B.C.’s Top Companies in Holding Pattern

B.C. economy | BCBusiness

B.C. companies hold their own in a crisis-hit global economy (Return to B.C.’s Top 100 of 2013)

Tapping the barometer is an old trick when you’re trying to figure out which way the weather’s heading. It may not have moved for hours, despite the forecast of an impending storm, but that simple tap may disclose a hint of what’s to come. So it is with this year’s list of the province’s top companies.

While ruling politicians tout the resilience of B.C.’s economy, casting the province as a haven in a world roiled by debt crises and jobless recoveries, tapping the province’s top companies for their financial data offers a check on the optimism.

On the surface, things are good: aggregate revenues for companies on this year’s list topped $142 billion, up 1.9 per cent from last year’s tally. But the growth didn’t measure up to that of the province as a whole, where nominal GDP increased four per cent.

Despite the nominal growth in aggregate revenue, the cut-off point for admission to this year’s Top 100 biggest revenue earners was unchanged from last year at $250 million in annual revenue. The list of public companies even saw that threshold drop, from $32 million to $28 million.

B.C. may be holding its own, but a change in the weather seems to be brewing. A number of companies among the province’s top 25 saw revenue drops last year, most notably resource and energy companies. Teck Resources Ltd. saw revenues drop 10.2 per cent and Westcoast Energy Inc. revenues declined 7.2 per cent. (Retailer Best Buy Canada didn’t submit data for this year’s survey, and revenues were modestly diminished two per cent in an estimate.)

The top drops in revenue were posted by Canaccord Financial Inc. (down 24.7 per cent), Raymond James Ltd. (down 19 per cent), Canfor Pulp Products Inc. (down 13.9 per cent) and Mercer International Inc. (down 13.4 per cent). PMC-Sierra Inc. was an outlier among high-flying tech companies, with annual revenues down 18 per cent.

A comparison of aggregate revenues for the top 10 companies in various sectors uncovers more insights. While the composition of each sector break-out list changes from year to year, financial services posted the biggest drop: the top 10 companies brought in 25 per cent less revenue this year compared to last year’s top 10. Mining saw aggregate revenues for its top 10 companies drop nearly five per cent compared to last year’s top 10.

While cautious to name a single sector as responsible for the slack pace of growth among the province’s biggest companies, Daniel Shapiro, dean of the Beedie School of Business at SFU, points to the dominance of resource companies and international trade in the provincial economy as key factors.

“It would be my guess that the mining and the commodity intensiveness of the B.C. economy is the root problem,” he says. “B.C., relative to the rest of the country, is far more exposed to Asia, and the Asian economies have slowed down—particularly China.”

The circumstances pose a conundrum for the province, which last year saw Asia overtake the U.S. to become its single largest trading partner. Trade strategies and infrastructure projects all focus on Asia as the province’s great hope, but the short-term prognosis isn’t all roses. “We are looking at a relatively slow growth period going forward,” says Bryan Yu, an economist with Central 1 Credit Union.

The phenomenon isn’t limited to exports to Asia, but is dependent on overall business confidence. “I think there’s a lot of hesitation on the part of business to make additional investment because the overall economy, the economic outlook, is still pretty muddy,” Yu says.

“Companies are still facing a consumer that’s very hesitant at making any major purchases,” Yu points out. “Add into that a housing market that’s slowed considerably over the past year, especially in Vancouver, and you have a recipe for slow domestic growth.”

The bright light for the province is the U.S., where housing markets seem to be recovering and starts recently hit a five-year high. “We anticipate that this momentum will continue throughout the remainder of this year and into 2014 as the residential real estate market continues to normalize, with starts nearing its longer-term average of 1.4 million annualized units by the end of next year,” said David Onyett-Jeffries of RBC Economics, in one of the bank’s regular economic updates.

While the fortunes of pulp and paper producers have dipped, stronger U.S. housing starts promise better times for lumber producers. Indeed, Conifex Timber Inc. and Ainsworth Lumber Co. Ltd. posted some of the greatest revenue gains of the past year.

The activity promises spinoff benefits for the rest of the province’s economy, as operators invest in mill operations and ramp up production to meet U.S. demand. “[It’s] putting upwards pressure on pricing for lumber, so companies in B.C. are more willing to make some additional capital expenditures to take advantage of that higher price,” Yu observes.

Ultimately, that reinvestment promises dividends for the province as a whole as it waits for the economy to return to a more robust pattern of growth.