SNC-Lavalin announces its Q3 2017 results, with a net income attributable to shareholders of $104 million, up from $43 million in Q3 2016
SNC-Lavalin announces its Q3 2017 results, with a net income attributable to shareholders of $104 million, up from $43 million in Q3 2016
- Reported Q3 2017 IFRS net income attributable to SNC-Lavalin shareholders of $103.6 million, or $0.59 per diluted share.
- Q3 2017 adjusted net income from E&C(1) of $88.6 million, or $0.51 per diluted share.
- Newly-acquired Atkins disclosed as a new segment, with revenue of $805.3 million, a segment EBIT(6) margin of 9.1% and a revenue backlog of $2.0 billion.
- Total revenue backlog(8) of $11.3 billion as at September 30, 2017.
- 2017 Outlook maintained: adjusted diluted EPS from E&C(2) in the range of $2.00 to $2.20.
SNC-Lavalin Group Inc. (TSX:SNC) today announces its results for the third quarter ended September 30, 2017.
“We are pleased with our third quarter results, which include a contribution from our recent transformational acquisition of Atkins. The integration of this business is progressing well and we are continuing to identify opportunities in our key markets that will further support our growth agenda, especially in the area of digital technologies,” said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. “Our ambition remains to be one of the top global fully integrated professional services and project management companies. Our backlog and high quality pipeline across our key sectors and geographies gives us confidence in executing on our near term earnings guidance and our longer range 2020 vision.”
- Q3 2017 reported IFRS net income attributable to SNC-Lavalin shareholders was $103.6 million, or $0.59 per diluted share, compared with $43.3 million, or $0.29 per diluted share, for the corresponding period in 2016. Q3 2017 reported IFRS net income attributable to SNC-Lavalin shareholders included a net gain after taxes of $26.5 million from the partial disposal associated with the transfer of four of our Capital investments to SNC-Lavalin Infrastructure Partners LP. The quarter also included acquisition-related and integration costs of $30.0 million (after taxes), in line with guidance, as well as amortization of intangible assets related to business combinations of $27.5 million (after taxes).
- Adjusted net income from E&C(1) for Q3 2017 was $88.6 million, or $0.51 per diluted share, compared with $24.4 million, or $0.16 per diluted share for Q3 2016, mainly due to a higher Segment EBIT(6), partially offset by an increase in income taxes and financial expenses, largely attributable to the financing of the acquisition of Atkins. On a segmented basis, Oil & Gas returned to a more normal run-rate in the quarter and had a positive Segment EBIT(6), compared with a negative Segment EBIT(6) in Q3 2016. Infrastructure continued to perform well and delivered a higher Segment EBIT(6) in Q3 2017, compared with Q3 2016, while the Power and Mining & Metallurgy segments had a lower Segment EBIT(6). The Atkins business is currently being reported as a new segment and delivered a $73.5 million Segment EBIT(6) in Q3 2017 with a 9.1% Segment EBIT(6) margin.
- Selling, general and administrative (SG&A) expenses in Q3 2017 were $399.0 million compared with $141.1 million, in Q3 2016. The increase was mainly due to the incremental SG&A from the acquisition of Atkins and to a $32.5 million favorable impact from revised estimates on legacy sites environmental liabilities and other asset retirement obligations recorded in Q3 2016.
- The Company remains on track to deliver cost synergies of $120 million related to the acquisition of Atkins by the end of 2018. Of this we expect to deliver a minimum of $30 million by the end of 2017, of which the bulk will be Q4 loaded.
- Adjusted net income from Capital(3) for Q3 2017 was $48.1 million, or $0.27 per diluted share, compared with $42.6 million, or $0.29 per diluted share for the corresponding period in 2016, mainly due to an increase in dividends received from Highway 407 ETR.
- E&C revenue for the third quarter ended September 30, 2017 increased to $2.6 billion, compared with $2.1 billion in the third quarter of 2016. The increase was due to the incremental revenues from the acquisition of Atkins and an increase in the Mining & Metallurgy segment, partially offset by decreases in Infrastructure, Oil & Gas and Power segments. The decrease in Oil & Gas was mainly due to lower revenues in the LNG sector, partly offset by higher revenues from projects in the Middle East and Americas. The decrease in Power was mainly due to lower revenues in the Thermal and Transmission & Distribution sub-segments, partially offset by an increase in Nuclear. The decrease in Infrastructure is principally attributable to the disposal, in December 2016, of SNC-Lavalin’s non-core E&C business in France and Real Estate Facilities Management business in Canada.
