Canadian Holiday Stats

What an Interim CFO Can Do for You and Your Business

Management of a business is complex. Business owners are experts in their respective fields, but they often have to manage people, systems and processes that fall outside their field of expertise. Many businesses have strong bookkeeping and controller functions, but a CFO delivers enhanced value. Various small to medium-sized businesses cannot afford nor require a full-time CFO and that is where an interim CFO can assist, and why you should consider adding one to your management and advisory team.

What is a CFO? And How are They Different from a Controller or an Accountant? 

Or perhaps the questions should be, why would I pay someone to do something I already get from my bookkeeper, accountant or controller? Although a CFO is responsible for the overall accounting function of an organization, they often rely on existing accounting staff. A CFO is not a bookkeeper or traditional accountant – and it is important to understand why, and what you should be getting from your CFO. 

Your accountant, whether they be external or internal, is largely focused on the following areas:

• Financial reporting (of things that have already happened)

• Tax filing and

• Potential tax savings

• Compliance

• Providing reactive information 

• Largely focuses on what has already happened

An interim/part-time CFO would work with your existing bookkeeping/ accounting staff, focusing on:

• Proactive advice to help drive growth

• Profits

• Improving margins

• Cash flow management

• Looking at future opportunities to provide strategic advice 

The strategic and financial advice received from your CFO would provide you with options your business should consider with data to back it up. Your interim CFO would develop and track key metrics (both financial and operational) to help management better understand opportunities to further improve and make more money. 

A CFO will use your bookkeeper, accountant or controller’s information as tools to enable analysis, assist in strategic planning and advise you on future opportunities. The CFO anticipates what is going to happen, focuses on improving profitability strategically and seeks ways to improve decision making. The CFO’s role is primarily advising the CEO to assist in strategic decision-making in the areas of:

• Capital structure, including banking and shareholder relationships and reporting, and fundraising;

• Developing key statistics and performance indicators to improve results;

• Improvements to cash flow and profitability;

• Forecasting and planning;

• Succession and exit strategies to maximize value;

• Risk management and compliance;

• Tax planning; and

• Diplomatically managing third parties relationships when necessary (banks, vendors, auditors, tax advisors, customers, investors etc.)

Many companies, including yours, hire controllers and bookkeepers. These individuals are extremely important for an organization, but small to medium-sized businesses can benefit from the skills of an interim CFO. These roles are not interchangeable and are very different, despite using some of the same tools and resources. 

““Beyond simply not knowing that they need a CFO, they don’t want to spend the money. What many entrepreneurs don’t realize is that they’re already spending that money in lost profits and misspending.

They’re not seeing the dynamics of the business from an educated financial point of view. You can’t always go with your gut in making financial decisions, which is what a lot of entrepreneurs try to do.”
”

— Inc.com June, 2017

Contact Whitehorn to Discuss Your Potential Needs, Especially if You Want Help Answering These Questions:

Do you want to:

• Increase cash flow and profitability?

• Seek opportunities in a challenging marketplace, but not sure of the risks or where to start?

• Get more operational and financial intel to help manage future decision making?

• Develop a rolling monthly budget?

• Create a financial model that tracks leading indicators and operational performance?

• Identify problem areas before they happen?

• Know your future cash flows and needs look like?

• Improve your lending and investor relationships?

• Exit or retire from your business within the next 3-7 years?

A good CFO helps make you more money, increase cash flow, improve your key financial relationships and provide a sounding board for strategic decision-making. Not all businesses need a full-time CFO; for those that only require a part-time CFO, Whitehorn has 10 years of experience working directly with private small to medium-sized business owners and has the know-hows to help move your business forward.

To outsource or not, that was the Dreamliner question

The introduction of the Boeing Company’s (NYSE:BA) 787 Dreamliners serves as an important milestone in commercial aviation, with the implementation of a global outsourcing supply chain network. This outsourcing strategy was unprecedented in the aviation industry at the time and raised eyebrows when announced. We conducted research to determine why Boeing upheaved its previous manufacturing process and the results that followed. In the following case study, we dive into Boeing’s outsourcing, risk identification and mitigation considerations.

Boeing: From Never Outsourcing to Global Outsourcing

On January 29, 2003, Boeing introduced its 787 Dreamliner aircraft concept to the world, marking an important milestone for Boeing and for commercial aviation. The 787 production represented a whole new global supply chain and international outsourcing process. The entire industry was shocked as Boeing had always relied on its internal manufacturing capabilities and had been on record vowing to never give up its wing production.

Turning to the World for the 787:

Why the Change?

Boeing’s management team decided to outsource globally after several supply chain roadblocks. One of the issues experienced was the inability to forecast the supply of aerospace fasteners due to an industry wide shortage and the cyclical demand (Boeing predicted in 2007 that there would be a shortage of fasteners until 2012, which it was able to resolve eventually with better inventory management processes). In addition, management realized the entire supply chain process could be simplified. Boeing changed its supply change network to a tiered system to deal with less suppliers directly, closely resembling the automotive manufacturing sector’s:

Pre-Dreamliner Supply Chain:

Dreamliner Supply Chain:

Management was also concerned with the financial risks associated with the 787s. By sourcing parts from various locations worldwide, Boeing believed that they would be able to convince the flag carrier airlines of these countries to purchase the new 787s. Boeing also envisioned the possibility of spreading the financial risks of development to its global suppliers while keeping manufacturing and assembling costs low.

Differences in Supplier Strategy:

What Worked for Boeing?

By implementing these unprecedented changes, Boeing was able to assemble its 787s within shorter cycle times. Final assembly went from 30 days down to three. Boeing was able to refocus its efforts on relationships with tier 1 strategic partners instead of dealing with raw material sourcing and early component sub-assembly. The company also understood the importance of vendor communication and developed a web-based tool called Exostar to increase supply chain visibility, improve vendor control and enhance the integration of critical processes.

Boeing also introduced risk-sharing contracts, where no supplier would receive payment until the first 787 was delivered to Boeing’s customers. This clause was meant to incentivize Boeing’s suppliers to meet Boeing’s deadlines. Despite being exposed to more financial risk, suppliers generally accepted the clause as Boeing allowed its suppliers to own the related intellectual property.

To gain better control over its supply chain and quality, Boeing stationed employees at supplier factories that were tasked to oversee production activities and to communicate progress to management. Boeing’s employees acted as external consultants to the suppliers to rationalize processes and redraw areas of responsibility to improve overall efficiency.

“Boeing leads the design effort, oversees the processes and tools, and holds both ourselves and our partners to the highest standards of performance on safety and quality.”

— Boeing spokesperson

Hurdles Along the Way

Boeing’s 787 manufacturing process involved dramatic shifts in its conventional supply chain strategy, as well as certain obstacles encountered during the transformation. For instance, the risk sharing contracts ended up backfiring as a few suppliers recognized the potential of being penalized unfairly despite completing their parts on time due to delays by other suppliers. The table below summarizes other key challenges encountered and how Boeing handled these:

Conclusion

Switching from traditional manufacturing and supply chain methods requires continuous commitment, communication and perseverance from all parties involved in the business. Boeing succeeded in navigating through this transformational change and reaping the benefits of the overall success in 787 sales and consequently, its share price appreciation. The 787s serve as a prime example where outsourcing is beneficial for companies with various sub-components in their final product. By outsourcing certain components of one’s manufacturing process, a company can better focus on its core expertise and customer service in the long term.

“Suppliers helped us develop and understand technologies and options for the 787 as we went through the early phases of concept development. Suppliers also provided more of their own development, design and manufacturing funding.”

— Boeing statement

Alberta’s Crude by Rail Solution

Since new mainline pipelines are currently vilified by a loud portion of the North American population, producers are turning to rail as an alternative to fill the continued growing demand for oil and gas products. The rail alternative has had lots of press in Alberta since the NDP government announced plans to lease or purchase over 4,000 tank cars to ship approximately 120,000bbls of Alberta crude oil to market each day. The current UCP government is moving away from this strategy and is in the process of selling the rail contracts to producers, possibly at a subsidized rate, as the recent provincial budget forecasts a $1.5-billion liability related to the contracts.    

At Whitehorn, we have recently done some rail related transactions, so our curiosity on the matter caused us to dig in and answer some questions:

• Is oil by rail a viable alternative?

• How much of Western Canada’s oil is currently transported by rail?

• How much more oil can Alberta & Saskatchewan currently load onto railcars?

• Is it significant enough to really matter?  

Canadian Oil Transportation

According to the Canadian Association of Petroleum’s (CAPP) 2019 annual Crude Oil Forecast: Markets and Transportation Report, rail offers an alternative mode of transportation that the industry relies on to transport crude and may rely on even more as pipeline projects continue to face challenges and delays. While rail is an important and a growing mode of transport, it is not without its limits and challenges. As Figure 1 below shows, the vast majority of Canadian crude oil is transported via pipeline, even if rail was to triple in the near term it would still be a minor contributor compared to pipelines. 

Source: Statistics Canada

Transload Capacity

The exact volume of crude and equivalent that could be loaded for rail in Western Canada in 2019 is not accurately known. Various sources, including industry executives and CAPP, suggest there is 1.1 million barrels per day of loading capacity at full utilization. However, the sector has never moved anywhere near 1.1 million barrels per day. Figure 2 notes the peak use of rail in Western Canada for moving crude and equivalent was in November 2018 when about 25,000 railcars were used to move roughly 500,000 bbls / day of oil on average. 

By just the math, it would seem there is room for another 600,000 bbls /day of transload capacity, an additional 600,000 bbls / day equals 12.5% of current production (0.6/4.8). Adding this level of capacity, is not statistically impressive but it is similar to the expected additional capacity of the Trans Mountain pipeline expansion. It seems like a no brainer, let’s get those railcars a rolling. Alas, it is not the easy.  

Unfortunately, transload capacity is not the only constraint to consider. The following constraints also exist:

• Railway Logistics - the railways need time to adjust service to accommodate any meaningful increase in shipments. The support and logistics of moving an extra 20,000 railcars per month through the system is not easily accomplished

• Product and Railcar Storage – There is not currently sufficient storage facilities close enough to the transload facilities to let it operate at full capacity. Adding storage for both product and railcars are significant long-term investments and an investor must weigh the risk of future pipelines displacing future rail shipments, which makes capital spends on storage assets rather risky investments.

• Price Spreads - The price for product at the railcar’ destination needs to have enough premium over the current price in Western Canada to make rail a reasonable alternative financially. This premium needs to cover:

  • The transport of the product to the transload facility,

  • Storage at the transload facility,

  • The difference in cost of rail transportation over the cost of pipeline transport; and

  • Potentially the cost of transload and storage at the destination. 

