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SNC-Lavalin grows backlog to $15.2 billion and reports second quarter results for 2018

by ahnationtalk on August 3, 2018249 Views

SNC-Lavalin grows backlog to $15.2 billion and reports second quarter results for 2018

  • Reported Q2 2018 IFRS net income attributable to SNC-Lavalin shareholders of $83.0 million, or $0.47 per diluted share, which included a net expense of $88 million ($64.5 million after taxes) to settle the 2012 class action lawsuits. It also included a net gain on disposal of a Capital investment of $62.7 million ($58.4 million after taxes).
  • Q2 2018 adjusted net income from E&C(1) of $113.5 million, up 77.0%, (or $0.65 per diluted share, up 51.2%), compared to Q2 2017.
  • Reported Q2 2018 EBITDA of $187.8 million, compared to $174.0 million in Q2 2017.
  • Adjusted E&C EBITDA(7) more than doubled to $189.7 million, compared to $86.8 million in Q2 2017.
    • Continued strong adjusted E&C EBITDA(7) margin performance of 7.7% in Q2 2018, up from 4.6% in Q2 2017. 
  • Strong backlog(8) of $15.2 billion at the end of June 2018, compared to $10.4 billion at year end, up 45.8%. 
  • 2018 Outlook maintained: adjusted diluted EPS from E&C(2) in the range of $2.60 to $2.85 and adjusted consolidated diluted EPS(5) in the range of $3.60 to $3.85.

SNC-Lavalin Group Inc. (TSX:SNC) today announces its results for the second quarter ended June 30, 2018.

“We are very pleased with our first six months performance, which is in line with our expectations and reached a milestone of over $15 billion of backlog,” said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. “We are entering the third quarter of 2018 with a strong backlog, a number of recently signed master service agreements and a high quality prospects list across our key sectors and geographies; poised for a strong second half of 2018. The integration of Atkins business continues to progress well and we have been able to share technologies, data and knowledge that is improving and broadening our services to clients.” 

  • Q2 2018 reported IFRS net income attributable to SNC-Lavalin shareholders was $83.0 million, or $0.47 per diluted share, compared with $136.4 million, or $0.91 per diluted share, for the corresponding period in 2017. Q2 2018 included the settlement of class action lawsuits, brought in 2012, to which the Company will contribute $88 million ($64.5 million after taxes), a net gain on the successful disposal of a Capital investment of $58.4 million (after taxes), acquisition-related and integration costs of $10.3 million (after taxes) and amortization of intangible assets related to business combinations of $43.7 million (after taxes).
  • Adjusted net income from E&C(1) increased to $113.5 million in Q2 2018, or $0.65 per diluted share, compared with $64.2 million, or $0.43 per diluted share for Q2 2017, mainly due to a higher total Segment EBIT(6), partially offset by an increase in financial expenses, largely attributable to the financing of the Atkins acquisition, and an increase in income taxes expense. On a segmented basis, the Thermal Power segment recorded a negative Segment EBIT(6) totaling $11.1 million in Q2 2018, compared to a positive Segment EBIT(6) in Q2 2017. As previously stated, the Company made the strategic decision to exit the thermal power market, and this loss mainly relates to the Company’s last ongoing fixed price engineering, procurement and construction (EPC) thermal power plant project. The Nuclear, EDPM and Infrastructure segments had a strong quarter, with a 17%, 12% and 5% Segment EBIT(6) margin, respectively, mainly due to strong project execution and demand.
  • Atkins operational integration is complete and we continue to deliver the cost synergies through the year. The Company remains on track to deliver cost synergies of $120 million from this acquisition by the end of 2018. We are seeing good opportunities with clients for longer term revenue synergies, and recently announced a framework agreement award that included services from both legacy Atkins and SNC-Lavalin.
  • Adjusted net income from Capital(3) totaled $41.4 million in Q2 2018, or $0.24 per diluted share, compared with $43.6 million, or $0.29 per diluted share for the corresponding period in 2017, mainly due to a lower contribution from certain capital investments, partially offset by an increase in dividends received from Highway 407 ETR.
  • E&C revenue for the second quarter ended June 30, 2018 increased to $2.5 billion, compared with $1.9 billion in the second quarter of 2017. The increase was mainly due to the EDPM and Nuclear segments, largely attributable to the incremental revenues from Atkins which was acquired in Q3 2017, partially offset by a decrease in the Oil & Gas and Thermal segments.
  • The Company’s backlog(8) totaled $15.2 billion as at June 30, 2018. Total bookings for the second quarter amounted to $4.1 billion, totaling $6.2 billion for the six-month period ended June 30, 2018. Q2 2018 bookings included $2.3 billion in Infrastructure and $1.0 billion in EDPM.
  • As of June 30, 2018, the Company continues to maintain appropriate liquidity with $0.7 billion of cash and cash equivalents, $2.2 billion of recourse debt and $2.1 billion in unused capacity under its $2.6 billion committed revolving credit facility, while the net recourse debt to adjusted EBITDA ratio(9) was 1.6. During the second quarter, the Company amended and restated its credit agreement, making available $500 million under a new 5-year non-revolving Term Loan, which was used to repay tranche B of its limited recourse CDPQ Loan in full. The Company also issued $150 million of unsecured debentures for which the net proceeds were used to repay certain outstanding indebtedness.

