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SeverfieldA n n u A l R e p o R t 2 0 1 1 – pA R t o n e the road to higher value L A R E N E G G N I T C A R T N O C Churchill creates value from providing construction and industrial services in Western Canada. I N D U S T R A L I S E R V C E S I COMMERCIAL SYSTEMS The thriving economy of Western Canada and our strong relationship-driven business development activities in 2011 drove Churchill’s backlog to a record at year-end. Our General Contracting segment’s results were dampened by low margin projects secured during the more competitive markets of late 2008, 2009 and early 2010 and unprofitable fixed price projects carried over from the acquisition of Dominion in 2010. Churchill’s two other operating segments, Commercial Systems and Industrial Services, produced record results in 2011. Having broadened our geographic base and product offering, and worked through almost all of the less profitable legacy backlog, we are well-positioned for a return to higher margins and greater profitability in 2012 and beyond. This is Churchill’s road to higher value. Forward-Looking Information This annual report contains certain information that may constitute forward-looking information within the meaning of applicable securities laws. Often, but not always, forward-looking information can be identified by the use of such words as “may”, “expect”, “believe”, “intend”, “outlook”, “forecast”, “should”, “anticipate” and other similar terminology, including statements concerning possible or assumed future results. The forward-looking information in this annual report includes, without limitation, statements pertaining to: (a) general economic conditions and the impact those conditions may have on The Churchill Corporation (“Churchill”); (b) the expectation that any of the Churchill’s operating companies will improve their business prospects; (c) the growth of Churchill being supported by a combination of cash flow from operations, its credit facility and access to equity markets; (d) backlog additions reflecting resiliency of growth in Churchill’s businesses; (e) Churchill having sufficient capital resources and liquidity to meet its commitments, support its operations, finance capital expenditures, support growth strategies and fund dividends; and (f) the ability of Churchill’s operating companies to execute upon their strategic plans to expand market share and increase operational scope and customer bases. Forward-looking information is based on management’s reasonable assumptions, analysis and estimates as well as other material factors that it considers to be relevant at the time of making such statements. The forward-looking information in this annual report is included for the purpose of assisting investors in understanding Churchill’s business as at the date hereof. Forward-looking information involves known and unknown risks and uncertainties, which give rise to the possibility that management’s assumptions, analysis and estimates will be incorrect and that Churchill’s anticipated results will not be achieved. Such statements should not be interpreted as a guarantee of future performance or results. Forward-looking information is necessarily subject to a number of factors that may cause actual results to differ materially from those results implied by the expectations suggested by such information. Those factors include, without limitation, the risks and uncertainties described in Churchill’s Annual Information Form with the securities regulatory authorities in Canada under Churchill’s profile at www.sedar.com. The forward-looking information in this annual report is current to the date hereof, and is subject to change following such date. While Churchill may elect to do so, unless required by applicable law, it undertakes no obligation to update this information to reflect new information or circumstances at any particular time. Non-IFRS Measures Throughout this annual report certain measures are used that, while common in the construction industry, are not recognized measures under IFRS. The measures used are “contract income margin percentage”, “work-in-hand”, “backlog”, “working capital”, “EBITDA”, “EBT”, “funds from operations”, “funds from operations per share” and “book value per share”. These measures are used by management of Churchill to assist in making operating decisions and assessing performance. They are presented in this annual report to assist readers to assess the performance of Churchill and its operating companies. While Churchill calculates these measures consistently from period to period, they