North American Construction Group Ltd (NOA) 2007 Q4 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the North American Energy Partners Q4 fiscal 2008 and year-end conference call.

I would now like to turn the meeting over to Kevin Rowand, Investor Relations Manager. Please go ahead sir.

Good morning, ladies and gentlemen, thank you for joining us. On this morning's call we will discuss the financial results for our fourth quarter and fiscal year ended March 31, 2008. All amounts are in Canadian dollars.

Participating on the call are Rod Ruston, President and Chief Executive Officer, Peter Dodd, Chief Financial Officer , David Blackley, Vice President of Finance, Miles Safranovich, Vice President of Operations, and Bernie Robert, Vice President of Business Development & Estimating.

Before I turn the call over to Rod, I would like to remind everyone that statements made during our prepared remarks or in the Q&A portion of the conference call, with reference to management's expectations or are predictions of the future are forward-looking statements. All statements made today which are not statements of historical fact, are considered to be forward-looking statements.

The business prospects of North American Energy Partners are subject to a number of risks and uncertainties, that may cause material differences in our future results. For more information about these risks, please refer to our March 31, 2008 Management's Discussion and Analysis or Annual Information Form which are available on SEDAR and Edgar. As we mentioned on our last call management will not provide financial guidance. After our prepared remarks, we look forward to taking your questions, but we ask that you pose one question at a time, in order to give everyone an opportunity to speak.

At this time, I will turn the call over to our CEO, Rod Ruston.

Thank you, Kevin. Good morning, ladies and gentlemen. I am delighted to be speaking with you this morning. I am pleased to announce that we delivered another good quarter in the fourth quarter, and capped off the best year in our history. Peter is going to provide more detail on our fourth quarter financial results in just a few moments, but I will start with a few comments about the fiscal year.

During the past 12 months North American Energy Partners clearly demonstrated that we know how to put our growing fleet and employee capacity to work. Responding to opportunities in all three of our business segments, we boosted record revenue to a record $989 million, which is up 57% on the 2007 year. More importantly, we carried the momentum through to our bottom line.

Gross profit was up 77%, reflecting a combination of higher revenues and improving profit margins. Our profit margin increased to 16.5% in 2008, up from 14.7% in 2007. Consolidated EBITDA meanwhile was up 50%, and we achieved net income of of 39.8 million, or $1.11 per share, and that was 89% better than in 2007. These were the best results in North Americans history, and while the gains were dramatic, they just didn't come as a particular surprise.

Our entire strategy for the past two years has been focused on responding profitably to opportunities in the Canadian oil sands, and other resource sectors. We have grown our fleet and employee base, to insure we are ready to perform when we are needed. Simultaneously we have been improving our execution, to insure that the growth that we are achieving is profitable growth, and that it can be sustained. Our strategy is working as intended, and it brought the results in all three of our business segments.

Our Heavy Construction and Mining division had another great year, with robust oil sands demand driving revenue and profits. Industry investment continued to ramp up in the oil sands, and as the largest most experienced provider of Construction and Mining services to this resource, we are benefiting from this investment. While I think we need to continue to grow our business with long term customers like Suncor, Syncrude, and Albian, we also won contracts with contracts with newer entrants like Petro-Canada.

Our Piling division also turned in excellent results, achieving revenue growth of 49%. This division benefited from large scale contracts in the oil sands, as well as from the very strong commercial construction market in western Canada. While our margins were lower than the highly profitable 2007 year, they remained very strong at 28% compared favorably to both 2005 and 2006, and in fact fitted with our prediction that the margins would drop slightly in this division.

Of course, one of our most significant achievements in fiscal 2008 was restoring growth and profitability to our Pipeline segment. After incurring losses in fiscal 2007, and earlier in the first quarter of this year on two legacy fixed price contracts, we have refocused our bidding strategy to cost reimbursable contracts, and began work on the TMX Anchor Loop project with Kinder Morgan Canada. Revenue from this division increased a remarkable 327%, and segment profit climbed to 25.5 million, from a loss of 10.5 million a year ago. We are delighted with these results, and the future prospects for this division remain bright, given all of the new Pipeline construction activity planned for western Canada.

Overall, we are very pleased with our 2008 results, and very optimistic about our future. With demand for our services continuing to grow, and our internal initiatives achieving the desired results, we believe we are better prepared than ever to benefit from the opportunities in western Canada's resource-rich economy, and to continue translating these opportunities into profitable growth. As I said last quarter, we are starting to see what this Company can achievement.