2018 Outlook

The Company maintains its 2018 outlook for the adjusted diluted EPS from E&C(2), which is expected to be in the range of $2.60 to $2.85, as well as for the adjusted consolidated diluted EPS(5) in the range of $3.60 to $3.85. As a result of project activity level and awards timing, we expect a stronger adjusted diluted EPS from E&C(2) in the second half of 2018 than in the first half. We also expect that the adjusted diluted EPS E&C(2) in Q4 will be stronger than Q3, which should be similar to Q2.

While we expect continuing market challenges in 2018 in certain of the Company’s sectors, we anticipate benefiting from Atkins synergies and restructuring savings. As such, we expect growth in the Company’s total Segment EBIT(6) in 2018, compared with 2017. Segment EBIT(6) for the EDPM, Mining & Metallurgy, Nuclear and Thermal Power segments are expected to increase, while the Oil & Gas and Infrastructure segments are expected to be mainly in line compared to 2017 with Clean Power to be slightly lower. Note that the 2018 outlook will include twelve months of Atkins’ operations and related financing, compared to approximately six months in 2017. It also assumes a weighted average number of outstanding shares of approximately 175 million. The tax rate for the adjusted E&C business is expected to be between 20% and 25%.

This outlook is based on the assumptions and methodology described in the Company’s 2017 Management’s Discussion and Analysis under the heading, “How We Budget and Forecast Our Results” and 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 $0.287 per share, payable on August 30, 2018, to shareholders of record on August 16, 2018. This dividend is an “eligible dividend” for income tax purposes.

Potential sale of a portion of Highway 407 ETR

  • SNC-Lavalin has engaged CIBC Capital Markets and RBC Capital Markets as its financial advisors to assist the Company with a potential sale of a portion (6.76%) of its investment in Highway 407 ETR to further create shareholder value. The potential divestiture could be in the form of a direct sale or another type of transaction.
  • As we continue to make progress on delivering on our strategic objectives and continue to review our capital allocation strategy, we have determined that now is a good time to consider this transaction. We believe that the value realized through this potential transaction will demonstrate and augment the valuation of our Capital investments and will, concurrently, help the market to value SNC-Lavalin’s E&C business more accurately.
  • There can be no assurance that the process being undertaken will result in a transaction. Determination as to how the proceeds of any transaction will be used will be made at the time of a transaction based on the Company’s cash requirements and capital allocation strategy.

Q2 2018 Results Conference Call / Webcast

SNC-Lavalin will hold a conference call today at 3:00 p.m. EDT to review results for its second quarter. To join the conference call, please dial toll free at 1 800 281 7973 in North America, 647 794 1827 in Toronto, 438 968 3557 in Montreal, or 080 0358 6377 in the United Kingdom. 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.

Non-IFRS Financial Measures and Additional IFRS Measures

The Company reports its financial results in accordance with IFRS. However, the following non-IFRS measures and additional IFRS measures are used by the Company: Adjusted net income from E&C, Adjusted diluted EPS from E&C, Adjusted net income from Capital, Adjusted diluted EPS from Capital, Adjusted consolidated diluted EPS, EBITDA, Adjusted E&C EBITDA, Segment EBIT and 2017 backlog. Additional details for these non-IFRS measures and additional IFRS measures can be found below and in SNC-Lavalin’s MD&A, which is available in the Investors section of the Company’s website at www.snclavalin.com. Non-IFRS financial measures do not have any standardized meaning as prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS, these non-IFRS measures provide additional insight into the Company’s financial results and certain investors may use this information to evaluate the Company’s performance from period to period. However, these non-IFRS financial measures have limitations and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

