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 excluding amortization of intangible assets related to acquisitions $18.3 $12.5 (net of income taxes)* Net earnings excluding amortization of intangible assets related to acquisitions $0.36 $0.38 (net of income taxes) per share* Funds from operations* $23.2 $14.8 Funds from operations per share* $0.45 $0.45 Free cash flow * ($6.7) $3.8 Free cash flow per share* ($0.13) $0.12
* Non-IFRS measures are described in the “Glossary” section.
RESULTS The Company presents its financial information in five reporting segments, namely Canada, United States (“US”), United Kingdom (“UK”), Northern Europe and Rest of the World. During the first quarter of 2013, Management reviewed and analyzed the performance of its segments based on the following metrics: revenues, net revenues, adjusted EBITDA, backlog, “soft backlog” and number of employees. The adjusted EBITDA is defined as earnings before financial expenses, income tax expenses, depreciation, amortization and global corporate costs. Expenses and salaries related to centralized functions, such as global
GENIVAR First Quarter Report 2013 | 5 Finance, Human Resources, and Technology teams are considered “Global Corporate Costs.”
Measures analyzed for the first quarter of 2013 are presented in the following table:
2013 First quarter
IN M ILLIONS OF DOLLARS, EXCEPT United United Northern Rest of the NUM BER OF EM PLOYEES AND PERCENTAGES Canada States Kingdom Europe World Total Revenues $151.0 $43.3 $82.7 $138.3 $63.4 $478.7 Net revenues* $128.0 $39.9 $64.7 $120.3 $53.9 $406.8 Adjusted EBITDA* $15.8 $4.4 $5.5 $16.8 $1.3 $43.8 Adjusted EBITDA Margin* 12.3% 11.0% 8.5% 14.0% 2.4% 10.8% Approximate number of employees 4,900 1,100 2,400 3,400 3,000 14,800 Backlog $506.5 $209.0 $236.0 $239.0 $236.8 $1,427.3 Soft backlog $184.6 $41.0 $109.0 $112.0 $105.0 $551.6
* Non-IFRS measures are described in the “Glossary” section.
CANADA The performance of our Canadian operations was in line with expectations. We continue to experience a slowdown in certain industries, such as the Industrial and Municipal Infrastructure segments. In many regions, we have also experienced reduced activities due to winter conditions, which were anticipated and included in our previously disclosed outlook.
In Alberta, in spite of the increased impact of US natural resources inventory levels, we posted solid results in our Oil and Gas segment. Our infrastructure activities, mainly in the Transportation segment, remained strong. On the publicly-funded project front, the provincial budget was released and was in line with our cautious expectations. Lastly, we continue to see solid activity in the Buildings segment, particularly in the private sector.
In the other provinces in our Western Canada region, Saskatchewan’s economy continued to be strong, while British Columbia slowed down slightly in anticipation of the provincial elections scheduled for May 14, 2013. In Manitoba, although activities tapered off during the quarter, mainly due to the expected winter slowdown, the provincial sales tax is expected to be increased this summer, which should help fund future infrastructure projects.
In Ontario, our performance was stable. The Ministry of Transportation, which had been greatly scaled back in 2012, began issuing requests for proposals during the quarter, leading us to be cautiously optimistic for the remainder of the year. However, intense competition from large international firms continues to put downward pressure on margins.
In Quebec, our performance was in line with our outlook, which anticipated a slowdown in the Mining and Municipal Infrastructure segments. Our Environment team posted solid results, whilst our Transportation segment continues to deliver in line with expectations. We have been confirmed as one of five joint ventures to
GENIVAR First Quarter Report 2013 | 6 submit formal bids for the Turcot Interchange, which may well be one of the largest projects to be undertaken in the coming years in the Montreal region.
The Atlantic region started off the year slowly, mainly impacted by winter conditions. Activities in resource-driven infrastructure projects continued to be strong.
Sample of projects We were awarded a major contract by the City of Toronto to provide program management, design and construction services for more than 250 water, sewer and transportation projects over the next eight years. Our Ontario team will be leveraging WSP’s program management expertise from the UK.
We won two new projects with the Toronto Transit Commission (“TTC”) to provide multidisciplinary engineering and architectural services for the design and construction support for modifications and upgrades to the Russell and Roncesvalles Carhouse yards, which house the TTC’s streetcars.
We were mandated to perform structural, mechanical, electrical and civil engineering services for the construction of the new CN Education and Training Centre. This 8,700-m2, three-storey training school will be used to train new hires and existing staff. The building will consist of a large assembly space, numerous classrooms and simulator rooms, in addition to a “high bay” for presenting large railway equipment.
The Province of Nova Scotia has set targets of 25% renewable electricity consumption by 2015 and 40% by 2020. In that context, we were mandated to provide design services for the South Canoe Wind Energy Project, a 102-megawatt wind farm located near Windsor, Nova Scotia, and the largest wind farm to be constructed in the province to date.
UNITED STATES The overall performance of our US operations was in line with our expectations, as economic growth in the US has been stable and is expected to continue to be so for most of the year.
The Buildings segment continues to gain strength with good opportunities in our key geographic markets (New York, Boston, and San Francisco). There have also been good growth opportunities in the Seattle and Washington, DC markets, as the Northwest continues to recover and the national capital region is still strong. We are seeing increasing strength across multiple market sectors, primarily high-rise residential, commercial and mixed-use, institutional, higher and lower education, and sports.
Our Transportation segment has historically experienced lower staff utilization and revenues in the first quarter due to weather conditions and the seasonal nature of Bridge Inspection and Survey services, with the strongest results expected in the second and third quarters. Congress recently agreed to raise the GENIVAR First Quarter Report 2013 | 7 level of funds available for highways and transit from 2012 levels, and it appears that state budget deficits are lower than in the previous three years. All of this should bode well for state transportation budgets, which should in turn have a positive impact on our activities for the remainder of the year.
