6.0 Financial Performance

6.1 Services Revenue

Services revenue was $71.6 million in the year ended March 31, 2009, an increase of $16.1 million or 29% from the previous year. Approximately 24% of the increase was due to the rise in business activity from higher demand for services, approximately 3% to the increase in average billing rate and 2% to a combination of other factors, including mark-up fluctuations on fixed fee arrangements and the mix of billable resources used from year to year.

Construction services revenue
Revenue from construction services increased in 2008–09 by 23% over the previous year, driven by a combination of factors that included rising business volume, higher billing rates, and changes in the nature and size of individual construction projects and the effort required to manage them.

Project and program management services revenue
A significant rise in the demand for project and program management services during 2008–09 resulted in an increase in revenue of 57% over the previous year.

Environmental services revenue
Although environmental services revenue rose in 2008–09 by 17% over the previous fiscal year, the rate of increase was slower than the increase experienced in other service lines. The cyclical nature of the client’s demand for these services has a direct impact on the revenue generated by this service line from year to year.

Contract services revenue
Contract services revenue increased by 38%, driven by a rise in billing rates, the growing volume of contracts tendered and other factors, including the client’s increased demand for value-added services related to contracting, a change in the size and complexity of contracts tendered, and the effort required to award the contracts.

Real property management services revenue
Revenue from real property management services decreased by 39%, reflecting a decrease in demand for services related to energy performance, facilities management and facilities decommissioning. The cyclical nature of the client’s demand for these services has a direct impact on the revenue generated by these services from year to year.

Services Revenue, by service line (in thousands of dollars)

	2008-09	2007-08	Change
Construction services	$ 33,849	$   27,499	$    6,350	23%
Project and program management services	18,759	11,983	6,776	57%
Environmental services	9,506	8,144	1,362	17%
Contract services	8,385	6,085	2,300	38%
Real property management services	1,071	1,747	(676)	-39%
	$ 71,570	$ 55,458	$ 16,112	29%

6.2 Expenses

Salaries and employee benefits
Salaries rose to $46.9 million in 2008–09, an increase of $8.3 million or approximately 22% over the previous fiscal year. Growth in the number of employees, due to higher levels of business activity, accounted for approximately 19% of the increase, whereas a combination of salary increases and employee mix accounted for the remainder. Employee benefits rose to $13.2 million in 2008–09, an increase of $2.4 million or approximately 22% over 2007–08. This increase was largely related to the rise in salaries as well as the higher cost of certain benefits, primarily those related to extended health care and pension plans. As a percentage of salary, benefits represented 28.1% of salary cost and remained consistent with the previous year.

Salaries and Employee Benefits (in thousands of dollars)

	2008-09	2007-08	Change
Salaries	$ 46,888	$ 38,559	$   8,329	22%
Benefits	13,181	10,784	2,397	22%
	$ 60,069	$ 49,343	$ 10,726	22%
Benefits as a percentage of salaries	28.1%	28.0%	0.1%

Operating and administrative expenses
Operating and administrative expenses were $7.1 million for 2008–09, an increase of $902,000 or approximately 14% over the previous year. A variety of factors influenced these expenses.

• Rent expenses increased by approximately 19% because DCC procured additional office space at regional and head office locations to accommodate growth in personnel and because leasing costs rose at certain locations.
• Employee training and development costs remained relatively consistent from year to year. Expressed as a percentage of salary cost, training and development in 2008–09 was 2.1%, compared with 2.5% the previous year.
• Professional services expenses rose by about 16% due to increased spending on consulting services related to internal audit, industrial security, human resources, communications and information technology.
• Telephone and data communications costs remained consistent from year to year. Although there was significant growth in business activity and the number of employees, the Corporation was also able to save money by using both data and voice lines more effectively and efficiently, and by paying cheaper rates in certain cases.
• Staff relocation costs rose by approximately 66%. This significant increase was the result of the combination of an increased number of relocations in 2008–09 and a higher average cost per relocation, compared with the previous year.
• Travel costs rose by 5%. Employees travelled more, due to increased business activity, but that expense was offset by lower air travel costs and less travel activity related to the development of service lines, compared with the previous year.
• Office services, supplies and equipment expenses rose by 35% due to a combination of the growth in personnel, office space and general business activity, and inflationary price increases on certain office supplies and services.
• Leased office equipment expenses rose by 11% due to an increase in the number and cost of items such as copiers, printers and faxes, which was tied to the growth in staff, facilities and business activity.
• Recruiting costs rose by 52% due to increased recruitment activity in 2008–09, compared with the previous fiscal year.
• Software maintenance costs remained consistent from year to year.
• Office furniture and equipment costs increased by 371% due to the significant growth in personnel.
• Printing and stationery costs rose by 13% due to a combination of inflationary price increases and increased business activity.
• Computer software and equipment expenses decreased by 19% due to exceptional spending on the Human Resources Information System (HRIS) implementation in 2007–08.
• Client services and communications costs decreased by 25% due to reduced spending on comunications projects and initiatives, compared with the previous fiscal year.

