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Survey Snippet #2 – What’s fair contractor profit?

June 27, 2016 – While Canada is a capitalist society, Canadians can be surprisingly uncomfortable talking profit. It’s the oil that runs the machine, and at CFI we feel the more profit the industry generates, the better.

June 27, 2016  By Scott Jamieson

So in our 2016 Canadian Logging Contractor Survey, we asked both logging contractors and company woodlands reps to define a fair profit margin range for established logging contractors. 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.* In our Survey Snippet #2, we look at those answers.

Country-wide, forty per cent of contractors felt that in 2016 a fair profit range lay between 11 to 15 per cent. This sentiment varied slightly with company size – 54 per cent of the largest contractors, those with over $5 million in revenue, felt this range was fair. Almost a quarter (23 per cent) of all contractors felt a profit between 16 to 20 per cent was fair.

Expectations among logging contractors also varied greatly with location, with the greatest expectations held by BC Interior contractors, followed by the BC Coast, and Alberta. Expectations drop sharply as we head east, likely reflecting industry struggles in general. Only 36 per cent of loggers in Atlantic Canada feel that a profit margin of over 11 per cent was fair.

In contrast, 92 per cent of BC Interior contractors felt that such a margin was fair. To put this in context, most of the larger BC forest companies saw a 2015 profit of between 10 and 12 per cent, respectable for a commodity business. See chart below for all regions.

fair profit range by region

When mill woodlands staff were asked the same question, the majority (55 per cent) 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.

*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.

In next week’s Survey Snippet, CFI looks at the profit logging contractors are actually making. Spoiler alert – reality falls short of expectations.
Look for more news for the CFI 2016 Contractor Survey on www.woodbusiness.ca and in our enews in the coming months, with a final digital report in August and a summary in the Sept/Oct print issue. Be sure to subscribe to the enews to get every item.

Missed Survey Snippet #1 – Logging rate increases uneven? Read it here.

The survey was conducted in April 2016 by independent research firm Bramm & Associates, generating over 230 replies to a detailed list of questions. Respondents were distributed according to the geographic breakdown of the forest industry, with 50 per cent in Western Canada, 25 per cent in Quebec, and the rest found in Ontario, Atlantic Canada, and central Canada. Within BC responses were almost evenly split between the BC coast and Interior. Many thanks to our sponsors for making the research possible – Hultdins, Stihl, Tigercat and Ponsse. Also made possible with support from the Ontario Media Development Corporation (OMDC).

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