About SNC-Lavalin

Founded in 1911, SNC-Lavalin is a global fully integrated professional services and project management company and a major player in the ownership of infrastructure. From offices around the world, SNC-Lavalin’s employees are proud to build what matters. Our teams provide comprehensive end-to-end project solutions – including capital investment, consulting, design, engineering, construction, sustaining capital and operations and maintenance – to clients across oil and gas, mining and metallurgy, infrastructure, clean power, nuclear and EDPM (engineering, design and project management). On July 3, 2017, SNC-Lavalin acquired Atkins, one of the world’s most respected design, engineering and project management consultancies, which has been integrated into our sectors. www.snclavalin.com

(1) Adjusted net income from E&C is defined as net income attributable to SNC-Lavalin shareholders from E&C, excluding charges related to restructuring, right-sizing and other, acquisition-related costs and integration costs, impact of U.S. corporate tax reform as well as amortization of intangible assets related to business combinations, net expense for the 2012 class action lawsuits settlement and the gains (losses) on disposals of E&C businesses and the head office building. E&C is defined in the Company’s 2017 financial statements and Management’s Discussion and Analysis. The term “Adjusted net income from E&C” does not have any standardized meaning as prescribed by 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 diluted weighted average number of outstanding shares for the period.

(3) Adjusted net income from Capital is defined as net income attributable to SNC-Lavalin shareholders from Capital, excluding the gains on disposals of Capital Investments.

(4) Adjusted diluted EPS from Capital is defined as the adjusted net income from Capital divided by the diluted weighted average number of outstanding shares for the period.

(5) Adjusted consolidated diluted EPS is defined as the adjusted net income from E&C plus the adjusted net income from Capital divided by the diluted weighted average number of outstanding shares for the period.

(6) Segment EBIT consists of revenues less i) direct costs of activities, ii) directly related selling, general and administrative expenses, iii) corporate selling, general and administrative expenses that are allocated to segments; and iv) non-controlling interests before taxes. Expenses that are not allocated to the Company’s segments include: certain corporate selling, general and administrative expenses that are not directly related to projects or segments, impairment loss arising from expected credit losses, gain (loss) arising on financial assets at fair value through profit or loss, restructuring costs, goodwill impairment, acquisition-related costs and integration costs, and amortization of intangible assets related to business combinations, the net class action lawsuits settlement expense, as well as gains (losses) on disposals of E&C businesses, Capital investments and the head office building. The term “Segment EBIT” does not have any standardized meaning as prescribed by 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.

(7) Adjusted E&C EBITDA is defined herein as earnings from E&C before net financial expenses (income), income taxes, depreciation and amortization, and excludes charges related to restructuring, right-sizing and other, acquisition-related costs and integration costs, net expense for the 2012 class action lawsuits settlement, as well as the gains (losses) on disposals of E&C businesses and head office building. The term “Adjusted E&C EBITDA” does not have any standardized meaning as prescribed by 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. 

(8) In 2018, backlog represents the Remaining Performance Obligations, an IFRS measure, and is defined as a forward-looking indicator of anticipated revenues to be recognized by the Company, determined based on contract awards that are firm and amounting to the transaction price allocated to remaining performance obligations. Management could be required to make estimates regarding the revenue to be generated for long-term firm reimbursable contracts. In 2017, backlog did not have any standardized meaning as prescribed by IFRS and represented a forward-looking indicator of anticipated revenues to be recognized by the Company, determined based on contract awards that are considered firm. Management could be required to make estimates regarding the revenue to be generated for long-term firm reimbursable contracts. In order to provide information that is comparable to the backlog of other categories of activity, the Company limited the O&M activities backlog, which can cover a period of up to 40 years, to the earlier of: i) the contract term awarded; and ii) the next five years. 

