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President and CEO’s Message to Shareholders

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Solid profitability growth continues in 2016

In 2016, Morneau Shepell delivered yet another solid year of performance in line with our expectations and continued commitment to delivering consistent, profitable growth.

Revenue for the year reached $592.1 million, increasing by $24.8 million, or 4.4 per cent compared to the previous year. Organic revenue grew by 3.6 per cent. Notably, we’re pleased by our profitability growth during the year where our adjusted EBITDA increased 6.1 per cent by $6.5 million to $112.3 million. Adjusted EBITDA margins improved to 19.0 per
cent from 18.7 per cent in 2015.

While our topline growth was relatively modest in 2016 compared to our historical performance, the fact that we continued to grow profitability and improve margins gives us confidence that the Company is moving forward with the right strategies for sustaining its track record of success in the future.

2016 highlights: delivering results today, investing for tomorrow

We completed the year with a sales pipeline that reflects our historic growth across all four lines of business and, as well, our increasing success in cross-selling services to our global client base.

Acquisitions continue to play a supporting role in our growth and competitive differentiation strategies. In 2016, we completed two tuck-in acquisitions. We acquired Solareh, a national health and wellness provider in Quebec, and Longpré, also a Quebec-based EFAP provider.

During 2016, we also completed transactions that improve the Company’s financing flexibility. Our financial strength supports our continued investment in the business, our acquisition strategy, our expansion in the U.S., and in general our efforts to build organizational capacity to grow our revenues profitably with both our established and prospective client base.

Our client satisfaction levels for the Company continued to be very positive in 2016. Our annual survey found that nine of 10 clients were very satisfied with Morneau Shepell. As well, our employees are productively engaged in the business and with our clients, as our annual survey confirmed. We believe our client satisfaction and employee levels are at the root of our ability to maintain such high recurring revenues.

In 2016, we continued to be responsive to the innovation and technology trends transforming a dynamic, increasingly globalized HR sector. These trends include new services being designed around big data and predictive analytics, artificial intelligence, the growth in the use of mobile technology for health applications, and changes in the relationship between employee and employer in the workplace. Our innovation strategy is energized by our deep strengths in technology, combined with our HR consulting expertise, to develop game-changer solutions for our clients.

Partnerships to enhance our brand and contribute to the community

As innovators, we continue to focus on responding to what’s going on in broader society and how it’s changing workforce culture. As an example, in 2016 we joined forces with The Globe & Mail in launching a new workplace award program – the Employee Recommended Workplace Award. It’s designed to identify Canadian companies based on the quality and effectiveness of their workplace culture. It’s a good example of innovation in how we market ourselves and build our brand.

Community engagement is central to Morneau Shepell’s values and brand. In 2016, we were honoured to win an international industry award for our response in assisting the trauma victims of the Fort McMurray wildfire disaster. During the crisis, our EFAP counsellors worked with local emergency response teams to help those affected by the wildfire. It’s an honour for all of us at Morneau Shepell to know that we can do what’s right for our business, while also delivering a valued social outcome.

Looking ahead

The recurring nature of the Company’s revenues, together with its pipeline coming into 2017, and its positioning as an HR technology leader, gives us confidence that Morneau Shepell will deliver the same consistent growth results in the future that have been the hallmark of our track record for many years.

The Company will also keep investing in innovative services and technologies that give its clients more powerful tools to evaluate, manage and improve the health and productivity of their people.

In short, the Company is expecting better revenue growth year in 2017, while maintaining its disciplined focus on profitability growth and margin improvements.

Delivering in 2017 and beyond: our strategic priorities

The Company remains focused on the following priorities that have consistently guided the business and by which success will be measured going forward:

  • Growth and performance. Sustaining or exceeding our historical revenue and organic growth performance, supplemented by tuck-in acquisitions, while achieving strong margins.
  • Clients. Building a strong brand presence with our target audiences, and being their HR provider of choice by delivering an integrative, innovative client experience.
  • People. Being an employer of choice and developing the leadership and organizational capacity within our talent pool to deliver on our long-term strategies.
  • Shareholder value. Aligning our capital structure and investments to keep the business strong while sustaining our dividend strategy.

Leadership changes for continuing the Morneau Shepell success story

This Message to Shareholders will be my final one. On March 2 this year, I announced my intention to retire. Working with the Company has been one of the most rewarding experiences in my life. It’s been an amazing journey in every respect.

Any success I’ve had as President and CEO is owed to the people on my team and throughout the Company and to their talent, dedication, enthusiasm and the humanity they brought to work every day. I’ve experienced nothing quite like it in my career. I am very proud to have played a pivotal role in building a leadership team that will continue to take Morneau
Shepell forward.

As part of the growth in our leadership team, I had the good fortune of hiring Stephen Liptrap eight years ago. In recent years, we have all worked together to support Stephen in running our largest line of business, then as Chief Operating Officer, and now as he moves into his new role as my successor. I wish Stephen much success going forward and I have every confidence that he will lead Morneau Shepell into a new era of growth and opportunity.

In closing, I would like to extend my appreciation and gratitude to the people who have supported my work and goals as President and CEO: our employees, clients, business partners, Board of Directors, shareholders and especially my family.

I’m immensely grateful.

Alan Torrie
President and CEO

Alan Torrie