I will now turn it over to our CFO, Peter Dodd to elaborate on the financial results.

Thank you, Ron, and good morning everyone. I am going to review the results of the fourth quarter ended March 31, 2008, as compared to the fourth quarter ended March 31, 2007.

Starting with revenue, for the three months ended March 31, 2008 consolidated revenue increased 58% to $323.6 million, with all operating segments contributing to this growth. Fourth quarter gross profit increased 360% to 63 million, reflecting higher revenue and an increase in average gross profit margin to 19.3%, from 6.6% a year earlier. The significant margin improvement primarily reflects the return to profitability in the Pipeline business, as well as our successful response to tire cost inflation during the year. On the latter, we made improvements on the way we manage and purchase tires, which helped to mitigate the impact of the market supply pressures we experienced in 2007.

Turning to operating income, this increased 847% to $42.6 million, primarily on higher revenue and gross profit. Consolidated EBITDA which we consider to be the key indicator of our operating performance also improved, more than tripling to $56 million from $18 million a year ago. Similarly, we achieved strong year-over-year performance in our net income and earnings per share, with net income increasing to $22.7 million from $1.3 million last year, and basic earnings per share climbing to $0.63 from $0.04.

I want to point out however, that we do not view our net income or EPS as particularly good indicators of our performance, because these numbers are affected by non-cash items, such as unrealized gains and losses on foreign exchange, and derivative financial instruments. After adjusting for these items, basic earnings per share for the fourth quarter would have been $0.66 per share, compared to $0.55 per share in the prior year.

Turning to capital spending, this totals $6.2 million in the fourth quarter, 4.7 million of which has been classified as growth capital investment, and the remaining 1.5 was classified as sustaining capital investment. We complimented this capital spending with approximately $44 million in new equipment operating leases, primarily to finance additional mid-sized haul trucks.

Looking at liquidity, we had $33 million of cash at March 31, 2008, and approximately $105 million of borrowing availability under our $125 million facility. This $105 million is after taking account of the 20 million in outstanding and undrawn letters of credit, to support performance guarantees on our customer contracts. Throughout fiscal 2008 we undertook a full review of our procurement processes and our system of revenue recognition. We also assessed the effectiveness of our internal controls and Financial Reporting in the fourth quarter.

We are pleased to report that we have taken sufficient steps to address the material weaknesses previously disclosed, relating to income taxes and Information Technology general controls. While we have made some progress toward reducing the number of material weaknesses previously disclosed, we reported three weaknesses as of March 31.

First was a staff turnover at our Financial Reporting group in fiscal 2008, second was the deficiency reorganizing the Financial Reporting group and hiring staff with the appropriate experience and technical skills to prevent a reoccurrence. We also made significant progress in developing and implementing new processes internal controls for both procurement and revenue recognition of change orders and claims. These new processes were implemented at the end of the fourth quarter in 2008.

I will now turn it over to Miles Safranovich, our Vice President of Operations, to tell you about our divisional results.

Thanks Peter, and good morning everyone. As previously stated we achieved growth in all three of our operating divisions during the fourth quarter.

Starting with Heavy Construction and Mining, it was a very active quarter for this division. We carried on the safe preparation and underground services and installation at Suncor's Millennium Naphtha Unit, as well as the underground and dewatering projects at Voyager. We also increased our supply of Mining support services at both Albian and Syncrude. Also at Syncrude, we continued work on our one year overburden removal contract.

Meanwhile over at Canadian Natural, we continue to ramp up production, as we head into Year 5 of our 10 year overburden removal contract. We also continued work at Petro-Canada's Fort Hills project, where we are performing clearing and site preparation work. We are working towards becoming a key business partner with Petro-Canada, and this initial work is a key ingredient to achieving that goal.

A high level of activity helped us boost fourth quarter Mining and Heavy Construction revenue by 30% to $195 million, compared to the same period in 2007. We also achieved 56% growth in our fourth quarter gross profit. The higher gross profit reflects both increased volumes and an increase in our margins to 18.8%, from 15.7% a year ago. The significant improvement in gross margins largely reflects a more profitable mix of contracts, and solid execution on all projects.

Our Piling segment also had a busy fourth quarter with revenue up 36% to 40.7 million. We were fully engaged in our work at Suncor's new Voyager project during quarter, and also made excellent progress on existing contracts at Suncor's MNU, and Shell's Scotford Upgrader. These are all large scale projects involving between 9,000 to 10,000 piles at each site.