- Revenue backlog(8) from Atkins, acquired on July 3, 2017, has been included in the Company’s revenue backlog, resulting in a total revenue backlog(8) of $11.3 billion at the end of September 30, 2017. The Company is currently assessing the impact of IFRS 15 on its backlog reporting policy and will update the market in due course.
Excluding the addition of Atkins’ backlog of $2.0 billion, new contract awards for Q3 2017 amounted to $1.5 billion, totaling $4.1 billion for the nine-month period ended September 30, 2017. - The Company is also pleased with its acquisition of Data Transfer Solutions LLC (DTS). Completed on October 30, 2017, the acquisition will add to the capabilities of SNC-Lavalin’s Atkins sector and will enhance service offerings in digital asset management for clients. It is also in line with the Company’s stated strategy of expansion in digital technology to enhance efficiency of our service delivery to our clients across our core sectors.
- As of September 30, 2017, the company continues to maintain adequate liquidity with $0.6 billion of cash and cash equivalents, $0.8 billion of net recourse debt and $2.04 billion in unused capacity under its $2.75 billion committed revolving credit facility, while the net recourse debt to adjusted EBITDA ratio(9) was 1.1.
2017 Outlook
The Company is maintaining its 2017 outlook for the adjusted diluted EPS from E&C(2), which is expected to be in the range of $2.00 to $2.20, as well as for the adjusted consolidated diluted EPS(5), which is expected to be in the range of $3.10 to $3.30. In both cases, Q4 will see the greatest benefit from the previously announced target cost synergies relating to Atkins of a minimum of $30 million in the current year.
While we anticipate continuing market challenges in 2017 in certain of the Company’s sectors, we continue to benefit from our restructuring savings and Operational Excellence program. As such, we expect increased Segment EBIT(6) margins for all segments in 2017, compared with 2016, except for Mining & Metallurgy. Note that the 2017 outlook includes approximately six months of Atkins’ operations and related financing. It also assumes a weighted average number of outstanding shares of approximately 163 million.
This outlook is based on the assumptions and methodology described in the Company’s 2016 Management’s Discussion and Analysis under the heading, “How We Budget and Forecast Our Results”, which should be read in conjunction with the Company’s prospectus dated April 24, 2017, 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 $0.273 per share, payable on November 30, 2017, to shareholders of record on November 16, 2017. This dividend is an “eligible dividend” for income tax purposes.
Q3 2017 Results Conference Call / Webcast
SNC-Lavalin will hold a conference call today at 3:00 p.m. EDT (Eastern Daylight Time) to review results for its third quarter. To join the conference call, please dial toll free at 1 800 263 0877 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
The Company reports its financial results in accordance with IFRS. However, the following non-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, Revenue backlog. Additional details for these non-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 in Oil and Gas, Mining and Metallurgy, Infrastructure and Power. On July 3, 2017, SNC-Lavalin acquired Atkins, one of the world’s most respected design, engineering and project management consultancies. 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, as well as amortization of intangible assets related to business combinations, and the gains (losses) on disposals of E&C businesses and the head office building. E&C is defined in the Company’s 2016 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 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. Expenses that are not allocated to the Company’s segment include: 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 business combinations, as well as gains (losses) on disposals of E&C businesses, Capital investments and 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, Capital investments and head office building. 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 defined herein as 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. The term “Revenue backlog” does not have any standardized meaning under IFRS. Therefore, it may not be comparable to similar measures presented by other issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s future performance.
(9) Net recourse debt to adjusted EBITDA ratio is defined herein as the net recourse debt divided by the trailing 12-months adjusted EBITDA on a pro forma basis, including the EBITDA of Atkins before its acquisition by SNC-Lavalin, 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.