likely will not be directly comparable to similar measures used by other companies because they do not have standardized meanings prescribed by IFRS. Please review the discussion of these measures in the “Terminology” section of the Management’s Discussion and Analysis which can be found under Churchill’s profile at www.sedar.com. Our gOal Profitable Growth QuarTErlY DIVIDEND $0.12 Concentrating on continued profitable organic growth across all business segments through: • Rigorous project selection; • Profitable execution of backlog; • • Making safety, health and the environment a key priority; and Unwavering commitment to exceeding our customers’ expectations. When conditions are right, we will acquire companies that enhance our strategic goals and fit our entrepreneurial culture. For example, we acquired McCaine Electric in April 2011, expanding Canem’s footprint into Manitoba. Growth of our business is supported by our robust cash flow from operations, our $200 million credit facility and our access to the public equity and debt markets, which is sustained by an active investor outreach program and broad analyst coverage. 1 The ChurChill CorporaTion Size. Scope. Scale. We’re building value across Western Canada – and beyond. $1.41 billion contract revenue in 2011 $1.84 3,928 billion backlog at year-end 2011 employees at year-end 2011 Revenue increased by 19% in 2011. Stuart Olson Dominion grew its top line by 11%. Canem’s revenue grew by 132% including a full year of Canem’s results (compared to 5 ½ months in 2010) and the McCaine acquisition. Our Industrial Services segment grew its top line by 22% as Broda almost tripled its revenue, and Laird and IHI contributed 9% revenue growth. Churchill’s successful business development efforts grew backlog by 19% to a record $1.84 billion in 2011. This backlog provides visibility of future revenue and profit sources, particularly for Stuart Olson Dominion, our General Contracting segment, which contributed $1.44 billion (78%) of our year-end 2011 backlog. Our 773 salaried employees (444 in Stuart Olson Dominion, 126 in Canem, 157 in the Industrial Services segment, and 46 in the corporate centre) form the core of our operations. In addition, our hourly field personnel (3,155 at 2011 year-end) allow us to right-size our organization to our workload. Size, scope and scale matter. These traits enable our operating companies to target larger, more profitable projects. In 2011 we bolstered our presence throughout Western Canada and beyond with several major new projects including: Stuart Olson Dominion Broda Canem • Three Alberta hospital projects valued at $315 million, located at Medicine Hat, Lethbridge and Edson, Alberta • 745 Thurlow, a 25 storey, 400,000 square foot office tower, valued at $98 million and located at 745 Thurlow Street, Vancouver, British Columbia • The $60 million renovation and construction of the Taché Hall Music, Art and Theatre Complex for the University of Manitoba • Earth-moving contracts for the • The Shaw Data Centre, an energy efficient, high-technology structure with a $30 million electrical and data systems budget • The 443 Maritime Helicopter Squadron facility, a $104 million ($11 million electrical and data systems budget), 20,000 square metre hangar being constructed at Victoria International airport Calgary Airport Authority’s New Runway Development Program and the City of Calgary’s Airport Runway Tunnel project ($40+ million) Laird Electric / Insulation Holdings • 2-year, $80 million turnaround maintenance contract for an oil sands client in the Fort McMurray, alberta area laird Constructors • A $50+ million contract for electrical and mechanical work at a mine in northern Ontario 2 The ChurChill CorporaTion Three operating segments Our three operating segments – General Contracting, Commercial Systems, Industrial Services – allow us to benefit from institutional (hospitals, schools, recreation centres, prisons), commercial (office, wholesale, retail) and industrial (oil and gas, mining, utilities) growth throughout our service area. Diverse markets with huge opportunities The growing economy in Western Canada provides a wealth of opportunity for Churchill. Capital construction expenditures in Western Canada were $126 billion in 2011, and are expected to be $140 billion in 2012. (Source: Statistics Canada) Bow Valley College, Calgary, Alberta. An expanding geographical footprint Last year saw the expansion of Canem into Manitoba with the McCaine Electric acquisition, Broda into Alberta with the Calgary Airport Runway and Runway Tunnel projects, and laird into northern Ontario with the establishment of Terwillegar Community Recreation Centre, Laird Constructors. Edmonton, Alberta. Broda equipment at a northern Saskatchewan mine site. We remain focused primarily The oil sands are the largest on the rapidly growing driver of the economy in resource extraction economy Alberta, the most prosperous of Western Canada, and we will province in Western Canada. be opportunistic in adjoining They contain an estimated regions where our core 170 billion barrels of recoverable strengths are a competitive oil and produced approximately advantage. 