Survey snippet 2: Profit expectations even out
Aug. 29, 2018 - With lumber prices at record highs over the past year and experts predicting a “super-cycle”, it’s not surprising that logging contractors across Canada expect their slice of the profit pie.
By Maria Church
In 2016 we asked CFI’s Contractor Survey respondents what a fair profit range is for an established, productive logging contractor. We defined profit margin as return on revenue as a percentage, or profit before income tax divided by total revenue. E.g. $5,000 of profit on $100,000 of revenue is a five per cent profit margin.*
Responses varied across regions, but all told 40 per cent of contractors felt a fair profit was between 11 and 15 per cent, 23 per cent wanted to see a 16 to 20 per cent profit and just 6 per cent felt above 20 per cent profit was fair.
Based on results from the same question in our 2018 Contractor Survey, the most notable jump in perceptions of a fair profit margin was in the above 20 per cent category. Fourteen per cent of contractors feel above 20 per cent is a fair profit, nearly twice that of the 2016 respondents.
By combining all responses that feel 11 per cent or more is fair (see chart), it appears contractors have evened out their expectations. While Atlantic Canada and Quebec still have the lowest expectations for profit, both provinces, as well as Ontario and Alberta, all increased their numbers compared to 2016 responses. The B.C. Coast and Interior dropped their expectations, but still see above average numbers of 69 and 78 per cent respectively.
We asked mill woodlands staff the same question in both surveys. In 2016, the majority (55%) felt that a margin above 11 per cent was fair, with another 33 per cent feeling six to 10 per cent was a fair profit margin for an established contractor. In 2018, more woodlands staff feel 11 per cent or more is fair – 66 per cent of the total respondents. Similar to contractor responses, the largest jump was in the above 20 per cent category; 17 per cent of mill woodlands staff say 20 per cent or more is a fair profit in 2018, compared to zero giving that answer in 2016.
*Editor’s note: An earlier version of this article incorrectly defined profit as the per cent of EBITDA (earnings before income tax, debt and amortization) versus total revenue. It has since been corrected according to how the survey question was worded to define profit. We rely on respondents to accurately report their profit numbers.
Missed last week’s survey snippet? Find a collection of reports published to date here. Look for more news from the CFI 2018 Contractor Survey in our enews over the coming weeks, with a final digital report in December and a summary in the November/December print issue. Be sure to subscribe to our free enews to get all the latest industry news.
The survey was conducted in June 2018 by independent research firm Bramm & Associates, generating over 275 replies to a detailed list of questions. Respondents were distributed according to the geographic breakdown of the forest industry, with 40 per cent in Western Canada, 25 per cent in Quebec, and the rest found in Ontario, Atlantic Canada, and central Canada. Within B.C. responses were split between the BC coast and Interior. Many thanks to our sponsors for making the research possible – Hultdins and Tigercat.