Management's Discussion & Analysis
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MANAGEMENT’S DISCUSSION & ANALYSIS For the first quarter ended March 30, 2013 TABLE OF CONTENTS MANAGEMENT’S DISCUSSION AND ANALYSIS ............................................... 3 NON-IFRS MEASURES ....................................................................................... 3 OVERVIEW OF THE COMPANY ......................................................................... 3 FIRST QUARTER HIGHLIGHTS .......................................................................... 4 RESULTS ............................................................................................................. 5 RESULTS OF OPERATIONS ............................................................................. 14 STATEMENTS OF FINANCIAL POSITION ......................................................... 18 DIVIDENDS ........................................................................................................ 18 BACKLOG .......................................................................................................... 19 FUNDS FROM OPERATIONS AND FREE CASH FLOW.................................... 19 LIQUIDITY .......................................................................................................... 20 CAPITAL RESOURCES ..................................................................................... 21 SUMMARY OF QUARTERLY RESULTS ........................................................... 22 GOVERNANCE .................................................................................................. 23 SIGNIFICANT ACCOUNTING POLICIES ........................................................... 24 FUTURE ACCOUNTING STANDARDS .............................................................. 24 FINANCIAL INSTRUMENTS............................................................................... 24 RELATED PARTY TRANSACTIONS .................................................................. 24 OFF-BALANCE SHEET AGREEMENTS ............................................................ 25 CONTRACTUAL OBLIGATIONS ........................................................................ 25 OUTLOOK .......................................................................................................... 26 FORWARD-LOOKING STATEMENTS ............................................................... 26 RISK FACTORS .................................................................................................. 27 ADDITIONAL INFORMATION............................................................................. 27 GLOSSARY ........................................................................................................ 27 GENIVAR First Quarter Report 2013 | 2 MANAGEMENT’S DISCUSSION AND ANALYSIS The following management’s discussion and analysis (“MD&A”) of consolidated financial position and consolidated results of operations dated May 7, 2013, is intended to assist readers in understanding GENIVAR Inc. (the “Company” or “GENIVAR”) and its business environment, strategies, performance and risk factors. In this MD&A, the “Company,” “we,” “us” and “our” mean GENIVAR Inc. This MD&A should be read together with the unaudited condensed interim consolidated financial statements and accompanying notes of the Company for the quarter ended March 30, 2013 and the audited consolidated financial statements and accompanying notes for the year ended December 31, 2012. The Company’s unaudited interim consolidated financial statements for the first quarter ended March 30, 2013, have been prepared in compliance with International Financial Reporting Standards (“IFRS”) as defined in the Handbook of the Canadian Institute of Chartered Accountants and adopted by the International Accounting Standards Board (“IASB”). All amounts shown in this MD&A are expressed in Canadian dollars, unless otherwise indicated. All quarterly information disclosed in this MD&A is based on unaudited figures. This MD&A focuses on the Company’s first-quarter results, covering the period from January 1, 2013, to March 30, 2013. The Company’s quarters include 13 weeks except the fourth quarter, which has to end on December 31 of each year, and the first quarter that follows. NON-IFRS MEASURES The Company uses non-IFRS measures that are considered by companies as indicators of financial performance measures which are not recognized under IFRS and may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable. It believes these measures provide useful supplemental information that may assist investors in assessing an investment in the Company’s shares. Non-IFRS measures used by the Company are net revenues; EBITDA; EBITDA per share; EBITDA margin; adjusted EBITDA; adjusted EBITDA margin; net earnings excluding amortization of intangible assets related to acquisitions (net of income taxes); net earnings excluding amortization of intangible assets related to acquisitions (net of income taxes) per share; funds from operations; funds from operations per share; free cash flow; and free cash flow per share. These measures are defined at the end of this MD&A in the “Glossary” section. OVERVIEW OF THE COMPANY The Company, through its combination with WSP Group plc (“WSP”), is one of the world’s leading professional services firms, working with governments, businesses, architects and planners and providing integrated solutions across many disciplines, from designing zero-carbon cities to project managing large-scale Infrastructure projects. The Company provides services to transform the built environment and restore the natural environment, and its expertise ranges from environmental remediation to urban planning, from engineering GENIVAR First Quarter Report 2013 | 3 iconic buildings to designing sustainable transport networks, and from developing the energy sources of the future to enabling new ways of extracting essential resources. Whether designing Europe’s largest vertical city or setting the benchmark for decommissioning mines, the Company prides itself on its technical innovation and its appetite for excellence on each and every project, large or small. As at March 30, 2013, the Company had approximately 15,000 employees, mainly engineers, technicians, scientists and architects, as well as various environmental experts, based in more than 300 offices, across 35 countries, on every continent. The Company can therefore offer specialized expertise in many fields and locations. It can also provide a completely integrated service bringing together knowledge and experience from across the Company, managed and delivered seamlessly. The address of its head office is 1600, René-Lévesque Boulevard West, Montreal, Quebec. The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol “GNV.” The Company’s business model is centered on maintaining a leadership position in each of its end markets and the regions in which it operates by establishing a strong commitment to and recognizing the needs of surrounding communities and local or national clients. It has the breadth of capability and the depth of expertise to turn clients’ visions into realities that are sustainable in every sense – commercially, technically, socially and environmentally. FIRST QUARTER HIGHLIGHTS Solid results in line with Management’s previously disclosed 2013 outlook. Management reiterates its confidence in reaching its objective for the year 2013. Revenues of $478.7 million, representing an increase of 192.4% compared to the same quarter of 2012. Net revenues of $406.8 million, representing an increase of 196.7% from $137.1 million for the same quarter of 2012. WSP’s organic growth on net revenues stood at 2.5%, compared to the same quarter of 2012. GENIVAR’s organic growth stood at negative 6.6%. However, the quarter had 2.5 less working days than the first quarter of 2012. Comparatively, the organic growth for this quarter would have been approximately negative 2.9% had the number of working days been equivalent to the first quarter of 2012. Strong organic growth in emerging markets such as Colombia, Middle East, China and India. EBITDA of $37.1 million, representing an increase of 75.0% from the same quarter of 2012. EBITDA per share stood at $0.72 per share, compared to $0.65 per share for the same quarter in 2012. Net earnings reached $14.1 million or $0.27 per share in 2013, compared to $10.0 million or $0.31 per share for the first quarter of 2012. GENIVAR First Quarter Report 2013 | 4 Net earnings excluding amortization of intangible assets related to acquisitions (net of income taxes) stood at $18.3 million or $0.36 per share. Dividends declared of $0.375 per share. Net debt to EBITDA ratio of 1.1x based on trailing-twelve-months. Backlog slightly increased and stood at $1,427.3 million, compared to $1,420.6 million at the end of the fourth quarter of 2012. Days sales outstanding ratio of accounts receivable and costs and anticipated profits in excess of billings (“DSO”) stood at 93 days and decreased by 4 days during the quarter. GENIVAR generated funds from operations of $23.2 million, compared to $14.8 million for the same quarter of 2012. First quarter 2013 2012 FOR THE PERIOD FOR THE PERIOD FROM JANUARY 1 FROM JANUARY 1 IN M ILLIONS OF DOLLARS, EXCEPT PER SHARE DATA TO M ARCH 30 TO M ARCH 31 Revenues $478.7 $163.7 Net revenues* $406.8 $137.1 EBITDA* $37.1 $21.2 EBITDA per share* $0.72 $0.65 Net earnings $14.1 $10.0 Basic and diluted net earnings per share $0.27 $0.31 Net earnings