Positioning for the Upturn

Alberta’s blue chips weather the sudden shift from boom times to bust

by Barry James, Nick Greenfield, Stephen Olney and Claudine Pilon, PricewaterhouseCoopers LLP

Gone are the days when growth, often in the double digits, constituted business as usual in Alberta. During the current economic downturn, many companies have had to make quick, tough decisions and sacrifices in order to survive. This year’s Venture 100 survey reveals the pressures facing companies and how they are responding. But it also reveals that, for some companies, the downturn has offered a tremendous opportunity to gain a competitive advantage. Some are using this period of tumult to get buy-in not only for rapid, effective cost reduction but also for the necessary restructuring to focus on strategic priorities that will position them for future success.

For the eighth year in a row, PricewaterhouseCoopers LLP has undertaken an analysis of the Venture 100. What follows is a look at some of the pressures that have faced Albertan companies in the past year and how they have coped, from an anemic credit market to emissions regulations. Those that have seized this down cycle are now poised to be the first to leap forward when the upturn arrives.

A comparison of this year’s Venture 100 by revenue reveals some jockeying among the top five. EnCana Corporation earned revenues of just over $32 billion – a 39% increase from last year – surpassing last year’s number 1, Imperial Oil Limited, which fell to number 2 (while still posting strong results with revenues of $31.2 billion and growth of 25%). Suncor Energy Inc. vaulted to number 3 from 5 last year on the strength of 62% growth, earning revenues of just over $30 billion. Petro-Canada fell from third last year to this year’s number 5 spot, with revenues of $27.6 billion and growth of 30%.

The combined total revenues in 2008 for the Venture 100 companies was $382.2 billion, up from $301.9 billion last year. This growth of 27% belies the Jekyll-and-Hyde nature of the business outlook in 2008, going from record oil prices in July to the dramatic slowdown in the world and national economy in the second half of the year. What’s more, if you look at the consolidation in the energy sector, which tends to dominate the upper echelons of the largest 100, next year’s list will almost certainly have more movement to come. It’s a virtual lock that Suncor will assume the top spot next year as a result of its merger with Petro-Canada, but the movement throughout the list as a result of consolidation, acquisition or divestiture will undoubtedly result in a shuffling of the rankings like we have not seen in years.

The Venture 100 list is comprised of approximately 85% public companies and 15% private. To learn more about these companies, their success and what their view about the future is, Alberta Venture asked them to provide information about their research and development and capital expenditures projects and outline their priorities, issues and concerns about the current economic environment, and what they are doing to invest for the future.

Two themes emerged that warrant further discussion: first, how to navigate through the economic recession and, second, how to proactively manage the shift to a low carbon emission economy. The first is a short- to medium-term challenge, whereas the second is part of a global transformation that will dictate a new business reality far into the future.

From their responses to our survey, many companies are actively positioning themselves for the inevitable economic recovery, in spite of pressure on revenues, layoffs and reduced access to capital. While in many cases that means shedding non-core assets, postponing capital investments and an often ruthless campaign to reduce operating costs, a surprising number of companies are seizing the opportunity to improve their productivity and market position. Supreme Group (#116), for example, told us it was investing in new, more thoroughly automated facilities. Apex Distribution (#114) recently completed two acquisitions. Clark Builders (#87) and Sultran Ltd. (#150) have both opted to invest in their information technology and human resources systems. Q’Max Solutions (#122) is implementing a formal strategic planning process to achieve long-term objectives.

At the same time, governments all around the world are starting to be much more definitive that there needs to be a co-ordinated response to climate change. Policy-makers are positioning themselves and their jurisdictions to find the value proposition that will allow them to respond to climate change while still maintaining the competitive edge of their domestic industries. In 2007, Alberta was the first province in Canada to pass regulations requiring both reporting and reduction of greenhouse gas emission intensities for large industrial facilities. In the first year alone, companies in the province made 2.6 million tonnes of actual reductions in emissions, which is equivalent to taking almost half a million cars off the road. Later in the year, the federal government passed an amendment to the Canadian Environmental Protection Act that lowered the threshold for mandatory reporting of greenhouse gas emissions.

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