Combined earnings of B.C.?s most profitable companies have recovered to near record highs. But companies will need to work harder to improve their bottom lines in a persistently uncertain economy.
Total profit of the companies on this year?s list of the Top 100 most profitable companies in B.C. rose to more than $9.6 billion.
That?s a 28% increase from the $7.5 billion in profit from companies on last year?s list and 10% off the decade high of $10.6 billion in profit-based on Business in Vancouver research.
Forestry and mining companies contributed to most of the increase.
Nine public forestry companies posted a profit in 2010 compared with only four in 2010. Those with the biggest swings in profit included:
?West Fraser Timber (TSX:WFT): $166.2 million profit in 2010 compared with a $340.8 million net loss in 2009; and
?Canfor Corp. (TSX:CFP): $161.3 million profit in 2010 compared with a $70.5 million net loss a year earlier.
More than a quarter of the list this year includes mining companies. That?s up from 20 miners on last year?s list.
Among the biggest new companies on the list was Silver Standard Resources (TSX:SSO). It reported net earnings of $356.6 million, which included the $215 million it received from the sale of its Snowfield and Brucejack properties to Pretium Resources (TSX:PVG).
Also new on the list is New Gold Inc. (TSX:NGD), which enjoyed a $404.1 million swing to profitability, posting net earnings of $182.2 million compared with a net loss of $221.9 million in 2009.
Innovation remains key to maintaining and increasing profitability
While profitability may have recovered for many in B.C.?s resource sector from a bump in commodity prices, other companies in such sectors as retail, technology and manufacturing will need to innovate further to stay competitive.
According to Ron Patrickson, associate partner at Ernst and Young LLP, ?They have to be creative and innovate in developing new products and new, and better, ways to service customers.?
He said companies that relied on cost-cutting to maintain profits are more likely to face greater challenges in expanding their business than those that focused on growth.
A global Ernst and Young report released this spring found the least profitable companies relied extensively on older products or services that were developed more than three years ago. They were focused on maintaining profitability by taking advantage of economies of scale rather than product or service innovation.
In contrast, the most profitable companies generated 46% of their sales from new products and services developed within the past three years. Rather than being focused exclusively on cost control, the high performing companies bet on increased profits from providing market-leading goods and services.
According to the report, over half of the most profitable companies increased their product development by more than 11% in the past three years. A third of those companies said they had increased product development by 20%. For retailers, Patrickson noted innovation and differentiation will become even more important as more American retailers start eyeing opportunities to expand in Western Canada given the region?s economic strength relative to other parts of North America.
Following Target Corp.?s acquisition of various Zellers locations in Canada earlier this year, speculation has grown that more U.S. retailers are eyeing the Canadian market (see ?U.S. retail wave rolls north? – issue 1118; March 29-April 4).
While customers will focus on the price of merchandise, Patrickson said retailers will stay competitive if they focus on customer needs. The Ernst and Young survey found that two-thirds of high performing companies got their good ideas for products and services from their customers. About 75% got them from their customer-facing employees.
?More than ever, listening to customers and being responsive to them is key,? Patrickson said. ?Customers will pay [more] in the retail sector if you have a product that?s innovative, meets their needs and delivers what they want and doesn?t cause problems for them.?
Exporters face ongoing challenges in the U.S.
Staying globally competitive will remain a crucial challenge for half the companies on the Top 100 list that deal directly in the international market. Among the most urgent concerns facing exporters include the return of the ?Buy American? policy introduced in President Barack Obama?s new jobs bill.
Jayson Myers, president and CEO of the Canadian Manufacturers and Exporters Association (CME), said the provision will place a renewed ?chill? throughout the North American supply chain even though the measure relates to specific federally-funded infrastructure projects.
?It really has a pretty far-reaching impact,? said Myers. ?We?re seeing manufacturers affected, even companies that are not supplying the procurement markets that the jobs bill covers, because their American customers don?t want to buy Canadian product.?
Myers noted that the Harper government had negotiated an agreement to address the Buy American provisions last year, but he said the agreement only covers spending under the $787 billion U.S. Recovery and Reinvestment Act.
The CME has continued to lobby in the U.S. against Buy American, working with a coalition of 23 U.S. industry associations to get Congress to remove the Buy American provisions from the jobs bill that hurt U.S. industries that use Canadian products. But their demands might be falling on deaf ears.
?I was talking about this in Seattle,? Myers said, ?and a senator from Oregon came up to me and said, ?You?re absolutely right. But the problem is, my constituents don?t understand all of that. They just want jobs.??
He added that looking to other markets could be one of the few alternatives for exporters. But instead of focusing on direct exports to new markets, he suggested manufacturers can also export by partnering with larger Canadian companies that sell to other markets.
In either case, innovation will remain key to staying competitive. ?
