Colliers International Group Inc (CIGI) 2006 Q2 法說會逐字稿

Good day everyone and welcome to the First Service's Corporation second quarter financial results conference call. Today's call is being recorded. Forward-looking statements include the Company's financial performance, outlook and statements regarding goals, beliefs, strategies, objectives, plans or current expectations. These statements involve known or unknown risks, uncertainties and other factors, which may cause the actual results to be materially different from any future results, performances or achievements contemplated in the forward-looking statements. Such factors include 1) general economic and business conditions, which will among other things impact demand for the Company's services and the cost of providing services, 2) the ability of the Company to implement its business strategy including the Company's ability to acquire suitable acquisitions, candidates on acceptable terms and successfully integrate in newly acquired businesses with its existing businesses, 3) changes in or the failure to comply with the Government regulations and 4) other factors which are described in the Company's filings with the Ontario Securities Commission and the Securities and Exchange Commission. At this time for opening remarks and introductions I would like to turn the call over to Mr. Jay Hennick. Please go ahead, sir.

Thank you and good morning everyone. As the operator said I'm Jay Hennick, Chief Executive Officer of the Company and with me today is Scott Patterson, our new President and Chief Operating Officer and John Friedrichsen, Senior Vice President and Chief Financial Officer. This morning First Service reported very impressive second quarter results, which continued the momentum we began in the first quarter. Revenue, EBITDA, earnings and earnings per share were all up by more than 40% with four out of our five service lines exceeding expectations. Residential property management, commercial real estate, property improvement and business services were all strong, each generating double-digit internal revenue growth and increased profit margins.

We continue to be pleased with our Collier's International commercial real Estate platform. Results to date have been better than expected not only in North America but also in the Far East and Eastern Europe, markets with huge growth potential in the years ahead. Just after the quarter ended we purchased an additional 11% of the equity in Colliers bringing our total ownership to above 83%. We purchased the shares from certain known executive managers and brokers who wanted early liquidity and we did so on a very opportunistic basis. We expect this purchase to be accretive to earnings in the current year and beyond. Our cash flow was also very strong, more than double what it was last year and our balance sheet is in the best position it's been since we became a public company.

We currently have about $175 million in cash and unused credit facilities to fund our growth without having to go back to the capital markets, which should be very good news for all of our shareholders. Without strong results we decided to increase our guidance once again. We now expect our earnings per share for the year to be between $1.08 and $1.16, up from $0.90 per share last year. Taken at the mid point of our new range this represents another year of more than 20% growth for First Service, the eleventh time in our thirteen-year history as a public company that we've been able to achieve this goal. As always our outlook does not include the benefit of any further acquisitions, which we might complete and every acquisition will be accretive to these numbers and we hope to be able to complete at least one more before the year-end.

The other important news this quarter was the appointment of Scott Patterson as President and Chief Operating Officer. As you know, First Service has grown considerably over the years and with the recent acquisition of Colliers we now have become a global company with operations in more than 21 countries and over $1.1 billion in annual revenue. For us to be able to capitalize on opportunities as they arise and still be in a position to provide our operations with the support and encouragement they need to grow it was necessary for me to delegate someone else. First Service is an organization with unique partnership philosophy and an approach to business that has been the hallmark of our success. Any person taking on senior operating responsibilities in our organization must fully understand this if they're going to succeed. Fortunately for us we have such a person in Scott. Scott has worked side by side with me for the past 11 years. He has been very instrumental in our growth during that time and he's played an important part in shaping our culture. In his new role Scott will assume full operation operating responsibility for our five business units while I'll spend more of my time on growth and new initiatives across the board. Needless to say I expect the transition to be relatively seamless. However, I fully expect Scott to put his own stamp on his new role and I for one and looking forward to the contribution he will make going forward.

In summary we had a great quarter. Our service lines are doing very well. Our balance sheet is very strong and in excellent shape for the future and we have an experienced management team in place to capitalize on the opportunities ahead. Now let me ask John to take you through the financial details for the quarter. Scott will then provide his operational report and finally we'll open it up to questions after Scott has completed. John?

Thank you, Jay. As Jay already touched on, overall our results generated in the second quarter ended September 30th were strong and continue the trend as seen in our first quarter, four of our five segments exceeding our internal expectations for the quarter. Our strong earnings contributed to substantial free cash flow generation and a strengthened balance sheet putting us in a solid financial position going forward. And once again our results reinforced the advantage that our service line diversification provides to our shareholders.