Our Environment segment is expected to grow slowly through 2013. We are seeing increased activity in contaminated site services, as well as heightened activity in our data management practice and corporate compliance services, especially related to supply chain management. Legislative initiatives, coupled with investor pressure and trends in corporate policy towards responsible business practices, support ongoing client demand for sustainability services.
Project sample We were appointed to provide mechanical, electrical, plumbing and structural engineering services for the prestigious 425 Park Avenue building in New York, NY, a 41-storey, 650,000-square-foot commercial office tower designed by Foster + Partners. This new tower will replace the existing 32-story structure built in 1957, although 25% of the existing structure will be retained in the base. The 425 Park Avenue building will provide world-class, sustainable office space over three gradated tiers of column-free, flexible open floor plates. Each of the three tiers will have a landscaped terrace providing panoramic views of the Manhattan skyline and Central Park.
We were awarded a project by the Triborough Bridge and Tunnel Authority for the biennial inspection of the Bronx Whitestone Bridge, a suspension bridge in New York City that crosses the East River and connects the boroughs of Queens (Long Island) and the Bronx.
We were awarded a significant contract by Bank of America, which will allow us to continue providing services related to sustainability, including support with quantifying and reporting greenhouse gas emissions, water consumption and waste generation. We will also support the Bank with analysis related to achieving its 2015 goals for greenhouse gas (“GHG”), water and waste.
UNITED KINGDOM We were pleased with the results of our UK operations, which continue to deliver a stable performance, mainly in the Rail segment, which is one of the few growth areas in the country, together with Infrastructure. However, we continue to see a discrepancy in the level of activity in the London area and outside of the London area, as opportunities in the development and Buildings markets in London have slightly picked up since the end of 2012. The Infrastructure, Industrial and Environment markets continue to present good opportunities, albeit in a very competitive environment. On a particularly positive note, for the first time since the beginning of the global market downturn, we have seen less pressure on fees in the Industrial segment.
GENIVAR First Quarter Report 2013 | 8 On the Infrastructure front, the government has committed to increase capital spending by $4.4 billion (£3 billion) annually, starting in 2015. In the Rail segment, we are focusing on light-speed rail work and non-station work, which seem to be growth areas. In the first quarter, we also saw opportunities related to electrification projects in certain regions.
On the Buildings front, the residential market continued to show strength during the quarter, following the government’s housing commitments in the budget and low interest rates. In the London market in particular, demand still outstrips supply. On the commercial front, although activities in the London area are improving slightly, they remain highly competitive, while other regions continue to see a low level of activity.
On the Energy front, the supply market continues to be buoyant. The volume of work on wind farms in Scotland is considerable and it is also increasing in Northern England. For the time being, Energy projects have mainly been transport-related, but we are now picking up on-site infrastructure work, including some solar and biofuel projects.
Project sample We secured planning consent for office and residential projects at Hanover Square and Wardour Street in London. We will be providing engineering services for a seven-storey office complex. The 58,000-ft2 structure will be erected opposite the planned Bond Street Crossrail station and will include ground floor retail space.
We were appointed by the Highways Agency to provide site investigation and detailed, geotechnical design services for a project aiming at improving the A19/A1058 Coast Road junction in Yorkshire (Northeast England) by upgrading the existing grade-separated roundabout to a new three-level interchange.
We received a mandate by Penn Pharma in Gwent, Wales. This company is seeking to convert an unused area of their facility into a new manufacturing suite. We will be conducting a detailed review of the concept study findings and will recommend alternative layouts and solutions.
We will be supporting Rolls Royce in its submission of one of the first REACH (Registration, Evaluation and Authorization of Chemicals) reports to the European Chemicals Agency. We were commissioned to put together the report, which involves full site audits for adequate control, analysis of alternatives and a socio-economic analysis.
GENIVAR First Quarter Report 2013 | 9 NORTHERN EUROPE Overall, our European operations delivered as expected for the quarter, with Sweden performing above expectations. The overall focus of the regions was to improve margins, with continued efforts to reduce working capital.
In Sweden, the Infrastructure and Mining segments continue to be regarded as key investment areas by the government.
Germany performed as planned, as activities continued to be supported by improving economic conditions in Europe and a relatively strong domestic economy. The Buildings segment remains strong, as interest rates are at a historic low.
In Finland, activities were stable, with increased competition in the Industrial segment.
Project sample We were awarded a contract to produce the preliminary design phase for building construction, fire and risk, security and energy, as well as mechanical and electrical services for the construction of the European Spallation Source, a multi-disciplinary research centre including the world’s most powerful neutron source, located in Lund, Sweden.
We will be providing multi-disciplinary professional services to the Finnish Transport Agency for engineering work related to Finnish National Road 8, which runs along the country’s west coast.
Siemens Real Estate, a division of Siemens AG based in Germany, commissioned us to provide optimized standards for new factory and office buildings, with the objective of ensuring savings in investment and operating costs.
REST OF THE WORLD Middle East Our Middle East operations posted their best performance since 2008.
The United Arab Emirates market continues to gain strength, thus providing a large number of opportunities. The property market is driven by both government-backed companies and private companies.
In Qatar, the Infrastructure market continues to be buoyant with a number of very large opportunities being reviewed. The Buildings market is still relatively stable, although we are expecting further improvements in 2013 as the country prepares for the 2022 FIFA World Cup.
GENIVAR First Quarter Report 2013 | 10 Project sample We were appointed as the lead consultant for the Dubai Mall Expansion project in Dubai. This is an 81,000-m2 extension to the existing Mall in downtown Dubai next to the Burj Khalifa.
We were commissioned to provide mechanical, electrical, plumbing, fire and life safety services for the expansion of the Mall of the Emirates in Dubai. This is a major expansion to the existing mall, which was designed by WSP in 2005.
We were mandated to carry out the mechanical, electrical, plumbing and specialized design for the Entisar Tower, Sheikh Zayed Road, Dubai. This is a new 117-floor, mixed-use tower comprising a five-star hotel, service apartments and residential units, for a total of 462 units.