Operating and Administrative Expenses (in thousands of dollars)

	2008-09	2007-08	Change
Rent	$ 1,775	$  1,496	$    279	19%
Employee training and development	971	978	(7)	-1%
Professional services	874	753	121	16%
Telephone and data communications	724	720	4	1%
Staff relocation	613	370	243	66%
Travel	539	512	27	5%
Office services, supplies and equipment	524	388	136	35%
Leased office equipment	159	143	16	11%
Recruiting costs	158	104	54	52%
Software maintenance	145	148	(3)	-2%
Office furniture and equipment	132	28	104	371%
Printing and stationery	125	111	14	13%
Computer software and equipment	102	126	(24)	-19%
Client services and communications	98	131	(33)	-25%
Other	191	220	(29)	-13%
	$ 7,130	$  6,228	$   902	14%

Amortization of property, plant and equipment
Amortization of property, plant and equipment increased by 24% or $202,000 in fiscal 2008–09 due to higher capital expenditures in fiscal 2008–09, compared with the previous year.

Amortization of Property, Plant and equipment (in thousands of dollars)

	2008-09	2007-08	Change
Amortization of property, plant and equipment	$ 1,053	$ 851	$ 202	24%

6.3 Net Income (loss) and Comprehensive Income (loss)

The net income and comprehensive income for the year ended March 31, 2009 was $3.5 million compared with a loss and comprehensive loss of $706,000 in the previous year. The significant improvement in operating results was due to a combination of factors including significantly higher services revenue which increased 29% during the year, improvement in the gross margin rate from 40% to 41% and the improvement in the utilization rate from 71% in 2007–08 to 74% in 2008–09 which also resulted in a significant reduction in overhead salaries expressed as a percentage of services revenue from 29% in 2007–08 to 24% in 2008–09.

Net Income (loss) and Comprehensive Income (loss) (in thousands of dollars)

	2008-09	2007-08	Change
Net income (loss) and comprehensive income (loss)	$ 3,472	$ (706)	$ 4,178	592%

6.4 Liquidity and Capital Resources

The Corporation’s financial management policy and financial statements assume that the Corporation is a going concern and its stated mandate will continue for the foreseeable future. DCC’s financial management policy is to generate sufficient cash to meet its anticipated operating and capital requirements, and to settle its financial obligations as they become due. In determining the amount of cash reserves carried for operating needs, the Corporation considers the risks inherent in its operations, particularly the risks associated with potential and unanticipated changes to the amount or timing of construction project expenditures by DND.

To fulfill its mandate and remain ready and able to serve its client at all times, the Corporation must constantly react to changing business conditions, and be able to financially support and sustain its operations when sudden or unanticipated business changes occur. As a result, the Corporation allows for reasonable levels of operating contingencies in determining the amount of cash reserves it carries. Management constantly monitors and reviews cash levels to determine their appropriateness. Any surpluses or shortfalls that may occur occasionally are taken into consideration in formulating future business plans. In particular, cash surpluses judged to be in excess of operating requirements are returned to the client through the setting of billing rates for future services.

Cash
The Corporation does not have segregated cash reserves. When appropriate, cash that exceeds short-term operational requirements is invested in accordance with the investment policy approved by the Board of Directors.

The cash balance at March 31, 2009, was $7.9 million, an increase of $1.8 million or 30% from the previous year. During fiscal 2008–09, the Corporation generated $3.1 million in cash from operating activities and spent $1.3 million on capital expenditures.

Due from related parties
On March 31, 2009, the amount due from related parties was $15.3 million, which represents an increase of $5.8 million or 61% over the previous year. The increase was due to a combination of higher revenues in 2008–09, compared with the previous year, and the increase in the average number of days that accounts were outstanding to 56 days at March 31, 2009, from 53 days at the end of fiscal 2007–08. A significant amount of receivables was not collected until the first week of the new fiscal year.

