SNC-Lavalin announces its first quarter results for 2014
- $94.6 million of net income attributable to SNC-Lavalin's shareholders for the first three months of the year, including a successful reversal of a previously recorded risk provision;
- 9.8% decrease in Selling, General and Administrative expenses, compared to the first quarter of 2013;
- 9.8% EBIT(1) margin on revenues;
- $8.4 billion revenue backlog, in line with the end of 2013;
- Challenging legacy projects represent $728.8 million of backlog, a 19% sequential decrease;
- $1.1 billion of cash and cash equivalents, in line with the end of 2013;
- New reporting segments to reflect the Company's internal reorganization;
- Agreement to sell SNC-Lavalin's equity stake in AltaLink signed on May 1, 2014; and
- As a result of the AltaLink transaction, 2014 EPS guidance range increased to $2.80 to $3.05 from $2.25 to $2.50.
MONTREAL, May 8, 2014 /CNW Telbec/ - SNC-Lavalin Group Inc. (TSX: SNC) announces its results today for the first quarter ended March 31, 2014.
|(in thousands of Canadian dollars, unless otherwise indicated)||
ended March 31,
|Revenues by activity|
|Net income attributable to SNC-Lavalin's shareholders|
|Net income attributable to SNC-Lavalin's shareholders||94,590||53,623|
|Net income attributable to non-controlling interests||102||77|
|Diluted earnings per share ($)||0.62||0.35|
As at March
As at December
|Revenue backlog by activity|
|Cash and cash equivalents||1,060,041||1,108,694|
"In the first quarter, we continued to strengthen our leadership team, execute on our Value Up profit improvement program, and optimize our geographic and services mix to advance the positioning of SNC-Lavalin to win business, improve earnings and deliver growth. As part of our Strategic Plan, we are also rebalancing our Infrastructure Concession Investments portfolio and evaluating the life cycle of these assets to build value for our Company. Our expertise and experience in asset management, coupled with our domain expertise and project capability, have resulted in outsized returns on many assets, and the recent agreement to sell AltaLink is a prime example of this," said Robert G. Card, President and Chief Executive Officer, SNC-Lavalin Group Inc.
First Quarter Results
For the first quarter of 2014, SNC-Lavalin reported net income attributable to SNC-Lavalin shareholders of $94.6 million ($0.62 per share on a diluted basis), compared to a net income of $53.6 million ($0.35 per share on a diluted basis) for the same period of 2013.
Net income from Engineering & Construction and Operations & Maintenance ("E&C") increased to $30.8 million, compared to net income of $18.6 million for the first quarter ended March 31, 2013.
In the first quarter of 2014, the Company revised its reportable segments under E&C to reflect the changes made to its internal reporting structure. SNC-Lavalin's reportable segments for E&C are now: i) Resources, Environment & Water ("REW"); ii) Power; and iii) Infrastructure. The Company also provides additional information on certain sub-segments of its reportable segments, notably the Mining & Metallurgy, Oil & Gas and Environment & Water sub-segments of REW, as well as the Infrastructure & Construction and Operation & Maintenance ("O&M") sub-segments of Infrastructure. Furthermore, the Company changed its methodology for measuring profit or loss for its reportable segments. As of January 2014, the Company evaluates its segment performance using Earnings Before Interest and Taxes ("EBIT")(1) instead of Operating Income.
The increase of $12.2 million in net income from E&C in the first quarter of 2014, compared to the first quarter of 2013, was mainly due to a higher contribution from the Infrastructure segment, partially offset by a lower contribution from the Power and REW segments.
