SNC-Lavalin announces its third quarter results for 2016, with an adjusted EPS from E&C of $0.16 and a 16% decrease in SG&A expenses

  • Reported Q3 2016 IFRS net income of $43.3 million, or $0.29 per diluted share.
  • Q3 2016 adjusted net income from E&C(1) of $24.4 million, or $0.16 per diluted share.
  • SG&A expenses decreased by 16.5%, on a like-for-like basis, versus Q3 2015. Year-to-date SG&A expenses were lower by $95.3 million on the same basis, close to achieving the Company's announced full year targeted savings.
  • Strong diversified revenue backlog of $11.8 billion as at September 30, 2016.
  • 2016 Outlook maintained: adjusted diluted EPS from E&C(2) in the range of $1.30 to $1.60.

To watch Neil Bruce comment on SNC-Lavalin's third quarter 2016 financial results, click here.

MONTREAL, Nov. 3, 2016 /CNW Telbec/ - SNC-Lavalin Group Inc. (TSX: SNC) announces its results today for the third quarter ended September 30, 2016.

"After several quarters of sustained earnings improvements and cost reductions, we encountered a setback in the third quarter, with significant cost and revenue reforecasts on two Oil & Gas projects operating under the same contract. Despite this setback, our 2017 target remains the same and our "Operational Excellence" program continues to progress well. We continue to deploy efforts throughout our organization to ensure consistency of execution so that we deliver sustained earnings improvements," said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. "Other than the isolated circumstances in our Oil & Gas sector, we are pleased with the third quarter results of the other three sectors, particularly Infrastructure. Infrastructure continues to perform well, with major projects progressing ahead of expectation. We have a strong balance sheet and remain confident about the increasing quality of our diversified backlog."  

  • For Q3 2016, reported IFRS net income was $43.3 million, or $0.29 per diluted share, compared to a net income of $224.2 million, or $1.49 per diluted share, for the corresponding period in 2015, which included a net gain on a Capital investment disposal of $145.7 million, or $0.96 per diluted share.
  • Adjusted net income from E&C(1) for Q3 2016 was $24.4 million, or $0.16 per diluted share, compared to $70.6 million, or $0.47 per diluted share, for the corresponding period in 2015. As expected following our announcement on September 29, 2016, the decrease was mainly due to a negative Segment EBIT(3) in the Oil & Gas segment, following unfavorable cost and revenue reforecasts on two Oil & Gas projects in the Middle East, operating under the same contract.
  • Adjusted net income from Capital for Q3 2016 was $42.6 million, or $0.29 per diluted share, compared with $45.2 million, or $0.31 per diluted share for the corresponding period in 2015, as the increase in dividends from Highway 407 was offset by an increase in business development expenses on new prospects and other SG&A.
  • Total selling, general and administrative (SG&A) expenses in Q3 2016 decreased by 32.1%, compared to Q3 2015. This decrease includes a $32.5 million favorable impact from revised estimates on legacy sites environmental liabilities and other asset retirement obligations. On a like-for-like basis, i.e. excluding this favorable impact, total SG&A expenses decreased by 16.5% compared to Q3 2015. On the same basis, for the nine month period ended September 30, 2016, SG&A expenses were $95.3 million lower than the corresponding period in 2015, positioning us to deliver well above our target of $100 million reduction for the full year. We will continue to take additional measures, if required, to ensure we are as cost effective as possible.
  • Adjusted E&C EBITDA(4) margin was 2.2% in Q3 2016, compared to 5.8% in Q3 2015. Year-to-date Adjusted E&C EBITDA(4) margin for 2016 was 4.3%, in line with the corresponding period of 2015.
  • Total E&C revenue for Q3 2016 was $2.1 billion, compared with $2.4 billion in Q3 2015. The variation was mainly due to a decrease in the Mining & Metallurgy segment, as it continues to be affected by the persistent softer commodity prices, and in Oil & Gas, which despite having delivered its strongest quarter of 2016, had revenues lower than Q3 2015.
  • The revenue backlog totaled $11.8 billion at the end of September 2016. New contract awards for the third quarter amounted to $1.3 billion, totaling $5.9 billion for the nine month period ended September 30, 2016.
  • The balance sheet remained strong at the end of September 2016 with cash and cash equivalents at $0.9 billion.
  • The "Operational Excellence" program, which we launched at the end of Q1 2016, continues to progress well as we further improve our efficiency and execution. We have identified many initiatives that are progressing at various stages. Some have been completed, such as the IT outsourcing; some are in progress, such as the sale of non-core businesses; and others will be launched soon, such as a review of our owned real estate portfolio.

Outlook

The Company is maintaining its previously announced 2016 outlook for the adjusted diluted EPS from E&C(2), which is expected to be in the range of $1.30 to $1.60.

We expect that the Oil & Gas and Infrastructure segments will be the main contributors to net income, while Mining & Metallurgy will likely be the smallest contributor to net income.

SNC-Lavalin remains confident in its diversified business model and continues to target an adjusted E&C EBITDA(4) margin of 7% in 2017, mainly due to actions taken in the last 12 months through its "Step Change" and "Operational Excellence" programs.

The above outlook is based on the assumptions and methodology described in the Company's 2015 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 $0.26 per share, payable on December 1, 2016, to shareholders of record on November 17, 2016. This dividend is an "eligible dividend" for income tax purposes.

Conference Call / Webcast

SNC-Lavalin will hold a conference call today at 3:00 p.m. EDT to discuss the third 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 0613 in Montreal, 080 0279 0444 in the United Kingdom, and 180 099 2284 in Ireland. Members of the media are welcome to participate on a listen-only basis. 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.

