It was a year of global disasters: the collapse of Enron Corp., the currency chaos in Argentina, the continuing meltdown-as-usual in the telecommunications sector, to name a few.
Yet if you look at the top names in our annual Top 1000 ranking of Canada's largest corporations by profit, many of them look surprisingly robust. The Royal Bank of Canada and the Bank of Nova Scotia, in the No. 1 and No. 2 slots, each posted record profits of over $2 billion. The other Big Five banks were on a roll as well. In the oil patch, Shell Canada (No. 11) and Petro-Canada (No. 12) were among several giants posting record profits. The pace of mergers and acquisitions was torrid as well, capped by the $30-billion union of PanCanadian Energy Corp. and Alberta Energy Co., completed in April, to form EnCana Corp. (No. 7), Canada's second-largest oil company and the largest independent. Canada's biggest life insurers, led by Manulife Financial Corp. (No. 10, see page 20), had another solid year, expanding into new businesses and new markets.
However, the whole-year profit numbers also show things as good as they got. By the end of the year, massive cracks appeared in just about every sector. Air Canada (No. 995), struggling even before the Sept. 11 attacks decimated air passenger traffic, posted a $1.3-billion loss, and its debt swelled to more than $11 billion, including aircraft lease commitments. Oil-and-gas company profits declined by half or more in the fourth quarter due to falling petroleum prices. The banks begin their financial year on Nov. 1, and for the first quarter of 2002, they had to write off hundreds of millions of dollars worth of loans to Argentina and beleaguered telecommunications companies such as Teleglobe Inc. at home, and Global Crossing Ltd. abroad.
The unrelenting series of telecommunications disasters is truly spectacular. For the second year in a row, Nortel Networks Corp. is at the bottom of The Top 1000, its loss ballooning to $27.5 billion from $3 billion in 2000. As our market capitalization tables show, the company's stock market value has declined by more than $230 billion over the last two years-an amount bigger than the gross domestic product of South Africa or Finland.
Last year's No. 1-ranked company, BCE Inc. falls-and falls hard-to No. 30, its profit sinking by 89% to $523 million. In April, chairman and CEO Jean Monty stepped down. BCE announced it was walking away from Teleglobe Inc., the long-haul carrier that it bought for $7.4 billion in 2000 from Quebec magnate Charles Sirois (see page 27). That left banks and bondholders with more than $3 billion in debt. Other segments of BCE are also reeling. Bell Canada International Inc.'s (No. 979) share price has declined by more than 99% since its peak in 2000. Shares in BCE Emergis Inc. (No. 986), BCE's "e-commerce solutions" arm, have declined by more than 90%.
With all that shareholder value simply evaporating, credibility has been a major casualty. Like many telecommunications companies, Nortel and BCE spent billions on acquisitions during the tech boom of 1999 and 2000. Now they are writing off billions in goodwill-the difference between the sky-high prices they paid for those acquisitions and the tiny tangible value of the assets they bought. Coupled with the document-shredding by auditors and the hoodwinking of financial analysts in the Enron scandal, is it any wonder that many investors no longer trust accountants, or Wall Street and Bay Street investment dealers?
Multimillion-dollar executive pay packages, even at money-losing companies like Nortel, are also contributing to investor cynicism. Former Canadian Pacific Ltd. CEO David O'Brien, who stepped down after splitting the company into five, collected $83.1 million in salary, bonus and stock option gains. But his company no longer exists, and Mercer Human Resource Consulting Ltd. excluded him from the 50 top-paid executives (see page 115). Average salary and bonuses for those executives dropped by 11% to $3 million, reflecting reduced profits. "The high-fliers got cut back," said Ken Hugessen, head of the compensation practice at Mercer. After including stock options and other long-term incentives, average total compensation dropped by 21% to $11.3 million. Whatever happens to profits, Hugessen says companies will continue to offer generous options packages to attract and retain top talent. "If you won't, someone else will."
During this year's annual meeting season, shareholders at many companies grilled management. It's quite a change from even a decade ago, when dissent was about as common as it was in the old Soviet Union. Given the growing internal and external challenges facing corporate leaders, their jobs will continue to get tougher in 2002. For investors, that's a good thing.
5 Top 1000 newcomers
2001 RANKING....COMPANY
36 Canadian Pacific Railway Ltd. 53 Lafarge Canada Inc. 79 CP Ships Ltd. 87 Fairmont Hotels & Resorts Inc. 97 Fording Inc. 5 that have left
2000 RANKING....COMPANY
7 Canadian Pacific Ltd. - Split into five last October 15 Alberta Energy Co. - Joined PanCanadian to form EnCana 69 Cdn. Hunter Exploration Ltd. - Bought by Burlington Res. 383 Canada 3000 Inc. - Went bankrupt 994 Clearnet Communications Inc. - Acquired by Telus Corp. biggest % profit gains
RANK....COMPANY...............................% change
1 Western Spirit Investments (Se01) 409,830 2 Aber Diamond(Ja02) 6,904 3 Unique Broadband Systems(My01) 5,964 4 Aspen Group Resources(Ju01) 2,132 5 Spectra Premium Industries(Ja02) 1,878 biggest % profit declines
RANK....COMPANY...............................% change
1 Namibian Minerals(De01) -124,407 2 Creo Inc.(Se01) -29,529 3 Hip Interactive(Ma01) -14,386 4 True Energy(De01) -11,046 5 Budd Canada(Se01) -4,757 highest returns on common equity
RANK....COMPANY.............................ONE-YEAR RETURN
1 Laniuk Industries(Au01) 238 2 MDP Worldwide Entertainment(Se01) 194 3 Hurricane Hydrocarbons(De01) 107 4 Guardian Capital Group(De01) 103 5 Grilli Property Group(Au01) 95 6 Xentel Dm Inc.(De01) 91 7 Marsulex Inc.(De01) 87 8 Argonauts Group(Jl01) 80 9 Empire Company Ltd.(Ap01) 69 10 Westfair Foods(De01) 66 lowest returns on common equity
1.......Algoma Steel(De01)........................-990
2 MDR Switchview Global Networks(De01) -617 3 Berwick Retirement Communities(Ap01) -488 4 Intl. Utility Structure(Se01) -405 5 Nortel Networks Corp.(De01) -336 6 UltraVision Corp.(Ma01) -320 7 724 Solutions(De01) -298 8 Cedara Software(Ju01) -287 9 World Heart(De01) -276 10 Taseko Mines(Se01) -273