(MENAFNEditorial)

First quarter 2018 revenue was $351 million, a decrease of 18% from the $427 million reported in the fourth quarter of 2017 and 3% lower than the $360 million reported in the first quarter of 2017. Adjusted EBITDA1 in the first quarter of 2018 was $35 million, a decrease of 48% from the $67 million reported in the fourth quarter of 2017 and 19% lower compared to $43 million reported in the first quarter of 2017. Net income (attributable to shareholders of the Company) in the first quarter of 2018 was $5.2 million (or earnings per share of $0.07 diluted) compared with net income of $20.3 million (or $0.29 per share diluted) in the fourth quarter of 2017 and a net income of $15.4 million (or $0.22 per share diluted) in the first quarter of 2017. The Company's order backlog was $459 million at March 31, 2018, up compared to the backlog at December 31, 2017 of $385 million.

TORONTO, May 08, 2018 (GLOBE NEWSWIRE) -- Mr. Steve Orr, Chief Executive Officer of Shawcor Ltd. (TSX: SCL ) remarked 'First quarter revenue and Adjusted EBITDA1 were in line with expectations given the absence of a large pipe coating project to replace the Sur de Texas – Tuxpan work that was largely completed in the fourth quarter of 2017. The solid EBITDA1 performance of this quarter demonstrates the continued demand for our products and services and the strength of our expanded portfolio.'

Mr. Orr added, 'We expect 2018 to be a pivotal year for the Company and this quarter's results demonstrate that the actions that have been taken to diversify the portfolio are gaining traction. Our base business in 2018 is expected to grow beyond the levels seen prior to the downturn aided by increased activity in North America. In addition, we are seeing the industry gain confidence in longer-term market fundamentals that play a key role in project approvals. As such, we are well positioned to serve our customers as they move forward with their investment programs. With the increased visibility and optimism in international projects being sanctioned and a strengthening of our base business, we are continuing to execute our growth strategy.'

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1 EBITDA and Adjusted EBITDA are Non-GAAP measures and do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See section 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of EBITDA and Adjusted EBITDA

Selected Financial Highlights

(in thousands of Canadian dollars, except per share amounts and percentages) Three Months Ended
March 31, 2018 2017(c) Revenue $ 350,519 $ 360,060 Gross profit 116,786 129,989 Gross profit % 33.3% 36.1% Adjusted EBITDA(a) 35,068 43,224 Income from operations 11,437 26,138 Net Income for the period(b) $ 5,210 $ 15,393 Earnings per share: Basic $ 0.07 $ 0.22 Fully diluted $ 0.07 $ 0.22

(a) Adjusted EBITDA is a non-GAAP measure calculated by adding back to net income the sum of net finance costs, income taxes, amortization of property, plant, equipment and intangible assets, gains from sale of land, arbitration awards outside of the normal course of business, cost associated with repayment and modification of long-term debt and impairment of assets. Adjusted EBITDA does not have a standardized meaning prescribed by GAAP and is not necessarily comparable to similar measures provided by other companies. See section 6.0 – Reconciliation of Non GAAP Measures.
(b) Attributable to shareholders of the Company.
(c) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

1.0 KEY DEVELOPMENTS

Flexpipe capacity expansion in the Middle East

On May 2, 2018, the Company announced that its Flexpipe Systems division has entered into a majority ownership joint venture with a local pipe installation company with the intent to set up a manufacturing facility in the Middle East. The total value of the joint venture's investment is expected to exceed USD$20 million and the facility is expected to primarily serve the Middle Eastern, North African and Asia-Pacific markets. This facility is expected to increase Flexpipe's global production capacity of existing spoolable composite product by 30%, with flexibility to extend to a larger diameter range. First shipments from this new facility are expected by the end of 2019.

Contract to Provide Pipe Coating Services for an Offshore Qatar Pipeline Project

During the first quarter of 2018, the Company announced that its pipe coating division had received a contract with a value in excess of $50 million from the EEW Group to provide anti-corrosion and concrete weight coatings in connection with the replacement and upgrading of an offshore pipeline located in Qatar.

The contract will be executed in Shawcor's coating facilities in Italy, and is expected to commence in Q3 2018 and to be completed by Q1 2020.

1.1 OUTLOOK

Shawcor's financial performance is closely correlated with oil and gas infrastructure spending and the resultant demand for the Company's products and services. The Company believes the recovery of the oil and gas markets experienced in 2017 will further advance throughout 2018 and allow it to deliver positive performance on its base business in 2018, particularly in North America. As expected, the Company delivered positive Adjusted EBITDA in the first quarter of 2018 in line with the level achieved in the fourth quarter of 2016. Although the current level is lower compared to the quarterly results achieved in 2017 due to the absence of a large project, it does demonstrate the strength of the Company's base business and that its efforts to diversify the portfolio before the downturn are gaining traction. The Company continues to expect that the full year Adjusted EBITDA results in 2018 will be at a similar level as the annualized results of the fourth quarter of 2016, although there are some temporary factors that could impact short term quarterly performance in 2018. These factors include higher costs from logistics partners, both trucking and rail, to move Canadian produced products to the United States to meet growing demand, the reactivations of its plants to secure work or enable technology capabilities and upfront investment in the pursuit of multiple large projects (greater than $100 million in revenue). The Company expects to deliver positive performance in 2018 from the strength of its expanded base business driven by the continued demand in North America and improved asset utilization from increased industry capital spending, and to rebuild its backlog by securing projects that it is currently pursuing over the near term.

