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Province of Alberta
Dublin
Investor Meetings
March, 2017
Lowell Epp, Assistant Deputy Minister,
Treasury and Risk Management
Canada
Quick facts • 10th largest economy and 9th least risky country in the world(1)
• Federal Government, 10 Provinces and 3 Territories
– Westminster parliamentary system; direct and indirect taxing powers
• GDP of US$1.6 trillion in 2015
– Major industries include natural resources and manufacturing
– Population of 36M; highest growth rate in G8 during last decade
– Moderate unemployment rate at 6.6%
• Provinces have significant autonomy
– Provincial ownership of natural resources
– Responsible for health care, primary and post-secondary education
– Direct taxing powers include personal income, corporate income, mining
taxes and royalties, value added/sales, fuel and payroll taxes
– No federal guarantee on provincial debt
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(1) Euromoney Country Risk score
Alberta’s economic strength & solid
fundamentals remain • Alberta’s (AB) economy hit hard by drop in oil prices
• Real GDP recovery expected in 2017
• Economy has softened, but core strengths remain
– Broad-based economic growth
– Massive oil reserves; production growing
– Growing population
– Economy is very capital intensive
– Highest GDP per capita of any province
• Continue to have solid fundamentals
– Demonstrated resiliency to commodity price shocks
– Largest fiscal capacity among provinces
– Skilled workforce, with young population
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Mining, quarrying, and
oil and gas extraction
19%
Finance and Real estate
15%
Professional, scientific and
technical services
6%
Health care and social assistance
6%
Public administration
5%
Transportation and
warehousing 5%
Other 17%
Construction 11%
Trade 9%
Manufacturing 7%
Economic structure
AB’s economy at a glance
• Between 2000 and 2014, the province
experienced broad-based industry
growth that outpaced the rest of
Canada
• AB’s contribution to national GDP in
2015, declined to 16% and about 20%
to exports
• AB’s share of the national population
is about 12%
• Young, skilled population with
highest employment rate (around
67%) in Canada, despite significant
layoffs in 2015 and 2016
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Share of nominal GDP by industry, 2015
Share of nominal GDP by industry, 2015
Source: Statistics Canada
Expect modest recovery in 2017; Real GDP forecasted to increase 2.6%
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266
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0 50 100 150 200 250 300 350
Venezuela
Saudi Arabia
Canada
Economic structure
3rd Largest reserves & production growing
Despite price declines, production continues to rise(2)
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AB’s oil reserves are massive and open to private investment(1)
(1) 2016 Global reserves: U.S. Energy Information Administration, Alberta Energy Regulator
(2) Statistics Canada, Alberta Energy and Baytex Energy (March 13, 2017), f-forecast
(Bill
ion
s b
bl)
Oil sands
1.0
2.0
3.0
4.0
0
40
80
120
2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f
(Mill
ion
bp
d)
(US
$/b
bl)
Western Canada Select (Left)
Alberta Oil Production (Right)
Economic structure
AB’s population expected to grow
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Sources: Statistics Canada and Alberta Treasury Board and Finance, Budget 2017, f-forecast
Population growth is forecast to expand faster than Canadian
average, supporting consumer spending and housing
Change in the Alberta population by component
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
-20
0
20
40
60
80
100
120
140
2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f
(%)
(Th
ou
sa
nd
s)
Natural Increase (Left) Net International (Left)
Net Interprovincial (Left) Population Growth (Right)
Economic structure
Long-standing economic prosperity
Nominal GDP per capita
7
AB has proven to be resilient in the face of tough economic times
Sources: Statistics Canada, and TD Economics forecasts (Dec, 2016) . Alberta Treasury Board and Finance numbers updated with Budget 2017.
