Continued Revenue and EBITDA Growth; Strong $2.0B Backlog; Strategic Progress
CALGARY, March 10, 2015 /CNW/ – Stuart Olson Inc. (TSX: SOX, SOX.DB, SOX.DB.A) (“Stuart Olson” or the “Company”) today announced financial results for the fourth quarter and full year 2014 and declared a quarterly dividend of $0.12 per common share.
“2014 was a year of major strategic achievements as we rebranded the company, optimized our asset utilization with the divestiture of Broda Construction and the acquisition of Studon Electric & Controls Inc., and strengthened our financial position with the completion of a successful convertible debenture offering,” said David LeMay, President and CEO of Stuart Olson. “At the same time, we steadily improved our financial performance and ended the year with a $2.0 billion backlog, which provides significant revenue visibility into 2015 and beyond.”
|Three months ended||Year ended|
|Dec 31||Dec 31|
|$ millions, except percentages and per share amounts||2014||2013(3)||2014||2013(3)|
|Contract income margin||8.9%||12.1%||8.9%||10.3%|
|Net earnings from continuing operations||1.2||3.4||7.1||4.6|
|Net (loss) earnings from discontinued operations||(0.7)||(0.1)||(20.2)||0.5|
|Net earnings (loss)||0.5||3.3||(13.1)||5.1|
|Earnings (loss) per common share|
|Basic from continuing operations||0.05||0.14||0.29||0.19|
|Basic earnings (loss) per share||0.02||0.13||(0.52)||0.21|
|Diluted from continuing operations||0.05||0.14||0.28||0.19|
|Diluted earnings (loss) per share||0.02||0.13||(0.53)||0.21|
|Dividends declared per share||0.12||0.12||0.48||0.48|
|$ millions||Dec. 31,
|Long-term debt (excluding current portion)||0.8||50.3|
|Convertible debenture (excluding equity portion) (1)||155.8||81.9|
(1) The convertible debentures issued in 2010, and due in 2015, are presented as a current liability of $84.8 million as at December 31, 2014; whereas, they were presented as a non-current liability of $81.9 million as at December 31, 2013.
(2) If the convertible debentures issued in 2010 were excluded from working capital, adjusted December 31, 2014 working capital would have been $139.2 million (December 31, 2013 – $84.9 million).
(3) Three month and year ended December 31, 2014 results have been restated to reflect Broda as discontinued operations.
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”, “EBITDA”, “EBITDA margin”, “backlog”, and “working capital”, are not prescribed measures under IFRS. For a description of these measures, see the “Non-IFRS Measures” section in Stuart Olson’s 2014 Management’s Discussion & Analysis.
Full Year 2014 Overview
- Backlog of $1,986.8 million as at December 31, 2014 consists of approximately 84.2% low-risk contracts, including 60.5% construction management (“CM”) work and 23.7% cost-plus arrangements. Tendered (hard-bid) work represents approximately 15.8% of the backlog.
- Full year consolidated revenue increased 24.2% to $1,306.3 million in 2014, from $1,051.8 million in 2013.
- Buildings Group revenue increased by 36.6% to $693.7 million, supported by a significant increase in commercial and institutional activity in British Columbia, Alberta and Manitoba and increased activity in the group’s industrial buildings division.
- Industrial Group revenue increased by 13.6% to $407.8 million, reflecting higher volumes of work in Alberta’s oil sands and Northern Ontario’s mining industries.
- Commercial Systems Group revenue increased by 13.4% to $242.3 million, reflecting the start-up of a number of significant projects in Alberta during 2014.
- Consolidated contract income increased 6.3% to $115.7 million. Consolidated contract income margin declined to 8.9% from 10.3%, primarily reflecting a higher contribution of lower margin Buildings Group revenue in 2014, as well as project losses on certain Buildings Group industrial site projects.
- EBITDA increased 21.6% to $41.7 million in 2014, from $34.2 million in 2013. This improvement reflects the increased consolidated revenue paired with consistent year-over-year EBITDA margin.
- 2014 net earnings from continuing operations increased to $7.1 million (diluted earnings per share of $0.28), from $4.6 million (diluted earnings per share of $0.19) in 2013 driven by higher contract revenue.
- Including the loss of $20.2 million incurred on the Broda sale, the Company recorded a net loss of $13.1 million (diluted loss per share of $0.53) in 2014, compared to net earnings of $5.1 million (diluted earnings per share of $0.21) in 2013.
- As at December 31, 2014, the Company was in full compliance with its long-term debt covenants, had available cash of $104.1 million and additional borrowing capacity of approximately $118.6 million.
- Subsequent to the year-end, Stuart Olson’s Board of Directors declared a quarterly dividend of $0.12 per common share. The dividend will be paid on April 15, 2015 to shareholders of record on March 31, 2015. The Company has a dividend reinvestment plan in place; details are available on Stuart Olson’s website (www.stuartolson.com).
Fourth Quarter (Q4) 2014 Overview
- On November 26, 2014, the Company announced an agreement to acquire Studon Electric & Controls Inc. (“Studon”), a non-union industrial electrical and instrumentation contractor headquartered in Red Deer, Alberta. The acquisition closed on January 6, 2015, with an estimated gross purchase price of approximately $77.8 million, consisting of $59.9 million in cash, $7.8 million in common shares and the assumption of net debt and estimated working capital adjustments. The purchase price may be further increased by the fair value of earn-out payments to an estimated maximum of $24.2 million, based on Studon’s performance over the next three years.
