Seacliff Construction Corp
(TSX: SDC)
Bill Crarer, CEO
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Corporate Profile:
Seacliff Construction Corporation is a diversified construction company in Western Canada. The Company provides general contracting construction services and electrical contracting services to an array of clients in both the public and private sectors, including government agencies, municipalities, corporations, property managers and developers. Its business is derived from institutional, commercial and light industrial construction projects and multi-family residential sectors. Seacliff operates primarily in Western Canada, with 15 locations in British Columbia, Alberta, Saskatchewan and Manitoba, as well as one location in northwestern Ontario. It has two business segments: Dominion Construction and Canem Systems. Dominion Construction is a general contractor and Canem Systems is an electrical and data communications contractor. On February 2, 2009, the Company acquired Canem West. Its wholly-owned subsidiary is Seacliff Acquisition Corporation.
TRANSCRIPT:
WSR: What were some of the drivers behind your solid year-to-date results, as well as you recently announced dividends?
Bill Crarer: Over the past three years, we’ve been extremely focused on the institutional and infrastructure sector, and that’s primarily been driven by government focus first of all on infrastructure deficit, which in Canada is getting to critical proportions, and secondly, with the downturn in the economy there has been a significant stimulus funding coming into play, thus opening the door to significant opportunity, particularly on larger projects on both the institutional and infrastructure end of it. So, that’s been a major focus for us, and certainly one of the major drivers for us over the past two years.
WSR: What were some of the challenges this quarter and what are some of your specific strategies for overcoming some of the challenges? I know the actual profit, you had a decrease in profit.
Bill Crarer: Certainly, one of the major challenges has been the economic downturn. Financing of projects has become more difficult. This has, to some extent, impacted the infrastructure institutional sector, resulting in project delays. However, for the past few years, Seacliff has had a real focus on what we call recurring revenue, which tends to focus on smaller projects. We find this type of work not subject to the economic cycles that we experience from time to time, and thus it helps us to write out periods such as this quite well. So, we don’t see the dramatic volatility, particularly in our EBITDA margins in adopting that strategy. So, in order — it’s been a challenge on the one hand on the infrastructure side. From a competitive point of view, we’ve seen increased competition there.
But on the same side, we haven’t seen the same measure of competition on the smaller projects, and thus that recurring revenue component is certainly helping to sustain it through fairly difficult times. So, we’ve seen our revenues dip, but yet our EBITDA margins are holding extremely stable at this point in time. So, we’re extremely confident that we’ve written out the worst of the down cycle and are cautiously optimistic as we look ahead.
WSR: One of your divisions, Dominion, was awarded a contract last month totaling over 77 million Canadian for contracting now. So, talk about that and also, what are some of your key projects that you’re working on right now, and where we might be able to find some of your key products?
Bill Crarer: I am just trying to think of which one you’re referring to at 77 million. We picked up the Broadway Tech Centre, which was 48.5 million. So, might be a combination you are looking at.
WSR: Yes, it was the one in British Columbia.
Bill Crarer: Yes.
WSR: I think it’s a combo, correct.
Bill Crarer: Yes, that’s an office building structure. It’s part of a development that’s been ongoing for the last five to six years. So, this is the next phase, and there is a fair possibility we’ll find out by the end of the month, but they might be adding an additional phase to that. So, from our perspective, first of all, we’re excited about the award. But more importantly, it’s a reflection that may be perhaps we’re starting to see the first signs of an end to the recession going forward. The building is going to be fully occupied by the Bank of Hong Kong. So, very positive project for Dominion going forward.
WSR: Talk about some of your other key projects that you’re working on.