Australia and Asia Australia/New Zealand Our performance was significantly below expectations, mainly due to the global decline of the natural resources sector and to the poor performance of our Environment segment. This was partially offset by the Buildings segment’s good performance.
Project sample We were appointed as the Buildings services consultant for upgrade work at Sydney’s International Airport.
Southeast Asia Our Southeast Asian operations started off the year slowly. In addition, we were affected when the Singapore government reprioritized its financial expenditures, which brought the national construction industry to a temporary standstill.
Greater China Greater China continues to perform well as China and Hong Kong experienced very strong organic growth.
Project sample We will be providing civil, structural and geotechnical professional services for the redevelopment of Kwong Wah Hospital in Yau Ma Tei, Hong Kong.
We were appointed as the mechanical, electrical and plumbing design consultant for the development of a number of international hotels in China, including the Kingfine Marriot Hotel (Nanjing), the Sofitel (Foshan) and the Intercontinental (Haikou).
GENIVAR First Quarter Report 2013 | 11 Colombia Colombia exceeded the targets set for the country. Building on the strong performance in previous quarters and team growth, we strengthened the management team across the various regions and market sectors. As expected, the government is starting to develop P3s in the Transportation sector and we have been successful in strategically positioning our team in this regard, which bodes well for the future.
Project sample We were mandated by the National Infrastructure Agency, which is in charge of developing national transportation infrastructure through P3s, to provide specialized consulting and technical structuring services on road concession projects. These projects are part of the Prosperity Highway, a network of roads designed to link Colombia’s interior province of Antioquia with ports on the Pacific Coast in the west and on the Caribbean in the north, as well as major cities in Colombia and beyond.
We were tasked by EPM, an industrial conglomerate and telecommunications operator focusing on power generation, transmission and distribution, natural gas distribution, wastewater treatment, aqueducts and telecommunications, to provide consulting services for rural electrification in Antioquia.
Africa During the quarter, market conditions remained generally slow and reflected the economic outlook. However, our diversity and exposure to varied sectors is a mitigating factor. Longer-term projects in the Infrastructure and Telecommunication segments, as well as increased consumer activity, further support sustainable business conditions. The broader African market is reasonably buoyant with growth in countries with energy and resource-based economies. We continue to see increasing opportunities in both the private and public-sector infrastructure areas, particularly in Southern Africa.
Project sample We were mandated to provide consulting services for the construction of the SABMiller Greenfield Brewery in Okahandja, Namibia.
We were awarded a contract for the construction of bulk water supply lines in the municipality of Umsobomvu, South Africa.
GENIVAR First Quarter Report 2013 | 12 REVENUE SYNERGIES We continue to see increased collaboration across all our markets and with many of our clients, creating sustainable long-term value for our clients, employees and investors. For example, we recently launched our Global Connectivity Matrix (“GCM”), which underpins our knowledge sharing, collaboration and co-selling efforts. The GCM is made up of formal networks and informal communities, and we are already seeing increased prospects, bids and project wins, including the following:
We have submitted a Request for Qualification for the expansion of the St. Michael’s Hospital in Toronto. This is a P3 project lead by Brookfield Multiplex and leveraging design expertise from our UK, US, and Canadian operations.
The UK rail team has been supporting the Canadian team with the preparation of several offers for rail infrastructure improvement programs in Canada, including deposit, maintenance and new lines. Projects include Eglinton Crosstown, the TTC, Metrolinx (Toronto), Calgary’s LRT system and Winnipeg LRT.
Experts from across our business were placed on the standing offer call-up list for a two-year period to provide professional engineering and advisory services to the City of Ottawa within the framework of the City’s light rail transit project. This multidisciplinary team will draw on expertise from Quebec City, Montreal, Gatineau, Ottawa, Cornwall, Peterborough, Markham, Vancouver, London, and Stockholm.
Our global client connectivity has led to many project wins this quarter, including biomass energy audits for plants in France, the Czech Republic and the US; a geological study for a quarry in Honduras; geotechnical work for mining companies in Finland; environmental permit work in East Africa; shopping centre due diligence in Sweden; and airport work in Qatar.
Our Global Client Management program is delivering real value to our clients as we expand our geographical reach with global companies, including Barclays, Bank of America, Walmart, Marriott, Siemens, CBRE, SAB Miller, Novozymes, Volvo, and GSK.
GENIVAR First Quarter Report 2013 | 13 RESULTS OF OPERATIONS
First quarter 2013 2012
FOR THE PERIOD FOR THE PERIOD FROM JANUARY 1 FROM JANUARY 1 IN M ILLIONS OF DOLLARS, EXCEPT NUM BER OF SHARES AND PER SHARE DATA TO M ARCH 30 TO M ARCH 31 Revenues $478.7 $163.7 Less: Subconsultants and direct costs $71.9 $26.6 Net revenues* $406.8 $137.1 Personnel costs $307.8 $98.9 Other operational costs(1) $64.6 $17.0 Share of income of associates ($2.7) - EBITDA* $37.1 $21.2 Amortization of intangible assets $8.5 $4.3 Depreciation of property, plant and equipment $6.1 $2.2 Financial expenses $2.6 $0.7 Share of depreciation of associates $0.9 - Earnings before income taxes $19.0 $14.0 Income tax expenses $4.3 $4.0 Share of tax of associates $0.6 - Net earnings $14.1 $10.0 Attributable to: - Shareholders $14.5 $10.0 - Non-controlling interests ($0.4) - Basic and diluted net earnings per share $0.27 $0.31 Basic and diluted w eighted average number of shares 51,357,337 32,668,079
* Non-IFRS measures are described in the “Glossary” section. (1) The other operational costs include the operational exchange loss or gain and the interest income.
Revenues The Company’s financial performance and results should be measured and analyzed in relation to fee-based revenues, or net revenues, since direct recoverable costs can vary significantly from contract to contract and are not indicative of the professional consulting services business. Net revenues are defined as revenues less subconsultants expenses and directs costs that are recoverable directly from the clients.