0
20
40
60
80
100
1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017f
($ T
ho
usa
nd
s)
Alberta Ontario BC Rest of Canada Average
Fiscal policy
AB’s fiscal capacity Alberta has a significant Tax Advantage compared to all provinces(1)
8
0 4 8 12 16 20 24
Newfoundland & Labrador
Quebec
Prince Edward Island
Manitoba
Nova Scotia
New Brunswick
Ontario
Saskatchewan
British Columbia
($ billions)
(1) This graph shows the total additional provincial tax and carbon charges that individuals and businesses would pay if Alberta had the same tax system and carbon charges as other provinces. This information reflects tax rates for other provinces known as of March 3, 2017. A minimum carbon charge of $10/tonne is assumed in 2018 for all provinces according to the federal government’s carbon pricing plan. This comparison includes personal and corporate income tax, sales tax, fuel tax, carbon charges, tobacco tax, health premiums, payroll tax, liquor tax and markups, land transfer tax and other minor taxes.
Fiscal policy
Revenue sources(1)
• Non-Renewable
Resource
Revenue can be
large, but variable
• Combined other
sources provide
stability and
support growth
9
(1) A=Actual, E= Estimate, T=Target.
$0
$10
$20
$30
$40
$50
$60
Re
ve
nu
e (
bill
ion
s)
Non-Renewable Resource Revenue Income and Other Taxes
GoC Transfers Investment Income
Net Income from Gov Business Enterprises Premiums, Fees and Licences
Other
Fiscal policy – Budget 2017
Key metrics Fiscal policy
• Contain rate of growth of government operating expense to the
rate of population growth plus inflation
• Manage province’s fiscal position with a long-term view
– Maintain government services, instead of making drastic cuts
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2015-16 2016-17 2017-18 2018-19 2019-20
Budget 2017(1) Actuals Forecast Estimate Target Target
Consolidated Revenue 42.5 42.9 45.0 47.6 51.8
Consolidated Expense 48.9 53.7 54.9 56.7 58.0
Surplus / (Deficit) (6.4) (10.8) (9.8) (9.0) (6.2)
Risk Adjustment - - (0.5) (0.7) (1.0)
Surplus / (Deficit) After
Risk Adjustment (6.4) (10.8) (10.3) (9.7) (7.2)
(1) Numbers may not add due to rounding.
Fiscal policy
Capital Plan
• $32.8B over 4 yrs
• Includes, $3.4B for ancillary projects self-financed by Alberta
Health Services, post secondary institutions and school boards
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(1) E= Estimate, T=Target, P= Projected.
$0
$2
$4
$6
$8
$10
2017-18E 2018-19T 2019-20T 2020-21P
($ b
illio
ns)
Financial management
Borrowing program
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2017-18 Borrowing
(1) Includes amounts borrowed on behalf of the Balancing Pool; $494 million in 2017-18; $833 million in 2018-19; $699 million in 2019-20.
(2) Includes new and re-financing of maturing term debt
$12.3 $6.8
Direct Borrowing
Provincial Corporations
Borrowing Requirements(1)
($ billions) New Total(2)
2017-18 Estimate $15.5 $19.2
2018-19 Target $15.8 $18.6
2019-20 Target $14.1 $19.1
Fiscal policy
Low debt burden
2016-17 Projected Net Debt to GDP(1)
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(1) RBC: Public accounts basis. Numbers are based on reports from individual governments and, due to accounting differences, are not strictly comparable between provinces. Sources include: Fiscal reference tables (Department of Finance Canada), various provincial budgets, budget updates and public accounts. As of Feb 21, 2017. Alberta’s ratio calculated by Treasury Board based on Budget 2017 forecasts.
15%
3.1%
12%
34%
38%
48%
42%
37% 35%
50%
0%
10%
20%
30%
40%
50%
60%
British
Co
lum
bia
Alb
ert
a
Sa
ska
tch
ew
an
Ma
nito
ba
On
tario
Quebec
Ne
w B
run
sw
ick
No
va
Sco
tia
Prince
Ed
wa
rdIs
land
New
foundla
nd
& L
abra
dor
Projected Net Debt to GDP(1) for 2017-18 expected to rise to 7.2%
Financial management
Maturity profile & liquidity(1)
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
Bill
ions
14
(1) As of March 16, 2017. Excludes Money Market amounts.