As you can see in figure 2, when the Alberta government initiated its production curtailment in February 2019 the volume of railcars moved dropped sharply. This drop was related to the increase in the price for crude in western Canada. The smaller difference of the western Canadian price and the Texas price was not large enough for rail transport to make financial sense for producers and shippers. 

Source: Statistics Canada

Conclusion

While rail is a legitimate option, it is unlikely to be a long-term solution to solve Western Canada’s lack of pipelines to export markets, it is poised to be a temporary solution for some of the region’s incremental production growth. With the unknown future of new pipelines and the Alberta government’s continued support through the railway contracts and relaxed production curtailments producers are more likely to make the investments required to grow the volume of product transported via rail. 

The Impact of Changing Weather on Canadian Crops

Introduction

Canadian farmers regularly deal with a level of unpredictability when it comes to weather, but in more recent years there has been an increase of extreme weather including unprecedented dry, hot summers and early frost and snow in fall.

These extreme weather conditions make farming more unpredictable and can lower the grade of crops. Some have argued that the extreme weather changes may be due to global warming. Regardless of what may be causing the extreme weather, what do the changes in weather patterns mean for Canadian farmers and their crops?

This article will look at both the positive and negative impacts extreme weather has on Canadian farmers and crops, historical data on harvesting crops and innovative solutions that are being created to help farmers manage the unpredictable weather patterns in the future.

Negative Impacts of Extreme Weather on Crops

• Lower grade crops.

• Farmers are falling behind on harvesting schedules.

• Bugs that eat crops may live longer in hot, dry summers, causing more damage to crops (increase in pests and pathogens).

• Extreme weather could lead to soil-moisture patterns changing.

Positive Impacts of Extreme Weather on Crops

• If global temperature was to increase by four degrees over time, Canada’s GDP is predicted to increase by around 0.3 per cent.

• Arable land could increase anywhere from 26 to 40 per cent by 2040.

• Research by the University of Alberta found that barley grows more efficiently in hot, dry weather.

• Extreme weather conditions in other countries, such as wet summers in India could lead to countries needing to purchase more agriculture products from Canada.

An example of how harvesting has been impacted by extreme weather is the fluctuation in crops harvested over the past ten years due to early frost and snow. The graph below shows a progression of crops harvested in Alberta, Saskatchewan and Manitoba over the past ten years and a weather summary by province that correlates with it.  

Note: Manitoba only had the past three years of harvest reports online.

Average Days Below -5 degrees During the Month of October

*Averages are based off of four cities that are located in different farming sectors of each province

Alberta – Harvesting decreased from last year by 15 per cent and is down from the five-year and ten-year averages by two and six per cent respectively. Alberta also showed a colder October this year than the previous ten years.

Saskatchewan – Harvesting decreased from last year by two per cent and is down from its five and ten-year average by three and four per cent respectively. Saskatchewan experienced a colder October this year than the previous ten years.

Manitoba – Harvesting decreased 20 per cent from last year and is down 21 per cent from its three-year average. Manitoba’s cold days were on par with last year, but 2018 and 2019 had an average of five more cold days than in 2014 and 2009.

Some of the most impacted crops this year by extreme weather in the prairies include flax, canola and oats.

*Per cent harvested as of Oct. 29 in AB, SK and MB

** Per cent harvested at year end 2018 in AB, SK and MB

Canadian Farmers Reducing GHG Emissions

The Pan-Canadian Framework’s goal is to decrease Canadian greenhouse gases (GHG) emissions to 30 per cent below Canada’s 2005 levels and Canadian farmers have actively been trying to do their part in reducing emissions. Farmers are reducing tillage which enables the organic matter in the soil to not be disturbed and can properly break down, allowing for the soil to absorb more carbon. Another way to increase the amount of carbon the soil absorbs is to plant a non-cash crop to add more organic matter to the soil.

To help farmers reduce their GHG emissions, the federal government committed to investing $70 million for science and innovation to support the agriculture industry in 2018, including $27 million to help farmers reduce their GHG emissions.

Examples of Innovations Being Created to Help Farmers:

• U of C is working on a new canola seed that is protected from frost and pod drop (pod drop is when the whole canola pod falls into the ground).

• Research has shown that planting more trees/ shrubs on farming land can lead to the soil being able to hold more water and reduce the risk of floods.

• Ontario based EcoEnviro Labs Inc. is working on a new organic bioplastic mulch made from poultry feathers.

• Manitoba based Expert Systems Inc. is working on a drone-based technology that uses artificial intelligence to provide a fully autonomous crop protection spraying solution to help reduce herbicide and pesticide use.

• Indoor farming is another solution to extreme weather changes, with more and more indoor vertical and aquaponic farms commencing operations in Canada.

In conclusion, there are both positives and negatives that result from extreme weather changes. With the help of technological innovation, farmers are better positioned to overcome farming in unpredictable weather and to help reduce GHG emissions at the same time.

“We don’t know what the weather patterns are going to do. That to me, is the biggest challenge facing us as farmers: making ourselves resilient for weather patterns that can go either way.”

— Bryan Gilvesy, cattle rancher and CEO of Alternative Land Use Services, a national non-profit that helps promote sustainable farming and ranching.

Moving Away From Fossil Fuels

What does it really mean when people say, “we are going to eliminate the oilsands in Canada by 2030”, or that “Canada will be net zero emissions by 2050”

There are many sacrifices and investments needed to make either of those claims possible. For now, let’s focus on two areas that have gained a lot of attention particularly during climate debates.

Recently on Twitter, two users were observed having a heated discussion regarding electric vehicles (EV). One individual claimed that EVs would make internal combustion engines (ICE) obsolete and that fossil fuels would not be needed anymore once every Canadian driver converts to an EV. This claim is, however, inaccurate as only 60 per cent of fossil fuels are used to power ICEs.

This led us to our analysis, assuming that fossil fuels are completely eliminated from the Canadian economy. More specifically, we look into how much new renewable / clean electricity Canada has to generate to plug the void created from the absence of fossil fuel consumption. Our analysis comprises of two parts, converting all ICEs to EVs and eliminating fossil fuels completely from our electricity grid.

A. How Much New Renewable/Clean Electricity Would Canada Need to Generate If All Vehicles Were EVs?

If the average EV (75kWh) travels 10,000 KM a year, Canada would need an extra 62,000 GWh / year to run EVs.

If the average EV (100kWh) travels 20,000 KM a year, Canada would need an extra 165,000 GWh / year to run EVs.

B. Eliminating Fossil Fuels From The Canadian Electricity Grid

(Natural Resources Canada, 2017)

In Canada our energy usage is 652 TWh or 652,300 GWh (Natural Resource Canada, 2017), with 19 per cent coming from fossil fuels, or 124,000 GWh.

To power a complete conversion to EVs and to eliminate fossil fuels from Canada’s electricity grid, Canada would need to create 62,000 to 165,000 GWh of new electricity; and replace 124,000 GWh of current fossil fuel generated energy for a total requirement of 186,000 – 289,000 GWh of new energy.

Largest Clean Energy Projects in Canada

Site C Dam project:

• Annual generating capacity: 5,100 GWh;

• 9,300 hectares of land use;

• $9 billion est. cost.

Tavers Solar:

• Annual generating capacity: 800 GWh;

• 1,900 hectares of land;

• $500 construction cost.

Blackspring Ridge Wind Farm:

• Annual generating capacity: 1,021 GWh;

• 18,200 hectares;

• $600 million cost.

In order to generated 186,000 – 289,000 GWh of new energy, Canada would have to introduce more clean energy sources. The chart below lists how many of each of the largest clean energy projects in Canada would need to be created in order to generate 186,000 - 289,000 of new clean energy.

For Hectare Comparison:

Area of Calgary: 82,500 hectares

Canada would have to build 36 hydro plants to generate the new energy needed, four times the current size of Calgary.

Canada would have to build 180 wind farms to generate the new energy needed, 16 times the size of Calgary.

Area of GTA: 712,500 hectares

Canada would have to build 361 solar farms. This would be equivalent to the the size of the greater Toronto Area (GTA).

For Comparison:

Canada currently generates 124,000 GWh from fossil fuels for electricity generation, the US generates 2,500,000 GWh from fossil fuels per annum or over 21 times more than Canada.

The US also has 272 million registered vehicles (~7.8 times more than Canada).

Conclusion

In summary, if all registered cars in Canada were switched over to EVs and fossil fuels were eliminated from Canada’s electricity generation capacity, Canada would need to produce an extra 184,000 – 289,000 GWh of new, clean energy and it could cost anywhere from $110 to $515 billion and be on 0.3 to 3.2 million hectares of land.

The estimated cost and the land mass required to fulfill this capacity is evidently unfeasible. Even if we have the land required to build the renewable energy facilities, the cost of our utility bills would soar significantly, which would lead to further financial hardship.

In addition, the issue of variability cannot be ignored. Renewable outputs fluctuate depending on weather related conditions. No nation can solely rely on renewable energy unless it has a vast amount of electrical storage present to serve as a backup.

Cybersecurity Workforce Shortage in Canada

Introduction:

A cause-effect relationship is becoming increasingly evident within the cybersecurity world. A shortage of qualified candidates who are capable of tackling cybercrimes and preventing data breaches have resulted in both individuals and corporations being persistently vulnerable to cyber-attacks. As hackers on the dark web attack in waves, it is inevitable that the need for “white hats” to combat this global issue has elevated in importance.

Numbers Put Into Perspective

8,000

Cybersecurity roles to be filled in Canada between now and 2021

20 Weeks

Ryerson University’s newly introduced cybersecurity boot-camp program

31,968

2018 cybercrime cases in Canada

2.93 Million

Number of unfilled cybersecurity positions worldwide

5 Years

Average graduation duration at Canadian universities

USD $3.62 Million

Average cost of a data breach globally

Recent Notable Cybercrimes Spanning Various Industries:

Twitter’s CEO Jack Dorsey’s Twitter account was hacked in August, with a string of offensive tweets posted during the 90 minutes before Twitter officially announced the account was secure.

Canadian cooperative of credit unions Desjardins Group announced on June 20 that an “ill-intentioned employee” stole information for over 2.7 million consumer clients and 173,000 businesses.

On July 15, a hacker operating under the alias “Instakiller” announced that it had hacked Bulgaria’s National Revenue Agency, obtaining the personal information of over 5 million citizens and residents (about 70% of the country’s population).

Toyota Motor Corporation announced on March 29 that eight of its subsidiaries were affected by a data breach, where 3.1 million Toyota and Lexus customers were impacted.

Toronto based photo sharing service provider 500px announced in February a data breach affecting 15 million user accounts, where names, usernames, birth dates, genders and addresses were exposed.

A Labor Shortage:

There is an increasing shortage for cybersecurity personnel throughout the country, especially with the number of cybercrime cases growing significantly without showing any signs of slowing down.