Bill Crarer: Canem, particularly, is looking at — it’s called TTC Building at the Southern Alberta Institute of Technology and it’s four buildings. We are certainly — we are down to the fine strokes on that on the electrical side, and that would be a significant project win for us. The project in itself is between $500 million and $600 million. So, that puts the electrical in the $60 million to $65 million range. So, significant size electrically. If you’ve looked at our numbers over the past few years, Canem’s EBITDA tends to be significantly higher than Dominion’s. So, that’s fairly significant. We’re also looking at two phases of work at the Edmonton International Airport. Again, both electrical projects, and significant opportunity there for Canem to acquire that work. Again, that would total in excess of $50 million in electrical work. So, those are three. There is another one that Canem is working on, its overall construction value is in excess of 500 million, and it’s for a new RCMP facility in Surrey, British Columbia. So, there’s four, extremely significant opportunities. We’re short-listed in all those projects. So, we go into them with reasonable amount of optimism for our success there.
On the Dominion side, we’re looking at — they call them P3 projects here, public-private partnerships, and those are generally institutional type work that are funded by the private sector. Dominion is looking at a school package in Alberta at the moment; that will be just north of 200 million. They’re looking at a courthouse in Northwestern Ontario at just in excess of 100 million, and then they’re looking at a series of police facilities that will total in the neighborhood of 25 million to 30 million. So, we’re seeing significant opportunity out there, and certainly, I feel confident that we’ll be able to capitalize on those opportunities as we go forward.
WSR: What are some of the things that make the company unique from some of the other players in your sector?
Bill Crarer: Canem, specifically, tends to focus on the larger projects. They also have a significant data communication component, which few of our peers have. But, we have the resource and the expertise to go after these larger electrical contracts where there is very little competition. In most cases, those projects that I just mentioned earlier, you’re looking at a maximum of three competitors. When you get into the smaller contracts, let’s say in the 3 million to 5 million, you could well be looking at 14 to 15 competitors. So, you get down to a group of competition that’s extremely responsible. They know what it costs to do the work, and so you get more responsible bidding. As a result of that, the margins tend to be somewhat higher. Certainly, I think that brings a sense of uniqueness to us.
If you look at the company overall, we’re very diversified geographically. We have offices from Vancouver Island. We have 16 offices across the West, going from Vancouver Island through to Northwestern Ontario. Again, fairly unique. There is very few of our competitors either on the general contracting side or on the electrical side that have that measure of diversity. I think that gives us an advantage particularly in these economic times where you might see a softer market in British Columbia, but you got a stronger market in Alberta. So, that generally serves us well through both up and down cycles, as does our diversity in terms of the sectors in which we perform. We’re equally capable in light industrial, as we are in commercial, as we are in institutional. So, we have the diversity and flexibility to move across the sectors and also to go after a broader range of projects from extremely small contracts to the largest projects that are out there on the marketplace today.
WSR: Perhaps you can walk us through your background experience Bill, as well as that of some of the key management team at Seacliff Construction.
Bill Crarer: I’ve been with the organization for 40 years. My background is on the electrical side. I started with the company back in 1967. I was a Regional Manager in Alberta for many years, then took on the role of President and CEO of Canem from 1992 through 2005. So, certainly have a pretty broad knowledge of the business. What I think of Seacliff’s principal strength is our management team.
On the Dominion side, we have Carl Stewart, who is a civil engineer. He brings over 30 years of industry experience to the business. The Senior VP of our BC Division, Wayne Henderson, again, he is a civil engineer with 28 years of industry experience. In our Saskatchewan Division — I should point out that one of Dominion’s strong points is Saskatchewan. We actually have four offices there, and heading out that team is Brian Barber who brings 27 years of industry experience.
On the Canem side, we have Brad Armstrong. He is a CA by profession. Brad has been with Canem since 1996, and he just brings a wealth of experience not only on the financial side, but also on the systems side. He’s got 15 years of construction industry experience. But what he brings to the table from a system standpoint has really put Canem at the forefront, I would say, throughout North America, with some of the control processes that we have in place, particularly in terms of productivity. We have a productivity system in place that we think is second to none in the industry, and certainly reflects into our bottom line, if you’ve looked at the numbers.