- Fourth quarter consolidated revenue increased 28.5% to $364.5 million, from $283.6 million in the fourth quarter of 2013.
- Buildings Group revenue increased by 58.1% to $216.1 million, reflecting a strong backlog of work, increased commercial and institutional activity in B.C., Alberta and Manitoba, and several large industrial site projects.
- Industrial Group revenue increased by 3.6% to $99.4 million, reflecting increased activity levels in Alberta’s oil sands.
- Commercial Systems Group revenue of $60.5 million was in line with results from a year ago.
- Contract income decreased 6.1% to $32.3 million in the fourth quarter of 2014. Consolidated contract income margin declined to 8.9% from 12.1% year over year, primarily reflecting an increased proportion of lower margin Buildings Group revenue during the quarter. Commercial Systems Group margin also declined from the level achieved in Q4 2013, when the group was completing a number of high-margin projects.
- Fourth quarter EBITDA increased 7.1% to $12.0 million, from $11.2 million in Q4 2013. The year-over-year improvement reflects increased revenue and reduced administrative costs, partially offset by lower contract income margin.
- Fourth quarter net earnings from continuing operations were $1.2 million (diluted earnings per share of $0.05), compared to $3.4 million (diluted earnings per share of $0.14) in the fourth quarter of 2013, driven primarily by higher EBITDA being more than offset by carrying interest costs on two sets of convertible debentures, tenant improvement write-downs as part of reducing Buildings Group office space and increased year-over-year income tax expense.
Stuart Olson expects consolidated revenue for 2015 to be generally in line with overall revenue in 2014, while EBITDA margin as a percentage of revenue is expected to increase. The outlook reflects the Company’s $2.0 billion backlog, which provides line of sight to revenues for 2015 and 2016. Both the Buildings Group and Commercial Systems Group will be executing large backlogs dominated by public infrastructure projects distributed across multiple provinces. The majority of these projects are underway and are fully to be completed.
The Industrial Group will benefit from the addition of Studon, which was acquired on January 6, 2015 and will add approximately $157 million of backlog to the group’s existing December 31, 2014 backlog of $340.6 million. Current oil prices are expected to have a negative impact on new industrial construction opportunities in 2015. However, the Company anticipates continued strong demand for MRO services, and estimates that approximately 50% of the Industrial Group’s backlog is comprised of these stable and recurring services.
“Overall we expect market conditions will be challenging in 2015, particularly in terms of increased competition for fewer industrial and commercial construction project opportunities in Alberta,” said Mr. LeMay. “We continue to see good opportunities for infrastructure projects with Western Canadian provincial governments expected to maintain infrastructure spending at stable levels. Economic conditions are also expected to remain healthy in British Columbia, Manitoba and Ontario, providing opportunities for our operations in these provinces. Supported by our large backlog, we will manage our business tightly, focusing on cost control and strong project execution to ensure that we achieve our financial objectives in 2015.”
Stuart Olson’s outlook for its three business groups is as follows:
- The Buildings Group anticipates lower revenue, but higher EBITDA margins in 2015 as a result of significantly reduced exposure to higher-risk industrial site projects.
- In 2014, the Industrial Group benefited significantly from a one-time large construction project that is now in its final stages. This factor, combined with the expected decline in new industrial construction opportunities in Alberta, will likely result in 2015 revenue from our legacy Industrial Group businesses being lower than the levels achieved in 2014. The Studon business also anticipates a year-over-year reduction in revenue as a result of the decline in industrial construction opportunities. Industrial Group EBITDA margins are also expected to be lower year-over-year as a result of increased competition, oil sands operators seeking supplier cost reductions in response to lower oil prices, and an increased proportion of lower-risk cost reimbursable MRO work in the revenue mix. We expect the impact of low oil prices to be especially prevalent in the first quarter of 2015, given owner delays in moving forward with committed projects as they assess their own capital budgets.
- Commercial Systems Group revenue and EBITDA margin for 2015 are expected to be similar to 2014 results.
Stuart Olson will hold a conference call and webcast to discuss its full year and fourth quarter 2014 results tomorrow, March 11, 2015 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 our website at www.stuartolson.com. For those unable to listen during the live webcast, a replay will be available on Stuart Olson’s 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, April 1, 2015, by dialing 1-888-390-0541 (Canada and USA) or 1-416-764-8677 (outside Canada and USA), pin 065161#. The public is invited to listen to the live conference call, webcast or the replay.
About Stuart Olson Inc.
Stuart Olson Inc. provides building construction, commercial and industrial electrical contracting, and industrial insulation services to an array of public and private sector clients. The Company operates office locations throughout British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stuart Olson common shares and Stuart Olson’s 2010 and 2014 convertible debentures are listed on the Toronto Stock Exchange under the symbols “SOX”, “SOX.DB” 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 related to Stuart Olson’s expectations regarding: (a) 2015 revenue visibility and generation, 2015 EBITDA margin realization and 2015 backlog execution; (b) the benefits of the Studon acquisition to Stuart Olson’s Industrial Group; (c) economic conditions, including oil prices forecasts; and (d) general business opportunities. 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” 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.