Annual report / Alberta Opportunity Company

28 Pages·1998·2.2 MB·English

by  Alberta Opportunity Company

ALBERTA OPPORTUNITY COMPANY
Alberta Opportunity Company
1997/98 Annual Report
An alternate source
of business financing
since 1972.
Digitized by the Internet Archive
in 2013
http ://arch iv e .o rg/detai Is/an n r epalbopp 1 998
ALBERTA OPPORTUNITY COMPANY
Ik purpose of A lberta
Table of C ontents
Opportunity Company is
1997/98 Annual Report
to p mide financial
Report from the Directors 2
assistance and g uidance
Management Discussion and Analysis 4
to! t he d evelopment oi
Alberta business.
Management's Responsibility tor Financial Information 6
Financial Statements
ftmity is g iven t o
Auditor's Report 7
smah businesses in Balance Sheet 8
Statement of Income, Expense and Retained Earnings 9
mal communities
Statement of Changes in Financial Position 10
Notes to the Financial Statements 11
which, although viable,
a!e not a ble t o o btain
Authorizations for Fiscal Year 1998 19
financing from
Loans and Guarantees 20
conventional institutions.
Board of Directors 21
Priority i s a lso g iven t o
Alberta-owned Executive Officers 21
businesses which will
Branch Offices 22
create jobs, a re
intioducing
improvements in
pioductivitv of
technology, or h ave
expoit or t ouiism
potential.
Report f rom the D irectors
We are pleased to report another successful year During fiscal 1998 we implemented a Balanced
for Alberta Opportunity Company (AOC). Scorecard performance measurement system to
better measure the efficiency and effectiveness of
During the fiscal year ended March 31, 1998, we our contribution and the impact of our borrowers
continued to fulfill our mandate to serve the on the economic development of Alberta. This
people of Alberta by providing financing to those Balanced Scorecard will help us address both our
entrepreneurs who have promising business ideas, long term and short term objectives and strategies
but cannot find the financing they need through in the years to come.
conventional commercial financing sources. More
than 300 entrepreneurs were so assisted during the During the year, we also undertook a survey of
year, joining the 8,000 other businesses that have AOC's current borrowers, which showed that they
been started or expanded with AOC financing over generate annual gross revenues exceeding
the past 25 years. $600 million, of which $102 million are exports
outside Alberta. This survey also found that over
Achievement of Financial Objectives 7,000 people were employed representing an
annual payroll of $129 million. Borrowers paid
Highlighting the year's operations, our lending $7.1 million in corporate and local taxes, exclusive
activity to Alberta's entrepreneurs increased from of any payroll, GST or other indirect taxes. As part
the previous year by $8.1 million (21 percent), to a of our ongoing performance measurement effort
total of $46.3 million. This increase in lending we will continue to report these, and other
further contributed to a 25 percent increase in our
performance measures, to affirm our contribution
overall loan portfolio, which grew to $93.8 million to the continued growth of Alberta business.
at year end. Our Balance Sheet was strengthened
as a result of this activity, and our retained
Operational Effectiveness
earnings position now exceeds $20.7 million.
This was also the first full year of operations under
We continue to measure our achievements against our revised organizational structure. As a result of
performance indicators established in our annual this restructuring, we were able to streamline
Business Plan. For the year, actual results compare administration through information system
to these targets as follows: improvements, shortened lines of communication
in the approval process, and a "flatter"
Performance Indicator Goal Actual management structure. This new management
New loans/guarantees $30.8 million $43.3 million structure has been very effective, and we will
Export Financing $ 3.5 million $ 3.0 million
continue to seek and implement new ideas which
Operating Grant from
allow us to provide better service at lower cost.
Government $ 6.7 million $ 6.8 million
Our ongoing goal is to maintain this effectiveness
Net Cost to Government $ 6.7 million $ 2.1 million
while holding true to both our mandate and
Jobs created/preserved 2,300 2,544
prudent credit management practices.
These results confirm that there is still a need for
The Road Ahead
our services, particularly in smaller centres which
are sometimes overlooked by the major financial
Alberta's economy continues to grow and prosper
institutions. We should emphasize that we remain
through the notable contribution of our vibrant
committed to these smaller centres, and have
small business community. Despite some
always collaborated with commercial lenders in
identifying and structuring financing opportunities softening within the energy sector, AOC's portfolio
of clients remains optimistic and well positioned to
for entrepreneurs in these locations.
meet the challenges of the new millennium.
We believe our commitment to operational
We look forward to assisting Alberta's
effectiveness and prudent loans system entrepreneurs to maintain our strong economic
management sees us well placed to meet the climate into the1 new millennium.
needs of the business community we serve. At
AOC, we continue to believe in the virtues of
entrepreneurship and the essential role
entrepreneurs play in the expansion and health
of the provincial economy.
