SNC-Lavalin announces its first quarter results for 2015

May 7, 2015

2015 First Quarter Highlights

• Net income of $104.4 million, or $0.68 per diluted share;
• Adjusted net income from E&C⁽¹⁾ of $56.8 million, or $0.38 per diluted share;
• Revenue backlog at March 31, 2015, of $11.6 billion;
• Cash and cash equivalents at March 31, 2015, of $1.1 billion; and
• Maintains outlook for 2015 adjusted EPS from E&C⁽²⁾.

SNC-Lavalin Group Inc. (TSX: SNC) announces its results today for the first quarter ended March 31, 2015.

SNC-Lavalin Financial Summary for First Quarter

(in thousands of Canadian dollars, unless otherwise indicated)	First Quarter
	2015	2014
Revenues by activity
Services	869,588	503,605
Packages	977,986	610,156
O&M	357,421	375,180
ICI	52,070	231,208
	2,257,065	1,720,149
Net income attributable to SNC-Lavalin’s shareholdersFrom E&C	67,021	30,803
From ICI	37,359	63,787
Net income attributable toSNC-Lavalin’s shareholders	104,380	94,590
Net income attributable tonon-controlling interests	445	102
Net income	104,825	94,692
Diluted earnings per share ($)From E&C From ICI	0.440.24	0.200.42
	0.68	0.62
Revenue backlog by activity
Services	4,531,100	1,604,300
Packages	5,156,900	4,780,900
O&M	1,943,100	1,988,900
	11,631,100	8,374,100
Cash and cash equivalents	1,097,765	1,060,041

SNC-Lavalin Adjusted Net Income for First Quarter

(in thousands of Canadian dollars)See Fig. 1 for reconciliation	First Quarter
	2015	2014
Net income, as reported	104,380	94,590
Net income from E&C, as reported	67,021	30,803
Net income from E&C, adjusted	56,817	31,503
Net income from ICI, as reported	37,359	63,787
Net income from ICI, adjusted	37,359	63,787
Net income, adjusted	94,176	95,290

“We are pleased to report first quarter results that have begun to reflect the capability and strength of our focused E&C platform. With a strong backlog, we are continuing to leverage our expanded expertise in oil and gas, as evidenced by the two recently announced sustaining capital contracts with a major oil company in the Middle East. We are also very pleased that Signature on the St. Lawrence Group, which includes SNC-Lavalin, has been selected by the Government of Canada as the preferred proponent for the design, build, finance, operation, maintenance and rehabilitation of the new bridge for the St. Lawrence corridor project,” said Robert G. Card, President and Chief Executive Officer, SNC-Lavalin Group Inc. “We also recently announced organizational changes to drive operational execution. With Neil Bruce in the newly created position of Chief Operating Officer, our enhanced proposal review and approval process and more efficient cost controls, we will further improve operational execution and delivery of commitments to all stakeholders as we better align our business structure with our markets. We also remain focused on our strategy of monetizing mature assets within our ICI portfolio. We are continuing to move forward in a deliberate manner on the sale of Highway 407 and have hired financial advisors to assist with the process. Concurrently we are accelerating our process to extract the maximum value from our remaining ICI assets, and optimize our financial asset management structure as we further develop this sector of our business.”

“In the first quarter, we bought back some of our shares, and we expect to be more active on our current repurchase program, as permitted by law and subject to market conditions. We also announced today our intention to renew and increase our normal course issuer bid, subject to regulatory approval. Under the current circumstances, we believe that the purchase of common shares is an effective use of our funds and in the best interest of the Company and its shareholders,” added Mr. Card.

First Quarter Results
For the first quarter of 2015, SNC-Lavalin reported a net income attributable to SNC-Lavalin shareholders of $104.4 million ($0.68 per share on a diluted basis), compared to $94.6 million ($0.62 per share on a diluted basis) for the same period in 2014.

Net income from Engineering & Construction and Operations & Maintenance (“E&C”) for the first quarter of 2015 was $67.0 million, or $0.44 per diluted share, compared to $30.8 million, or $0.20 per diluted share, for the first quarter of 2014. The first quarter 2015 E&C results included:

• $37.0 million ($32.6 million after taxes, or $0.21 per diluted share) for a one-time net foreign exchange gain;
• $21.0 million ($16.0 million after taxes, or $0.11 per diluted share) of amortization of intangible assets in connection with the acquisition of Kentz;
• $7.9 million ($6.0 million after taxes, or $0.04 per diluted share) of acquisition-related costs and integration costs in connection with the acquisition of Kentz; and
• $0.5 million ($0.4 million after taxes, or $0.00 per diluted share) of charges relating to the restructuring and right-sizing plan announcement of November 6, 2014.

The first quarter 2014 E&C results included:

• $1.2 million ($0.7 million after taxes, or $0.00 per diluted share) of restructuring costs, mainly for the reorganization of the Company’s European activities, including the disposal and closure of certain offices.

Adjusted net income from E&C for the first quarter of 2015, excluding the above-mentioned items, was $56.8 million, or $0.38 per diluted share, compared to $31.5 million, or $0.20 per diluted share, for the corresponding period in 2014. The increase is mainly due to a higher contribution from the Oil & Gas, Power and Mining & Metallurgy segments, partially offset by a lower contribution from the Operations & Maintenance sub-segment. The Infrastructure & Construction sub-segment recorded a negative EBIT in the first quarter of 2015 compared to a positive EBIT in the first quarter of 2014, as the 2014 results included the reversal of a risk provision that had been previously recorded on a Libyan project. The increase in Oil & Gas was mainly due to the incremental EBIT from Kentz, the acquisition of which was completed on August 22, 2014. The increase in Power was mainly due to a favourable reforecast on a major project, and the increase in Mining & Metallurgy was mainly due to a decrease in SG&A.