Here are the highlights of our consolidated results for the quarter, all of which are from continuing operations. Revenue is up 75% to 316.2 million with 21% internal growth of which 3% was due to stronger Canadian and Australian currencies and the balance related to acquisitions, EBITDA up 57% at 35.8 million, adjusted net earnings up 46% to 14.1 million, adjusted diluted earnings per share up 41% to $0.45 per share and cash flow from operations more than doubled to 17.9 million. As outlined in prior conference calls the adjustment to net earnings and earnings per share represents the non-cash amortization of short-lived intangible assets and pending commercial real estate brokerage transactions and listings recognized in the November 2004 acquisition of our commercial real estate services platform, which operates as Colliers International.

Our higher pre-tax earnings for the quarter were impacted by higher consolidated income taxes, the rate having increased to 34%. The change in tax rate is primarily the result of the declining impact of our cross border financing structure first implemented in 2000 relative to the significantly higher earnings before taxes currently being generated. We expect the tax rate for the full fiscal year will be in the range of 33 to 34% and this is being reflected in our updated outlook, which I will cover later in my comments.

On a segmented basis revenue from residential property management operations totaled 92 million, an increase of 22% over the prior year period revenues of 75.5 million. Internal growth was 18% with the balance attributable to our acquisition completed in Las Vegas, Nevada last December and two small Thunder [ph] acquisitions in Florida. Increased revenues arising from current and new property management contracts across our regional markets, particularly in Florida and increased revenues from ancillary services contributed to the increase in total revenues. EBITDA generated by this division totaled 9.4 million in the second quarter compared to 7.4 million in the same period a year ago. Meanwhile EBITDA margins increased to 10.2% compared to 9.9% in the second quarter of last year, primarily due to an increase in higher ancillary service revenues during the quarter as well as higher core management revenues generated through our existing infrastructure.

Turning to commercial real estate, the Colliers International business that we acquired last November continued to contribute strongly to our results. For the quarter revenues were 103.9 million generating EBITDA of 7.7 million at a margin of 7.4%. The results benefited from an increase in both sales and leasing transaction volumes in our key markets, North America, Australia and the Far East, where the demand for commercial real estate services remains strong. And we did not own this operation of the Q2 of the prior year based on their reported results for that period year-over-year revenues in our second were up just over 40% or 36% after considering the impact of foreign exchange. The sequential decline in the EBITDA margin for the second quarter compared to the first quarter was primarily attributable to higher broker commissions as increased revenues surpassed thresholds triggering greater payouts to high performing brokers.

In our Property Improvement Services segment second quarter revenue totaled 40.5 million, up from 31.6 million or 28% reported in the same period last year. Internal growth was 15% with about 5% due to acquisitions and the balance attributable to a change in the accounting for certain contracts, one of our franchise systems. Internal growth was generated across our various franchise systems including California Closets, Paul Davis Restoration, College Pro Painters, CertaPro Painters and Pillar To Post home inspections. Property Improvement Services EBITDA increased to 12.8 million compared to 9.4 million in the second quarter last year with margins increasing to 31.5% from 29.8% compared to the same quarter last year, primarily due to higher volumes and leveraging of the existing cost structure.

Turning to Integrated Security Services, revenue totaled 35.9 million in the second quarter, equivalent to that reported in the same period last year. A stronger Canadian dollar had a positive 4% impact on revenues generated by our Canadian operations in the quarter. Our Security business continued to experience delays from several systems integration projects and in particular two large sized projects in the US. EBITDA in the quarter totaled 1.8 million compared to 2.7 million last year while margins were 4.9% compared to 7.5%. The margin decline resulted from lower revenues in our US systems integration operations, which typically carry higher margins relative to our security manpower revenues along with costs incurred to establish new regional branches in the US as mentioned in our first quarter conference call. While the pipeline of system sales remains strong across our operations, and our Canadian security operations in particular will likely generate record results this year, we now expect our overall North American security business to report combined annual revenues and EBITDA in fiscal 2006 at roughly the same levels as last year.

