North American Construction Group Ltd (NOA) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the North American Energy Partners fiscal 2009 year-end earnings call. At this time all participant are in listen-only mode. Following management prepared remarks there will be an opportunity for analyst, shareholders and bond holders to ask questions. The media may monitor this call in listen-only mode. They are free to call any member of management but they are asked not to quote remarks from any other participant without the participants permission. I advise participants this call is also being webcast concurrently on the Company's Web site at www.nacg.ca. I will now turn the conference over to Kevin Rowand, Director of Strategic Planning of North American Energy Partners. Please go ahead, sir.

Good morning, ladies and gentlemen. Thank you for joining us. On this morning's call, we will discuss our financial results for our fourth quarter and fiscal year ended December 31st, 2009. All amounts are in Canadian dollars. Participating are on the call are Rod Ruston, President and CEO, Peter Dodd, CFO, David Blackley, Vice President of Finance, Chris Yellowega, Vice President of Operations, Kevin Mather, Vice President of Supply Chain and Estimating, and Bernie Robert, Vice President Corporate Affairs and Business Strategy.

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 managements expectations or 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. Certain material factors or assumptions are applied in drawing a conclusion or making a forecast or projection in the forward-looking information.

Business prospects of North American Energy Partners is subject to a number of risks and uncertainties that may cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information. For more information about these risks, uncertainties and assumptions, please refer to our March 31st, 2009 management discussion and analysis or annual information form, which are available on SEDAR and EDGAR. As mentioned on our last call, management will not provide financial guidance. At this time, I are turn our call over to our CEO, Rod Ruston.

Thank you, Kevin. Good morning, ladies and gentlemen. Thank you for joining us today. Before I get into the results, I want to take a few brief make a few brief comments about the recently announced organizational changes. As stated in our release, Peter Dodd, our Chief Financial Officer is retiring and has accepted an invitation to join the Company's Board of Directors. David Blackley, currently Vice President of Finance will succeed Peter Dodd as Chief Financial Officer.

Back in 2008, we were fortunate enough to attract both of these high-caliber financial executives to provide a much-needed strategic financial direction during a rapid growth phase and to oversee the strengthening of our financial reporting and internal controls. As a result of the collaborative efforts of Peter and David, the Company has obtained a new level of financial and reporting sophistication. We are now at the point, we can once again combine the roles of CFO and VP of Finance and David will handle both going forward. David Blackley is a highly capable and respected financial executive. We are fortunate to have him and he will be able to continue the many important initiatives that he and Peter have implemented.

We are also pleased Peter will play a continuing role in the Company as one of our Directors. As mentioned by Kevin, both David and Peter are on the call with me today and will be available to address any questions you may have during the Q&A period. Now, turning to our results.

For the fiscal year 2009, we achieved a record growth profit and EBITDA despite slightly lower revenues. EBITDA was CAD146 million, an 8% increase over fiscal 2008. In the fourth quarter of fiscal 2009, revenues were down compared to the same period last year as we expected and indicated during our last our conference call. Importantly however, we were able to maintain our solid EBITDA margin performance. The decline in revenues reflects reduced project development work in the oil sands and a slow down in commercial construction demand, both related to weaker economic conditions. Lower volumes in our pipeline division and the deferment of work on our Overburden removal contract during the start up of Canadian Natural Horizon project were also affected.

The positive news is that our recurring service, which represents about 65% of our oil sands revenue for the past year remains stable on an absolute dollar basis. This was despite the 12 week interruption on the Overburden removal contract and yet, another indication of the strength and stability of this part of our business. As we have said many times, existing oil sands projects continue to operate despite fluctuations in oil prices and we are the largest provider of mining overburden removal calling reclamation and other recurring services that support the daily operations of these active mine sites. The vital nature of recurring services coupled with our proven expertise to efficiency deliver these services gives us a significant advantage in these market conditions. We are continuing to see new opportunities.

Specifically, with the Horizon mine now in start-up mode, we have begun to provide additional support services to Canadian Natural subsequent to year end. This is an excellent example of our first on, last off oil sands strategy in action. We first established our relationship with Canadian Natural while providing initial construction services to the Horizon project. We have seen transition into the provision of overburden removal with the mine now up and running, and we are, with the start-up of the project itself in the beginning of oil production, we are now in a position to start to provide mine support services, similar to the services that we provide to other oil sands customers.