1.6 million barrels per day in 2011. By 2020, this output is expected to exceed 5 million barrels per day. (Source: CAPP) 3 The ChurChill CorporaTion Margins Profit margins are a key indicator of the risk/reward profile of our project portfolio. Contract types that place cost and schedule risk on the contractor, such as lump sum/fixed price, tend to be bid at higher margins to compensate for the additional risk. Lower-risk contract types, such as construction management and cost plus, tend to be bid at lower margins but often with bonus incentives to motivate optimal performance. Margins are... ... important measures of our profitability. There are several different types. All are calculated as the percentage of revenue that the particular type of profit comprises. • Contract income margin = Contract income divided by revenue times 100 • EBITDA margin = EBITDA divided by revenue times 100 • Net income margin = Net income divided by revenue times 100 Margins can be volatile... …if the project portfolio contains a large proportion of higher-risk contracts. This was the case with the legacy project portfolio of Dominion, which we acquired in 2010. It was comprised primarily of lump-sum/fixed-bid contracts, which encountered execution issues and were largely bid at insufficient margins during the very competitive markets of the recent downturn from late 2008 to early 2010. EBITDA and net income are also important The margin isn’t the only thing that matters. The dollar amount of EBITDA is an indicator of Churchill’s ability to cover its cash operating costs and net income is an indicator of overall profitability. Large projects with low margins can still deliver large profits. And cash is king Cash flow measurements such as “funds from operations” demonstrate Churchill’s ability to generate sufficient cash inflows (collections) to cover its cash outflows. Debt may be used as the buffer that covers timing differences between outflows and collections. 4 Contract Types Construction Management (CM) The contractor is paid a fee to manage the project for the owner. Sub-contracts are held by the owner. Cost Plus Sometimes referred to as “time and materials”. The contractor is reimbursed for all costs and also receives a fixed fee that may be a certain dollar amount or a percentage of costs. Sub-contracts are held by the contractor. Guaranteed Maximum Price (GMP) Cost plus with a price cap. The owner and contractor share profits if the contract is delivered below the GMP. The contractor covers costs above the GMP. Lump Sum/ Fixed Price The contractor performs the required work for a pre-determined fixed price, regardless of actual costs. Sub-contracts are held by the contractor. 2,000 1,500 1,000 500 0 Backlog by Contract Type ($ million) Fixed price/GMP CM/Cost Plus 17% 83% 10% 90% 34% 66% industrial Services 59% 41% Commercial Systems total Churchill General Contracting Contract Risk and Margin Fixed Price GMP k s i R CM Cost Plus Margins = Reward Why Earnings Lag Backlog As backlog is executed, revenues and costs are recognized – but not in a linear fashion. The outcome of many contracts cannot be estimated reliably in their early stages. So, while contract costs are fully recognized as they are incurred, contract revenue is recognized only to the extent that the costs are reasonably expected to be recoverable, until the contract’s overall outcome can be reliably estimated. Thus, earnings (revenue less costs) tend to be lower in the early stages of contracts, and higher as contracts mature, especially for GMP and fixed price contracts. The ChurChill CorporaTion Growing shareholder value Churchill is focused on maximizing total shareholder return through profitable growth in all its business segments – General Contracting, Commercial Systems and Industrial Services. Each segment is focused on improving profitability through rigorous project selection, profitable execution of backlog, putting safety first and focusing on meeting customers’ needs and exceeding their expectations. Unwavering commitment to exceeding