Finally, in Business Services revenue increased by 15% to 43.9 million from 38 million for quarter of last year. About 4% of this growth was attributable to the impact of the higher Canadian dollar compared to the same quarter last year, the balance generated internally. Meanwhile EBITDA increased to 7.2 million versus 4.8 million for the same quarter last year with margins at 16.3% compared to 12.7% last year. Increased EBITDA and higher margins were primarily a result of higher volumes and operational improvements in our US fulfillment [ph] operations compared to last year, which Scott will comment on later. Corporate costs were 2.9 million in the quarter compared to 1.6 million last year with the increase due primarily to higher Sarbanes-Oxley related compliance costs, additions to the senior management team to support our growth and an increase in performance related compensation expenses.

As outlined at the outset our cash flow from operations for the quarter was strong. We generated 17.9 million in the quarter and 34.2 million year-to-date compared to 6.8 and 14.4 million respectively in the same period as last year. Year-to-date we've invested about $15 million in capital expenditures, up from 7.3 in the prior year period. We expect this investment to slow considerably for the balance of the year and we'll continue to carefully control cap ex and allocate capital within our self-imposed annual cap ex limit of 2% of annual revenues.

As Jay already outlined, immediately after the end of the second quarter we acquired a further 11% interest in CMN, our Colliers International operation, raising our ownership to approximately 83%. The purchase price was $10 million and it's expected to be accretive for the current year although the impact on earnings will not be significant in fiscal 2006. Consistent with the impact of the original acquisition of CMN last year, the purchase accounting for this transaction will result in a recognition of incremental brokerage backlog intangible assets, which are expected to be amortized on an accelerated basis within the next 6 to 12 months.

Turning to our balance sheet our net debt position at the end of the quarter was approximately 169 million compared to 182 million at year-end while our leverage expressed in terms of net debt EBITDA was 1.6 times and well below our operating range of 2.5 to 3 times, providing ample financing capacity to support our value creation initiatives. Approximately 65% of our debt is at fixed interest rates. At quarter end our $110 million revolving credit facility was fully available to fund growth opportunities.

Looking forward to the balance of fiscal 2006 we've updated the outlook for our existing operations presented during our first quarter conference call that estimated revenues between 1.1 and 1.15 million, EBITDA at between 97 and 104 million, adjusted diluted earnings per share at between $1.05 and $1.15. The following revised outlook assumes no material change in current economic conditions in our major markets and excludes the impact of any acquisitions completed between today's date and the end of the year. In updating our current year outlook for our existing operations we are increasing our revenue range for the year to between 1.125 and 1.175 billion, EBITDA in the range of 102 to 108 million, while updating our adjusted diluted earnings per share range to between $1.08 and $1.16. Now I'd like to turn things over to Scott for his comments. Scott?

Thanks, John. I intend to go through each of our divisions, provide brief operating highlights with a little more detail around our internal growth and our various operating models. Let me start with the residential property management where revenues grew 22% from the prior year, 18% organically. These revenues are growing primarily from new contract wins but also from existing contracts as we provide more services. As you have heard on previous calls many times, our strategy in this business is to add management contracts through acquisition but also by winning them through differentiation and quality service. Once we have a contract we continually strive to do more for these clients through the provision of ancillary services ranging from landscape maintenance and painting to lock box services and collections. These ancillary services are offered in a competitive environment and a final decision is made by the community board. We are finding that boards are preferring a greater accountability that comes with our full service offering.

During our first two quarters we have added more than 200 net new management contracts representing approximately 25,000 units, over half in Florida, which in the aggregate represents $12 million annually of management fee revenue. These contract wins impact us immediately but they also provide us with a longer-term growth opportunity as we add on ancillary services over time at the discretion of the client. These contract wins are being driven by three key factors. First, growth in the market, through a new construction and condo conversions the number of community or condo associations in the US has grown at about 8% the last two years. Growth in some of our regional markets has been much higher than that. Secondly, there is a continuing trend away from self-management and towards outsourcing the management function to a professional management company and we are benefiting from that. And thirdly, we're increasing our share in every market as we continue to enhance our competitive advantage. First Service is by far the largest player in residential property management in North America. We manage more than 3,000 properties including over 550,000 homes, have 35 offices in 16 states and we administer a budget of more than 2 billion to operate and maintain our client properties. This scale relative to our competition enables us to bring greater cost savings to our clients and also to invest in product development and technology to bring unique value added services both of which differentiate us.

