CALGARY, Nov. 3, 2016 /CNW/ – Stuart Olson Inc. (TSX: SOX, SOX.DB.A) (“Stuart Olson” or the “Company”) today announced financial results for the third quarter and first nine months of 2016, and declared a quarterly dividend of $0.12 per common share.
The Company’s results improved from the second quarter of 2016, but continue to reflect the realities of a uniquely challenging year. A prolonged period of lower oil prices, together with the lingering impacts of the Northern Alberta wildfires, continue to suppress activity in the oil and gas sector, most significantly impacting the Industrial Group. The slow rollout at both the provincial and federal level of new infrastructure project opportunities has also delayed activity for the Buildings Group and Commercial Systems Group.
“In response to market conditions, we have moved decisively to optimize our cost structure by focusing on efficiencies and delivering sustainable operational savings,” said David LeMay, President and CEO. “Our actions have contributed to administrative cost savings, without impacting our capacity to deliver on future growth. We anticipate additional long-term savings as other restructuring initiatives take effect,” he added.
“Executing on our strategy, we continue to build our portfolio of stable maintenance, repair and operations (“MRO”) contracts and diversify our business geographically. We announced over $315 million of new contracts in recent months, including $130 million in MRO contracts related to new oil and gas facilities transitioning from project phase to operations. We were also awarded a large new mining contract in Ontario. In our Buildings Group, the recent awards of new infrastructure contracts signal that anticipated infrastructure spending is starting to move forward.”
“While market conditions will remain challenging through the balance of 2016, we are well positioned with a significant and diverse backlog, a pipeline of future opportunities, and a strategy that focuses on growth and organizational efficiency,” said Mr. LeMay.
|Three months ended||Nine months ended|
|September 30||September 30|
|$ millions, except percentages and per share amounts||2016||2015||2016||2015|
|Contract income margin||10.7%||12.2%||9.9%||10.5%|
|Adjusted EBITDA margin||3.9%||5.6%||3.2%||4.5%|
|Net earnings (loss)||1.4||6.4||(3.0)||9.1|
|Earnings (loss) per share|
|Basic (loss) earnings per share||0.05||0.24||(0.11)||0.35|
|Diluted (loss) earnings per share||0.05||0.18||(0.11)||0.30|
|Dividends declared per share||0.12||0.12||0.36||0.36|
|Adjusted free cash flow||3.2||12.1||(4.8)||22.4|
|Adjusted free cash flow per share||0.12||0.46||(0.18)||0.85|
|$ millions||Sep. 30,
|Long-term debt, excluding current portion||42.9||46.6|
|Convertible debentures (excluding equity portion)||73.8||72.5|
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” and “adjusted free cash flow per share”, are not prescribed measures under IFRS. For a description of these measures, see the “Non-IFRS Measures” section in Stuart Olson’s September 30, 2016 Management’s Discussion & Analysis.
Third Quarter (Q3) 2016 Overview
- As at September 30, 2016, Stuart Olson’s backlog was a strong $2.1 billion and included 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.
- During the third quarter, the Company announced $185.0 million of awards for the Industrial and Buildings Groups. These include a major mining project for the Industrial Group in Ontario, as well as several infrastructure projects for the Buildings Group.
- Subsequent to the quarter end, on November 3, 2016, Stuart Olson announced $130 million in long-term industrial MRO contracts related to new oil and gas facilities transitioning from project phase to operations.
- Revenue for the three months ended September 30, 2016 was $220.7 million, compared to $281.7 million in Q3 2015.
- Third quarter revenue from the Industrial Group was $68.2 million, compared to $107.6 million last year. A reduction in new construction activity in the Alberta oil sands as a result of low oil prices, together with the carryover impacts from the Northern Alberta wildfires, were key factors in the year-over-year change. These impacts were partially offset by the Industrial Group’s increased activity on power generation and transmission projects in Manitoba and Ontario. Industrial Group contract income margin increased to 15.2% from 13.7% last year, reflecting the one-time release of contingencies on two projects during the period, partially offset by an increased proportion of lower-risk cost reimbursable work in the current project mix.
- Buildings Group revenue of $108.6 million declined 17.2% year-over-year due to the planned wind-down of the group’s industrial project activity, the completion of projects in Manitoba and Alberta that provided significant revenue last year, delays in the awarding of new infrastructure opportunities, and delays in the commencement of new projects currently in pre-construction. These impacts were partially offset by the increased activity levels in the Ontario and British Columbia markets. Contract income margin on the Buildings Group revenue increased to 8.9% in Q3 2016, from 8.1% last year.
- Third quarter Commercial Systems Group revenue declined by 4.5% to $50.8 million, reflecting year-over-year changes in project stage of completion and the wrap up of a number of projects in British Columbia and Manitoba that contributed significant revenue to Q3 2015 results. Contract income margin declined to 9.3% from 14.5% last year, primarily reflecting customer-driven productivity challenges on a large project that was substantially completed during the third quarter, as well as changes in project mix and stage of completion, together with competitive pricing pressure.
- Contract income margin for the third quarter was 10.7% on a consolidated basis, compared to 12.2% last year. Contract income declined to $23.6 million, from $34.4 million. The reduction in contract income reflects the lower revenue combined with a lower contract income margin. Prior-year third quarter contract income also included the benefit of $1.3 million in positive intersegment eliminations, while Q3 2016 results included a reversal of intersegment profit of $1.3 million.