our customers’ expectations Our companies use a holistic, team-based approach that brings clients, contractors and consultants together as equals. We work to understand our customers’ businesses and requirements, to ensure that we know their wants and needs and are able to exceed their expectations. For example, our preferred construction management (CM) methodology allows the owners to collaborate with us (the contractor) and project consultants to optimize project parameters. CM projects may later be negotiated to fixed price if the owners wish to transfer price and schedule risk to the contractor. Putting safety first Churchill’s customers and employees have the inherent right to a safe construction job site and workplace. Every one of our business units has an excellent safety record. Our Board of Directors Health, Safety and Environment Committee monitors our health, safety and environmental practices. We also have an operationally integrated health, safety and environment council consisting of senior management and safety representatives to share best practices. In addition, we are working to standardize the safety reporting across all of our business units. Rigorous project selection Churchill’s operating companies seek out projects that capitalize on their core strengths, allowing them to perform well for the customer and our shareholders. All of our operating companies have been in existence for 50+ years. All have a significant base of repeat clients and are supported by a strong reputation for a safe, cooperative and efficient work environment. This allows them to narrow their focus to high-quality projects with appropriate risk/ reward parameters. Our DESTINaTION greater shareholder value driven by Profitable project execution profitable growth. Stuart Olson Dominion focuses on relationship-based construction management projects that contain opportunities for innovations to add value and the ability to self-perform sub-contracts, such as concrete work, in order to improve project timing and economics for customers. Canem uses its proprietary production management module, stand-alone pre-fabrication facilities, in-house technical expertise and integrated technology systems to optimize productivity and procurement. Laird maximizes earnings per jobsite through a full lifecycle approach. Laird initially provides the temporary power, continues with the permanent electrical installation, follows up with ongoing instrumentation and control calibration, and performs long-term maintenance and upgrades. Laird Constructors also provides mechanical installation and service. IHI uses leading-edge technology and equipment to conform to any project specification, maintains full fabrication facilities served by experienced technical professionals, and uses systems and programs to ensure that all projects are completed safely, on-budget, and in conformance with regulatory requirements. Broda uses its in-house repair shop to ensure high-quality equipment maintenance and to drive high reliability and availability of equipment. It has a large major components and parts inventory to improve service turnarounds. And it uses mobile-maintenance and repair vehicles to support onsite maintenance. 5 The ChurChill CorporaTion Five Year Summary The following selected unaudited financial data has been derived from Churchill’s consolidated financial statements, which have been audited by Deloitte & Touche LLP, Chartered Accountants. The information set forth below should be read in conjunction with Churchill’s 2011 Management’s Discussion & Analysis, and Consolidated Financial Statements and Notes. ($ thousands, except share and per share data and percentages) INCOME STATEMENT DATA Contract revenue Contract income Contract income margin (%) Earnings before interest, tax depreciation and amortization (EBITDA) Interest expense Depreciation and amortization expense Earnings before taxes Net earnings from continuing operations Net earnings BALANCE SHEET DATA Working capital Shareholders’ equity Convertible debentures (excluding equity portion) Long-term debt (excluding current portion) $ PER COMMON SHARE DATA Net earnings per common share: Basic from continuing operations Diluted from continuing operations Basic Diluted Dividends declared Book value per share OTHER DATA Price to earnings multiple (12 month trailing) Return on average shareholders’ equity (ROE) Total shareholder return Backlog COMMON SHARE INFORMATION Weighted average shares outstanding - basic Weighted average shares outstanding - diluted Shares outstanding at year-end: Basic Fully diluted Shares traded Share