SNC SNC Lavalin Group Inc

• Reported 2018 IFRS net loss attributable to SNC-Lavalin shareholders of $1.3 billion, (or $7.50 per diluted share), mainly due to a non-cash after-tax goodwill impairment charge of $1.2 billion relating to the Company's Oil & Gas segment. This compares to a net income of $382.0 million (or $2.34 per diluted share) in 2017.
• 2018 adjusted net income from E&C⁽¹⁾ of $43.1 million (or $0.25 per diluted share), compared to $351.3 million (or $2.15 per diluted share) in 2017, mainly due to the underperformance of a major EPC Mining & Metallurgy project and the Oil & Gas segment.
• Strong backlog⁽⁸⁾ of $14.9 billion at the end of December 2018, with bookings of $2.2 billion in Q4 2018.
• 2019 Outlook: adjusted diluted EPS from E&C⁽²⁾ in the range of $2.00 to $2.20 and adjusted consolidated diluted EPS⁽⁵⁾ in the range of $3.00 to $3.20, with an adjusted E&C EBITDA from E&C⁽⁷⁾ in the range of $900 million to $950 million.
• Quarterly dividend decrease to $0.10 per share.

To watch Neil Bruce comment on SNC-Lavalin's 2018 Q4 and year-end financial results, view here.

MONTREAL, Feb. 22, 2019 /CNW Telbec/ - SNC-Lavalin Group Inc. (TSX: SNC) today announces its results for the fourth quarter ended December 31, 2018.

"The year 2018 was a disappointing year, as our Mining & Metallurgy and Oil & Gas segments underperformed," said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. "Due to a deterioration of the Oil & Gas segment's near term prospects caused by various factors, including difficult inter-governmental relations between Canada and Saudi Arabia, unpredictable commodity prices and uncertain client investment plans, we were required to record a goodwill impairment in the quarter. With respect to the previously announced issue affecting a project in our Mining & Metallurgy segment, we expect potential future recoveries to come back as a positive contribution. Now it is time to look ahead. Our Infrastructure, EDPM and Nuclear businesses had a strong quarter and we expect these to continue to do well going forward. The Company has billions of dollars' worth of assets, a strong backlog and very talented employees who are proud to design and engineer the world around us."

"The Board reiterates its confidence in the executive leadership team to move forward into 2019, to execute the strategy as outlined in the MD&A and to deliver maximum value to shareholders," said The Honourable Kevin Lynch, Chairman of the Board.

Fourth Quarter Results

Q4 2018 reported IFRS net loss attributable to SNC-Lavalin shareholders was $1.6 billion, or $9.11 per diluted share, compared with a net income of $52.4 million, or $0.30 per diluted share, for the corresponding period in 2017. Q4 2018 net loss included a non-cash after-tax goodwill impairment charge of $1.2 billion, net charges related to restructuring and other of $48.8 million (after taxes), amortization of intangible assets related to business combinations of $42.9 million (after taxes), a non-cash Guaranteed Minimum Pension equalization expense of $20.8 million (after taxes) and acquisition-related and integration costs of $16.1 million (after taxes).

The Q4 2018 non-cash after-tax goodwill impairment charge of $1.2 billion relates to the Oil & Gas Segment and reflects lower growth than was originally estimated in the Company's financial model when it acquired Kentz in 2014, caused by various factors, including well-documented macro challenges and some Company specific headwinds (refer to the Company's January 28, 2019 press release).

The Q4 2018 net charges related to restructuring and other of $48.8 million (after taxes) is mainly related to the Company's "Operational Excellence" program launched in 2016, a program whose objective is to sustain a culture of continuous improvement. Operational Excellence is a long-term, structured approach that focuses on improving every aspect of the business.

Adjusted net loss from E&C⁽¹⁾ was $284.1 million in Q4 2018, or $1.62 per diluted share, compared with an adjusted net income from E&C⁽¹⁾ of $137.8 million, or $0.78 per diluted share for Q4 2017. This variance was mainly due to a negative total Segment EBIT^(6), as Mining & Metallurgy and Oil & Gas recorded losses, and higher corporate selling and general and administrative expenses in Q4 2018, compared to Q4 2017, partially offset by lower income taxes and net financial expenses.

The Nuclear and Infrastructure segments continued to perform well, delivering higher Segment EBIT⁽⁶⁾ and margins in Q4 2018, compared to Q4 2017. EDPM had another strong quarter with an 11.2% Segment EBIT⁽⁶⁾ margin.

Mining & Metallurgy recorded a $349.3 million negative Segment EBIT⁽⁶⁾ in the quarter, mainly due to a forecasted loss of approximately $346 million on a major EPC project in Latin America (refer to the Company's January 28, 2019 and February 11, 2019 press releases). Oil & Gas recorded a $23.2 million negative Segment EBIT⁽⁶⁾ in the quarter, mainly due to an unfavorable impact of approximately $47 million related to a preliminary decision of an arbitration process related to a specific element of a multi-year project in Australia, as well as lower revenue recognition on some costs incurred on projects, in respect of which the Company did not reach the required level of agreement at this time with its clients to meet the IFRS 15 conditions for revenue recognition (refer to the Company's January 28, 2019 press release).

