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SNC-Lavalin delivers good financial performance in fourth quarter 2015 and increases quarterly dividend
SNC-Lavalin delivers good financial performance in fourth
quarter 2015 and increases quarterly dividend
- Reported Q4 2015 IFRS net income of $49.2 million, or $0.33 per diluted share.
- “STEP Change” program successfully completed and should reduce expenses by twice the cost of implementation.
- Q4 2015 Adjusted net income from E&C(1) of $66.1 million, or $0.44 per diluted share. $1.34 per diluted share for the full year, slightly ahead of expectations.
- Q4 2015 bookings of $1.9 billion, stable and increasingly diversified revenue backlog of $12.0 billion at December 31, 2015, which excludes two contracts signed in 2016 worth over $2 billion.
- Strong cash balances of $1.6 billion at December 31, 2015, up 9% compared to September 30, 2015.
- Quarterly dividend increased by 4% to $0.26 per share.
- Outlook 2016: Adjusted diluted EPS from E&C(2) for 2016 in the range of $1.50 to $1.70.
SNC-Lavalin Group Inc. (TSX:SNC) announces its results today for the fourth quarter and year ended December 31, 2015.
“We are pleased with our fourth quarter performance. We delivered on our commitments and met our 2015 guidance,” said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. “Despite the turbulent markets and persisting softer economic environment, we are entering 2016 with a strong balance sheet, a stable and diversified backlog and a continued focus on improving performance that has yielded cost reductions from our “STEP Change” program. I am particularly encouraged by the tremendous efforts from everyone at SNC-Lavalin to identify and implement initiatives, which should reduce expenses for 2016 by twice as much as the cost of restructuring. Our focus will now turn to improving operational excellence in order to sustain a culture of efficiency and execution, and ensure that we deliver on our target of an annualized adjusted E&C EBITDA margin of 7% in 2017. This remains our key priority in 2016.”
- For Q4 2015, reported IFRS net income was $49.2 million, or $0.33 per diluted share, compared with a net income of $1,146.6 million, or $7.51 per diluted share, for the corresponding period in 2014. The Q4 2014 included a net gain of $1,320.7 million, or $8.65 per diluted share, on the disposal of our interest in AltaLink.
- Adjusted net income from E&C(1) for Q4 2015 increased to $66.1 million, or $0.44 per diluted share, compared with $22.7 million, or $0.15 per diluted share, for the corresponding period in 2014. The increase was mainly due to improved Segment EBIT(3) from all segments, compared to Q4 2014.
- Total E&C revenues for the year ended December 31, 2015 increased by 28% to $9.4 billion, as a result of increases in the Oil & Gas segment with incremental revenue generated by Kentz, and in the Power segment, partially offset by a decrease in the Infrastructure & Construction and the Operations & Maintenance sub-segments, as well as a decrease in Mining & Metallurgy.
- The Company maintained a stable and increasingly diversified revenue backlog at the end of December 2015 totalling $12.0 billion, which is representative of our broad offering and the diversified nature of our company and market segments. New awards for the quarter were $1.9 billion, including $0.9 billion in Oil & Gas and $0.4 billion in Infrastructure. Note that the December 2015 backlog excludes SNC-Lavalin’s share of the recently awarded $2.75 billion contract for the execution phase of a nuclear refurbishment project in Canada. It also excludes the recently awarded contract for developing the infrastructure and processing facilities for a gas field in the Middle East with an approximate value of $800 million. These two contracts will be added to the Power and the Oil & Gas segment backlogs, respectively, in the first quarter of 2016.
- SNC-Lavalin’s cash and cash equivalents at the end of the year was $1.6 billion, and this balance sheet resilience remains an important differentiator with our key clients. During the year, the Company repurchased approximately 2.8 million of its common shares for $121.8 million under its Normal Course Issuer Bid (“NCIB”), and paid $150.9 million in dividends to its shareholders.
- In 2015, the Company successfully completed its previously announced “STEP Change” program. This program has delivered increased competitiveness and agility, as well as identifying a significant number of cost reduction initiatives. It has also aligned our organization with market conditions. For the year ended December 31, 2015, the Company recorded a total of $87.7 million after taxes ($116.4 million before taxes) of charges relating to its restructuring and right-sizing plan, including the “STEP Change” program, which is $7 million after taxes less than previously announced. We will continue to take additional measures throughout the year, if required, to ensure we achieve our target of delivering an annualised adjusted E&C EBITDA(4) margin of 7% in 2017.