price: High Low Close Years ended December 31 2011 2010 2009 (1) 2008 (1) 2007 (1) $ 1,409,159 157,940 11.2% $ 1,183,876 $ 144,360 12.2% 760,953 93,879 12.3% $ 694,021 63,218 9.1% 72,044 12,493 26,924 32,627 24,109 24,942 86,020 309,141 76,691 60,433 0.99 0.91 1.02 0.94 0.36 12.70 $ $ 71,812 7,498 15,111 49,203 33,125 34,234 97,801 289,348 74,454 74,112 1.60 1.50 1.66 1.55 – 11.99 $ $ $ 601,241 $ 91,951 15.3% 51,322 240 4,435 46,647 33,479 34,817 56,186 491 4,089 51,606 35,591 36,443 $ $ 105,202 $ 140,870 – 641 61,995 105,573 – 6,787 1.90 $ 1.87 1.98 1.94 – 8.00 1.98 1.96 2.03 2.01 – 5.92 33,883 665 2,808 30,410 20,682 21,126 35,180 69,678 – 8,755 1.17 1.15 1.19 1.17 – 3.90 11.2 8% (36%) 1,842,580 12.9 16% (5%) $ 1,555,034 9.8 28% 168% 3.5 42% (68%) $ 1,388,624 $ 1,390,273 19.1 36% 275% $ 1,333,655 $ 24,245,025 32,445,550 20,643,343 23,839,350 17,620,454 17,935,551 17,928,037 18,109,979 17,730,644 17,995,235 24,348,919 32,500,544 24,133,727 28,395,427 17,619,259 18,832,502 17,822,091 18,099,626 17,886,991 18,204,491 14,177,929 19,809,454 15,729,284 20,315,900 19,195,481 $ $ 20.79 10.01 11.43 $ 22.00 16.32 18.29 $ 20.94 6.33 19.27 $ 24.49 4.45 7.19 29.90 5.11 22.50 (1) Amounts for years prior to 2010, except 2009 balance sheet data, are presented as per previous Canadian GAAP prior to the adoption of IFRS. They may not be directly comparable to the amounts reported under IFRS in 2010 and later. Amounts for years prior to 2010 are also reported on a continuing operations basis. 6 The ChurChill CorporaTion Measuring our performance Key performance indicators Revenue provides an indication of Churchill’s ability to grow its overall business. Backlog is an indicator of future revenue and earnings sources. EBITDA and EBITDA margin measure profitability of operations. Earnings and earnings per share (EPS) measure the bottom-line profit. Churchill is positioned for gradual improvement in 2012 as the factors that caused EBITDA margin and net earnings declines in 2011 have been dealt with. 1. REVENUE 19% rEvENuE growTh IN 2011 24% fIvE-yEAr CompouND AvErAgE growTh 2. BACKLOG $ millions 694.0 761.0 601.2 1,183.9 1,409.2 $ millions 1,333.7 1,390.3 1,388.6 1,555.0 1,842.6 Growth 45% 10% -21% 97% 19% Growth 23% 4% 0% 12% 18% In 2011 the general Contracting segment increased Churchill’s five-year revenue growth was primarily revenue by $89.8 million or 11%, the Commercial attributable to the acquisition of Dominion, Canem and Systems segment increased revenue by $109.5 Broda in July 2010, to organic growth at Stuart olson million or 132%, and the Industrial Services segment Dominion, Laird and Insulation holdings, and to the increased revenue by $65.8 million or 22%. acquisition of mcCaine Electric in April 2011. 18% BACkLog growTh IN 2011 Low ovErALL CoNTrACT rISk wITh upSIDE The General Contracting segment increased its The 2011 year-end backlog consists of 83% year-end 2011 backlog by $193.7 million or 15% over construction management, cost-plus and other year-end 2010, the Commercial Systems segment relatively low-risk contracts, and 17% fixed-price, increased its backlog by $5.9 million or 5%, and the guaranteed maximum price or other contracts that Industrial Services segment increased its backlog by carry price and schedule risk. Self-performed work $88.0 million or 50%. provides upside to margins and opportunities to further reduce project risk. 3. EBITDA EBITDA rEmAINS fLAT IN 2011 grADuAL ImprovEmENT forESEEN IN 2012 $ millions 33.9 Margin 4.9% 56.2 51.3 71.8 72.0 7.4% 8.5% 6.1% 5.1% EBITDA increases in 2011 from the Commercial general Contracting (Stuart olson Dominion) expects Systems and Industrial Services segments were to gradually improve its margins in 2012 as lower- driven by organic growth, the inclusion of Canem and margin Dominion backlog and projects secured in the Broda for a full year in 2011 versus 5½ months in more competitive late 2008 through early 2010 period 2010, and the addition of mcCaine Electric to Canem’s are replaced by higher-margin projects procured in operations in May 2011. These were largely offset by late 2010 and 2011. a decline in general Contracting’s EBITDA. 4. NET EARNINGS 2011 NET EArNINgS DECLINE BASIC EArNINgS pEr ShArE $ millions 21.1 Basic EPS $1.19 36.4 34.8 34.2 24.9 $2.03 $1.98 $1.66 $1.02 Net earnings declined in 2011 as increases in interest, The reduction in basic earnings per share in 2011 was depreciation and amortization, associated mainly driven by reduced earnings and a higher weighted- with the acquisitions of Dominion, Canem, Broda and average number of shares outstanding, associated McCaine in 2010 and 2011, exceeded the benefit of with the equity raised to finance the 2010 acquisitions. lower taxes. 