Outlook

SODCL is well established in Western Canada in the institutional and commercial construction market sectors. SODCL’s $1.3 billion backlog is 97% relatively low-risk construction management projects and remains institutionally levered, with three Alberta hospital projects and several educational facilities added to backlog in 2011. As well, there are many project opportunities in SODCL’s prospect inventory. The institutional spending outlook in Western Canada is healthy, partly due to expected provincial and municipal government spending on institutional projects such as schools and community centres. For example, the Alberta government’s 2012/2013 fiscal year budget calls for the government to spend $5.7 billion on infrastructure-related projects. Although this represents a 9% year-over-year decline from the $6.3 billion spent during the previous term, the capital plan will average $5.5 billion per year, which is more than 30% higher than the annual average since 2001. The municipal infrastructure, transportation, education, and healthcare sectors continue to dominate provincial spending initiatives accounting for 84% of total spending, compared to 89% last year.

The non-residential private sector spending outlook is continuing to improve as a result of generally strong commodity prices, particularly oil prices, and favourable financing and construction costs. This is expected to support backlog additions for SODCL. Margin pressure is expected to continue in the second quarter of 2012 as the segment works through the remaining lower margin legacy Dominion backlog and projects secured in the more competitive late 2008, 2009 and early 2010 environment. SODCL intends to partially offset this margin pressure by focusing its marketing activities on large relationship-based construction management projects that are expected to provide margin upside, and establishing an industrial sector presence for building construction. To date, SODCL’s industrial division has established a foothold with three industrial buildings with a combined value of $40 million. SODCL’s EBITDA margins are expected to marginally improve in the second half of 2012 as projects procured over the 2010 and 2011 period and some projects nearing completion are expected to generate higher margins. SODCL expects to complete the remaining $25 million of legacy Dominion projects in the second quarter of 2012 and will continue to focus on attaining projects that meet acceptable return thresholds and offer higher margin, fee-enhancing opportunities.

Current Stuart Olson Dominion projects include:

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• The Edmonton Remand Centre, a $523-million, 57,000-square-metre facility in Edmonton, Alberta scheduled for completion of the capital construction phase in the fall of 2012;
• Three Alberta hospital projects valued at $315 million, located at Medicine Hat, Lethbridge and Edson, Alberta;
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  • The Fort St. John Hospital, a $298-million, 15,000-square-metre P3 project in Fort St. John, British Columbia scheduled for completion in the spring of 2012;
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  • Investors Group Field, a $170-million, 33,000-seat football facility in Winnipeg, Manitoba scheduled for completion in September 2012;
• 745 Thurlow, a 25 storey, 400,000 square foot office tower, valued at $100 million (announced at $98 million) and located at 745 Thurlow Street, Vancouver; and
• Renovation and construction of the Tache Hall Music, Art and Theatre Complex for the University of Manitoba, originally budgeted at $60 million.