During the first quarter of 2013, the Company continued to increase its revenues mainly due to WSP, which was acquired in August 2012. With net revenues of $406.8 million for the quarter, the Company is in line with the financial outlook provided in the MD&A for the year ended December 31, 2012. Management reiterates its comfort to reach net revenues between $1,500.0 million and $1,700.0 million in 2013.
GENIVAR First Quarter Report 2013 | 14 The following tables summarize the impact of business combinations and organic growth on both revenues and net revenues:
REVENUES First quarter Variation 2013
IN M ILLIONS OF DOLLARS, EXCEPT PERCENTAGES vs. 2012 % Acquisition grow th(1) $326.7 199.5% Organic grow th(1) ($11.7) (7.1%) Total increase $315.0 192.4%
NET REVENUES First quarter Variation 2013
IN M ILLIONS OF DOLLARS, EXCEPT PERCENTAGES vs. 2012 % Acquisition grow th(1) $278.8 203.3% Organic grow th(1) ($9.1) (6.6%) Total increase $269.7 196.7%
(1) Acquisition growth is calculated from the average revenues per quarter of the acquired business at the acquisition date. The total growth of the Company that exceeds the acquisition growth is presented as organic growth.
WSP’s organic growth on net revenues on a stand-alone and a constant exchange rates basis was 2.5% for the first quarter, compared to the same period of 2012. In the above tables, WSP’s organic growth was accounted for as acquisition growth since the acquisition occurred less than 12 months ago. 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.
Expenses Since the WSP business acquisition, Management has modified the statement of earnings in order to offer a better understanding of the expenses incurred by the Company. The comparative figures for the prior period have been adjusted to conform to the new disclosure. These changes had no impact on the cash flows and comprehensive income statements, and are only related to disclosure.
In this MD&A, expenses consist of two major components: 1) personnel costs and 2) other operational costs. Personnel costs include payroll costs for all employees related to the delivery of consulting services and projects, as well as administrative and corporate staff. Other operational costs include fixed costs such as, but not limited to, occupancy costs, non-recoverable client services costs, technology costs, professional insurance costs, operational exchange gain or loss on foreign currencies and interest income. Other operational costs also include transaction and integration costs related to business acquisitions.
GENIVAR First Quarter Report 2013 | 15 Finally, the Company also incurs expenses such as depreciation of property, plant and equipment, amortization of intangible assets and financial expenses. EBITDA and net earnings, expressed as a percentage of net revenues, are some of the key performance indicators analyzed by Management.
The following table summarizes operating results expressed as a percentage of net revenues for the first quarter of 2013.
First quarter 2013 2012
FOR THE PERIOD FOR THE PERIOD FROM JANUARY 1 FROM JANUARY 1 PERCENTAGE OF NET REVENUES TO M ARCH 30 TO M ARCH 31 Net revenues* 100.0% 100.0% Personnel costs 75.7% 72.1% Other operational costs 15.9% 12.4% Share of income in associates (0.7%) - EBITDA* 9.1% 15.5% Amortization of intangible assets 2.1% 3.2% Depreciation of property, plant and equipment 1.5% 1.6% Financial expenses 0.6% 0.5% Share of depreciation of associates 0.2% - Income tax expenses 1.2% 2.9% Net earnings 3.5% 7.3%
* Non-IFRS measures are described in the “Glossary” section.
EBITDA EBITDA generated by the Company increased by 75.0% and reached $37.1 million, a record level for a first quarter. Historically, the contribution of the first quarter to total EBITDA has usually been the lowest for the Company, which has been amplified following the WSP acquisition.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA First quarter 2013 2012 FOR THE PERIOD FOR THE PERIOD FROM JANUARY 1 FROM JANUARY 1 IN M ILLIONS OF DOLLARS TO M ARCH 30 TO M ARCH 31 Adjusted EBITDA* $43.8 $23.6 Less: Global Corporate Costs* $6.7 $2.4 EBITDA* $37.1 $21.2 EBITDA Margin* 9.1% 15.5%
* Non-IFRS measures are described in the “Glossary” section.
As a result of increased productivity in some quarters versus others, we expect EBITDA margin to fluctuate quarter-over-quarter around the 10.5% range provided in the 2013 outlook section.
GENIVAR First Quarter Report 2013 | 16 Income taxes The Company recorded income tax expenses of $4.3 million, compared to $4.0 million for the same period in 2012, representing effective tax rates of 25.0% and 28.6%, respectively. The 2013 effective tax rate of the Company is slightly higher than the Management expectations presented in the “Outlook” section.
Net earnings and net earnings per share Management evaluates its performance using net revenues, EBITDA, EBITDA as a percentage of net revenues and net earnings excluding amortization of intangible assets related to acquisitions (net of income taxes) per share. Since accounting policies in relation to the allocation of purchase price to goodwill and intangibles assets vary significantly in the industry, Management is of the opinion that net earnings per share excluding amortization of intangible assets is a more accurate measure to assess the true performance of the Company against its peer group. The net earnings per share excluding amortization of intangible assets related to acquisitions (net of income taxes) stood at $0.36 per share for the first quarter of 2013, compared to $0.38 per share for the same quarter of 2012. Net earnings per share is a commonly used metric to measure company performance. However, Management believes that in the context of highly acquisitive companies or consolidating industries such as the Engineering and Construction space, EBITDA, funds from operations and free cash flow per share are more effective measures to assess the performance of a firm. Some of these metrics will therefore be discussed later in the MD&A.
RECONCILIATION OF NET EARNINGS AND NET EARNINGS EXCLUDING AMORTIZATION OF INTANGIBLE ASSETS RELATED TO ACQUISITIONS (NET OF INCOME TAXES) 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 Net earnings $14.1 $10.0 Amortization of intangible assets related to acquisitions $5.7 $3.4 Income taxes related to amortization of intangible assets related to acquisitions ($1.5) ($0.9) Net earnings excluding amortization of intangible assets related to $18.3 $12.5 acquisitions (net of income taxes)* Net earnings excluding amortization of intangible assets related to $0.36 $0.38 acquisitions (net of income taxes) per share*
* Non-IFRS measures are described in the “Glossary” section.
