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Stuart Olson Reports Strong Fourth Quarter Results

March 06, 2018

Declares its 28th consecutive quarterly dividend of $0.12 per common share
Fourth quarter contract revenue up 29% and adjusted EBITDA up 98%
Dividend payout ratio strengthens to 45%

CALGARY, March 6, 2018 /CNW/ - Stuart Olson Inc. (TSX: SOX, SOX.DB.A) ("Stuart Olson" or the "Company") today announced fourth quarter and full-year 2017 financial results, and declared its 28th consecutive quarterly dividend of $0.12 per common share.

"We closed 2017 with a very strong fourth quarter as we delivered significant year-over-year improvements in contract revenue, adjusted EBITDA, adjusted free cash flow and net earnings. We also ended the year with markedly improved leverage and liquidity and a strengthening dividend payout ratio of 44.8%," said David LeMay, President and CEO of Stuart Olson.

"After two consecutive strong quarters, we are moving into 2018 with a streamlined, integrated organization that is focused on operational excellence and geographic and sector diversification. Together with a robust pipeline of new project opportunities, including planned government infrastructure spending, an increasing scope of work in our recurring maintenance, repairs and operations business and a record Commercial Systems Group backlog, the stage is set for this positive momentum to build as we transition from 2017 into 2018 and beyond," added Mr. LeMay.

FINANCIAL HIGHLIGHTS





Three months ended

Year ended


December 31

December 31

$millions, except percentages and per share amounts

2017

2016(1)(2)

2017

2016(1)(2)

Contract revenue

282.6

219.1

1,017.3

913.5

Contract income

34.7

20.1

103.9

92.4


Contract income margin

12.3%

9.2%

10.2%

10.1%

Adjusted EBITDA(1)

11.5

5.8

36.0

32.1


Adjusted EBITDA margin

4.1%

2.6%

3.5%

3.5%

Net earnings (loss)

5.7

(1.7)

9.6

(2.2)






Earnings (loss) per share





Basic earnings (loss) per share

0.21

(0.06)

0.35

(0.08)

Diluted earnings (loss) per share

0.18

(0.06)

0.35

(0.08)






Dividends declared per share

0.12

0.12

0.48

0.48






Adjusted free cash flow

10.5

0.8

23.9

(0.2)


Adjusted free cash flow per share                     

0.38

0.03

0.88

(0.01)











$millions



Dec. 31,
2017

Dec. 31,
2016

Backlog



1,721.4

1,995.1

Working capital



33.1

37.4

Long-term debt (excluding current portion)



6.0

32.8

Convertible debentures (excluding equity portion)



76.2

74.3

Total assets



630.3

602.2



Notes:   

(1) Adjusted EBITDA for the three months and year ended December 31, 2016 is calculated based on the current definition. Please refer to the "Non-IFRS Measures" section of Stuart Olson's December 31, 2017 Management's Discussion and Analysis ("MD&A") for more information on the definition and calculation.   


(2) Certain comparative results have been restated as a result of a change in the intersegment eliminations accounting policy. Please refer to the "Changes in Accounting Policies" section in the December 31, 2017 MD&A and Note 3 of the December 31, 2017 Audited Consolidated Annual Financial Statements for further information.

 

These financial results are presented in conformance with International Financial Reporting Standards ("IFRS"). All figures are in Canadian dollars unless otherwise noted. Certain financial and operational measures referred to in this press release, including "contract income margin", "adjusted EBITDA", "adjusted EBITDA margin", "backlog", "working capital", "adjusted free cash flow", "adjusted free cash flow per share", "dividend payout ratio", "additional borrowing capacity", "available liquidity" and "net long-term indebtedness to adjusted EBITDA", are not prescribed measures under IFRS. For a description of these measures, see the "Non-IFRS Measures" section in Stuart Olson's December 31, 2017 Management's Discussion & Analysis.

FOURTH QUARTER ("Q4") 2017 OVERVIEW

  • For the three months ended December 31, 2017, consolidated contract revenue increased by 29.0% to $282.6 million, from $219.1 million in Q4 2016.
    • Industrial Group revenue increased by 64.2% to $100.8 million in Q4 2017. The $39.4 million improvement was primarily driven by increased activity on a power project in Manitoba and a mining project in Ontario.