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 7 The ChurChill CorporaTion O P E R A T I O N S R E V I E W Expanding our footprint (Above) Artist’s rendering of Investors Group Field in Winnipeg, Manitoba. (L to R) British Columbia Institute of Technology and two IHI projects in northern Alberta. At a glance In 2011 our Commercial Systems segment, Canem, expanded its footprint into Manitoba with the purchase of McCaine Electric. In our Industrial Services segment, Broda expanded its earth-moving business into Alberta with the Calgary Airport Authority’s New Runway Development Program and the construction of the City of Calgary’s tunnel under the new runway, and Laird established Laird Constructors in Sudbury, Ontario. As well, Stuart Olson Dominion, our General Contracting segment, gained a foothold in the industrial construction market through its new industrial division. Overview Churchill is well-positioned in Western Canada. Stuart Olson Dominion announced backlog additions of nearly $1 billion in 2011. Its margins are expected to gradually improve in the second half of 2012 as it transitions from lower-margin legacy Dominion backlog and projects procured in the more competitive environment of late 2008 to early 2010, to higher-margin projects recently added to backlog. Canem maintained strong margins throughout 2011 and is expected to continue to do so in 2012. Its April 2011 acquisition of McCaine was immediately accretive. In the Industrial Services segment, Laird and IHI had another strong year as turnaround and maintenance work, largely in Alberta’s oil sands, replaced the construction and commissioning work of 2010. Recent backlog additions, including bundled service offerings, signal a strong start to 2012. Broda, after a slow first half due to wet weather, had a strong finish in 2011 and its two Calgary Airport projects provide revenue and earnings visibility into 2012. 8 The ChurChill CorporaTion Major contracts across Western Canada Ongoing Projects New Projects General Contracting Commercial Systems Industrial Services Fort St. John Whitecourt Fort McMurray McArthur River Prince George St. Albert Edson Edmonton Prince Albert Nanaimo Vancouver Kamloops Canmore Red Deer Victoria Langley Kelowna Cranbrook Calgary Lethbridge Vanscoy Swift Current Medicine Hat Warman Saskatoon Regina Rocanville Estevan Brandon Winnipeg Sudbury 2011 Contract awards announced Segment Company General Contracting Stuart Olson Dominion Approx. Value ($ millions) $ Description Location 145 98 85 85 60 45 35 30 26 21 17 13 10 162 30 18 11 80 67 50 40 12 Medicine Hat hospital 745 Thurlow office tower Edson hospital Lethbridge hospital Taché Hall Music, Art and Theatre Complex Emerald Hills shopping development Investors Group Field scope increase Westmount 4 office building Assiniboine Zoo Exhibit Warman Middle School & Recreation Centre Oil sands industrial building Oil sands industrial building Potash mine building Other Shaw Data Centre Investors Group Field electrical 443 Maritime Helicopter Squadron facility Oil sands facility turnaround maintenance Other Mine construction Calgary Airport new runway projects Other Medicine Hat, Alberta Vancouver, British Columbia Edson, Alberta Lethbridge, Alberta Winnipeg, Manitoba Sherwood Park, Alberta Winnipeg, Manitoba Calgary, Alberta Winnipeg, Manitoba Warman, Saskatchewan Ft. McMurray, Alberta Ft. McMurray, Alberta Rocanville, Saskatchewan Calgary, Alberta Winnipeg, Manitoba Victoria, British Columbia Ft. McMurray, Alberta Sudbury, Ontario Calgary, Alberta 9 Commercial Systems Industrial Services Canem $ Laird Electric & IHI $ Laird Constructors Broda $ 1,140 The ChurChill CorporaTion O P E R A T I N G S E G M E N T S General Contracting (Above) Artist’s rendering of new Jasper Place Library, Edmonton, Alberta. (L to R) Terwillegar Community Recreation Centre, Edmonton, Alberta and The Fenlands Banff Recreation Centre, Banff, Alberta. At a glance Stuart Olson Dominion is Churchill’s General Contracting segment. Following the acquisition of The Dominion Company Inc. in July 2010, Stuart Olson Constructors Inc. and Dominion were operationally combined. Stuart Olson and Dominion had been general contractors since 1939 and 1911, respectively, and during the last several years both became key players in Western Canada’s building markets. Headquartered in Calgary, Alberta, the combined Stuart Olson Dominion constructs commercial, institutional and industrial buildings. Business drivers Stuart Olson Dominion has a solid market presence