Current liabilities
Current liabilities were $6.8 million at March 31, 2009, an increase of $2.5 million or 58% from March 31, 2008. The variance is primarily attributable to an increase of $1.1 million in the accrual amount associated with salaries, vacation, furlough and overtime expenses, as a result of the significant growth in personnel and a rise in the amount due to related parties and trade accounts payable, due to the increased level of business activity. Other factors that affect this balance from year to year include the amount of the current portion of employee future benefits and the timing of expenses (both the time expenses are incurred and the time they are paid).

Liquidity and Capital Resources (in thousands of dollars)

	2008-09	2007-08	Change
Cash	$   7,962	$ 6,135	$ 1,827	30%
Due from related parties	$ 15,342	$ 9,500	$ 5,842	61%
Current liabilities	$   6,849	$ 4,340	$ 2,509	58%

6.5 Provision for Employee Future Benefits

The Corporation records a liability for the estimated cost of severance, including health care benefits for its retirees. This estimate is actuarially determined. The accrued severance and other benefits balance as at March 31, 2009, was $12.3 million, an increase of $2.3 million or approximately 23% from the previous year. The balance increased by the amount of benefits accrued in the current fiscal year of $2.7 million and decreased by the amount of benefits paid in the current year of $333,000. The provision for employee future benefits fluctuates from year to year due to a combination of factors, including the inflation rate; workforce changes; changes in the discount rate, which is determined by reference to market interest rates; changes in the average rate of salary increases; and changes to the average expected remaining service lifetime of active employees, due to changing demographics.
Note 5 to the financial statements describes the actuarial assumptions used in determining the provision. This liability is primarily long term and the Corporation estimates the current payout amount based on the best information available. Although the Corporation has not specifically segregated funds for this obligation, it has sufficient capital resources to meet its employee future benefit payment obligations as they become due.

Provision for Employee Future Benefits (in thousands of dollars)

	2008-09	2007-08	Change
Accrued future benefits	$ 12,343	$ 10,013	$ 2,330	23%
Less: current portion	361	228	133	58%
Long-term portion	$ 11,982	$  9,785	$ 2,197	22%

6.6 Capital Expenditures

The Corporation’s capital expenditures for fiscal 2008–09 totalled $1.3 million, an increase of $549,000 or 70% from the previous year. The increase was mainly due to significant spending on leasehold improvements and the purchase of furniture and supplies for new office space as a consequence of the significant growth in personnel and business activity in the past year.

Capital Expenditures (in thousands of dollars)

	2008-09	2007-08	Change
Software	$     53	$   226	$ (173)	-77%
Computer equipment	520	453	67	15%
Furniture and equipment	380	97	283	291%
Leasehold improvements	381	9	372	4132%
	$ 1,334	$  785	$  549	70%

6.7 Actual Performance Versus Plan

The following table indicates the Corporation’s actual performance in fiscal 2008–09 compared with the projections in the Corporate Plan.

Services revenue was $9 million or 14% above plan, due mainly to higher-than-planned business volume.

Interest revenue was $154,000 or 44% below plan. This variance was primarily due to lower-than-planned average interest rates during the year.

Salaries and employee benefits were $5.3 million or 10% higher than plan. This increase was largely the result of a combination of higher-than-planned staff growth and increases in salaries and benefits. Operating and administrative expenses were consistent with the plan.

Amortization of property, plant and equipment was $101,000 or 9% lower than plan. Although capital expenditures were slightly higher than plan, the variation in the mix of capital expenditures among the various categories produced a lower amortization expense.

The significant variation in net income and comprehensive income compared to plan is the result of three major factors: higher revenues than anticipated in the plan; better gross margins realized on revenues; and better operating efficiencies realized from increases in staff utilization rates.

Capital expenditures were $9,000 or 1% above plan.

