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It’s A Tough Industry Everywhere

It’s no secret that Canada’s forest sector has been on a perpetual downward slide. For close to a decade, earnings have slumped and mills have closed.

It’s no secret that Canada’s forest sector has been on a perpetual downward slide. For close to a decade, earnings have slumped and mills have closed.

The aggregate Q3 losses of $632 million for Canadian forest and paper companies announced recently by PricewaterhouseCoopers may have resulted in a collective sigh of dismay, but such dismal reports no longer raise industry eyebrows.

However, as PricewaterhouseCoopers’ Craig Campbell points out, this is not a “Canadian” problem confined to our borders. It’s a tough industry to make a buck in around the world.

As leader of PwC’s Performance Improvement Practice for the global forest and paper industry, Campbell speaks from experience.

“We’ve consistently lost money in this industry for the last two to three years,” he grants. It is this fact alone that paints a more dire picture for Canada’s forest sector than for other industries, such as the automotive sector, for example. Businesses that were profitable before the economic collapse of 2008 have a better shot at climbing back out of the hole than enterprises that were struggling to stay in the black before the meltdown. “We know that forestry operates on a cyclical system of downturns with a three-to six-year cycle. But when the recession hit, we were already in the trenches,” Campbell says.

Who is to blame, if anyone, for the fact that the nine largest public forest and paper companies in western Canada posted losses of $210 million for the third quarter of 2009? Should we be turning an accusing finger inwards for the $422 million third-quarter loss of the six largest forestry and paper companies in the eastern part of the country? Campbell thinks perhaps not.

While it indisputably remains that Canadian neglected, for a number of reasons, to invest in new businesses, plants, and to develop opportunities overseas, other regions whose forestry sectors are widely considered “successful” are not far ahead in terms of profits.

“They aren’t blowing their lights out in South America,” Campbell notes. While this region typically enjoys a 10% ROCE (return on capital employed), Canada and the U.S. stand at an approximate 4-5% ROCE.

“While Brazil is doing the best, that’s largely because their climate allows trees to grow extremely quickly, and that has drawn the eyes of investors,” Campbell says. “We might be a little behind in terms of creativity, but there is no predominant model of success and there is no one country or company that has this all figured out. It’s a tough industry around the world.”

Even Canada’s paucity of creativity is showing signs of replenishment with advances in bio-energy and transition through mergers. “We’re going to see a lot of change,” Campbell cautions. But as Winston Churchill once said, there is nothing wrong with change, if it is in the right direction.

Heather Lynch

Heather Lynch is a former assistant editor of Pulp & Paper Canada, and a frequent contributor to the magazine.