The Company’s net earnings for the first quarter ended March 30, 2013, were $14.1 million or $0.27 per share on a basic and diluted basis, compared to net earnings of $10.0 million or $0.31 per share on a basic and diluted basis for the same quarter in 2012. Lower net earnings for the quarter are explained by the impact of lower revenues for the same level of fixed costs.
GENIVAR First Quarter Report 2013 | 17 STATEMENTS OF FINANCIAL POSITION
2013 2012 Variation
AS AT AS AT IN M ILLIONS OF DOLLARS M ARCH 30 DECEM BER 31 $ Total assets $1,773.2 $1,812.0 ($38.8) Financial liabilities(1) $252.5 $254.8 ($2.3) Less: Cash and cash equivalents ($92.6) ($127.7) $35.1 Net debt $159.9 $127.1 $32.8
(1) Financial liabilities consist of a loan payable, notes payable, balances payable to former shareholders, obligations under finance leases, other obligations and long-term debts, including current portions, bank overdraft and bank advances.
The Company’s statement of financial position remains strong with equity standing at $926.5 million. Operating activities generated enough cash to partially repay debts, decreasing the level of financial liabilities.
DIVIDENDS Since the beginning of 2011, the Company has declared a quarterly dividend of $0.375 per common share. The last dividend was declared in March 2013 and paid in April 2013. The aggregate dividends declared in the first quarter of 2013 were $19.3 million, compared to $12.3 million for the corresponding period of 2012. At the end of the first quarter of 2013, 51,418,329 shares were issued and outstanding, compared to 51,056,441 as at December 31, 2012. During the first quarter, part of the fourth quarter dividend paid was reinvested into 361,888 common shares under the dividend reinvestment plan (“DRIP”). Holders of 18,818,916 shares, representing 36.6% of all outstanding shares as at March 30, 2013, elected to participate in the DRIP. As a result, from the total dividends paid in April 2013, $7.1 million was reinvested in shares of the Company. The net cash outflow was $12.2 million for the first quarter dividend payment.
The Board of Directors (the “Board”) has determined that the current level of quarterly dividend is appropriate based on the Company’s current earnings and financial requirements for the Company's operations. The dividend is currently expected to remain at this level subject to the Board’s ongoing assessment of the Company’s future requirements, financial performance, liquidity, outlook and other factors that the Board may deem relevant. The payment of each quarterly dividend will remain subject to declaration of that dividend by the Board. The actual amount of each quarterly dividend, as well as each declaration date, record date and payment date is subject to the discretion of the Board. Some information in this section constitutes forward-looking information. Please refer to the “Forward-Looking Statements” section of this MD&A.
GENIVAR First Quarter Report 2013 | 18 BACKLOG As at March 30, 2013, the backlog, which represents future revenues that stem from existing signed contracts to be completed, stood at $1,427.3 million. This represents an increase of $973.3 million or 214.4% in the first quarter of 2013, compared to a backlog of $454.0 million as at March 31, 2012. The backlog for the first quarter of 2013 slightly increased from $1,420.6 million at the end of the fourth quarter of 2012. As at March 30, 2013, the backlog represented approximately 8.7 months. In addition, the Company had a “soft backlog” of $551.6 million at the end of the first quarter of 2013, which is not included in the reported backlog, compared to $455.0 million at the end of December 2012. This significant increase in soft backlog relates to master service agreements signed with clients, for which the value of work to be carried out is not specified.
FUNDS FROM OPERATIONS AND FREE CASH FLOW
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 AND NUM BER OF SHARES TO M ARCH 30 TO M ARCH 31 Cash flow s from operating activities $0.4 $5.9 Excluding: Change in non-cash w orking capital items $22.8 $8.9 Funds from operations* $23.2 $14.8 Funds from operations per share* $0.45 $0.45 Less: Change in non-cash w orking capital items ($22.8) ($8.9) Capital expenditures ($7.1) ($2.1) Free cash flow * ($6.7) $3.8 Free cash flow per share* ($0.13) $0.12 Basic w eighted average number of shares 51,357,337 32,668,079
* Non-IFRS measures are described in the “Glossary” section.
Funds from operations Funds from operations is a measure used by the Company to provide Management and investors with a proxy of cash generated from operating activities before changes in non-working capital items.
For the first quarter of 2013, the Company generated funds from operations of $23.2 million or $0.45 per share, compared to $14.8 million or $0.45 per share for the same period in 2012. It generated enough funds from operations to pay a quarterly dividend of $0.375 per share to shareholders. The DSO improvement and the WSP operating results for the quarter increased the net cash generated from operating activities.
GENIVAR First Quarter Report 2013 | 19 Free cash flow Free cash flow represents an indication of the Company’s continuing capacity to generate discretionary cash from operations, and is defined as cash flows from operating activities less maintenance or recurrent capital expenditures. It represents cash flows for the period available for the suppliers of capital, which are the creditors and shareholders.
For the first quarter of 2013, the Company’s free cash flow was negative $6.7 million, or negative $0.13 per share, compared to free cash flow generated of $3.8 million, or $0.12 per share for the same period in 2012. Cash flows generated from operating activities were lower than in the corresponding period of 2012, as a result of higher payments on payables and prepaid expenses, as well as cash contribution to defined benefit pension schemes.
Free cash flow should be reviewed year-over-year as opposed to quarter-over- quarter. Timing of investments in capital expenditures initiatives, our payables to suppliers as well as timing on collection can have an impact in the short term. This impact will be mitigated in the longer term.
