Strong Q4 operating cash flow, reduced debt ratio and growing Engineering Services backlog, in line with the new strategic direction
To watch
2019 Fourth Quarter Financial Highlights
- New strategic direction continuing to deliver results: In
July 2019 ,SNC-Lavalin announced a new strategic direction focused on de-risking the business through exiting bidding on lump-sum turnkey (LSTK) contracts and prioritizing the Company's high-value SNCL Engineering Services business line. The SNCL Engineering Services continued its solid performance during the quarter with strong revenue, EBIT and EBIT margins; LSTK construction contracts backlog for SNCL Projects reduced to$3.0 billion as atDecember 31, 2019 from$3.2 billion as atSeptember 30, 2019 . - Strong operating cash flow:
SNC-Lavalin generated operating cash flow of$312 million , the highest quarterly amount since the fourth quarter of 2017, increasing total cash on the balance sheet to$1.2 billion as atDecember 31, 2019 ; net recourse debt to EBITDA ratio under the Company's Credit Agreement reduced to 2.1x from 3.4x in the third quarter of 2019 and down from 2.9x in the fourth quarter of 2018. - Resources restructuring: The Company made the decision to close Valerus, non-core, underperforming, mid-stream oil and gas production and processing facilities based in
Houston , and took a restructuring charge in the fourth quarter of 2019 of approximately$72 million , of which approximately$53 million was non-cash. The Company continues to actively explore all options for the remaining Resources business as it winds down the remaining LSTK projects and is right-sizing overhead as the business evolves. - Federal charges settled:
SNC-Lavalin Construction Inc. , a subsidiary ofSNC-Lavalin Group Inc. , pled guilty to one charge of fraud; all charges againstSNC-Lavalin Group Inc. were withdrawn and the Company agreed to a fine of$280 million , payable in equal instalments over five years. As a result, the Company recognized a non-cash accounting charge of$257.3 million , reflecting the net present value of the full settlement amount. - Cost reduction program: In the fourth quarter of 2019, the Company successfully completed its
$250 million annual run-rate cost reduction program. - IFRS net loss attributable to
SNC-Lavalin shareholders: Net loss attributable to SNC‑Lavalin shareholders was$293 million , mainly due to the non-cash, net present value of the Federal charge settlement being recognized in full in the quarter, and restructuring charges.
2019 Fourth Quarter and Year-End Financial Highlights | ||||
(in thousands of dollars, unless otherwise indicated) | Fourth Quarter | Year Ended | ||
2019 | 2018 | 2019 | 2018 | |
Total revenue | 2,436,077 | 2,562,503 | 9,515,610 | 10,084,006 |
Net income (loss) attributable to | (292,870) | (1,598,724) | 328,219 | (1,316,898) |
Diluted EPS | ( | ( | ( | |
SNCL Engineering Services (incl. Capital) Revenue Segment EBIT(7) Segment EBIT ratio Backlog | 1,609,784 190,513 11.8% 11,297,900 | 1,580,001 219,099 13.9% 10,376,800 | 6,280,011 802,118 12.8% 11,297,900 | 5,786,374 776,432 13.4% 10,376,800 |
SNCL Projects Revenue Segment EBIT(7) Segment EBIT ratio | 826,293 (27,839) (3.4%) 3,964,600 | 982,502 (364,601) (37.1%) 4,508,200 | 3,235,599 (448,000) (13.8%) 3,964,600 | 4,297,632 (237,297) (5.5%) 4,508,200 |
Adjusted EBITDA from E&C(8) Adjusted EBITDA from E&C margin Adjusted diluted EPS from E&C(2) | 166,808 7.0% | (204,868) (8.2%) ( | 279,123 3.0% ( | 385,588 3.9% |
CEO Commentary
"2019 was a challenging year for us in many ways. We were tested as a Company, and went through some very difficult times, but I am very proud to say that we took decisive action and are stronger for it. In July, we took the decision, with the support of the Board, to set a different course, and point the Company in a new strategic direction: we exited bidding on LSTK contracts and focused on growing our high-value SNCL Engineering Services business, therefore de-risking the business and positioning it to generate consistent earnings and cash flow. Six months into our new strategic direction, it is clear to me after two quarters of solid results in the second half of 2019, that the strategy is delivering, and that we made the right decision.
"In the fourth quarter of 2019, we generated strong operating cash flow, the highest since Q4 2017, and delivered solid earnings on an adjusted basis. Our SNCL Engineering Services business line continued to perform well, and we continued to reduce the SNCL Projects LSTK backlog. We also took the necessary decision to close Valerus, non-core, unprofitable, mid-stream oil and gas production and processing facilities, as part of our commitment to restructure the Resources business. Additionally, we appointed a President of Infrastructure Projects, a role dedicated solely to executing and managing the wind-down of the remaining LSTK infrastructure projects.