Financial management
Borrowing platform Domestic market
• Ensure liquidity
– Maintain larger domestic benchmark sized issues ($3-$4B)
– Infrequent domestic MTN issuance
– Monitor secondary market liquidity
• Control domestic supply
– Target issuance of 30%-40% or more to international markets
– More frequent large US$ benchmarks
– Opportunistic multi-currency issues
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Maintain strength of borrowing platform in domestic market and
build on strength in international markets
Financial management
Borrowing platform continued Foreign currency borrowing
• US$ Global Issues in 3, 5, 7, and 10 years
– Expect more frequent issuance now province is SEC Registered
– US$ CP program expected to come online in early 2017
• Sterling Benchmarks across curve driven by investor demand
• Continued Euro placements in longer terms with potential for
larger benchmark issues
• MTN and structured issues in other currencies, including under
the new AUD program as opportunities arise
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Summary
• Strong economic base
• Demonstrated resiliency to past commodity price shocks
• Continued high level of fiscal capacity
• Strong bond ratings
• Multi-currency, multi-market borrowing platforms
• Strong secondary liquidity
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Budget 2017
Assumptions(1)
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Fiscal Year (Apr- Mar 31) 2015-16A 2016-17F 2017-18E 2018-19T 2019-20T
WTI Oil (US$/bbl) 45 48 55 59 68
Light-Heavy Differential
(US$/bbl) 13.40 14.20 16.00 18.00 18.60
Natural Gas (CDN$/GJ) 2.21 2.15 2.90 2.90 3.00
Exchange Rate
(US/CDN$) 76.3 76.0 76.0 77.5 78.0
Calendar year 2015A 2016E 2017F 2018F 2019F 2020F
Real GDP Growth (%) -3.6 -2.8 2.6 2.2 2.4 2.5
Employment Growth (%) 1.2 -1.6 0.9 1.4 1.6 1.8
Unemployment Rate (%) 6.0 8.1 8.0 7.6 7.1 6.3
Appendix
(1) A=Actual, B=Budget, T=Target, F= Forecast. Source: Statistics Canada, Alberta Energy, Alberta Treasury Board and Finance
Budget 2017
Sensitivities 19
Appendix
Change
Net Impact
(2017 – 2018)
Oil Price (WTI US$/bbl) -$1.00 -310
Light-Heavy Differential (US$/bbl) +$1.00 -285
Natural Gas Price (Cdn$/GJ) -10 Cents -45
Exchange Rate (US¢/Cdn$) +1 cent -215
Interest Rates +1% -230
Primary Household Income -1 % -160
Fiscal Sensitivities to Key Assumption, 2017-18(1)
(1) Sensitivities are based on current assumptions of prices and rates and show the effect for a full 12 month period. Sensitivities can vary significantly at
different price and rate levels. The energy price sensitivities do not include the potential impact of price changes on the revenue from land lease sales.
Economic structure
Market access remains key
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Source: Canadian Association of Petroleum Producers
Continue to work to improve market access
Appendix
Approximate breakeven
Conventional oil projects • ~$25-$55 USD/barrel • Enhanced ~$50-$60 USD/barrel
Oil sands projects • Surface mine ~$80 - $85 full cycle • SAGD $45-$65 USD/barrel full cycle
Economic structure
Oil and gas investment to remain lower
21
Sources: Alberta Treasury Board and Finance, e-estimate, f-forecast, Budget 2017.
