- $195.6 million of net income attributable to SNC-Lavalin shareholders for the first nine months of 2014, compared to a net loss of $56.8 million for the same period in 2013;
- Results for first nine months of 2014 included acquisition-related costs, integration costs and financing costs, due to the Kentz acquisition, and restructuring costs, totalling $76.3 million (after taxes);
- $30.7 million EBIT(1) from Kentz since its acquisition on August 22, 2014 (approximately five weeks);
- 8.3% EBIT(1) margin on revenues for the first nine months of 2014 (9.6% excluding restructuring costs, acquisition-related costs and integration costs);
- $12.5 billion revenue backlog;
- $1.1 billion in cash and cash equivalents;
- 2014 EPS guidance revised to a range of $0.40 to $0.55, which now includes contribution from Kentz and all acquisition-related costs, integration costs and financing costs, as well as the costs of the actions announced today.
MONTREAL, Nov. 6, 2014 /CNW Telbec/ - SNC-Lavalin Group Inc. (TSX: SNC) announces its results today for the third quarter and nine-month period ended September 30, 2014.
|(in thousands of Canadian dollars, unless otherwise indicated)||Third Quarter||Nine months ended September 30|
|Revenues by activity|
|Net income (loss) attributable to SNC-Lavalin shareholders|
|Net income (loss) attributable to SNC-Lavalin shareholders||68,967||(72,717)||195,625||(56,769)|
|Net income attributable to non-controlling interests||744||253||911||523|
|Net income (loss)||69,711||(72,464)||196,536||(56,246)|
|Diluted earnings (loss) per share ($)||0.45||(0.48)||1.28||(0.37)|
| As at
| As at
|Revenue backlog by activity|
|Cash and cash equivalents||1,143,649||1,108,694|
"During the quarter, we closed our landmark acquisition of Kentz, which has transformed our oil and gas capabilities and provided a platform for accelerated growth. Kentz's strong and immediate contribution to SNC-Lavalin reflects the logic of the transaction, and we look forward to continuing to grow the business and gain market share in the higher margin oil and gas sector, as well as leverage their expertise across other SNC-Lavalin sectors," said Robert G. Card, President and Chief Executive Officer, SNC-Lavalin Group Inc.
"We remain committed to capturing maximum value from our portfolio, including leveraging our ICI assets to build value for our E&C business, as evidenced by our recent AltaLink, Astoria power plant and Groupe Immobilier Ovation transactions. We have made good progress toward establishing an efficient, global operating model, with a solid backlog, world-class project execution and strict compliance standards, and we look forward to continuing to execute our growth strategy to create increased value for shareholders," he added.
Third Quarter Results
For the third quarter of 2014, SNC-Lavalin reported a net income attributable to SNC-Lavalin shareholders of $69.0 million ($0.45 per share on a diluted basis), compared to a net loss of $72.7 million (-$0.48 per share on a diluted basis) for the same period of 2013.
The Company reported a net loss from Engineering & Construction and Operations & Maintenance ("E&C") of $20.0 million, compared to a net loss of $128.4 million for the third quarter 2013. The net loss from E&C in the third quarter of 2014 is mainly due to $38.4 million (after taxes) of financing, acquisition and integration costs related to the acquisition of Kentz, which was completed on August 22, 2014, and $10.2 million (after taxes) of restructuring costs and goodwill impairment, as the Company continued its restructuring actions to align its operations with its growth strategy. Without these costs, third quarter 2014 net income from E&C was $28.6 million versus a comparative net loss from E&C of $66.0 million, resulting in a positive year-over-year variance of $94.6 million. This positive variance is due to a lower negative EBIT in the Infrastructure segment and higher contributions from the REW and Power segments, compared to the corresponding period last year.
