SNC-Lavalin announces year-end results for 2014

• Net income for 2014 was $1,333.3 million (primarily attributable to a net gain on disposal of AltaLink), or $8.74 per diluted share, compared to $35.8 million, or $0.24 per diluted share, for 2013;
• Adjusted net income from E&C(1) for 2014 was $54.9 million, or $0.36 per diluted share, compared to an adjusted net loss from E&C of $133.7 million, or $0.88 per diluted share, for 2013;
• Achieved significant milestones in 2014 under five-year Strategic Plan launched in 2013:
  • Completed landmark acquisition of Kentz, which transformed oil and gas capabilities and contributed $110.8 million of EBIT(3) since its acquisition;
  • Increased efficiency through SG&A expense reductions;
  • Enhanced client focus by further restructuring and right-sizing operations;
  • Rebalanced ICI portfolio, while continuing to evaluate how best to manage assets; and
  • Reinforced commitment to highest standards of governance, ethics and compliance;
• Revenue backlog at December 31, 2014 of $12.3 billion;
• Cash and cash equivalents at December 31, 2014 of $1.7 billion;
• Quarterly dividend increased by 4% to $0.25 per share;
• New guidance: the Company is targeting an adjusted EPS from E&C(2) for 2015 in the range of $1.30 to $1.60.

SNC-Lavalin Group Inc. (TSX: SNC) announces its results today for the year ended December 31, 2014.

“This was a year of significant change at SNC-Lavalin as we took action to focus the Company and expand our E&C platform through deeper oil and gas capabilities which, along with our Power segment, are expected to continue to drive E&C net income improvements in 2015,” said Robert G. Card, President and Chief Executive Officer, SNC-Lavalin Group Inc. “The Kentz integration went well and we are focused on winning new projects and collaborating on opportunities in the REW segment. We also recognize how important it was to take action to align our expertise and internal resources with the most promising opportunities in key growth markets. And as we continue to implement our restructuring plans, I want to personally thank all of our SNC-Lavalin employees for their hard work and diligence. With more flexible and agile operations, we believe that we are well placed to improve our competitive positioning and deliver even better smervices to clients, long-term value for our stakeholders and opportunities for our team.”

“We have a strong financial position and backlog, and we remain optimistic about our long-term E&C operational performance,” added Mr. Card. “While we believe market conditions will be challenging in 2015, we will continue to execute on our focused strategy and to advance our plan to become a global Tier-1 E&C firm.”

SNC-Lavalin Financial Summary for Fourth Quarter and Year End

SNC-Lavalin Adjusted Net Income for Fourth Quarter and Year-End

Fourth Quarter Results

For the fourth quarter of 2014, SNC-Lavalin reported a net income attributable to SNC-Lavalin shareholders of $1,146.6 million ($7.51 per share on a diluted basis), compared to $92.5 million ($0.61 per share on a diluted basis) for the same period of 2013.

Net income from Infrastructure Concession Investments (“ICI”) for the fourth quarter ended December 31, 2014, was $1,402.2 million, or $9.18 per diluted share, compared to $123.8 million, or $0.82 per diluted share, for the corresponding quarter of 2013. Included in the fourth quarter 2014 ICI results are:

• A net gain on disposal of AltaLink of $1,320.7 million, or $8.65 per diluted share, as well as a total net gain of $16.6 million, or $0.11 per diluted share, on disposal of other ICI, and;
• $19.1 million ($19.1 million after taxes, or $0.13 per diluted share) of charges relating to the restructuring and right-sizing plan announcement of November 6, 2014.

Included in the fourth quarter 2013 ICI results is:

• A gain on disposal of other ICI of $36.2 million, or $0.24 per diluted share.

Adjusted net income from ICI for the fourth quarter of 2014, excluding the above-mentioned items, was $84.0 million, or $0.55 per diluted share, compared to $87.6 million, or $0.58 per diluted share, for the fourth quarter of 2013, mainly due to a lower dividend received from Highway 407.