across the four provinces of Western Canada with strong customer relationships in the institutional and commercial construction sectors. Stuart Olson Dominion’s $1.4 billion year-end 2011 backlog consists largely of low-risk construction management projects. Two-thirds of the backlog is institutional contracts, with the balance being primarily commercial buildings. For 2012, the institutional spending outlook in Western Canada remains healthy, partly due to expected provincial and municipal government spending on institutional projects such as Building momentum Stuart Olson Dominion focuses its marketing activities on large relationship-based construction management projects that meet acceptable return thresholds and offer higher margin, fee- enhancing opportunities. It has also established an industrial hospitals, schools and community centres. For example, sector presence for building the Alberta government’s fiscal 2013 budget includes $5.7 billion for infrastructure-related projects. The municipal, transportation, education, and healthcare sectors continue to dominate provincial infrastructure spending, accounting for 84% of spending in this category, compared to 89% in 2010. construction. Stuart Olson Dominion’s contract income is expected to grow modestly in the second half of 2012 as projects in backlog procured during 2010 and 2011 are expected to generate higher margins. 10 The ChurChill CorporaTion O P E R A T I N G S E G M E N T S Commercial Systems Port Nanaimo Centre, Nanaimo, BC. At a glance Canem forms our Commercial Systems segment. It designs, builds, maintains and services electrical and data communication systems for commercial, institutional, light industrial and multi-family residential customers. Canem’s Building momentum Canem has developed considerable services include the design of internal electrical distribution expertise in sustainable buildings and systems, procurement and installation of electrical energy efficiency and in 2010 launched its equipment and materials, on-call service for electrical maintenance and troubleshooting, preventative and scheduled maintenance for critical component installations, budgeting and pre-construction services, and management of regional and national contracts for multi-site installations. Business drivers Canem, like Stuart Olson Dominion, competes for business in the institutional and commercial construction sectors, so business drivers for the two companies are similar. The primary difference is that, while Stuart Olson Dominion works principally for Smart Connected Real Estate Program. One product of this program is the Canem Centre for Building Performance in Richmond, British Columbia. It opened in the summer of 2011 as a permanent training and testing facility for integrated building systems, with the goal of encouraging building owners and developers to adopt new efficiencies and performance in building systems. As well, Canem’s Rollout Services strategy is gaining project owners, Canem’s clients are mainly general traction, providing clients with rapid service contractors, including Stuart Olson Dominion and delivery in multiple locations with a similar many of its competitors. Thus, an important factor in Canem’s success is its positive reputation with the general contracting community. Canem keeps its contract income margins strong by gaining efficiency from prefabricating work offsite, employing the best people with the best tools, and differentiating itself from competitors with building systems integration solutions to support its core operations. This has allowed Canem to consistently generate double-digit EBITDA margins year after year. scope. With multiple installations going on in different regions at any one time, Canem’s rollout team serves to ensure that solutions are communicated seamlessly and delivered with maximum efficiency. In turn, clients attain the best possible consistency in their product delivery. 