Adjusted net income from Capital⁽³⁾ increased to $54.4 million in Q4 2018, or $0.31 per diluted share, compared with $34.9 million, or $0.20 per diluted share for the corresponding period in 2017, mainly due to a higher contribution from certain other Capital investments and an increase in dividends received from Highway 407 ETR .

E&C revenue for the fourth quarter ended December 31, 2018 was $2.5 billion, compared with $2.9 billion in the fourth quarter of 2017. The variation was mainly due to lower revenues in Oil & Gas, due to near completion and completion of major projects, and in Thermal Power (a market which the Company has exited), mostly offset by an increase in the Infrastructure segment.

Backlog and Bookings

The Company's backlog⁽⁸⁾ totaled $14.9 billion as at December 31, 2018. Total bookings for the year ended December 31, 2018 totaled $10.4 billion, representing a 1.1 book-to-bill ratio. Total bookings for Q4 2018 amounted to $2.2 billion, representing a 0.9 book-to-bill ratio. Q4 2018 bookings included $0.9 billion in EDPM (1.0 book-to-bill ratio), $0.6 billion in Oil & Gas (1.1 book-to-bill ratio) and $0.2 billion in Clean Power (1.6 book-to-bill ratio).

Financial Position and Cash Flows

As of December 31, 2018, the Company had $634.1 million of cash and cash equivalents, $2.3 billion of recourse debt and $2.1 billion in unused capacity under its $2.6 billion committed revolving credit facility.

The Company's Net Recourse Debt to EBITDA ratio, in accordance with the terms of its Credit Agreement, was 2.9.  

Operating cash flows for the fourth quarter of 2018 were ($112.2) million. This was below expectations mainly due to the unexpected net loss for the quarter and some delays of reaching milestones on certain large contracts.

Highway 407 ETR Sale Update

The Company's process for the potential sale of a portion of its interest in Highway 407 ETR continues to progress.

Balance Sheet and Dividend

In order to strengthen the Company's balance sheet, the Board of Directors has reduced the quarterly dividend by $0.187 per share. On an annual basis, this would allow SNC-Lavalin to retain approximately $131 million of cash, which will be used to deleverage the balance sheet and give the Company additional flexibility in the future. Therefore, the Board of Directors today declared a cash dividend of $0.10 per share, payable on March 22, 2019, to shareholders of record on March 8, 2019. This dividend is an "eligible dividend" for income tax purposes. The Board of Directors will continue to assess potential future dividend levels on a quarterly basis, as required.

Financial Outlook

For 2019, management intends to focus on earnings and cash flow generations and deliver on its strategy, which is disclosed in the Company's 2018 MD&A. This strategy includes the following: i) continue the Company's progress in operational excellence; ii) repay debt and maximize cash flow efficiency; iii) sell a portion of the Company's interest in Highway 407 ETR; and iv) deliver an expanded integrated and focused innovation and technology agenda, including a digital roadmap.

The table below summarizes our 2019 financial guidance targets. The Company's 2019 guidance incorporates the non-cash impact of IFRS 16, Leases ("IFRS 16"). Financial results for 2018 will not be restated for the new accounting standard. If the Company excluded the adoption of IFRS 16, adjusted EBITDA for 2019 would have been approximately $132 million lower, and the net financial expenses would have been $27 million lower mainly offset by a lower EBIT for a similar amount.

On a quarterly basis, the Company expects that the Q1 2019 adjusted diluted EPS from E&C⁽²⁾ be the lowest of the year and anticipates a gradual increase throughout the remainder of the year.

The Mining & Metallurgy Segment EBIT⁽⁶⁾ is expected to be impacted by a lower revenue level in 2019, compared to 2018, as the Company's management took the strategic decision to concentrate on Mining & Metallurgy services mandates and stop bidding on lump-sum Mining & Metallurgy EPC projects (refer to the Company's February 11, 2019 press release). The Company expects that the Oil & Gas Segment EBIT⁽⁶⁾ to be higher in 2019, compared to 2018 and anticipates higher Segment EBIT⁽⁶⁾ from its Infrastructure and Nuclear segments, mainly due to their strong backlog and prospects list. The EDPM Segment EBIT⁽⁶⁾ should be in line with 2018.

This outlook is based on the assumptions and methodology described in the Company's 2018 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.

Q4 2018 Results Conference Call / Webcast

SNC-Lavalin will hold a conference call today at 1:30 p.m. EST to review results for its fourth quarter. A live audio webcast of the conference call and an accompanying slide presentation will be available at investors.snclavalin.com. The call will also be accessible by telephone, please dial toll free at 1 888 394 8218 in North America, or dial 647 484 0475 in Toronto, 438 968 3558 in Montreal, or 080 0358 6377 in the United Kingdom. A recording of the conference call will be available on our website within 24 hours following the call.

