2020 Second Quarter Highlights
- Net loss attributable to
SNC-Lavalin shareholders of$111.6 million , or$(0.64) per diluted share, compared with a net loss of$2,118.3 million , or$(12.07) per diluted share for Q2 2019 - Q2 2020 net loss includes
$47.3 million of restructuring costs mainly related to the Resources Services transformation (see press release issued earlier today) and EDPM. - SNCL Engineering Services; resilient through COVID-19, outlook provided
- Total Segment Adjusted EBIT(3) of
$132.5 million , representing a 9.0% margin. EDPM Segment Adjusted EBIT(3) of$78.8 million , representing an 8.4% margin. - SNCL Engineering Services revenue for the second half of 2020 forecast to decrease by a low to mid single digit percentage, compared to the second half of 2019, and Segment Adjusted EBIT(3) as a percentage of revenue expected to be between 8% and 10%.
- SNCL Projects; backlog continued to reduce, results impacted by COVID-19
- LSTK projects backlog reduced by
$0.2 billion in the quarter to$2.7 billion , with$2.4 billion being Infrastructure EPC Projects. - Resources LSTK Backlog reduced to
$0.2 billion and remains on track to be largely completed by end of 2020, considerably improving management's visibility on completion risks. - Total negative Segment Adjusted EBIT(3) of
$141.3 million , which included a loss of$122.3 million in Resources and a loss of$19.0 million in Infrastructure EPC Projects. - Lower productivity from COVID-19 impacted LSTK projects in both Resources and Infrastructure EPC Projects resulting in project reforecasts, with Resources taking a
$70 million charge related to client disputes on a project. - Strong financial position and operating cash flows
- Cash and cash equivalents at
$1.6 billion and net recourse debt to EBITDA ratio at 1.0x (calculated in accordance with Credit Agreement). $129.8 million of net cash generated from operating activities during Q2, with SNCL Engineering Services generating$222 million .
CEO Commentary
"During the last quarter, our business has demonstrated resilience through the challenges posed by COVID-19. This would not have been possible without the commitment and efforts of our employees, to whom I offer my thanks and appreciation. The unprecedented economic situation precipitated by COVID-19 and the downturn in oil prices has demonstrated that we made the right decision in changing our business model and exiting LSTK contracting to focus on our core engineering services strengths. Our Engineering Services business in Q2 delivered solid financial results."
"COVID-19 did have an impact on our LSTK projects productivity, contributing to project reforecasts; however, we do not consider these losses to be representative of future quarterly performance. The LSTK backlog continued to reduce and we are now in the final phases of closing out the Resources LSTK projects, improving management's visibility on completion risks. We are confident about transforming and resizing our Resources Services business, and its potential to add real value to our Professional Services and Project Management capabilities and to complement our existing Engineering Services focused strategy."
Second Quarter Financial Highlights
Note that effective from the second quarter of 2020, the Company presents financial results of Capital outside of SNCL Engineering Services.
(in thousands of dollars, unless otherwise indicated) | Second Quarter | |
2020 | 2019 | |
Total revenue | 1,952,739 | 2,284,177 |
Net loss attributable to | (111,647) | (2,118,320) |
Diluted EPS ($) | (0.64) | (12.07) |
SNCL Engineering Services | ||
Revenue | 1,469,505 | 1,499,752 |
Segment Adjusted EBIT(3) | 132,526 | 123,358 |
Segment Adjusted EBIT to revenue ratio(6) (%) | 9.0% | 8.2% |
Backlog | 10,982,500 | 10,934,900 |
SNCL Projects | ||
Revenue | 461,646 | 709,679 |
Segment Adjusted EBIT(3) | (141,307) | (307,704) |
Segment Adjusted EBIT to revenue ratio(6) (%) | (30.6%) | (43.4%) |
Backlog | 3,442,800 | 4,562,100 |
Capital | ||
Revenue | 21,588 | 74,746 |
Segment Adjusted EBIT(3) | 18,375 | 69,189 |
Backlog | 166,900 | 187,200 |
Net cash generated from (used for) operating activities | 129,818 | (367,603) |
Adjusted EBITDA from PS&PM(4) | 39,578 | (151,783) |
Adjusted diluted EPS(2) from PS&PM ($) | (0.22) | (1.71) |
Second Quarter Results
The Company reported a net loss attributable to
Adjusted net loss(1) from PS&PM in Q2 2020 amounted to
SNCL Engineering Services
The SNCL Engineering Services business (comprised of the EDPM, Nuclear and Infrastructure Services segments) has been resilient through COVID-19, as the decisive and early actions that management took to align costs have proven to be effective. Revenue from SNCL Engineering Services totaled
SNCL Engineering Services also generated
EDPM Segment Adjusted EBIT(3) was
The Nuclear and Infrastructure Services Segments Adjusted EBIT(3) increased to
SNCL Engineering Services backlog totaled
SNCL Projects
In line with the Company's previous decision to exit LSTK projects, revenue from the SNCL Projects line of business (comprised of Resources and Infrastructure EPC Projects segments), which includes LSTK construction contracting, continued to decrease and totaled
SNCL Projects backlog continues to decrease and totaled
The Resources segment recorded a negative Segment Adjusted EBIT(3) of
All Infrastructure LSTK construction projects, except the Husky project, which was suspended in March by the client, continue to progress well, despite COVID-19 having had some impact on pace of delivery. The Infrastructure EPC Projects segment delivered a negative Segment Adjusted EBIT(3) of
Capital