    • Buildings Group revenue grew by 8.6% to $135.6 million. The $10.7 million improvement was achieved as projects in Alberta, Saskatchewan and Ontario moved into higher activity construction phases during the quarter.

    • Commercial Systems Group revenue climbed 52.3% to $58.8 million. This $20.2 million increase was achieved as the group began to benefit from the significant project awards it secured in 2017.

  • Fourth quarter adjusted EBITDA increased 98.3% to $11.5 million (adjusted EBITDA margin of 4.1%), from $5.8 million (adjusted EBITDA margin of 2.6%) in Q4 2016. The $5.7 million improvement reflects higher revenue and improved project margins for all of the groups, partially offset by increased expenses associated with the Company's investment in organic growth initiatives, the impact of a share price increase in 2017 on share-based compensation expense and an increase in performance plan accruals resulting from stronger consolidated financial results.

  • Net earnings increased to $5.7 million (diluted earnings per share of $0.18), compared to a loss of $1.7 million (diluted loss per share of $0.06) in the fourth quarter of 2016. The $7.4 million gain primarily reflects the improvement in adjusted EBITDA, as well as the recognition of restructuring costs in 2016. In Q4 2017, a portion of prior-year restructuring costs were reversed when management reassessed its facilities strategy and consolidated operations from multiple facilities into a single larger space. These improvements were partially offset by increased tax expense associated with improved financial results.

  • The Company's net long-term indebtedness to adjusted EBITDA ratio improved sharply to 1.7x as at December 31, 2017, from 2.7x a year earlier. This improvement reflects the increase in 2017 adjusted EBITDA, together with the use of adjusted free cash flow and cash collected from working capital to repay indebtedness under the revolving credit facility.

  • Stuart Olson ended 2017 with a cash balance of $31.7 million and additional borrowing capacity of approximately $122.1 million, providing combined available liquidity of $153.8 million. This reflects an increase of $67.6 million or 78.4% compared to combined liquidity of $86.2 million ($31.5 million of cash, $54.7 million of additional borrowing capacity) as at December 31, 2016.

  • Adjusted free cash flow grew to $10.4 million ($0.38 per share) in the fourth quarter of 2017, from $0.8 million ($0.03 per share) in Q4 2016. This $9.6 million ($0.35 per share) improvement was driven primarily by the improvement in financial results and lower cash capital expenditures.

  • The Company's dividend payout ratio strengthened to 44.8% as at December 31, 2017.

  • On March 6, 2018, the Board of Directors declared a quarterly common share dividend of $0.12 per share. The dividend is designated as an eligible dividend under the Income Tax Act (Canada) and is payable April 17, 2018 to shareholders of record on March 29, 2018.
    • Since the introduction of a quarterly dividend in June 2011, Stuart Olson has consistently paid $0.12 per share for 28 consecutive quarters. Including the dividend declared today, this represents $3.36 per share or $86.2 million returned to shareholders.

FULL-YEAR 2017 OVERVIEW

  • For the year ended December 31, 2017, consolidated contract revenue grew 11.4% to $1,017.3 million, from $913.5 million in 2016.
    • Industrial Group revenue increased 13.1% to $335.2 million. The $38.8 million improvement reflects increased activity levels in the Manitoba power and Ontario mining sectors.

    • The Buildings Group grew revenue by 23.1% to $540.8 million. The $101.6 million improvement was driven by increased activity levels in the Alberta and Ontario markets as a number of projects moved into higher-activity construction phases.

    • Commercial Systems Group revenue declined by 6.0% to $186.8 million, reflecting the completion of a number of larger projects in Alberta that contributed significant revenue to 2016 results. This impact was partially offset by increased activity in British Columbia, Manitoba and, during the latter part of 2017, the group's new Ontario market.