We also continue to benefit from strong commercial industrial construction markets in the West, particularly in Saskatchewan where we are achieving strong growth. Results from the Pilings segment were enhanced by very strong gross margin of 33.4%, compared to 29.4% a year ago. This contributed to a 55% improvement in segment profit for the quarter.

Now turning to Pipeline, this division continued to achieve record results in the fourth quarter, as we made significant progress on the Kinder Morgan TMX Anchor Loop project. The contract was approximately 80% complete as at the end of May. As I have discussed on previous calls, the TMX project involves running pipe from Hinton, Alberta through Jasper National Park and Robson Provincial Park, to just over the B.C. border.

By the end of the fourth quarter, we had all but completed the Jasper Park section of the pipe, by far the most sensitive section. We left the area with accolades from Jasper Park residents and the Parks Canada staff. After taking a scheduled break for the Spring thaw period, we now are beginning work on the B.C. side of the project, and expect to complete the project on schedule in October 2008.

From a financial standpoint, this project continues to have a very positive impact on our Pipeline results. Fourth quarter segment revenues increased 245% to 87.5 million. Even more impressively, our Pipeline division achieved segment profit of 11.3 million, compared to a loss of 9.8 million a year ago, with gross profit margin increasing to 12.9%, from a negative margin of 38.6%. The turnaround continues. So overall, an excellent quarter for all three divisions.

Turning now to our equipment inventory, we commissioned our new Bucyrus shovel for use on the Canadian Natural overburden contract during the quarter. This makes us the only contractor in Fort McMurray, with this scale of digging and loading capacity, and we take delivery of the second shovel in the fourth quarter of Fiscal 2009. In addition to the shovel, we required six new mining trucks, as well as other ancillary equipment to our fleet during the quarter. We are progressing well on the installation of GPS and conditioned based monitoring software into our heavy equipment fleet, for the sole result to enhance our productivity of that equipment.

Our ability to acquire heavy equipment has not been an issue at any point this year, but we are starting to see increased lead times for equipment as the tire shortage for certain trucks begins to ease, increasing the demand for equipment in those sizes. Tire shortages in the large truck sizes continue, but we are managing the situation by increasing our focus on mid-sized trucks, and by developing long term contracts for our tire supply.

We believe that the combination of our current inventory and access to additional supply are sufficient to support our business going forward. Looking forward to 2009, we anticipate continued growth in our business. In addition to existing Mining and site services contracts with customers like Canadian Natural, Suncor, Syncrude, and Albian, we anticipate increased demand from Petro-Canada at it's Fort Hills project.

On a more speculative note, we see potential opportunities with some of the new major oil sands projects coming online in the next year or two. Some new entrants are evaluating the benefits of outsourcing a significant portion of their mining operations to a third party service provider.

Outside of the oil sands, we are currently providing constructability assistance to Baffinland Iron Mines Corp., a new Mining customer that is preparing feasibility studies for an iron ore development in northern Canada. This customer approached us based on their knowledge of our experience and success at DeBeers Victor Project in northern Ontario. As the Baffinland Mine progresses, the range of services we provide could be quite similar to what we did for DeBeers.

Another one of our recent successes, the Albian Aerodrome project is also attracting the attention of potential new customers. In the last few months we have had significant interest from customers looking to develop airstrips in northern Alberta.

Over in our Piling division, robust conditions in the commercial and public construction markets and oil sands related investment, continue to provide new opportunities. For example, a number of upgrader facilities are being planned for the Edmonton area, and we have significant experience with this type of large scale project.

Turning to Pipeline, the outlook for this segment reflects the inherently variable nature of Pipeline work. In the near term, we expect a slowdown once the TMX project concludes in October, however a great many new Pipeline projects are being planned for western Canada, to relieve limited capacity and accommodate growing oil sands production. The TMX project represented just the first of these.

As the contractor that secured and successfully worked on the large and demanding TMX project, we believe we are well-positioned to complete, or compete successfully for some of the new projects coming to tender. Overall, the outlook for our three business segments remains very positive, and we continue to focus on strong business execution as we move forward.

With that, I will now turn the call back to Rod to discuss the key financial trends and our outlook.

Thanks very much, Miles. Looking ahead to 2009, we expect the continuing of strong revenue performance in Heavy Construction and Mining segments, Piling will also benefit from the strong market conditions, but given the current landscape of projects, we would expect Heavy Construction and Mining to lead the way.

