Financial statistics for enterprises

Canadian corporations earned record high operating profits of $204.5 billion in 2004, up 18.8% over 2003 levels. The 2004 profit growth was the strongest since 2000, largely due to significant gains in the first two quarters of the year. Virtually all major sectors gained ground in the year, buoyed by robust resource prices, steady employment growth, healthy consumer spending and higher export demand for Canadian goods. However, the effects of the stronger Canadian dollar, up about 7.5% on average against its US counterpart in 2004, contributed to slowing exports over the latter part of the year.

Within the financial sector, the depository credit intermediaries (mainly chartered banks) and insurance companies reported solid profit growth for the year.

On a quarterly basis, fourth quarter profits increased 2.4% to $52.9 billion, following little change in the third quarter. Non-financial companies led the way, as their operating profits rose 4.4% to $40.6 billion in the quarter. The financial sector saw profits slip from $12.8 billion in the third quarter to $12.3 billion in the final quarter of the year.

Rebound year for manufacturers

Manufacturers earned $49.0 billion in operating profits in 2004, well ahead of the $36.6 billion in 2003. Manufacturers faced a turbulent year in 2003, affected by the power blackout in Ontario, the surging Canadian dollar, the SARS outbreak in the Toronto area and the mad-cow crisis in Alberta.

The continuing US recovery and hefty global demand softened the effects of the stronger Canadian dollar on the export sector over the first half of 2004. However, revenue and profit growth tailed off by year end, as higher operating costs and the effects of the rising dollar on exports took a toll. The Monthly Survey of Manufacturing recently reported that shipments swelled 8.4% in 2004, the largest annual increase in four years. However, the year ended with shipments on a downturn.

Wood and paper manufacturers earned $6.6 billion in operating profits in 2004, their most profitable year since 2000. Profits had fallen for three straight years to a recent low of $2.4 billion in 2003. Wood prices strengthened for most of the year, but slipped over the last few months. Lumber exports showed substantial growth, particularly early in the year, as US construction activity remained vibrant. However, the stronger Canadian dollar trimmed returns for Canadian exporters.

Softwood lumber exporters to the US continued to be hampered by the ongoing countervailing duties, but extensive cost-cutting measures helped profit margins. Domestically, low mortgage rates, steady job growth and strong consumer confidence sustained record high levels of building construction, a boon for wood manufacturers. Meanwhile, North American markets for newsprint remained sluggish.

Soaring oil prices lifted petroleum and coal producers' operating profits to $9.4 billion in 2004, up 44.3% from the previous high of $6.5 billion earned in 2003 and more than twice the 2002 levels. Domestic and export sales of refined petroleum products advanced during the year.

Primary metal producers enjoyed a profitable year, as operating profits more than doubled to a four year high of $2.5 billion. This was attributed to vibrant demand for steel from China, coupled with strong steel markets from the oil and gas, construction and some manufacturing sectors.

Chemical manufacturing profits climbed 35.6% to $7.3 billion in 2004, reflecting higher shipments and improved margins.

On the down side, motor vehicle and parts manufacturers saw operating profits slide 15.8% to $2.9 billion. The number of new motor vehicles sold in Canada declined 3.1% in 2004 to the lowest level since 1999.

Robust prices buoy mining sector

Hefty worldwide demand coupled with supply concerns lifted crude oil prices to record high levels in 2004. Operating profits of oil and gas extraction companies climbed 7.2% to $21.6 billion for the year.

Strong metal prices drove up the operating profits of metal mining companies to $3.9 billion in 2004, more than triple the $1.2 billion earned in the previous year.

Improved results for wholesalers and retailers

Wholesalers posted their highest-ever results in 2004, as operating profits jumped 13.0% to $15.2 billion. Wholesalers of building materials (+40.6%) and machinery and equipment (+15.4%) turned in the largest gains.

Retail profits surged 25.5% to $14.1 billion in 2004. Operating revenue advanced by 4.1%, continuing a string of unabated revenue growth over the past six years.

Retailers of furniture and home furnishings, clothing and department stores and other retailers showed the largest annual profit increases.

Banks led financial sector gains in 2004

Led by the chartered banks, the depository credit intermediaries earned record high operating profits of $21.3 billion in 2004, up from $18.2 billion in 2003. Robust consumer and corporate lending, improved capital markets and lower provisions for loan losses spearheaded the gains.