According to Laurie Pezzente, senior VP of global cybersecurity at the Royal Bank of Canada, one of the major factors behind the labor shortage is the duration of existing academic programs being offered at universities. Students interested in pursuing a career in cybersecurity would take an average of five years to graduate, but the surging demand for this workforce today cannot wait.

Other common factors contributing to the labor shortage include the difficulty in finding qualified instructors to teach such courses as these professionals are in high demand, as well as job burnout that result in cybersecurity personnel seeking to switch professions.

Overcoming the Problem:

A. Shorter educational programs and increase in academic scholarships Ryerson University initiated a process to launch a boot-camp style program to prepare workers for entry level roles in the cybersecurity sector in 20 weeks, instead of the traditional five-year average. The Rogers Cybersecure Catalyst program, which is free for students aims to have 640 professionals graduate over the next five years and is expected to launch in February 2020.

In addition, Bell is currently finalizing plans for a new master’s program in cybersecurity to be offered at the University of New Brunswick this fall. Bell intends on paying students’ tuition fees and guaranteeing them employment upon graduation. Approximately 70 students will graduate within the first three years.

B. Preventing job burnout to increase employee satisfaction With the current labor shortage, employers should focus on employee retention by managing burnout. Employers can overcome burnout by providing employees with interesting problems to overcome and equipping them with the latest technology and techniques to overcome problems. By ensuring the professionals are equipped with the right tools for the job, problems can be solved more efficiently while minimizing burnout.

Cybersecurity employees should be empowered to complete their projects, which will lead to high employee satisfaction. The importance of organizations valuing human talent and knowledge sharing should not be diminished.

C. Efforts to diversify the cybersecurity workforce need to be introduced to achieve the goal of building a broader pool of cybersecurity talent.

As cybersecurity skills can be taught, employers should consider hiring individuals with other degrees or expertise as well. Typically, a candidate that is organized, pays attention to detail and has strong communication skills will be a prime candidate for a career in cybersecurity. In addition, organizations should redefine the minimum credentials for an entry level cybersecurity job, instead prioritizing hands-on experience and technical certifications.

Other potential solutions to address the labor shortage include:

D. Corporations and academic institutions offering more scholarships to students pursuing a career within the cybersecurity field.

E. Investing in automation processes and cognitive technologies to offset the skills shortage. While understanding that automation will not replace human judgment entirely, it creates efficiencies that allow cybersecurity personnel to focus their time and skills on more advanced threats requiring human intervention.

F. Outsourcing cybersecurity efforts to a managed IT services provider, which would be more equipped to prevent and overcome potential cyber attacks.

Conclusion:

Bridging the cybersecurity talent gap today is crucial as our lives are increasingly dependent on software and technology, as well as the increasing number of hackers that are constantly seeking new cybercrime opportunities to capitalize on. To address this issue, cooperation between educational institutions, the private and public sectors are essential.

Small business owner: The importance of protecting your clients’ confidential information cannot be neglected. The benefits of internally implementing or outsourcing cybersecurity measures by far outweigh the monthly cybersecurity costs incurred for any business.

Managed IT services providers: Emphasize your cybersecurity service offerings to current and prospective clients, identifying this strategy as a key requirement to increase one’s competitive advantages and market leading position.

Spotlight on the Canadian Staffing Sector

The Canadian staffing industry represents around two million temporary workers or 13.6 per cent of the country’s workforce according to Statistics Canada. The staffing industry also accounts for $15 billion in revenue and is the most prominent in Ontario which creates 58.3 per cent of the revenue, followed by Alberta at 16.1 per cent and Quebec at 14.5 per cent.

Four subsidiaries from the global companies Adecco Group, Allegis Group, Randstad and ManpowerGroup are the largest industry entrants in Canadian staffing; however, the industry is fragmented, as these firms hold less than 10 per cent of the Canadian staffing market each. The remaining 60 to 70 per cent of the staffing market is divided among private enterprises, smaller subsidiaries from the US, global based firms and a few other publicly traded companies. 

As many segments of the staffing industry are mature in nature and meaningful organic growth has proven challenging for mid-market firms. As a result, much of the growth in the industry especially for the mid-sized players has been driven by acquisitions. The top three firms in North America have closed 38 transactions over the past five years, which is roughly eight per cent of the total deal volume over that time frame.

M&A transactions involving staffing firms headquartered in North America have trended upward over the last three and half years.

Recently, buyers have been targeting staffing firms active in the healthcare, IT and engineering sectors or with a special niche or geographic coverage that would round out their business. 

At Whitehorn, we have been active in the industry for many years. Most recently, we helped the shareholders of Calgary-based, RG Mallett Oilfield Enterprises with the sale of the business to Design Staffing Group, headquartered in Edmonton. See here for a review of this transaction. 

If you are considering an acquisition or a sale of a business in the temporary employment, HR consulting or staffing sector, give Whitehorn a call and we can discuss your next steps.   

(Sources: Statistics Canada, S&P CapitalIQ, company press releases and various news sources (e.g., Staffing Industry Analysts, American Staffing Association, Association of Canadian Search, Employment and Staffing Services, etc.) 

Alberta: Cutting the Red Tape

On June 28, 2019 the Alberta government passed Bill 4: The Red Tape Reduction Act. The bill’s focus is to cut unnecessary regulations by one-third and ensure new regulations are free of red tape. The government’s goal is to make lives of Albertans better by removing duplicated processes, rules and to “achieve the fastest approval process in North America.” The government believes this bill will save money, time and resources while still protecting Albertans and the environment.

The Canadian Federation of Independent Business (CFIB) conducts yearly red tape report cards for all the provinces and territories in Canada. The report card’s goal is to show Canadians how hard their provincial government is working to make their lives easier by reducing existing red tape and preventing new red tape from occurring. The CFIB has not given Alberta higher than a D rating in the past six years, with the past three years receiving F’s.

Alberta’s CIFB Red Tape Report Card for the Past Six Years:

Sourced from CFIB

Provinces with Laws to Reduce Red Tape with Respective 2019 CFIB Report Card Grade:

• British Columbia: A-

• Saskatchewan: A

• Manitoba: A

• Ontario: A-

• Nova Scotia: A

After the 2019 report card, the CFIB recommended that Alberta should comprehensively measure all regulatory requirements business owners face. The CFIB also recommended that the Alberta government make this information public and to be reported on a regular basis so legislators could have a better understanding of the size of the problem leading to realistic reduction targets. Since the United Conservative Government was elected, it has been working on the CIFB recommendations and introduced Bill 4 to help accomplish the recommendations and lower red tape in Alberta.

As of July 31, 2019, the United Conservative Government has approved over 40 red tape reductions and has said it plans to cut many more; a public report is to be published in 2020 on the red tape reduction progress. The Red Tape Reduction Division is headed by the Associate Minister of Red Tape Reduction to ensure that red tape is continued to be cut and that the government can act quickly.

 Industries the Government is Focused on Cutting Red Tape Include:

• Construction

• Oil and Gas

• Tourism and Hospitality

• Agriculture, Agri-food and Bio-industrial

• Forestry

• Non-profit

• Government Programs and Services

The government is set to hold industry panels in order to bring industry experts throughout Alberta together to help identify where there is unnecessary red tape to cut. The first two industry panels that have been announced are for Oil & Gas and Tourism & Hospitality.

An example of red tape in the oil and gas industry is how long it takes for a well to get licensed. Alberta has one of the longest waits to get a well approved, which many believe has played a part in oil and gas jobs being lost to other provinces and the United States.

Well Licensing Times Comparison

Sourced from CAPP, a competitive policy and regulatory framework for Alberta’s upstream oil and natural gas industry.

Bill 4: The Red Tape Reduction Act will help reduce the regulatory burden on businesses and speed up approvals to grow businesses, with the goal of encouraging investment, boosting Alberta’s competitiveness and freeing up job creators to get more Albertans back to work.

“We’re going to take Alberta from being the most over-regulated to the freest economy in Canada. We aren’t just saying we’re reducing red tape; we are making it the law. We are committed to cutting red tape by one-third – and once we cut it, we will prevent new red tape from creeping back”

- Jason Kenney

Let us know about any red tape reduction ideas that would help your business and we will forward your concerns to the Red Tape Reduction Division. In addition, we will be seeking an opportunity to meet with the division to discuss opportunities directly. Please let us know if you are interested in joining us.

The Switch from Gas and Diesel Engines to Electrical Motors

Over the past few years, electric motors have gained popularity in more than just the auto industry. Many industries that use gas or diesel engines are currently considering switching over to high-efficiency electric motors. The upfront costs of electric motors are currently higher than diesel or gas engines, but electric motors tend to have more long-term benefits. Carbon taxes and a societal push are several factors why companies are becoming greener, though we may not see a major shift to electrical motors right away, it may be coming sooner than we think.

Comparison of Electric Motors vs Diesel and Gas Engines:

Electric motors tend to have longer term benefits than diesel or gas engines. Some of the most noteworthy benefits include longer lifespan, lower cost of maintenance, higher efficiency and lower CO2 pollution. Even though electric motors have many benefits, gas and diesel alternatives are currently less expensive to buy and are more customary.

Top Players in the Electrical Motors Market:

Select Examples of Electric Motors and What They Can Be Used For:

When Will We See a Major Transition:

The switch to electric motors becoming mainstream could happen as soon as 2025, as many have speculated that by then the cost to buy an electric motor will be similar to purchasing gas or diesel engines, while others believe the switch may take longer and will happen closer to 2040. As for Canadians and Canadian companies, a switch may be seen even sooner as the carbon tax is set to be $50 per tonne by 2022. The increased carbon tax may sway companies to switch to electric motors to help lower carbon tax costs. Along with Canada, there are 40 other countries that have a carbon tax plans in place who may also see the switch to electric motors sooner than countries without a carbon tax.

Who Will This Impact:

In 2017 the electrical motor market was worth an estimated $96.9 billion (USD) and is expected to reach $136.4 billion (USD) by 2025. Currently, the motor vehicle is the largest segment in the electric motors market and the HVAC equipment sector is expected to be the fastest growing segment in the electric motor market. There are already more than 300 million electric motors being used in infrastructure, large buildings and in many different industries globally and over 30 million motors are sold annually for industrial purposes. It is also expected that 48 per cent of growth will come form the Asia Pacific region

Conclusion:

With the gaining popularity of electric motors and the increasing societal push towards greener energy, the switch to electric motors is in our near future. The cost of electric motors is predicted to be the same price as diesel and gas engines within the next 10 to 20 years and electric motors hold many benefits in comparison to diesel or gas engines. Already used in many industries today, electric motors are expected to grow into more industries over the next few years as countries introduce and increase their carbon tax. Electric motors are also versatile as outlined in the “Select Examples of Electric Motors and What They Can Be Used For” chart above. Though we may not see the switch to electric motors tomorrow, the switch is slowly starting to happen and will only increase over time.