I want to emphasize to you at this point that the slow down in the Canadian Natural work and our stoppage of the overburden removal had nothing to do with the financial implications of the melt down of financial services worldwide. It was an event that was going to happen. We were hit with our overburden removal and the start-up of the project was a bit behind schedule. We also initiated some new mine services, support services at Suncors during the period. A development that we believe carries an opportunity for our recurring service -- greater opportunity for our recurring services businesses. Overall, this part of our business continues to progress nicely for us.

Turning to our segment results, 12 month revenue from the heavy construction and mining was up CAD89 million or 14% from last year. This reflects growth in our recurring services business as well as the positive impact of construction activity at the Fort Hills and Voyageur projects during the first three quarters. Fourth quarter revenue and heavy construction mining segment was down about 22% year-over-year reflecting the deferral of work on our overburden contract, and the postponement of a number of projects that were still in the development phase, including Suncors Voyageur project and Petro-Canada's Fort Hills project.

Turning to Polley, revenues for the 12 month period were down 5% due to the impact of lower fourth quarter revenue. Revenue for the fourth quarter from this segment was down primarily because of weakness in the commercial construction sector. And in pipeline, revenue was CAD101 million for the 12 month period, roughly half what we achieved last year. This drop in revenue reflects the wind up of the TMX project. Fourth quarter pipeline revenue fell less than CAD1 million from CAD87 million a year ago, when we were at the peak of activity of the TMX contract.

Overall, our divisional results were as expected with lower revenue but continued strong operating performance. At this point, I will call on David Blackley to provide more detail on our forth quarter financial results.

Thank you, Rod and good morning, everyone. I am going review results for the fourth quarter ended March 31st, 2009, as compared to the fourth quarter ended March 31st, 2008. Reduced volumes in our three segments left us with consolidated revenues of CAD174.7 million, which was down 46% from last year. Despite the revenue decline, fourth quarter gross margins remained healthy at 18.6% compared to 19.3% last year resulting in CAD32.5 million gross profit for the fourth quarter. We recorded an operating loss of CAD129.5 million compared to operating income of CAD42.6 million last year, primarily due to a goodwill impairment charge of CAD143.4 million.

As you know, from the end of 2008 and continuing through March 2009, our stock price has been significantly impacted by depressed commodity and capital market conditions. This led to our equity market capitalization falling significantly below the net book value of equity, a key indicator that goodwill could potentially be impaired. This sharp decline in value led to a further impairment test on the remaining goodwill for the heavy construction and mining and piling segments. As prescribed by current accounting rules, we discounted the projected future cash flows from our segments using risk adjusted market derived discount rates. The market derived discount rates that we used in our analysis were very high because of the risk premium implied by our relatively low stock price during the period. These higher discount rates resulted in a lower valuation.

The end result of the impairment test was that all of the remaining goodwill on the balance sheet, other than CAD23.9 million relating to the piling segment was impaired. This noncash goodwill impairment contributed to our fourth quarter net loss of CAD3.96 per share on a fully diluted basis compared to net income of CAD0.56 per share last year. Unrealized gains and losses on foreign exchange and derivative financial instruments were also affected in the fourth quarter loss. Eliminating the impact of the noncash items, our fourth quarter net income per share would have been CAD0.06 compared to CAD0.65 last year.

Turning to capital, total acquisitions for the fourth quarter amounted to CAD47.2 million of which we funded CAD38 million with operating leases and the remaining CAD9.2 million was funded with cash. Capital expenditures were CAD2.9 million and the remaining CAD44.3 million of new capital was growth related. Approximately CAD14 million of the growth capital supports our long-term overburden removal contract. We have some additional, additional trucks scheduled to arrive over the next two quarters, after which we will get up to full capacity on this contract. Any further equipment acquisitions will be to replace equipment acquired early on in the contract.

The remaining growth capital will be employed on other sites in our recurring services business. Looking at liquidity, there are CAD125 million working capital facility, we had CAD21 million of outstanding and undrawn letters of credit to support performance guarantees on our customer contracts resulting in CAD104 million of borrowing availability as of March 31st, 2009. We are currently finalizing our negotiations with a banking syndicate to extend the term of our banking facility by one year. We expect to have a final agreement signed by the middle of June. We have also reached agreement with [A Surety] Bonding Company to significantly increase our bonding capacity. And again, one of the highlights of the fourth quarter was our improving balance sheet and cash position.