The positive variance for the Infrastructure segment is mainly due to a lower negative EBIT from the Infrastructure & Construction sub-segment, principally due to less unfavourable cost reforecasts in the third quarter of 2014, compared to the corresponding period of 2013. The EBIT of the Infrastructure & Construction sub-segment continued to be affected by unprofitable legacy fixed-price projects, and included a net negative impact on gross margin of $13.1 million in the quarter from the combination of an additional loss on a major hospital project, and of a favourable outcome on certain claims. The positive variance for the REW segment is mainly due to a contribution of $30.7 million from the new Kentz sub-segment, partially offset by lower contributions from the Mining & Metallurgy, Oil & Gas and Environment & Water sub-segments. Despite the positive variance from an improvement in its gross margin to revenue ratio, the Power segment was affected in the quarter by an unfavourable cost reforecast on an unprofitable legacy fixed-price contract in North Africa and additional reserves, for a total amount of $23.6 million.
Net income from Infrastructure Concession Investments ("ICI") increased to $88.9 million, compared to $55.7 million for the third quarter ended September 30, 2013, mainly due to a higher net income from AltaLink. The increase in net income from AltaLink is mainly explained by an accounting requirement under IFRS, for which the Company has ceased to depreciate and amortize AltaLink's non-current assets starting May 1, 2014, resulting from the classification of AltaLink's assets and liabilities as held for sale on that date.
Revenues for the third quarter of 2014 totalled $2.0 billion, in line with the third quarter of 2013, as the incremental Services revenues from Kentz and the increase in ICI revenues were offset by the decrease in Packages revenues.
Selling, general and administrative ("SG&A") expenses for the third quarter ended September 30, 2014, totalled $204.3 million, compared to $175.7 million for the corresponding period of 2013. SG&A expenses for the third quarter of 2014 included $18.3 million from Kentz and $18.2 million from ICI. Excluding these expenses, the remaining SG&A expenses from E&C were in line with the third quarter of 2013, when the Company began its effort to contain such expenses under its Value Up program and implemented its restructuring plans.
For the nine-month period ended September 30, 2014, SNC-Lavalin reported net income attributable to SNC-Lavalin shareholders of $195.6 million ($1.28 per share on a diluted basis), compared to a net loss of $56.8 million (-$0.37 per share on a diluted basis) for the same period of 2013.
The Company reported a net loss from E&C of $36.0 million compared to a net loss of $214.5 million for the first nine months of 2013. The net loss from E&C is partly due to $64.3 million (after taxes) of financing, acquisition-related costs and integration costs related to the acquisition of Kentz, which was completed on August 22, 2014, and $12.0 million (after taxes) of restructuring costs and goodwill impairment. Without these costs, year-to-date 2014 net income from E&C was $40.3 million, versus a comparative net loss from E&C of $152.1 million in the corresponding nine-month period in 2013, resulting in a positive variance of $192.4 million. This positive variance is due to a positive EBIT in the Infrastructure and REW segments, compared to a negative EBIT for the corresponding period last year, partially offset by a lower contribution from the Power segment.
The positive variance for the Infrastructure segment is mainly due to a lower negative EBIT from the Infrastructure & Construction sub-segment, principally due to reversals in 2014 of non-cash provisions on a Libyan project, as well as less unfavourable cost reforecasts and provisions in the first nine months of 2014 compared to the corresponding period of 2013, as well as a higher contribution in the O&M sub-segment. The positive variance for the REW segment is mainly due to a lower negative EBIT from the Oil & Gas sub-segment and to a contribution of $30.7 million from the new Kentz sub-segment, partially offset by lower contributions from the Mining & Metallurgy and Environment & Water sub-segments. The lower contribution from the Power segment is mainly due to an unfavourable cost reforecast on an unprofitable legacy fixed-price contract in North Africa and additional reserves.
Net income from ICI increased to $231.6 million, compared to $157.7 million, for the first nine months of 2013, mainly due to a higher net income from AltaLink, as explained above, as well as higher dividends received from Highway 407, partially offset by a lower net income from SKH.
