News Releases

CALGARY, March 7, 2017 /CNW/ - Stuart Olson Inc. (TSX: SOX, SOX.DB.A) ("Stuart Olson" or the "Company") today announced fourth quarter and full-year 2016 results, and declared a quarterly dividend of $0.12 per common share.

"We realized key strategic objectives in 2016, even as we responded to significant challenges," said David LeMay, President and CEO of Stuart Olson. "Our continued focus on strengthening the positioning of our Industrial Group businesses, targeting maintenance, repair and operations ("MRO") opportunities, and expanding our geographic and sector diversification was rewarded with a record level of Industrial Group backlog at the end of the year. The Buildings Group also executed effectively on projects from Ontario to British Columbia, enhancing margins notwithstanding lower revenues. In addition, the Buildings Group, together with the Commercial Systems Group, laid the groundwork for new infrastructure opportunities that began to materialize late in the year."

"We are proceeding into 2017 as a leaner and more efficient organization, having generated administrative savings of $7.9 million in 2016, and set the stage for permanent cost savings going forward."

"While market conditions remain challenging, Stuart Olson is positioned for a meaningful improvement in financial results in 2017, supported by an effective strategy, a strong backlog, and a lean, flexible cost structure that is closely aligned with market conditions," concluded Mr. LeMay.

FINANCIAL HIGHLIGHTS

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 December 31, 2016 Management's Discussion & Analysis.

FULL-YEAR 2016 OVERVIEW

• Stuart Olson ended the year with a backlog of $2.0 billion. This was the result of securing $943.9 million of net new project awards and scope increases in 2016, reflecting a book-to-bill ratio of 1.04 to 1.0. The backlog includes a diverse mix of public, private and industrial projects from Ontario to British Columbia, and is predominantly made up of low-risk contract arrangements.
  
  
• The Industrial Group successfully pursued its strategy of expanding recurring MRO business, while diversifying across geographies and sectors. The group finished the year with a record backlog of $822.9 million, including the announcement of over $700.0 million of new awards in 2016, including:
  
  
  • A five-year master services agreement valued at approximately $500.0 million, of which an estimated $400.0 million was added to backlog in 2016. The agreement relates to the provision of MRO services to a longstanding oil sands customer in Alberta.
    
    
  • Approximately $80.0 million of awards for the provision of mechanical, electrical and instrumentation services to a major mining company in Ontario, and a number of insulation contracts with traditional customers in Western Canada.
    
    
  • An estimated $100.0 million contract to provide MRO services to a longstanding oil sands customer's newly constructed facility in Northern Alberta.
    
    
  • A $30.0 million award to provide electrical and instrumentation maintenance services to a new client at a newly constructed processing facility in Northern Alberta.
    
    
  • Subsequent to year-end, the Industrial Group announced a five-year MRO contract valued at an estimated $30.0 million. The contract is with a longstanding mining customer on a new project site in Saskatchewan.
    
    
• Notwithstanding the slow rollout of federal and provincial infrastructure projects, the Buildings Group announced 2016 awards totaling approximately $105.0 million for both public infrastructure and private commercial projects in Western Canada, including several projects funded by the most recent Federal and Alberta capital budgets.
  
  
  • During Q4 2016, the group removed a $200.0 million private commercial project from backlog as a result of changes in expectations around start-up timing, construction schedule and project fees.
    
    
  • Subsequent to year-end, the Buildings Group secured $220.0 million in construction management contracts to retrofit existing facilities at two large post-secondary institutions in Western Canada. Of the total, $180.0 million was included in December 31, 2016 backlog, with the balance to be added in Q1 2017.
    
    
• For the year ended December 31, 2016, consolidated revenue declined 21% to $909.6 million and contract income decreased by 27.4% to $88.4 million, reflecting the challenging operating and market conditions described below. The timing of intersegment eliminations further reduced contract income by $7.6 million year-over-year. Consolidated contract income margin was 9.7% compared to 10.6% in 2015.
  