As mentioned by Miles, Pipeline results are project based, and we expect to see revenue in this segment decline marginally in 2009, once the TMX project is complete. That will be in around about September or early October, and we are currently bidding work and projects for the winter period. Any equipment and people that we don't utilize for Pipeline in that period, will go across to our Industrial segment, where it will be fully utilized.

From a gross profit perspective, we expect our margins will remain strong in 2009. The expected reduction in Pipeline volumes means that there our two high margin segments will have a greater impact on the consolidated margins. To help maximize our margins, we will continue to focus on managing our equipment costs through internal initiatives, such as condition based monitoring, software, and preventive maintenance.

We will also continue to reduce maintenance costs by determining optimal replacement times for our equipment. We intend to finance our 2009 equipment purchases through a combination of operating cash flow and operating leases.

Overall however, our strategy going forward will be to reduce operating costs by minimizing our reliance on rentals and operating leases. Our goal is to achieve an optimal level that provides us with the flexibility to respond to our customers needs, while maximizing the utilization of our own fleet. We expect to acquire between 150 and $200 million worth of new equipment in 2009, which includes 30 to $40 million of replacement and maintenance expenditures. We plan to finance this investment, with approximately $ 130 million of cash flow from Operations, approximately 10 million of capital leases, and the rest through operating leases.

Turning to G&A, as a percentage of revenue we expect our 2009 G&A will be similar to or slightly better than the levels that we achieved in 2008. Beyond 2009 we believe we have opportunities to reduce G&A as a percentage of revenues, as we refine our processes and gain efficiencies in certain functions.

Interest expense for the year will primarily reflect our 8.75% senior notes, as well as interest on our capital leases, and borrowings under our Credit Facility at certain points during the year. Finally we expect our effective tax rate in 2009 to range between approximately 28 and 30%, due to the inactive decline in the statutory tax rates in Canada from 32% to 26% over the next five years. We expect to become cash taxable between late 2009 and early 2010.

Overall, our outlook is positive, we remain very excited about where the business is headed. And with that, I will turn it back to the Operator.

Ladies and gentlemen, (OPERATOR INSTRUCTIONS). Our first question today comes from Jacob Bout of CIBC World Markets. Please go ahead.

Hello. I had a question on the Heavy Construction and Mining division. Taking a look at the profit margins, obviously a large improvement here quarter-on-quarter, year-on-year. You are at kind of 18.8% and I am wondering how sustainable that is going forward? And maybe you can talk a little bit about how much of these improvements in profit margin have been a result of project mix, versus lower tire costs, as you have less of the larger trucks?

Thank you, Jacob. Do you want to respond to that Miles?

Sure. I believe that that is sustainable. We do have an interesting contract mix for sure. We are still doing FOM work, and we still do have some unit price contracts. We continue to grow in both the medium size and large truck fleet, you made a comment there about only in the medium truck group. Does that answer your question?

Well, are you expecting to see some type of improvement in profit margin, or 17% is probably as good as it gets?

It is probably around where we could sustain it, I would think, Jacob. As you said, it does depend to some extent on the actual mix of work that we get.

Our FOM-type work is largely work that has a pretty fixed margin in it, whereas when we are doing work like the airstrip and that sort of thing, where we are bidding unit price type stuff, if we are able to improve our productivity in any area , that is where we get these better results than we originally forecast. We do think that the processes that we put in place is resulting and executing better than we were in the past, so this slight tick in margins we believe is probably sustainable.

Thank you, and then just turning to the Pipeline side, typically, what type of lead time do you have, between when a project is supposed to come on line, and when they actually award it? And maybe you could talk a little bit about some of the opportunities that you are seeing on the Pipeline side?

Just generally speaking, the TMX Pipeline is a little bit out of the ordinary, because it went across the Rockies, and off the plains of Alberta and Saskatchewan, so because of that, the weather conditions that we had to deal with, and seasonal conditions that we had to deal with, were somewhat different than what you would normally experience.

Pipelining is normally what I call a Winter sport, and basically, the norm in Pipelining is to do all your preparation and bid your work over the Summer period, get yourself prepared, and as soon as the winter freeze comes, do most of your Pipelining in Winter. I expect with the type of projects that are coming up in the near term, we will probably return back to that sort of Winter seasonal Pipelining, Summer doing the bidding and the preparation.

There are a number of very large inch Pipelines that are to be under construction in the next year to two years. We are not at the present time recognized as a big inch automatic welder, mechanical welder type Pipelining Company, however we have proven our ability to do big inch with manual welding by the TMX Project.