Actual Performance Versus Plan (in thousands of dollars)

	Actual 2008-09	Plan 2008-09	Change
Revenue
Services	$ 71,570	$ 62,672	$ 8,898	14%
Interest	154	277	(123)	-44%
	71,724	62,949	8,775	14%
Expenses
Salaries and employee benefits	60,069	54,776	5,293	10%
Operating and administrative	7,130	7,072	58	1%
Amortization of property, plant and equipment	1,053	1,154	(101)	-9%
	68,252	63,002	5,250	8%
Net income (loss) and comprehensive income (loss)	$   3,472	$    (53)	$ 3,525
Capital expenditures	$   1,334	$  1,325	$       9	1%

6.8 Future Accounting Changes

In February 2008, the Canadian Accounting Standards Board (AcSB) confirmed that for fiscal years commencing on or after January 1, 2011, all publicly accountable enterprises, including DCC, must prepare and report their financial statements using International Financial Reporting Standards (IFRS). As a result, IFRS will replace Canadian generally accepted accounting principles (Canadian GAAP). DCC’s first IFRS compliant financial statements will be those for the year ending March 31, 2012. However, one year of comparative IFRS financial information must be provided for the year ending March 31, 2011. Consequently, DCC will move to IFRS on April 1, 2010, the first day of the comparative period.

To prepare for the conversion to IFRS, the Corporation engaged an independent international accounting firm in April 2008 to analyze the potential impacts of adopting IFRS on the Corporation’s financial statements, and to provide general guidance and direction to the Corporation on the adoption of and conversion to IFRS.

In addition, over the past year, management and the financial and accounting staff responsible for maintaining accounting policies, financial records and financial statements have been gaining a better understanding and knowledge of IFRS. They have attended various seminars and training sessions, and have studied and researched the international standards using related materials and reference books.

Although the Corporation has not yet fully assessed the impact of adopting IFRS, the work completed to date indicates that many of the differences identified are not expected to have a material impact on the Corporation’s reported results and financial position but are likely to affect the type and amount of information that will be disclosed in the notes to the financial statements.

Throughout the remaining conversion period, DCC will continue to assess the differences between IFRS and the Corporation’s current accounting policies, as well as alternatives available on first-time adoption. This assessment will look at the impact of conversion, if any, on information technology and data systems, internal control over financial reporting, disclosure controls and procedures, and business activities. The Corporation will also continue to engage independent international accounting firms throughout the conversion period to provide DCC with additional knowledge and expertise to assist it in its conversion efforts.

Five-Year Summary Financial Information (in thousands of dollars)

	2008-09	2007-08	2006-07	2005-06	2004-05
Revenue
Services	$ 71,570	$  55,458	$  47,826	$  42,481	$  34,641
Interest	154	258	265	164	93
	71,724	55,716	48,091	42,645	34,734
Expenses
Salaries and employee benefits	60,069	49,343	42,592	35,310	28,671
Operating and administrative	7,130	6,228	5,845	5,108	4,268
Amortization of property, plant and equipment	1,053	851	881	769	808
	68,252	56,422	49,318	41,187	33,747
Net income (loss) and comprehensive income (loss)	$   3,472	$      (706)	$   (1,227)	$    1,458	$       987
Retained earnings, beginning of year	3,386	4,092	5,319	3,861	2,874
Retained earnings, end of year	$   6,858	$   3,386	$   4,092	$   5,319	$   3,861
Assets
Cash	$   7,962	$    6,135	$    7,845	$    7,295	$    5,152
Accounts receivable, related parties, prepaids and advances	15,917	9,847	7,850	7,648	6,152
Property, plant and equipment	1,810	1,529	1,595	1,483	1,504
	$ 25,689	$ 17,511	$ 17,290	$ 16,426	$ 12,808
Liabilities
Accounts payable, related parties and accrued liabilities	$   6,488	$    4,112	$    4,885	$    4,216	$    3,361
Provision for employee future benefits	12,343	10,013	8,313	6,891	5,586
	18,831	14,125	13,198	11,107	8,947
Capital stock and retained earnings
Common shares	-	-	-	-	-
Retained earnings	6,858	3,386	4,092	5,319	3,861
	6,858	3,386	4,092	5,319	3,861
	$ 25,689	$ 17,511	$ 17,290	$ 16,426	$ 12,808
Cash flows from (used in)
Operating activities	$   3,161	$     (925)	$    1,543	$    2,891	$    1,713
Acquisition of property, plant and equipment	(1,334)	(785)	(993)	(748)	(868)
	1,827	(1,710)	550	2,143	845
Cash, beginning of year	6,135	7,845	7,295	5,152	4,307
Cash, end of year	$   7,962	$   6,135	$   7,845	$   7,295	$   5,152