Driving Financial Performance: Why Non-Financial Data Matters

For all our clients and prospects, understanding industry metrics is an important step to gaining a competitive advantage along with an improved financial performance and valuation.  Too often managers focus purely on financial metrics either at the department or corporate level.  Financial metrics are trailing metrics that tell us how a company has performed on a historical basis. By comparing recent financial performance to the historical averages and trends, one can identify problems or areas of concern; however, it is often too late to recuperate losses after the financials have been delivered.

In this blog, you should consider what non-financial metrics can help identify problem areas or issues on the horizon for your business, this will allow you and your management team to address these areas in advance of financial reporting timelines.  The challenge for you is to determine what data and metrics help drive your financial results. 

What Data Matters? What Data Do You Track?

Financials matter. Financial performance is the outcome your business drives from all the activity you do on a day-to-day basis. When we first meet prospective clients, we ask them to provide us with any management reports they review on a regular basis. Typically, with smaller businesses, the only data we receive are financial statements. Other clients who have key performance indicators (KPIs) are often focused on financial metrics such as sales, days receivables outstanding, gross margin, overhead costs, etc. 

We want you to consider other metrics, such as data points in your business that can improve not only financial performance but also how your financial results are determined on a weekly and monthly basis in advance. This will allow you to evaluate your progress and identify areas for concern or improvement. 

Recently, one of our co-founders was having a discussion with his 13-year old son regarding his son’s training for the upcoming hockey season.  His son had set some goals for himself (similar to a business’ budget) and had been working out regularly to add strength and weight. One evening after a workout, our co-founder asked him about his workout progress and wanted to review his training book.

Upon inspecting the training book, his son had three workouts outlined, but none of the daily tracking was filled out. “Have you improved?” our co-founder asked, “I think so”, his son replied. In his son’s case, he didn’t know if his times, reps or sets were improving as he wasn’t tracking his progress. This may lead to the boy thinking that he is on the right track, but the confidence of that feeling has no data to support it. When he goes for try-outs and looks to accomplish his goal, it is too late to alter his program or increase the intensity because his ‘financial results’ have already been delivered. Your business is no different. Neither is ours. 

You likely have monthly, quarterly or annual targets / goals you want to achieve. The key data you track in order to achieve these goals should be tracked in regular, short-term time frames to ensure you are not surprised or making excuses for why a goal wasn’t achieved.  So, what data matters? Your business is unique and how you want to drive your business forward is tied to what you want out of your business. Understanding what is important to your business model and what data you should be tracking can take some time, but it is an important first step.  Your KPIs, Scorecard, Metrics or whatever you call these, should follow a few rules:

For example, most prospects and clients have revenue targets they want to achieve. Revenue is driven by sales to customers/clients. What drives sales? In our business we gain clients predominantly through two means – referrals from accountants, lawyers, past clients and other business associates; and through our direct marketing initiatives. Several metrics that are important for us include the number of referred clients and number of marketed clients. But what drives these numbers? Meetings. We don’t gain a client without meeting with them at least once beforehand, it’s just not in the nature of our business. We get meetings through incoming or outgoing phone calls and emails. We also increase our potential client-base through indirect marketing like this blog and our newsletters. 

What metrics would you need to know if you’re on track? The metrics we need to know include how many calls, emails and meetings we need to reach our goal of clients so that we can meet our financial targets. 

For our business the following metrics matter:

Your business may gain clients in a different fashion, but there are metrics that drive sales. Understanding your business and your unique metrics is crucial to achieving results.

Did You Notice Anything in Our Example? MEASURABLE!

Your data and metrics need to be quantifiable and measurable. A number serves as a clear and quick to understood data point.

“I’m going to call prospects this week” typically delivers lower results than “I’m going to call 100 prospects this week”. Numbers matter as they:

There are many other benefits as well, but the ultimate benefit for your business should be the results!

I DON’T HAVE ANY DATA!

Everyone has data, you just might not be tracking it and reviewing it actively. Data collection takes time, but more importantly commitment. 

Do you know who your customers and prospects are? Probably yes.

How do you keep their information? Excel, CRM, notebook?  Not just their billing and mailing information, but who you contact, how you reach them and the conversations you’ve had?

How many proposals have you made?

What’s your win rate?

While you may not formally track these numbers (yet), you likely know them or have them somewhere even if it’s in your head.

IT TAKES TOO MUCH TIME!

You’re busy, we understand that. Time is a limited resource for all of us and adding more ‘tasks’ to our to-do lists is not the objective here. The objective for finding critical data points to drive growth is to help obtain better results. Initial set-up may take some time, but you should soon be saving yourself more time by driving accountability and teamwork while solving issues that are identified by your data points. The right system for your business should focus your time on issues and problems that will drive better results. These data points help maintain focus on the real priorities and problems while opening up communication with staff and leading to more effective and goal-driven productivity. 

Do you need help in developing a system for your company and industry to deliver results, including identifying both financial and non-financial tracking metrics? Whitehorn has the industry expertise to determine the KPIs that your company should be focusing on, give us a call or send us an email if you need any assistance, as we would love to help you!

Can Being Environmentally Sustainable Benefit Your Business?

Introduction

When business owners explore a sale of business or an acquisition opportunity, the primary focus is often on valuation, cultural fit or the complementary product / service offerings. With the growing emphasis on being environmentally sustainable it has led to investors and private equity firms prioritizing a business’ environmental sustainability during the transaction evaluation process. Ensuring your company has environmental practices and policies in place could increase the valuation of your business.

Do Environmental Initiatives Make Your Company More Valuable to Buyers?

Many strategic and financial buyers take a company’s environmental performance and strategy into consideration before closing a transaction. Bain & Company found that nearly 80 per cent of global investors focus more on sustainability now than they did five years before. Bain & Company also reviewed more than 2,000 studies and found that there is a strong correlation between the performance of environmental, social and governance funds and positive investment returns.

Yadav, Han and Rho from the Business Strategy and the Environment journal discovered that companies with more environmentally sustainable initiatives tend to attract higher values than companies that are not environmentally sustainable. It was also found that the long-term environmental damage of a business is one of the main concerns for investors, which can lead to strategic and financial buyers not wanting to invest in a company. Similarly, Bain & Company concluded that some of the world’s largest private equity funds are selling assets that do not meet environmental or social investing guidelines.

Firms Investment Criteria

Firm A: We will only consider businesses that we believe are designed to have an important environmental or social impact.

Firm B: We invest in a global portfolio of innovative companies to address the most pressing economic and environmental challenges of the oil and gas industry.

Firm C: We invest in innovative companies that are doing things differently; companies that help bring energy to the world in the most efficient, cost effective and environmentally responsible manner.

Firm D: We invest in start-up companies that use advanced materials to make our world a better place.

Canadian Businesses: The Early Adopters

A majority of companies in Canada have stepped up their sustainable efforts, prior to the Federal government proposing the ban of single-use plastics. These companies are recognizing and understanding the benefits of environmental initiatives over the long term from a people, profit and planet perspective.

Toronto’s Yorkdale Mall announced a ban on plastic straws commencing in October 2019.

IKEA Canada announced it is phasing out all single-use plastics nationwide by January 2020 and has said it will only use renewable or recycled materials in its manufacturing by 2030.

Recipe Unlimited, the company that owns Harvey’s, Swiss Chalet, Milestones Grill and Bar, Montana’s BBQ & Bar, East Side Mario’s, New York Fries, Original Joe’s, State & Main and The Keg announced the phasing out of plastic straws in 2019.

Tim Hortons introduced reusable drinkware and other sustainable packaging initiatives, as well as it launched a 10-year campaign to change consumer perceptions in favour of using reusable cups for its beverages.

Sobeys Inc. announced it will be removing all plastic bags from its grocery stores by February 2020 and replacing them with paper bags. Sobeys Inc also has plans to introduce reusable mesh bag alternatives in the produce aisle.

As of 2019, A&W Canada has redesigned its coffee cup sleeves, burger bags and straws to be biodegradable, with an objective of reducing around 500,000 kg of plastic waste annually.

A&W Canada’s sculpture in front of Toronto’s Union Station, which was made with its remaining plastic straws to announce its switch to biodegradable paper straws

Recommendations

Below are some recommendations to assist your business in reducing its environmental footprint. We also suggest being compliant towards any potential environmental legislation and increasing your brand awareness through these initiatives with your customers, employees and community.

1.   Reduce and remove packaging

Erich Lawson from Fishbowl, a manufacturing and warehouse management software blog, suggests reducing and removing product packaging, which cannot only be cost saving but can also help your company be environmentally sustainable. Lawson adds that communicating the changes implemented and the reasons why the changes were made to customers will ensure they understand the logic and benefits behind the changes.

2.   Seek recycled or reusable raw materials

Kieselbach and D’Souza from Thinkstep, a sustainability software, data and consulting company, suggest seeking vendors that can provide raw materials that are more environmentally sustainable, without compromising the quality of the end products. Instead of relying on plastic raw materials, source alternative materials including wood, cardboard or man-made fibers that have similar characteristics as plastic.

3.   Innovation

The government of Canada suggests companies should take a proactive approach in developing methods to reduce its overall environmental impact. This may include venturing into packaging methods that have yet to be widely implemented within your industry. For instance, in March 2019, a supermarket in Thailand introduced the packaging of fresh produce in banana leaves instead of the traditional plastic wrap. In addition, Danish beer producer Carlsberg introduced its innovation called Snap Packs, which sticks beer cans together with glue instead of using the traditional six-pack rings.

Fresh produce packaged in banana leaves as seen in a supermarket in Chiang Mai, Thailand.

Carlsberg’s snap pack beer that replaces the six-pack plastic rings traditionally used.

Conclusion:

If you are considering an upcoming sale of your business, implementing sustainable initiatives that are industry leading may better position your business in an impending transaction. Both strategic and financial buyers are placing a stronger weight on a company’s sustainable efforts; ensuring your company has environmental practices and policies in place may increase the attractiveness of your business. Lastly, tracking the progress and results of your company’s sustainable initiatives on a regular basis is important to evaluate how successful your strategic implementation is and to demonstrate a competitive advantage within your industry.

Cash is King: How Do You Compare?

Introduction

In this first part of our new series looking at the financial performance of small cap public OFS companies, we dive into operating cash flow and some related metrics that OFS companies should monitor continuously. An OFS company’s success can be directly impacted by its cash flow management effectiveness throughout the commodity cycle. Without sufficient cash flow, one may encounter various challenges in continuing business operations and may even be on the brink of bankruptcy if cash flow issues persist over a prolonged period of time.

The objective of this series is to provide you with a better understanding of how your OFS business is performing compared against a selection of publicly traded small cap OFS companies based on various cash related financial metrics. We believe that through this analysis, you will be able to improve your performance tracking and identify both areas of improvement and the resulting tangible implications.