We anticipate our performance in 2016 overall to benefit from our diversified E&C strategy, our cost reductions, driven by our 2015 restructuring and right-sizing initiatives, and our continued focus on improving project delivery performance. We expect that the Oil & Gas and Power segments will be the main contributors to net income, while Mining & Metallurgy should be the smaller contributor to net income. We also expect that the Infrastructure segment will return to profitability in 2016.
The Company is targeting an adjusted diluted EPS from E&C(2) for 2016 of $1.50 to $1.70. The Company is also targeting to deliver an annualized adjusted E&C EBITDA(4) margin of 7% in 2017.
The adjusted diluted EPS from E&C(2) guidance excludes charges related to the restructuring and right-sizing plan and amortization of intangible assets related to the Kentz acquisition.
The above outlook is based on the assumptions and methodology described in the Company’s 2015 Management’s Discussion and Analysis under the heading, “How We Budget and Forecast Our Results”, which should be read in conjunction with the “Forward Looking Statements” section below and is subject to the risks and uncertainties summarized therein, which are more fully described in the Company’s public disclosure documents.
Given the Company’s long-term outlook, cash position and diversified backlog, the Board of Directors has increased the quarterly cash dividend by 4% to $0.26 per share, payable on March 31, 2016, to shareholders of record on March 17, 2016. This dividend is an “eligible dividend” for income tax purposes.
Conference Call / Webcast
SNC-Lavalin will hold a conference call today at 3:00 p.m. EST to discuss the fourth quarter results. The telephone numbers to access the conference call are 1 866 530 1553 in North America: 416 847 6330 in Toronto: 514 223 0613 in Montreal: 080 0279 0444 in the United Kingdom: and 180 099 2284 in Ireland. A live audio webcast of the conference call and an accompanying slide presentation will be available at investors.snclavalin.com. A recording of the conference call will be available on our website within 24 hours following the call.
Founded in 1911, SNC-Lavalin is one of the leading engineering and construction groups in the world and a major player in the ownership of infrastructure. From offices in over 50 countries, SNC-Lavalin’s employees are proud to build what matters. Our teams provide EPC and EPCM services to clients in a variety of industry sectors, including oil and gas, mining and metallurgy, infrastructure and power. SNC-Lavalin can also combine these services with its financing and operations and maintenance capabilities to provide complete end-to-end project solutions. www.snclavalin.com
(1) Adjusted net income from E&C is defined as net income attributable to SNC-Lavalin shareholders from E&C, excluding one-time net foreign exchange gains, charges related to restructuring and right-sizing, as well as amortization of intangible assets, and the financing, acquisition-related costs and integration costs incurred in connection with the acquisition of Kentz in 2014. E&C is defined in the Company’s 2015 financial statements and Management’s Discussion and Analysis. The term “Adjusted net income from E&C” does not have any standardized meaning under IFRS. Therefore, it may not be comparable to similar measures presented by other issuers. Management uses this measure as a more meaningful way to compare the Company’s financial performance from period to period. Management believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance. See reconciliation below.
(2) Adjusted diluted EPS from E&C is defined as the adjusted net income from E&C, divided by the weighted average outstanding number of shares for the period.
(3) Segment EBIT is defined herein as gross margin less i) directly related selling, general and administrative expenses; ii) corporate selling, general and administrative expenses that are directly related to projects or segments; and iii) non-controlling interests before taxes. Corporate selling, general and administrative expenses that are not directly related to projects or segments, restructuring costs, goodwill impairment, acquisition-related costs and integration costs and amortization of intangible assets are not allocated to the Company’s segments. The term segment EBIT does not have any standardized meaning under IFRS. Therefore, it may not be comparable to similar measures presented by other issuers. Management uses this measure as a more meaningful way to compare the Company’s financial performance from period to period. Management believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance.
(4) Adjusted E&C EBITDA is defined herein as earnings from E&C before net financial expenses, income taxes, depreciation and amortization, and excludes one-time net foreign exchange gains, charges related to restructuring and right-sizing, as well as the acquisition-related costs and integration costs incurred in connection with the acquisition of Kentz in 2014. The term adjusted E&C EBITDA does not have any standardized meaning under IFRS. Therefore, it may not be comparable to similar measures presented by other issuers. Management uses this measure as a more meaningful way to compare the Company’s financial performance from period to period. Management believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance.