Capital Segment Adjusted EBIT(3) decreased to
Second Quarter Financial Position and Cash Flows
The Company generated
As a result of these actions, and other working capital initiatives, as at
As at
Quarterly Dividend
The Board of Directors today declared a cash dividend of
2020 Outlook
As the scale and economic impact on the business from COVID-19 becomes clearer, and the resiliency of the Company's businesses are supplemented by management actions, it provides improved visibility on the forecasted financial outcome for the remainder of the year. The Company now expects, assuming no significant deviation from the current COVID-19 worldwide situation, that SNCL Engineering Services revenue for the second half of 2020 should decrease by a low to mid single digit percentage, compared to the second half of 2019, and that its Segment Adjusted EBIT(3) as a percentage of revenue should be between 8% and 10% for the same period.
This outlook is based on the assumptions and methodology described in the Company's second quarter 2020 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 and in the Company's 2019 Annual Management's Discussion and Analysis, which are more fully described in the Company's public disclosure documents.
Second Quarter 2020 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 in this press release: Adjusted net income (loss) attributable to
(1) Adjusted net income (loss) attributable to
(2) Adjusted diluted earnings per share ("Adjusted diluted EPS") is defined as adjusted net income (loss) attributable to
(3) Segment Adjusted EBIT consists of revenues allocated to the applicable segment less i) direct costs of activities, ii) directly related selling, general and administrative expenses, and iii) corporate selling, general and administrative expenses that are allocated to segments. Segment Adjusted EBIT is the measure used by management to evaluate the performance of the Company's segments, and gives investors an indication of the profitability of each segment, as it excludes certain items that the Company believes are not reflective of the segment's underlying operations. Such financial measure also facilitates period-to-period comparisons of the underlying segment's performance. Expenses that are not allocated to the Company's segments are: certain corporate selling, general and administrative expenses that are not directly related to projects or segments, impairment loss 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 federal charges settlement (PPSC) expense and gains (losses) on disposals of PS&PM businesses and Capital investments (or adjustments to gains or losses on such disposals), net financial expenses and income taxes. Also, it should be noted that the following adjustment was removed from the list of adjustments disclosed in prior periods as there was no adjustment of this nature in the current periods and the previous year: the net expense for the 2012 class action lawsuit settlement and related legal costs. See reconciliation of Segment Adjusted EBIT to net income (loss) in Q2, 2020 MD&A, Section 4. A reconciliation of Segment Adjusted EBIT from PS&PM and from Capital to net income (loss) as determined under IFRS is presented in Note 3 of the Company's unaudited interim condensed consolidated financial statements for the three-month and six-month periods ended
(4) Adjusted EBITDA is a non-IFRS financial measure used by management to facilitate operating performance comparison from period to period and to prepare annual operating budgets and forecasts. Adjusted EBITDA excludes charges related to restructuring costs, acquisition-related costs and integration costs, gains (losses) on disposals of PS&PM businesses and Capital investments (or adjustments to gains or losses on such disposals), the adjustment to provision for the Pyrrhotite Case litigation, the Federal charges settlement (PPSC) expense and the fair value revaluation of the Highway 407 ETR contingent consideration receivable. It should be noted that, in 2020, management has added as components to Adjusted EBITDA the amounts of the fair value revaluation of the Highway 407 ETR contingent consideration receivable and the adjustment to provision for the Pyrrhotite Case litigation as it believes that such items are not reflective of the Company's underlying operations. Such additions did not result in any change to comparative figures as there was no adjustment of this nature in the comparative periods being presented. Also, it should be noted that the following adjustments were removed from the list of adjustments disclosed in prior periods as there was no adjustment of this nature in the current periods and the previous year: the net expense for the 2012 class action lawsuit settlement and related legal costs and the GMP equalization expense. The Company believes that Adjusted EBITDA is useful for providing securities analysts, investors and other parties with additional information to assist them in understanding components of its financial results, including a more complete understanding of factors and trends affecting the Company's operating performance. Adjusted EBITDA is believed to supplement information provided, as it highlights trends that may not otherwise be apparent when relying solely on IFRS financial measures. Refer to Q2 MD&A, Section 9.3 for a reconciliation of Adjusted EBITDA to net income (loss) as determined under IFRS. Such reconciliation is provided on a consolidated basis and also separately for each of PS&PM and Capital, as the Company believes that such measures are useful since these activities are analyzed separately by the Company.
