The first half of 2016 proved challenging for the S&P/TSX 60 companies, with weak and lagging financial results. However, the second half of the year saw substantial stock price gains and significant improvement in financial performance, mostly due to higher commodity prices for the energy and materials sectors. (For a more detailed analysis of the sector’s performance through the first half of the year, see “Second-quarter pay-for-performance update for the S&P/TSX 60 companies: Glimmers of hope,” Executive Pay Matters, September 22, 2016.)
Figure 1 shows the S&P/TSX 60’s 2016 performance results versus 2015. Performance for 2016 generally met or exceeded investment analysts’ expectations reported at this time last year. The trend in 2016 was mostly positive:
- Income statement measures improved across most measures, following a contraction in 2015.
- Cash-flow growth for the first two quarters was negative, while the last two quarters saw significant improvement, resulting in a 5% increase year over year.
- Total shareholder return was 21%, nearly double the return for the overall S&P 1500 and a substantial improvement over 2015. While returns in the U.S. were boosted significantly by the presidential election in November, the impact on the S&P/TSX 60’s TSR was muted, with only 5% growth after the election compared to the full-year return of 21%.
Figure 1. 2016 year-end financial scorecard for the S&P/TSX 60
Looking forward, investors remain cautiously optimistic for 2017, with performance expectations at or slightly above 2016 levels, as shown in Figure 2.
Figure 2. 2017 analysts’ expectations for the S&P/TSX 60 versus 2016 results
The optimism for 2017 is, in part, based on expectations that commodity prices have bottomed out and that energy companies are increasing production and capital expenditures and reaping the benefits of cost efficiencies from prior years.
Stay tuned this spring as our next quarterly update will examine the impact of 2016 performance on incentive/bonus plan payouts. For an overview of how the S&P 1500 fared in 2016 and insights into 2017 expectations, see “Pay-for-performance update for the S&P 1500: Wrapping up 2016,” Executive Pay Matters, March 27, 2017.
Ming Young is an executive compensation consultant in Willis Towers Watson’s Toronto office. Christina Le is an executive compensation consultant in Vancouver. Sébastien Morrissette is an executive compensation consultant in the firm’s Montreal office. Email firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com.