Thanks to solid profit performance and reduction of working capital, resulting from the processing of our standing change orders and progress payment certificates, we ended the fourth quarter with CAD98.9 million of cash compared to CAD42.3 million at the end of the third quarter. This also compares favorably to a year ago when our net cash position was CAD31.9 million.

Finally, on the SOX compliance front, we continue to make progress in developing, implementing, and assessing the effectiveness of new processes and internal controls in accordance with our objective to have no material weaknesses. As of March 31st, 2009, we have eliminated two of three outstanding material weaknesses. That summarizes our fourth quarter results. I will now turn the call back to Rod to tell you about our outlook.

Thank you, David. Looking ahead, our expectations for the first half of fiscal 2010 remain cautious. As I mentioned earlier, two major oil sands capital projects that we have been involved with have been delayed. While our piling and industrial construction work on Suncors Voyageur's expansion was largely completed, the postponement of Petro-Canada's Fort Hill's project has had and is likely to continue having a negative impact on our project development revenues in the near term.

Longer term, we believe that recent reductions in project costs and a gradual strengthening of oil prices are creating a more attractive environment for renewed investment. Imperial oil sanctioning of the Hill project is a very positive development and we are anticipating an overall improvement in the market for oil sands related construction services as a result of this project moving forward. In addition, the merger between Suncors and Petro-Canada is expected to have a positive impact on the oil sands investment by creating a single entity with the resources to support the continued development of these large capital projects. We are apples encouraged by recent industrial construction contract wins totaling approximately CAD65 million, including two contracts in the market. While not large, these projects have been on the drawing board for some time and the very fact they're proceeding is a sign of activity starting to return to the industrial construction market.

In the recurring services business, we anticipate some near-term variability in demand, however growth should return in the second half of fiscal 2010 as a result of increasing demand for mine services support, work, at established sites and the gradual ramp up of new service requirements associated with our overburden removal contract at Canadian Natural. As I have said before, operating oil sands projects cannot stop even in an environment of low oil prices. The best strategy for these businesses is to operate the projects at full capacity to minimize unit production costs. These operations form the bulk of recurring services and thanks to the robust development activity in the oil sands these past years there are now more operational mines than ever.

These mines will continue to expand as they mature, and it is unlikely they will scale back out put once they are up and running. For these reason, we expect our recurring services revenue will continue to grow over the long term, even in the current relatively low oil price regime. On a less positive, commercial and industrial construction activity in Canada remains well below the 2007 and 2008 levels and could continue to have a negative impact approximate on our construction and piling revenues. We believe, however, that the announced federal and provincial infrastructure spending will create opportunities to offset weaker conditions in the commercial and industrial construction markets.

To help us more of this opportunity, we are have recently opened an office in Ontario. Ontario market is said to benefit from CAD32.5 billion of announced infrastructure investment our the next two years and our new office enables us to bid this projects. We are also looking at other opportunities to grow our business in Ontario. Every pipeline with the TMX project completed, revenues are expected to be significantly below the 2008-2009 levels. We continue to look at the new pipeline projects to replace this revenue but we don't expect any near-term announcements.

All in all, we, like others, are facing challenging times. We have reason, but we have reason for optimism. We occupy market niche that is will provide on going demand during this downturn. We have significant expertise and competitive strength to enhance our ability to compete effectively. We have strong relationships with every oil sands producer and we are working to find the most efficient and cost effective ways of providing services to them. We have used the good times to build our fleet and our capital needs are now very low. We have developed effective management to control and concurrently provide flexibility to our business activities.

We have a stable financial position with good access to cash most generated from our business activities and through a credit facility that is in the final stages of negotiation to be extended by 12 months to July 2011. And we have no long-term debt repayments due for 2.5 years. We believe these strengths will help us manage effectively through these uncertain times. With that, I will now hand over back to the operator, and over to the conference for questions.

Thank you. (Operator Instructions). Our first question is from the line of Jack Ackens with Stephens Inc. Please state your question.