SNC-Lavalin Financial Summary
| (in thousands of Canadian dollars, unless otherwise indicated) | Third Quarter | Nine months ended September 30 |
||
| 2017 | 2016 | 2017 | 2016 | |
| Revenues | ||||
| From E&C | 2,572,483 | 2,100,591 | 6,228,968 | 6,076,601 |
| From Capital | 60,256 | 67,949 | 187,914 | 183,095 |
| 2,632,739 | 2,168,540 | 6,416,882 | 6,259,696 | |
| Net income attributable to SNC-Lavalin’s shareholders From E&C |
29,025 |
688 |
161,718 |
84,781 |
| From Capital | 74,551 | 42,652 | 167,961 | 169,176 |
| 103,576 | 43,340 | 329,679 | 253,957 | |
| Diluted EPS ($) From E&C From Capital |
0.17 0.42 |
0.00 0.29 |
1.02 1.06 |
0.56 1.13 |
| 0.59 | 0.29 | 2.08 | 1.69 | |
| Adjusted net income attributable to SNC-Lavalin’s shareholders From E&C(1) From Capital(3) |
88,625 |
24,370 42,651 |
213,509 |
152,948 118,130 |
| 136,708 | 67,021 | 349,599 | 271,078 | |
| Adjusted diluted EPS ($) From E&C(2) From Capital(4) |
0.51 0.27 |
0.16 0.29 |
1.34 0.86 |
1.02 0.79 |
| 0.78 | 0.45 | 2.20 | 1.81 | |
| Adjusted E&C EBITDA(7) Adjusted E&C EBITDA margin |
196,319 7.6% |
46,143 2.2% |
383,158 6.2% |
263,909 4.3% |
| Revenue backlog(8) | 11,336,300 | 11,776,600 | ||
| Cash and cash equivalents | 642,325 | 895,533 | ||
| Recourse long-term debt | 1,524,647 | 349,312 | ||
Reconciliation of IFRS Net Income as Reported to Adjusted Net Income
|
Net income, as reported |
Net charges related to the restructuring & right-sizing plan and other |
Acquisition |
Net gain on disposals of E&C business, head office building, and Capital investments |
Net income, adjusted |
||
|
Acquisition-related costs and integration costs |
Amortization of intangible assets related to business combinations |
|||||
|
Third Quarter 2017 |
||||||
| E&C |
29.0 |
2.1* |
30.0 |
27.5 |
– |
88.6 |
| Capital |
74.6 |
– |
– |
– |
(26.5) |
48.1 |
|
103.6 |
2.1 |
30.0 |
27.5 |
(26.5) |
136.7 |
|
| Per Diluted share ($) | ||||||
| E&C |
0.17 |
0.01 |
0.17 |
0.16 |
– |
0.51 |
| Capital |
0.42 |
– |
– |
– |
(0.15) |
0.27 |
|
0.59 |
0.01 |
0.17 |
0.16 |
(0.15) |
0.78 |
|
|
Nine Months Ended September 30, 2017 |
||||||
| E&C |
161.7 |
27.3** |
75.6 |
51.3 |
(102.4) |
213.5 |
| Capital |
168.0 |
– |
– |
– |
(31.9) |
136.1 |
|
329.7 |
27.3 |
75.6 |
51.3 |
(134.3) |
349.6 |
|
| Per Diluted share ($) | ||||||
| E&C |
1.02 |
0.16 |
0.48 |
0.33 |
(0.65) |
1.34 |
| Capital |
1.06 |
– |
– |
– |
(0.20) |
0.86 |
|
2.08 |
0.16 |
0.48 |
0.33 |
(0.85) |
2.20 |
|
*This amount includes $2.2 million ($1.0 million after taxes) of net charges which did not meet the restructuring costs definition in accordance with IFRS.
**This amount includes $6.2 million ($6.0 million after taxes) of net charges which did not meet the restructuring costs definition in accordance with IFRS.
|
Net income, as reported |
Net charges related to the restructuring & right-sizing plan and other |
Acquisition |
Net gain on Capital investment disposals |
Net income, adjusted |
||
|
Acquisition-related costs and integration costs |
Amortization of intangible assets related to business combinations |
|||||
|
Third Quarter 2016 |
||||||
| E&C |
0.7 |
9.9 |
0.9 |
12.9 |
– |
24.4 |
| Capital |
42.6 |
– |
– |
– |
– |
42.6 |
|
43.3 |
9.9 |
0.9 |
12.9 |
– |
67.0 |
|
| Per Diluted share ($) | ||||||
| E&C |
0.00 |
0.07 |
0.01 |
0.08 |
– |
0.16 |
| Capital |
0.29 |
– |
– |
– |
– |
0.29 |
|
0.29 |
0.07 |
0.01 |
0.08 |
– |
0.45 |
|
|
Nine Months Ended September 30, 2016 |
||||||
| E&C |
84.8 |
23.7* |
3.2 |
41.3 |
– |
153.0 |
| Capital |
169.2 |
– |
– |
– |
(51.1) |
118.1 |
|
254.0 |
23.7 |
3.2 |
41.3 |
(51.1) |
271.1 |
|
| Per Diluted share ($) | ||||||
| E&C |
0.56 |
0.16 |
0.03 |
0.27 |
– |
1.02 |
| Capital |
1.13 |
– |
– |
– |
(0.34) |
0.79 |
|
1.69 |
0.16 |
0.03 |
0.27 |
(0.34) |
1.81 |
|
*This amount includes $4.3 million ($2.0 million after taxes) of net charges recorded in the second quarter, which did not meet the restructuring costs definition in accordance with IFRS.
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IBF5