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Analysis Framework

Our analysis covers the Canadian publicly traded OFS companies with a market cap below $160 million as at June 14th, 2019. The list of constituents is as follows:

Based on the average financial performance of the selected OFS companies, we prepared the tiering system below based on three metrics: cash margin, cash conversion cycle (CCC) and asset efficiency. The cash margin and the asset efficiency metrics are calculated with operating cash flows, defined as follows:

Operating Cash Flow (OCF):

A measure of the amount of cash generated by a company's normal business operations.

OCF = Net income plus non-cash expenses plus changes in working capital.

A.     Cash Margin (OCF/Sales)

• Calculates the percentage of each sale that turns into operating cash flows.

• The higher the ratio, the greater the amount of cash generated from a sale.

• Top Tier 2018 Performance: 25.3%

• Top Tier Performance (2012-14): 33.3%

• Your Performance:

Note: working capital has a significant impact on operating cash flow. The large increase in 2015’s cash margin is due to two key factors: a significant drop in average sales (35% decline) and a significant shift in working capital (significant drop in accounts received from 2014 as well as a large increase in payables outstanding). The net influx of working capital divided by a smaller sales number results in a spike in the cash margin. 

B.     Cash Conversion Cycle (CCC)

• Provides key insights on areas for improvement and areas of concern.

• Consists of three components:

  • Days sales outstanding (DSO)

  • Days payables outstanding (DPO)

  • Days inventory outstanding (DIO)

• CCC = DSO – DPO + DIO

•  Top Tier 2018 Performance: 25.3 days

• Top Tier Performance (2012-14): 27.7 days

• Your Performance:

• The CCC is made up of three key pieces of working capital:

  • Companies with excessive DSO could have a collection problem (i.e. not effectively chasing customers for payment), or a delivery problem (unsatisfied customers result in invoicing disputes) or both. 

  • High DIO tends to indicate either overbuilding of inventory or declining demand. 

  • Extremely high DPO often indicates cash flow problems resulting in payables being stretched, or in the case of an extremely low DPO a business may be on a cash-on-delivery basis with suppliers.  Understanding what factors are driving your numbers is important for any analysis.   

i - Days Sales Outstanding (DSO)

• Reflects how much time sales sit in receivables.

• DSO = (Average Accounts Receivable / Sales) * Number of days in period

• The higher the number, the worse your collection time period. 

• Over the historical period analyzed, we see the top tier’s DSO being maintained within a relatively narrow range of 60 to 65 days.

ii - Days Payable Outstanding (DPO)

• Reflects the length of time to pay vendors.

• DPO = (Average Accounts Payable / COGS) * Number of days in period

• Many of our clients fall in the 30-35-day range, which is about the industry average. In general, we are comfortable with our clients having a DPO of 35-45 days (i.e. second tier). 

• A high DPO can indicate that a company is having cash flow issues. Similarly, an OFS company with a below average DPO may indicate that it is operating almost on a COD payment basis with its suppliers.

iii - Days Inventory Outstanding (DIO)

• Reflects the length of time inventory is stocked before shipped to customer.

• DIO = (Average Inventory / COGS) * Number of days in period

• We do not often think of this coverage universe as having significant inventory. If your business has inventory, it is important to manage it accordingly as we have seen many businesses hold an excess amount of capital in their inventory accounts.

• Depending on lead times and the nature of your business, we should discuss any inventory metrics with you in greater detail to help understanding where there may be efficiencies and opportunities to take advantage of.

C.     Asset Efficiency (OCF / Total Assets)

• Top Tier 2018 Performance: 20.3%

• Top Tier Performance (2012-14): 25.3%

• Your Performance:

•  Asset efficiency measures how much cash you generate off your assets. This differs slightly from the asset turnover ratio which compares net income or sales to the asset base.

• Asset efficiency assists in understanding business asset usage and like the cash cycle, can help identify areas for improvement or concern.

• A high asset efficiency may indicate strong asset usage, but it can also point to an aging asset base with a declining book value. While this may not have impacted OCF yet, it runs a risk of doing so over the long-term A low asset efficiency may reflect newer assets with higher values or a business that is under performing.  A negative asset efficiency is not a good sign. 

We see a significant drop off within our small cap sector after the top tier.Key factors to consider in the details of this ratio include age of fleet and the capital intensity of your fixed assets. There is a balance between investing in new assets and benefiting from cash flow generated from older assets. That balance is important in maximizing this ratio and can help business owners in determining when to pursue new asset purchases or investment.

Why Understanding Your Numbers vs. Your Competitors is Important

• First, understanding what the numbers are telling you goes beyond simply comparing one metric to another. 

  • Owners and managers should understand how decisions impact the numbers, and what factors can alter performance or mask poor performance.

  • A ratio is meaningless without understanding the underlying causes/effects.

• Cash is king – and generating more cash flow from your assets and operations than your competitors can provide you with a key operational advantage.

  • Operating cash flow helps fund debt, capital acquisitions, dividends and growth.  Managing operating cash flow involves the whole income statement and key working capital accounts. 

  • The cash cycle can help identify some key areas that are delaying your ability to generate cash, or in the case of inventory, where you have over-invested cash.

• Knowing your stand relative to your competitors can help in your decision-making as well as interactions with suppliers and customers. It identifies areas where there is room for improvement, as well as areas where you can celebrate success.

Important financial ratios and numbers can help your management team pull in the same direction. Each owner and each business may have different numbers they consider important to the overall operations. We can help identify metrics you and your management can use to improve how you track your results.

Contact Whitehorn to learn more about other key metrics, how your business is performing and areas to help you manage your day to day operations.

What is 5G?

The race is on to develop newer and faster cellular networks. The new generation of wireless technology is expected to improve the way people live and work, as well as generate a new wave of economic growth. With the transition to 5G, the wireless network will see faster speeds, higher bandwidth and lower latency opening the door to life-changing-innovations.

Understanding 5G

Canadian LTE (4G) networks already support fast downloads and easy streaming of content. But standard speeds and bandwidth capacity need to be higher, while latency (the time it takes to send a signal from one point to the next) must be virtually nonexistent in order to deliver data instantaneously. A virtually nonexistent latency period would allow consumers to experience increased efficiency with faster data transmission speeds. With the development of more innovative technology allowing increased accessibility, mitigation of information delay is highly crucial.

To help make this possible, 5G technology will use new frequencies of spectrum, which are the radio waves that are used to carry cellular signals.

Source: How 5G will change your life, The Globe and Mail

Current networks use low and medium-band spectrum with wavelengths up to half a metre. Low-band radio waves can travel long distances and penetrate buildings which makes for reliable coverage for carriers. Unfortunately, low-band spectrum can’t carry as much data as higher-frequency waves that is why 5G networks will also use so-called millimetre-wave spectrum with wavelengths so small they are measured in millimetres.

These millimetre radio waves can carry high amounts of data but don’t travel far, which means network builders will need to place many small cells close together to use this spectrum.

To make the best use of different types of spectrums networks will include a mix of traditional cell-phone towers, antennas on rooftops (carrying signals over long distances) and a web of small cells at lower heights (supporting high bandwidth use over shorter distances).

Since 5G will still use the existing frequencies as current networks, existing cell phone towers can be upgraded to support 5G with new frequencies being added later allowing for even smaller hardware. Companies like Ericsson can build up to eight 5G antennas onto a chip smaller than a dime. This tiny technology requires less power and can be used on low-power devices making 5G ideal for the Internet of Things devices.1

The combination of wireless infrastructure along with the advances in radio technology will help carriers reduce latency and support billions of devices using more data than ever before.2

5G Advantage

Faster Downloads

5G opens up speeds 10 times faster than that of older technology, delivering up to 20 Gigabits-per-second peak data rates and 100+ Megabits-per-second average data rates. To put this into perspective, the faster speeds will let you download the newest episode of Game of Thrones in less than 5 seconds.

 Lower Latency

Latency is how long it takes a signal to transfer over a network. Many mobile networks can maintain 50 milliseconds, but 5G promises latency of 1 millisecond or less. 5G has significantly lower latency to deliver more instantaneous, real-time access and opens the doors for radical new technology like real-time virtual reality, online multiplayer gaming, remote control surgeries, and even more.

 Higher Bandwidth

5G will natively support all spectrum types (licensed, shared, unlicensed), bands (low, mid, high), a wide range of deployment models (from traditional macro-cells to hotspots), as well as new ways to interconnect (such as device-to-device and multi-hop mesh). 4G frequencies will still be usable by 5G technologies, and 5G will also be able to use even higher frequencies.

Source: What is 5G, Qualcomm

How 5G Will Change Our Lives

The fifth generation of wireless networks will allow innovations to flourish and dramatically change our day-to-day life. This new wireless technology will open the door to life-change innovations, such as driverless cars, smart-city traffic controls and more sophisticated industrial automation.

 More Efficient Health Application

5G networks will support health-tracking devices that depend on constant monitoring. Lower latency and super-high bandwidth will also help enable instant sharing of x-rays and other medical data. Remote control surgeries will also become feasible with the aid of the new technology.

 A Better Experience in a Game Night

On any given night, thousands of smartphone users stream into Rogers Centre or Scotiabank Saddledome, placing heaving demand on the wireless network. Plus, the venue’s concrete walls pose a barrier to signal penetration. Placing small cells throughout the stadium will help provide more capacity for overburdened cellular networks. This should make it easier for audiences to upload a selfie or stream a video replay.3

A recent study conducted by Accenture has further explored the potential economic benefits resulting from a select set of 5G use cases in Canada. See the charts below for more illustrations.4

Source: Fuel for Innovation - Canada’s path in the Race to 5G, Accenture

When Will 5G Become a Reality

In Canada, major cell phone networks are already testing 5G in major cities, but it probably won't be available to the general public in Canada until late 2019 or early 2020. It will arrive first on Bell, Rogers and Telus (possibly at premium rates) with rollouts to low cost and regional carriers over the next two years. Cell phones that support 5G in the Canadian market could be released as early as the summer of 2019. Based on most recent forecasts, a timeline of rolling out 5G for major carriers:5

Fuel for Canadian Economy and Labour Market

According to a new report from Accenture, new 5G wireless network could contribute as much as $40 billion annually to Canada’s economy by 2026. The benefits will be felt not only in national GDP, but also in terms of Canadian jobs. The estimated $26 billion investment in 5G network infrastructure and adoption will result in short-term construction and engineering jobs. Specifically, more than 150,000 short-term jobs will be created between 2020 and 2026. It is further estimated by this same time close to 250k permanent jobs will be added to the Canadian economy.6

5G Providers Around the Globe

According to research firms IDC and HIS Markit, China’s Huawei, Sweden’s Ericsson and Finland’s Nokia Corp. are the top three radio gear vendors in Canada and around the world for 5G. China’s ZTE Corp. and South Korea’s Samsung round out the top five globally for a market that is expected to expand to US$26 billion by 2022 from US$528 million in 2018.