There is increased confidence that the level of capital spending is increasing as operators are beginning to commit capital to projects to address reservoir depletion and maintain production supply. Although the current focus remains on projects with shorter return profiles involving 'tie ins' to existing infrastructure, the Company is seeing resumed activity in the international and offshore markets which is reflected in the increased number of individual bids that it currently has outstanding. This is an important driver of demand for the Company's products and services across all the Pipeline and Pipe Services segment which in turn will support better utilization of its assets. The Company remains well positioned to capitalize on this continuing positive trend in project activity through its global footprint, technology portfolio and execution history.

During the first quarter of 2018, the Company continued its strategic positioning efforts in pursuit of several large projects. These large projects (characterized as greater than $100 million revenue for the Company) are not directly linked to oil and gas commodity prices as they involve energy security or reservoir access considerations. The Company continues to believe that there is a strong likelihood that some of these projects will be sanctioned in 2018 for commencement beyond 2018.

Further detail on the outlook for the Pipeline and Pipe Services segment by region and in the Petrochemical and Industrial segment is set out below.

Pipeline and Pipe Services Segment - North America

Market demand in Shawcor's North American Pipeline segment businesses is closely tied to well completion activity in North America which drives the demand for small diameter pipe coating and joint protection, composite pipe for gathering line applications, OCTG pipe inspection and refurbishment and gathering line girth weld inspection. It is expected that North American land activity will continue to drive growth in rig counts and wells completed, particularly in the United States. This positive trend will support strong demand for the Company's products and services throughout 2018, especially considering the Company's expanded addressable market from the addition of new products and services into the portfolio since 2013.

The Company is also experiencing increasing demand for its pipe coating capabilities from increased activity in the Gulf of Mexico. This demand is improving the utilization of the Channelview coating facility which is strategically positioned to execute the requirements of customers operating in the Gulf. The Company also continues to be actively engaged in bidding several large diameter onshore transmission line projects that have and are expected to see continued delays due to regulatory and legal challenges.

Pipeline and Pipe Services Segment - Latin America

Due to the substantial completion of the work related to the Sur de Texas – Tuxpan project in 2017, the Company is expecting lower revenues in Latin America throughout 2018. The world class mobile coating assets in Altamira are being decommissioned and will be transported to another location to support the pursuit of another large project. Albeit on a smaller scale to the Sur de Texas – Tuxpan project in 2017, the Company is experiencing increased activity on smaller projects throughout Latin America that should improve plant utilization in 2018. The Company is currently reactivating facilities in Mexico and Brazil for expected continued activity in the Gulf of Mexico and smaller offshore Brazilian projects already awarded.

Pipeline and Pipe Services Segment – Europe, Middle East, Africa and Russia ("EMAR")

Shawcor's EMAR Pipeline segment region continues to be negatively impacted by reduced capital spending by national and international companies. The Company expects to commence work in the second half of 2018 on a recently awarded contract to provide anti-corrosion and concrete weight coatings related to an offshore pipeline located in Qatar. In addition, the Company remains focused on securing 2018 work related to girth weld inspection, pipeline joint protection and pipe end preservation on both Turk Stream and Nordstream 2 pipelines and several other projects.

Pipeline and Pipe Services Segment - Asia Pacific

The region's project activity over the near term will be limited largely to the PTT 5th Transmission pipeline project which commenced in the fourth quarter of 2017 and small regional projects. The region is showing signs of recovery beyond 2018 with continued strong bid and budgetary activity related to the development of gas reservoirs.

Petrochemical and Industrial Segment

Shawcor's Petrochemical and Industrial segment businesses continue to deliver solid revenue and operating income based on stable demand in the Global automotive market and European and North American industrial markets. These markets generally follow GDP activity. The growth trend is expected to continue in 2018 with increased infrastructure spending and as new capacity for sealing and insulation products enters production and relives capacity constraints. In addition, increased demand for wire and cable products continues to be driven by projects related to nuclear refurbishment programs in Canada and several Light Rail Transit (LRT) projects.

Order Backlog

The Company's order backlog consists of firm customer orders only and represents the revenue the Company expects to realize on booked orders over the succeeding twelve months. The Company reports the twelve month billable backlog because it provides a leading indicator of significant changes in consolidated revenue. The order backlog of $459 million as at March 31, 2018 was higher than the $385 million order backlog as at December 31, 2017. The increase reflects new orders on the Company's base business and other project wins moving from bid into backlog, partially offset by revenue generated in the quarter from backlog orders.

In addition to the backlog, the Company closely monitors its bidding activity and the value of outstanding firm bids is currently in excess of $1 billion, an increase over the $800 million reported in the fourth quarter of 2017. The increase reflects new projects bidding activity and smaller projects moving from budgetary into bid. In addition, the Company is working with customers on a number of projects and has provided budgetary estimates in aggregate values of approximately $1.5 billion. Although the Company cannot be certain on the timing of these projects, they do represent a diverse portfolio of opportunities to sustain and build the backlog in 2018 and beyond.

2.0 CONSOLIDATED INFORMATION AND RESULTS FROM OPERATIONS

2.1 Revenue

The following table sets forth revenue by reportable operating segment for the following periods:

(in thousands of Canadian dollars) Three Months Ended March 31,
2018
December 31,
2017(b) March 31,
2017(b) Pipeline and Pipe Services $ 299,966 $ 382,549 $ 309,362 Petrochemical and Industrial 51,007 44,361 51,367 Elimination(a) (454) (94) (669) Consolidated revenue $ 350,519 $ 426,816 $ 360,060

(a) Represents the elimination of the inter-segment sales between the Pipeline and Pipe Services segment and the Petrochemical and Industrial segment.
(b) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

First Quarter 2018 versus Fourth Quarter 2017

Consolidated revenue decreased 17.9%, or $76.3 million, from $426.8 million during the fourth quarter of 2017 to $350.5 million during the first quarter of 2018, due to a decrease of $82.6 million in the Pipeline and Pipe Services segment, partially offset by an increase of $6.6 million in the Petrochemical and Industrial segment.