"We settled the federal charges resulting from the Company's legacy activities in
Fourth Quarter Results
The Company reported an IFRS net loss attributable to
Adjusted net income from E&C(1) in the fourth quarter of 2019 increased to
SNCL Engineering Services
Revenue from the SNCL Engineering Services line of business, which includes the EDPM, Nuclear, Infrastructure Services, and Capital segments, totaled
SNCL Engineering Services, excluding Capital, recorded a strong Segment EBIT(7) and Segment EBIT ratio of
SNCL Projects
Revenue from the SNCL Projects line of business, which includes LSTK construction contracting in the Infrastructure EPC Projects and Resources segments, totaled
SNCL Projects recorded a negative Segment EBIT(7) totaling
Backlog and Bookings
The Company's backlog totaled
LSTK Projects Update
The Company continued to run off the LSTK projects component of its SNCL Projects backlog which totaled
Financial Position and Cash Flows
As of
As at
Quarterly Dividend
The Board of Directors today declared a cash dividend of
2020 Outlook
The Company expects that in 2020 the gross revenue from SNCL Engineering Services, excluding Capital, will grow by a low single digit percentage, and that Segment EBITDA(9) as a percentage of gross revenue, from SNCL Engineering Services, excluding Capital, will be between 10% and 12%.
This outlook is based on the assumptions and methodology described in the Company's 2019 Management's Discussion and Analysis under the heading, "How We Budget and Forecast Our Results" 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.
Special Committee
The special committee established by the Board in
Fourth Quarter and Year-End 2019 Earnings Conference Call / Webcast
About
Founded in 1911,
Non-IFRS Financial Measures and Additional IFRS Measures
The Company reports its financial results in accordance with IFRS. However, the following non‑IFRS measures and additional 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 EBITDA from E&C Segment EBIT and Segment EBITDA. Additional details for these non-IFRS measures and additional IFRS measures can be found below and in
(1) Adjusted net income (loss) from E&C is defined as net income (loss) attributable to
(2) Adjusted diluted EPS from E&C is defined as the adjusted net income (loss) 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
(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 net income is defined as the adjusted net income (loss) from E&C plus the adjusted net income from Capital.
(6) Adjusted consolidated diluted EPS is defined as the adjusted net income (loss) from E&C plus the adjusted net income from Capital divided by the diluted weighted average number of outstanding shares for the period.
(7) Segment EBIT consists of revenues less i) direct cost of activities, ii) directly related selling, general and administrative expenses, and iii) corporate selling, general and administrative expenses that are allocated to segments. Expenses that are not allocated to the Company's segments include: certain corporate selling, general and administrative expenses that are not directly related to projects or segments, impairment loss (reversal of impairment losses) arising from expected credit losses, gain (loss) arising on financial assets (liabilities) at fair value through profit or loss, restructuring costs, impairment of goodwill, impairment of intangible assets related to business combinations, acquisition-related costs and integration costs, amortization of intangible assets related to business combinations, the net expense for the 2012 class action lawsuits settlement and related legal costs, the GMP equalization expense, gains (losses) on disposals of E&C businesses and Capital investments, as well as the federal charges settlement (PPSC). 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.
(8) Adjusted EBITDA from E&C 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, the net expense for the 2012 class action lawsuits settlement and related legal costs, the GMP equalization expense, the gains (losses) on disposals of E&C businesses as well as the federal charges settlement (PPSC). The term "Adjusted EBITDA 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.