SNC-Lavalin Financial Summary
|(in thousands of Canadian dollars, unless otherwise indicated)||Fourth Quarter||Year ended December 31|
|Net income attributable to
|Diluted EPS ($)
|Adjusted net income attributable to SNC-Lavalin’s shareholders
|Adjusted diluted EPS ($)
|Adjusted E&C EBITDA
Adjusted E&C EBITDA margin
|Cash and cash equivalents||1,581,834||1,702,205|
Reconciliation of IFRS Net Income as Reported to Adjusted Net Income
|Net income, as reported||Net charges related to the restructuring and right-sizing plan||Acquisition of Kentz||Net gain on investment disposals||One-time net foreign exchange gain||Net income, adjusted|
|Acquisition-related costs and integration costs||Amortization of intangible assets|
Fourth Quarter 2015
Per diluted share ($)
|Year Ended December 31, 2015|
Per diluted share ($)
*An amount related to the restructuring and right sizing plan of $36.3 million ($36.3 million after taxes) originally included in the 2014 gross margin, in accordance with IFRS, was reversed in the fourth quarter of 2015 due to a favorable outcome.
|Net income, as reported||Net gain on investment disposals||Charges related to the restructuring and right-sizing plan announcement of November 6, 2014||Acquisition of Kentz||Other restructuring costs
(recorded before November 6, 2014)
|Net income, adjusted|
|Acquisition-related costs and integration costs||Financial expenses||Amortization of intangible assets|
|Fourth Quarter 2014|
Per diluted share ($)
|Year Ended December 31, 2014|
Per diluted share ($)
Reference in this press release, and hereafter, to the “Company” or to “SNC-Lavalin” means, as the context may require, SNC-Lavalin Group Inc. and all or some of its subsidiaries or joint arrangements, or SNC-Lavalin Group Inc. or one or more of its subsidiaries or joint arrangements.
Statements made in this press release that describe the Company’s or management’s budgets, estimates, expectations, forecasts, objectives, predictions, projections of the future or strategies may be “forward-looking statements”, which can be identified by the use of the conditional or forward-looking terminology such as “aims”, “anticipates”, “assumes”, “believes”, “cost savings”, “estimates”, “expects”, “goal”, “intends”, “may”, “plans”, “projects”, “should”, “synergies”, “will”, or the negative thereof or other variations thereon. Forward-looking statements also include any other statements that do not refer to historical facts. Forward-looking statements also include statements relating to the following: i) future capital expenditures, revenues, expenses, earnings, economic performance, indebtedness, financial condition, losses and future prospects; and ii) business and management strategies and the expansion and growth of the Company’s operations and potential synergies resulting from the Acquisition. All such forward-looking statements are made pursuant to the “safe-harbour” provisions of applicable Canadian securities laws. The Company cautions that, by their nature, forward-looking statements involve risks and uncertainties, and that its actual actions and/or results could differ materially from those expressed or implied in such forward-looking statements, or could affect the extent to which a particular projection materializes. Forward-looking statements are presented for the purpose of assisting investors and others in understanding certain key elements of the Company’s current objectives, strategic priorities, expectations and plans, and in obtaining a better understanding of the Company’s business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
The 2016 outlook referred to in this press release is forward-looking information and is based on the methodology described in the Company’s 2015 Management’s Discussion and Analysis under the heading “How We Budget and Forecast Our Results” and is subject to the risks and uncertainties described in the Company’s public disclosure documents. The purpose of the 2016 outlook is to provide the reader with an indication of management’s expectations, at the date of this press release, regarding the Company’s future financial performance and readers are cautioned that this information may not be appropriate for other purposes.