The higher contribution from the Infrastructure segment was mainly due to a reversal of a risk provision previously recorded on a Libyan project within the Infrastructure & Construction sub-segment. The Company continues to effectively manage risk associated with the Infrastructure segment's challenging legacy projects, while operating in a demanding end-market environment. The lower contribution from the Power segment was mainly due to timing, and the Company expects the lower volume of Packages activity to rebound as it progresses on the recently announced John Hart Generating Station Replacement Facility project. The lower contribution from the REW segment was mainly due to negative EBIT in Oil & Gas and Environment & Water. The negative EBIT in Oil & Gas mainly reflected a lower volume of activity combined with a lower gross margin-to-revenue ratio, both negatively impacted in 2014 by a challenging legacy fixed-priced project in Algeria, which is nearly completed. The negative EBIT for Environment & Water mainly reflected a decrease in gross margin.
Net income from Infrastructure Concession Investments ("ICI") increased to $63.8 million, compared to $35.0 million for the first quarter ended March 31, 2013, mainly due to a higher dividend received from Highway 407 and higher net income from AltaLink.
Revenues for the first quarter of 2014 were $1.7 billion, compared to $1.9 billion in the first quarter of 2013, as the increase in ICI revenues was more than offset by a decrease in E&C revenues. "Despite decreased revenues, we have a steady backlog, recent project wins and a solid prospect list, and we are on track to meet our guidance and remain positive about the year ahead. Also, as part of the AltaLink transaction and effective upon closing, we are pleased to have entered into a strategic partnership with MidAmerican Transmission to develop engineering, procurement and construction opportunities in the US market with independent system operators and regional transmission organizations," added Mr. Card.
Selling, general and administrative ("SG&A") expenses for the first quarter ended March 31, 2014, decreased by 9.8% to $186.8 million, compared to $207.1 million for the corresponding period of 2013. The decrease is mainly attributable to costs savings resulting from restructuring plans implemented in the second half of 2013, as well as other initiatives under the Value Up program.
Cash and cash equivalents totalled $1.1 billion as at March 31, 2014, in line with the end of December 31, 2013.
Revenue backlog totalled $8.4 billion at the end of March 2014, in line with the end of December 2013, as the increase in the Packages revenue backlog was offset by a decrease in O&M. Packages backlog increased by $351.2 million since December 31, 2013, despite a decrease of $173.8 million related to challenging legacy projects in the Company's backlog. Challenging legacy projects included in the Company's backlog, the large majority of which are in the hospitals sector, totalled $728.8 million as at March 31, 2014, a 19% decrease from $902.6 million as at December 31, 2013.
2014 Outlook Update
The Company is revising its previously announced 2014 guidance, and it now expects 2014 Earnings Per Share ("EPS") to be in the range of $2.80 to $3.05, versus its previous guidance of $2.25 to $2.50. The revision results from an accounting requirement under IFRS, following the Company's recently announced agreement to sell its equity stake in AltaLink, under which the Company will cease to depreciate and amortize non-current assets of AltaLink on a prospective basis. This outlook does not take into account the eventual gain on the sale of the Company's interest in AltaLink. The revised outlook continues to be principally based on the expectations that challenges will continue in the Infrastructure & Construction and Oil & Gas sub-segments, mainly due to certain challenging legacy projects, and in the Mining & Metallurgy sub-segment, which continues to be affected by the softening of the commodity markets, as well as the expectation that the Power and ICI segments, and the O&M sub-segment, should increase their contributions. This outlook assumes that SG&A expenses will continue to decrease mainly as a result of new initiatives and ongoing activities associated with SNC-Lavalin's new company-wide profit improvement program.
The above revised outlook continues to be based on the assumptions and methodology described in the Company's 2013 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.
The Board of Directors today declared a cash dividend of $0.24 per share, payable on June 5, 2014, to shareholders of record on May 22, 2014. This dividend is an "eligible dividend" for income tax purposes.
SNC-Lavalin is one of the leading engineering and construction groups in the world, and is a major player in the ownership of infrastructure and in the provision of operations and maintenance services. Founded in 1911, SNC-Lavalin has offices across Canada and in over 40 other countries around the world, and is currently active in some 100 countries. www.snclavalin.com
Reference in this press release, and hereafter, to the "Company" or to "SNC-Lavalin" means, as the context may require, SNC-Lavalin Group Inc. and all or some of its subsidiaries or joint arrangements, or SNC-Lavalin Group Inc. or one or more of its subsidiaries or joint arrangements.