AOC will continue to concentrate on its core
business of providing term loan assistance to
viable small businesses unable to obtain
financing from conventional lenders. The need
for small business financing in Alberta,
particularly in rural areas, remains strong.
Ac tivity levels in 1998 were among the highest
in AOC's 25-year history. Demand from
entrepreneurs for the services of AOC is
expected to remain strong in 1999, with total
loan and guarantee assistance targeted at
$42.8 million.
Management Discussion & A na ysis
The detailed discussion and analysis in this
the Province of Alberta's Consolidated Cash
section is provided to assist readers in their Investment Trust Fund. Interest expense includes
assessment and understanding of the results of interest paid to the Province of Alberta on
operations and financial position of Alberta debenture and note borrowings. In 1998 net
Opportunity Company (AOC). It a lso provides a interest revenue increased by $1.2 million due to
the growth in the loan portfolio, and reduced
review of AOC's risk management policies and an
outlook for the future. This section should be
borrowing requirements due to strong cash flow
read in conjunction with the audited Financial and the increase in retained earnings position.
Statements and supporting notes reported on The increase in application and processing fees is
pages 7 to 18 of this report. Dollar amounts due to the high level of loan authorizations for the
presented in the tables are in thousands. year. Grant from Province of Alberta is required
to maintain the financial viability of AOC for
Overview of 1998 Results providing assistance to small businesses. In 1998
the grant decreased by $0.6 million as planned for
AOC's 25th anniversary year was very successful, in our three-year business plan. Plans for 1999
with activity levels among the highest in the
are to reduce the grant by a further $1.4 million
Company's history. In 1998, we placed 316 (20.3 percent).
loans, bank guarantees and export guarantees
which totalled $46.3 million and surpassed 1997
Operating expenses
results by $8.1 million. This high level of lending
AOC's non-interest operating expenses increased
activity resulted in a 25 percent growth in the size
by 23.0 percent to $7.5 million in 1998. Total
of our loan portfolio. A strong economy, low
non-interest operating expenses are shown by
market interest rates, and the benefits of ongoing
expense category in the following table:
process re-engineering initiatives contributed to a
net income of $4.7 million for the year,
1998 1997 % Change
notwithstanding a decrease in grant assistance of Operations (excluding
$640,000. This compares to 1997 net income of salaries) $ 2,061 $ 1,874 10.0%
$5.3 million. Salaries and benefits 3,275 4,091 (20.0)%
Charge for loan losses and
losses on realization 2,152 122 1763.9%
Results of Operations
Total non-interest
Income operating expenses S 7,488 $ 6,087 23.0%
AOC's income, net of interest expense, increased
The increase in operations expense of $0.2 million
by 6.7 percent to $12.2 million in 1998. This
is primarily due to a loss incurred on property
increase is shown by income category in the
held for sale. Improved business processes and
following table:
"/(.Change computer technology upgrading supported a
1998 1997 reduction in staff that was implemented March 31,
Interest Revenue 13.0% 1997. In 1998 the total number of employees
Interest I x pense $ 8,829 $ 7,815 (5.2)% decreased by twenty-two (27.0 percent) resulting
4,077 4,300
Net interest income 35.2 % in a decrease in total salaries and benefits of
4,752 3,515
Application and $0.8 million. The charge for loan losses and
processing fees 640 474 35.0 % losses on realization increased in 1998 by
Grant from Province
$2.0 million due to a general allowance for loss
of Alberta
Income net of 6,787 7,427 (8.6)% on the increased portion of the loan portfolio. In
interest expense 6.7 % 1998 a conservative approach for providing
$12,179 $1 1,416
allowances on impaired loans was maintained.
Allowance for loan losses was established at 8.5
Interest revenue is earned from interest charged
percent of the total loan portfolio in both 1998
on outstanding loans and from cash deposited in
and 1997.
AOC
4
Financing activities Interest rate risk refers to the sensitivity of net
Note and debenture debt was $77.8 million as at interest income to changes in interest rates. This
March 31, 1998, an increase of $16.5 million
risk is managed by borrowing a mix of short-term
from March 31, 1997. This increase is related to
and long-term debt through the Province of Alberta
the increase in the loan portfolio. As per at fixed interest rates and terms designed to balance
agreement with the Alberta Heritage Savings and
the average terms of AOC's loan portfolio while
Trust Fund, the proceeds from loan prepayments maintaining an appropriate interest spread.
by borrowers were used to make additional
debenture payments of $6.4 million. Current Operational risk is the potential for loss as a result
financing needs were met by borrowing from the of a breakdown in information or transaction
Province of Alberta at current market rates. As at processing or legal compliance systems due to
March 31, 1998 the weighted average interest procedural or systems failures, errors, natural
rate on notes and debentures payable was disasters or fraudulent activity. Operational risk is
5.6 percent compared to 6.2 percent at March 31, managed by a system of internal controls that
1997. The weighted average interest rate on requires segregation of duties, clearly established
loans receivable was 9.3 percent as at March 31, authorities, documentation of policies, procedures
1998 and 9.7 percent as at March 31, 1997. and code of conduct, accounting and record-
keeping systems, financial and managerial
Risk Management
reporting, back-up procedures and insurance
coverage.
