Gary Love – Vice President Finance and Chief Financial Officer Steve Orr – Chief Executive Officer

Mike Mazar – BMO Capital Markets Elias Foscolos – Industrial Alliance Leslie Nixon – National Financial

Thank you. Good morning.

Before we begin this morning’s conference call, I would like to take a moment to remind all listeners that today’s conference call includes forward-looking statements that involve estimates, judgments, risks, and uncertainties that may cause actual results to differ materially from those projected. The complete text of Shawcor’s statement on forward-looking information is included in Section 4 of the fourth quarter 2016 earnings press release.

It is available on SEDAR and on the company’s website at shawcor.com. I’ll now turn the call over to Shawcor’s CEO, Steve Orr.

Thank you, Gary. Good morning and thank you for joining us on this morning’s conference call.

During our last conference call, we spoke of our increased confidence that the company’s financial performance will begin to trend higher in the fourth quarter. With the release of our fourth quarter earnings, I’m happy to note that this trend of improvement is now firmly underway.

Although we continue to face uncertainties in our outlook, which I’ll elaborate in a moment, we are seeing the benefits of a cautious improvement in North American upstream activity and the benefits of production volume ramp up on booked large projects. Overall revenue grew 27% in the third quarter and each of our pipeline segment regions showed quarter-over-quarter revenue growth with gains in North America and Asia Pacific being the most impactful.

In North America, we had revenue growth from the third quarter of 33% from a combination of strong composite pipe sales and full mobilization of weld inspection crews on U.S. transmission line projects.

In Asia Pacific, revenue increased 59% from the launch of anticorrosion coating for Sur de Texas and from higher volumes of flow assurance work on the Shah Deniz project. Revenue gains translated into improved gross margins excluding the negative impact of a year-end inventory valuation adjustment of $4.8 million.

Consolidated gross margins have now rebounded from a cycle low level of 28% in the second quarter to an excess of 34% in the fourth quarter. Higher revenue, improved gross margins and continued curtailment of SG&A expenses all contributed to a gratifying improvement in adjusted EBITDA, which reached $33 million in the fourth quarter, up $53 million from the cycle low of negative $20 million in the second quarter of 2016.

We have clearly turned the corner and can now look forward to 2017 with optimism. I’ll comment in detail on our outlook in a moment, but first I’d ask Gary Love, our CFO, to provide some details on the fourth quarter financial results.

Thanks, Steve. The 27% quarter-over-quarter improvement in revenue in the fourth quarter was attributable to increased activity across all of our pipeline segment regions.

With the improvement in revenue came increased gross margins and higher profit, which largely drove the improvement in EBITDA. Reported consolidated gross margins in the fourth quarter were 32.7% however we pack out a non-recurring inventory valuation adjustment of $4.8 million.

The operational gross margin was 34.2%, up from 33.6% in the third quarter and also improved over 33.3% in the fourth quarter a year ago. The pipeline segment gross margin, before the inventory adjustment, improved to 34.8% from 33.9% a year ago while the petrochemical and industrial segment gross margin was 29.7% in line with the prior year.

On a consolidated basis, adjusted EBITDA for the fourth quarter is $33 million, this compares with an adjusted EBITDA of $7 million in the third quarter. Adjusted EBITDA excludes gains on the sale of land of $5.6 million and a gain from an arbitration award of $19.2 million.

The improvement in adjusted EBITDA was due to the increase in gross profit of $21 million combined with a $7 million decrease in SG&A expenses from the third quarter to $71 million in the fourth quarter. The decrease in SG&A was largely due to provision reductions of $6.8 million, which are not likely to recur.

As mentioned, we had a gain that is reported below operating income of $19.2 million from an arbitration award in Singapore. This related to a legal dispute between Socotherm and various Wasco Energy companies.

During December, Wasco exhausted their appeal procedures and the award payment has been received in the first quarter. Cash flow from operating activities generated $55 million in the fourth quarter with earnings adjusted for non-cash items contributing $34 million combined with $21 million reduction in non-cash working capital.

The reduction in working capital was due to a further build in deferred revenue of $27 million from upfront payments on the Sur de Texas’ Tuxpan project, a $19 million increase in accounts payable and reductions in inventory and prepaid expenses that totaled $21 million. These sources of cash were offset by a $48 million increase in accounts receivable associated with a build up of revenue in the quarter.

With a continued build of deferred revenue, total net non-cash working capital ended the fourth quarter at $86 million, down from $103 million at the start of the quarter and compared with peak levels of $267 million at the end of 2014. Given this exceptionally low level of working capital, we should expect that there will be a substantial reinvestment in working capital during 2017.

Cash flow used in investing activities in the fourth quarter was $33 million with capital expenditures on property, plant and equipment of $37 million and an increase in other assets of $5.5 million, partially offset by proceeds from the sale of land of $10 million. Approximately $28 million of the $37 million in capital expenditures in the fourth quarter were related to investments to support the Sur de Texas’ Tuxpan project in Mexico while the balance included additional investments of $2 million to support FlexFlow production and $2 million to support capacity increases in our petrochemical and industrial segment businesses.