Revenue decreased by 21.6% in the Pipeline and Pipe Services segment, or $82.6 million, from $382.5 million in the fourth quarter of 2017 to $300.0 million in the first quarter of 2018, due to lower activity levels in Latin America and the Europe, Middle East, Africa and Russia regions, partially offset by higher volumes in North America and Asia Pacific. See Section 3.1 – Pipeline and Pipe Services Segment for additional disclosure with respect to the change in revenue in the Pipeline and Pipe Services segment.

In the Petrochemical and Industrial segment, revenue was higher by $6.6 million, or 15.0%, in the first quarter of 2018, compared to the fourth quarter of 2017, due to higher activity levels in North America and the EMAR region. See Section 3.2 – Petrochemical and Industrial Segment for additional disclosure with respect to the change in revenue in the Petrochemical and Industrial segment.

First Quarter 2018 versus First Quarter 2017

Consolidated revenue decreased by $9.5 million, or 2.6%, from $360.1 million during the first quarter of 2017, to $350.5 million during the first quarter of 2018, due to decreases of $9.4 million in the Pipeline and Pipe Services segment and $0.4 million in the Petrochemical and Industrial segment.

In the Pipeline and Pipe Services segment, revenue in the first quarter of 2018 was $300.0 million, or 3.0% lower than in the first quarter of 2017, due to decreased activity levels in EMAR and Asia Pacific, partially offset by higher activity levels in North America and Latin America. See Section 3.1 – Pipeline and Pipe Services Segment for additional disclosure with respect to the change in revenue in the Pipeline and Pipe Services segment.

In the Petrochemical and Industrial segment, revenue decreased by $0.4 million, or 0.7%, during the first quarter of 2018, compared to the first quarter of 2017, due to decreased activity levels in North America and Asia Pacific, partially offset by higher volumes in EMAR. See Section 3.2 – Petrochemical and Industrial Segment for additional disclosure with respect to the change in revenue in the Petrochemical and Industrial segment.

2.2 Income from Operations ("Operating Income")

The following table sets forth operating income and operating margin for the following periods:

(in thousands of Canadian dollars, except percentages) Three Months Ended March 31,
2018
December 31,
2017(b) March 31,
2017(b) Operating income $ 11,437 $ 34,472 $ 26,138 Operating margin(a) 3.3 % 8.1 % 7.3 %

(a) Operating margin is defined as operating income divided by revenue and is a non-GAAP measure. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See section 6.0 – Reconciliation of Non-GAAP Measures.
(b) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

First Quarter 2018 versus Fourth Quarter 2017

Operating income decreased by $23.0 million, from an operating income of $34.5 million during the fourth quarter of 2017 to an operating income of $11.4 million in the first quarter of 2018. Operating income was negatively impacted by a $45.1 million decrease in gross profit and a $1.1 million increase in research and development expenses. This was partially offset by decreases in selling, general and administrative ("SG & A") expenses of $14.0 million and $1.1 million in amortization of property, plant, equipment and intangible assets and a $8.1 million impairment charge recorded in the fourth quarter of 2017.

The decrease in gross profit resulted from the lower revenue, as explained above, and a 4.6 percentage point decrease in the gross margin from the fourth quarter of 2017. The decrease in the gross margin percentage was primarily due to product and project mix, lower facility utilization and decreased absorption of manufacturing overheads, particularly in the Pipeline and Pipe Services segment.

SG & A expenses decreased by $14.0 million, from $93.4 million in the fourth quarter of 2017 to $79.3 million in the first quarter of 2018, primarily due to a $6.7 million decrease in compensation and other related personnel costs, a $7.0 million decrease in restructuring costs and a $1.2 million decrease in professional fees.

First Quarter 2018 versus First Quarter 2017

Operating income decreased by $14.7 million, from an operating income of $26.1 million in the first quarter of 2017 to an operating income of $11.4 million during the first quarter of 2018. Operating income was negatively impacted by a $13.2 million decrease in gross profit, a $4.0 million net increase in amortization of property, plant, equipment and intangible assets and a $0.3 million increase in SG & A expenses. This was partially offset by a $0.5 million decrease in research and development expenses and a $2.3 million lower net foreign exchange loss.

The decrease in gross profit resulted from a 2.8 percentage point decrease in gross margin and from the lower revenue, as explained above. The decrease in the gross margin percentage was primarily due to product and project mix, lower facility utilization and decreased absorption of manufacturing overheads, particularly in the Pipeline and Pipe Services segment.

SG & A expenses in the first quarter of 2018 increased by $0.3 million compared to the first quarter of 2017, primarily due to a $3.3 million increase in equipment, building and other costs, partially offset by a $3.2 million reduction in compensation and other related personnel costs.

2.3 Finance Costs, net

The following table sets forth the components of finance costs, net for the following periods:

(in thousands of Canadian dollars) Three Months Ended
March 31,
2018
December 31,
2017 March 31,
2017 Interest income $ (841) $ (333) $ (457) Interest expense, other 1,292 1,661 1,815 Interest expense on long-term debt 2,215 2,234 4,270 Finance costs, net $ 2,666 $ 3,562 $ 5,628 First Quarter 2018 versus Fourth Quarter 2017

In the first quarter of 2018, net finance costs were $2.7 million, compared to net finance costs of $3.6 million during the fourth quarter of 2017. The decrease in net finance costs was primarily due to a $0.5 million increase in interest income on short-term deposits and other receivables and a $0.4 million decrease in interest expense on other borrowings and accretion costs on decommissioning obligations.