Both Bell and Telus, Canada’s second and third-largest wireless service providers have been using Huawei equipment in 5G network trials however, other suppliers include Ericsson and Nokia. Rogers is working with Ericsson while Shaw has been working with Nokia.

Huawei in the Spotlight

Huawei, a global telecom equipment supplier based in Shenzhen, China, has been accused of posing a potential risk to national security because of a Chinese law that requires companies to co-operate with intelligence gathering if asked.

Three of Canada’s partners in the Five Eyes intelligence-sharing group - the United States, Australia and New Zealand - have forbidden the use of Huawei products in 5G network development, though the U.S. ban is currently limited to government agencies. The UK has ordered that Huawei be banned from supplying core parts of the future 5G mobile phone network however, Huawei will be allowed to supply some “non-core” technology to UK phone companies.

The Canadian government is carrying out a comprehensive review of Huawei’s potential involvement in 5G that is believed to include a broader look at how Canada should make its way in an increasingly global economy. Given the breadth of the review, several agencies including the Communications Security Establishment, Innovation, Science and Economic Development and the Privy Council Office are taking part in the review.

The government has said little publicly about the review, but the results are expected before federal election this fall.7

 A detailed timeline of critical decisions on Huawei of Five Eyes intelligence-sharing group as follows:

Huawei’s Impact on Canada’s 5G Future

““[The] impact [is] small because limited [resources] has been spent. BCE and Telus have not put a lot of capital into trials, so the financial hit from a ban Huawei’s participation wouldn’t be large. It doesn’t sound like all that much has been spent on 5G. They also have Nokia as another 5G partner, so they could probably just switch all toward Nokia if they really need to.””

— Desmond Lau, Analyst - Veritas

In addition to responses from analysts, the CEO of BCE Inc.,  said during a conference in late February 2019 that a government ban on Huawei network equipment wouldn't delay the company's plans for rolling out fifth-generation wireless services. He added that the outcome of the decision won't "in any way impact our timing in the market for 5G."

However, the views on risks from the potential Huawei ban are divided among the major telecommunication suppliers. Telus acknowledged mid February 2019 that the deployment of its fifth-generation wireless network could be delayed and be more expensive than anticipated if the Canadian government chooses to ban equipment from Huawei.

Due to Huawei being the cheapest of the three major 5G suppliers, Telus could incur higher infrastructure costs if the other two are the only options, which would result in lower margins on the company’s internet and mobile services. Another issue is that Telus is already in the 5G pre-trial stage with Huawei and would likely incur costs when being forced to sever ties with the Chinese company.8

If Telus and BCE Inc. use Huawei on its 5G network, then both companies may have to charge customers more which could possibly turn customers off high-end plans that include 5G. If customers avoid these plans, it could not only represent loss of revenue, but also a lower ROI on money spent building the 5G network.

To conclude, with 5G we will enable a truly connected world which offers various opportunities for business and will comprehensively reshape how we interact with our devices. The benefits of 5G extend well beyond consumer application, including streamlining operations for increased productivity, creating new revenue streams and enhancing customer experience in various industries. A report by Financial Post indicates many benefits for industries within Canada. The agriculture work in Saskatchewan and Manitoba will become vastly more precise with data collected from remote sensors. In Alberta’s oil and gas fields, the technology is expected to improve worker safety through wearables that can detect critical issues such as fatigue or stress. Similar efficiencies are expected to positively impact Ontario’s auto manufacturing plants, fisheries in the Maritimes and British Columbia’s forestry sector.9 As for Canada, the potential delays of 5G deployment if the ban on Huawei is approved remains uncertain, but any ban would only apply to 5G networks, and not the existing 4G or previous systems.10

For more information on 5G, refer to the following reports and articles.

1.    Everything You Need to Know About 5G, Qualcomm; The WhistleOut 5G Wireless Guide for Canada (2019), WhistleOut

2.    How 5G will change your life, The Global and Mail

3.    How 5G will change your life, The Global and Mail

4.    Fuel for Innovation - Canada’s path in the race to 5G, Accenture

5.    Is 5G Available in Canada, WhistleOut

6.    Fuel for Innovation - Canada’s path in the race to 5G, Accenture

7.    Five things about possible involvement of Huawei in Canada's 5G networks, National Post

8.    BCE says 5G network plans wouldn't be delayed by a government ban on Huawei, CBC News; Possible ban on Huawei over national security could delay 5G rollout, Telus says, CBC News

9.    What 5G Means for the Future of Businesses in B.C., BCBUSINESS; How 5G Connectivity Will Keep Canada Competitive, Financial Post

10. How the Huawei 5g Controversy Could Affect Telus Corp Stock, The Motley Fool

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Keeping Up With The Latest Food Trends

Introduction

With established industry players and the absence of significant growth opportunities, the food manufacturing industry is considered a relatively mature market. Companies within the industry strive to identify trends and innovations to gain a competitive advantage over their peers. Some of the key trends that we are following have the potential to significantly impact the entire food industry.

1. Cannabis

There have been waves of discussion between both consumers and food manufacturers to include cannabis in food and beverages. Cannabis is emerging in consumer’s daily necessities, including coffee, cocktails, cereal, ice cream, salads and even skincare products.

Key Highlights:

• The newly formed Cannabis Beverage Producers Alliance, consisting of a group of alcohol and cannabis companies that are pushing for changes to proposed rules governing pot-infused beverages. The 10-member alliance are lobbying for the ability to produce pot-based drinks in the same facilities where non-cannabis beverages are produced. Under current Health Canada’s proposed rules for edibles, pot-infused drinks and food must be made in separate facilities.

• In the US, the Trump Administration signed the 2018 Farm Bill in December 2018 allowing the legal cultivation of hemp and derivatives from hemp, as well as cannabinoid CBD to no longer be considered a Schedule 1 narcotic.

• Carl’s Jr. became the first major fast food chain to introduce a cannabis-infused menu item, unveiling the CBD infused burger at a single location in Denver, CO on April 20, 2019. The CheeseBurger Delight burger contained 5 mg of cannabidiol infused sauce and was retailed at USD $4.20.

• Recent partnerships between alcohol and marijuana companies include:

View fullsize

• Other existing cannabis-F&B companies include:

• A June 2018 Deloitte report indicated that more than 60% of cannabis customers in Canada will choose to consume edible products. Food manufacturing companies with interest within the cannabis space should adapt cannabis into their brands to spur new growth and customer additions.

2. Functional Foods

“Functional foods are whole foods along with fortified, enriched or enhanced foods that have a potentially beneficial effect on health when consumed as part of a varied diet on a regular basis at effective levels based on significant standards of evidence.”

— US Academy of Nutrition and Dietetics

Food industry experts believe that functional foods are one of the primary areas of significant growth, especially with the current emphasis on healthy eating and the increase in nutrition understanding. The benefits of functional food range from reducing cholesterol levels to aiding digestion and decreasing heart disease risks.

Consumers nowadays are increasingly concerned about what they eat, as well as the ever-increasing medical costs especially among the aging baby boomer population. Research findings by CBD Marketing on over 12.5 million social media posts by millennials also indicate that this generation have a strong preference for healthy and natural foods. For instance, probiotics which were once only associated with yogurt are finding their way into a variety of other foods, including protein bars, water, juice and cereal. According to Technavio, the USD $161 billion global functional F&B market is anticipated to grow at a compound annual growth rate of 8% through 2021. The forecasted growth is significant when compared to the overall Canadian food manufacturing expected growth of -1% in 2019. Consumers prefer functional food supplements that are specific to chronic health issues. The increase in demand is fueling more functional foods to manage chronic health conditions including cardiovascular disease, diabetes, obesity and others. Changing lifestyle, unhealthy food habits, and consumers opting for prevention rather than cure of diseases are driving demand for these health functional foods.

“People are interested in their health, and if they can pay the price for the option that has added fruits and vegetables, or added omega-3 or added probiotics, (they) are looking for those different packages that make it seem like they are getting benefits from those foods. ”

— Lizzie Kasparek; Dietician at Sanford Sports Science Institute

Industry players seeking to stay ahead of the curve are spending aggressively on R&D to produce innovative products that consumers are attracted to for the health benefits. For instance, scientists are seeking to extract beta glucan from mushroom to boost the human immune system, produce fiber rich inulin flour from chicory root and explore numerous beneficial nutrients from algae. Plant based options are also infiltrating traditional foods, such as pizza crust made with cauliflower and butternut squash, chickpea pasta and bread fortified with beets and carrots.

“(The future of functional foods is) going more in the direction right now of the chemistry and really understanding the composition of native or raw foods…. It’s a very exciting time to be in this field. ”

— Kristi Crowe-White, PHD; Associate nutrition professor & registered dietician at the University of Alabama

3. Plant-Based Meat

The pioneers of plant-based meat were primarily focused on the vegan and vegetarian niche markets to provide these consumers with an alternative to traditional meat products. As consumers continue to emphasize healthy living and pay more attention to their respective diets, plant-based meat producers started to expand their target market beyond the former niche. In fact, California based Beyond Meat’s current strategy is to place its plant-based meat products in the meat case at grocery stores, with the objective of persuading meat lovers to try it out. Burger King’s research also indicated that only 9% of people purchasing plant-based meat are vegetarians, with 90% being meat eaters seeking healthier options.

“People in companies are even rethinking this idea of what meat is. Essentially, it’s a combination of aminos, minerals, lipids and water. Instead of cycling plants through animals to transform them into meats, why not make meat directly from plants?”

— Caroline Bushnell; Senior marketing manager at The Good Food Institute

Advantages of Plant-Based Burgers Production

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The benefits of plant-based meat include:

• Reduces saturated fat intake, which is beneficial for weight loss

• Increases fiber and vitamin content

• Reduces risk of diabetes, cancer and heart disease

• Combats acidity in the human body

• Absence of growth hormones or antibiotics unlike in livestock

• Plant cultivation consumes less environmental resources compared to animals

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On April 22, 2019, Beyond Meat announced it plans to offer 8.75 million shares priced at USD $19 to USD $21 each in its initial public offering (IPO). The plant-based meat producer seeks to raise USD $184 million on the top end of the IPO range and be valued at approximately USD $1.21 billion. Beyond Meat’s products are currently sold at Sobeys, Whole Foods, A&W and TGI Friday’s restaurants among others. It currently has launched products in Europe and Asia, with the intentions of further penetrating these markets.

In Canada, Maple Leaf Foods Inc. (TSX:MFI) announced plans to construct a USD $310 million plant-based protein food processing facility in Shelbyville, IN. The new facility will double the company's current production capacity and produce tempeh, franks, sausages and raw foods. The facility is expected to employ 460 personnel upon start-up and be the largest of its kind in North America.