Good morning, guys. This is Jack on for Matt Duncan. I guess my first question relates to your gross margin. It looks like the strong gross margin performance was driven by low project cost line this quarter. Can you talk about why project costs were so low and maybe what do you view as a more normalized gross margin in this environment?

Jack, it is Dave here. One of the things you need to keep in mind when you look at the project costs that is primarily driven by the mix of work. So as we use more of our own equipment, what you will see is equipment costs actually going up and project costs coming down. That project costs would include things like third party materials, subcontractor costs. So it is more the mix of work that is driving that change.

At a more normalized gross margin, this environment, I think in the past you guys have said somewhere around 16%, is this something you are still targeting.

We expect a little erosion but we are targeting margins to be in that 14% to 15% range.

Okay. That's helpful. And given the seasonal weakness that is typical for the first half of the fiscal year, and the lower volumes, that you guys were experiencing, do you think that you all will be profitable in the first and second quarter of this fiscal year?

What we expect to happen, back on the gross margins just for a little bit too by the way is as David said, a slight erosion but the erosion that we have had has been an erosion where we have been working with the client largely to provide, to continue to provide the service at a lower risk to us. So we have been working with a lot of our clients on budget estimates and that sort of stuff where we share the pain share the gain a little bit rather than the on-call. We may get the work. We may not get the work. So we are getting a bit more certainty that results in a little bit of a margin reduction.

Okay.

On the looking forward, what we are going to, what we believe we are going to see is a gradual return to a normalized business environment in the oil sands. It is not going to, not going to come with a sudden jump. What we are seeing is that all of our clients have found ways of reducing costs through lower LIBOR costs, lower materials cost but specifically through better planning. And so what we are seeing is instead of them rushing out and jumping into a job and being behind in the planning. So therefore having to make a lot of changes during the process, we are seeing them take more time getting the planning correct and then asking the contractor to come in and execute a well thought out plan and this results in less changes and therefore results in a lower cost.

So, in the time taken to do that planning what we are going to see is a little bit of a delay on the projects before they come back on. But what we are seeing visually is still a lot of work that has to be done just to keep these oil sands mines going. So, in summary to that we expect a slow buildup probably over the first two quarters of this year, and then a return to a more normalized business environment probably in the third and fourth quarters.

So do you think though that given all of that do you think you will be able to, do you think you will be able to remain profitable in the first couple of quarters in the year or is that yet to be.

I think our business is still very, very positive. And going, going forward, our own financial controls, our own operating controls we put in place over the last couple of years will make sure that we continue to put out positive results.

Okay. And then one last thing and I will jump back in queue. You talked about a couple of delays that you are experiencing I guess at CRNL and then at Fort Hills, which is more of a longer term deferral or delay. How quickly do you expect the sale, the revenue at CRNL to ramp back up?

We were pretty much finished up on the CRNL in early December. We have stopped in for about three months on the first of April. We were asked to restart. We will do a gradual ramp up on that site as they start up their project. And it is, what they don't want to do is get into a position where they're overloaded with overburden removal and have too much ore exposed. It depends on how fast they ramp up the plant. It has nothing to do with the financial situation in the world or the economic environment. It has entirely to do with the technology of starting up an extremely complex oil refining project.

Sure.

Probably over the next quarter to quarter and a half we will ramp up slowly. So around July or early August, we should be back in full operation.

Thanks, guys. I will jump back in queue.

The other -- can I just add one more piece to that. I should mention is the oil, the oil project is over the contract is such that we are covered on the down side. The way the contract works is that if they stop us operating, they still have to pay the fixed cost of our equipment and people that remain on site. So the piece we are missing out on is the revenue that we get from actually moving the dirt. It is not a total exposure to the project.

Thank you. Our next question is from the line of Bert Powell with BMO Capital Markets. Please state your question.

Rod just want to follow up on that and the margins in the quarter. So I am kind of hearing a little bit too messages here. One is the shift in the margins between equipment costs and project costs are reflective of a mix that is very significantly skewed toward recurring and using your equipment. How much of the benefit in the quarter was just getting paid for the CRNL stuff? Or is that just flat?

Yes, CRNL had very little impact because we were largely shut down.