Revenues for the first nine months of 2014 were $5.4 billion, compared to $5.8 billion for the same period in 2013, as the incremental Services revenues in the third quarter 2014 from Kentz, and the increase in ICI revenues were more than offset by the decrease in Packages revenues.
"We are making progress cycling through the challenging legacy projects, and we are steadily replacing them with higher-quality projects with better risk profiles. We were also able to contain SG&A expenses in the quarter despite additional costs related to the Kentz acquisition and we are taking further steps to align our cost structure with our growth opportunities. We remain confident that our current restructuring program, outlined in this morning's announcement, will strengthen our company and allow us to compete on a global scale," stated Mr. Card.
SG&A expenses for the nine-month period ended September 30, 2014, decreased by 2.0% to $599.4 million, compared to the corresponding period of 2013, despite $18.3 million of incremental expenses in the third quarter from the Kentz acquisition. The decrease is mainly attributable to costs savings resulting from the Company's restructuring plans implemented in the second half of 2013, and the Company's continued effort to contain these costs under its Value Up program.
Cash and cash equivalents totalled $1.1 billion as at September 30, 2014, in line with December 31, 2013.
Revenue backlog totalled $12.5 billion at the end of September 2014, a 51.0% increase compared with the end of December 2013. The increase is mainly due to the Services and Packages revenue backlog, which grew largely due to the addition of Kentz's revenue backlog. The challenging legacy projects included in the Company's backlog, the large majority of which are in the hospitals sector, totalled $500.0 million as at September 30, 2014, a 17% decrease from $601.9 million as at June 30, 2014.
The Company is revising its 2014 Earnings per Share ("EPS") guidance range to $2.15 to $2.40, from its previous guidance of $2.80 to $3.05. This revised guidance does not take into account (i) the impact of the acquisition of Kentz completed on August 22, 2014 or the acquisition costs relating thereto, or (ii) the charges from the actions announced today. In the event the acquisition of Kentz (including acquisition-related costs, integration costs and financing costs) and the charges from the actions announced today were taken into account, 2014 EPS would be expected to be in the range of $0.40 to $0.55. None of the guidance revisions set out above take into account the eventual gain on the sale of the Company's interest in AltaLink. The revised outlook is principally based on the expectations that challenges will continue in the Mining & Metallurgy sub-segment, which continues to be affected by the softening of the commodity markets, and in the Infrastructure & Construction and pre-Kentz Oil & Gas sub-segments, mainly due to certain challenging legacy projects, as well as in the Environment & Water sub-segment. It is also expected that the ICI segment 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 company-wide Value Up profit improvement program, as well as the actions announced today.
The above 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 December 4, 2014, to shareholders of record on November 20, 2014. This dividend is an "eligible dividend" for income tax purposes.
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 45,000 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
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", "will", "synergies", 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 and potential synergies resulting from the Acquisition. 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 Third 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) the Company may be unable to successfully integrate the businesses of SNC-Lavalin and Kentz and realize the anticipated benefits of the Acquisition; * 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; (y) the Company may have significant working capital requirements, which if unfunded could negatively impact its business, financial condition and cash flows; (z) an inability of SNC-Lavalin's clients to fulfill their obligations on a timely basis could adversely affect the Company; (aa) 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; (bb) the Company's indebtedness following completion of the Acquisition is substantial. This indebtedness could have adverse consequences for the Company, including reducing funds available for other business purposes; (cc) 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; (dd) 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; (ee) inherent limitations to the Company's control framework could result in a material misstatement of financial information, and; (ff) 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, and as updated in the Company's Third 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, goodwill impairment, acquisition-related costs, integration 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.
For further information:
Public Relations Manager,
Global Corporate Communications
SNC-Lavalin Group Inc.
514-393-8000, ext. 54772
Vice-President, Investor Relations
SNC-Lavalin Group Inc.
514-393-8000, ext. 57553