Net income from Infrastructure Concession Investments (“ICI”) and Adjusted net income from ICI for the first quarter ended March 31, 2015, were $37.4 million, or $0.24 per diluted share, compared to $63.8 million, or $0.42 per diluted share, for the corresponding quarter of 2014. The decrease was mainly due to the disposal of AltaLink and Astoria in 2014, resulting in no net income from these disposed assets in 2015, partially offset by a higher dividend received from Highway 407.

Revenues for the first quarter of 2015 increased by 31.2% to $2.3 billion, mainly due to an increase in the Oil & Gas segment, as incremental Services and Packages revenues were generated by Kentz, the acquisition of which was completed on August 22, 2014, as well as an increase in the Power segment, as the Company is no longer required to eliminate E&C revenues generated between the Company and AltaLink, since its disposal in the fourth quarter of 2014. This increase was partially offset by a decrease in ICI revenues, principally due to the disposal of our AltaLink investment.

Selling, general and administrative (“SG&A”) expenses for the first quarter ended March 31, 2015, totalled $206.7 million, compared to $186.8 million for the corresponding period in 2014. The increase was mainly due to the incremental SG&A expenses from Kentz, the acquisition of which was completed on August 22, 2014.

In the first quarter of 2015, the Company recorded $0.5 million ($0.4 million after taxes) of charges relating to the restructuring and right-sizing plan announcement of November 6, 2014, to align its operations with its growth strategy and end-market economics. The Company is continuing its efforts to complete this restructuring and right-sizing plan, which is expected to result in approximately $45 million (after taxes) in charges over the next 11 months.

Cash and cash equivalents totalled $1.1 billion as at March 31, 2015, compared to $1.7 billion at the end of December 31, 2014.

Revenue backlog totalled $11.6 billion at the end of March 2015, compared to $8.4 billion at the end of March 2014 and $12.3 billion at the end of December 2014. The increase compared to March 2014 is mainly due to the Services and Packages revenue backlog, which grew largely due to the addition of Kentz’s revenue backlog, partially offset by a slight decrease in O&M.

2015 Outlook
The Company is maintaining its previously announced 2015 outlook for the adjusted EPS from E&C(2), which is expected to be in the 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 expected to result in an after-tax expense of approximately $65 million, while charges related to the restructuring and right-sizing plan and acquisition and integration costs are expected to be approximately $60 million (after taxes).

The 2015 outlook is principally based on the expectation that the Oil & Gas and Power segments, mainly due to the acquisition of Kentz and based on their current backlog, will be the main contributors to net income, while the Infrastructure & Construction sub-segment will continue to face challenges throughout 2015.

The Company is increasing its 2015 outlook for the reported IFRS EPS to a range of $1.80 to $2.10, from a range of $1.60 to $1.90, to reflect the one-time net foreign exchange gain recorded in the first quarter of 2015.

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 June 4, 2015, to shareholders of record on May 21, 2015. This dividend is an “eligible dividend” for income tax purposes.

Annual Shareholders’ Meeting and Conference Call
SNC-Lavalin’s Annual Shareholders’ Meeting will be held at 11:00 a.m. Eastern Daylight Time (EDT) today at Théâtre St-James, 265 St-Jacques West, Montreal, Quebec. The event will be webcast live and will be available at http://www.icastpro.ca/esnc150507.

SNC-Lavalin will also hold a conference call today at 2:45 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 0614 in Montreal: 080 0279 0444 in the United Kingdom: and 180 099 2284 in Ireland. A presentation of the 2015 first quarter results will be available on the “Investors – Investor’s Briefcase” section of the SNC-Lavalin website at www.snclavalin.com approximately one hour prior to the call. A recording of the conference call will also be available on our website within 24 hours following the end of 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 provide EPC and EPCM services to clients in a variety of industry sectors, including mining and metallurgy, oil and gas, infrastructure and clean 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⁾ See Figure 1

⁽²⁾ Adjusted EPS 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 acquisition and integration costs incurred in connection with the acquisition of Kentz in 2014, per SNC-Lavalin common share. E&C is defined in the Company’s 2014 financial statements and Management’s Discussion and Analysis. The term “Adjusted EPS 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 EPS 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.

⁽³⁾ EBIT is defined herein as income before net financial expenses and income taxes. Segment and sub-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 EBIT, segment EBIT and sub-segment EBIT do not have any standardized meaning under IFRS. Therefore, it may not be comparable to similar measures presented by other issuers. EBIT, segment EBIT and sub-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.

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Figure 1: Reconciliation of IFRS Net Income as Reported to Adjusted Net Income

	Net income, as reported	Charges related to the restructuring and right-sizing plan announcement of November 6, 2014	Acquisition of Kentz		Other restructuring costs (recorded before November 6, 2014)	One-time net foreign exchange gain	Net income, adjusted
			Acquisition-related costs and integration costs	Amortization of intangible assets
First Quarter 2015
In M$
E&C	67.0	0.4	6.0	16.0	–	(32.6)	56.8
ICI	37.4	–	–	–	–	–	37.4
	104.4	0.4	6.0	16.0	–	(32.6)	94.2
Per diluted share ($)
E&C	0.44	0.00	0.04	0.11	–	(0.21)	0.38
ICI	0.24	–	–	–	–	–	0.24
	0.68	0.00	0.04	0.11	–	(0.21)	0.62
First Quarter 2014
In M$
E&C	30.8	–	–	–	0.7	–	31.5
ICI	63.8	–	–	–	–	–	63.8
	94.6	–	–	–	0.7	–	95.3
Per diluted share ($)
E&C	0.20	–	–	–	0.00	–	0.20
ICI	0.42	–	–	–	–	–	0.42
	0.62	–	–	–	0.00	–	0.62