As well, Canada’s new Food Guide emphasizes plant proteins over meat and is expected to have a major impact on consumers going forward. The new food guide will directly affect government regulated institutions with major purchasing power such as prisons, old-age homes and educational facilities. These institutions will have to abide by the new guide when providing meals to occupants.

“Meat lovers don’t love the fact that their meat comes from dead animals. They love it because of the sensory pleasures and the familiarity. If we can provide the things they value and make it from plants, not only will meat lovers be willing to buy it, but they will prefer to buy it.”

— Pat Brown; CEO of Impossible Foods

In April 2019, Protein Industries Canada (PIC) announced its first call for co-investment proposals with up to $40 million available in funding. PIC is an industry led, not-for-profit organization created to position Canada as a global source of high-quality plant protein and plant-based co-products. Projects will be accepted in all four priority areas: Create, Grow, Make and Sell. The investment made by PIC will match up to 50 per cent of industry investments on all eligible expenses for successful projects. The deadline to submit interest is June 28, with a second call for proposals to take place in September. PIC will be spending up to $153 million across the value chain over the next four years. Click here to find out more.

As a means of diversification, traditional meat producers and food manufacturers are considering acquiring plant-based food producers to launch their own alternative protein products or include plant protein in existing processed meat products. Recent related transactions include Nestle’s acquisition of CA based plant-based food manufacturer Sweet Earth, Maple Leaf Foods’ acquisition of MA based Lightlife Foods and WA based Field Roast Grain Meat, and Roquette’s acquisition of Texpall’s plant-based protein facility in the Netherlands. With existing market reach and established supply chain, these companies may be able to leverage economies of scale to gain market share faster than the upstart plant-based food producers with more financial constraints and less market penetration.

4. The Millennial Impact

According to Nielsen, millennials born between 1980 and 1995 make up over 27% of the nation’s population and are the largest demographic globally. Millennials have been and will continue to contribute towards several key trends within the food industry. According to a CBD Marketing study of over 12.5 million social media posts, technology savvy millennials tend to share their thoughts and buying habits freely and frequently on social media. Over 8.6 million social media posts analyzed were food related and an additional 2.2 million beverages related. With the vast amount of online information made available by millennials, brand marketers and retailers are spending aggressively to understand their preferences and attitudes and further develop their respective marketing strategies for continued success.

A few key millennial trends are highlighted below:

A. Snacking Habits

There is a strong preference for snacks and 5-6 meals a day over the traditional 3 meals a day. A study indicates millennials snack as often as 4 times a day. Snacks are consumed to relieve stress, provide emotional comfort and for one to indulge or as a reward. With the increase in snacking frequency, there is a growing demand for snacks coupled with substantial nutritional value, convenience and a variety of appealing textures and flavors.

Producers must be aware that millennials have a high tendency to read the label for nutrition value, ingredients and calorie counts prior to making a purchase. In fact, most millennials are also concerned about the origination of food and the process of manufacturing. They care about the environment and expect companies they deal with to be transparent, all key factors that will affect the purchasing decision.

B. Putting Their Money Where Their Mouth Is

Most millennials want fresh, healthy and natural food, and are willing to pay a premium for this. They seek food products that are organic, free of GMOs and are innovative compared to traditional offerings, even if these options cost relatively more. The increase in appreciation of the farm-to-table concept is evident in the increasing number of craft breweries and artisan bakeries emerging, where established international brands with lower price points are being shunned in favor of these premium options.

Millennials do not like cooking. Convenience is their priority and spending time meal prepping and cooking are lower priorities. They perceive eating out and trying new restaurants with their social circles as a unique experience and would justify paying for this expense with ease. At the grocery store, they tend to head towards the frozen foods and prepared foods aisles with convenience at the top of their minds.

Frozen foods producers are also emphasizing the quality of the ingredients used as well as introducing innovative flavors including different cuisines and fusion offerings to further entice consumers. They are aware that these changes justify their price increases from the consumer’s perspective, which ultimately increases profitability margins.

C. Sustainability

According to Nielsen, about 3 in 4 millennials are altering their purchasing habits with the environment in mind. Millennials have a greater willingness to pay more for products with sustainable ingredients, environmentally friendly, organic or socially responsible products. Sustainability practices can range from food production to packaging to logistics. Food companies have recognized this trend and have made adaptations to gain a competitive advantage and to increase bottom lines. For instance, Mars, PepsiCo, Coca-Cola, Unilever and Walmart all announced sustainability pledges with a focus on where products come from, the production and manufacturing processes and the overall impact on the environment. Mass plastic bottle users such as Danone, PepsiCo, Nestle and Coca-Cola have also invested in plastic bottle alternatives and are committed towards increasing the amount of recycled plastic used in their bottles. Other companies have been investing in various sustainability initiatives, such as biodegradable and compostable six-pack ring designs made from barley and wheat, boxed water, wood-based bottles, edible containers etc.

There has also been an increase in the usage of “ugly produce”. Raw produce that were deemed aesthetically unappealing previously would have been discarded as waste. Nowadays, companies such as Whole Foods and Walmart are intentionally sourcing imperfect produce from farms to prevent it going to waste. These are then processed from the original form before being sold in juice or sliced forms, which consumers would purchase without being concerned about the initial appearance.

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Companies operating within the food industry recognize that sustainability efforts have come a long way in appealing to customers, especially millennials. They also recognize the effectiveness of promoting these sustainability efforts as part of their respective marketing campaigns.

Today’s Importance of Sustainability

Conclusion

Companies that can capitalize on these trends within the industry will be better positioned to grow revenue and profitability going forward. In our review of the trends identified above, the common denominators are:

We believe these differentiators are crucial to maintain a competitive edge within the food industry.

Funding for Tech Companies

Meet Dave, owner of Calgary-based technology services company TechCo Inc. TechCo has seen a successful first year, has hired a handful of developers, and is funding some initial sales and marketing. The business is burning cash invested by Dave’s personal relationships and a few angel investors, but now Dave needs to grow. He has developed a prototype for a new AR app and is struggling to finance its commercialization. Dave needs growth finance to fund the expansion of his product line and to cover heightened operating costs. He sees applications for his technology with everyone he meets. He needs more people, he needs more marketing resources, and he needs more committed customers.

If you are someone just like Dave, who needs more financing to reach your next business goal, you need to understand the funding options available to you. Below are a few emerging funding options for near start-up tech companies:

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Alberta Investor Tax Credit Initiative

The Government of Alberta provides tax incentives for investors to fund qualified small businesses in the tech sector. Beginning in January 2017, investors who provide equity capital to eligible businesses involved in researching, developing, or commercializing new technology, or engaging in interactive digital media development, video post-production, digital animation, or tourism will receive a 30% tax credit. Roughly $20 million in funding is still available for qualifying businesses for the remainder of fiscal 2018/19. Head here for more information.

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Opportunity Calgary Investment Fund

The City of Calgary has made it a priority to invest in local businesses and lessen the effects of the most recent economic downturn. The $100 million Opportunity Calgary Investment Fund (OCIF) was developed to grow the local economy and encourage innovation. The funds are available for private sector companies, non-profits, and public institutions alike, and eligible applicants can receive up to half of the entire project budget. Visit here for more information or to apply.

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Publicly-funded Third Party Funds

Many fund sources exist to bridge the capital gap for small businesses that may not be ready for venture capital.  The following are government-sponsored groups that provide funding, advice and resources:

The Accelerate Fund

This fund provides early-stage growth financing to small businesses in Alberta’s technology sector with the goal of diversifying the province’s economy. Accelerate Fund II is currently seeking qualifying companies for up to $10 million in funding. For more information, visit here.

Emissions Reduction Alberta (ERA)’s BEST Challenge

This challenge introduced by ERA will award $100 million to projects in biotechnology, electricity and sustainable transportation which aim to reduce greenhouse gases. It is estimated the projects will culminate in a reduction of 2.5 million tonnes of CO2 by 2030. To read more, visit here.

Alberta Innovates

Alberta Innovates is a provincially-funded corporation which invests in health innovations, the bio sector, and clean energy. It has invested millions of dollars into Alberta-based research and technology development with a focus on diversifying Alberta’s economy, improving Alberta’s environmental performance, and enhancing the lives of Albertans through research and innovation. Visit here.

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At Whitehorn, we sincerely hope that small business owners like yourself will succeed according to your game plan. We understand the challenges of start-up entrepreneurs, especially when you have an innovative product in the pipes but are struggling to raise capital. We hope the provided information and references will assist you in overcoming these entrepreneurial obstacles, taking you one step closer to realizing your aspirations. We welcome the opportunity to stay in touch with you along your fundraising journey and when your business has reached commercial success, we would be happy to discuss our services and the ways in which we can assist in taking your business to the next level.

SNC-Lavalin: A Timeline

The newest developments in the SNC-Lavalin affair, the ongoing Canadian political scandal investigating alleged political interference by members of Prime Minister Justin Trudeau’s cabinet in the ongoing criminal prosecution of Montreal-based engineering giant SNC-Lavalin, came out of the House of Commons today. Two more testimonies from both Trudeau’s former principal secretary Gerald Butts and the most senior member of public office in Canada, Privy Council Clerk Michael Werneck, were heard by the House’s justice committee. In light of these significant advancements, we provide you with a timeline of the scandal through today which will bring you up to speed.

Who is SNC-Lavalin?

SNC-Lavalin is a engineering and construction firm out of Montreal, Canada which has been in operation under that name since the two largest engineering companies in Canada at the time, SNC and Lavalin, merged in 1991. The firm has since executed thousands of construction and engineering projects and today has over 50,000 employees worldwide with offices in over 50 countries and operations in over 160 countries.

Timeline of Events

Prime Minister Trudeau is scheduled to hold a press conference in Ottawa Thursday morning and will issue a public statement at that time.

Canada’s New Food Guide

Major Differences

• Serving sizes have been eliminated: While the old Canada’s Food Guide recommended specific serving sizes for various age groups (for example, the above example illustrates the recommended portions for an adult male were eight to 10 servings of fruits and vegetables, eight servings of grain products, two servings of dairy and alternatives, and three servings of meat and alternatives), an initial draft of the new guide recommends eating a wide variety of healthy foods and introduces “the perfect plate,” suggesting one half of a person’s diet be fruits and vegetables, especially leafy greens, one quarter be protein foods, inclusive of dairy such as low-fat milk, kefir, yogurt and cheese, and one quarter be grains that are whole grains when possible.

• Alternatives are emphasized: Plant-based alternatives to meat, such as tofu and beans are recommended in higher percentage, as they decrease the risk of heart disease, type 2 diabetes, and some cancers. This is also intended to reflect Canada’s cultural diversity.