Let me turn to commercial real estate. As you heard from John and Jay, we had another strong quarter from Colliers International, continuation of the strong results we have seen the last two quarters. Revenues were up significantly over the prior year when we did not own the company and approximately equal the level achieved in our first quarter. The performance is being driven by brokerage services primarily due to a healthy investment market. Importantly for us this stronger performance and trend is consistent across all major markets in North America and also across our major markets internationally, Australia, New Zealand and Asia, particularly Hong Kong. On a smaller scale we also experienced significant growth and strong results in China, India and Central and Eastern Europe and we are very optimistic about our future opportunity in these markets.

At quarter end our pipeline remained strong relative to historical levels and we expect Colliers to continue to perform well for the balance of the fiscal year. As a reminder our commercial real estate platform employs more than 4,100 people across 80 offices in 20 countries. Colliers International is one of the most recognized brand names in the global commercial real estate market. Our strategy is to work closely with the senior management team and key brokers of Colliers to grow this business by striving to increase our share in existing markets by adding complementary services wherever we can and expanding geographically through acquisition.

Let me turn to property improvement where we had another strong quarter with revenues up 28% over the prior year, 23% organically. The organic growth for the quarter was impacted by a national sales program at CertaPro Painters, where we as the franchiser are selling national programs, the largest of which is with Burger King, and subcontracting the work to our franchisees. We booked a gross revenue on these programs rather than a royalty revenue. The organic growth after adjusting for this national sales program is a very healthy 15%. This is being driven by two general factors. Firstly, we experienced double-digit increases in the system wide sales of our largest franchise systems, California Closets, Paul Davis Restoration and CertaPro Painters. We are adding very few new franchisees so the system wide sales increases are effectively productivity increases in our existing franchisee base. We are achieving this in part because our markets are growing, but more importantly because we have spent the time and resources to develop new products and service programs for our franchisees to take the market and very simply, these programs are working. Examples include a new remodeling program at Paul Davis and several new product and color lines at California Closets. The productivity increase is the driver behind the increasing margin in this division because we are generating more royalty from our existing franchisee base.

The second major component of our internal growth for the quarter was our franchise operations, which as a group also generated double-digit increases. We now have 8 franchise operations, all California Closets. In every case we have acquired a strong franchise in a market where we see potential and achieved significant growth post acquisition. This is a strategy that is working and one that we will continue to pursue selectively. It is worth noting that our other franchise systems including College Pro Painters, Pillar to Post Home Inspections, Floor Coverings International also grew during the quarter.

Integrated Security, as you heard from John, our revenues are slightly down in security year-over-year after adjusting for the strength in Canadian dollar with a 10% revenue increase in Canada offset by an approximate 12% decline in our US operations. The prior year quarter for our US operations included two significant systems installations that were not replicated in the second quarter of this year, resulting in the decline. There are several large installations in the pipeline, which have been delayed for various reasons, and we now expect that to impact our third and fourth-quarter revenues. In fact, our US pipeline is relatively strong and we believe the last half of the year will reflect that. In addition, we have opened offices in Las Vegas and Pittsburgh to service large customers and are optimistic that this will increase incremental opportunity for us before year-end, particularly in Las Vegas.

In Canada the internal growth was spread across all major branches and enjoyed by our manpower business and systems business. We mentioned in our first quarter call that in Canada we had recently signed a new five-year contract with the Royal Bank to design and install sophisticated access control, CCTB and intrusion systems at more than 1,000 branches across the country and then to monitor and maintain these systems going forward. While the revenue from this contract was not material in the second-quarter, we did start to execute on it. This is a significant opportunity that will generate more substantial revenues for the balance of '06 and for fiscal '07.

Finally, Resolve Corporation, where we grew 11% in the quarter driven by increased volume in our US fulfillment business and several new contract wins. In the fourth quarter of last year we announced the signing of ten-year student loan servicing contract with the Royal Bank of Canada. As of September 30th we had implemented the first two phases of the contract and expect to implement the final phase in the third quarter. In the first six months of this year Resolve has secured several other significant contracts including separate three year agreements with each of Blockbuster, Best Buy, Ontario Ministry of Heath and Cadbury Schweppes for fulfillment and/or business process outsource and services. The second quarter reflects some revenue from the Blockbuster, Best Buy and MOH contracts. The Cadbury Schweppes contract will be implemented in Q3. There is currently strong revenue movement at Resolve and we are optimistic this will continue. As John mentioned, Resolve also generated much stronger margins in the second-quarter versus a year ago. This reflects improved capacity utilization in our US branches and higher volumes and continuing space rationalization. We expect to see these improved margins continue, albeit at seasonally adjusted percentages.

