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SNC-Lavalin announces its third quarter results for 2015

by ahnationtalk on November 5, 20151060 Views

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SNC-Lavalin announces its third quarter results for 2015

November 5, 2015

2015 Third Quarter Financial Highlights

  • Reported IFRS net income of $224.2 million, or $1.49 per diluted share;
  • Adjusted net income from E&C of $70.6 million, or $0.47 per diluted share;
  • Net gain on an ICI disposal of $145.7 million, or $0.96 per diluted share;
  • Bookings of $2.7 billion, revenue backlog rises to a record high of $12.7 billion;
  • Maintains outlook for 2015 adjusted EPS from E&C;
  • Cash and cash equivalents of $1.5 billion at September 30, 2015;
  • Taking additional action to align cost structure with growth strategy and current end-market conditions.

SNC-Lavalin Group Inc. (TSX: SNC) announces its results today for the third quarter ended September 30, 2015.

“We are pleased with our consolidated third quarter performance, particularly with E&C, which has allowed us to maintain our full year guidance,” said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. “The sale of Ambatovy from our ICI portfolio has given us an additional $0.96 earnings per share in addition to our previous IFRS guidance. Investment in the ICI portfolio has proven to be a successful strategy for the Company not only from an equity returns perspective but has also contributed significant revenues from contracts. While we continue to believe there is tremendous value in the Highway 407 asset, our principal focus right now is on maximizing profitability of the E&C platform. We will update the market in due course on our plans to crystallise value from this important asset. Looking ahead, we will be taking additional measures to align our cost base and operating organisation during the balance of 2015 to ensure that we deliver on our target of an annualised E&C EBITDA margin of 7% in 2017.”

Reported IFRS net income for the third quarter of 2015 was $224.2 million, or $1.49 per diluted share, compared with $60.0 million, or $0.39 per diluted share, for the corresponding period in 2014, due to a higher adjusted net income from E&C(1), a net gain on disposal of an ICI and lower costs relating to the Kentz acquisition, partially offset by lower adjusted net income from ICI(2).

Adjusted net income from E&C for the third quarter of 2015 increased to $70.6 million, or $0.47 per diluted share, compared with $27.6 million, or $0.18 per diluted share, for the corresponding period in 2014. The increase is mainly due to higher contributions from the Oil & Gas segment and the Operations & Maintenance sub-segment, as well as a positive contribution from the Infrastructure & Construction sub-segment, compared with a negative contribution for the third quarter of 2014.

In the third quarter of 2015, the Company continued to make good progress on its strategy of crystallising value from its mature concessions by selling its interest in Madagascar’s Ambatovy nickel project. SNC-Lavalin recognized a net gain on this disposal of $145.7 million, or $0.96 per diluted share. Adjusted net income from ICI for the third quarter of 2015, which excludes this net gain, decreased to $45.2 million, or $0.31 per diluted share, compared with $92.1 million, or $0.60 per diluted share for the corresponding period in 2014. The variance was mainly due to the disposal of AltaLink in 2014, resulting in no net income in 2015, partially offset by a higher dividend received from Highway 407.

Revenue backlog at the end of September 2015 rose to a record high $12.7 billion, compared with $12.5 billion at the end of September 2014 and $12.3 billion at the end of December 2014. New awards for the quarter were $2.7 billion, including $1.6 billion in Infrastructure and $0.6 billion in Oil & Gas.

Total revenues increased for the third quarter of 2015 by 21% to $2.4 billion, compared with the third quarter of 2014, mainly due to an increase in the Infrastructure & Construction sub-segment and the Oil & Gas segment, for which incremental revenues were generated by Kentz. In addition, revenues increased in the Power segment, as the Company is no longer required to eliminate E&C revenues generated between the Company and AltaLink, post its disposal in the fourth quarter of 2014. These increases were partially offset by a decrease in ICI revenues, principally due to the disposal of our AltaLink investment.

SNC-Lavalin’s cash and cash equivalents at quarter end was $1.5 billion.

Year-to-Date Results
Reported IFRS net income for the first nine months of 2015 was $355.1 million, or $2.35 per diluted share, compared with $186.7 million, or $1.22 per diluted share, for the corresponding period in 2014, due to higher adjusted net income from E&C, a $145.7 million net gain on disposal of an ICI and a $32.6 million one-time net foreign exchange gain, partially offset by a lower adjusted net income from ICI. The increase in the adjusted net income from E&C was mainly due to a higher segment EBIT(4) from Oil & Gas, for which an incremental contribution was generated by Kentz. The decrease in the adjusted net income from ICI was mainly due to the disposal of AltaLink in 2014, which is no longer contributing in 2015, partially offset by higher dividends received from Highway 407.