First Quarter 2018 versus First Quarter 2017

In the first quarter of 2018, net finance costs were $2.7 million, compared to a net finance cost of $5.6 million during the first quarter of 2017. The decrease in net finance costs was primarily a result of a $0.4 million increase in interest income million on short-term deposits and other receivables, lower interest costs on long term debt due to lower interest rates and decreases in interest expense on other borrowings and accretion costs on decommissioning obligations.

2.4 Income Taxes

The following table sets forth the income tax expenses for the following periods:

(in thousands of Canadian dollars) Three Months Ended
March 31,
2018 December 31,
2017(a) March 31,
2017(a) Income tax expense $ 3,313 $ 9,998 $ 2,577

(a) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

First Quarter 2018 versus Fourth Quarter 2017

The Company recorded an income tax expense of $3.3 million (38% of income before income taxes) in the first quarter of 2018, compared to an income tax expense of $10.0 million (33% of income before income taxes) in the fourth quarter of 2017. The effective tax rate in the first quarter of 2018 was higher than the expected income tax rate of 27% primarily due to a large portion of the Company's taxable income being earned in higher tax jurisdictions and some losses in the quarter being generated in jurisdictions where the Company was unable to record a tax benefit.

First Quarter 2018 versus First Quarter 2017

The Company recorded an income tax expense of $3.3 million (38% of income before income taxes) in the first quarter of 2018, compared to an income tax expense of $2.6 million (14% of income before income taxes) in the first quarter of 2017. The effective tax rate in the first quarter of 2018 was higher than the expected income tax rate of 27% primarily due to a large portion of the Company's taxable income being earned in higher tax jurisdictions and some losses in the quarter being generated in jurisdictions where the Company was unable to record a tax benefit.

2.5 Foreign Exchange Impact

The following table sets forth the significant currencies in which the Company operates and the average foreign exchange rates for these currencies versus Canadian dollars, for the following periods:

Three Months Ended
March 31,
2018 December 31,
2017 March 31,
2017 U.S. dollar 1.2635 1.2702 1.3255 Euro 1.5461 1.5035 1.4119 British Pounds 1.7542 1.7044 1.6520 The following table sets forth the impact on revenue, operating income and net income (attributable to shareholders of the Company), compared with the prior quarter and the prior year period, as a result of foreign exchange fluctuations on the translation of foreign currency operations:

(in thousands of Canadian dollars) Q1-2018
Versus
Q4-2017 Q1-2018
Versus
Q1-2017 Revenue $ 194 $ (5,484 ) Income from operations $ 14 $ 453 Net income (attributable to shareholders of the Company) $ (215 ) $ 27 In addition to the translation impact noted above, the Company recorded a foreign exchange gain of $0.8 million in the first quarter of 2018, compared to a foreign exchange loss of $1.4 million for the comparable period in the prior year, as a result of the impact of changes in foreign exchange rates on monetary assets and liabilities and short-term foreign currency intercompany loans within the group, net of hedging activities.

2.6 Net Income (attributable to shareholders of the Company)

First Quarter 2018 versus Fourth Quarter 2017

Net income decreased by $15.1 million, from a net income of $20.3 million during the fourth quarter of 2017 to a net income of $5.2 million during the first quarter of 2018. This was mainly due to the $23.0 million decrease in operating income, as explained in section 2.2 above, partially offset by a $0.9 million reduction in finance costs and $6.7 million reduction in income tax expense.

First Quarter 2018 versus First Quarter 2017

Net income decreased by $10.2 million, from $15.4 million during the first quarter of 2017 to $5.2 million during the first quarter of 2018. This was mainly due to the $14.7 million decrease in operating income, as explained in section 2.2 above, and a $0.7 million increase in income tax expense. This was partially offset by a $3.0 decrease in finance costs and a $2.6 million lower loss from investments in associates.

3.0 SEGMENT INFORMATION

3.1 Pipeline and Pipe Services Segment

The following table sets forth, by geographic location, the revenue, operating income and operating margin for the Pipeline and Pipe Services segment for the following periods:

(in thousands of Canadian dollars, except percentages) Three Months Ended March 31,
2018 December 31,
2017(b) March 31,
2017(b) North America $ 174,197 $ 163,900 $ 146,905 Latin America 37,372 130,445 29,115 EMAR 52,548 53,889 62,683 Asia Pacific 35,849 34,315 70,659 Total revenue $ 299,966 $ 382,549 $ 309,362 Operating income $ 8,897 $ 36,808 $ 24,938 Operating margin(a) 3.0 % 9.6 % 8.1 %

(a) Operating margin is defined as operating income divided by revenue and is a non-GAAP measure. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See section 6.0 - Reconciliation of Non-GAAP Measures.
(b) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

First Quarter 2018 versus Fourth Quarter 2017

Revenue in the first quarter of 2018 decreased by $82.6 million to $300.0 million, from $382.5 million in the fourth quarter of 2017. Revenue was impacted by lower activity levels in Latin America and EMAR, partially offset by higher volumes in North America and Asia Pacific:

