Visit this year's Top 1000 rankings of Canada's most profitable companies and find more tables, multimedia and analysis in Report on Business's full Top 1000 section.
When Report on Business magazine set out to sketch the first full picture of Canada’s 1,000 largest publicly traded companies back in 1984, the biggest banks occupied five of the nine most profitable slots below top-ranked phone heavyweight Bell Canada Enterprises. Three energy companies also made the top 10, along with now-defunct global booze giant Seagram, which came in third. Dozens of companies have joined the Top 1000 list in the ensuing three decades. But many former stars have followed Seagram out the door, as Canada’s universe of public companies has narrowed, thanks to the waves of foreign and domestic takeovers, mergers, buyouts, bailouts and bankruptcies that have gutted entire sectors.
Yet the leading players today look awfully familiar. The same lords of finance occupy five of the first six places on our latest profit scorecard, headed by the traditional pacesetter, Royal Bank of Canada, which reclaimed top spot after slipping to third a year earlier. In a year when the economy lost traction and total corporate profits slid sharply, bank earnings continued climbing, most by double digits.
It definitely pays, in other words, to belong to a cozy oligopoly whose regulated domestic market is largely kept safe from foreign predators. You could say the same for the folks running the modern iteration of BCE, whose protected turf and broadening media and mobile interests helped it climb to eighth from 13th a year earlier. The rest of the top 10 consists of venerable Imperial Oil (another holdover from the class of ’84), Suncor Energy, Canadian National Railway (a Crown corporation in 1984) and Potash Corp. of Saskatchewan (provincially owned back in the day).
The country’s 1,000 largest publicly listed companies notched total earnings of just under $93.3 billion in 2012, down nearly 12% from the previous year, as deep declines in resources more than offset strong gains from banks and insurers. It was the weakest performance since 2009, when profits plunged to $55.7 billion in the wake of the global financial meltdown and the worst economic slump since the Great Depression.
The finance-resource duopoly at the top of the earnings pyramid accounted for a combined 58.3% of the total. But at a time when commodity producers ran into stiff global headwinds and some hefty losses, the financials expanded their share of a smaller profit pie to 45.1%. Much of this was gobbled up by the six biggest banks, which stuffed their coffers with 31.4% of the 1000’s profits.
A couple of decades from now, our profit picture could look dramatically different, as communications and financial players spawned in the digital era, and developers of renewable energy, medical and other technologies, push their way up the ranks. Banks may even become smaller and less profitable, as Internet-based competitors take a growing bite out of their most profitable businesses. Heck, if a gossip website can raise $200,000 through crowdfunding in a matter of days to get its hands on a certain cellphone video, and a person apparently can buy a Porsche with virtual currency, who needs the expensive middleman? And the likes of BCE, Rogers (18th on the latest list), Telus (28th) and Shaw (37th) may well turn out to be right to fear the invasion of the channel-snatchers: Netflix, Apple and Microsoft, which plainly intend to lay siege to the Canadians’ profit-churning business models. It’s also not inconceivable that the traditional energy market that has enriched so many Canadian operators and investors could be turned upside down by then. “I would be surprised if you didn’t have the emergence of alternative power across the globe,” says Arthur Heinmaa, managing partner of Toron Investment Management in Toronto, who pays close attention to developing global trends as part of his focus on managing risk. “You’re already seeing it in solar. You’re getting [cost] decreases of 20% to 30% a year.”
Financial institutions may also feel the heat, as the business of packaging products and services like mutual funds and mortgages becomes increasingly commoditized, and clients find more innovative and cheaper ways of raising or parking capital and handling payments. “You always have to be careful of any business model that involves wholesaling,” Heinmaa says. “I may be shot down with a thunderbolt for saying this, but I suspect the whole finance side is going to be much smaller. Developments like crowdsourcing [of funds] are just in their infancy.”
But it’s Canada’s communications heavyweights that face the biggest threats from what analysts call “disruptive” innovation. “When you look at Netflix or Hulu [which streams video] or indeed even the new Xbox, there are a lot of technologies that could potentially displace the ubiquitous set-top box,” Heinmaa points out. “And then, they [the telcos and cable companies] just become providers of data into the house. Once you have the data, you can choose how you want to allocate it. Each year, they’re losing land lines. Now, a number of people are pulling the plug on TV. It wouldn’t be hard to imagine an environment where that starts to accelerate.”