• Items have been removed: Juice has been removed from the fruits and vegetables category, indicating that a 1/2 cup of juice is no longer considered to equal one serving of fruit. The old guide also recommended every person drink milk every day, while the new guide makes no mention of this. Also, the old guide recommended at least half of the grains consumed were whole grains, while the new guide seems to recommend whole grains are always best.

• More value placed on healthy eating habits: The new guide also goes beyond what to eat and includes information on how to maintain healthy eating habits. It recommends cooking at home more often, eating less processed foods, eating foods low in sodium and saturated fats, eating meals with others to encourage slowing down and taking time to enjoy the experience and tradition of consuming meals in community. People are also encouraged to use food labels and be aware of food marketing which may contradict the food guide’s recommendations.
  

Impacts on the Food Industry

• Dairy: The Director of Nutrition and Research with the Dairy Farmers of Canada, Isabelle Neiderer, is wary of the new guide combining the meat and alternatives and dairy and alternatives groups, stating the fear that Canadians will receive the message that all proteins are the same. Neiderer stated that “it would be a disservice to the Canadian population and frankly, a recipe for disaster in terms of bone health,” for people to drastically decrease dairy products which are rich in calcium and potassium. All previous food guides since 1942 have recommended drinking milk daily. Dairy Farmers of Canada

• Meat: Similarly, the Canadian Meat Council believes there will be severe repercussions stemming from the new guide’s recommendation to eat less red meat and incorporate more meat alternatives such as beans and tofu. The Council’s Director of Regulatory Affairs, Jackie Crichton, believes it could be harmful to Canadians to attempt to heed this advice without clearer guidelines: “Anybody who is already consuming foods in the right proportions at the right frequency that result in a balanced diet, if they do read those general statements and were to decide, ‘Oh well, then I have to eat less of that protein,’ what would that impact be on their health?” For the first time ever, industries have not been consulted in the process of producing a revision of Canada’s Food Guide, and must submit their comments to the initial draft along with the general public. The Globe and Mail

10 Minute Energy Highlight

2019 Developments

Venezuela Crisis: The Trump administration issued new sanctions on Venezuela’s state-owned oil company PDVSA that prevents current Venezuelan leader Nicolas Maduro’s regime from exporting crude to the US. The move increases pressure on Maduro to resign and cede power. Maduro’s regime has been accused of human rights violations and abuses, as well as widespread corruption. PDVSA’s US based refiner Citgo Petroleum Corp. will be able to continue operating in the US but will not be allowed to remit money to the Maduro regime. PDVSA is seeking to sidestep the US-imposed sanctions by asking major buyers to renegotiate contracts.

Production Curtailment and Alberta Government Programs: The Alberta government is easing mandatory oil curtailments imposed in January in response to the increase in WCS prices. The new target output in February is 3.63 million bbls/d, an increase of 70,000 bbls/d. The government claims that crude inventory has declined by 5 million barrels since the curtailment began in January.

The Alberta government will also shortly be announcing the winners of $1 billion in funding to develop bitumen partial upgrading facilities, and February will mark the deadline for the province to accept expressions of interest in a new bitumen refinery.

US Crude Production: Crude production in the US hit an all-time high of 11.537 million bbls/d in October 2018, up 79,000 bbls/d from 11.458 billion bbls/d in September. US oil production broke the 1970 record of 10.04 million bbls/d in November 2017 and has set monthly record highs for five straight months since June 2018. US gross natural gas production in the lower 48 states rose to an all-time high of 96.7 bcf/d in October, up from the previous high of 96.0 bcf/d in August (Daily Oil Bulletin).

Upcoming Projects

Husky’s Bid for MEG Energy Corp.

Husky Energy Inc. (TSX:HSE) abandoned its $2.75 billion hostile takeover bid for MEG Energy Corp. (TSX:MEG). The offer did not secure sufficient support from shareholders, with Husky citing “negative surprises” since it commenced its bid in October 2018. These surprises included the Alberta government’s production curtailment and a continued lack of progress on new pipeline development. Husky is proceeding with the potential divestiture of its retail business and its Prince George, BC refinery. Upon Husky retracting itself from the MEG acquisition, MEG announced a $200 million capital budget for 2019, a 70% reduction from 2018’s.

Completion of Christina Lake Phase G and Kirby North Projects

Cenovus Energy (TSE:CVE)’s 50,000 bbl/d Christina Lake Phase G expansion project and Canadian Natural Resources (TSE:CNQ)’s 40,000 bbl/d Kirby North Project are both slated to be complete and producing by the end of 2019.

imperial’s aspen project

Imperial Oil (TSE:IMO)’s $2.6 billion, 75,000 bbl/day Aspen SAGD project has begun construction with operation expected to begin in 2022.

Canadian Natural Resources Expansion

Canadian Natural Resources has submitted a bid for a bitumen-only 45,000 bbl/day expansion at its Horizon mine. This latest expansion will be for non-upgraded partially deasphated bitumen (PDB), similar in quality to diluted bitumen (“dilbit”) produced at Imperial Oil's Kearl Mine and the new Fort Hills Mine, operated by Suncor Energy (TSE:SU).

LNG Projects in canada

The $40 billion LNG Canada project to export LNG to Asia Pacific markets was approved in Oct 2018 and is viewed as the catalyst for additional LNG projects. There are 18 LNG export facilities proposed in Canada (13 in British Columbia, two in Quebec, and three in Nova Scotia) with a total proposed export capacity of 29 bcf/d (Natural Resources Canada).

Key Energy Charts

Exports climbed to 330,402 bbls/d in November 2018 from 327,229 bbls in October2018, which was the previous record. The trend is expected to continue increasing, with January rail-car loadings estimated at 356,000 bbl/d.

Notes: Data consists of 32 Canadian publicly traded E&P companies. 2016 to 2017 capital expenditures based on actual financial statements. 2018 capital expenditures are based on most recent company forecasts. 2019 capital expenditures are based on most recent company forecasts as well as analysts’ consensus.

The sector’s capital expenditures have been relatively flat since 2017. The primary reasons for the lack of growth are the volatility of commodity prices, uncertainty regarding large pipeline construction and competition for spending from other oil and gas producing regions. Most producers are emphasizing spending discipline entering 2019, with the operational flexibility to adjust spending plans based on market conditions. The most often cited reason for the decline in 2019 capital expenditures is the uncertainty around oil markets, including pipeline constraints, the impact of curtailments and pricing volatility. Many companies are also implementing a cautious and defensive approach by weighting their spending towards the second half of the year.

The price differential increased to record levels in Q4 2018 due to reduced demand caused by multiple US Midwest refinery maintenance programs, record Alberta production and the lack of pipeline capacity concerns. Since Q4, the Midwest refineries have resumed normal consumption. The Alberta government announced a temporary production curtailment and the global demand and supply for heavy crude has tightened. The current WCS-WTI price differential is ~15% or less than $10 per barrel.

Who Gets What in the New USMCA?

After months of deliberations by trade negotiators, the deal to replace NAFTA was agreed to on September 30 by the US, Canada, and Mexico. All three member countries had items they were fighting for, and the new United States-Mexico-Canada Agreement (USMCA) includes some wins, as well as some losses for each of them. Here we have rounded up who’s saying what about the impact of the deal, as well as some of the major ways in which it will affect Canadians.

Overview

• President Trump would like to see the deal signed by the end of November.

• The deal is currently sitting with Congress, who are waiting on a report from the US International Trade Commission outlining the impact of USMCA and will accept written comments through December 20.

• A group of Republican law-makers in the US have written the President urging him to remove language written into USMCA which holds all three member countries to support policies protecting employees from sexual discrimination (pregnancy, sexual harassment, sexual orientation, and gender identity). Prime Minister Trudeau defends the provisions.

• In wake of the US midterm elections, most analysts still expect the deal to pass. If Democrats (who have said the deal cannot pass as is, based on the need for more enforcement of its legislation in areas such as pro-labour and environmental aspects) show resistance, they may not have much leverage, as Trump could threaten to pull the US from USMCA altogether, which would be economically disastrous.

Oil & Gas

• NAFTA’s Article 605, which mandated Canada could not decrease the volume of oil shipped to the US over a proportionate 36-month period, has been excluded, which means Canada should be able to expand its geographic reach and diversify its foreign markets.

• USMCA will make it easier for exporters to ship duty-free to other member countries, specifically pertaining to diluent, a thinning agent, which used to be subject to tax under NAFTA. Duties will be waved on all oil shipments containing diluent, as long as diluent makes up less than 40% of the total shipment.

• Alberta’s Minister of Economic Development, Deron Bilious, said that this would amount to $60 million in savings for energy sector producers.

Dairy & Poultry

• Access to Canada’s dairy market will increase for US producers.

• Until now, Canada’s dairy, poultry, and egg industries have long been protected from foreign competition by a managed system of tariffs, fixed prices, and production quotas.

• The recent Comprehensive and Progressive Agreement for Trans-Pacific Partnership allowed 10 countries to have 3.25% of the Canadian dairy market; USMCA gives the US a slightly higher percentage.

• Changes in USMCA considered a win for Trump and American producers and a loss for Canadian producers who now face more competition.

• Canadian Farmers are fearful many jobs will be lost.

Auto Manufacturing

• Separately, Canada and the US are attempting to negotiate an end to tariffs on steel and aluminum.

• During USMCA negotiations, Canada and the US drafted a side letter which outlines details of an agreement intended to exempt a certain amount of Canadian vehicles and auto parts from American national security threats, should Trump decide to impose them.

• This side letter is part of the reason Canada is willing to sign USMCA while steel and aluminum tariffs are still in place - guaranteeing no auto tariffs is more important.

• Should Washington impose tariffs on cars, Canada will still be able to export 2.6 million vehicles to the US each year.

• 75% of North American auto content must now come from USMCA member countries, up from 62.5% under NAFTA.

• 40%-45% of auto content must be made by workers earning a wage of at least US$16 per hour.

• Mexico may now be a less desirable destination for large auto makers under these new wage requirements.

Dispute Settlement

• NAFTA’s Chapter 19, a dispute settlement agreement mechanism which called on a panel of representatives from each country involved in a dispute to agree to its resolution instead of settling the dispute through a country’s court system, has been retained in USMCA.

• The inclusion of Chapter 19 is seen as a win for Trudeau and a loss for Trump, who felt the provision undermined the autonomy of US courts.

• NAFTA’s Chapter 11 has been excluded from USMCA, which means Canadian and American corporations no longer have a mechanism in place to sue governments whose trade practices they think are unfair. Mexico will have some Chapter 11 abilities in limited form.

Cross-Border Shopping

• Canadians can now import goods up to a value of $150 without paying duties, which is up from the current $20, and up to $40 without paying GST or PST.

• The limit for Americans buying from Canada and Mexico will be greatly decreased from US$800 to US$100.

• Large online retailers will likely benefit while small businesses may suffer having to collect sales taxes.