Net loss from Engineering & Construction and Operations & Maintenance (“E&C”) for the fourth quarter of 2014 was $255.6 million, or $1.67 per diluted share, compared to $31.3 million, or $0.21 per diluted share, for the fourth quarter of 2013. Included in the fourth quarter 2014 E&C results are:

• $243.9 million ($236.5 million after taxes, or $1.55 per diluted share) of charges relating to the aforementioned restructuring and right-sizing plan announcement of November 6, 2014;
• $24.9 million ($18.2 million after taxes, or $0.12 per diluted share) of financial expenses in connection with the temporary financing of the acquisition of Kentz;
• $24.2 million ($17.6 million after taxes, or $0.11 per diluted share) of amortization of intangible assets in connection with the acquisition of Kentz, and;
• $6.7 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.

Included in the fourth quarter 2013 E&C results is:

• $55.2 million ($49.7 million after taxes, or $0.33 per diluted share) of restructuring costs and goodwill impairment 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 fourth quarter of 2014, excluding the above-mentioned items, was $22.7 million, or $0.15 per diluted share, compared to $18.4 million, or $0.12 per diluted share, for the corresponding period of 2013. The increase is mainly due to a higher contribution from the REW segment, mainly due to the O&G sub-segment, and to a net foreign exchange gain, partially offset by a higher negative segment EBIT in the Infrastructure segment and a lower contribution from the Power segment.

Revenues for the fourth quarter of 2014 increased by 32.7% to $2.8 billion, mainly due to the incremental Services and Packages revenues from Kentz, the acquisition of which was completed on August 22, 2014, partially offset by a decrease in ICI revenues, principally due to the disposals of AltaLink and Astoria.

Selling, general and administrative (“SG&A”) expenses for the fourth quarter ended December 31, 2014, totalled $242.0 million, compared to $225.1 million for the corresponding period of 2013. The increase is mainly due to the incremental SG&A expenses from Kentz, partially offset by the Company’s effort to contain its SG&A expenses under its Value Up program and cost-savings realized following the implementation of restructuring plans.

As indicated above, the Company recorded in the fourth quarter of 2014 $263.0 million 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 restructuring and right-sizing plan announcement included $200 million of cash charges, which aims to deliver approximately $100 million (after taxes) in annual operational efficiencies beginning in 2015, and included $100 million of non-cash charges. In accordance with IFRS, $94.0 million of these charges was included in “Restructuring costs and goodwill impairment”, $28.5 million in “Impairment of investments” and $140.5 million in “Gross margin”.

Year-End Results

For the year ended December 31, 2014, SNC-Lavalin reported net income attributable to SNC-Lavalin shareholders of $1,333.3 million ($8.74 per share on a diluted basis), compared to $35.8 million ($0.24 per share on a diluted basis) for the same period of 2013.

Net income from ICI for the year ended December 31, 2014 was $1,633.8 million, or $10.71 per diluted share, compared to $281.6 million, or $1.86 per diluted share for 2013. Included in the 2014 ICI results are:

• A net gain on disposal of AltaLink of $1,320.7 million, or $8.65 per diluted share, as well as a total net gain of $13.5 million, or $0.09 per diluted share, on disposal of other ICI, and;
• $19.1 million ($19.1 million after taxes, or $0.13 per diluted share) of charges relating to the restructuring and right-sizing plan announcement of November 6, 2014.

Included in the 2013 ICI results is:

• A gain on disposal of other ICI of $36.2 million, or $0.24 per diluted share.

Adjusted net income from ICI for 2014, excluding the above-mentioned items, was $318.7 million, or $2.10 per diluted share, compared to $245.4 million, or $1.62 per diluted share, for the year ended December 31, 2013, mainly due to higher net income from AltaLink and higher dividends received from Highway 407, partially offset by a lower net income from SKH.