LIQUIDITY First quarter 2013 2012
FOR THE PERIOD FOR THE PERIOD FROM JANUARY 1 FROM JANUARY 1 IN M ILLIONS OF DOLLARS TO M ARCH 30 TO M ARCH 31
Cash flow s generated from operating activities $0.4 $5.9 Cash flow s used in financing activities ($30.4) ($67.1) Cash flow s used in investing activities ($6.9) ($30.0) Effect of exchange rate change on cash and cash equivalents ($0.3) ($0.2) Net change in cash position ($37.2) ($91.4) Dividends paid $12.0 $12.2 Capital expenditures $7.1 $2.1
Cash flows generated from operating activities For the first quarter ended March 30, 2013, operating activities generated $0.4 million of cash, compared to $5.9 million for the same period in 2012. EBITDA for the first quarter of 2013 totalled $37.1 million, compared to $21.2 million for the same period in 2012, which represents a positive variation in cash of $15.9 million and is mainly attributable to the EBITDA generated by WSP operations for the first quarter. The Company paid $6.8 million of income taxes in the first quarter of 2013, compared to $6.2 million for the same period of 2012, representing a deterioration in cash of $0.6 million. During the quarter, the Company made cash contributions to defined benefit pension schemes of $2.0 million related to WSP pension plans. The non-cash working capital items had a significant negative impact on cash flows of $22.8 million for the first
GENIVAR First Quarter Report 2013 | 20 quarter of 2013, compared to $8.9 million for the same period of 2012, representing a deterioration of $13.9 million in cash available for the Company.
DSO represented approximately 93 days of annual sales, which is lower than the previous quarter by 4 days and lower by 16 days when compared to the first quarter of 2012. In line with its objective, Management is in a great position to maintain the DSO in a 90-95 days range for the year 2013.
Cash flows used in financing activities For the first quarter ended March 30, 2013, financing activities used $30.4 million in cash, compared to $67.1 million for the same period in 2012. During the quarter, the Company paid dividends of $12.0 million to shareholders and reimbursed $5.8 million of miscellaneous liabilities, including interest and financing costs. With the cash generated by operations, the Company repaid $11.1 million of its credit facilities. In the first quarter of 2012, the Company had reimbursed $50.0 million of the bank advances following a private placement realized in December 2011, explaining an improvement in cash of $38.9 million.
Cash flows used in investing activities For the first quarter ended March 30, 2013, investing activities used $6.9 million of cash, compared to $30.0 million for the corresponding period of 2012. During the first quarter of 2013, the Company did not complete any business acquisitions, while during the same quarter of 2012, it invested $27.7 million in business combinations. The Company acquired $7.1 million of property, plant and equipment and software during the first quarter of 2013, compared to $2.1 million for the same period of 2012, increasing cash flows used in investing activities. The Company regularly invests in capital expenditures since systems and equipment used by employees must be updated frequently to keep up with new technologies.
CAPITAL RESOURCES Net cash position As at March 30, 2013, the Company’s net cash position was negative and stood at $112.9 million, as detailed hereafter: 2013 2012
AS AT AS AT IN M ILLIONS OF DOLLARS M ARCH 30 DECEM BER 31 Cash and cash equivalents $92.6 $127.7 Bank overdraft ($8.5) ($6.4) Bank advances ($197.0) ($212.7) Net cash position ($112.9) ($91.4)
The net cash position at the end of March 2013 was lower than at the end of 2012, as the Company used cash to reimburse debts and paid dividends, income taxes and some financial liabilities. As at March 30, 2013, the Company had GENIVAR First Quarter Report 2013 | 21 enough cash and credit facilities available to pay dividends to shareholders and consider potential business acquisitions.
Credit facilities Credit facilities entered into in June 2012 were still in force at the end of the first quarter of 2013. As at March 30, 2013, the Company had issued, in the normal course of business, irrevocable letters of credit totalling $3.7 million for its own commitments, thus decreasing such available credit facilities. The Company also had unused credit facilities of $199.4 million. These unused credit facilities are available to finance future business acquisitions and for general corporate purposes, including to finance working capital and capital expenditure requirements. Under the credit facilities, the Company is required amongst other conditions to respect certain covenants on a consolidated basis. All covenants were met as at March 30, 2013.
SUMMARY OF QUARTERLY RESULTS
2013 2012 2011 Total Q1 Q4** Q3 Q2** Q1 Q4 Q3 Q2
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE TRAILING PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM IN M ILLIONS OF DOLLARS, TWELVE JANUARY 1 TO SEPTEM BER 30 JULY 1 TO APRIL 1 TO JANUARY 1 TO OCTOBER 2 TO JULY 3 TO APRIL 3 TO EXCEPT PER SHARE DATA M ONTHS M ARCH 30 TO DECEM BER 31 SEPTEM BER 29 JUNE 30 M ARCH 31 DECEM BER 31 OCTOBER 1 JULY 2 Results of operations
Revenues $1,572.5 $478.7 $516.5 $396.1 $181.2 $163.7 $172.0 $173.1 $157.5 Net revenues* $1,289.8 $406.8 $411.9 $321.4 $149.7 $137.1 $132.7 $138.6 $131.1 EBITDA* $124.5 $37.1 $40.8 $37.8 $8.8 $21.2 $21.5 $26.6 $21.6 Net earnings (loss) $50.3 $14.1 $23.0 $16.2 ($3.0) $10.1 $10.0 $14.1 $10.0 Basic and diluted net earnings (loss) per share $0.27 $0.45 $0.36 ($0.09) $0.31 $0.37 $0.54 $0.38 Dividends Dividends declared $69.8 $19.3 $19.1 $19.0 $12.4 $12.3 $12.2 $9.8 $9.8 Dividends declared, per share $1.50 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 * Non-IFRS measures are described in the “Glossary” section.
** The 2012 second and fourth quarter financial results included unusual items of $12.3 million and $4.5 million respectively, with income tax effects of $0.7 million and $1.0 million respectively, pertaining to the WSP acquisition.
The growth of the Company’s revenues and net revenues is principally attributable to the business combinations realized during the last two years. The acquisition of WSP, completed in August 2012, has had a considerable impact on revenues and net revenues since the third quarter of 2012.
Many factors influence the EBITDA margin, such as project mix, pricing, competitive environments, project execution and cost increases. Excluding the impact of unusual items in the second and the fourth quarters of 2012. The EBITDA margin for the quarters following the WSP acquisition decreased, as WSP’s EBITDA margin is lower than GENIVAR’s before the acquisition. The
GENIVAR First Quarter Report 2013 | 22 EBITDA margin is also impacted by foreign exchange gain or loss and employee productivity.