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 are proud to build what matters. Our teams provide engineering, procurement, construction, completions and commissioning services together with a range of sustaining capital services to clients in four industry sectors, oil and gas, mining and metallurgy, infrastructure and 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) Adjusted net income 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 and other, as well as amortization of intangible assets, and the financing, acquisition-related costs and integration costs incurred in connection with the acquisition of Kentz in 2014. E&C is defined in the Company's 2015 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 weighted average number of outstanding shares for the period.

(3) Segment EBIT is defined herein as 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. 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 the Kentz acquisition are not allocated to the Company's segments. 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.

(4) Adjusted E&C EBITDA is defined herein as earnings from E&C before net financial expenses, income taxes, depreciation and amortization, and excludes one-time net foreign exchange gains, charges related to restructuring and right-sizing and other, as well as the acquisition-related costs and integration costs incurred in connection with the acquisition of Kentz in 2014. 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.

 

SNC-Lavalin Financial Summary

 


(in thousands of Canadian dollars, unless otherwise indicated)

Third Quarter

Nine months ended
September 30


2016

2015

2016

2015






Revenues





From E&C

2,100,591

2,376,340

6,076,601

6,773,211

From Capital

67,949

56,900

183,095

167,456


2,168,540

2,433,240

6,259,696

6,940,667






Net income attributable to SNC-Lavalin's shareholders
From E&C 

688

33,334

84,781

81,847

From Capital

42,652

190,869

169,176

273,245


43,340

224,203

253,957

355,092






Diluted EPS ($)





From E&C 

0.00

0.22

0.56

0.54

From Capital

0.29

1.27

1.13

1.81


0.29

1.49

1.69

2.35






Adjusted net income attributable to SNC-Lavalin's shareholders





From E&C
From Capital 

24,370

42,651

70,654

45,150

152,948

118,130

135,670

127,526


67,021

115,804

271,078

263,196






Adjusted diluted EPS ($)

From E&C 

From Capital

0.16

0.29

0.47

0.31

1.02

0.79

0.90

0.85


0.45

0.78

1.81

1.75

Adjusted E&C EBITDA

Adjusted E&C EBITDA margin

46,143

2.2%

138,478

5.8%

263,909

4.3%

288,546

4.3%











Revenue backlog



11,776,600

12,725,600






Cash and cash equivalents



895,533

1,455,696

 

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 of Kentz

One-time net
foreign
exchange gain

Net gain on
Capital
investment
disposals

Net income,

adjusted




Acquisition-related
costs and integration
costs

Amortization of
intangible assets




Third Quarter 2016

In M$

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

In M$

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.

 









Net income  
as reported

Net charges related to
the restructuring &
right-sizing plan and
other

Acquisition of Kentz

One-time net
foreign
exchange gain

Net gain on
Capital
investment
disposals

Net income,
adjusted




Acquisition-related
costs and integration
costs

Amortization of
intangible assets




Third Quarter 2015

In M$

E&C

33.3

10.2

4.4

22.7

-

-

70.6

Capital

190.9

-

-

-

-

(145.7)

45.2


224.2

10.2

4.4

22.7

-

(145.7)

115.8

Per Diluted share ($)

E&C

0.22

0.07

0.03

0.15

-

-

0.47

Capital

1.27

-

-

-

-

(0.96)

0.31


1.49

0.07

0.03

0.15

-

(0.96)

0.78

Nine Months Ended September 30, 2015

In M$

E&C

81.9

16.6

15.1

54.7

(32.6)

-

135.7

Capital

273.2

-

-

-

-

(145.7)

127.5


355.1

16.6

15.1

54.7

(32.6)

(145.7)

263.2

Per diluted share ($)

E&C

0.54

0.11

0.10

0.36

(0.21)

-

0.90

Capital

1.81

-

-

-

-

(0.96)

0.85


2.35

0.11

0.10

0.36

(0.21)

(0.96)

1.75

 

Forward-looking Statements:

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", "cost savings", "estimates", "expects", "goal", "intends", "may", "plans", "projects", "should", "synergies", "will", or the negative thereof or other variations thereon. Forward-looking statements also include any other statements that do not refer to historical facts. Forward-looking statements also include statements relating to the following: i) future capital expenditures, revenues, expenses, earnings, economic performance, indebtedness, financial condition, losses and future prospects; and ii) business and management strategies and the expansion and growth of the Company's operations. 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 2016-2017 outlook referred to in this press release is forward-looking information and is based on the methodology described in the Company's 2015 Management's Discussion and Analysis ("MD&A") 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 2016-2017 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 2015 MD&A (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 2015 MD&A), as updated in the Company's second and third quarter 2016 MD&A. The 2016-2017 outlook also assumes that the federal charges laid against the Company and its indirect subsidiaries SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. on February 19, 2015, will not have a significant adverse impact on the Company's business in 2016-2017. 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) on February 19, 2015, the Company was charged with one count of corruption under the Corruption of Foreign Public Officials Act (Canada)(the "CFPOA") and one count of fraud under the Criminal Code (Canada), and is also subject to other 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. These charges and investigations, and potential results thereof, 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 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 Capital investments 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; * 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 could 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 2015 MD&A and as updated in the third quarter 2016 MD&A.

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.

SNC-Lavalin's Consolidated Financial Statements and Management's Discussion and Analysis and other relevant financial materials are available in the Investors 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-Lavalin

For further information: Media: Louis-Antoine Paquin, Manager, Media Relations, 514-393-8000, ext. 54772, louis-antoine.paquin@snclavalin.com; Investors: Denis Jasmin, Vice President, Investor Relations, 514-393-8000, ext. 57553, denis.jasmin@snclavalin.com

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