Property and casualty insurers saw profits rise to $5.5 billion in 2004 from $3.4 billion in the previous year. Life insurers' profits advanced to $5.1 billion from $4.5 billion in 2003.

Profit growth resumed in the fourth quarter

After stalling in the third quarter (+0.7%), all-industry operating profits increased 2.4% to a record high $52.9 billion in the fourth quarter of 2004. The growth was centred in the non-financial sector, where operating profits rose by 4.4%. Financial sector profits, on the other hand, slipped 3.9% in the quarter.

Manufacturing companies improved marginally in the fourth quarter, as profits edged up 0.9% to $12.7 billion. Results were mixed, as gains in wood and paper and chemicals were largely offset by profit downturns in the petroleum and coal, primary metals and motor vehicle industries.

Wood and paper companies earned $1.9 billion in the fourth quarter, up 12.9% from the third quarter and more than double the profits earned in the final quarter of 2003. The improvement was largely achieved through efficiency gains, as returns on exports continued to be affected by the strong Canadian dollar. However, companies cautioned that slowing shipments, coupled with higher costs and the strong loonie, does not bode well for profits in 2005.

Chemical producers earned record high profits of $2.2 billion in the fourth quarter, up 22.3% from the third quarter.

Declining prices in the last two month of the year pulled petroleum and coal profits down to $2.3 billion in the fourth quarter from the record high of $2.6 billion earned in the third quarter. Profit growth earlier in the year had paralleled the unprecedented run-up of petroleum prices.

Primary metal producers ended a string of four consecutive quarters of profit growth, as fourth quarter operating profits declined 12.2% to $0.7 billion. Companies cited the stronger Canadian dollar, which peaked in November relative to the US dollar, and high fuel costs as major factors in the fourth quarter decline.

The slowdown in motor vehicle manufacturing took some of the wind out of steel demand. Primary metal prices remained well ahead of year-earlier levels in the quarter, but showed signs of softening by year-end.

Motor vehicle and parts manufacturers lost some ground, as profits slipped 4.1% to $0.6 billion in the fourth quarter. Operating revenue was down 7.7% from the third quarter. Exports of automotive products declined, while domestic motor vehicle sales slowed over the final two months of the year.

The information and cultural industry's operating profits rebounded from $1.5 billion in the third quarter to $2.0 billion in the fourth quarter, as the industry recovered from third quarter restructuring charges in the telecommunications services sector.

Financial sector lost ground in the fourth quarter

Fourth quarter operating profits of the financial industries fell 3.9% to $12.3 billion. The depository credit intermediaries lost ground due to an 8.7% decline in chartered bank profits. Year-end provisions for future reorganization costs, including severance pay and investment write-downs, pulled fourth quarter bank profits down to $4.4 billion, comparable to year-earlier levels.

Insurance carriers' profits were little changed (-0.4%) from the previous quarter.

Profitability ratios

The operating profit margin strengthened a full percentage point in 2004, rising to 8.0% from 7.0% in 2003. The return on average shareholders' equity improved to 11.1% in 2004 from 9.9% in 2003. Both ratios were at their highest level in over a decade.

For the fourth quarter, the profit margin increased to 8.2% from 8.0% in the third quarter. Meanwhile, the return on shareholders' equity slipped to 11.4% in the fourth quarter from a high of 11.8% in the third quarter, largely due to lower capital and currency gains.

Available on CANSIM: tables 187-0001 and 187-0002.

Definitions, data sources and methods: survey number 2501.

The fourth quarter 2004 issue of the Quarterly Financial Statistics for Enterprises (61-008-XIE, $28/$93) will soon be available.

Financial statistics for enterprises for the first quarter 2005 will be released on May 26. For more information or to order data, contact Louise Noel at Client Services (1-888-811-6235).

To enquire about the concepts, methods, or data quality of this release, contact Bill Potter (613-951-2662; bill.potter@statcan.gc.ca), Danielle Lafontaine-Sorgo (613-951-2634; danielle.lafontaine-sorgo@statcan.gc.ca), Richard Dornan (613-951-2650; dornan@statcan.gc.ca) or Haig McCarrell (613-951-5948; haig.mccarrell@statcan.gc.ca), Industrial Organization and Finance Division.