Okay. So did --

And at the also during the quarter, one of the things that we did and this is, this just gives a demonstration of our capability that no other contractor in the oil sands has the capability to do, and that is that we have when CRNL shut us down we went to talk to them. Even though they needed to -- under the contract they would pay for the equipment, we said to them we can actually save you some money, we can move some of the equipment off site to other customers, which we did. So, we moved equipment to other locations to help them out and also to help two other customers out.

How much of the fleet, is all of the fleet working or how much is idled now? And I guess you have how many new trucks are coming on? I assume those are leased for CRNL in the next couple of quarters.

Yes, the new ones coming on are leased for CRNL part of the project buildup.

How many trucks would that be, Rod?

Chris.

Eight more coming.

Okay.

The other, the utilization of our equipment, what we are finding is our heavy trucks, the 200-tons and upwards are being fully utilized at the present time. As I have said before, the hundred to 150-ton trucks, they actually operate between mining and construction.

Right.

But they really, the big wheel barrel of the construction industry. So the equipment that we do have idle is really in the area of the construction business and that is some of our 100-ton trucks but our big trucks are in absolute demand at the present time and are operating full in the various locations.

Last question, Rod in the past you have indicated on the pipeline business that you know there is historically been some baseline in the -- it has run somewhere between to CAD30 million and CAD50 million a year but in your filings you have talked about increased competition.

Is that business likely to be a sort of a CAD10 million a year best type business over the next couple of years? And I guess is it even worth being in it at this point.

First of all, is it worth being in it. I believe it is. We've had a look at whether we should move that business on and we still see good opportunities coming up in the future. The holding cost of that division as I have said before is very, very low. We have five people in the division now whereas when we were building TMX we had 700. In fact turning the side of that division up and down is really something that is relatively run of the mill part of the business.

What we are seeing is a fewer number of pipeline projects going ahead at the present time and the competition for that is being very, very stiff with a large number of bidders on each project. What we will not do is put ourselves in a position where we bidding numbers that is literally paid cash back to us and keep our machinery operating. As we said in the script, we have signed additional work in industrial sites and that equipment will be working there. We do see opportunity in the future. Is CAD10 million the number? It is probably going to be down on the historical, CAD30 million or CAD40 million. It can be between CAD10 million and CAD20 million.

Okay. Thanks, Rod.

Our next question is from Ben Cherniavsky with Raymond James. Please state your question.

Morning, guys.

Morning.

I don't mean to -- the question on margins but just going back to that topic, there was mention of the benefit of close out activity in the last quarter. Are those kinds of activities have they all ended? In other words, would we expect that the benefit the related benefit wouldn't be showing up in the coming quarters?

Yes. That would be correct, Ben.

I am just curious what kinds of activities those relate to. Can you provide a little more color.

Typically you will get at the close of every project is we are finalizing our change orders, where we have had items that have been in negotiation during the course of finalizing those change orders. What we will do in any given period when we close the books is we will only recognize revenue up to cost. If we have some concern about our ability to collect all of that money. So once those change orders are finalized you will find that you get incremental profit that will roll through. Once we know what the additional revenue is that we can bill.

This is an integral part of our business and so there will always be places where we have outstanding change orders at the end of the quarter where we recognized up to cost but we won't take in the profit proportion until such time as we have the change order signed.

Right. It is still lumpy; right.

That's right. May not be the biggest occurred in the last quarter but it still will continue.

And what the nature of the contracts you have secured.

Chris, would you like to respond.

They were industrial contracts at refinery complex mostly in-plant work and some tank farm work.

So piling type of work.

Combination of piling and industrial.

Okay. Thanks, guys. That's all I have.

Thank you. (Operator Instructions). Our next question is from Mr Chad Friess with UBS. Please state your question.

Hi, gentlemen. I was wondering if you can provide detail on the potential opportunity at Kearl including the timing of a potential contract awards and whether there are any opportunities beyond overburden removal?

The first major project at at Kearl was awarded 12 months ago to a consortium and not to us. However, importantly, that is only the first of quite a large amount that we will be involved in Kearl with the announcement that construction is going ahead. We believe we have very good opportunity to get our business involved quite heavily on the construction side.

In particular, there will be an immense amount of piling work that is required on that project. We expect that we will have a very good opportunity to compete for that work. There's also additional construction, large construction work such as (Inaudible) and MSA that we will be bidding for. Down the track, we expect that put out a tender for the overburden removal contract. That is an area we will be bidding very strongly for. Probably won't come out, some time in the next 12 months bust we don't know the exact timing.

