Gains in 2011 in B.C.’s Top 100

Asian demand drives ?healthy gains among ?B.C.’s top companies. (Return to B.C.'s Top 100 of 2011.) ?Real estate rebounded, commodities climbed to new heights and B.C.’s biggest companies held their own in 2010, even as a capricious loonie made local products a hard sell.?  

Banks are forecasting growth for the B.C. economy into 2012.

Asian demand drives 
healthy gains among 
B.C.’s top companies. (Return to B.C.’s Top 100 of 2011.)

Real estate rebounded, commodities climbed to new heights and B.C.’s biggest companies held their own in 2010, even as a capricious loonie made local products a hard sell.

Total revenue for the Top 100 companies rose 7.3 per cent over 2009, even while U.S.-dollar-denominated items became smaller contributors to companies’ balance sheets, muting the effect of rising gold and copper prices. This soundly reversed a decline in revenue in 2009, and put revenue growth for the province’s top companies in a range seen during the boom times of the last decade, when growth in excess of seven per cent a year was routine.

The robust growth made good on the projections of many economists that 2010 would be a better year than 2009, despite the warning signs: the threat of rising interest rates, ongoing caution with respect to consumer confidence and the uncertain recovery in the U.S.

Yet if 2010 started with idle container ships in the Pacific, it ended with real GDP in B.C. increasing by about 3.4 per cent, according to a research report published by Royal Bank of Canada in March 2011. Robust revenues contributed to a newfound sense of optimism among the province’s biggest companies, which trickled down to small and mid-sized businesses as well. Surveys by the Canadian Federation of Independent Business tracked a rising tide of confidence in B.C.

The one cloud threatening this parade of good news is sluggish domestic demand, but if local markets were lacklustre, overseas demand was buoyant. “There is a recovery going on in North America, obviously, and in Europe,” says Jim Brander, a professor in the Sauder School of Business at UBC. “It’s slower than a lot of economists and others would hope, especially in the United States. But growth in Asia, particularly in China and to some extent in India, continues to be rapid. Asian growth, unless something crazy happens, is going to continue to be the driver of the world economy for the foreseeable future – the next decade or two anyway. . . . That helps B.C. more than any other jurisdiction in North America.”

Economic policies might take some credit for the province’s performance over the past decade, but 2010 was distinguished by a boost from commodities. Canada as a whole benefited – consider China’s interest in Potash Corp. of Saskatchewan Inc. – but B.C. was particularly well positioned because of its position on the Pacific Rim. Coal and other commodities enjoyed “substantial production increases” according to the RBC report, boosting the fortunes of companies such as Westshore Terminals Income Fund.

Brander doesn’t see the bull run ending in the near future. While commodities were routed by the markets in late spring, he doesn’t see volatile trading as being a significant risk factor for local companies. The best-managed companies will be able to ride out the waves through hedging policies and ultimately land higher when the storms are through.

“I don’t see standard ups and downs as being a huge issue, even though those ups and downs are pretty big,” he says. “As far as the trend is concerned, the trend for commodities has to be up.”

The downside of a bullish commodities outlook is the impact on the loonie. Companies can hedge all they like, but a strong dollar typically benefits importers and those seeking to invest in their operations more than it does exporters.

“The fundamental element for Canada, our commodities are in high demand – great news. It’s bad news for our dollar,” economist Mario Lefebvre of the Conference Board of Canada told guests at a presentation hosted by the Downtown Vancouver Business Improvement Association last February. While the strength of the dollar has benefited manufacturers, it makes Canada a more expensive place for foreign buyers. “Our commodities are going to be in high demand for years to come,” he said. “That’s not good news for our exports.”

It’s a mixed blessing for forestry companies, however. While they export processed lumber and other value-added goods, they’ve also been able to take advantage of a strong dollar and low interest rates to make improvements to their operations. Lefebvre believes manufacturing is poised to roar back in the next five years as investments in equipment begin to yield fruit for the manufacturing sector.

RBC shares the optimism of Brander and Lefebvre, predicting B.C. can take advantage of a global network of opportunities. “We believe that the further strengthening in the U.S. economy and expanding trade ties with fast-growing China will help the B.C. economy,” the bank notes in its March 2011 provincial outlook. While growth will slow in 2011 as the B.C. economy absorbs the past year’s gains, the bank forecasts growth of 3.2 per cent in 2012.