During the fourth quarter, financing activities provided net cash of $57 million with the proceeds from the share issuance of $165 million exceeding the repayment of Senior Note debt of $101 million and our regular quarterly dividend of $9.7 million. With cash flow from operating and financing activities offsetting cash used for investments, the company’s cash and short-term investments position improved during the fourth quarter to $197 million.

The company also has available unutilized credit facilities of approximately $399 million as of December 31. I’ll turn it back to Steve for his commentary on our outlook.

Thank you, Gary. Although caution is warranted regarding the near-term prospects for our industry, Shawcor is very well positioned to generate improved financial results in 2017.

To elaborate, we should consider the company’s outlook in three distinct elements. The first is the potential for improved market conditions in North American upstream activity.

Here we have seen a doubling of rig counts since the depth of the downturn in the second quarter of 2016. It bodes well for activity levels particularly in the short-term.

However, the sustainability and continued growth of current rig counts and well completions is not assured particularly in Canada where we will see a pullback as spring breakup inhibits activity. What happens to the second half of 2017 actually those end pricing is of course dependence on whether current commodity prices are sustained.

Regardless the company’s effort to reduce cost in these businesses over the past two years means that we have the capability to scale our operations to mitigate potential volatility associated with shorter cycle North American activity. The second improvements on our outlook is the level of capital spending on infrastructure projects globally and in particular where our operators begin to commit capital to small production sustaining projects.

We have yet to see this happened and therefore cannot say for sure when we will again experience a steady order flow of smaller projects at our facilities. This order flow historically has been an important factor in the margins achieved in our EMAR and Asia Pacific regions.

The third influence on our outlook and the one that is without question positive is the large project activity. As expected our booked order backlog is continued to grow.

Since March of 2016, the backlog has increased from $358 million to $650 million as of December 31. The key factor in the growth is the backlog is these $350 million in the Sur de Texas Tuxpan project in Mexico.

Approximately 90% of the project revenue will be executed in 2017 and is in the order backlog as of year-end. A ramp up of production on Sur de Texas Tuxpan project is proceeding.

Anticorrosion coating for pipe that is being supplied by a Japanese pipe mill is well underway at our two Asia Pacific plants and coated pipe shipments to Mexico are ongoing. At our Altamira, Mexico location, we have commenced concrete weight coating at our first mobile plant and we’ll commence production of the second plant in the second quarter.

By the end of the second quarter, both plants are expected to be operating at full production. All coatings should be completed by the end of the first quarter 2018.

Sur de Texas Tuxpan is a great example of this type of infrastructure project that can be initiated despite uncertainties regarding future commodity prices. The offshore, Sur de Texas Tuxpan pipeline provides certainty to the Mexican government that they can import gas from U.S.

shale production to displace coal and fuel oil in the generation of electricity, starting in September 2018. Similar logic of gas transmission and certainly of delivery also underpins projects such as North Stream and TurkStream in Europe as well the number of other projects that the company is currently targeting with bids or budgetary estimates.

We have seen a further strengthening of bidding activity with the value of the firm bids outstanding increasing to $700 million from $500 million a quarter ago. The total value of budgetary estimates also remains strong in the $1.7 billion range and we expect to see more of these projects move to firm bid in the first half of 2017.

In addition to large project bids, we are focused on several new product and service introductions as a key element of our effort to sustain growth beyond 2017. First is our new FlexFlow composite pipe platform, which will be commercially lies with full validation, 6-inch and 8-inch 750 PSI products contributing to revenue in the second quarter of this year.

The second is our integrity management strategy of developing a service offering that is leverage to the OpEx spend of our customers. By leveraging the field inspection capability of our NDT technicians in Shawcor inspection services and the integrity engineering knowhow from Lake Superior Consulting, we have introduced a range of inspection services including heat treat, computed radiography, 3D, surface laser scanning and mechanical integrity inspection to create revenue streams that are not dependent on well completions.

This effort should accelerate in 2017. In summary, we are encouraged by the growth in the backlog in the health of the bidding activity.

This implies that large project revenue will be a source of growth for Shawcor in 2017 versus a notable drag in 2016. We are encouraged by the improvement in our North American businesses, but we remain cautious on the sustainability of growth in activity.

Finally, we have yet to see a pickup in small project activity particularly outside of North America, but operators cannot defer capital spending indefinitely and thus the potential for growth and smaller project volumes could materialize 2018. This coupled with continued large project wins and success with new product and service introductions would enable the financial performance improvement that we expect for 2017 to continue beyond this year.

Now, finally, I’d like to acknowledge the announcements included in our press release that Gary Love, our CFO, has informed the company that he will be retiring in May of this year. My sincere appreciation for his dedication and the many contributions he has made to Shawcor over the past 11 years that he has been involved with the company.

His strong leadership and professionalism has guided the company through many significant changes including acquisitions, elimination of the dual class share structure, critical capital market transactions and many of the decisions that have made Shawcor, the company that it is today. In particular, I’d note that Gary has been instrumental in recruiting his successor Gaston and then ensuring a smooth transition of the CFO responsibility to Gaston.