  
  • Industrial Group revenue and contract income were down 27.1% and 37.9% respectively in 2016, reflecting the dual impacts of low and unstable oil prices and disruptions caused by the Northern Alberta wildfires. These impacts were partially offset by increased activity on a mining project in the Northwest Territories and initial work on a power project in Manitoba. Industrial Group contract income margin was 10.2% compared to 11.9% in 2015.
    
    
  • The Buildings Group achieved a 2.1% year-over-year increase in contract income on a 19.9% decrease in 2016 revenue. Revenue was negatively impacted by the slow rollout of infrastructure opportunities, delays in the commencement of new projects currently in pre-construction, and the planned reduction in Buildings Group industrial site project activity. These impacts were partially offset by the group's increased activity levels in Ontario and Saskatchewan. Contract income was positively impacted by a change in project mix and close-out margins on several large projects, as well as by the group's move away from higher-risk industrial projects. Buildings Group contract income margin increased to 8.9% from 7.0% in 2015.
    
    
  • Commercial Systems Group revenue declined by 14.9% in 2016, reflecting the wrap-up of projects in British Columbia and Manitoba that contributed significant revenue to 2015 results. Contract income was 25.8% lower as a result of changes in project mix and project stage of completion, as well as customer-driven productivity issues on a large project that reached substantial completion in 2016.
    
    
• Stuart Olson achieved a $7.9 million reduction in 2016 administrative costs as it strategically realigned its cost structure in response to challenging market conditions. Restructuring costs of $8.1 million were recognized in 2016 relating to these initiatives, which are expected to achieve permanent expense reductions going forward.
  
  
• Adjusted EBITDA was $27.5 million (adjusted EBITDA margin of 3.0%), compared to $51.2 million (adjusted EBITDA margin of 4.4%) in 2015. The year-over-year change reflects the lower contract income, partially offset by the reduction in administrative costs achieved through restructuring initiatives.
  
  
• The Company reported a net loss of $4.9 million (diluted loss per share of $0.18), compared to net earnings of $11.2 million (diluted earnings per share of $0.39) in 2015. The decrease in net earnings reflects the after-tax impact of lower adjusted EBITDA.
  
  
• The following amendments were negotiated to the Company's revolving credit facility ("Revolver") in 2016:
  
  
  • On July 13, 2016, the maturity date was extended by one year to 2021 and improved terms were negotiated. The amendment maintains the Company's maximum borrowing capacity at $175.0 million.
    
    
  • On December 23, 2016, the Company announced a reduction in its Revolver interest coverage covenant ratio to 2:25.1 until June 30, 2017, increasing to 2:50:1 until March 31, 2018, and thereafter returning to the previous level of 3.00:1.
    
    
• Stuart Olson paid annual dividends of $0.48 per common share in 2016. On March 7, 2017, the Board of Directors ("Board") 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 13, 2017 to shareholders of record on March 31, 2017.

FOURTH QUARTER 2016 OVERVIEW

• For the three months ended December 31, 2016, Stuart Olson generated revenue of $218.8 million, compared to $283.1 million in Q4 2015, a decline of 22.7%. Fourth quarter contract income of $19.9 million decreased by 35.2% year-over-year.
  
  
  • Industrial Group revenue decreased by 44.2% to $61.4 million as oil sands owners demobilized MRO service providers for the December holiday break significantly earlier than in past years in order to preserve capital. New construction activity was also lower year-over-year as a result of the "lower-for-longer" oil price environment. These impacts were partially offset by increased activity on a power project in Manitoba. Contract income of $5.1 million (8.3% contract income margin) compared to $12.3 million (11.2% contract income margin) in 2015, reflects an increased proportion of lower-risk cost reimbursable work in the project mix and reduced economies of scales related to 2016's lower revenue level.
    
    
  • Buildings Group revenue increased by 3.1% to $124.9 million in the fourth quarter, reflecting increased activity in Alberta and Ontario, partially offset by the completion of projects in Manitoba that provided significant revenue in Q4 2015. Contract income decreased slightly to $10.5 million (8.4% contract income margin) from $11.1 million (9.2% contract income margin) in Q4 2015 as a result of changes in project mix and stage of completion.
    