Revenues for the first nine months of 2015 increased by 28% to $6.9 billion, mainly due to an increase in the Oil & Gas and Power segments, for the same reasons explained above, partially offset by a decrease in the Infrastructure & Construction and Operations & Maintenance sub-segments, as well as a decrease in ICI revenues, principally due to the disposal of our AltaLink investment.

During the nine-month period ended September 30, 2015, the Company repurchased approximately 2.8 million of its common shares for $121.8 million under its Normal Course Issuer Bid (“NCIB”), and paid $113.4 million in dividends to shareholders.

Restructuring and right-sizing plan
In the first nine months of 2015, the Company recorded $21.6 million ($16.6 million after taxes) of charges relating to its previously announced restructuring and right-sizing plan. The persisting softer economic environment requires us to extend our restructuring efforts to further improve our operational efficiency and reduce our cost base by the end of 2015. Building on the cost reduction program initiated by previous management, we have launched our “STEP Change” program.

The “STEP Change” program is designed to make us more agile, customer facing and allow us to further improve operational efficiency, including a realignment of our corporate and operating organisation. It will also make us more competitive and provide better value to our clients. Consequently, we now expect to spend a further approximate amount of $50 million (after taxes) in addition to the $40 million announced in the second quarter of 2015. Of this latter figure, approximately $10 million has already been incurred in the third quarter of 2015. These additional costs are now expected to be recognized in the fourth quarter of 2015. We aim to deliver an annualised E&C EBITDA margin of 7% in 2017 and we will continue to take any additional measures throughout 2016 to ensure we do not deviate from this important priority, while continuing to invest in our client facing teams and world class execution capability.

Outlook
The Company expects that its 2015 outlook for adjusted EPS from E&C(3) will be at the lower end of the previously announced range of $1.30 to $1.60.

The adjusted EPS from E&C guidance excludes a one-time net foreign exchange gain of $33 million (after taxes) recorded in the first quarter of 2015, charges related to the restructuring and right-sizing plan, as well as amortization of intangible assets and acquisition-related costs and integration costs incurred in connection with the acquisition of Kentz in 2014. The amortization is now expected to result in an after-tax expense of approximately $70 million, while charges related to the original restructuring and right-sizing and “STEP Change” plans and acquisition and integration costs are now expected to be approximately $110 million (after taxes).

The 2015 outlook is principally based on the expectation that the Oil & Gas and Power segments will be the main contributors to net income, while the Infrastructure & Construction sub-segment will be the lowest contributor.

The Company is increasing its 2015 outlook range for the reported IFRS EPS to $2.40 to $2.70, from its previous guidance of $1.80 to $2.10, mainly due to the third quarter net gain on disposal of an ICI, partially offset by additional charges related to the newly initiated “STEP Change” plan.

The above outlook continues to be based on the assumptions and methodology described in the Company’s 2014 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.

Quarterly Dividend
The Board of Directors today declared a cash dividend of $0.25 per share, payable on December 3, 2015, to shareholders of record on November 19, 2015. 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 third 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 0614 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.

About SNC-Lavalin
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 2014 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. Adjusted net income from E&C is a non-IFRS financial measure which is an indicator of the entity’s financial performance of its E&C activities. 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 Figure 1 below for reconciliation.

(2) Adjusted net income from ICI is defined as net income attributable to SNC-Lavalin shareholders from ICI, excluding net gain or loss on ICI disposals. The term “Adjusted net income from ICI” does not have any standardized meaning under IFRS. Therefore, it may not be comparable to similar measures presented by other issuers. Adjusted net income from ICI is a non-IFRS financial measure which is an indicator of the entity’s financial performance of its ICI activities. 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 Figure 1 below for reconciliation.

(3) Adjusted EPS from E&C is defined as the adjusted net income from E&C per SNC-Lavalin common share.

(4) Segment EBIT is defined herein as gross margin less i) directly related selling, general and administrative expenses; and ii) non-controlling interests before taxes. Corporate selling, general and administrative expenses not directly related to projects or segments, restructuring costs, goodwill impairment, acquisition-related costs and integration costs, as well as 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. Segment EBIT is a non-IFRS financial measure which is an indicator of the entity’s capacity to generate income from operations before taking into account management’s financing decisions. 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.

(5) EBITDA is defined herein as earnings before net financial expenses (income), income taxes, depreciation and amortization. The term 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.

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