Appendix
AB oil and gas investment has shifted towards sustaining capital
0
10
20
30
40
50
60
70
($ B
illio
n)
Oil Sands Conventional oil and gas
Economic structure
Costs are coming down
22
Source: Statistics Canada
Appendix
Year-over-Year change in non-residential construction price index
-6
-4
-2
0
2
4
6
8
(%)
Alberta
Calgary
Edmonton
Economic structure
AB’s economy is very capital intensive 2017 Private Sector Capital Expenditures by Province
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Source: Statistics Canada
Appendix
$0 $10 $20 $30 $40 $50 $60
Alberta
NL
Saskatchewan
Manitoba
British Columbia
Quebec
Ontario
Maritimes
(billions)
Economic structure
Highest employment rate and incomes
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(1) Share of adults (15+) employed as of February 17, 2017. Source: Statistics Canada
(2) Including overtime as of December 2016. Source Statistics Canada
Average Weekly Earnings(2)
Appendix
Employment Rate(1)
66.5
40
50
60
70
NL PEI NS NB QC ON MB SK AB BC
(%)
National Avg. 61.4
$1,130
$500
$750
$1,000
$1,250
NL PEI NS NB QC ON MB SK AB BC
National Avg. $971
Economic structure
Housing activity remains sluggish
25
Sources: Canadian Real Estate Association, Canada Mortgage and Housing Corporation *3-month moving average
Appendix
Annualized AB housing starts, existing home sales and the average resale
home price(1)
Home prices have held up despite lower housing starts
360
370
380
390
400
410
420
20
30
40
50
60
70
80
($ T
ho
usa
nd
s)
(Th
ou
sa
nd
s)
Housing starts Existing home sales Average Resale Price
Financial management
ATB Financial(1)
• Professionally managed at arms-length basis from government
– Credit policies and other risk management not unlike those of any other
financial institution
– Subject to regulatory oversight by provincial and national regulatory bodies
• An agent of the crown, assets and liabilities belong to the crown
– Potential economic loss relatively small in relation to AB’s balance sheet,
budget and borrowing requirement
– Less susceptible to the risk of a run due to provincial guarantee of deposits
• ATB increased deposits during 2008/09 liquidity crisis
– Capital requirements set by the Minister of Finance
• Total Assets $48.7B, Total Liabilities $45.5B and Equity $3.1B
– Liabilities include: Loans from province $3.6B, Collateralized Borrowings
$6.8B, as well as Deposits and Other totaling $35.2B
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(1) As of December 31, 2016. Numbers may not add due to rounding.
Appendix
Financial management
Well funded public sector pensions
Fiscal Year Ending Mar 31 2012 2013 2014 2015 2016
Net Pension Assets (billions) $38.5 $44.4 $52.2 $60.1 $67.1
Aggregate Funded Status 78.4% 81.5% 87.1% 93.8% 99.4%
Liability for Province’s employer share
(billions) $1.5 $1.8 $1.8 $1.7 $1.5
Total Government Unfunded Pension
Liabilities (billions) $10.6 $10.9 $11.6 $11.2 $10.6
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Unfunded Pension Liability’s absolute value has remained fairly static,
but Aggregate Funded Status has greatly improved
• $8.1B of total unfunded liability from a settlement with teachers to deal
with an issue stemming from 1992 pension reform
Appendix
Public Sector Pensions
Information and contact
Website
http://finance.alberta.ca/investor/
Contact
Steve Thompson Chris Williams
Executive Director, Senior Analyst,
Capital Markets Treasury and Investor Relations
Province of Alberta Province of Alberta
780-644-5011 780-638-3876
[email protected] [email protected]
Disclosure Statement
This presentation was compiled by the Alberta Department of Treasury Board and Finance. The information in this presentation is for general information purposes only and does not constitute an offer to sell or a solicitation of offers to purchase securities. Certain forward-looking information or forward-looking statements have been included in this presentation for such general information purposes. These statements are based on the Province of Alberta’s current estimates or projections which the Province believes are reasonable. Such statements are not guarantees of future performance, and accordingly, you should not place undue reliance on them. Forward-looking information or statements involve known and unknown risks, uncertainties and other factors which could cause the state of the Province’s economy to differ materially from the forecasts and economic outlook expressed or implied by any forward-looking information or statements. Forward-looking information or statements speak only as of the date they are made. Alberta undertakes no obligation to update any forward-looking information or statements to reflect new information, future events or otherwise, except as may be required under applicable law. While the information in this presentation, when posted or released, was believed to be reliable as of its date, no warranty is made as to the accuracy or completeness of this document or the information it contains.
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