(9) Net recourse debt to adjusted EBITDA ratio is defined herein as the net recourse debt divided by the trailing 12-months adjusted EBITDA, less interest on limited recourse debt. The term “Net recourse to adjusted EBITDA ratio” does not have any standardized meaning as prescribed by 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) Second Quarter Six months ended June 30
2018 2017 2018 2017
       
Revenues      
From E&C 2,469,920 1,868,161 4,837,117 3,656,485
From Capital 57,199 66,712 121,396 127,658
  2,527,119 1,934,873 4,958,513 3,784,143
     
Net income (loss) attributable to SNC-Lavalin’s shareholders
From E&C
  (16,809)   87,356   14,732   132,693
From Capital 99,820 49,034 146,351 93,410
  83,011 136,390 161,083 226,103
     
Diluted EPS ($)
From E&C
From Capital
  (0.10)
0.57
  0.58
0.33
  0.08
0.83
  0.88
0.62
  0.47 0.91 0.92 1.50
       
     
Adjusted net income attributable to SNC-Lavalin’s shareholders
From E&C(1)
From Capital(3)
    113,537
41,415
    64,160
43,632
    203,014
87,946
    124,884
88,007
  154,952 107,792 290,960 212,891
     
Adjusted diluted EPS ($)
From E&C(2)
From Capital(4)
  0.65
0.23
  0.43
0.29
  1.16
0.50
  0.83
0.59
  0.88 0.72 1.66 1.42
Adjusted E&C EBITDA(7)
Adjusted E&C EBITDA margin
  189,724
7.7%
  86,849
4.6%
  367,040
7.6%
  186,840
5.1%
       
       
Backlog(8)   15,174,800 9,576,600
       
Cash and cash equivalents   721,408 737,361
Recourse debt     2,177,921   349,487

Note that certain totals and subtotals may not reconcile due to rounding

Reconciliation of IFRS Net Income as Reported to Adjusted Net Income

Net income (loss), as reported (IFRS) Net charges related to restructuring & right-sizing plan and other Acquisition Net loss (gain) on disposals of E&C business and Capital investment Net expense for the 2012 class action lawsuits settlement Impact of U.S. corporate tax reform Net income, adjusted (Non-IFRS)
Acquisition-related costs and integration costs Amortization of intangible assets related to business combinations
  Second Quarter 2018
In M$
E&C (16.8) 6.7* 10.3 43.7 0.2 64.5 4.8 113.5
Capital 99.8 (58.4) 41.4
83.0 6.7 10.3 43.7 (58.1) 64.5 4.8 154.9
Per Diluted share ($)
E&C (0.10) 0.04 0.06 0.25 0.00 0.37 0.03 0.65
Capital 0.57 (0.33) 0.24
0.47 0.04 0.06 0.25 (0.33) 0.37 0.03 0.89
  Six Months Ended June 30, 2018
In M$
E&C 14.7 8.0 18.7 90.6 0.3 64.5 6.2 203.0
Capital 146.4 (58.4) 87.9
161.1 8.0 18.7 90.6 (58.1) 64.5 6.2 290.9
Per Diluted share ($)
E&C 0.08 0.05 0.11 0.52 0.00 0.37 0.04 1.16
Capital 0.83 (0.33) 0.50
0.92 0.05 0.11 0.52 (0.33) 0.37 0.04 1.66

Note that certain totals and subtotals may not reconcile due to rounding
*This amount included $6.9 million ($5.6 million after taxes) of net charges which did not meet the restructuring costs definition in accordance with IFRS.

Net income, as reported (IFRS) Net charges related to the restructuring & right-sizing plan  and other Acquisition Net gain on  disposals of E&C business, head office building, and Capital investment Net income,  adjusted   (Non-IFRS)
Acquisition-related costs and integration costs Amortization of intangible assets related to Kentz

 Second Quarter 2017

In M$

E&C 87.4 22.6* 44.5 11.5 (101.8) 64.2
Capital 49.0 (5.4) 43.6
136.4 22.6 44.5 11.5 (107.2) 107.8
Per Diluted share ($)
E&C 0.58 0.15 0.30 0.08 (0.68) 0.43
Capital 0.33 (0.04) 0.29
0.91 0.15 0.30 0.08 (0.72) 0.72

Six Months Ended June 30, 2017

In M$

E&C 132.7 25.2 45.6 23.8 (102.4) 124.9
Capital 93.4 (5.4) 88.0
226.1 25.2 45.6 23.8 (107.8) 212.9
Per Diluted share ($)
E&C 0.88 0.17 0.31 0.16 (0.68) 0.83
Capital 0.62 (0.04) 0.59
1.50 0.17 0.31 0.16 (0.72) 1.42

Note that certain totals and subtotals may not reconcile due to rounding
*This amount included $4.0 million ($5.0 million after taxes) of net charges which did not meet the restructuring costs definition in accordance with IFRS.

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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