7.0 Outlook

The past five years at DCC have been marked by constant growth in service offerings to DND.

Moving into the 2009–10 planning period, it is expected that demand will continue to be high for services related to infrastructure for new CF equipment, but spending on routine operations and maintenance could decline as a result of DND program review.

Beyond 2009–10, the planning assumption is that equipment-driven construction programs will proceed, but more slowly than originally scheduled. At the same time, DCC management assumes that spending will be restrained in the foreseeable future, resulting in reduced DND spending on operations and maintenance and on “non-essential”, value-added DCC services. While the forecast estimates limited growth beyond 2010, it nevertheless maintains DCC’s operational activity and revenue generation at levels that are higher than the Corporation has experienced in decades.

DND construction program spending has gradually increased to approximately $600 million, and the department is increasingly turning to DCC to provide services beyond construction contract management. These types of services include project and program management support, facilities management, and diverse and specialized environmental services. DCC has managed these client requirements over the past few years quite adroitly and will continue to do so. The increase in DCC’s non-construction services to 53% of service revenue demonstrates the importance of diversity to the future of the Corporation.

To meet the challenges that this diversity brings, DCC has undertaken several strategic initiatives that focus on managing change. The Corporation understands that, in this time of business evolution, elements of human resources—such as learning and development, internal communications, succession planning, and recruitment and retention—are critical to business success. In both the short and medium term, senior management will pay special attention to these areas to ensure the viability and the success of the Corporation. That could mean a slight decrease in the utilization rate in the short term, but this approach must be seen as a long-term investment for the benefit of the client.

DCC is also preparing for the upcoming retirement of the President and CEO, a transition that will have an impact on the Corporation. DCC has a strong senior management team in place that will support a seamless transition of these senior roles.

The Corporation’s employee population reached 778 full-time staffers at the end of 2008–09. That is a 92% increase from 405 employees in 2004–05. Clearly, DCC is in the midst of a transition in many ways. Looking forward five years, many variables could affect the Corporation’s scope and range of services. The major factor will be the demands of the Canadian government for defence services, and the subsequent priorities of DND and the CF. DCC has a well-established track record of success in construction contract management and infrastructure support services. This collective core expertise, held together by over 58 years of culture, good governance and steady management, will enable the Corporation to meet these needs in the future.

7.1 Financial Outlook

The Corporation has traditionally taken a conservative approach to forecasting future growth. The Corporation’s latest Corporate Plan shows an increase in revenue of approximately 6% for 2009–10, driven by a combination of anticipated higher business volumes and a planned increase in billing rates of approximately 4%. For the remaining plan years, revenue growth has been forecasted to increase by approximately 3% a year, which is in line with expected increases in salaries and benefits. Business volumes are assumed to remain constant over this period.

Salaries and benefits expenses for 2009–10 are forecasted to increase by approximately 10% from 2008–09. This rise is due to an expected increase in total staff, as well as to inflationary and merit increases to salaries. For future years, the Corporation’s financial forecasts assume an increase in salaries and benefits of approximately 3% a year, with staff strength remaining constant.

Operating and administrative expenses for 2009–10 are projected to increase by 11% over 2008–09. This rise is due to a combination of inflationary increases, growing business volume, and higher projected spending on rent and certain discretionary expenses, such as employee training and development, professional fees and business travel. For the remaining plan years, operating and administrative expenses are forecasted to increase by 3% a year, primarily to cover projected inflation increases.

Amortization of property, plant and equipment is expected to increase by 17% in 2009–10 over
2008–09, due mainly to the projected rise in capital expenditures. Projections for capital expenditures, as discussed below, will affect the year-to-year fluctuation in the amortization expense over the remaining years of the plan.

A net income and comprehensive income of $724,000 is forecasted for 2009–10 and net income and comprehensive income of between $444,000 to $683,000 is forecasted for the remaining years of the plan.

Capital expenditures are projected to increase by 17% in 2009–10 over the previous year. The anticipated expenditures for the year ending March 31, 2010, will primarily relate to ongoing requirements to provide computers and software to new employees; to upgrade older computer systems and software; and to make leasehold improvements and buy office furniture and equipment for new facilities to accommodate the growing workforce. Increased spending is projected in the later years of the plan in anticipation of major expected upgrades to the Corporation’s main computer systems and software applications.

DCC’s Corporate Plan for 2009–10 to 2013–14 was prepared when it was unclear what direction the Government of Canada would take in response to the economic situation. Subsequent announcements and actions taken by the government now indicate that revenue growth in 2009–10 may be higher than that projected in the plan.

Financial Outlook (in thousands of dollars)

	2008-09	2009-10	2010-11	2011-12	2012-13	2013–14
	Actual	Plan	Plan	Plan	Plan	Plan
Revenue
Services	$ 71,570	$ 75,631	$ 77,900	$ 80,237	$ 82,644	$ 85,123
Interest	154	294	365	431	487	531
	71,724	75,925	78,265	80,668	83,131	85,654
Expenses
Salaries and employee benefits	60,069	66,082	68,064	70,106	72,209	74,375
Operating and administrative	7,130	7,889	8,126	8,370	8,621	8,880
Amortization of property, plant and equipment	1,053	1,230	1,392	1,675	1,857	1,908
	68,252	75,201	77,582	80,151	82,687	85,163
Net income and comprehensive income	$   3,472	$    724	$    683	$    517	$    444	$     491
Capital expenditures	$   1,334	$ 1,559	$ 1,600	$ 1,700	$ 1,800	$  2,000