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 E&C EBITDA, Segment EBIT and 2017 backlog. Additional details for these non-IFRS measures and additional IFRS measures can be found below and in SNC-Lavalin's MD&A, which is available in the Investors section of the Company's website at www.snclavalin.com. Non-IFRS financial measures do not have any standardized meaning as prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS, these non-IFRS measures provide additional insight into the Company's financial results and certain investors may use this information to evaluate the Company's performance from period to period. However, these non-IFRS financial measures have limitations and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

About SNC-Lavalin

Founded in 1911, SNC-Lavalin is a global fully integrated professional services and project management company and a major player in the ownership of infrastructure. From offices around the world, SNC-Lavalin's employees are proud to build what matters. Our teams provide comprehensive end-to-end project solutions – including capital investment, consulting, design, engineering, construction management, sustaining capital and operations and maintenance – to clients across Oil and Gas, Mining and Metallurgy, Infrastructure, Clean Power, Nuclear and EDPM (engineering, design and project management). On July 3, 2017, SNC-Lavalin acquired Atkins, one of the world's most respected design, engineering and project management consultancies, which has been integrated into our sectors. www.snclavalin.com 

⁽¹⁾ Adjusted net income from E&C is defined as net income attributable to SNC-Lavalin shareholders from E&C, excluding charges related to restructuring, right-sizing and other, acquisition-related costs and integration costs, as well as amortization of intangible assets related to business combinations, impairment of goodwill, 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 and the head office building, and also the impact of U.S. corporate tax reform. E&C is defined in the Company's 2018 financial statements and Management's Discussion and Analysis. The term "Adjusted net income from E&C" does not have any standardized meaning as prescribed by 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 diluted weighted average number of outstanding shares for the period.

⁽³⁾ Adjusted net income from Capital is defined as net income attributable to SNC-Lavalin shareholders from Capital, excluding charges related to restructuring, right sizing and other, and the gains on disposals of Capital Investments.

⁽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 diluted EPS is defined as the adjusted net income from E&C plus the adjusted net income from Capital, divided by the diluted weighted average number of outstanding shares for the period.

⁽⁶⁾ Segment EBIT consists of revenues less i) direct costs of activities, ii) directly related selling, general and administrative expenses, iii) corporate selling, general and administrative expenses that are allocated to segments; and iv) non-controlling interests before taxes. 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 arising from expected credit losses, gain (loss) arising on financial assets (liabilities) at fair value through profit or loss, restructuring costs, impairment of goodwill, acquisition-related costs and integration costs, amortization of intangible assets related to business combinations, and the net expense for the 2012 class action lawsuits settlement and related legal costs, the GMP equalization expense, as well as gains (losses) on disposals of E&C businesses, Capital investments and the head office building. The term "Segment EBIT" does not have any standardized meaning as prescribed by 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.

⁽⁷⁾ 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, the acquisition-related costs and integration costs, the net expense for the 2012 class action lawsuits settlement and related legal costs, the GMP equalization expense, as well as the gains (losses) on disposals of E&C businesses and head office building. The term "Adjusted E&C EBITDA" does not have any standardized meaning as prescribed by 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⁾ Backlog was a non-IFRS measure used until December 31, 2017. Starting January 1, 2018, backlog is an IFRS measure and represents the Remaining Performance Obligations and is defined as a forward-looking indicator of anticipated revenues to be recognized by the Company, determined based on contract awards that are firm and amounting to the transaction price allocated to remaining performance obligations. Management could be required to make estimates regarding the revenue to be generated for certain contracts. In 2017, backlog was a forward-looking indicator of anticipated revenues to be recognized by the Company, determined based on contract awards that were considered firm. Management could be required to make estimates regarding the revenue to be generated for long-term firm reimbursable contracts. In order to provide information that is comparable to the backlog of other categories of activity, the Company limited the O&M activities backlog, which can cover a period of up to 40 years, to the earlier of: i) the contract term awarded; and ii) the next five years.

⁽⁹⁾ The Company's 2019 guidance incorporates the non-cash impact of IFRS 16, Leases.

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", "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.

The 2019 outlook referred to in this press release is forward-looking information and is based on the methodology described in the Company's 2018 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 2019 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 2018 MD&A, particularly in the sections entitled "Critical Accounting Judgments and Key Sources of Estimation Uncertainty" and "How We Analyze and Report our Results". The 2019 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 2019. 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) outcome of pending and future claims and litigation; (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 as well as employee, agent or partner misconduct or failure to comply with anti-bribery and other government laws and regulations; (d) reputation of the Company; (e) fixed-price contracts or the Company's failure to meet contractual schedule or performance requirements or to execute projects efficiently; (f) contract awards and timing; (g) remaining performance obligations; (h) being a provider of services to government agencies; (i) international operations; (j) Brexit; (k) ownership interests in Capital investments; (l) dependence on third parties; (m) joint ventures and partnerships; (n) competition; (o) professional liability or liability for faulty services; (p) monetary damages and penalties in connection with professional and engineering reports and opinions; (q) insurance coverage; (r) health and safety; (s) qualified personnel; (t) work stoppages, union negotiations and other labour matters; (u) information systems and data; (v) acquisitions or other investment; (w) divestitures and the sale of significant assets; * 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) global economic conditions; (hh) fluctuations in commodity prices; (ii) inherent limitations to the Company's control framework; and (jj) environmental laws and regulations.

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 2018 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.

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.

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