I'd like to now turn the call over to questions, operator. Operator, we'll take any questions now.

[Operator Instructions] We'll take our first question from Matt Liftin from William Blair.

Congratulations on the very strong quarter. You mentioned the pipeline in Colliers. I know that the December quarter traditionally has been very important, especially that last month. Are you expecting at this point, given what you know, are you expecting at least as much EBITDA in that segment as the $11 million that you reported last year for that, I think you earned it for one month of last year's December quarter?

As you know Matt, that was an extremely strong, strong quarter last year and at this point I think it's going to be a tall order to achieve that number. We're going to have a good quarter but I wouldn't say at this point that we're looking at the same number.

Okay, not to get to fine of a point on it, but is there a possibility or are you sort of dismissing that at this point given what you know?

Well, I have to say no at this point. As we've seen this quarter with the volumes they're generating and in particular the success that a number of the brokers are having we have entered a time where the splits are high and that's going to I think impact our overall EBITDA that we generate in terms of margin and absolute dollars.

Okay, one other question if I might, with interest coverage ratios at historical lows does that shift at all your priorities in terms of the uses of your cash going forward, specifically related to the share repurchase authorization that you announced a few months ago?

I'll try that, John. You might want to add a little bit to this. While we are looking at the share repurchase program very closely right now, for obvious reasons we think that our shares are attractive at these levels and from the standpoint of the balance of the balance sheet we're in a good position and we hope to be able to re-deploy some capital over the next 12 to 18 months in acquisitions so we want to make sure that we have the capital available to continue to grow, but by the same token there may be an opportunity here for us to do some share buyback.

Yes, thanks Jay. For what it's worth it looks like you have room to do both in my opinion. Thanks.

David Newman from National Bank Financial.

Excellent quarter. Just looking at CMN, are you concerned at all about any weakening in the activity levels beyond your current pipeline and just in terms of the mix overall, I recognize as a high brokerage mix, but are you evolving the value added side of the equation?

Well, I guess there are two things I'd want to make sure are clear. One of the things that the management team Colliers did last year and around the same time as we were doing the acquisitions was change the broker splits of the organization to put them in a position to balance it more appropriately for both up and down markets and the result is-- the result of the broker split issue was that after certain costs were achieved brokers got a higher payout on their splits and so you're seeing some of that come through. This is the first full year of implementation of that and you're starting to see some of that come through. We cover our costs first plus some profit and then there's a disproportionate splitting in the broker commissions, so as the year continues to unfold our share-- hopefully we continue to be successful-- will fall a little bit in percentage terms. But in the overall scheme of things I think we're way better suited for the long-term.

Great, very good and I guess it is a cyclical industry. Do you see a point, Jay, where let's say if you get to the point where you're not covering those costs you'd be more vigilant I guess in calling the lower margin guys? Well, it's not a good question but--

Well, I mean the way the split structure works now is we cover the costs first so there's never even that issue, David. We cover our costs plus a markup and then from there on there's a splitting and it goes in a tiered sort of basis depending upon how successful the brokers are and so going forward as markets may change in the future, we have the downside protection of changing the business model somewhat in this business, which has been a little bit unique.

Okay, so it would just be more of a natural evolution of the guys. If a guy's not making and he's not getting paid then he'll just exit the business?

Right.

Okay. The second question, if I may, just on the acquisition opportunities ahead of you guys. Obviously, if you had to deploy the capital today and get-- let's say you had opportunities in each and every division. Do you have sort of an internal pecking order that you would like to deploy the capital with?

We've always taken the same position. It's opportunistic. We do have the capital available and we do have the capacity to continue to make acquisitions across the board but it's opportunistic, so if you're asking is there any one of them is more preferred than others?

Yes.

I'd say probably no, but we do have our eye on one or two of the sectors in particular but if there was attractive opportunities we be everywhere.

Excellent, thanks guys. Just one last question, if I may, and I'm sure somebody else will ask the question. Maybe you can answer later on, but just in terms of the pipeline, maybe you guys could comment on that at some point by division.