If any of those big projects do come off, I don't think it is highly likely that we will get one of the big lines but what we will do is get a lot of the peripheral work, that goes alongside putting in one of those big lines. There are also a significant number of smaller lines throughout Western Canada that are going to be installed over the next 12 to 18 months. We expect to be bidding, and in fact we are as we speak bidding some of those.

The important thing to understand about our Pipeline division though is that it is lumpy, and that all of the employees in that division, of which on the TMX Pipeline, at any one-time, we had about 400 to 500 employees, all except for about 10 or some of those are contractors, so when the job finishes they just move on to another Pipelining job, so there is no cost in holding labor in place, or placing labor elsewhere if we aren't actually Pipelining.

And similarly with the equipment, a very large proportion of it is rented and the equipment, a large proportion of the equipment that is not rented that we own, will be just moved over to our Industrial division, which we expect is going to grow quite substantially, so we still see a good revenue flow in the next 12 months.

And then just reading in between the lines then, if there were to be, if you were to win some of these projects, we hear about it kind of in the September-October timeframe?

That would be our expectation, yes.

Okay, thank you.

Thank you. Our next question today comes from Matt Duncan of Stephens. Please go ahead.

Good morning gentlemen, and congrats on a great quarter.

Thanks, Matt.

The first question I have got is back on Pipeline for just a second and I hate to harp on this, but if we look at a year on year, 2009 versus 2008 revenue performance, I am just trying to get a sense for how much it may be down and I can appreciate why it would be down, but I am just trying to get a feel for about how much we should be expecting it to be down, understanding that some of your other two segments are going to be up nicely, but just trying to get some feel for what the trajectory should look like?

I would expect a normal run rate for a season for Pipeline will be something between 40 to 60 million in revenue.

For the entire season, or per quarter?

No, the normal season which would be the Winter season, if we weren't doing any work in Pipeline which we did this time, we have done work out of three quarters with this job.

Yes.

If you look at the history of our Pipeline we do our work over the Winter period.

Yes.

And so the contribution to total revenue from Pipeline under a normal run rate, until we get another big project, would be I am saying something probably in the order of 40 to 60, maybe 75 million.

But that will be the December and March quarters added together then, right?

That is right, yes.

Okay. And then in terms of another big project there, I know we in the past have kind of talked about Phase II of Kinder Morgan's TMX project maybe starting in the Fall of 2009, can you give us any update on that, and when do you expect this to go out for that, and talk about kind of your degree of confidence of how you guys stand, in terms of getting that work?

The degree of confidence I think we have got a run rate on the board that no one else has got, and in fact, we have had inquiries from other organizations about laying Pipelines across the Rockies in a similar sort of fashion, and wanting to know about how we did it, and our expertise and all that, so I think that is very positive.

With respect to when Kinder Morgan makes their division for the second stage, we don't know and in fact my understanding is that they won't make that decision until they have confirmed that they have installed the additional capacity that they will get, so they have got no firm data at this point in time.

Not to say that you would obviously, if another large opportunity came up in the interim, you would certainly bid on that?

Absolutely, yes, and we have made that very clear, that we can't wait around just in case something happens, so we will continue to process any good opportunity that comes up we will jump up, and we will bid on it.

Okay, sounds good. And then can you tell us exactly kind of the timeframe when it ramped back up in the Spring, I know you had the Spring breakup period, but was it then end of June before you got going on that project?

Miles?

Yes, we just started the grading on the work about a week and a half ago, so I would see us being ramped up in about three more weeks.

Okay, fair enough and last thing and I will jump back in queue, a couple of things really. First of all the equipment operating lease expense increased pretty substantially sequentially. I gather that you guys obviously are using more operating leases now. Was some of that dollar amount, it looks like about $10 million this quarter, was some of that seasonally impacted, or is that sort of a run rate we need to use on a quarter-to-quarter basis going forward?

You need to understand that the $23 million of lease expense was the one piece of equipment that we are not going to buy a real lot of. That was for a Bucyrus electric shovel, and we have got a second one coming that will be delivered around about November-December this year, that we have put a lease package in place for that as well.

Okay, so on a quarterly basis it shouldn't be 10 million again in the June quarter through the P&L?

No.

Okay. And then looking also at depreciation, second year in a row that the depreciation expense has been substantially higher in the March quarter than any other quarter of the year, I presume that is seasonality?

