More upsides to our economic downturn
Gary Lamphier
EDMONTON
Saturday, October 25, 2008
EDMONTON - Hi there. It's me again, Zippy (a.k.a. Mr. Happy Talk). Huh? You say you're getting tired of my annoying,
sugar-coated blather while your stock portfolio melts into oblivion?
Well, so am I. Trust me, this silver-lining-behind-every-cloud shtick doesn't come naturally. I'm a born skeptic. I hate spin. So this will be the final instalment in my weeklong effort to bring joy to a depressed world.
But I'm also a contrarian. So now that the rest of the planet has jumped ship and piled into the life rafts, I'm inclined to ease back in my deck chair, order another tall drink, and uncover the good news behind the ugly headlines.
Oddly enough, even now, it's not hard to find. Take high gasoline prices. Just two months ago, every newspaper and TV newscast was filled with stories about drivers gouged at the pumps, as prices soared past $1.30 a litre.
Well guess what? With oil prices below $65 US a barrel, gas prices have also plunged. On Friday, drivers could fuel up at some local stations for as little as 92.9 cents a litre. That's a drop of 30 per cent. And it's not only regular folks who will save a bundle. So will all the vehicle fleets used by our fire, police and ambulance services. A welcome break for the city's budget planners.
It's also a huge break for taxi fleets, trucking companies, utilities like Epcor and Atco, telecom firms like Telus and newspaper carriers.
Meanwhile, Alberta's inflation rate, which topped six per cent a few short months ago, is down to 2.8 per cent. That's more than half a point below the national average of 3.4 per cent. Good news for everyone.
Another thing. The plunging loonie -- as I noted Thursday -- has softened the big drop in energy prices for Alberta's producers. Even at current prices, oil still fetches more than $81 Cdn a barrel.
That's almost exactly what it was worth when the province released its 2008 budget last spring.
The sagging loonie, now below 79 cents US, is also boosting the bottom lines of hundreds of Alberta firms that sell into the U.S., the Middle East, Russia and other parts of the world where the greenback is the reserve currency.
Companies like Upside Software, ZCL Composites, Micralyne, Matrikon, McCoy Corp. and a boat-load of others.
"If you were sitting here like me and absorbed in our business, you'd have no idea there was a recession coming. We're busier than we've ever been," says Ashif Mawji, CEO of Upside, a contract software-management firm whose clients include such U.S. giants as Intel and Proctor & Gamble.
"This year we're projecting 30-per-cent growth in revenues and a doubling of our profits," he adds, as every downtick in the loonie boosts Upside's bottom line. Nearly 70 per cent of the firm's revenues are generated in the U.S.
Matrikon, an Edmonton-based industrial-software firm that generates 40 per cent of its revenues in the U.S., is another big winner. After suffering $700,000 in foreign exchange losses in 2007, it's now booking handsome gains.
As a result, Matrikon expects to post record profits of about $9 million, or 30 cents a share, on revenues of some $80 million for fiscal 2008, and the company recently announced its second special dividend.
"The opportunities for our company look really good. The business looks really solid, we've turned the corner from a year ago, and as results have shown we've made some dramatic improvements," says Nizar Somji, Matrikon's CEO.
The economic slowdown and the recently announced delays in key oilsands projects should also make it easier for Matrikon to recruit engineers and other qualified staff, he says. The company, which has more than 520 employees worldwide, is currently trying to fill 20 to 30 staff positions.
Over at McCoy Corp., it's a similar story. The diving loonie has helped the maker of drilling-rig power tongs to boost its revenues and earnings outside the country, even as activity in Western Canada slumps.
"It's pretty significant to McCoy -- very positive to our bottom line," says CEO Jim Rakievich. "We do export a lot of products in U.S. dollars outside of Canada, particularly to the drilling equipment market."
Like Matrikon, the foreign-exchange losses McCoy suffered last year, when the loonie soared to $1.10 US, have turned to foreign-exchange gains. About 45 per cent of McCoy's exports go to the U.S., with the rest destined for customers offshore who also buy in U.S. dollars.
Even the widely publicized delays in major oilsands projects have a silver lining. For years, environmentalists -- and former Alberta premier Peter Lougheed -- have complained about "out of control" development in the oilsands.
Suddenly, the pace of development has slowed sharply. That should be good news for the environment, for overstretched engineering firms, for construction firms and other suppliers.
It should end the era of rampant cost inflation, and give the entire oilsands industry a chance to catch its breath. Honestly, is that really so bad?
AI
