Management’s Discussion and Analysis
Introduction The Management’s Discussion and Analysis (MD&A) highlights the primary factors that affected SaskEnergy’s consolidated financial performance for the six months ended September 30, 2024. Using financial and operating results as its basis, the MD&A describes the Corporation’s past performance and future prospects, enabling readers to view SaskEnergy from the perspective of management. The MD&A is presented as at November 20, 2024 and should be read in conjunction with the Corporation’s condensed consolidated financial statements, which have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS). For additional information related to the Corporation, refer to SaskEnergy’s 2023-24 Annual Report. The MD&A contains certain forward-looking statements that are subject to inherent uncertainties and risks. Many of these risks are described in the Risk Management and Disclosure section of SaskEnergy’s 2023-24 Annual Report. All forward-looking statements reflect the Corporation’s best estimates and assumptions based on information available at the time the statements were made. However, actual results and events may vary significantly from those included in, contemplated by, or implied by such statements. The volume of natural gas delivered to customers is sensitive to variations in weather, particularly through the prime heating season of November to March. Additionally, changes in market value adjustments may cause significant fluctuations in net income due to the volatility of natural gas prices. Therefore, the condensed consolidated financial results for the first six months of 2024-25 should not be taken as indicative of the performance to be expected for the full year. The Corporation’s financial results are subject to variation, especially given the volatility of natural gas prices. To compare financial performance from period to period, the Corporation uses the following measures: income before unrealized market value adjustments; realized margin on commodity sales; and realized margin on asset optimization sales. Each measure removes the impact of fair value adjustments on financial and derivative instruments and the revaluation of natural gas in storage to the lower of cost and net realizable value. Unrealized market value adjustments vary considerably with market prices of natural gas, drive significant changes in the Corporation’s consolidated net income and may obscure other business factors that are also important to understanding the Corporation’s financial results. The measures referred to above are non-IFRS measures, in that there is no standardized definition and may not be comparable to similar measures presented by other entities. The discussion of the Corporation’s results in the MD&A, set out on the following pages, is a comparison of the results for the six months ended September 30, 2024, to the results for the six months ended September 30, 2023, unless otherwise noted. Operating Environment SaskEnergy monitors a number of important external factors that could influence financial performance. The Canadian economy has shown positive growth in 2024, with an approximate increase of two per cent in the first half of the year and a projected growth rate of around one and three-quarter per cent in the second half. However, cost-related obstacles continue to cloud the outlook for many Canadian businesses, with inflation continuing to be an obstacle for some businesses in the near term, as elevated costs of goods and services linger after inflation peaked and is starting to decline. Other businesses anticipate challenges relating to high interest rates and debt costs to have a larger impact. In addition, soft demand, uncertainty about domestic and global economic conditions and the impact of taxes and regulations are also contributing to business pressures. These pressures remain elevated and Canadian businesses continue to adjust their pricing expectations as cost pressures evolve. While inflation has cooled to the mid-point of the Bank of Canada’s target range, the cumulative price increases over the past three and a half years have created ongoing affordability challenges for many. From January 2021 to August 2024, the “all-items” CPI rose by 17.1 per cent, equaling the cumulative increase in inflation during the ten years prior to 2021. Cumulative price increases since early 2021 have been more pronounced for household essentials, notably food and shelter. Shelter costs have increased by 23.5 per cent since early 2021, while food prices have risen by 22.8 per cent. Other CPI components have seen much slower price growth, with prices for household operations, furnishings, and equipment rising by almost 6.0 per cent since inflation began ramping up, while prices for clothing and footwear have remained relatively unchanged.
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