(9) Segment EBITDA is defined herein as the Segment EBIT plus the segment depreciation of property and equipment and segment amortization of intangible assets. The term "Segment 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 dollars, unless otherwise indicated) | Fourth Quarter | Year ended | ||
2019 | 2018 | 2019 | 2018 | |
Revenues | ||||
From E&C-SNCL Engineering Services | 1,573,591 | 1,502,911 | 6,017,291 | 5,521,717 |
From E&C-SNCL Projects | 826,293 | 982,502 | 3,235,599 | 4,297,632 |
From Capital | 36,193 | 77,090 | 262,720 | 264,657 |
2,436,077 | 2,562,503 | 9,515,610 | 10,084,006 | |
Net income (loss) attributable to | ||||
From E&C | (310,366) | (1,654,303) | (2,444,583) | (1,562,986) |
From Capital | 17,496 | 55,579 | 2,772,802 | 246,088 |
(292,870) | (1,598,724) | 328,219 | (1,316,898) | |
Diluted EPS ($) | ||||
From E&C | (1.77) | (9.42) | (13.92) | (8.90) |
From Capital | 0.10 | 0.32 | 15.79 | 1.40 |
(1.67) | (9.11) | 1.87 | (7.50) | |
Adjusted net income (loss) attributable to | ||||
From E&C(1) | 79,061 | (284,146) | (70,331) | 43,119 |
From Capital(3) | 19,333 | 54,444 | 189,446 | 186,549 |
98,394 | (229,703) | 119,115 | 229,668 | |
Adjusted diluted EPS ($) | ||||
From E&C(2) | 0.45 | (1.62) | (0.40) | 0.25 |
From Capital(4) | 0.11 | 0.31 | 1.08 | 1.06 |
0.56 | (1.31) | 0.68 | 1.31 | |
Adjusted EBITDA from E&C* (8) |
166,808 |
(204,868) |
279,123 |
385,588 |
Adjusted EBITDA from E&C margin | 7.0% | (8.2%) | 3.0% | 3.9% |
Backlog | ||||
From SNCL Engineering Services | 11,297,900 | 10,376,800 | ||
From SNCL Projects | 3,964,600 | 4,508,200 | ||
Cash and cash equivalents | 1,188,636 | 634,084 | ||
Recourse and limited recourse debt | 1,572,663 | 3,268,323 |
Note that certain totals and subtotals may not reconcile due to rounding | ||||
* The Company's 2019 financial results incorporate the non-cash impact of IFRS 16, Leases ("IFRS 16"). Financial results for 2018 were not restated for the new accounting standard. If the Company excluded the adoption of IFRS 16, adjusted EBITDA from E&C(8) for the year ended |
Reconciliation of IFRS Net Income (loss) as Reported to Adjusted Net Income (loss) | ||||||
Fourth Quarter 2019 | Year ended | |||||
E&C
| Capital | Total | E&C | Capital | Total | |
(In M$) | ||||||
Net Income (Loss) (IFRS) | (310.4) | 17.5 | (292.9) | (2,444.6) | 2,772.8 | 328.2 |
Impairment of goodwill | - | - | - | 1,720.9 | - | 1,720.9 |
Impairment of intangible assets related to business combinations | - | - | - | 60.1 | - | 60.1 |
Amortization of intangible assets related to business combinations | 32.4 | - | 32.4 | 148.3 | - | 148.3 |
Restructuring costs | 99.6 | - | 99.6 | 154.0 | 2.5 | 156.5 |
Financing costs related to the agreement to sell shares of Highway 407 ETR | - | - | - | 27.4 | - | 27.4 |
Acquisition-related costs and integration costs | 0.1 | - | 0.1 | 5.9 | - | 5.9 |
Federal charges settlement (PPSC) | 257.3 | - | 257.3 | 257.3 | - | 257.3 |
Loss from adjustment on disposals of E&C businesses | - | - | - | 0.3 | - | 0.3 |
Loss (gain) on disposal of a Capital investment | - | 1.8 | 1.8 | - | (2,586.0) | (2,586.0) |
Adjusted Net Income (Loss) (non-IFRS) | 79.1 | 19.3 | 98.4 | (70.3) | 189.4 | 119.1 |
(in $) | ||||||
Diluted EPS (IFRS) | (1.77) | 0.10 | (1.67) | (13.92) | 15.79 | 1.87 |
Impairment of goodwill | - | - | - | 9.80 | - | 9.80 |
Impairment of intangible assets related to business combinations | - | - | - | 0.34 | - | 0.34 |
Amortization of intangible assets related to business combinations | 0.18 | - | 0.18 | 0.85 | - | 0.85 |
Restructuring costs | 0.57 | - | 0.57 | 0.88 | 0.01 | 0.89 |
Financing costs related to the agreement to sell shares of Highway 407 ETR | - | - | - | 0.16 | - | 0.16 |
Acquisition-related costs and integration costs | 0.00 | - | 0.00 | 0.03 | - | 0.03 |
Federal charges settlement (PPSC) | 1.47 | - | 1.47 | 1.47 | - | 1.47 |
Loss from adjustment on disposals of E&C businesses | - | - | - | 0.00 | - | 0.00 |
Loss (gain) on disposal of a Capital investment | - | 0.01 | 0.01 | - | (14.73) | (14.73) |
Adjusted Diluted EPS (non-IFRS) | 0.45 | 0.11 | 0.56 | (0.40) | 1.08 | 0.68 |
Note that certain totals and subtotals may not reconcile due to rounding |
Fourth Quarter 2018 | Year ended | |||||
E&C
| Capital | Total | E&C | Capital | Total | |
(In M$) | ||||||
Net Income (Loss) (IFRS) | (1,654.3) | 55.6 | (1,598.7) | (1,563.0) | 246.1 | (1,316.9) |
Net charges related to restructuring & right-sizing plan and other | 48.5 | 0.3 | 48.8 | 58.7* | 0.3 | 59.0 |
Acquisition-related costs and integration costs | 16.1 | - | 16.1 | 42.8 | - | 42.8 |