Since January 2011, the Company has declared a quarterly dividend of $0.375 per share. The total amount of dividends declared increased in the fourth quarter of 2011 as the Company issued shares pursuant to the December 2011 private placement. In August 2012, the Company also issued common shares to finance the WSP business combination, increasing the Company’s number of outstanding shares and, consequently the aggregate dividends declared.
GOVERNANCE Internal control over financial reporting The Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have designed disclosure controls and procedures (“DC&P”) or have caused them to be designed under their supervision to provide reasonable assurance that:
Material information related to the Company is made known to them by others, particularly during the period in which the interim filings are being prepared; and
Information required to be disclosed by the Company’s annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation.
The CEO and CFO have also designed internal controls over financial reporting (“ICFR”) or have caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
The CEO and the CFO have limited the scope of their design of DC&P and ICFR to exclude controls, policies and procedures of WSP, which was acquired on August 1, 2012, as permitted by the Canadian Securities Administrators’ National Instrument 52-109 for 365 days following an acquisition.
During the period from January 1, 2013 to March 30, 2013, no changes were made to the Company’s ICFR that had or could reasonably have a significant impact on the Company’s internal control over financial reporting. Controls will continue to be periodically analyzed in order to sustain a continuous improvement.
Responsibilities of the Board of Directors The Board of Directors has oversight responsibilities for reported information. Accordingly, the Audit Committee and the Board of Directors of GENIVAR have reviewed and approved the unaudited interim consolidated financial statements for the period ended March 30, 2013, and this MD&A, before their publication.
GENIVAR First Quarter Report 2013 | 23 SIGNIFICANT ACCOUNTING POLICIES The Company’s unaudited interim consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board applicable to the preparation of the interim financial statements, including IAS 34, “Interim Financial Reporting,” and are based on the same accounting policies as the ones used in the preparation of the Company’s audited consolidated financial statements for the year ended December 31, 2012, except for the ones described below. Please refer to the Company’s 2012 audited consolidated financial statements for more information about the significant accounting principles and the significant estimates used to prepare the financial statements. During the first quarter of 2013, the Company adopted the following new and revised accounting standards: IAS 1, “Presentation of Financial Statements,” IFRS 10, “Consolidated Financial Statements,” IFRS 11, “Joint Arrangements,” IFRS 12, “Disclosure of Interest in Other Entities,” IFRS 13, “ Fair Value Measurement” and IAS 19, “Employee Benefits.” These standards had no significant impact on the interim financial statements. For more details regarding the accounting standards adopted, please refer to the Company’s unaudited interim consolidated financial statements for the first quarter of 2013.
FUTURE ACCOUNTING STANDARDS The Company’s audited consolidated financial statements for the year ended December 31, 2012, and the related MD&A presented the future accounting standards issued by the IASB coming into force in the upcoming years.
FINANCIAL INSTRUMENTS The Company’s 2012 audited consolidated financial statements described in note 26 the risks arising from financial instruments and the way these risks are managed by the Company. From January 1, 2013 to March 30, 2013, there were no material changes to the risks related to financial instruments. There were no significant changes in the financial instruments classification. Furthermore, the methodology used to determine the fair value of financial instruments did not change from last year.
RELATED PARTY TRANSACTIONS The Company has control over its subsidiaries and they are consolidated in the consolidated financial statements. Some agreements are in place with special purpose vehicles; these entities provide different services, mainly in the architecture industry. These management agreements provide the Company with control over the management and operations of these entities. The Company also receives a management fee and has an obligation regarding their liabilities and losses. Based on these facts and circumstances, Management has concluded that these entities are controlled by the Company and, therefore, consolidated them in the financial statements.
GENIVAR First Quarter Report 2013 | 24 Transactions among subsidiaries and special purpose vehicles are entered into in the normal course of business and on an arm’s length basis. Using the consolidated method of accounting, all intercompany balances and operations are completely eliminated.
During the first quarter of 2013, the Company entered into arm’s length transactions with associates.
The Company conducts certain activities in joint arrangements which qualify as jointly controlled operations. These joint operations are accounted for using the proportionate consolidation method, which results in the Company recording its pro rata share of the assets, liabilities, revenues, costs and cash flows of each of these jointly controlled operations.
OFF-BALANCE SHEET AGREEMENTS The Company does not engage in the practice of off-balance sheet financing, except for the use of certain operating leases for office space, computer equipment and vehicles. In accordance with IFRS, neither the lease liability nor the underlying asset is carried on the statement of financial position as the terms of the leases do not meet the criteria for capitalization.
CONTRACTUAL OBLIGATIONS The following tables provide a summary of the Company’s long-term contractual obligations:
Betw een Betw een Betw een Betw een Less than 1 and 2 2 and 3 and 4 and After 5 IN M ILLIONS OF DOLLARS 1 year years 3 years 4 years 5 years years Total Bank overdraft $8.5 - - - - - $8.5 Bank advances $3.9 $3.9 $3.9 $192.5 - - $204.2 Notes payable* $10.9 $0.7 - - - - $11.6 Balances payable to former shareholders* $0.4 - - - - - $0.4 Obligations under finance leases* $5.6 $5.4 $4.5 $0.1 - - $15.6 Other obligations* $2.7 $0.4 - - - - $3.1 Long-term debts* $4.6 $8.8 $0.1 - - - $13.5 Loan payable $5.0 - - - - - $5.0
* Including current portion.
There- 9 months 2014 2015 2016 2017 Total IN M ILLIONS OF DOLLARS after Operating lease commitments $68.5 $73.9 $59.0 $43.2 $33.6 $113.3 $391.5
GENIVAR First Quarter Report 2013 | 25 The Company is committed under the terms of contractual obligations with various expiration dates, primarily for the rental of office space and computer equipment.
The Company generates cash flows from its operations and has available credit facilities to meet all of its contractual obligations in the future.
