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SNC-Lavalin reports first quarter results for 2018 and reconfirms its ambitious full year outlook

by ahnationtalk on May 3, 2018348 Views

SNC-Lavalin reports first quarter results for 2018 and reconfirms its ambitious full year outlook

  • Reported Q1 2018 IFRS net income attributable to SNC-Lavalin shareholders of $78.1 million, or $0.44 per diluted share.
    • Q1 2018 adjusted net income from E&C(1) of $89.5 million, up 47.4%, (or $0.51 per diluted share, up 27.5%), compared to Q1 2017. 
  • Reported Q1 2018 EBITDA was up 47.0% to $213.9 million, compared to Q1 2017.
    • Continued strong adjusted E&C EBITDA(7) margin performance of 7.5% in Q1 2018, up from 5.6% in Q1 2017. 
  • 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 first quarter ended March 31, 2018.

“We are pleased with our first quarter performance, which is in line with our expectations,” said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. “We are also very pleased to be starting 2018 with an enhanced global structure. The Atkins acquisition provided us with the opportunity to better align our organizational structure with client needs worldwide and to capitalize on our expanded global presence, strengths and long-term growth potential. We have created two new global sectors, Nuclear and Clean Power, decided to exit the Thermal Power business, and consolidated Atkins’ industry-leading front-end competencies into a new Engineering, Design, and Project Management sector. This strategic realignment, which allows us to serve our clients worldwide even more effectively, combined with our high-quality and diversified projects pipeline, better service mix, and extensive digital expertise, position us well to achieve our growth agenda.” 

  • Q1 2018 reported IFRS net income attributable to SNC-Lavalin shareholders was $78.1 million, or $0.44 per diluted share, compared with $89.7 million, or $0.60 per diluted share, for the corresponding period in 2017. Q1 2018 included acquisition-related and integration costs of $8.4 million (after taxes) and amortization of intangible assets related to business combinations of $46.8 million (after taxes).
  • Following the successful completion of the Atkins integration plan and as previously announced in 2017, the Company has made, effective January 1, 2018, a strategic alignment of its business aimed to more effectively serve its clients worldwide, across its main sectors and global markets. The segment disclosure note in the Company’s financial statements has been adjusted accordingly and comparable numbers restated.
  • Adjusted net income from E&C(1) increased to $89.5 million in Q1 2018, or $0.51 per diluted share, compared with $60.7 million, or $0.40 per diluted share for Q1 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. On a segmented basis, the Engineering, Design, Project Management (EDPM) segment, formerly Atkins, had another strong quarter and delivered a $80.7 million Segment EBIT(6) in Q1 2018 with a 10.3% Segment EBIT(6) margin, while the Thermal Power segment recorded a lower negative Segment EBIT(6) totaling $11.0 million in Q1 2018, mainly due to an unfavorable cost reforecast on the Company’s last ongoing fixed price engineering, procurement and construction (EPC) thermal power plant project. As previously stated, the Company has decided to exit the thermal power market.
  • Atkins integration continues to progress very well and the Company remains on track to deliver cost synergies of $120 million from this acquisition by the end of 2018.
  • Adjusted net income from Capital(3) increased to $46.5 million in Q1 2018, or $0.26 per diluted share, compared with $44.4 million, or $0.30 per diluted share for the corresponding period in 2017, mainly due to an increase in dividends received from Highway 407 ETR, partially offset by a lower contribution from certain capital investments, including the investments transferred to SNC-Lavalin Infrastructure Partners LP, which was partly sold in September 2017.
  • E&C revenue for the first quarter ended March 31, 2018 increased to $2.4 billion, compared with $1.8 billion in the first quarter of 2017. The increase was mainly due to a $0.7 billion incremental revenue in the EDPM segment, following the acquisition of Atkins, partially offset by a decrease in the Oil & Gas segment. The decrease in Oil & Gas was mainly due to lower revenues from certain major projects which are nearing completion, notably in the LNG sector in Australia, partially offset by higher revenues from sustaining capital projects awarded in 2016 and 2017 in the Middle East.
  • Effective January 1, 2018, the Company’s revenue backlog was replaced by the measure of Remaining performance obligations(10) (RPO), which is based on IFRS 15 “Revenue from contracts with customers”. Based on this standard, the Company’s RPO totaled $13.5 billion as at March 31, 2018. The $3.4 billion positive adjustment between the closing balance of revenue backlog as at December 31, 2017 and the opening balance of the RPO as at January 1, 2018 mainly reflects the inclusion of the full term of the Company’s Operation & Maintenance signed long-term contracts, partially offset by the exclusion of the anticipated volume of work for which no formal purchase orders or work orders have yet been issued, mainly in Oil & Gas. Total E&C bookings for the first quarter, excluding the IFRS 15 adjustment, amounted to $2.1 billion, including $1.0 billion in EDPM, $0.5 billion in Oil & Gas and $0.3 billion in Infrastructure. It is important to note that the awarded contracts in April 2018 for the Réseau Express Métropolitain (REM) project for the EPC work on Montreal’s new light rail transit system, and the related provision of rolling stock, systems and operation and maintenance (RSSOM) have not been included in the March 31, 2018 balance. The Company expects that these contracts would be added to the RPO in Q2 2018 and should represent approximately $1.9 billion.
  • As of March 31, 2018, the Company continues to maintain adequate liquidity with $0.6 billion of cash and cash equivalents, $1.5 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 1.1. On April 30, 2018, the Company amended and restated its Credit Agreement for the main purpose of making available a new 5-year non-revolving term loan in the principal amount of $500 million. The net proceeds from the issuance of this term loan were used to repay in full tranche B of its CDPQ Loan.