Forward-looking statements made in this press release are based on a number of assumptions believed by the Company to be reasonable as at the date hereof. The assumptions are set out throughout the Company’s 2015 Management’s Discussion and Analysis (particularly in the sections entitled “Critical Accounting Judgments and Key Sources of Estimation Uncertainty” and “How We Analyze and Report our Results” in the Company’s 2015 Management’s Discussion and Analysis). The 2016 outlook also assumes that the federal charges laid against the Company and its indirect subsidiaries SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. on February 19, 2015, will not have a significant adverse impact on the Company’s business in 2016. If these assumptions are inaccurate, the Company’s actual results could differ materially from those expressed or implied in such forward-looking statements. In addition, important risk factors could cause the Company’s assumptions and estimates to be inaccurate and actual results or events to differ materially from those expressed in or implied by these forward-looking statements. These risks include, but are not limited to: (a) the outcome of pending and future claims and litigation could have a material adverse impact on the Company’s business, financial condition and results of operation; (b) on February 19, 2015, the Company was charged with one count of corruption under the CFPOA and one count of fraud under the Criminal Code (Canada), and is also subject to other ongoing investigations which could subject the Company to criminal and administrative enforcement actions, civil actions and sanctions, fines and other penalties, some of which may be significant. These charges and investigations, and potential results thereof, could harm the Company’s reputation, result in suspension, prohibition or debarment of the Company from participating in certain projects, reduce its revenues and net income and adversely affect its business; (c) further regulatory developments could have a significant adverse impact on the Company’s results, and employee, agent or partner misconduct or failure to comply with anti-bribery and other government laws and regulations could harm the Company’s reputation, reduce its revenues and net income, and subject the Company to criminal and administrative enforcement actions and civil actions; (d) if the Company is not able to successfully execute on its new strategic plan, its business and results of operations would be adversely affected; (e) a negative impact on the Company’s public image could influence its ability to obtain future projects; (f) fixed-price contracts or the Company’s failure to meet contractual schedule or performance requirements may increase the volatility and unpredictability of its revenue and profitability; (g) the Company’s revenue and profitability are largely dependent on the awarding of new contracts, which it does not directly control, and the uncertainty of contract award timing could have an adverse effect on the Company’s ability to match its workforce size with its contract needs; (h) the Company’s backlog is subject to unexpected adjustments and cancellations, including under “termination for convenience” provisions, and does not represent a guarantee of the Company’s future revenues or profitability; (i) SNC-Lavalin is a provider of services to government agencies and is exposed to risks associated with government contracting; (j) the Company’s international operations are exposed to various risks and uncertainties, including unfavourable political environments, weak foreign economies and the exposure to foreign currency risk; (k) there are risks associated with the Company’s ownership interests in Capital that could adversely affect it; (l) the Company is dependent on third parties to complete many of its contracts; (m) the Company’s use of joint ventures and partnerships exposes it to risks and uncertainties, many of which are outside of the Company’s control; (n) the competitive nature of the markets in which the Company does business could adversely affect it; (o) the Company’s project execution activities may result in professional liability or liability for faulty services; (p) the Company could be subject to monetary damages and penalties in connection with professional and engineering reports and opinions that it provides; (q) the Company may not have in place sufficient insurance coverage to satisfy its needs; (r) the Company’s employees work on projects that are inherently dangerous and a failure to maintain a safe work site could result in significant losses and/or an inability to obtain future projects; (s) the Company’s failure to attract and retain qualified personnel could have an adverse effect on its activities; (t) work stoppages, union negotiations and other labour matters could adversely affect the Company; (u) the Company relies on information systems and data in its operations. Failure in the availability or security of the Company’s information systems or in data security could adversely affect its business and results of operations; (v) any acquisition or other investment may present risks or uncertainties; (w) the Company may be unable to successfully integrate the businesses of SNC-Lavalin and Kentz and realize the anticipated benefits of the Acquisition; (x) a deterioration or weakening of the Company’s financial position, including its cash net of recourse debt, would have a material adverse effect on its business and results of operations; (y) the Company may have significant working capital requirements, which if unfunded could negatively impact its business, financial condition and cash flows; (z) an inability of SNC-Lavalin’s clients to fulfill their obligations on a timely basis could adversely affect the Company; (aa) the Company may be required to impair certain of its goodwill, and it may also be required to write down or write off the value of certain of its assets and investments, either of which could have a material adverse impact on the Company’s results of operations and financial condition; (bb) global economic conditions could affect the Company’s client base, partners, subcontractors and suppliers and could materially affect its backlog, revenues, net income and ability to secure and maintain financing; (cc) fluctuations in commodity prices may affect clients’ investment decisions and therefore subject the Company to risks of cancellation, delays in existing work, or changes in the timing and funding of new awards, and may affect the costs of the Company’s projects; (dd) inherent limitations to the Company’s control framework could result in a material misstatement of financial information, and; (ee) environmental laws and regulations expose the Company to certain risks, could increase costs and liabilities and impact demand for the Company’s services. The Company cautions that the foregoing list of factors is not exhaustive. For more information on risks and uncertainties, and assumptions that would cause the Company’s actual results to differ from current expectations, please refer to the sections “Risks and Uncertainties”, “How We Analyze and Report Our Results” and “Critical Accounting Judgments and Key Sources of Estimation Uncertainty” in the Company’s 2015 Management’s Discussion and Analysis.
The forward-looking statements herein reflect the Company’s expectations as at the date of this press release and are subject to change after this date. The Company does not undertake any obligation to update publicly or to revise any such forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable legislation or regulation.
SNC-Lavalin’s Consolidated Financial Statements and Management’s Discussion and Analysis and other relevant financial materials are available in the Investors section of the Company’s website at www.snclavalin.com. These and other Company reports are also available on the website maintained by the Canadian Securities regulators at www.sedar.com.
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