Going downstream there, we have our Senior VP, Al Miller, he’s been with the organization for 35 years, and Doug Hale, who is our Vice President of Construction, he brings 30 years of industry experience. So, we have significant depth in our organization that particularly helps us in being fairly adept in seeking out various opportunities in very tight market conditions.
WSR: In terms of milestones, what are some of the specific goals that the management team hopes to accomplish over the course of the next 12 months?
Bill Crarer: Part of our strategic plan is to grow the business by 20% per annum; that’s both on the revenue and EBITDA side, and that’s going to be a combination of both organic growth and growth through acquisition. So, we’re in active discussion on acquisition targets at the moment, and we certainly hope at least one of those will come to fruition over the next little while. We’re fairly confident that with the work that we see in the pipeline at the present time that we’ll be able to maintain those targets we established two years ago. So, our focus is certainly on managing risk going forward, very conscious of that, and we’ve tightened the reign in these difficult times due to the tightening of the credit markets. But, by the same token, we remain very focused on growing the business. In order to do that in these times, we’ve become more innovative in our approach to the cost side of it, while maintaining the margins that we feel are so essential to grow the business. So, that’s kind of where our focus is at the moment and we are certainly putting a lot of energy into seeking out potential acquisitions.
WSR: What are some of those synergies that you look for in terms of M&A?
Bill Crarer: We look for companies that have a similar skill set. Though we look for synergies, we distinctly try and maintain a distinct separation between our businesses. We feel that that helps us to maximize both our opportunities, and as a result, our revenue and EBITDA numbers. Just to give you an example, Canem has an electrical contractor competing in the marketplace, they need to have access to Dominion’s competitors, just as Dominion has to have access to Canem’s competitors in order to maintain their competitive position in the marketplace. So, although the two work together from time to time, it’s not a common practice for that to happen.
The work that Canem does with Dominion represents about 6% of what we do. So, as we look for new acquisitions, we look for synergies primarily on the accounting side, and some of the, shall I say, cost issues on the peripheries such as insurance and benefit programs and that type of thing having a common IT services and integration of all our accounting practices. Certainly, that proves very cost effective for us. But when we get down to the operational side of it, we try to maintain some separation, but where we feel it appropriate then various units will come together. But the targets that we’re looking after would not necessarily be the same discipline on the GC or electrical side, but certainly be construction related and with similar skill set to what we currently have in place. So, we sort of stick to the netting, but we might well be looking beyond what we’re currently doing in terms of the disciplines that we are now involved in.
WSR: In terms of investors, do you believe that your company’s investment story and that the company’s upside potential are completely understood and appreciated by the financial community?
Bill Crarer: I don’t know if it’s fully understood and appreciated, but certainly, we see it as a great organization, we see it as a great opportunity. If you look back on our growth over the past few years, I think, it’s been fairly phenomenal. We’ve had 15% growth year-over-year on the revenue side. We’ve had 20% growth year-over-year on the EBITDA side, and longer term, it’s our plan to maintain that going forward, and as I’ve mentioned, it’s going to be a combination between organic growth and growth through expansion of the business. So, longer term, we certainly see Seacliff as a great story coming up to today, and we’re extremely optimistic that we can maintain that type of performance going forward, thus making an attractive investment going forward.
WSR: Before we conclude, Bill, just to kind of rehash everything, what do you believe are some of the key reasons why investors should consider Seacliff as a good long-term investment opportunity?
Bill Crarer: It’s an innovative company. We’re in a growth mode. We have significant cash on hand at the moment. We currently have a 117 million in cash and securities. So, that puts us in a strong position to exercise on our growth strategies, not only in terms of revenue, but also in EBITDA performance. So, longer term, we feel that we’re going to be able to grow the business. By doing so 20% a year, our projection is to be a billion-dollar organization within the next three years. I think that would be a significant accomplishment, and certainly one that would best serve the interests of our shareholders.