Net loss from E&C for the year ended December 31, 2014 was $300.5 million, or $1.97 per diluted share, compared to $245.8 million, or $1.62 per diluted share for the year ended December 31, 2013. Included in the 2014 E&C results are:

• $243.9 million ($236.5 million after taxes, or $1.55 per diluted share) of charges relating to the restructuring and right-sizing plan announcement of November 6, 2014;

• $62.5 million ($53.1 million after taxes, or $0.35 per diluted share) of acquisition-related costs and integration costs in connection with the acquisition of Kentz;$37.4 million ($27.3 million after taxes, or $0.18 per diluted share) of financial expenses in connection with the temporary financing of the acquisition of Kentz;$36.5 million ($26.5 million after taxes, or $0.17 per diluted share) of amortization of intangible assets in connection with the acquisition of Kentz, and;$15.8 million ($12.0 million after taxes, or $0.08 per diluted share) of other restructuring costs and goodwill impairment recorded by the Company before November 6, 2014.

Included in the 2013 E&C results is:

• $123.5 million ($112.1 million after taxes, or $0.74 per diluted share) of restructuring costs and goodwill impairment, 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 2014, excluding the above-mentioned items, was $54.9 million, or $0.36 per diluted share, versus a comparative net loss of $133.7 million, or $0.88 per diluted share. The positive variance is mainly due to a lower negative segment EBIT in the Infrastructure segment and an increased contribution from the REW segment, mainly due to the O&G sub-segment, partially offset by a lower contribution from the Power segment.

As explained above, the Company recorded in the fourth quarter of 2014 $263.0 million ($255.6 million after taxes) of charges relating to the restructuring and right-sizing plan announcement of November 6, 2014. In the fourth quarter of 2014, in accordance with IFRS, $94.0 million of these charges was included in “Restructuring costs and goodwill impairment”, $28.5 million in “Impairment of investments” and $140.5 million in “Gross margin”. Including the restructuring costs and goodwill impairment of $15.8 million recorded by the Company for the first nine months of 2014, “Restructuring costs and goodwill impairment” for the year ended December 31, 2014 totalled $109.8 million, compared to $123.5 million for the corresponding period of 2013. The Company continues 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 14 months.

Revenues for the year ended December 31, 2014 were $8.2 billion, compared to $7.9 billion for 2013, mainly due to increases in Services, Packages and ICI revenues, partially offset by a decrease in O&M revenues.

Principally due to the Company’s effort to contain its SG&A expenses under its Value Up program and implemented restructuring plans, SG&A expenses for the year ended December 31, 2014 totalled $841.4 million, in line with 2013, despite the incremental SG&A expenses in connection with the Kentz acquisition.

Cash and cash equivalents totalled $1.7 billion as at December 31, 2014, compared to $1.1 billion at the end of December 31, 2013.

Revenue backlog totalled $12.3 billion at the end of December 2014, a 48.7% increase compared with the end of December 2013. The increase is due to the Services and Packages revenue backlog, which grew largely due to the addition of Kentz’s revenue backlog, partially offset by a decrease in O&M.

2015 Outlook

The Company is targeting an adjusted EPS from E&C(2) for 2015 of $1.30 to $1.60.

The adjusted EPS from E&C guidance excludes 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 sub-segment and the Power segment, 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 and Environment & Water sub-segments will continue to face challenges throughout 2015.

The Company’s reported IFRS EPS for 2015 is expected to be in the range of $1.60 to $1.90.

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

Given the Company’s long-term outlook, cash position, backlog and opportunities, the Board of Directors has increased the quarterly cash dividend by 4% to $0.25 per share, payable on April 2, 2015, to shareholders of record on March 19, 2015. This dividend is an “eligible dividend” for income tax purposes.

Conference Call

SNC-Lavalin will hold a conference call today at 3 pm EST to discuss these 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, 08002790444 in the United Kingdom and 1800992284 in Ireland. A presentation of the 2014 fourth quarter results will be available on the “Investors – Investor’s Briefcase” section of SNC-Lavalin’s 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, environment and water, 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

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