(5) Booking-to-revenue ratio corresponds to contract bookings divided by the revenues, for a given period. This measure provides a useful basis for assessing the renewal of business, as it compares the value of performance obligations added in a given period to the amount of revenue recognized upon satisfying performance obligations in the same given period.
(6) Segment Adjusted EBIT to revenue ratio is a measure used to analyze the profitability of the Company's segments and facilitate period-to-period comparisons, as well as comparison with peers. This financial measure is calculated by dividing the amount of Segment Adjusted EBIT of a given period to the amount of revenue for the same period.
SNC-Lavalin Financial Summary | ||||
(in thousands of dollars, unless otherwise indicated) | Second Quarter | Six months ended | ||
2020 | 2019 | 2020 | 2019 | |
Revenues | ||||
SNCL Engineering Services | 1,469,505 | 1,499,752 | 3,004,274 | 2,941,763 |
SNCL Projects | 461,646 | 709,679 | 1,110,119 | 1,558,684 |
Capital | 21,588 | 74,746 | 67,830 | 146,923 |
1,952,739 | 2,284,177 | 4,182,223 | 4,647,370 | |
Net income (loss) attributable to | ||||
From PS&PM | (118,242) | (2,183,772) | (164,167) | (2,251,127) |
From Capital | 6,595 | 65,452 | (13,444) | 115,502 |
(111,647) | (2,118,320) | (177,611) | (2,135,625) | |
Diluted EPS ($) | ||||
From PS&PM | (0.67) | (12.44) | (0.94) | (12.82) |
From Capital | 0.04 | 0.37 | (0.08) | 0.65 |
(0.64) | (12.07) | (1.01) | (12.17) | |
Adjusted net income (loss) attributable to | ||||
From PS&PM | (38,194) | (299,822) | (42,112) | (314,735) |
From Capital | 6,593 | 65,608 | 36,182 | 117,390 |
(31,601) | (234,214) | (5,930) | (197,345) | |
Adjusted diluted EPS(2) ($) | ||||
From PS&PM | (0.22) | (1.71) | (0.24) | (1.79) |
From Capital | 0.04 | 0.37 | 0.21 | 0.67 |
(0.18) | (1.34) | (0.03) | (1.12) | |
Adjusted EBITDA from PS&PM(4) | 39,578 | (151,783) | 124,571 | (72,577) |
Backlog | ||||
SNCL Engineering Services | 10,982,500 | 10,934,900 | ||
SNCL Projects | 3,442,800 | 4,562,100 | ||
Capital | 166,900 | 187,200 | ||
14,592,200 | 15,684,200 | |||
Cash and cash equivalents | 1,591,221 | 580,625 | ||
Recourse and limited recourse debt | 2,069,034 | 3,991,428 | ||
Note that certain totals and subtotals may not reconcile due to rounding |
Reconciliation of IFRS Net Income (loss) as Reported to Adjusted Net Income (loss) | ||||||
Second Quarter 2020 | Six months ended | |||||
PS&PM
| Capital | Total | PS&PM | Capital | Total | |
(in M$) | ||||||
Net income (loss) attributable to | (118.2) | 6.6 | (111.6) | (164.2) | (13.4) | (177.6) |
Amortization of intangible assets related | 32.7 | - | 32.7 | 65.7 | - | 65.7 |
Restructuring costs | 47.3 | - | 47.3 | 49.4 | - | 49.4 |
Fair value revaluation of ETR contingent consideration receivable1 | - | - | - | - | 49.6 | 49.6 |
Adjustment to provision for the Pyrrhotite Case litigation2 | - | - | - | 7.0 | - | 7.0 |
Adjusted net income (loss) attributable to | (38.2) | 6.6 | (31.6) | (42.1) | 36.2 | (5.9) |
(in $) | ||||||
Diluted EPS (IFRS) | (0.67) | 0.04 | (0.64) | (0.94) | (0.08) | (1.01) |
Amortization of intangible assets related | 0.19 | - | 0.19 | 0.37 | - | 0.37 |
Restructuring costs | 0.27 | - | 0.27 | 0.28 | - | 0.28 |
Fair value revaluation of ETR contingent consideration receivable | - | - | - | - | 0.28 | 0.28 |
Adjustment to provision for the Pyrrhotite Case litigation | - | - | - | 0.04 | - | 0.04 |
Adjusted Diluted EPS (non-IFRS) | (0.22) | 0.04 | (0.18) | (0.24) | 0.21 | (0.03) |
Note that certain totals and subtotals may not reconcile due to rounding | ||||||
1 included in "Gain (loss) arising on financial assets (liabilities) at fair value through profit or loss" | ||||||
2 included in "Corporate selling, general and administrative expenses" |
Second Quarter 2019 | Six months ended | |||||
PS&PM | Capital | Total | PS&PM | Capital | Total | |
(in M$) | ||||||
Net income (loss) attributable to | (2,183.8) | 65.5 | (2,118.3) | (2,251.1) | 115.5 | (2,135.6) |
Impairment of goodwill | 1,720.9 | - | 1,720.9 | 1,720.9 | - | 1,720.9 |
Impairment of intangible assets related to | 60.1 | - | 60.1 | 60.1 | - | 60.1 |
Amortization of intangible assets related | 40.5 | - | 40.5 | 83.2 | - | 83.2 |
Restructuring costs | 32.9 | 0.1 | 33.0 | 39.1 | 1.8 | 40.9 |