Amortization of intangible assets related to business combinations | 42.9 | - | 42.9 | 171.1 | - | 171.1 |
Net loss (gain) on disposals of E&C business and Capital investments | 0.2 | (1.4) | (1.2) | 0.5 | (59.8) | (59.3) |
Net expense for the 2012 class action lawsuits settlement & related legal costs | 1.2 | - | 1.2 | 65.7 | - | 65.7 |
Impact of | - | - | - | 6.0 | - | 6.0 |
Non-cash goodwill impairment charge | 1,240.4 | - | 1,240.4 | 1,240.4 | - | 1,240.4 |
Non-cash Guaranteed Minimum Pension (GMP) equalization expense** | 20.8 | - | 20.8 | 20.8 | - | 20.8 |
Adjusted Net Income (Loss) (non-IFRS) | (284.1) | 54.4 | (229.7) | 43.1 | 186.5 | 229.7 |
(in $) | ||||||
Diluted EPS (IFRS) | (9.42) | 0.32 | (9.11) | (8.90) | 1.40 | (7.50) |
Net charges related to restructuring & right-sizing plan and other | 0.28 | 0.00 | 0.28 | 0.33 | 0.00 | 0.34 |
Acquisition-related costs and integration costs | 0.09 | - | 0.09 | 0.24 | - | 0.24 |
Amortization of intangible assets related to business combinations | 0.24 | - | 0.24 | 0.97 | - | 0.97 |
Net loss (gain) on disposals of E&C business and Capital investments | 0.00 | (0.01) | (0.01) | 0.00 | (0.34) | (0.34) |
Net expense for the 2012 class action lawsuits settlement & related legal costs | 0.01 | - | 0.01 | 0.37 | - | 0.37 |
Impact of | - | - | - | 0.03 | - | 0.03 |
Non-cash goodwill impairment charge | 7.07 | - | 7.07 | 7.07 | - | 7.07 |
Non-cash Guaranteed Minimum Pension (GMP) equalization expense | 0.12 | - | 0.12 | 0.12 | - | 0.12 |
Adjusted Diluted EPS (non-IFRS) | (1.62) | 0.31 | (1.31) | 0.25 | 1.06 | 1.31 |
Note that certain totals and subtotals may not reconcile due to rounding | ||||||
*This amount included | ||||||
**Included in Corporate selling, general and administrative expenses |
Forward-looking Statements
Reference in this press release, and hereafter, to the "Company" or to "SNC-Lavalin" means, as the context may require,
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", "target", "vision", "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.
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 2019 MD&A (particularly in the sections entitled "Critical Accounting Judgments and Key Sources of Estimation Uncertainty" and "How We Analyze and Report our Results"). 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) results of the new 2019 strategic direction coupled with a corporate reorganization; (b) fixed-price contracts or the Company's failure to meet contractual schedule, performance requirements or to execute projects efficiently; (c) contract awards and timing; (d) remaining performance obligations; (e) being a provider of services to government agencies; (f) international operations; (g) Nuclear energy services; (h) ownership interests in Capital investments; (i) dependence on third parties; (j) joint ventures and partnerships; (k) information systems and data; (l) competition; (m) professional liability or liability for faulty services; (n) monetary damages and penalties in connection with professional and engineering reports and opinions; (o) insurance coverage; (p) health and safety; (q) qualified personnel; (r) work stoppages, union negotiations and other labour matters; (s) extreme weather conditions and the impact of natural or other disasters and global health crises; (t) intellectual property; (u) divestitures and the sale of significant assets; (v) impact of operating results and level of indebtedness on financial situation; (w) liquidity and financial position; * indebtedness; (y) security under the SNC‑Lavalin Highway Holdings Loan; (z) dependence on subsidiaries to help repay indebtedness; (aa) dividends; (bb) post-employment benefit obligations, including pension-related obligations; (cc) working capital requirements; (dd) collection from customers; (ee) impairment of goodwill and other assets; (ff) outcome of pending and future claims and litigations; (gg) ongoing and potential investigations; (hh) settlements; (ii) further regulatory developments as well as employee, agent or partner misconduct or failure to comply with anti-bribery and other government laws and regulations; (jj) reputation of the Company; (kk) inherent limitations to the Company's control framework; (ll) environmental laws and regulations; (mm) Brexit; (nn) global economic conditions; and (oo) fluctuations in commodity prices.
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 2019 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 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.
The Company's consolidated financial statements for the year ended
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