Yes, that is correct. It is effected by seasonality, because we depreciate our major items of equipment based on operating hours.

Last thing and I will jump back in queue. We are almost through the June quarter now, how is level of activity looking so far throughout this June quarter?

It has been reasonably good.

Okay, thanks, guys.

Thank you. Our next question today comes from Bert Powell of BMO Capital Markets, please go ahead.

Thanks, Rod, with the scope change on TMX 1, can you give us what is the absolute dollar left to go for the Pipeline business for 2009?

No, I can't give out that figure, sorry.

Okay. And then if you look at the Pipeline business in 2008, how much of that would have not been TMX?

The idea of it was TMX really was the losses that we made, so that was some leftover stuff from a Suncor job.

Okay. Rod, when you talk about revenue obviously expected to be down in the Pipeline business this year, the 40 to 60 that you referenced does not include the balance of the TMX, right? You are just talking normalized rate?

I am just saying if we were to run Pipeline as a normal piece of business for a year without having a TMX, then we have got the capacity to do 40 to 60, probably a little bit more actually, but that is actually what the capacity we have is.

Okay, and if you look at what has gone on, at Canadian Natural Gas prices are up, are you seeing increased potential opportunities for you in terms of tie-in work?

There is a lot of increased potential coming out in the Pipeline business, so there are a lot of jobs that are out there, but some of them are sort of moving to next season rather than this season, so there is a lot on the books, but it is not all coming at once.

Okay, and then the operating margin in the Pipeline business down in the fourth quarter relative to the third, anything in particular there, you referenced in your press release working to get costs down with TMX? Is that indicative of that, or is that just some timing issues?

No. We have seen some increase in our costs, and we have actually reviewed and adjusted our margins accordingly to reflect that.

Yes, there was some balancing out of some costs between Kinder Morgan and ourselves.

Okay. And then just back, Rod to your comments earlier in terms of G&A, when you talked about similar level in '09 to '08, were you talking in absolute dollar or percentage basis?

Percentage basis.

Okay. And then last question, can you give us a sense on the heavy equipment side of things? How much of the revenue this year was from contracts that you have firm in place, versus more itinerate work, where you do your budgeting you just expect that what Suncor is going to take this much of kind of unscheduled work, and that goes into our business plan for the year, can you just help us understand a little bit what went into that, in terms of what you would have had visibility towards, and versus what would have been itinerate type work?

I am not sure whether I am quite up with your idea of itinerate.

Well, the stuff that wouldn't be hard contract.

I know what you mean. If you were to take a single bulk of work for us, of course CNRL, which is under contract would be the biggest piece, the second biggest piece would be our site services agreements.

Right.

If you add up all of the site services agreements that we have, then our third biggest piece of work would be the places where we have put in a contract to do some stuff. So if you call, it is difficult to call the site services itinerate work, because we do have reasonable visibility by the time we start our budget, as to what, let's say 50 to 60%, maybe 70% of that would be.

Okay.

At the start of the year.

Okay, so the 626 that you did this year in the construction business, would you have had 60 to 70% visibility into that at the beginning of the year?

Yes, that is a bit of an off-the-cuff number, but it would have been my guess.

Just trying to get a sense Rod.

Yes.

All right, thanks.

Thank you. Our next question comes from Theoni Pilarinos of Raymond James. Hi, guys, congratulations on the quarter.

Thank you.

For TMX originally you said that you expected that it would start in October immediately following Phase I. It sounds like that has been put off, is that correct?

No. It was never immediately following Stage 1. It was always October, about a year later.

Oh, October a year later.

Yes. And at the same time, that was just an indicative time that was put forward, I think it was originally stated by Kinder Morgan that they might start it then, but it was always said that it was just very indicative.

Okay. Would you be able to disclose the amount of the Albian contract, how much that contributed?

No.

Okay. And just --

But it was a substantial part of our business.

It was a substantial part, okay. And then just for the Mining construction group it looks like you average about 30% growth rate. Do you guys think that is sustainable into next year?

We believe that it is a part of our business that is going to continue to have very significant growth for sure, whether it will do 30% again this year, obviously it depends on some contracts that are out there that are being bid on, but we believe we have got reasonable opportunities in those contracts.

So 30% is a reasonable number?

Probably, between 25 and 30% is probably reasonable.

Okay, great. Thank you.

Thank you. The our next question comes from Jamie Cook of Credit Suisse. Please go ahead.

Hi, guys, this is [Peter Chang] in for Jamie.