Revenue in North America increased by $10.3 million, or 6.3%, as a result of higher flexible composite pipe volumes and small diameter coating revenue in the US and increased activity levels in pipe weld inspection services and tubular management services. This was partially offset by lower activity levels for large diameter pipe coatings in the US and engineering services at Lake Superior Consulting.
In Latin America, revenue decreased by $93.1 million, or 71.4%, primarily as a result of the wind down of production in Altamira, Mexico for the Tuxpan project and lower volumes at the Company's Argentina facilities.
Revenue in EMAR decreased by $1.3 million, or 2.5%, primarily due to lower activity levels at the Orkanger, Norway facility, the Company's Italian facilities and lower volumes of pipe weld inspection services in the region. This was partially offset by higher activity levels at the Ras Al Khaimah, UAE ('RAK') and Leith, Scotland facilities and on field joint coating projects in the region.
Asia Pacific revenue increased by $1.5 million, or 4.5%, mainly due to higher pipe coating project volumes for the BP Tangguh project at the Kabil, Indonesia facility, partially offset by lower activity at the Kuantan, Malaysia facility. In the first quarter of 2018, operating income was $8.9 million compared to an operating income of $36.8 million in the fourth quarter of 2017, a decrease of $27.9 million. The decrease in operating income was primarily due to the $48.6 million decrease in gross profit due to the decrease in revenue, as explained above, and a 5.4 percentage point decrease in gross margin. The decrease in gross margin was due to unfavourable project mix, lower facility utilization and decreased manufacturing overhead absorption. This was partially offset by lower SG & A expenses, as explained in section 2.2 above, and the $8.1 million impairment charge recorded in the fourth quarter of 2017.

First Quarter 2018 versus First Quarter 2017

Revenue in the first quarter of 2018 was $300.0 million, a decrease of $9.4 million, or 3.0%, from $309.4 million in the comparable period of 2017. Segment revenue was adversely affected by the impact on translation of foreign operations, as noted in section 2.5 above, and lower activity levels in EMAR and Asia Pacific, partially offset by higher revenue in North America and Latin America:

In North America, revenue increased by $27.3 million, or 18.6%, primarily due to higher volumes of large diameter pipe coating in Canada and small diameter pipe coating in the US and increased activity levels in pipe weld inspection and flexible composite pipe sales volumes. This was partially offset by lower activity levels for large diameter pipe coating in the US and a decrease in revenues attributable to tubular management services.
Latin America revenue increased by $8.3 million, or 28.4%, primarily as a result of higher activity levels at the Company's Argentina facilities.
Revenue in EMAR decreased by $10.1 million, or 16.2%, primarily due to the absence of the Shah Deniz project in the Caspian and lower activity levels at the Orkanger, Norway, RAK and Italian facilities and field joint coating projects in the region. This was partially offset by higher activity levels at the Leith, Scotland facility.
Revenue in Asia Pacific decreased by $34.8 million, or 49.3%, mainly due to lower pipe coating project volumes from the Shah Deniz and Sur de Texas – Tuxpan projects at the Kabil, Indonesia and Kuantan, Malaysia facilities. In the first quarter of 2018, operating income was $8.9 million compared to $24.9 million in the first quarter of 2017, a decrease of $16.0 million. The decrease in operating income was primarily due to the $12.7 million decrease in gross profit resulting from the decrease in revenue, as explained above, and a 3.1 percentage point decrease in gross margin. The decrease in gross margin was due to unfavourable project mix, lower facility utilization and decreased manufacturing overhead absorption.

3.2 Petrochemical and Industrial Segment

The following table sets forth, by geographic location, the revenue, operating income and operating margin for the Petrochemical and Industrial segment for the following periods:

(in thousands of Canadian dollars, except percentages) Three Months Ended March 31,
2018 December 31,
2017 March 31,
2017 North America $ 28,245 $ 24,769 $ 31,472 EMAR 19,876 16,540 16,678 Asia Pacific 2,886 3,052 3,217 Total revenue $ 51,007 $ 44,361 $ 51,367 Operating income $ 8,868 $ 5,342 $ 9,647 Operating margin(a) 17.4 % 12.0 % 18.8 %

(a) Operating margin is defined as operating income divided by revenue and is a non-GAAP measure. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See section 6.0 - Reconciliation of Non-GAAP Measures.

First Quarter 2018 versus Fourth Quarter 2017

In the first quarter of 2018, revenue increased by $6.6 million, or 15.0%, to $51.0 million, compared to the fourth quarter of 2017, primarily due to increased shipments of heat shrink tubing product, particularly in the automotive sector, and higher activity levels for wire and cable products.

Operating income of $8.9 million in the first quarter of 2018 was $3.5 million, or 66.0%, higher than in the fourth quarter of 2017. The increase in operating income was primarily due to an increase in gross profit of $3.5 million resulting from the increased revenue, as explained above, and a 3.2 percentage point increase in gross margin. The increase in gross margin was due to favourable product mix and higher facility utilization and increased manufacturing overhead absorption.

First Quarter 2018 versus First Quarter 2017

Revenue in the first quarter of 2018 decreased by $0.4 million, or 0.7%, compared to the first quarter of 2017. Revenue was impacted by decreased shipments of wire and cable products, partially offset by higher activity levels in heat shrink tubing product, particularly in the automotive sector.

Operating income in the first quarter of 2018 was $8.9 million compared to $9.6 million in the first quarter of 2017, a decrease of $0.8 million, or 8.1%. The decrease in operating income was primarily due to a decrease in gross profit of $0.5 million resulting from the decrease in revenue, as explained above, and a 0.9 percentage point decrease in gross margin. The decrease in gross margin was due to unfavourable product mix and lower facility utilization and decreased manufacturing overhead absorption.

3.3 Financial and Corporate

Financial and corporate costs include corporate expenses not allocated to the operating segments and other non-operating items, including foreign exchange gains and losses on foreign currency denominated cash and working capital balances. The corporate division of the Company only earns revenue that is considered incidental to the activities of the Company. As a result, it does not meet the definition of a reportable operating segment as defined under IFRS.