Statements made in this press release that describe the Company's or management's budgets, estimates, expectations, forecasts, objectives, predictions, projections of the future or strategies may be "forward-looking statements", which can be identified by the use of the conditional or forward-looking terminology such as "aims", "anticipates", "assumes", "believes", "estimates", "expects", "goal", "intends", "may", "plans", "projects", "should", "will", or the negative thereof or other variations thereon. Forward-looking statements also include any other statements that do not refer to historical facts. All such forward-looking statements are made pursuant to the "safe-harbour" provisions of applicable Canadian securities laws. The Company cautions that, by their nature, forward-looking statements involve risks and uncertainties, and that its actual actions and/or results could differ materially from those expressed or implied in such forward-looking statements, or could affect the extent to which a particular projection materializes. Forward-looking statements are presented for the purpose of assisting investors and others in understanding certain key elements of the Company's current objectives, strategic priorities, expectations and plans, and in obtaining a better understanding of the Company's business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
The 2014 outlook referred to in this press release is forward-looking information and is based on the methodology described in the Company's 2013 Management's Discussion and Analysis under the heading "How We Budget and Forecast Our Results" and is subject to the risks and uncertainties described in the Company's public disclosure documents. The purpose of the 2014 outlook is to provide the reader with an indication of management's expectations, at the date of this press release, regarding the Company's future financial performance and readers are cautioned that this information may not be appropriate for other purposes.
Forward-looking statements made in this press release are based on a number of assumptions believed by the Company to be reasonable as at the date hereof. The assumptions are set out throughout the Company's 2013 Management's Discussion and Analysis (particularly, in the sections entitled "Critical Accounting Judgments and Key Sources of Estimation Uncertainty" and "How We Analyze and Report our Results" in the Company's 2013 Management's Discussion and Analysis), as updated in the Company's First Quarter 2014 Management's Discussion and Analysis. The 2014 outlook also assumes that previously disclosed amounts relating to a claim in Algeria will not be reversed and does not take into account the eventual gain on the sale of the Company's interest in AltaLink. If these assumptions are inaccurate, the Company's actual results could differ materially from those expressed or implied in such forward-looking statements. In addition, important risk factors could cause the Company's assumptions and estimates to be inaccurate and actual results or events to differ materially from those expressed in or implied by these forward-looking statements. These risks include, but are not limited to: (a) the outcome of pending and future claims and litigation could have a material adverse impact on the Company's business, financial condition and results of operation; (b) the Company is subject to ongoing investigations which could subject the Company to criminal and administrative enforcement actions, civil actions and sanctions, fines and other penalties, some of which may be significant, which, in turn, could harm the Company's reputation, result in suspension, prohibition or debarment of the Company from participating in certain projects, reduce its revenues and net income and adversely affect its business; (c) further regulatory developments could have a significant adverse impact on the Company's results, and employee, agent or partner misconduct or failure to comply with anti-bribery and other government laws and regulations could harm the Company's reputation, reduce its revenues and net income, and subject the Company to criminal and administrative enforcement actions and civil actions;(d) if the Company is not able to successfully execute on its new strategic plan, its business and results of operations would be adversely affected; (e) a negative impact on the Company's public image could influence its ability to obtain future projects; (f) fixed-price contracts or the Company's failure to meet contractual schedule or performance requirements may increase the volatility and unpredictability of its revenue and profitability; (g) the Company's revenue and profitability are largely dependent on the awarding of new contracts, which it does not directly control, and the uncertainty of contract award timing could have an adverse effect on the Company's ability to match its workforce size with its contract needs; (h) the Company's backlog is subject to unexpected adjustments and cancellations, including under "termination for convenience" provisions, and does not represent a guarantee of the Company's future revenues or