SNC-Lavalin Reports Second Quarter 2021 Results

Source: www.gulfoilandgas.com 7/30/2021, Location: North America

- SNCL Engineering Services revenue of $1.5 billion, an increase of 2.4%, or 6.8% based on constant currency, compared to Q2 2020

- SNCL Engineering Services backlog reached $11.1 billion, an increase of 1.1% compared to June 30, 2020; LSTK construction backlog reduced by $202.4 million from the prior quarter

- SNCL-Engineering Services Segment Adjusted EBIT(1) of $145.1 million, representing a 9.6% margin, improved 63 basis points

- Segment Adjusted EBIT to segment revenue ratio(2) of 9.1%, 14.2% and 7.9% for EDPM, Nuclear and Infrastructure Services, respectively

- Net income from continuing operations attributable to SNC-Lavalin shareholders of $29.2 million, or $0.17 per diluted share, compared to a net loss of $25.3 million, or $(0.14) in Q2 2020

- Closed the sale of a substantial portion of the Resources Oil & Gas business

- Reaffirming outlook of SNCL Engineering Services revenue for full year 2021 to increase by a low single digit percentage, reflecting current currency rates, compared to 2020, and for its Segment Adjusted EBIT to segment revenue ratio(2) to be between 8% and 10%

SNC-Lavalin Group Inc. (SNC), a fully integrated professional services and project management company with offices around the world, announced its results for the second quarter ended June 30, 2021.

CEO Commentary
“We are pleased with the solid financial results for the first half of the year. SNCL Engineering Services delivered robust second quarter performance led by strong profitability within our three segments. Our LSTK projects progressed well, the related backlog continued to decrease, and discussions with our clients on compensation for the additional costs related to COVID-19 impacts have been constructive,” said Ian L. Edwards, President and CEO of SNC-Lavalin Group Inc. “We are also pleased to have recently closed the sale of a substantial portion of our Resources Oil & Gas business, which represents an important strategic milestone for the Company. With these second quarter results and the current trends across our businesses, we remain on track to meet our 2021 outlook expectations.”

Second Quarter Results
Professional Services & Project Management are collectively referred to as “PS&PM” to distinguish them from “Capital” activities. PS&PM groups together five of the Company’s segments, namely Engineering, Design and Project Management (“EDPM”), Nuclear, Infrastructure Services, Resources and Infrastructure EPC projects, while Capital is its own reportable segment and separate from PS&PM.

The Company’s net income from continuing operations attributable to SNC-Lavalin shareholders was $29.2 million, or $0.17 per diluted share in Q2 2021, compared to a net loss from continuing operations attributable to SNC-Lavalin shareholders of $25.3 million, or $(0.14) per diluted share, for the corresponding period in 2020. This was comprised of net income from continuing operations from PS&PM of $26.1 million, or $0.15 per diluted share and net income from continuing operations from Capital of $3.1 million, or $0.02 per diluted share in Q2 2021. For the corresponding period in 2020, net loss from continuing operations was comprised of a net loss from continuing operations from PS&PM of $31.9 million, or $(0.18) per diluted share and net income from continuing operations from Capital of $6.6 million, or $0.04 per diluted share.

Q2 2021 net income included amortization of intangible assets related to business combinations of $20.5 million ($17.2 million after income taxes or $0.10 per diluted share) and restructuring and transformation costs of $15.2 million ($11.3 million after income taxes or $0.06 per diluted share), while Q2 2020 included amortization of intangible assets related to business combinations of $40.0 million ($32.7 million after income taxes or $0.19 per diluted share) and restructuring and transformation costs of $23.9 million ($20.9 million after income taxes or $0.12 per diluted share).

Adjusted net income from PS&PM(4) in Q2 2021 more than doubled and totaled $53.8 million, or $0.31 per diluted share, compared with $21.7 million, or $0.12 per diluted share, for Q2 2020. The increase was mainly due to an increase of 9.5% in Segment Adjusted EBIT from SNCL Engineering Services and a decrease in the negative Segment Adjusted EBIT in SNCL Projects, partially offset by a higher income taxes expense.

The SNCL Engineering Services line of business (comprised of the EDPM, Nuclear and Infrastructure Services segments) continued to deliver solid results, benefitting from a diversified business model, long-term client relationships and a strong public sector focus.

Revenue from SNCL Engineering Services increased by 2.4% to $1,504.3 million in Q2 2021, compared to the corresponding period in 2020. Based on constant currency(9), revenue increased 6.8%. Segment Adjusted EBIT(1) totaled $145.1 million in Q2 2021, representing a margin of 9.6%, a 63 basis points improvement, compared with Q2 2020. SNCL Engineering Services total backlog amounted to $11.1 billion as at June 30, 2021, compared to $11.0 billion as at June 30, 2020. Total bookings for the first six months of the year amounted to $3.3 billion, representing a 1.08 booking-to-revenue ratio(6).

EDPM revenue increased by 0.2% to $935.3 million in Q2 2021, compared to Q2 2020. Based on constant currency(9), revenue increased by 5.3% driven primarily by strong volumes in the United Kingdom. EDPM Segment Adjusted EBIT(1) totaled $85.4 million, representing a margin of 9.1% in Q2 2021, a 70 basis points improvement compared to Q2 2020. The Segment Adjusted EBIT(1) improvement in Q2 2021 mainly reflected the continued solid performance seen across the United Kingdom and the United States with steady productivity and the impact of settling a number of project final accounts. Backlog was strong at June 30, 2021, at $3.0 billion, an increase of 11.7% compared to June 30, 2020. Bookings in Q2 2021 totaled $1.1 billion, representing a 1.13 booking-to-revenue ratio(6).