OUTLOOK The outlook is provided to assist analysts and shareholders in formalizing their respective views on the 2013 outlook. The reader is cautioned that using this information for other purposes may be inappropriate. These measures are subject to change. The information set out in this section constitutes forward-looking information. Please refer to the “Forward-Looking Statements” section of this MD&A.
The following table summarizes our expected range for various measures for the coming year:
2013 TARGET RANGE
Net revenues Between $1,500 million and $1,700 million EBITDA margin Approximately 10.5% of net revenues Tax rate Approximately 24%
Between 20% to 29%, the first quarter Seasonality and EBITDA fluctuations being the lowest and the third quarter being the highest Free cash-flow as a percentage of net earnings ˃100% DSO 90 to 95 days Amortization of intangible assets, excluding software Approximately 1.3% of net revenues Capital expenditures Approximately 2.5% of net revenues
Following our performance for the first quarter ended March 30, 2013, Management reiterates that it still is comfortable with the previously disclosed outlook.
FORWARD-LOOKING STATEMENTS This MD&A may contain certain forward-looking statements that are not based on historical facts, including those set out in the “Outlook” section of this MD&A with respect to the financial outlook for the year 2013. These statements relate to future events or future performance and reflect the expectations of Management regarding growth, results of operations, performance and business prospects and opportunities of the Company or its industry. In some cases, forward-looking GENIVAR First Quarter Report 2013 | 26 statements can be identified by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terminology. Such forward- looking statements reflect current beliefs of Management and are based on certain factors and assumptions as set forth in this MD&A, including those in the “Significant accounting policies” and “Outlook” sections of this MD&A. While the Company considers these factors and assumptions to be reasonable based on information currently available, a number of factors could cause events or results to differ materially from the results discussed in the forward-looking statements. As such, there can be no assurance that actual results will be consistent with these forward-looking statements. The Company does not update or revise forward-looking information even if new information becomes available, unless legislation requires us to do so. Readers should not place undue reliance on forward-looking statements.
RISK FACTORS The results of operations, business prospects and the financial position of the Company are subject to a number of risks and uncertainties and are affected by a number of factors outside of its control. This may cause a decline in the price of the shares and the Company’s ability to declare dividends on the shares could be adversely affected.
The Company’s risks and uncertainties have not materially changed from those described in the Company’s 2012 Annual Report.
ADDITIONAL INFORMATION Additional information regarding the Company is available on the Website at www.genivar.com and on SEDAR at www.sedar.com. The Annual Information Form for the year ended December 31, 2012, is also available on these Websites.
The common shares of the Company are traded on the Toronto Stock Exchange under the symbol “GNV.” As at March 30, 2013, the Company had 51,418,329 common shares outstanding. Following the share issuance realized under the DRIP after the payment of the first quarter dividend in April 2013, the Company had 51,719,014 common shares outstanding as at May 7, 2013. The Company has no other shares outstanding.
GLOSSARY Net revenues Net revenues are defined as revenues from professional consulting services less direct costs for subconsultants and other direct expenses that are recoverable directly from the clients. Net revenues is not an IFRS measure and does not have a standardized definition within IFRS. Therefore, net revenues may not be comparable to similar measures presented by other issuers. Investors are
GENIVAR First Quarter Report 2013 | 27 advised that net revenues should not be construed as an alternative to revenues for the period (as determined in accordance with IFRS) as an indicator of the Company’s performance.
EBITDA and EBITDA per share EBITDA is defined as earnings before financial expenses, income tax expenses, depreciation and amortization. EBITDA is not an IFRS measure and does not have a standardized definition within IFRS. Investors are cautioned that EBITDA should not be considered an alternative to net earnings for the period (as determined in accordance with IFRS) as an indicator of the Company’s performance, or an alternative to cash flows from operating, financing and investing activities as a measure of the liquidity and cash flows. The Company’s method of calculating EBITDA may differ from the methods used by other issuers and, accordingly, the Company’s EBITDA may not be comparable to similar measures used by other issuers.
EBITDA per share is calculated using the basic weighted average number of shares.
EBITDA margin EBITDA margin is defined as EBITDA expressed as a percentage of net revenues. EBITDA margin is not an IFRS measure.
Adjusted EBITDA Adjusted EBITDA is defined as EBITDA excluding the effects of Unusual Items identified by Management as non-recurring costs and also excluding global corporate costs. Global Corporate Costs are expenses and salaries related to centralized function, like global Finance, Human Resources and Technology teams, which are not allocated to operating segments. This measure is not an IFRS measure. It provides Management with comparability from one region to the other.
Adjusted EBITDA margin Adjusted EBITDA margin is defined as adjusted EBITDA expressed as a percentage of net revenues. Adjusted EBITDA margin is not an IFRS measure.
Net earnings excluding amortization of intangible assets related to acquisitions (net of income taxes) and net earnings excluding amortization of intangible assets related to acquisitions (net of income taxes) per share Net earnings excluding amortization of intangible assets related to acquisitions (net of income taxes) is not an IFRS measure. It provides a comparative measure of the Company performance in a context of significant business combinations. This measure is defined as net earnings excluding the amortization expense of backlogs, customer relationships and non-competition agreements accounted for in business combinations and the income tax effects related to this amortization.
GENIVAR First Quarter Report 2013 | 28 Net earnings excluding amortization of intangible assets related to acquisitions (net of income taxes) per share is calculated using the basic weighted average number of shares.
Funds from operations and funds from operations per share Funds from operations is not an IFRS measure. It provides Management and investors with a proxy for the amount of cash generated from operating activities before changes in non-cash working capital items.
Funds from operations per share is calculated using the basic weighted average number of shares.
Free cash flow and free cash flow per share Free cash flow is not an IFRS measure. It provides a consistent and comparable measurement of free cash flow generated from operations and is used as an indicator of financial strength and performance. Free cash flow is defined as cash flows from operating activities as reported in accordance with IFRS, less maintenance capital expenditures.
Free cash flow per share is calculated using the basic weighted average number of shares.
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