I was about to say Jamie, your voice has changed.

(laughter) Congratulations on a great quarter.

Thank you.

I guess when I am looking at your Piling division, you guys had a great performance there. You guys had, your margin there was sort of mirrored what you guys did in 2007, and I was wondering if that was just mix, or if you could comment a little bit about that?

Basically in 2007, we had a very good Piling year, but the Piling year in 2007 had a heavy concentration of fixed price contracts, which if you have risk premiums in those contracts, and the risks aren't incurred, then you end up with very good margin results, and we also had a different mix to what has happened in 2008, so in 2007 there was a lot of drilled piles, which are inherently a slightly higher margin than the driven piles, and this year, particularly since we are doing a lot of work for Suncor on the Suncor Voyager project, we have a very heavy balance towards driven piles, which are a lower margin outcome. We predicted this, sort of halfway through last year, we indicated that the margins would come down slightly, from about 30 to sort of mid to high 20s, which is is what did happen.

But in the March quarter, it looks like it was well above 30 again. Was that less drilled piles in the fourth quarter?

It was one particular project that we did a lot of work on, and did very well at it.

Got you. And last quarter, you had talked about the Province of Alberta spending $120 billion, and now this quarter it is more sighting commercial activity in Western Ontario. What is sort of the mix? Are you seeing of that Alberta province work, or is it more going to be going forward commercial activity, and is there a difference in margin between the two?

Yes. Well actually are seeing some of the Alberta work. We have bid on a project for road extension in the roads which we didn't get in the end, but it was certainly a project that is under that $125 billion, and there are a lot of others coming out. We will bid on any of those that we see as good opportunities for ourselves, and we are not at this stage, spreading across to Ontario, et cetera, but again our strategy, strategic direction is basically any major Mining and construction projects in northern Canada, and so if an opportunity comes up anywhere across Canada, we will go for it.

Have you guys ever commented in the past, about the break out between the revenue from the oil sands and outside, and would you be able to comment on that?

About I was going to say 75% of our revenues come from the oil sands, and it is probably a bit higher than that at the present time, because we were doing the DeBeers contract over in Northern Ontario, which we have now completed, we completed during these last 12 months, but we certainly have a focus to balance some work inside and some work out.

Pretty much, a large proportion of our Piling revenues come from outside the oil sands, virtually all of our Pipeline revenues at the present time come from outside the oil sands, and the next area we are targeting is to get some more Mining revenue outside the oil sands, and I just got the chart put in front of me. 70% of our revenues are oil sands based in the last year.

And I guess with the Baffinland Iron Mines opportunity, do you have any sense on the timing on that? Or is that just going to conduct the feed, and then a decision will be made?

They are moving ahead very rapidly with the that. I am not fully aware of their actual program, but they did go out for a capital raising round about three to four months ago, and they are very, very keen to proceed. They have got a project going on at the present time, which is some bulk sampling of the iron ore that is up there, and so my expectation is probably around about 2010 or 2011 that project should start up. Do you have any comment on that, Bernie?

No, Rod, I think you are about right. Right now their announced expected start is Spring 2010, but I think that is certainly subject to some [arrangements].

Great.

I think your dates are fairly accurate.

Very well. Thanks a lot, guys. Congratulations again.

Thank you.

Thanks, Jamie.

Thank you. Our next question comes from Matt Duncan from Stephens. Please go ahead.

Hi, guys, a couple of quick follow-ups. Rod, on the comment about the G&A expenses as a percent of sales I know in the past you have talked about kind of a 5 to 5.5% of sales range once those kind of settle in. Is is is that still the number we ought to be thinking?

It is still certainly our target. They are up a bit higher at the present time, but again that is true, the same reasons as before, using a lot of consultants to attack areas that we want changed in a hurry, and getting very effective change processes in place. We are putting on additional office capacity, because we are growing quite substantially and that is adding to it.

Within about another year from now, I think our IT base will be very much more substantial, and so we will be able to take some G&A costs out of there, so our target is that we will sort of go the next year still using a lot of assistance to put controls in place, to get our systems built up and everything else, but after that we should be able to pull a bit down, and go on a steady run rate.

Okay, so 6.5 to 7% for fiscal '09, and start working it down after that is probably the right way to look at it?

That would be a reasonable way to look at it, yes, and 5.5 to 6% would be a reasonable number.

For 5.5 to 6 would be reasonable for 2010 then I guess?