The following table sets forth the Company's unallocated financial and corporate expenses, before foreign exchange gains and losses, for the following periods:

(in thousands of Canadian dollars) Three Months Ended March 31,
2018 December 31,
2017 March 31,
2017 Financial and corporate expenses $ (7,155) $ (8,557 ) $ (7,024 ) First Quarter 2018 versus Fourth Quarter 2017

Financial and corporate costs decreased by $1.4 million from $8.6 million during the fourth quarter of 2017 to $7.2 million in the first quarter of 2018. The decrease was primarily due to a $1.0 million decrease in compensation and other related personnel costs and $1.7 million in restructuring costs recorded in the fourth quarter of 2017. This was partially offset by a $0.9 million increase in insurance related expenses.

First Quarter 2018 versus First Quarter 2017

Financial and corporate costs increased by $0.1 million from the first quarter of 2017 to $7.2 million in the first quarter of 2018. The increase was primarily due to a $1.2 million increase in professional fees, management information system and other expenses. This was partially offset by a $1.0 million decrease in stock based and long term management incentive expenses and a $0.3 million decrease in compensation and other related personnel costs.

4.0 FORWARD-LOOKING INFORMATION

This document includes certain statements that reflect management's expectations and objectives for the Company's future performance, opportunities and growth, which statements constitute 'forward‑looking information' and 'forward looking statements' (collectively 'forward looking information') under applicable securities laws. Such statements, other than statements of historical fact, are predictive in nature or depend on future events or conditions. Forward looking information involves estimates, assumptions, judgments and uncertainties. These statements may be identified by the use of forward‑looking terminology such as "may", "will", "should", "anticipate", "expect", "believe", "predict", "estimate", "continue", "intend", "plan" and variations of these words or other similar expressions. Specifically, this document includes forward looking information in the Outlook section and elsewhere in respect of, among other things, the achievement of key performance objectives, the timing of the Qatar pipeline coating project and other project activity, the sanctioning of large projects in 2018 and the impact thereof on the Company's business, the level of Adjusted EBITDA in 2018, the growth in revenue and operating income in the Petrochemical and Industrial segment of the Company's business, the increase in demand for the Company's products in the North American Pipeline and Pipe Services segment of the Company's business, the decline in revenues but improved plant utilization in the Latin American Pipeline and Pipe Services segment of the Company's business, the sufficiency of resources, capacity and capital to meet market demand, to meet contractual obligations and to execute the Company's development and growth strategy, the expected development of the Company's order backlog and the impact thereof on the Company's revenue and operating income, including the award of contracts on outstanding bids, the impact of global economic activity on the demand for the Company's products, the impact of the improvement in global oil and gas commodity prices on the level of industry investment in oil and gas infrastructure, the impact of changing energy demand, supply and prices, the impact and likelihood of changes in competitive conditions in the markets in which the Company participates, the adequacy of the Company's existing accruals in respect of environmental compliance and in respect of litigation and tax matters and other claims generally, and the level of payments under the Company's performance bonds.

Forward looking information involves known and unknown risks and uncertainties that could cause actual results to differ materially from those predicted by the forward‑looking information. We caution readers not to place undue reliance on forward looking information as a number of factors could cause actual events, results and prospects to differ materially from those expressed in or implied by the forward looking information. Significant risks facing the Company include, but are not limited to: the impact on the Company of reduced demand for its products and services, including the suspension or cancellation of existing contracts, as a result of lower investment in global oil and gas extraction and transportation activity following the previous declines in the global price of oil and gas, long term changes in global or regional economic activity and changes in energy supply and demand, which with other factors, impact on the level of global pipeline infrastructure construction; exposure to product and other liability claims; shortages of or significant increases in the prices of raw materials used by the Company; compliance with environmental, trade and other laws; political, economic and other risks arising from the Company's international operations; and fluctuations in foreign exchange rates, as well as other risks and uncertainties described under 'Risks and Uncertainties' in the Company's annual MD & A and in the Company's Annual Information Form under 'Risk Factors'.

These statements of forward looking information are based on assumptions, estimates and analysis made by management in light of its experience and perception of trends, current conditions and expected developments as well as other factors believed to be reasonable and relevant in the circumstances. These assumptions include those in respect of global oil and gas prices, including continuing recovery of the oil and gas markets throughout 2018, increases in expenditures on natural gas infrastructures, modest global economic growth, stable demand in the global automotive market and in the European and North American industrial markets as such apply to the Company's Petrochemical and Industrial segment, the Company's ability to execute projects under contract, the continued supply of and stable pricing for commodities used by the Company, short term increases in rail and transportation costs, the availability of personnel resources sufficient for the Company to operate its businesses, the maintenance of operations in major oil and gas producing regions and the ability of the Company to satisfy all covenants under its Credit Facilities and the Senior Notes. The Company believes that the expectations reflected in the forward looking information are based on reasonable assumptions in light of currently available information. However, should one or more risks materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward looking information included in this document and the Company can give no assurance that such expectations will be achieved.

When considering the forward looking information in making decisions with respect to the Company, readers should carefully consider the foregoing factors and other uncertainties and potential events. The Company does not assume the obligation to revise or update forward looking information after the date of this document or to revise it to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.

To the extent any forward looking information in this document constitutes future oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future oriented financial information and financial outlooks, as with forward looking information generally, are based on the assumptions and subject to the risks noted above.

Shawcor will be hosting a Shareholder and Analyst Conference Call and Webcast on Wednesday May 9th, 2018 at 10:00AM ET, which will discuss the Company's First Quarter End 2018 Financial Results.