The other possibility which is hasn't been announced by the Kearl people at all one way or the other but the other possibility is whether they're considering or being mined under contract as well. If they do consider a total contract of overburden and/or removal then we will certainly be bidding for that too.

Thank you. One follow up, could you speak toward the competitive environment when it comes to those, those projects you mentioned and are you going to have to sacrifice margins to earn this extra work as it looks like consistent with the pipeline division, you mentioned that it has been a very competitive environment. How competitive is the heavy construction and mining.

It is an interesting question. If you look at the last four years, or three and a half years where the oil sands growth was phenomenal, demand for heavy trucks and dirt moving equipment was as high as it ever likely will be. In all that time, there wasn't one new competitor that came into the oil sands to come up against the parties already located there. Each of the parties located there,including us, did expand their fleets, and so the competitors that were there three years ago are still there now. But there's no new ones. If they didn't come in the biggest boom of the oil sands, I believe it is unlikely they will get in in this lower, less than boom type of activity and I don't think the oil sands will return to the gold rush mentality they have had the last three years.

On the margin side of things, a long term contract similar to the type we have got with CRNL for example, a ten year moving dirt day in and day out, you know what equipment you are going to have. You know what work you are going to be doing is obviously going to have a lower margin than a contract where you have to move equipment in a hurry. You are not sure what work you are going to be doing. It is high risk. A long term contract is a lower risk contract.

We will certainly be bidding such contracts in a manner we believe would be competitive. I think the vantage that we believe that we are good over others is we are the only organization in the oil sands that can say we have done it all before. We with CRNL. We have set up the mine, set up the workshop, built the fleet. We have assisted and worked very closely with the client on building the all of the mining processes that are necessary to run a big oil sand mine.

Good. Thank you.

Our next question is from the line of Jack Ackens with Stephens.

Just a couple of quick follow ups here, you had a great cash flow quarter this quarter. I was wondering if you can talk about your expectations for cash flow in fiscal 2010?

Jack, we expect to have continued pretty strong cash flows. Obviously, March is our high water mark that is historically where we have been in the past. So we will see some draw down of that as we go through these next few quarters certainly. We are expecting sort of in the CAD10 million to CAD20 million range, but we still expect to carry pretty significant cash balance.

Okay. That's helpful. And then you know I guess sort of a bigger picture question and you guys have alluded to this in earlier comments but we have seen a nice run up in oil prices since early March. I was wondering if you can talk just more broadly about the future of the oil sands, have you seen any indication that activity could pick back up in the near term at all?

The future of the oil sands is we believe is very positive. We see the projects going ahead. We certainly see that the combination of Suncors and Petro-Canada has been positive because what that will do is, it is built a company that has the balance sheet and the expertise to go ahead with the large projects. We are already seeing some indication of the construction side of the business going on, and restarting.

And in particular with our recurring revenues, we are seeing more and more work being focused toward, toward two things. Number one is getting the contractor in general but number two is we are seeing the Company's look at potentially having less, fewer contractors and focusing more on working relationships with a single or two contractors at the most. And working toward really good partnership type arrangements and we believe that's to our benefit quite substantially.

Okay. And then turning to the piling segment, could you give us an update on the government related infrastructure projects. Have you seen any indication that those are beginning to move forward at all on the federal and financial level.

We haven't seen a large boom in infrastructure projects we weren't already aware of in the west. We are already doing the piling on the extension of the Anthony Freeway, and that job is going very well. Over in the east, as I said earlier, we have actually got a view of big projects coming forward. As a result of that, we have opened the piling office over there that will limit industrial work by the way but specifically initially focusing on piling activity that we believe is going to come as a result of the infrastructure spend by the government.

We have already been shadow bidding work just to understand where our business relates to others. And because government work, you can actually compare what you would have bid against what was actually bid. And we believe that we are going to be very competitive in that market.

Okay. Great. And then looking at those Saskatchewan projects that you were talking about earlier, what is the timing on those projects as far as when their going to start and how should we think about the revenue flow from those over the coming quarters?

We are gearing up for the start of those projects right now as we speak. Chris, would you like to enhance on that a little bit further.

The Saskatchewan are starting now and last up toward about 18 months is the total cash flow period.

