From the CEO

During the third quarter of 2011 we announced several major new projects, growing our backlog to a record $1,840.1 million, which is a $285.1 million or 18% increase over the $1,555.0 million year-end balance. Stuart Olson Dominion’s strong record of project execution with Alberta Infrastructure enabled us to win three of the five Alberta hospitals that were up for tender, valued at $421 million ($315 million of backlog additions). As well, a $98 million Vancouver office tower and a $60 million theatre complex renovation in Winnipeg were announced. Subsequent to the end of the quarter, Canem was awarded a $30 million electrical and data systems contract for the new Shaw Data Centre in Calgary. Our record backlog provides visibility of our future revenue streams and strengthens our outlook for 2012 and beyond.

It is the confidence in our outlook and our solid financial position which supports the Board of Directors decision to declare our third quarterly common share dividend, in the amount of $0.12, payable on January 17, 2012 to the shareholders of record on December 30, 2011.  

Unfortunately, our financial returns in the quarter were hindered by four underperforming fixed price projects at Stuart Olson Dominion, which generated $3.2 million of operating losses in the quarter. However, these projects are almost complete and we do not anticipate further losses from these projects in the future. Stuart Olson Dominion’s focus will be on obtaining projects with strong risk-adjusted margins, projects based on construction management relationships and opportunities to demonstrate value for the customer while delivering value to our shareholders.

Our Commercial Systems segment, Canem, had a great quarter with 36% growth in revenue and a 39% improvement in contract income.  This increase in results was primarily attributable to the inclusion of Canem’s results for a full 3 months, compared to 2.5 months included in the third quarter of 2010, increased contracting activity and the inclusion of McCaine’s results for the third quarter of 2011.  McCaine contributed $7.2 million of revenue in the third quarter along with $27.9 million of backlog. The management and staff at McCaine have been a great addition to the Canem Systems Group.

Our Industrial Services segment delivered revenue of $99.9 million, a 6% increase over the $94.3 million generated for the third quarter of 2010. The increased revenue contribution of the Broda Group for the third quarter of 2011 more than offset the reduction in revenues from Laird and Insulation Holdings. During the second quarter of 2011, the Broda Group, which is active on a civil project at the Calgary Airport, put in place a recovery plan to remediate the loss of productivity incurred during the second quarter of 2011 as a result of persistent wet weather. During the third quarter, the Broda crews at the Calgary Airport runway and tunnel project were in full production. Furthermore, Broda is considering maintaining a presence onsite during the winter months to recover schedule delays caused by the unusually heavy rainfall experienced this past spring. Broda’s operations in Northern Saskatchewan’s industrial market performed as expected and continue to deliver consistent sustainable results.

Sovereign debt concerns in Europe and the United States are expected to cause many economies globally to decelerate and gross domestic output to grow modestly between 2012 and 2014 around the world. The speculated ramifications of a European debt crisis have resulted in volatility in the equity markets. To date, we are not seeing these market dynamics impact the financing or operating cash flows of the industrial customers or governments in Western Canada. The last time a correction of this magnitude and severity occurred, credit and equity markets became inaccessible, while risk was re-priced and many of our industrial customers ceased or delayed discretionary project expenditures. Thus, it is our intention to monitor these developments very closely and to remain in close communication with our customers as the current situation unfolds to ensure that we are positioned to react accordingly.

Going forward, we expect that Stuart Olson Dominion will continue to accumulate a portfolio of high potential projects in its backlog, Canem will continue to execute on its best-in-class operational efficiencies and Broda will continue to win profitable projects in the civil and mining sectors. As well, we expect Laird and IHI will continue to build on their strong safety records and operational excellence to grow their operations throughout Western Canada’s thriving resource-based economy. We will continue to create value for our shareholders by building on the profitable organic growth of our five operating companies and, when conditions are right, executing acquisitions that enhance our strategic goals and fit our entrepreneurial culture. We expect Churchill’s earnings to improve in the second half of 2012 as we put legacy projects secured during 2008-2010 behind us and experience an increase in the proportion of recently awarded higher margin work coming out of our record backlog.

November 8, 2011