To participate via telephone, please dial 1-877-776-4039 or 1-315-625-6955. Conference Call ID: 2073946; alternatively, please go to the following website address to participate via webcast:
https://edge.media-server.com/m6/p/oq9wjarm

5.0 Additional Information

Additional information relating to the Company, including its Annual Information Form, is available on SEDAR at www.sedar.com .

Please visit our website at www.shawcor.com for further details.

For further information, please contact:

Gaston Tano
Senior Vice President, Finance and CFO
Telephone: 416.744.5539
E-mail:
Website: www.shawcor.com

Shawcor Ltd.
Consolidated Balance Sheets (Unaudited)

March 31, December 31, (in thousands of Canadian dollars) 2018 2017 (a) ASSETS Current Assets Cash and cash equivalents $ 248,379 $ 289,065 Loans receivable 2,335 2,448 Contract assets 49,632 65,413 Accounts receivable 248,033 194,439 Income taxes receivable 22,130 20,205 Inventories 126,816 115,018 Prepaid expenses 28,304 21,931 Derivative financial instruments 289 382 Total current assets 725,918 708,901 Non-current Assets Loans receivable 2,372 2,283 Property, plant and equipment 417,983 417,781 Intangible assets 164,368 164,872 Investments in associates 30,113 20,188 Deferred income tax assets 34,395 33,979 Other assets 5,122 20,606 Goodwill 338,657 329,391 Total non-current assets 993,010 989,100 TOTAL ASSETS $ 1,718,928 $ 1,698,001 LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued liabilities $ 213,067 $ 201,017 Provisions 26,580 27,361 Income taxes payable 32,209 42,904 Derivative financial instruments 291 1,915 Contract liabilities 44,485 44,826 Obligations under finance lease 787 1,111 Other liabilities 10,593 11,848 Total current liabilities 328,012 330,982 Non-current Liabilities Long-term debt 253,048 246,175 Obligations under finance lease 11,497 10,840 Provisions 38,153 36,555 Employee future benefits 18,658 18,552 Deferred income tax liabilities 4,371 6,448 Other liabilities 1,902 3,665 Total non-current liabilities 327,629 322,235 Total Liabilities 655,641 653,217 Equity Share capital 707,364 704,956 Contributed surplus 27,814 27,651 Retained earnings 296,910 302,206 Non-controlling interests 6,053 5,848 Accumulated other comprehensive income 25,146 4,123 Total Equity 1,063,287 1,044,784 TOTAL LIABILITIES AND EQUITY $ 1,718,928 $ 1,698,001

(a) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

Shawcor Ltd.
Consolidated Statements of Income (Unaudited)

(in thousands of Canadian dollars, except per share amounts) Three Months Ended
March 31, 2018 2017 (a) Revenue Sale of products $ 154,917 $ 126,116 Rendering of services 195,602 233,944 350,519 360,060 Cost of Goods Sold and Services Rendered 233,733 230,071 Gross Profit 116,786 129,989 Selling, general and administrative expenses 79,325 79,027 Research and development expenses 3,104 3,618 Foreign exchange (gains) losses (827 ) 1,424 Amortization of property, plant and equipment 19,221 14,744 Amortization of intangible assets 4,526 5,038 Income from Operations 11,437 26,138 Loss from investments in associates (116 ) (2,696 ) Finance costs, net (2,666 ) (5,628 ) Income before Income Taxes 8,655 17,814 Income taxes 3,313 2,577 Net Income $ 5,342 $ 15,237 Net Income Attributable to: Shareholders of the Company $ 5,210 $ 15,393 Non-controlling interests 132 (156 ) Net Income $ 5,342 $ 15,237 Earnings per Share Basic $ 0.07 $ 0.22 Diluted $ 0.07 $ 0.22 Weighted Average Number of Shares Outstanding (000s) Basic 70,016 69,901 Diluted 70,223 69,945

(a) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

Shawcor Ltd.
Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands of Canadian dollars) Three Months Ended
March 31, 2018 2017 (a) Net Income $ 5,342 $ 15,237 Other Comprehensive Income (Loss) to be Reclassified to Net Income in Subsequent Periods Exchange differences on translation of foreign operations 21,061 (2,576 ) Other comprehensive income attributable to investments in associates 41 (98 ) Net Other Comprehensive Income (Loss) to be Reclassified to Net Income in Subsequent Periods 21,102 (2,674 ) Other Comprehensive Loss not to be Reclassified to Net Income in Subsequent Periods Actuarial loss on defined benefit plan (10 ) (3 ) Income tax recovery 4 1 Net Other Comprehensive Loss not to be Reclassified to Net Income in Subsequent Periods (6 ) (2 ) Other Comprehensive Income (Loss), Net of Income Taxes 21,096 (2,676 ) Total Comprehensive Income $ 26,438 $ 12,561 Comprehensive Income Attributable to: Shareholders of the Company $ 26,233 $ 12,650 Non-controlling interests 205 (89 ) Total Comprehensive Income $ 26,438 $ 12,561

(a) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

Shawcor Ltd.
Consolidated Statements of Changes in Equity (Unaudited)

(in thousands of Canadian dollars) Share
Capital Contributed
Surplus Retained
Earnings(a)