Financing costs related to the agreement | 27.4 | - | 27.4 | 27.4 | - | 27.4 |
Acquisition-related costs and integration | 2.0 | - | 2.0 | 5.4 | - | 5.4 |
Loss from adjustment on disposals of | 0.1 | - | 0.1 | 0.2 | - | 0.2 |
Adjusted net income (loss) attributable to | (299.8) | 65.6 | (234.2) | (314.7) | 117.4 | 197.3 |
(in $) | ||||||
Diluted EPS (IFRS) | (12.44) | 0.37 | (12.07) | (12.82) | 0.66 | (12.17) |
Impairment of goodwill | 9.80 | - | 9.80 | 9.80 | - | 9.80 |
Impairment of intangible assets related to | 0.34 | - | 0.34 | 0.34 | - | 0.34 |
Amortization of intangible assets related | 0.23 | - | 0.23 | 0.47 | - | 0.47 |
Restructuring costs | 0.19 | 0.00 | 0.19 | 0.22 | 0.01 | 0.23 |
Financing costs related to the agreement | 0.16 | - | 0.16 | 0.16 | - | 0.16 |
Acquisition-related costs and integration | 0.01 | - | 0.01 | 0.03 | - | 0.03 |
Loss from adjustment on disposals of | 0.00 | - | 0.00 | 0.00 | - | 0.00 |
Adjusted Diluted EPS (non-IFRS) | (1.71) | 0.37 | (1.34) | (1.79) | 0.67 | (1.12) |
Note that certain totals and subtotals may not reconcile due to rounding |
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; ii) business and management strategies and the expansion and growth of the Company's operations; and iii) the expected impacts of the ongoing COVID-19 pandemic on the business and its operating and reportable segments as well as elements of uncertainty related thereto. 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 annual MD&A (particularly in the sections entitled "Critical Accounting Judgments and Key Sources of Estimation Uncertainty" and "How We Analyze and Report our Results") and as updated in the first and second quarter 2020 MD&A. 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) impacts of the COVID-19 pandemic and the elements of uncertainty related thereto; (b) results of the new 2019 strategic direction coupled with a corporate reorganization; (c) fixed-price contracts or the Company's failure to meet contractual schedule, performance requirements or to execute projects efficiently; (d) contract awards and timing; (e) remaining performance obligations; (f) being a provider of services to government agencies; (g) international operations; (h) Nuclear liability; (i) ownership interests in Capital investments; (j) dependence on third parties; (k) joint ventures and partnerships; (l) information systems and data; (m) competition; (n) professional liability or liability for faulty services; (o) monetary damages and penalties in connection with professional and engineering reports and opinions; (p) insurance coverage; (q) health and safety; (r) qualified personnel; (s) work stoppages, union negotiations and other labour matters; (t) extreme weather conditions and the impact of natural or other disasters and global health crises; (u) intellectual property; (v) divestitures and the sale of significant assets; (w) impact of operating results and level of indebtedness on financial situation; * liquidity and financial position; (y) indebtedness; (z) security under the SNC–Lavalin Highway Holdings Loan; (aa) dependence on subsidiaries to help repay indebtedness; (bb) dividends; (cc) post-employment benefit obligations, including pension-related obligations; (dd) working capital requirements; (ee) collection from customers; (ff) impairment of goodwill and other assets; (gg) outcome of pending and future claims and litigations; (hh) ongoing and potential investigations; (ii) settlements; (jj) further regulatory developments as well as employee, agent or partner misconduct or failure to comply with anti-bribery and other government laws and regulations; (kk) reputation of the Company; (ll) inherent limitations to the Company's control framework; (mm) environmental laws and regulations; (nn) Brexit; (oo) global economic conditions; and (pp) fluctuations and volatility 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 annual MD&A and as updated in the first and second quarter 2020 MD&A, each filed with the securities regulatory authorities in
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 unaudited condensed consolidated interim financial statements for the three-month and six-month periods ended
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