AOC's framework of risk management includes
processes for the evaluation and acceptance of
risk within appropriate limits in the areas of credit Future Outlook
risk, interest rate risk and operational risk.
Demand for small business financing in Alberta is
Credit risk is the risk that AOC will incur a loss expec ted to remain strong in 1999. Maintaining
due to the failure of a borrower to meet its loan tight operational cost controls and effective use of
obligations. The risk range in which AOC available resources are of utmost importance in
operates tends to be higher than that of the order to maintain or increase lending activity levels
banking sector or other conventional financing with reduced grant assistance. Major changes in
institutions. This is because the mandate of AOC 1999 involve improvements in technology.
is to provide loans to Alberta businesses that have Updated computer systems, which include a
viable business proposals, when such support is comprehensive management information system,
not available from conventional lenders. will enable us to make further gains in productivity
Standards that are applied in the management of and decision-making effectiveness.
credit risk include:
• c l ear communication to credit officers of
lending policies, security requirements and
operating procedures;
• c o mpetency requirements for all officers
whose responsibilities include evaluation of
credit risk, and delegation of decision-making
authority consistent with demonstrated
ability;
• disciplined decision-making with loan
proposals evaluated by a minimum of two
officers. In the case of all large loans,
approval from a committee of senior
management or the Board of Directors is
required;
• prompt recognition, regular monitoring and
timely valuation of problem accounts.
Management's Responsibility for F inancial Information
The accompanying financial statements of The Board of Directors is responsible for
Alberta Opportunity Company and all ensuring management fulfils its responsibilities
information in this annual report are the for financial reporting and internal control and
exercises this responsibility through the Budget
responsibility of the Company's management
and have been reviewed and approved by the and Audit Committee of the Board, which is
Board of Directors. The financial statements composed of Directors who are not employees
have been prepared in accordance with of the Company. The Budget and Audit
Canadian generally accepted accounting Committee meets regularly with management
principles and necessarily include some and the independent auditors to discuss
amounts that are based on informed judgments auditing and financial matters, gain assurance
and best estimates of management. Financial that management is carrying out its
information presented elsewhere in the annual responsibilities and to review the financial
report is consistent with that contained in the statements. The auditors have full and free
financial statements. access to the Budget and Audit Committee.
In discharging its responsibility for the integrity
The Auditor General of Alberta, the Company's
and fairness of the financial statements, independent auditor, is responsible for auditing
management maintains financial and the transactions and financial statements of the
management control systems and practices Company and for issuing an opinion thereon.
designed to provide reasonable assurance that
transactions are authorized, assets are
safeguarded and proper records are
maintained.
Chair
// President and CEO
Auditor's Report
AUDITOR
GENERAL
Alberta
To the Board of Directors of Alberta Opportunity Company
I h ave audited the balance sheet of Alberta Opportunity Company as at March 31, 1998 and the
statements of income, expense and retained earnings and changes in financial position for the year
then ended. These financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on my audit.
I c onducted my audit in accordance with generally accepted auditing standards. Those standards
require that I p lan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In my opinion, these financial statements present fairly, in all material respects, the financial
position of the Company as at March 31, 1998 and the results of its operations and the changes in
its financial position for the year then ended in accordance with generally accepted accounting
principles.
FCA
Auditor General
Edmonton, Alberta
April 30, 1998
Balance Sheet
March 31, 1998 (in thousands)
1998 1997
ASSETS
Cash
Deferred charges and accounts receivable $ 5,836090 q> 3,/3Z9Z9
Property held for sale (Note 3) 154 196
I n ans rprpivablp (Notp 4)
75,003
93,755
Capital assets (Note 6) 823 709
$ 100,901
$ 80,029
LIABILITIES AND RETAINED EARNINGS
Accounts payable and accrued expenses
Notes and debentures payable (Notes 7 and 1 1) $ 771,,786703 $ 6 11,,293351
Pension obligations (Note 8) 508 794
80,141 63,960
Retained earnings
20,760 16,069
$ 100,901 $ 80,029
Approved on behalf of the Board of Directors:
The accompanying notes are part of these financial statements