SNC-Lavalin announces its third quarter results for 2016, with an adjusted EPS from E&C of $0.16 and a 16% decrease in SG&A expenses

by ahnationtalk on November 3, 2016585 Views

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SNC-Lavalin announces its third quarter results for 2016, with an adjusted EPS from E&C of $0.16 and a 16% decrease in SG&A expenses

November 3, 2016

  • Reported Q3 2016 IFRS net income of $43.3 million, or $0.29 per diluted share.
  • Q3 2016 adjusted net income from E&C(1) of $24.4 million, or $0.16 per diluted share.
  • SG&A expenses decreased by 16.5%, on a like-for-like basis, versus Q3 2015. Year-to-date SG&A expenses were lower by $95.3 million on the same basis, close to achieving the Company’s announced full year targeted savings. 
  • Strong diversified revenue backlog of $11.8 billion as at September 30, 2016. 
  • 2016 Outlook maintained: adjusted diluted EPS from E&C(2) in the range of $1.30 to $1.60.

SNC-Lavalin Group Inc. (TSX:SNC) announces its results today for the third quarter ended September 30, 2016.

“After several quarters of sustained earnings improvements and cost reductions, we encountered a setback in the third quarter, with significant cost and revenue reforecasts on two Oil & Gas projects operating under the same contract. Despite this setback, our 2017 target remains the same and our “Operational Excellence” program continues to progress well. We continue to deploy efforts throughout our organization to ensure consistency of execution so that we deliver sustained earnings improvements,” said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. “Other than the isolated circumstances in our Oil & Gas sector, we are pleased with the third quarter results of the other three sectors, particularly Infrastructure. Infrastructure continues to perform well, with major projects progressing ahead of expectation. We have a strong balance sheet and remain confident about the increasing quality of our diversified backlog.”

  • For Q3 2016, reported IFRS net income was $43.3 million, or $0.29 per diluted share, compared to a net income of $224.2 million, or $1.49 per diluted share, for the corresponding period in 2015, which included a net gain on a Capital investment disposal of $145.7 million, or $0.96 per diluted share.
  • Adjusted net income from E&C(1) for Q3 2016 was $24.4 million, or $0.16 per diluted share, compared to $70.6 million, or $0.47 per diluted share, for the corresponding period in 2015. As expected following our announcement on September 29, 2016, the decrease was mainly due to a negative Segment EBIT(3) in the Oil & Gas segment, following unfavorable cost and revenue reforecasts on two Oil & Gas projects in the Middle East, operating under the same contract.
  • Adjusted net income from Capital for Q3 2016 was $42.6 million, or $0.29 per diluted share, compared with $45.2 million, or $0.31 per diluted share for the corresponding period in 2015, as the increase in dividends from Highway 407 was offset by an increase in business development expenses on new prospects and other SG&A.
  • Total selling, general and administrative (SG&A) expenses in Q3 2016 decreased by 32.1%, compared to Q3 2015. This decrease includes a $32.5 million favorable impact from revised estimates on legacy sites environmental liabilities and other asset retirement obligations. On a like-for-like basis, i.e. excluding this favorable impact, total SG&A expenses decreased by 16.5% compared to Q3 2015. On the same basis, for the nine month period ended September 30, 2016, SG&A expenses were $95.3 million lower than the corresponding period in 2015, positioning us to deliver well above our target of $100 million reduction for the full year. We will continue to take additional measures, if required, to ensure we are as cost effective as possible.
  • Adjusted E&C EBITDA(4) margin was 2.2% in Q3 2016, compared to 5.8% in Q3 2015. Year-to-date Adjusted E&C EBITDA(4) margin for 2016 was 4.3%, in line with the corresponding period of 2015.
  • Total E&C revenue for Q3 2016 was $2.1 billion, compared with $2.4 billion in Q3 2015. The variation was mainly due to a decrease in the Mining & Metallurgy segment, as it continues to be affected by the persistent softer commodity prices, and in Oil & Gas, which despite having delivered its strongest quarter of 2016, had revenues lower than Q3 2015.
  • The revenue backlog totaled $11.8 billion at the end of September 2016. New contract awards for the third quarter amounted to $1.3 billion, totaling $5.9 billion for the nine month period ended September 30, 2016.
  • The balance sheet remained strong at the end of September 2016 with cash and cash equivalents at $0.9 billion.
  • The “Operational Excellence” program, which we launched at the end of Q1 2016, continues to progress well as we further improve our efficiency and execution. We have identified many initiatives that are progressing at various stages. Some have been completed, such as the IT outsourcing; some are in progress, such as the sale of non-core businesses; and others will be launched soon, such as a review of our owned real estate portfolio.
Outlook

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 $1.30 to $1.60.

We expect that the Oil & Gas and Infrastructure segments will be the main contributors to net income, while Mining & Metallurgy will likely be the smallest contributor to net income.

SNC-Lavalin remains confident in its diversified business model and continues to target an adjusted E&C EBITDA(4) margin of 7% in 2017, mainly due to actions taken in the last 12 months through its “Step Change” and “Operational Excellence” programs.

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.

Quarterly Dividend

The Board of Directors today declared a cash dividend of $0.26 per share, payable on December 1, 2016, to shareholders of record on November 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. EDT 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 0613 in Montreal, 080 0279 0444 in the United Kingdom, and 180 099 2284 in Ireland. Members of the media are welcome to participate on a listen-only basis. 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 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 and other, 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 number of outstanding 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 related to the Kentz acquisition 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 and other, 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.

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