If we can bring it down that quickly I would like to, but let's say for 2011, and so coming down from the high of this 2008-2009 year, then just ramping would be sort of a steady decline from there, to bring it back to a more normal number.

Sure, and then at the gross margin line, you guys did a great job in the second half of '08 getting that back up, and you still had some fixed price Pipeline losses earlier in the year, so I would assume that for the full year fiscal '09, we should expect gross margin to be up a little bit from fiscal '08. Is that fair?

Yes, it should be. That should be the case, yes.

Okay, and then last thing, I missed the comment you made about the tax rate. What did you say tax rate should be in fiscal '09?

Between 28 and 30% effective tax rate.

Okay. Thanks, guys.

Thank you. Our next question comes from Garo Norian of BlackRock.

Hi. I just wanted to make sure I heard correctly. Did you guys say in the prepared remarks that you are expecting about 130 million of cash from operations for 2009?

No, what we said was the capital spending for the year was 150 to 200 million, and subject to what our demand looks like, and that could be up to, that could require cash operations up to 130, but it depends upon how we go, and what our performance is like.

Okay. And what did you say your total Capital Expenditures would be?

150 to 200 million.

Okay.

But that's subject to what we see the opportunities set during the year.

Yes.

And that is same as our cash flow will depend on how we are performing during the year, and what our opportunities are.

Okay, thank you.

Thank you. Ladies and gentlemen, (OPERATOR INSTRUCTIONS). Our next question comes from Bert Powell of BMO Capital Markets, please go ahead.

Peter, I wanted to follow-up. When you talk about changes in revenue recognition for change orders and claims that is effective for '09?

Why don't you answer that, Dave?

Yes, in terms of the internal control processes, we implemented a lot of new processes late in the fourth quarter. What we are really doing is over the next two quarters here, we are assessing the effectiveness of those new processes and controls, and if we need to modify things we will, but we are expecting to see a lot of improvement there on our internal control side.

Right, but have you changed your revenue recognition policy for change orders and claims?

No, we have not changed our policy.

Okay, perfect.

It is just more around the processes.

Okay, all right, thanks.

Thank you. Our next question today comes from Tatiana Thibodeau, ClearBridge Advisors. Please go ahead.

Hi, hello.

Hello.

My question is on the Kinder Morgan margins, and I am wondering, well can you just talk about the contract structure for this particular contract? Why have you changed the cost allocation? Why did margins come down, and then does it mean that the margins will be sort of in this 13% type of range for the remainder of the contract, and then the last part of this question is, are you still comfortable with the long term margin forecast that you gave some time ago, I guess of the mid-teen type of margins?

In answer to the first question, the contract structure is cost reimbursable, however, the cost of the project did blow out a little bit, and part of that had to do with processes for making sure that we absolutely did the best possible job we could in the environmentally sensitive areas, and so we had a discussion with Kinder Morgan, and there were some areas where we felt that North American would contribute to the overcost, so we took a little bit of a margin hit on it. That is about the best explanation that I can give you there.

Okay.

It was a very, I must say it was a very amicable discussion. It wasn't any particular issue. Just a case of recognizing where the cost burden of some of the things should lie. The ongoing project is expected to go very well. Our margin should be back up to the sort of margins that we are achieving in the initial part of the project, for the remainder of the project.

Okay, and then long term margin forecast is intact.

For the Kinder Morgan project?

No, for the Pipeline division in general, normalized margins?

Yes, normalized margin for Pipeline should be normally something between 16 and 17.5 or 18%.

Okay, and then my second question is the Company has started generating free cash flow, and I was wondering, what are your thoughts, and the Board's thoughts on the formula base, and maybe profitability linked permanent share buyback? What do you feel that it is? It is too early at this point in time to be talking about share buybacks certainly. There are some major projects coming up both in the Fort McMurray oil sands, and outside of the oil sands, that we would want to be having a clear run at, and that would be requiring financing of which our internal cash generation is part of that financing strategy. Okay, all right, thank you so much.

Thanks, Tatiana.

Thank you. There are no further questions at this time. Please continue.

If there are no further questions then we will finish up, and you are all aware of the presentation that we have in the Stock Exchange this afternoon. I hope to see at least some of you there.

Thank you very much for joining on the conference call.

I will just mention that the presentation will be webcast, and the link is on our website as well.

Thank you very much, everybody.

Ladies and gentlemen, this does conclude your conference call for today. We thank you for your participation. You may now disconnect your line, and have a great rest of the day.