Non-
controlling
Interests Accumulated
Other
Comprehensive
(Loss) Income Total
Equity(a) Balance - December 31, 2017 $ 704,956 $ 27,651 $ 302,206 $ 5,848 $ 4,123 $ 1,044,784 Net income – – 5,210 132 – 5,342 Other comprehensive income – – – 73 21,023 21,096 Comprehensive income – – 5,210 205 21,023 26,438 Issued on exercise of stock options 1,331 – – – – 1,331 Compensation cost on exercised options 516 (516 ) – – – – Compensation cost on exercised Restricted Share Units 561 (561 ) – – – – Share-based compensation expense – 1,240 – – – 1,240 Dividends declared and paid to shareholders – – (10,506 ) – – (10,506 ) Balance - March 31, 2018 707,364 27,814 296,910 6,053 25,146 1,063,287 Balance - January 1, 2017 $ 703,316 $ 23,379 $ 272,997 $ 5,892 $ 37,408 $ 1,042,992 Net income (loss)(a) – – 15,393 (156 ) – 15,237 Other comprehensive income (loss) – – – 67 (2,743 ) (2,676 ) Comprehensive income (loss) – – 15,393 (89 ) (2,743 ) 12,561 Issued on exercise of stock options 481 – – – – 481 Compensation cost on exercised options 176 (176 ) – – – – Compensation cost on exercised Restricted Share Units 210 (210 ) – – – – Share-based compensation expense – 1,299 – – – 1,299 Dividends declared and paid to shareholders – – (10,487 ) – – (10,487 ) Balance - March 31, 2017 704,183 24,292 277,903 5,803 34,665 1,046,846

(a) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

Shawcor Ltd.
Interim Consolidated Statements of Cash Flows (Unaudited)

(in thousands of Canadian dollars) Three Months Ended
March 31, 2018

2017(a) Operating Activities Net income $ 5,342 $ 15,237 Add (deduct) items not affecting cash Amortization of property, plant and equipment 19,221 14,744 Amortization of intangible assets 4,526 5,038 Amortization of long-term prepaid expenses – 102 Decommissioning obligations expense 173 80 Other provision expenses 3,147 (18 ) Share-based compensation and other incentive-based compensation 2,523 2,814 Deferred income taxes (1,984 ) (3,572 ) Loss on disposal of property, plant and equipment (63 ) (591 ) Unrealized (gain) loss on derivative financial instruments (1,531 ) 4,927 Loss from investments in associates 116 2,696 Other (4,117 ) 468 Settlement of decommissioning liabilities – (156 ) Settlement of other provisions (3,882 ) (573 ) Net change in employee future benefits (51 ) 359 Change in non-cash working capital and foreign exchange (52,417 ) (66,217 ) Cash Used in Operating Activities $ (28,997 ) $ (24,662 ) Investing Activities Decrease (increase) in loans receivable 155 (44 ) Decrease in short-term investments – 15 Purchase of property, plant and equipment (9,477 ) (9,483 ) Proceeds on disposal of property, plant and equipment 507 879 Decrease (increase) in other assets 244 (4,112 ) Cash Used in Investing Activities $ (8,571 ) $ (12,745 ) Financing Activities Decrease in bank indebtedness – (2,463 ) Payment of obligations under finance lease (299 ) (282 ) Issuance of shares 1,331 481 Dividends paid to shareholders (10,506 ) (10,487 ) Cash Used in Financing Activities $ (9,474 ) $ (12,751 ) Effect of Foreign Exchange on Cash and Cash Equivalents 6,356 99 Net decrease in Cash and Cash Equivalents (40,686 ) (50,059 ) Cash and Cash Equivalents - Beginning of Period 289,065 194,824 Cash and Cash Equivalents - End of Period $ 248,379 $ 144,765

(a) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

6.0 Reconciliation of Non-GAAP Measures

The Company reports on certain non-GAAP measures that are used to evaluate its performance and segments, as well as to determine compliance with debt covenants and to manage the capital structure. These non-GAAP measures do not have standardized meanings under IFRS and are not necessarily comparable to similar measures provided by other companies. The Company discloses these measures because it believes that they provide further information and assist readers in understanding the results of the Company's operations and financial position. These measures should not be considered in isolation or used in substitution for other measures of performance prepared in accordance with GAAP. The following is a reconciliation of the non-GAAP measures reported by the Company.

EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation and amortization. Adjusted EBITDA is also a non-GAAP measure defined as EBITDA adjusted for items which do not impact day to day operations. The Company believes that EBITDA and Adjusted EBITDA are useful supplemental measures that provide a meaningful indication of the Company's results from principal business activities prior to the consideration of how these activities are financed or the tax impacts in various jurisdictions and for comparing its operating performance with the performance of other companies that have different financing, capital or tax structures. The Company presents Adjusted EBITDA as a measure of EBITDA that excludes the impact of transactions that are outside the Company's normal course of business or day to day operations. Adjusted EBITDA is used by many analysts in the oil and gas industry as one of several important analytical tools to evaluate financial performance and is a key metric in business valuations. It is also considered important by lenders to the Company and is included in the financial covenants of the Company's debt agreements.

Three Months Ended (in thousands of Canadian dollars) March 31,
2018 December 31,
2017(a) March 31,
2017(a) Net Income $ 5,342 $ 20,513 $ 15,237 Add: Income taxes 3,313 9,998 2,577 Finance costs, net 2,666 3,562 5,628 Amortization of property, plant, equipment and intangible assets 23,747 24,869 19,782 EBITDA $ 35,068 $ 58,942 $ 43,224 Impairment – 8,073 – ADJUSTED EBITDA $ 35,068 $ 67,015 $ 43,224

(a) Restated due to the adoption of the IFRS 15 standard that became effective as at January 1, 2018, but was implemented retrospectively to January 1, 2017.

Operating Margin

Operating margin is defined as operating income divided by revenue and is a non-GAAP measure. The Company believes that operating margin is a useful supplemental measure that provides meaningful assessment of the business performance of the Company and its Operating Segments. The Company uses this measure as a key indicator of financial performance, operating efficiency and cost control based on volume of business generated.

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