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SNC-Lavalin reports continued earnings improvement in Q1 2016 and record order backlog of $13.4 billion underpins fiscal year outlook
SNC-Lavalin reports continued earnings improvement in Q1 2016 and record order backlog of $13.4 billion underpins fiscal year outlook
May 5, 2016
- Reported Q1 2016 IFRS net income of $122.1 million, or $0.81 per diluted share.
- IFRS net income included a net gain on Capital investment disposals of $51.1 million, or $0.34 per diluted share.
- Q1 2016 adjusted net income from E&C(1) of $57.2 million, or $0.38 per diluted share.
- New orders of $3.4 billion in Q1 2016. Revenue backlog increases to a record of $13.4 billion as at March 31, 2016.
- “STEP Change” program resulted in $38.5 million SG&A expense reduction, an 18.7% decrease versus Q1 2015, with anticipated benefits on track.
- Cash balance remained strong at $1.4 billion.
- 2016 Outlook maintained: adjusted diluted EPS from E&C(2) in the range of $1.50 to $1.70.
SNC-Lavalin Group Inc. (TSX:SNC) announces its results today for the first quarter ended March 31, 2016.
“We are pleased with our first quarter performance; consistent execution is driving sustained earnings improvements across the Company. We are slightly ahead of where we expected to be at this point of the year, with all sectors delivering to plan,” said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. “Despite the turbulent markets and persisting softer economic environment, we successfully increased our backlog to a new record and maintained a strong balance sheet. As we previously indicated, we have just launched our Operational Excellence program which is designed to further improve and sustain a culture of efficiency and execution. This program will help us deliver on our key priority of an annualized adjusted E&C EBITDA margin of 7% in 2017.”
- For Q1 2016, reported IFRS net income increased to $122.1 million, or $0.81 per diluted share, compared with a net income of $104.4 million, or $0.68 per diluted share, for the corresponding period in 2015. Q1 2016 Reported IFRS net income included a net gain after taxes of $51.1 million on Capital investments disposals, $9.2 million after taxes of restructuring charges and $16.8 million after taxes of amortization of intangible assets and integration costs.
- Adjusted net income from E&C(1) for Q1 2016 was $57.2 million, or $0.38 per diluted share.
- Selling, general and administrative (SG&A) expenses in Q1 2016 decreased by 18.7% to $168.1 million, compared with $206.7 million in Q1 2015. This decrease is mainly due to the successful implementation of the “STEP Change” program in 2015.
- Total E&C revenue for the first quarter ended March 31, 2016 was $1.9 billion, compared with $2.2 billion in the first quarter of 2015. The variation was mainly due to decreases in the Infrastructure, Mining & Metallurgy and Power segments, partially offset by an increase in the Oil & Gas segment.
- Net income from Capital for Q1 2016 was $90.9 million, or $0.60 per diluted share, compared with $37.4 million, or $0.24 per diluted share for the corresponding period in 2015. On March 30, 2016, earlier than anticipated, SNC-Lavalin completed the sale of its indirect 15.5% ownership interest in the Malta International Airport p.l.c. for a cash consideration of €64 million, which resulted in a net gain of $53.6 million, or $0.36 per diluted share, in Q1 2016. This demonstrates further our focused and active approach to managing our asset portfolio to optimize shareholder returns.
- The diversified revenue backlog increased at the end of March 2016 to a record of $13.4 billion. New contract awards for the quarter totaled $3.4 billion, including $1.8 billion in the Oil & Gas sector and $1.1 billion in the Power sector.
- The balance sheet remained strong at the end of March 2016 with cash and cash equivalents of $1.4 billion. This balance sheet resilience gives our customers and partners confidence in our ability to deliver on projects.
- At the end of Q1 2016, the Company launched its Operational Excellence program in order to further improve and sustain a culture of efficiency and execution. We are committed to our strategy and actions to deliver consistently improving financial performance. This includes a target of an annualized adjusted E&C EBITDA margin of 7% in 2017. As previously indicated, we will continue to take additional measures throughout the year, if required, to ensure we meet this goal.
The Company is maintaining its previously announced 2016 outlook for the adjusted diluted EPS from E&C(2), which is expected to be in the range of $1.50 to $1.70.
We continue to expect that the Oil & Gas and Power segments will be the main contributors to net income, while Mining & Metallurgy will likely be the smallest contributor to net income. We also expect that the Infrastructure & Construction sub-segment will return to full year profitability in 2016.
The Company is also targeting to deliver an annualized adjusted E&C EBITDA(4) margin of 7% in 2017.
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.
The Board of Directors today declared a cash dividend of $0.26 per share, payable on June 2, 2016, to shareholders of record on May 19, 2016. This dividend is an “eligible dividend” for income tax purposes.
Q1 2016 Results Conference Call / Webcast
SNC-Lavalin will hold a conference call today at 1:30 p.m. EDT to discuss the first 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.
Annual Shareholders’ Meeting / Webcast
SNC-Lavalin will also hold its Annual Shareholders’ Meeting today at 11:00 a.m. EDT at the Palais des congrès, 1001 Place Jean-Paul-Riopelle, Montreal, Quebec. The event will be webcast live, and will be available at http://www.icastpro.ca/esnc160505.
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 engineering, procurement, construction, completions and commissioning services together with a range of sustaining capital services to clients in four industry sectors, 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)||First Quarter|
|Net income attributable to SNC-Lavalin’s shareholders
|Diluted EPS ($)
|Adjusted net income attributable to SNC-Lavalin’s shareholders
|Adjusted diluted EPS ($)
|Adjusted E&C EBITDA
Adjusted E&C EBITDA margin
|Cash and cash equivalents||1,388,390||1,097,765|
Reconciliation of IFRS Net Income as Reported to Adjusted Net Income
|Net income, as reported||Net charges related to the restructuring and right-sizing plan||Acquisition of Kentz||One-time net foreign exchange gain||Net gain on Capital investment disposals||Net income, adjusted|
|Acquisition-related costs and integration costs||Amortization of intangible assets|
First Quarter 2016
Per Diluted share ($)
First Quarter 2015
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. 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 2016-2017 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 2016-2017 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 2016-2017 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 2016-2017. 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 Corruption of Foreign Public Officials Act (Canada)(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 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 investments 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) 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; (x) the Company may have significant working capital requirements, which if unfunded could negatively impact its business, financial condition and cash flows; (y) an inability of SNC-Lavalin’s clients to fulfill their obligations on a timely basis could adversely affect the Company; (z) 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; (aa) 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; (bb) 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; (cc) inherent limitations to the Company’s control framework could result in a material misstatement of financial information, and; (dd) 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 could 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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