What is the question, David?

Basically, I'm looking at what does your acquisition pipeline look like by division in terms of what's out there?

We don't really talk about that. We talk about do we have acquisition opportunities globally? Yes and is it pretty much across the board? Yes, but again we want to balance internal growth with acquisitions as we've done historically but commercial real estate by nature allows us to step up the size of the acquisition so if we, for example, were to make acquisitions in the commercial real estate space, the size of those acquisition and, therefore, the purchase price of those acquisitions would be larger than, for example, in property management.

Okay, great. Thanks, guys. Appreciate it. Great quarter.

[Operator Instructions] Frederick Bastion [ph] from Raymond James.

A lot of focus on your property management business has been on the Florida market but I just wanted to talk about the New York market. Tax incentives have been offered in Manhattan for those converting commercial buildings into residential properties and that's basically caused a boom in residential construction and reconstruction. Are you seeing this flow into more residential property management contracts?

Can you ask the last part of that question again, I'm not sure I heard it?

Are you seeing this flow into more contracts with respect to the property management in New York?

Yes, clearly the new construction is helping our markets right now and that's really across the country. It's in Florida. It's in the Mid-Atlantic states, in New York and it's also in Vegas and Phoenix.

Okay, again on the, I guess, the residential property management side, you just had two consecutive quarters of year-over-year growth that came in in the high teens as far as organic growth. How long do you think you can sustain this?

Those growth rates are high for that business and we are, again I've mentioned three factors that are driving the internal growth right now; growth in the market, the trend away from self management and our increasing market share. The trend away from self-management will continue. The market share gains we believe will continue and perhaps accelerate. The growth in the market is something that we're not clear on. There are signs that the construction boom is slowing, particularly with higher interest rates. We haven't seen it yet but I think we expect that the growth in the market will slow.

All right, great. Thank you.

Bill MacKenzie from TD Newcrest.

Scott, just on I guess, a little bit on that last point, you had mentioned previously that I think you said a number of 200 new management contracts that you guys have picked up in that business. Do you have a sense roughly as to what percentage of those contracts would have come directly from builders after a new construction project versus the other, you know, taking market share from an existing manager?

I don't have that split in front of me, Bill, but much of our growth in Florida right now-- over half of those contracts are in Florida and much of our growth in Florida is in new construction, particularly the high rise development on the beach, so I'm going to guess that 25% of that 200 number, or perhaps a bit more than that would be from new construction.

Okay, that's great, thanks and then in terms of some of the delays that you guys are seeing, the security integration side in the US, how do those contracts work? Are those cost plus contracts or is there any risk to you guys of potential overruns, like are there overruns out there on those contracts? Is that something we should be concerned at all about?

Well, there's no risk of overrun because the contracts we really haven't started them. There're-- we've agreed with the client. A couple of them are in the South and have been delayed because of the hurricanes, Katrina in particular. A couple of others have been delayed for other reasons, but no, we don't anticipate that there'd be any overruns when they do start.

Okay, great and then Jay, just a question for you going back to one of the previous questions on the balance sheet and we've talked a little bit about this before, but I'm just wondering-- the question before was asked about buybacks and I'm just wondering what your thoughts are on special dividends now, whether regular or special dividends, if those are options that you're considering?

Well, obviously from my personal perspective it would be interesting to pay up dividends, but I'd be better off reinvesting the cash that we have in our business going forward and so until we have a clear view of the future in terms of the amount of capital we'll need to grow our business I don't think that we should be, and we've discussed this extensively before, I don't think we should talk about dividends with any certainty. We need some clarity in terms of the next 12 to 18 months and once that becomes a little clearer maybe we can pay out a little dividend.

Okay and then just one last thing, the most recent hurricane down in Florida, has that had any impact on the management, the residential property management business at all?

Well it's something, Bill, that we're obviously dealing with right now. We knew it was coming. Our management teams in Florida were prepared and were ready and now they're dealing with it. It's very disruptive for our employees and our management teams end up basically going around the clock. It's crisis management, if you will, very stressful, but they are becoming more common and frankly are becoming part of our business, part of what we do. In terms of financial impact, we wouldn't expect it to have a material impact one way or the other and net net and is probably beneficial for us because of the special work, but there are also plenty of extraneous costs associated with it also.

Okay, that's it. Great, thanks very much, guys.

