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The Gazette Article - "Bachand's outlook a bit on rosy side " - Wednesday, October 8, 2008 - By Peter Hadekel
Not everyone will agree with the modestly upbeat assessment delivered this week by Quebec Economic Development Minister Raymond Bachand. Bachand said Quebec's economy has remained relatively unscathed by the financial crisis now hammering North America and parts of Europe. While growth won't be robust, Quebec should weather the storm quite well in industries such as pharmaceuticals, he predicted. Aerospace and civil engineering sectors, where companies sell worldwide and are not overly dependent on the U.S. market, also should fare well, he added. But there's already evidence to the contrary. The slowdown is hurting demand for business jets made by Montreal-based Bombardier Inc. and it acknowledged yesterday orders are falling as the credit crisis deepens.
IMMUNOTEC SUMMARY
$40 Million in Annual Sales
Double Digit Sales Growth
No Bank Debt
$8 Million in Cash
Another Montreal-area company, Jean Coutu Group, is struggling with its moneylosing shareholding in U.S. drugstore chain Rite Aid. Bachand did concede industries more directly tied to the U.S. economy are hurting. These include furniture, forest products and auto parts. The minister may not want to admit it, but economists are busy marking down their forecasts for the provincial economy as the chill in the United States spreads north. It's going to be hard for many Quebec manufacturers and exporters to escape the effects of a U.S. slowdown. Shell-shocked U.S. consumers won't be in a spending mood as they struggle with falling home values, uncertain job prospects and a lack of bank credit.
Two factors that could help ease the pain for Quebec exporters would be a continued fall in the value of the Canadian dollar and a sustained decline in both energy and commodity prices. Manufacturers were hit hard when our dollar soared to a peak of $1.09 U.S. last year and when oil prices topped $140 U.S. a barrel. Now that the dollar is flirting with 90 cents U.S. and oil prices have dipped near $90 U.S., companies are getting a break that will make their products more competitive. The prices of the materials they use are falling.
Another factor likely to help is the province's base of small- and medium-sized business enterprises. Activity in this sector is likely to outpace the rest of the economy during an economic slowdown, according to a report by economist Benjamin Tal of CIBC World Markets. Simon Prévost, head of the Quebec division of the Canadian Federation of Independent Business, notes most small businesses are local, and are not affected by stock losses or widening credit spreads. "Forty per cent have no bank debt at all." Of course, it's hard to generalize about the impact of this financial crisis. Individual companies will be affected in different ways.
Consider Immunotec, a Dorion-based nutritional supplement company with close to $40 million in annual sales. About 45 per cent of current sales are to the U.S., says chief executive officer Jim Northrop. The financial crisis hasn't had an impact so far, he said. Immunotec is showing double-digit sales growth in the U.S., including last month. The company's resilience has to do with the nature of the product, and the way it's sold, Northrop said. Its leading product, Immunocal, is a nutritional supplement designed to strengthen the immune system. U.S. consumers see it as a low-cost way to boost health and avoid the costly U.S. medical system, he said.
"Like any other business, we're not immune to changes in the consumers' perceptions of their disposable income. We tend to be resistant, though, because of the business model that we use to market the product."
Immunotec relies on a direct sales force of about 15,000 distributors in North America: self-employed entrepreneurs who run their own operations and sell direct to the consumer. That means low-cost entry into the U.S. because it avoids the cost of shipping inventory to retailers. As well, Immunotec has no bank debt and about $8 million in cash, Northrop said, so it doesn't need short-term credit at a time when credit is scarce.
Its optimism, however, is not likely shared by those Quebec firms carrying larger debt loads, who are more exposed to the current weakness in banking.
phadekel@videotron.ca
© The Gazette (Montreal) 2008
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