profitability; (i) SNC-Lavalin is a provider of services to government agencies and is exposed to risks associated with government contracting; (j) the Company's international operations are exposed to various risks and uncertainties, including unfavourable political environments, weak foreign economies and the exposure to foreign currency risk; (k) there are risks associated with the Company's ownership interests in ICI that could adversely affect it; (l) the Company is dependent on third parties to complete many of its contracts; (m) the Company's use of joint ventures and partnerships exposes it to risks and uncertainties, many of which are outside of the Company's control; (n) the competitive nature of the markets in which the Company does business could adversely affect it; (o) the Company's project execution activities may result in professional liability or liability for faulty services; (p) the Company could be subject to monetary damages and penalties in connection with professional and engineering reports and opinions that it provides; (q) the Company may not have in place sufficient insurance coverage to satisfy its needs; (r) the Company's employees work on projects that are inherently dangerous and a failure to maintain a safe work site could result in significant losses and/or an inability to obtain future projects; (s) the Company's failure to attract and retain qualified personnel could have an adverse effect on its activities; (t) work stoppages, union negotiations and other labour matters could adversely affect the Company; (u) the Company relies on information systems and data in its operations. Failure in the availability or security of the Company's information systems or in data security could adversely affect its business and results of operations; (v) any acquisition or other investment may present risks or uncertainties; (w) a deterioration or weakening of the Company's financial position, including its cash net of recourse debt, would have a material adverse effect on its business and results of operations; ( x ) the Company may have significant working capital requirements, which if unfunded could negatively impact its business, financial condition and cash flows; (y) an inability of SNC-Lavalin's clients to fulfill their obligations on a timely basis could adversely affect the Company; (z) the Company may be required to impair certain of its goodwill, and it may also be required to write down or write off the value of certain of its assets and investments, either of which could have a material adverse impact on the Company's results of operations and financial condition; (aa) global economic conditions could affect the Company's client base, partners, subcontractors and suppliers and could materially affect its backlog, revenues, net income and ability to secure and maintain financing; (bb) fluctuations in commodity prices may affect clients' investment decisions and therefore subject the Company to risks of cancellation, delays in existing work, or changes in the timing and funding of new awards, and may affect the costs of the Company's projects; (cc) inherent limitations to the Company's control framework could result in a material misstatement of financial information, and; (dd) environmental laws and regulations expose the Company to certain risks, could increase costs and liabilities and impact demand for the Company's services. The Company cautions that the foregoing list of factors is not exhaustive. For more information on risks and uncertainties, and assumptions that would cause the Company's actual results to differ from current expectations, please refer to the sections "Risks and Uncertainties", "How We Analyze and Report Our Results" and "Critical Accounting Judgments and Key Sources of Estimation Uncertainty" in the Company's 2013 Management's Discussion and Analysis, as updated in the Company's First Quarter 2014 Management's Discussion and Analysis.
The forward-looking statements herein reflect the Company's expectations as at the date of this press release and are subject to change after this date. The Company does not undertake any obligation to update publicly or to revise any such forward-looking statements whether as a result of new information, future events or otherwise, unless required by applicable legislation or regulation.
(1) EBIT is defined herein as income before net financial expenses and income taxes. Segment and sub-segment EBIT is defined herein as income net of non-controlling interest, before restructuring costs, net financial expenses and income taxes. The term EBIT does not have any standardized meaning under IFRS. Therefore, it may not be comparable to similar measures presented by other issuers. 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.
SNC-Lavalin's Consolidated Financial Statements and Management's Discussion and Analysis and other relevant financial materials are available in the Investor Relations 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.
SOURCE SNC-LavalinFor further information:
Vice-President, Investor Relations
514-393-8000, ext. 57553
Public Relations Manager
514-393-8000, ext. 54772