- In response to challenging market conditions, the Company continues to assess its cost structure with a focus on reducing overhead. Restructuring and cost cutting initiatives undertaken year-to-date, together with additional measures implemented in the third quarter, contributed to a year-over-year reduction in third quarter administrative costs, partially mitigated the year-over-year decline in contract income and are expected to deliver additional permanent expense reductions going forward. Restructuring costs of $0.4 million related to these initiatives were recognized during the quarter.
- The Company generated third quarter adjusted EBITDA of $8.6 million (adjusted EBITDA margin of 3.9%), compared to $15.8 million (adjusted EBITDA margin of 5.6%) in Q3 2015. These results reflect the lower contract income, partially offset by the reduction in administrative costs achieved through cost-containment initiatives.
- Third quarter net earnings for the three months ended September 30, 2016 were $1.4 million (diluted earnings per share of $0.05), compared to net earnings of $6.4 million (diluted earnings per share of $0.18) in Q3 2015. The decrease in net earnings reflects the lower adjusted EBITDA and a Q3 2015 recovery related to marking-to-market of an earn-out liability recognized as part of an acquisition, partially offset by lower depreciation expense and a one-time impairment charge incurred in Q3 2015 that did not repeat.
- The Company ended the third quarter with a cash balance of $28.3 million and additional borrowing capacity of approximately $55.9 million at September 30, 2016.
- On July 13, 2016, Stuart Olson successfully amended its revolving credit facility, extending the maturity date by one year to 2021 and negotiating improved terms. This amendment maintains the Company’s maximum borrowing capacity at $175.0 million.
- On November 3, 2016, 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 January 17, 2017 to shareholders of record on December 31, 2016.
Based on year-to-date results and expectations for the balance of the year, Stuart Olson anticipates that 2016 consolidated revenue will be substantially lower than the level achieved in 2015. This revenue outlook reflects the negative impact of the Northern Alberta wildfires on Industrial Group activity in the oil sands, the continuation of challenging market conditions in Alberta related to the “lower-for-longer” oil price environment, and the slow rollout of new infrastructure project opportunities. On a longer-term basis, Stuart Olson’s significant $2.1 billion backlog provides line of sight to activity levels for 2017 and into 2018, and reflects the Company’s access to many different segments and geographic markets within the Canadian construction market. Both the Buildings Group and the Commercial Systems Group are executing backlogs dominated by public sector projects across multiple provinces. The Industrial Group also continues to successfully pursue new business opportunities both within and outside of Alberta, as evidenced by the major new contracts announced in recent months.
Adjusted EBITDA and adjusted EBITDA margin are expected to be lower in 2016, reflecting the direct and indirect impact of the wildfires on the Industrial Group’s operations, the continuation of challenging economic conditions in the Alberta market as a whole, and an increased proportion of lower-risk and correspondingly lower-margin MRO projects within the Industrial Group. Adjusted EBITDA results for 2016 are also expected to include the reversal of intersegment eliminations that favourably impacted 2015 results.
Stuart Olson’s outlook for its three business groups is as follows:
- Industrial Group 2016 revenue is expected to be materially below 2015 levels as a result of the uniquely challenging conditions faced by oil sands customers this year. These impacts will be partially offset by the execution of large industrial projects outside of Alberta, including initial work on a large power distribution project in Manitoba and the completion in 2016 of a mining project in the Northwest Territories. Industrial Group adjusted EBITDA and adjusted EBITDA margin are expected to be significantly lower than in 2015 as a result of the productivity challenges and additional costs incurred during the wildfire crisis. Competitive market pressures in Alberta and an increased proportion of revenue coming from lower-risk cost-reimbursable MRO projects are also expected to negatively impact results from the group.
- The Buildings Group anticipates moderately higher adjusted EBITDA and adjusted EBITDA margin in 2016 on lower revenue compared to 2015. This outlook reflects the strategic shift undertaken in 2015 by the Buildings Group to discontinue industrial sector projects and to re-focus efforts on the group’s core strengths in the public and private construction markets. Revenue expectations also reflect delays in the award of new infrastructure projects, as well as delays in the commencement of new projects currently in pre-construction. Buildings Group revenue as a whole continues to be supported by predominantly public projects in multiple provinces, including the group’s growing activity in Ontario. The higher adjusted EBITDA expectations primarily reflect the favourable shift in project mix, and to a lesser extent, a change in project stage of completion with several larger public projects scheduled to reach completion in 2016.
- Commercial Systems Group 2016 revenue is expected to be lower than in 2015, reflecting the completion in 2015 of a number of significant projects and a slower-than-expected rollout of new projects in 2016. Adjusted EBITDA and adjusted EBITDA margins are expected to be materially lower than in 2015, reflecting the competitive market environment in Alberta and customer-driven productivity challenges on a large project that reached substantial completion during the third quarter.
Stuart Olson will hold a conference call and webcast to discuss third quarter 2016 results on Friday, November 4, 2016 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 Friday, November 18, 2016, by dialing 1-888-390-0541 (Canada and USA) or 1-416-764-8677 (outside Canada and USA), pin 432093. 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 electrical, mechanical and specialty trades, such as insulation, cladding and asbestos abatement, in the industrial construction and services market. The Company operates office locations throughout British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. 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
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 relating to:
further restructuring initiatives in the last half of the year, and the expectation that these initiatives will reduce Stuart Olson’s cost structure; and
made under the section entitled “Outlook” including, without limitation, those relating to:
2016 revenue visibility;
Stuart Olson’s backlog and the implication that such backlog provides line of sight to activity levels in 2017 and into 2018;
2016 EBITDA and EBITDA margin projections;
economic conditions; and
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” 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.