November 8, 2012
Leaders revisited: PCL adapts to notch record level of growth
PCL Constructors Inc. is entering a new phase of economic growth driven by record high levels of new work in the last two years, as the company emerges from one of the most severe recessions in Canadian history.
“I have been in the construction industry for 35 years and with PCL for 27,” said PCL president and chief executive officer Paul Douglas. “We have seen some of these gales over the years.”
PCL was last featured in Leaders in 2008 as it built up to its recent record high levels of work.
“We have traditionally looked at these periods as cyclical, just as that, cycles. A company as old as PCL has been through a number of recessions. We know that at this time you don’t just cutback overhead, you have to adapt to change, make your operations as efficient as possible and do what you can to get ready for the next upturn in the cycle.”
As fiscal year 2012 closed on Oct. 31, Douglas was confident PCL will have a substantial growth in growth in 2013-14, due to an increase in new work across the world and a large backlog.
Douglas’ short-term outlook is based on PCL data, which show new work increased by $600 million (6.9 per cent) in 2012 to reach a record high level of $8.6 billion. In 2011, new work jumped by a whopping 53 per cent to $8 billion for PCL, compared to $5.25 billion in 2010. This $2.79 billion increase represents the most rapid year of expansion for new work between 2000 and 2012.
New work is an important indicator of performance as it measures the effect of immediate changes or fluctuations in the economy on business operations. PCL is impacted by these cycles through its private and public sector clients in Canada, the United States, the Bahamas and Australia.
For example, PCL’s new work declined three years in 2010 (-0.06 per cent), 2009 (-11.6 per cent) and 2008 (-16.9 per cent). The recession drastically reduced demand in the Caribbean and the U.S.
“The building world in the United States is abysmal, because the market is in survival mode,” said Douglas. “The recession hit the U.S. harder than Canada. Institutional is also down in the U.S. Despite how hard it is in the U.S., it is even worse in Europe. So, a lot of their contractors have come to North America.”
The entry of more multi-national contractors in North America has increased competition, which is more intense in the U.S. compared to Canada, because demand for new work is falling and the number of firms is increasing.
In response, PCL increased its geographic diversification as part of a consortium that won a $1 billion contract for the design and construction of a cancer centre in Melbourne, Australia. The public-private partnership project marks PCL’s entry into this market.
PCL’s leadership has a diversification plan to secure new work, which is focused on obtaining more civil infrastructure and heavy industrial projects, while maintaining commercial and institutional work.
As a result, PCL expanded new work in the Canadian heavy industrial segment, which rose by $317 million or 37.6 per cent in 2010 and $279 million or 49.6 per cent in 2009.
The long-term nature of construction contracts is also used by PCL’s leadership to cushion immediate negative effects of large fluctuations in demand for construction services.
PCL data reveal that billings jumped by 11.8 per cent to $6.1 billion, during the economic collapse in 2008. Douglas explained that billings show the economy of the past. As the recession intensified in 2009, PCL’s billings increased by 3.6 per cent to $6.3 billion. The increases in billings took place at a time when new work was contracting.
PCL has a backlog of $10 billion in 2012, which shows the company can absorb any drastic changes in the economy. Backlog is the total of signed contracts, which are not under construction.
The company has a strategy to attract and retain staff, skilled workers and qualified subcontractors, which is necessary for securing new work and completing existing contracts on schedule.
The industrial and commercial divisions of PCL hired new employees at a rapid pace in 2012, while launching a new recruitment campaign.
PCL now employs more than 4,000 people under its Canadian Industrial Division.
To accommodate some of these new employees, PCL started construction in early 2012 on a new $10 million industrial headquarters in Nisku, Alta. The facility is a manufacturing operation that produces modules for oil and gas, mining and electricity generation projects in western Canada.
PCL is doing the work itself on the 35,000 square foot building, which will include lunchroom facilities and a meeting space for 350 workers, as well as an orientation and training room for
95 people. One major client for this facility is Imperial Oil,
which approved an $8.9 billion expansion of the Kearl oilsands project near Fort McMurray in Dec. 2011. PCL is working on the initial $10.9 billion phase of development, which was still under construction.
Another client is ConocoPhillips Canada, which is building the Surmont oilsands expansion project, near Fort McMurray.
Construction of the Nisku facility, which employs about 200 people in the shop and another 650 people in the yard, is scheduled for completion in April 2013.
PCL attended several job fairs in Ireland, England and South Africa this year to help meet its labour requirements. The company is also recruiting in the U.S. construction industry with its high level of unemployment.
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