    
  • Commercial Systems Group revenue of $38.6 million compared to $59.4 million in Q4 2015 reflects delays in the rollout of new infrastructure opportunities and the wrap-up in earlier quarters of 2016 of a number of projects that contributed significant revenue to the period in 2015. Contract income was $4.3 million (11.7% contract income margin) compared to $8.8 million in the previous year (14.8% contract income margin) as a result of changes in project mix and stage of completion, together with competitive pricing pressure and operational restructuring costs incurred in the quarter.
    
    
• Fourth quarter adjusted EBITDA was $5.4 million in 2016, compared to $12.0 million in 2015. Lower contract income, partially offset by lower administrative costs, was the key factor in the year-over-year change. EBITDA margin decreased to 2.5% from 4.2%.
  
  
• The company recorded a fourth quarter net loss of $1.9 million (diluted loss per share of $0.07), compared to net earnings of $2.1 million (diluted earnings per share of $0.08) in the fourth quarter of 2015.

OUTLOOK

Stuart Olson expects 2017 consolidated revenue to be meaningfully higher than in 2016. The Northern Alberta wildfires that disrupted Industrial Group operations in 2016 are not expected to repeat in 2017 and the group is positioned to benefit from its growing volume of MRO contracts and success in pursuing new business opportunities both within and outside of Alberta. The revenue outlook also reflects the shift of several Buildings Group projects into higher activity construction phases in 2017.

On a longer-term basis, the Company's $2.0 billion backlog provides line of sight to activity levels into 2019 and reflects access to many different segments and geographies within the Canadian construction market.

Adjusted EBITDA and adjusted EBITDA margin are expected to be higher in 2017 than in 2016, primarily reflecting the anticipated absence of both the wildfire impacts and the intersegment eliminations that negatively affected 2016 results. These year-over-year benefits are expected to be partially offset by an increase in incentive plan accruals associated with improved consolidated financial results.

Stuart Olson's outlook for its three business groups is as follows:

• Revenue from the Industrial Group is expected to be higher in 2017 than in 2016, as customer oil sands operations recover from the fire-related disruptions and challenging market conditions faced in 2016, enabling the group to execute on its growing volume of MRO contracts. Revenue growth is also supported by industrial projects outside of Alberta, including continued work on a power distribution project in Manitoba and a mining project in Ontario. Industrial Group adjusted EBITDA and adjusted EBITDA margin are expected to be meaningfully higher year-over-year. This reflects the expectation that productivity challenges and additional costs incurred during and following the 2016 wildfire crisis will not repeat in 2017.
  
  
• The Buildings Group anticipates higher revenue in 2017 as a greater proportion of contracts move from pre-construction into construction phases. Buildings Group revenue as a whole is expected to continue to be driven by predominantly public projects in multiple provinces, including the group's growing activity in Ontario. Adjusted EBITDA is expected to be modestly higher year-over-year as a result of higher revenue. Adjusted EBITDA margin is expected to be slightly lower in 2017, primarily reflecting the absence of close-out margins recognized on several larger public projects completed in 2016.
  
  
• Commercial Systems Group 2017 revenue is expected to be similar to 2016 levels, reflecting the continued slow rollout of new projects. Adjusted EBITDA and adjusted EBITDA margins are expected to be slightly higher than in 2016, reflecting the completion of a large project that negatively impacted 2016 results, partially offset by competitive pricing pressures both on projects in backlog and on projects expected to be secured in 2017.

CONFERENCE CALL AND WEBCAST

Stuart Olson will hold a conference call and webcast to discuss 2016 fourth quarter and annual results on Wednesday, March 8, 2017 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 22, 2017, by dialing 1-888-390-0541 (Canada and USA) or 1-416-764-8677 (outside Canada and USA), pin 874566. 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 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 relating to:

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.