2018 Outlook

The Company is maintaining its previously announced 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 previously announced, due to some seasonality in the E&C business, we expect a gradual increase in the adjusted diluted EPS throughout the remainder of the year.

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 May 31, 2018, to shareholders of record on May 17, 2018. This dividend is an “eligible dividend” for income tax purposes.

Q1 2018 Results Conference Call / Webcast

SNC-Lavalin will hold a conference call today at 3:00 p.m. (Eastern Time) to review results for its first 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.

Annual Shareholders’ Meeting / Webcast

SNC-Lavalin will also hold its Annual Shareholders’ Meeting today at 11:00 a.m. (Eastern Time) at the Palais des congrès, located at 1001 Place Jean-Paul-Riopelle, Montreal, Quebec, Canada. The event will be webcast live, and will be available at https://www.icastpro.ca/esnc180503.

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 Revenue 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 under 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, and the gains (losses) on disposals of E&C businesses. 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 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 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 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, 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, 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 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.

(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, as well as the gains (losses) on disposals of E&C businesses and Capital investments. 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. 

(8) Revenue Backlog is 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 revenue backlog of other categories of activity, the company limits the O&M activities revenue 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. This non-IFRS measure has been replaced in 2018, with the measure of remaining performance obligations, an IFRS measure.

(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 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.

(10) The Remaining performance obligations 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.

SNC-Lavalin Financial Summary

(in thousands of Canadian dollars, unless otherwise indicated)   First Quarter
  2018   2017
   
Revenues  
From E&C 2,367,197 1,788,324
From Capital 64,197 60,946
  2,431,394 1,849,270
 
Net income attributable to SNC-Lavalin’s shareholders
From E&C
  31,541   45,338
From Capital 46,531 44,376
  78,072 89,714
   
Diluted EPS ($)
From E&C
From Capital
  0.18
0.26
  0.30
0.30
  0.44 0.60
     
   
Adjusted net income attributable to SNC-Lavalin’s shareholders
From E&C(1)
From Capital(3)
  89,477
46,531
  60,724
44,376
  136,008 105,100
   
Adjusted diluted EPS ($)
From E&C(2)
From Capital(4)
  0.51
0.26
  0.40
0.30
  0.77 0.70
Adjusted E&C EBITDA(7)
Adjusted E&C EBITDA margin
  177,316
7.5%
  99,991
5.6%
     
     
RPO(10) / Revenue backlog(8) 13,511,800 10,078,700
     
Cash and cash equivalents 646,837 810,533
Recourse long-term debt   1,542,644   349,428

Reconciliation of IFRS Net Income as Reported to Adjusted Net Income

Net income, as reported Net charges related to the restructuring & right-sizing plan and other Acquisition Net gain on disposals of E&C business 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
  First Quarter 2018
In M$
E&C 31.6 1.3 8.4 46.8 1.4 89.5
Capital 46.5 46.5
78.1 1.3 8.4 46.8 1.4 136.0
  Per Diluted share ($)
E&C 0.18 0.01 0.04 0.27 0.01 0.51
Capital 0.26 0.26
0.44 0.01 0.04 0.27 0.01 0.77
  First Quarter 2017
In M$
E&C 45.3 2.6 1.1 12.3 (0.6) 60.7
Capital 44.4 44.4
89.7 2.6 1.1 12.3 (0.6) 105.1
  Per Diluted share ($)
E&C 0.30 0.02 0.01 0.08 (0.00) 0.40
Capital 0.30 0.30
0.60 0.02 0.01 0.08 (0.00) 0.70

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