Okay. That's helpful. And then just a couple of last items here. Given the back in sales I guess can you talk about the cost you have been taking out of the business and then if you could maybe just touch on what goes those look like annualized basis.

When we saw the, the turn down coming, we reacted very, very quickly to make sure that their G&A in our business was sized to the size of the market. We took out I think around about 60 employees out of our head office facility. And we restructured the executive as you know, and part of that is what I talk about earlier, the change in the financial lead in the Company. And we also took out one of our operations executives and combined some of the work there. So, right from the top of the organization, we have made some significant cost cutting savings. We expect that those savings will be carried on through the year.

We will, as business ramps up of course, we will need to put on additional people to make sure we service that business, but we should be able to maintain our G&A at a very well controlled reduced cost compared to the period when we were growing at such a rapid rate. Once again, I reiterate that I don't see, what I see in the future is the steady buildup of projects in the oil sands that we built up with a very sensible approach by the clients. With the gold rush days I believe are gone and that's very good for North American. I think our ability to step in with the client and help that client take a very managed approach to their construction projects is going to be very beneficial for us.

Did you see any benefit from those cost cuts in the current quarter? And you know, if so, sort of what is more of a normalized G&A run rate for you guys given the lower volumes?

Yes, Jack, really what we have targeted in terms of G&A reductions for this coming year is when you compared it to the 2009, we are looking at somewhere between about CAD12 million to CAD15 million.

Okay.

Going back on the G&A. And we believe that that is, that is going to be pretty consistent for us. What we are targeting is the kind of revenue is somewhere between about 6.8 and 6.5 revenue is our target G&A.

Okay.

You actually see some of the benefit in the fourth quarter when you compare it to last year you will see that our G&A was actually $4 million favorable.

Yes.

We are starting to pull back now.

Okay. One last thing, David. What are your CapEx expectations for fiscal 2010.

Well as we mentioned before, we have these trucks coming in. What we are looking at all together is about CAD70 million, CAD80 million of capital but a large piece of it will be those trucks. We have, and that's going be primarily leased. And again that's where we see it holding assuming revenue stays reasonably flat.

Okay. Great. Thanks, guys.

Okay.

Our next question is from the line of Bert Powell with BMO. Please state your question.

Just a clarification on the CapEx. If CAD70 million, CAD80 million most of that is equipment that is leased what is your portion your cash CapEx?

The cash spend of that is around about CAD20 million to CAD25 million.

Okay. And then plus other maintenance CapEx. What is your total cash CapEx you expect year.

That would be the total would be -- yes somewhere between CAD20 million, at the most CAD40 million. Again it depends on how we finance that equipment.

Okay.

Whether we go through operating lease or cash.

It is certain amount of our maintenance CapEx would have to be cash. You don't lease a motor.

For sure. I am just trying to figure out how much of this new equipment is cash plus your maintenance capital. What I am hearing is CAD25 million.

Yes, at the low end around CAD25 million.

Just in your run through the financials, you said adjusted earnings for the quarter was CAD0.06.

Yes, I believe that was the number.

That's right. That was taking out the noncash items.

Right. Okay. Wanted to make sure. That's perfect. Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back to management for closing comments.

Okay. Well thank you everybody. Before I sign off, I'd like to just mention to you that effective July 1st our executive head office will be relocated to Calgary, Alberta. The move, which involves the relocation of approximately five executives and support staff is being undertaken to position the senior executives closer to our customers, and the balance of North American's head office operations will remain in Alberta. We see this as the next positive step in our growth to be in a position where we can get very close contact with both our current, both our current customers and future ones.

In general, we see the looking forward in our business is being very robust. We see a steady growth from through the first quarter, through the second quarter, to get back to a more normalized business in the third and fourth quarter. As I said earlier, we don't expect the boom to return but we do fully expect that the existing projects will continue to expand, will continue to push their businesses as hard as they possibly can and will call on contractor services such as the ones we provide to service that growth. We also see Kearl, we see total, we see Fort Hills through now Suncors rather than Petro-Canada, we see Fort Hills coming on as future projects. All in all, we see our business positive. Thank you very much for joining us today. I look forward to talking to you all again in the near future. Thank you.

Thank you. And this concludes the North American Energy Partners conference call.