Outlook

Churchill Services Group (CSG) and Broda continued to perform well, generating near record combined revenue for the segment in the first quarter of 2012. Success for these businesses is largely driven by their reputation for safety and quality, which enables them to be the preferred suppliers on many projects. Margins were strong, although less than in the first quarter of 2011, which benefitted from the resolution of issues on an oil sands project nearing completion.

Going forward, CSG is expecting continued growth in the remainder of 2012 as it executes on strategic plans to expand market share and increase its operations footprint and customer base, after record years in 2010 and 2011. Margins are expected to gradually increase in the last three quarters of 2012 with a large sustainable industrial project spend and increased major project activity, particularly in Alberta’s oil sands.  The economic outlook for the oil sands remains optimistic in spite of recent pipeline approval delays. The players in this market are evolving to more senior exploration and development companies, foreign national oil companies, and integrated oil companies. Due to numerous project restarts and sanctioning announcements (e.g. Kearl, Firebag, Sunrise, Surmont, Jackfish 2, Christina Lake Phase 2), the outlook is positive for CSG’s operations. In addition, planned turnarounds are continuing to provide opportunities for additional work. In the first quarter of 2012, CSG and Broda secured approximately $82 million of new contract awards and scope increases.

Broda expects a strong performance in 2012 in spite of intense competition in the Western Canada civil construction market. Broda has numerous project opportunities in Saskatchewan’s industrial and mining markets, expects healthy ballast sales to Canada’s two major railways in 2012, and is continuing work on the Calgary airport runway and tunnel projects,

CSG and Broda had combined backlog at March 31, 2012 of $239.5 million, compared to $264.0 million at December 31, 2011.