in the ownership of the financial instrument are transferred.
Loans
Loans are recorded at the amount disbursed at the time of issue, adjusted by the discount or premium and issue expenses and are valued at amortized cost using the effective interest rate method.
The interest income on loans, valued using the effective interest rate method, is recognized when earned.
Borrowings and Advances
Borrowings and advances from the General Fund of the Consolidated Revenue Fund are recorded at the amount received at the time of issue, including the discount or premium and issue expenses. After their initial recognition, borrowings and advances from the General Fund of the Consolidated Revenue Fund are valued at amortized cost using the effective interest rate method. The corresponding interest expenses are shown under the heading “Interest on borrowings and advances” in the statement of operations.
Financial Derivatives
The Corporation makes use of financial derivatives to reduce risk related to fluctuations in currencies and interest rates. It is the Corporation’s policy not to use financial derivatives for speculative purposes.
Financial derivatives with a positive value are entered as financial assets and financial derivatives with a negative value are shown as financial liabilities.
The change in the fair value of each financial derivative is recorded in the statement of remeasurement gains and losses until it is derecognized. The cumulative balance of remeasurement gains and losses associated with financial derivatives is then reclassified in the statement of operations.
Currency Translation
The assets, liabilities and amounts shown in the statement of operations arising from a currency transaction are translated into Canadian dollars at the exchange rate on the date of the transaction.
Monetary assets and liabilities as well as non-monetary items classified in the category of financial assets valued at fair value, denominated in foreign currencies, are translated into Canadian dollars at the exchange rate on the date of the financial statements.
Unrealized foreign exchange gains and losses on assets and liabilities in foreign currencies are recognized in the statement of remeasurement gains and losses until they are derecognized. The cumulative unrealized foreign exchange gains and losses are then reversed and a foreign exchange gain or loss is recognized in the statement of operations.
Cash and Cash Equivalents
The Corporation presents, under cash and cash equivalents, bank balances and investments that are easily convertible in the short term into a known amount of cash whose value is not likely to change significantly.
3. Interest on Borrowings and Advances
Interest on borrowings and advances consists of the following:
(thousands of dollars)
2014 2013
Interest on borrowings and advances (658 371) (682 988)
Interest on financial derivatives recorded under liabilities (154 086) (201 195)
Realized exchange loss on financial derivatives - (276 012)
(812 457) (1 160 195)
Interest on financial derivatives recorded under assets 92 147 116 168
Realized exchange gain on borrowing - 276 012
92 147 392 180
44 Financement-Québec 4. Loans
Borrowers
(thousands of dollars)
2014 2013
Entities included in the government reporting entity:
School boards 6 446 889 7 559 836
General and vocational colleges 1 721 061 2 048 685
Health and social services institutions and agencies 6 624 907 10 929 712
Université du Québec and its constituents 738 027 1 040 358
15 530 884 21 578 591
Entities excluded from the government reporting entity:
Universities other than the Université du Quebec and its constituents 2 733 576 2 631 708
Municipalities 1 016 075 1 082 351
Transit authorities 665 156 -
Public bodies exercising fiduciary activities 545 516 -
Other entities 51 711 52 573 5 012 034 3 766 632 TOTAL 20 542 918 25 345 223 Due in (thousands of dollars) 2014 2013
Amount Effective rate (%) (1) Amount
2014 - 5 358 347 2015 4 139 599 1.27 to 5.08 4 150 700 2016 2 185 131 1.69 to 6.70 2 116 513 2017 2 737 826 1.50 to 6.48 2 887 984 2018 2 832 340 1.84 to 9.59 3 011 241 2019 2 996 439 2.05 to 8.44 3 158 379 2020-2038 5 651 583 2.50 to 10.17 4 662 059 TOTAL 20 542 918 25 345 223
(1) Excludes floating rate loans, which are at the rate of 3-month bankers’ acceptances and at the rate of 1-month bankers’ acceptances plus a spread of 0.30%.
Loans maturing during the fiscal year ending March 31, 2015 include short-term loans of $290.1 million. For the long-term loans, maturities and interest rates on loans made by the Corporation are, with a few exceptions, identical to those of borrowings and advances contracted for this purpose taking into consideration currency and interest rate swap contracts, if any. However, depending on available capital, the Corporation may make new loans from repayments of existing loans. These new loans are made at interest rates and maturities that may differ from the conditions of the advance or borrowing initially received.
5. Borrowings and Advances Summary
(thousands of dollars)
2014 2013
Borrowings on markets 19 089 633 23 867 289
Advances from the General Fund of the Consolidated Revenue Fund 140 434 142 356
Canada Mortgage and Housing Corporation (CMHC) 1 016 075 1 082 351
Financing Fund 59 106 64 936
Société québécoise des infrastructures (SQI) 20 891 39 853
TOTAL 20 326 139 25 196 785
Schedule and effective interest rate
Borrowings on markets
(thousands of dollars)
2014 2013
Due in Amount Effective rate (%) (1) Amount
2014 6 477 911 2015 4 131 520 2.82 to 4.71 3 428 118 2016 1 815 272 3.07 to 6.50 1 818 720 2017 3 029 889 2.52 to 3.88 3 028 078 2018 3 028 835 1.72 to 3.87 3 030 730 2019 3 034 229 1.94 to 2.71 3 032 751 2020 2 494 092 2.40 to 2.54 1 494 209 2035 1 555 796 4.68 to 5.62 1 556 772 TOTAL 19 089 633 23 867 289
(1) Excludes floating rate borrowings and swaps, which are at the rates of 3-month bankers’ acceptances plus a spread varying between minus 0.67% and plus 1.80%.