Nuclear revenue increased by 6.1% to $234.7 million in Q2 2021, compared to Q2 2020. Based on constant currency(9), revenue increased 9.6% driven by an increased level of activity in North America and Europe, partially offset by a decrease in Asia. Nuclear Segment Adjusted EBIT(1) totaled $33.2 million in Q2 2021, representing a margin of 14.2%, a 19 basis points improvement compared to Q2 2020. Backlog totaled $0.8 billion at June 30, 2021, a decrease of 16.7% compared to June 30, 2020. The backlog decrease over the last twelve months was mainly due to the progress on the Company’s major refurbishment long-term contracts in Canada.

Infrastructure Services revenue increased by 6.3% to $334.3 million in Q2 2021, compared to Q2 2020. Based on constant currency(9), revenue increased 9.2% driven mainly by a higher volume of activities in Linxon. Infrastructure Services Segment Adjusted EBIT(1) totaled $26.4 million in Q2 2021, representing a margin of 7.9%, a 65 basis point improvement compared to Q2 2020. Backlog totaled $7.2 billion at June 30, 2021, in line with June 30, 2020. Bookings in Q2 2021 totaled $0.3 billion, representing a 0.86 booking-to-revenue ratio(6). Infrastructure Services backlog includes long-term Operations & Maintenance contracts, which can cover periods of up to 40 years.

SNCL Projects

Backlog for the SNCL Projects line of business (comprised of the Resources and Infrastructure EPC Projects segments) as at June 30, 2021, totaled $1.8 billion and included $1.4 billion of LSTK construction contracts and $0.4 billion of reimbursable and engineering services contracts. SNCL Projects backlog for LSTK construction contracts decreased by $202.4 million in Q2 2021, as the Company continued to execute on its LSTK projects.

SNCL Projects revenues amounted to $273.7 million in Q2 2021, compared to $168.9 million in Q2 2020. SNCL Projects Segment Adjusted EBIT(1) was negative $21.3 million in Q2 2021, compared to a negative Segment Adjusted EBIT(1) of $91.4 million in Q2 2020. The variance was mainly due to the Resources segment, which recorded a positive Segment Adjusted EBIT(1) of $1.0 million in Q2 2021, compared to a negative Segment Adjusted EBIT(1) of $72.4 million in Q2 2020, which included a $70 million charge related to client disputes on a Resources LSTK project. The Infrastructure EPC Projects segment had a negative Segment Adjusted EBIT(1) of $22.2 million in Q2 2021, compared to a negative Segment Adjusted EBIT(1) of $19.0 million in Q2 2020. The loss in Q2 2021 was mainly due to a reduction in gross margin, including costs in closing out certain projects nearing completion and the impacts of COVID-19.

As announced earlier today, the Company has closed the sale of a substantial portion of its Resources Oil & Gas business pursuant to the previously announced binding agreement with Kentech Corporate Holding Limited dated February 9, 2021. The balance of closing, which constitutes the Saudi Arabian portion of the business, is expected to be completed by the end of Q3 2021, following the anticipated receipt of standard Saudi Arabian regulatory approval. This portion of the business represented approximately a quarter of the Resources Oil & Gas business total annual revenues.

Capital
Capital revenue and Segment Adjusted EBIT(1) totaled $19.8 million and $16.4 million, respectively, in Q2 2021, compared to $21.6 million and $18.4 million, respectively, in Q2 2020. The variance was mainly due to lower contributions from certain investments.

Financial Position and Operating Cash Flow
As at June 30, 2021, the Company had $662.9 million of cash and cash equivalents. The Company also has an additional $2.0 billion of available drawing capacity under its revolving credit facility. As at June 30, 2021, the Company had $1.0 billion of recourse debt and $0.4 billion of limited recourse debt and its net recourse debt to EBITDA ratio(7) calculated in accordance with the terms of the Company’s Credit Agreement was 1.8, below the required covenant level of 3.75.

The Company’s net cash generated from operating activities was $78.1 million in Q2 2021, compared to $129.8 million in Q2 2020. Net cash generated from operating activities in SNCL Engineering Services totaled $157 million in Q2 2021. The Company continues to anticipate that its net cash generated from operating activities in 2021 will be broadly breakeven, as positive operating cash flow from SNCL Engineering Services is expected to be largely offset by an operating cash flow usage in SNCL Projects.

Virtual Investor Day
SNC-Lavalin will host a virtual Investor Day on Tuesday, September 28, 2021, at 8:30 a.m. Eastern Time. Ian Edwards, President and Chief Executive Officer, Jeff Bell, Executive Vice-President and Chief Financial Officer, and other members of the leadership team will provide an in-depth review of the business strategy, financial outlook, and initiatives to drive long-term stakeholder value. A live webcast of the presentation, including question and answer sessions, will be available the day of the event on the Company’s Investor Day 2021 webpage. Registration is required and can be completed in advance on the Company’s Investor Day 2021 webpage. A replay of the webcast will be available on the Investor Relations webpage following the event.

SNCL Engineering Services 2021 Outlook maintained
The following statements are based on current expectations. These statements are forward-looking and the actual results could differ materially. The 2021 Outlook section should be read in conjunction with the information on forward-looking statements at the end of this release.

The Company continues to expect SNCL Engineering Services revenue for full year 2021 to increase by a low single digit percentage, reflecting current currency rates, compared to 2020, and for its Segment Adjusted EBIT to segment revenue ratio(2) to be between 8% and 10% for the full year 2021.

This outlook is based on the assumptions and methodology described in the Company’s Annual 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 2020 Annual Management’s Discussion and Analysis.

Quarterly Dividend
The Board of Directors declared a cash dividend of $0.02 per share, unchanged from the previous quarter. The dividend is payable on August 27, 2021, to shareholders of record on August 13, 2021. This dividend is an “eligible dividend” for Canadian federal and provincial income tax purposes.


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