  • Adjusted EBITDA grew 12.1% to $36.0 million (adjusted EBITDA margin of 3.5%), from $32.1 million (adjusted EBITDA margin of 3.5%) in 2016. The increase reflects higher revenue, partially offset by increased expenses associated with the Company's investment in organic growth initiatives, the impact of a share price increase in 2017 on share-based compensation expense and an increase in performance plan accruals resulting from stronger consolidated financial results.

  • Net earnings increased by $11.8 million to $9.6 million (diluted earnings per share of $0.35), from a net loss of $2.2 million (diluted loss per share of $0.08) in 2016. This significant gain was primarily driven by the improvement in adjusted EBITDA, and also reflects the recognition of restructuring costs in 2016. Some of these restructuring costs were reversed in 2017 when management reassessed its facilities strategy and consolidated operations from multiple facilities into a single larger space. These improvements were partially offset by increased tax expense associated with improved financial results.

  • Adjusted free cash flow grew to an inflow of $23.9 million (inflow of $0.88 per share) in 2017, from an outflow of $0.2 million (outflow of $0.01 per share) in 2016. Higher year-over-year adjusted EBITDA, lower capital expenditures and tax payments, together with the settlement of provisions in 2016 that did not repeat at the same scale in 2017, were the key factors in this $24.1 million ($0.89 per share) improvement.

CONSOLIDATED BACKLOG

As at December 31, 2017, Stuart Olson's consolidated backlog was $1.7 billion, which includes a diverse mix of public, private and industrial projects from Ontario to British Columbia. The backlog is predominantly made up of low-risk contract arrangements.

  • The Commercial Systems Group continued to grow its backlog, achieving a new record of $250.4 million at December 31, 2017. This reflects the award of numerous projects throughout the year, including:
    • a signature health care facility in Alberta,
    • a mental health and treatment facility in British Columbia,
    • a facility for a charitable organization and a large mixed-use tower project in Alberta,
    • two mixed-use office and residential towers in Saskatchewan, and
    • a number of strategic wins in the Ontario market, both with new and existing Western Canadian customers that have operations in the East. Ontario was a new market for the Commercial Systems Group in 2017.

  • The Industrial Group achieved important strategic wins to continue expanding its MRO business and diversify across geographies and sectors. These include:
    • a project in British Columbia in the growing water/wastewater sector,
    • an industrial project in Alberta that will involve fully self-performing all trades, including mechanical, and
    • a five-year MRO contract, valued at an estimated $30.0 million, with a longstanding mining customer on a new project site in Saskatchewan.

  • Subsequent to the year-end, the Buildings Group announced two additional construction management contracts in Southern Ontario with a combined value of $120.0 million. Fourth quarter 2017 backlog included $40.0 million related to these projects, with the balance to be added in the first quarter of 2018. The projects include:
    • a thirty-storey student residence for a large post-secondary institution, and
    • an eight-storey seniors retirement residence.

OUTLOOK

2018 Summary

As compared to fiscal 2017, Stuart Olson expects 2018 consolidated contract revenue to be modestly higher, and adjusted EBITDA to be meaningfully higher, based on the outlook for each of its business groups outlined below. Stuart Olson expects 2018 adjusted EBITDA margin to remain stable year-over-year.

  • Revenue and adjusted EBITDA from the Industrial Group are expected to be meaningfully higher in 2018 than in 2017, supported by increased activity in the oil sands as project owners complete increased scopes of maintenance and turnaround work that had been deferred in recent years. The group's financial results are also expected to be supported by the completion of two large projects outside Alberta in the power and mining sectors. Industrial Group EBITDA margin is expected to remain stable year-over-year.

  • With a greater proportion of projects nearing completion in 2018 compared to 2017, the Buildings Group anticipates modestly lower revenue year-over-year, paired with stable adjusted EBITDA and slightly higher adjusted EBITDA margin. The Buildings Group results as a whole will continue to be supported by predominantly public projects in multiple provinces, including the group's growing activity in Ontario.

  • Commercial Systems Group revenue is expected to be meaningfully higher in 2018, while adjusted EBITDA is expected to be significantly higher as the group begins to see material benefits from the substantial number of project awards secured in 2017. The group's adjusted EBITDA margin is expected to remain stable year-over-year.