11 The ChurChill CorporaTion O P E R A T I N G S E G M E N T S Industrial Services (Above) Calgary Airport New Runway, Calgary, Alberta. (L to R) Northern Industrial Insulation workers installing a pre-insulated tank panel system in northern Alberta and Laird Electric workers installing an electrical distribution line in northern Alberta. At a glance Laird Electric, Laird Constructors, Insulation Holdings and Broda make up Churchill’s Industrial Services segment. Together they provide electrical construction, mechanical construction, insulation services, siding application, HVAC services, plant maintenance services, aggregate processing, earthworks, civil construction, concrete production and related services. They serve oil sands companies, the oil and natural gas industry, mining and infrastructure organizations, the petrochemical, forest products, power utilities and mining industries, and Canada’s two major railways. Business drivers Our Industrial Services companies performed well throughout 2011. Their success is largely driven by their reputation for safety, efficiency and quality, which makes them the preferred suppliers on many projects. Going Building Momentum On January 1, 2012, The Churchill Services Group (CSG) began operating under the leadership of David LeMay, the former President and COO of Laird Electric Inc. CSG combines the services of Churchill’s Industrial Services segment and Stuart Olson Dominion’s industrial forward, they are expecting continued modest revenue building activities into one powerful and earnings growth in 2012 with large, sustainable industrial project spending and increased major project activity. Numerous construction project restarts, sanctioning announcements and planned maintenance projects make this segment’s outlook positive. While Broda’s first quarter will likely show some seasonal weakness, Broda expects to sustain its strong performance service offering. The effectiveness of this approach was recently demonstrated with an $80 million two-year turnaround maintenance contract with a large oil sands client jointly awarded to Laird and through numerous project opportunities in Saskatchewan’s Insulation Holdings. industrial and mining markets, plus continuing work on the Calgary airport runway and tunnel projects. 12 The ChurChill CorporaTion Corporate & Shareholder Information Officers Directors Executive Offices James Houck, B.Sc., MBA President and Chief Executive Officer Albrecht W.A. Bellstedt, B.A., J.D., Q.C. Chair Daryl Sands, B.Comm., CA Executive Vice President, Finance and Chief Financial Officer Don Pearson, B.Sc., P.Eng. President and Chief Operating Officer Stuart Olson Dominion Construction Ltd. Gord Broda President and Chief Operating Officer Broda Construction Inc. David LeMay, MBA President Churchill Services Group Al Miller President Canem Systems Ltd. Andrew Apedoe, B.Comm. Vice President, Investor Relations and Corporate Secretary Joette Decore, BSc., MBA Vice President, Corporate Development Amy Gaucher, B.Comm., CA Vice President, Finance and Administration Jack Jenkins, B.Sc., MBA Vice President, Human Resources and Strategic Planning Evan Johnston, L.L.B., CFA Vice President and General Counsel Barrie Stanton, B.A. Vice President, Business Applications and Information Technology 400, 4954 Richard Road SW Calgary, AB T3E 6L1 Phone: (403) 685-7777 Fax: (403) 685-7770 Email: inquiries@churchill-cuq.com Website: www.churchillcorporation.com Auditors Deloitte & Touche LLP Edmonton, Alberta Principal Bank HSBC Bank Canada Bonding and Insurance Aon Reed Stenhouse Inc. CNA Financial Corporation Travelers Guarantee Company Wendy L. Hanrahan, CA (1) (2) James C. Houck, B.Sc., MBA Harry A. King, B.A., CA (1) Carmen R. Loberg (2) (4) Allister J. McPherson, B.Sc., M.Sc. (1) (3) Henry R. Reid, B.ASc., MBA, P.Eng. (4) Ian M. Reid, B.Comm. (1) (3) George M. Schneider (2) (4) Brian W. L. Tod, B.A., LL.B., Q.C. (2) (3) (1) Member of the Audit Committee (2) Member of the Human Resources & Compensation Committee (3) Member of the Corporate Governance & Nominating Committee (4) Member of the Health, Safety and Environment Committee Registrars and Transfer Agents Inquiries regarding change of address, registered holdings, transfers, duplicate mailings and lost certificates should be directed to: Common Shares: Convertible Debentures: CIBC Mellon Trust Company 600 The Dome Tower 333 – 7th Avenue SW Calgary, Alberta T2P 2Z1 Phone: 403 232-2400 403 264-2100 Fax: Email: inquiries@cibcmellon.ca Website: www.cibcmellon.ca Answerline: 1-800-387-0825 Notice of Annual Meeting Valiant Trust Company Suite 310, 606 – 4th Street SW Calgary, Alberta T2P 1T1 Phone: 403 233-2801 Fax: 403 233-2857 Email: inquiries@valianttrust.com Website: www.valianttrust.com Toll-free: 1-866-313-1872 The Annual General Meeting will be held on May 24 at 2:00 p.m. MDT at the Edmonton Petroleum Club, 11110 – 108 Street, Edmonton, Alberta. Fort St. John Hospital Fort St. John, British Columbia Edmonton Remand Centre Edmonton, Alberta Key Projects Calgary Airport New Runway Calgary, Alberta 400, 4954 Richard Road SW Calgary, AB T3E 6L1 Phone: 403 685-7777 Fax: 403 685-7770 www.churchillcorporation.com Investors Group Field Football Stadium Winnipeg, Manitoba
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