Losses among Canada's largest forest companies increased more than 560 per cent in 2007 from 2006, the worst performance in the sector in the world, according to a report released Wednesday by PricewaterhouseCoopers.
The report -- which looks at the 100 largest forest, paper and fibre-based packaging products companies in the world, measured by revenue -- includes 13 Canadian companies, six of them in British Columbia.
Net losses among the 13 Canadian companies climbed to $1.1 billion in 2007, up from $166 million a year earlier. Ten of the 13 companies were in negative territory, including all the companies from B.C.
PwC uses return on capital employed (ROCE) to compare performance among companies. Canadian firms, with a total ROCE of -0.1 per cent, were the worst of those surveyed. Latin American companies had the strongest performance, with ROCE of 7.8 per cent, emerging Asia (China, Korea, Thailand, Taiwan and India) averaged a 7.3-per-cent return, and companies in the U.S. averaged returns of 5.5 per cent.
It was "not a good year," said Craig Campbell, a partner with PwC's global forest and paper practice.
In the pulp-and-paper sector, a lot of the poor results came from restructuring as companies shut down because high-cost Canadian mills were squeezed out by lower-cost foreign producers, Campbell said.
In lumber, the biggest culprit was the strong Canadian dollar.
"Then you throw in the housing crisis in the U.S. and the pine beetle [in B.C.], duties on lumber going to the U.S., and higher transportation energy prices because of fuel prices going up -- that's a recipe for further train wrecks," Campbell said.
Things may not be getting any better soon, with slower economic growth forecast for 2008 in Canada and high commodity and energy prices expected to keep the Canadian dollar near par with the U.S. dollar, the report said.
"Hence the immediate outlook for the Canadian forest products industry remains poor as it waits the turning point in U.S. markets," it added.
PricewaterhouseCoopers also measured how much companies were reinvesting in their operations.
Canadian companies had a capital reinvestment ratio of 0.4, well below the 1.0 needed to maintain the current level of activity.
"That means we are not replacing the assets that are being shut down or depreciating," Campbell said.
But that's inevitable in British Columbia because of high costs in certain sectors, such as newsprint, which can't compete with countries elsewhere in the world, Campbell said.
In the pulp-and-paper industry, "it's just a transformation we have to get used to," Campbell said.
"It's kind of like the restructuring of the steel industry and the shipbuilding industry when it went from Europe to Asia."
Pat Bell, B.C.'s minister of forests and range, defended the province's forest companies, saying there were some particularly strong players, as well as some independents that would not have been included in the study, that were well positioned.
"That all said, I do not deny that it is a very difficult time in the forest industry," Bell said in an interview.
He said it was unacceptable that no B.C. companies were in the Top 30 in ROCE.
The only way to get companies to reinvest is to have the right policies in place, he said. And those policies will aim at getting companies to focus on growing more trees and seeking new products and markets.
"I think it is a very, very dynamic time in our history right now," Bell said.
"It's one that is changing far more rapidly than any of us are used to. And it's important we get the right policy framework in place to make sure these mills thrive going forward and get that type of return on capital employed they expect."
fionaanderson@png.canwest.com
Here's how the companies in B.C. (in bold) and the rest of Canada fared last year:
Company Sales Profit (loss) Return on capital
West Fraser $3.1 billion ($32 million) -0.4%
Canfor $3.1 billion ($337 million) -3.0%
Catalyst $1.6 billion ($30 million) +2.5%
Western Forest $832 million ($52 million) -6.1%
Interfor $571 million ($12 million) -2.4%
Ainsworth $509 million ($202 million) -5.1%
Domtar $5.9 billion $70 million +4.5%
AbitibiBowater $3.9 billion ($490 million) -4.0%
Cascades $3.7 billion $89 million +4.6%
Tembec $2.6 billion ($46 million) -0.1%
Norbord $1.1 billion ($45 million) -1.4%
Mercer Int'l $964 million $30 million +5.7%
Fraser Papers $714 million ($44 million) -11.9%
* Return on capital is calculated after removing unusual items from net income, which is why some companies managed to have positive returns despite suffering losses.The Vancouver Sun