CONFERENCE CALL AND WEBCAST

Stuart Olson will hold a conference call and webcast to discuss its 2017 fourth quarter and full-year results on Wednesday, March 7, 2018 at 7:30 a.m. Mountain Time (9:30 a.m. Eastern). The webcast will be broadcast live and will also be available for replay in the Presentations & Events subsection under Investor Relations on the Company's website at www.stuartolson.com. For those unable to listen during the live webcast, a replay will be available on the website shortly after the conclusion of the conference call for a period of 90 days. Financial analysts and institutional investors who wish to ask questions during the conference call are invited to call 1-888-390-0546 (Canada and USA) or 1-587-880-2171 (outside Canada and USA). For those unable to participate on the live call, a replay will be made available until Wednesday, March 21, 2018 by dialing 1-888-390-0541 (Canada and USA) or 1-416-764-8677 (outside Canada and USA), pin 916544. The public is invited to listen to the live conference call, webcast or the replay.

ABOUT STUART OLSON INC.

Stuart Olson Inc. provides general contracting and electrical building systems contracting in the public and private construction markets as well as general contracting, electrical, mechanical and specialty trades, such as insulation, cladding and asbestos abatement, in the industrial construction and services market. The Company operates office locations and projects throughout Western Canada, Ontario and the territories. Stuart Olson's common shares and convertible debentures are listed on the Toronto Stock Exchange under the symbols "SOX" and "SOX.DB.A", respectively. www.stuartolson.com

FORWARD-LOOKING INFORMATION

This press release contains certain statements that may constitute forward-looking information within the meaning of applicable securities laws. This forward-looking information includes, without limitation, the statements:

(a)

relating to previously completed restructuring initiatives, and the expectation that these initiatives will achieve cost savings going forward; and

(b)

made under the section titled "Outlook" including, without limitation, those relating to:


 (i)

 revenue visibility;


(ii)

 Stuart Olson's backlog and the implication that such backlog will be converted into revenues;


 (iii)

capital expenditures for 2018;


 (iv)

 2018 EBITDA and EBITDA margin projections;


 (v)

 economic conditions;


 (vi)

 the outlook for each of Stuart Olson's business groups.

 

Often, but not always, forward-looking information can be identified by the use of such words as "may", "will", "expect", "believe", "plan", "intend", "estimate", "outlook", "forecast", "should", "anticipate", "seek", "continue", "see", "project", "predict", "propose", "targeting", "potential", "could", "might" and other similar terminology, including statements concerning possible or assumed future results. Forward-looking information is based on management's reasonable assumptions, analysis and estimates in respect of its experience and perception of trends, current economic conditions, government policies and expected developments, as well as other material factors that it considers to be relevant at the time of making such statements.

The forward-looking information in this press release is included solely for the purpose of assisting investors in understanding the Company's financial position and the results of its operations as at the date hereof. By its nature, forward-looking information involves known and unknown risks and uncertainties, which give rise to the possibility that management's assumptions, analysis and estimates will be incorrect and that the Company's anticipated results will not be achieved. Although the Company believes that the statements with respect to forward-looking information are reasonable and current, such statements should not be interpreted as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. Forward-looking information is necessarily subject to a number of factors that may cause actual results to differ materially from those results implied by the expectations suggested by such information. Those factors include, without limitation, the risks and uncertainties described in the Company's Annual Information Form filed with the securities regulatory authorities in Canada under the Company's profile at www.sedar.com. Readers are encouraged to consider the foregoing risks and other factors carefully when evaluating the forward-looking information and are cautioned not to place undue reliance upon such information when making investment decisions.

The forward-looking information in this press release is current to the date hereof, and is subject to change following such date. While the Company may elect to do so, unless required by applicable law, it undertakes no obligation to update this information to reflect new information or circumstances at any particular time.

SOURCE Stuart Olson Inc.

David LeMay, President and Chief Executive Officer, Stuart Olson Inc., (403) 685-7777, Email: inquiries@stuartolson.com; Daryl Sands, Executive Vice President and Chief Financial Officer, Stuart Olson Inc., (403) 685-7777, Email: inquiries@stuartolson.com