Bill Chisholm from Dundee Securities.

I guess, Scott or Jay, on the Resolve business I think you mentioned you've got three new contracts or four new contracts, Blockbuster, Best Buy, Cadbury Schweppes. I assume these are on a North American basis and also, is this involved in the fulfillment business or is it the customer relation side of the business?

They are, you know, there's a mix. The Ontario Ministry of Health is a Canadian contract. Cadbury Schweppes is a US contract and Blockbuster and Best Buy also are US contracts. They are-- they really cross many of the services we provide. There are certainly a significant portion of the Cadbury Schweppes and Blockbuster is fulfillment but they do encompass a number of BPO [ph] services also.

Okay, now in fulfillment you were rationalizing your capacity to some extent earlier this year. Has that all been competed?

Some significant portions of it. There were a couple of leases that we have worked our way out of and there a few other warehouses that probably aren't exactly where we want them to be in terms of the size and fit for our business today and we'll continue to work on the rationalization, but it's largely behind us.

So will the capacity utilization now be up in the 80% range?

I'd say that's close.

Okay. Okay, just one final question on the acquisition of the additional 11% of the Colliers, was this initiated by the brokers wanting to sell or did you have an automatic call on their stock?

Well, we do have a call on their stock, but there was-- If you'll recall, Bill, there was about 400 shareholders of Colliers and we bought our initial position pro rata from all of the existing guys and some of them-- and mostly from retired guys as well. Subsequent to the transaction there was calls and requests made by some of the smaller guys to entertain the opportunity of getting early liquidity on some of the balance of their shares. We saw it as an opportunity from our perspective and we took it and so none of the sellers were significant-- none of the sellers were managers and all of the balance of the retired guys are now out.

Okay, very good. That's it. Thank you.

[Operator Instructions] We'll take a follow up question from Matt Liftin from William Blair.

Yes, just a quick follow up. What specifically are you planning to do in that integrated security segment to reinvigorate growth and profitability?

Well, Matt, we have a very strong management team in that business and there's nothing specific that we intend to do. We'll continue to work very closely with that management team, particularly on their sales effort and internal growth, but they are doing a lot of things right. They are on it and we do see signs in the pipeline that their sales are improving and as John and I both indicated in our prepared comments, we think you'll see that in the last half of the year.

Okay, so it's more of a market related issue than it is execution and market share, for example?

Right.

Okay, thanks.

And we'll have another follow up from Bill MacKenzie from TD Newscrest.

John, how much of the $10 million will get booked to deferred backlog, or whatever it's called?

It'll be somewhere around 2 million. We're just estimating now and going through the process of doing evaluation of purchase price allocation, but our initial estimate is somewhere around $2 million in backlog that we'll have to amortize out over the next 6 to 12 months.

Okay, great. Thanks.

And, once again, we'll hear from David Newman from National Bank Financial.

Just looking at your organization over the last 10 years or so, it looks like there's been a sort of a migration from I'd say a more labor oriented tasks to being more professional services either through access or dilution. Are there any parts of the organization that you feel could be called, for instance, like the Manpower side on systems or parts of the business services side that you feel that you would over time move off of?

Well, actually your comment is quite astute, David. That's exactly where we've been moving and have disposed of many of the services that were more labor intensive. The only one that you alluded to is the Manpower business. It's absolutely something that's core to our business in Canada. We have a very niche position in that marketplace and it is integrated with our security operations fully. If you marry both Manpower and Security and now with CCDB enhancing that overall security they're able to bring down the overall cost of the security for buildings.

Right.

We think we have a unique competitive advantage in integrated security and so Manpower is a critical part of it. I can't conceive of us in our current structure ever selling that because it's such a core portion of that business.

Are there any other parts of the business that you see that over time you might move off of?

No, absolutely not. In fact, the only other thing that you will see we hope over the course of time is we've demonstrated that already with things like Green Space and others. Anything that's a smaller business unit that we think is going to be difficult for us to grow long-term and develop and integrate into our larger operation, we're looking at.

Okay, very good. Thanks, guys.

And that concludes the question answer session today. At this time, Mr. Hennick, I will turn the conference back over to you for any additional or closing remarks.

Okay, operator. Thank you and thanks everyone for joining us and we'll see you in the next conference call in January.

Thank you. That does conclude today's conference. We thank you for your participation.