All these borrowings are repayable solely at maturity. Borrowings maturing during the fiscal year ending March 31, 2015 include short-term borrowings of $695.5 million. All borrowings are guaranteed by the Québec government. Short-term borrowings bear interest at rates varying from 0.96% to 1.01% (rates varying from 0.99% to 1.44% as at March 31, 2013).
46 Financement-Québec Advances from the General Fund of the Consolidated Revenue Fund
(thousands of dollars)
2014 2013
Due in Amount Effective rate (%) Amount
2023 140 434 8.60 to 9.56 142 356
TOTAL 140 434 142 356
Borrowings from CMHC
(thousands of dollars)
2014 2013
Due in Amount Effective rate (%) Amount
2021 200 206 2.77 to 3.54 225 234
2026 315 855 3.28 to 3.92 336 743
2031 500 014 3.50 to 4.12 520 374
TOTAL 1 016 075 1 082 351
Borrowings from the Financing Fund
(thousands of dollars)
2014 2013
Due in Amount Effective rate (%) Amount
2018 909 9.50 1 136
2021 6 195 9.78 7 071
2023 52 002 6.78 56 729
TOTAL 59 106 64 936
Borrowing from SQI
(thousands of dollars)
2014 2013
Due in Amount Effective rate (%) Amount
2015 20 891 13.26 39 853
The amounts of principal payments to be made on borrowings and advances over the coming fiscal years are as follows:
Schedule of principal payments
(thousands of dollars)
2015 2016 2017 2018 2019
2020 and following
Borrowings on markets 4 138 295 1 809 400 3 034 000 3 020 000 3 042 000 4 022 350
Advances from the General Fund
of the Consolidated Revenue Fund 1 740 1 740 1 740 1 740 1 740 129 525
Borrowings from CMHC 68 650 71 110 73 658 76 299 79 035 647 323
Borrowings from the Financing Fund 5 852 5 852 5 852 5 852 5 624 30 154
Borrowing from SQI 20 891 - - - - -
TOTAL 4 235 428 1 888 102 3 115 250 3 103 891 3 128 399 4 829 352
6. Determination of fair value
The fair value of a financial instrument corresponds to the price at which it would be traded between parties acting under normal competitive conditions. The Corporation applies widely used valuation techniques reflecting best practices and incorporating data observed on markets. The methodology the Corporation uses to arrive at the fair value of its financial instruments involves discounting future financial flows receivable less those payable.
Swap contracts are traded on an over-the-counter market and prices are not published for these financial instruments. The fair value of these financial instruments is estimated using swap and CDOR rate curves published on recognized financial information systems available to all stakeholders, as well as financial discounting methods consistent with best practices. Futures contracts on three-month Canadian bankers’ acceptances are exchange-traded and their fair value is determined on the basis of the daily settlement price.
48 Financement-Québec By way of indication, the fair value of the Corporation’s financial instruments as at March 31, 2014 is shown in the following table.
Fair value of financial instruments
(thousands of dollars)
2014 2013
Book value Fair value Book value Fair value
Loans - Total 20 542 918 21 237 904 25 345 223 26 379 105
Borrowings and advances
Borrowings on markets 19 089 633 19 661 225 23 867 289 24 714 914
Advances from the General Fund of the
Consolidated Revenue Fund 140 434 202 464 142 356 215 008
Borrowings from CMHC 1 016 075 1 053 420 1 082 351 1 147 793
Borrowings from the Financing Fund 59 106 71 789 64 936 81 072
Borrowing from SQI 20 891 23 325 39 853 46 572
TOTAL 20 326 139 21 012 223 25 196 785 26 205 359
Financial derivatives Financial assets
Interest rate swap contracts 291 106 291 106 466 928 466 928
Futures contracts on three-month Canadian
bankers’ acceptances - - 26 26
291 106 291 106 466 954 466 954
Liabilities
Interest rate swap contracts (145 698) (145 698) (289 035) (289 035)
Futures contracts on three-month Canadian
bankers’ acceptances (4) (4) - -
(145 702) (145 702) (289 035) (289 035)
TOTAL (145 404) 145 404 177 919 177 919
The fair value of other financial instruments corresponds essentially to book value in view of their nature or their short-term maturity.
7. Financial Derivatives
Financial derivatives are financial contracts whose value fluctuates on the basis of the underlying security and that do not require that the underlying security itself be held or delivered. This underlying item may be financial in nature (interest rate, currency, security or stock index) or merchandise (precious metal, commodity, oil).
The outstanding face amount of a financial derivative represents the theoretical value of the principal, to which applies a rate or a price to determine the exchange of future cash flows, and