2003 Annual Report - Enerflex

Qualified and motivated personnel are critical tothe success of our businesses.Foreign operationsEnerflex sells products and services throughout the world. While this diversification is desirable, it can expose theCompany to risk related to issues such as quality of receivables. The Company mitigates this risk by dealing withcredit-worthy institutions, and using credit insurance and letters of credit where appropriate.Distribution agreementsOne of the Company’s strategic assets is its distribution and Original Equipment Manufacturer (“OEM”)agreements with leading manufacturers, notably the Waukesha engine division of Dresser Industries, for enginesand parts, and Ariel Corporation for compressors. Enerflex and its people make it a priority to maintain andenhance these strategic relationships.InsuranceEnerflex carries insurance to protect the Company in the event of the destruction or damage to its property andequipment. Liability insurance is also maintained at prudent levels to limit exposure to unforeseen incidents. Anannual review of insurance coverage is completed to assess the risk of loss and risk mitigation alternatives.Extreme weather conditions and terrorist activity have strained insurance markets leading to substantial increasesin insurance costs and limitations on coverage.Climatic factorsIn North America, cold winters typically increase demand for and the price of natural gas, which increasescustomers’ cash flow and can have a positive impact on Enerflex. Warm winters in western Canada, however, canboth reduce demand for natural gas and make it difficult for producers to reach well locations. This restricts drillingand compression operations and negatively impacts Enerflex.Seasonal demandDemand for natural gas production equipment and services, and hence Enerflex business prospects, are influencedby seasonal demand. The first quarter of the year is generally accompanied by increased winter deliveries ofequipment. Service is more active in the summer as producers overhaul equipment when natural gas prices tendto be lower.EnvironmentEnerflex regularly conducts third-party environment audits to ensure that environmental issues do not materiallyaffect financial condition or performance.February 2, 2004Enerflex 2003 Annual Report52