Although I’m sure Gary’s priorities will include increased time with his family and long put off travel, I am very pleased that he will continue to be available to the company for advice and consultation on an ongoing basis. On that note I will turn the call over to Kevin, the operator, for any questions you may have.

Good morning, guys. I actually just have a really quick one.

Is that G&A level that you had in Q4 sustainable?

The fourth quarter SG&A is not sustainable. There is about $7 million of – as I have mentioned in the commentary provision reversals.

So if you add those back you get a kind of high $70 million SG&A level which would be we’ll call it true current run rate.

Okay so it’s something like the Q3 number.

Exactly.

Okay. Makes sense actually that’s all I had.

Okay.

Good morning. First of all, congratulations Garry on your upcoming retirement.

Thank you.

I have a couple of questions. The first one focuses on CapEx going forward into 2017.

Q4 2016 seemed like a bit of an anomaly where if you strip out the capital for the Sur de Texas would you be looking at an annual run rate of around $40 million, would that be reasonable?

Yes that is. We are largely complete with the CapEx for Sur de Texas in fact by certainly the end of the first quarter the CapEx will be in place.

And we’ve indicated that the current run rate for maintenance capital for the company is in 30, 30 plus million level. So 40, 40 plus million is reasonable for 2017 faring any growth investments that could arise during the year.

So if we just consider what’s on the plate today, your number, 40 plus is reasonable.

Okay. Focusing a bit on what I would call a new product vertical which is the composite pipe sales, that obviously hit North American revenue in Q4 2016.

Is this sort of a onetime contract or do you see this as something that’s recurring?

So maybe allow me to explain Flexpipe. Flexpipe primarily is a book in turn business, so by books in turn, you very seldom will see in the backlog.

With the exception of often when we secure an international order the production schedule carry out beyond the quarter. So you would have seen influence of a Flexpipe in the backlog number that we recorded at the end of Q4 because of the Saudi order that was in excess of ten million that we will deliver.

The other number I will refer you back and it’s in our publicly released investor presentation. The North American business, as we exited 2014, was about $500 million we estimated.

And in that the composite was at a run rate of just roughly say $180 million. So composites have always been a big portion of the North American contribution for us.

Now where we are and we talked about this quite a bit, we are nowhere near the $500 million even with as we exited Q4. So I would say we’re three-fifths back to the $500 million.

Now going forward, with the additions of the 6-inch and the 8-inch 750 psi, that we’re actually building inventory as we speak. So the plant is now in March will start to initiate production of inventory, so we can move the product into the field and start generating revenue this year.

That plant was built to generate depending on the mix about $100 million. So then when you add $180 million on the existing portfolio and another $100 million from the new facility, you could top out at $300 million of revenue from the composite’s business with our current infrastructure.

I think we would run pretty hard to make that. Now as Gary alluded, depending on the pickup of FlexFlow we are now thinking about the possibility of not only put additional CapEx in our current FlexFlow, because there is space now to put another line in, but what are the geographical expansions that make sense that we can leverage the production of the composite product in country for to leverage nationalization.

So with that we’d have additional capacity. But I think that’s an 2018, 2019 discussion, right.

Okay, thank you very much because I was going to lead in to FlexFlow after that as sort of the second stream or call it second, call it product stream. And so you added a lot of color on to that.

So we can be looking towards some additions from that product in H2 2017, correct?

Yes to make sure that the expectation is correctly calibrated right. So in all of 2017 we will build inventory starting in March.

But it will not be a large percentage of the Flexpipe revenue in 2017, 2018 we are forecasting substantial contributions from it.

Great thank you very much for that color. That’s it from me.

Good morning gentlemen.

Good morning.

Good morning.

Congrats on a solid quarter.

Thank you.

Thank you. Long, long overdue, I can tell you.

Well it was noted in the latest corporate presentation that you estimate about $300 million of potential revenue recovery in the North American upstream segment. Now that’s a meaningful number.

I was wondering how do you think about that split across the business units?

So I already gave you color on one, right. So if you back out, let’s make it, very, very simple.

So we estimate the total size is around $500 million and we add $300 million we can pull back. So if you kind of look across where are the ones that we have to get traction?

Well certainly Flexpipe, the small-diameter pipe coating and girth-weld protection. So our Canusa business and our small-diameter, so the products have yellow jacket in Y2K are material in that number.

And then the one that is probably not yet to see much of an inflection point in terms of strengthening is our Guardian business, which is really associated with rigs. And that business we’ve always said it was about $100 million, but it has dropped in parallel with the rigs.

And we won’t see an inflection point until we start approaching spring breakup, because it’s heavily weighted to the release of tubulars from the rigs. So we’re anticipating to see this one recover.

So again, kind of in orders of magnitude, I would say Flexpipe is the first, followed by the combination of small-diameter girth-weld inspection and coating. And then Guardian would be there right.

Now the other one of course we mentioned quite a bit is the girth-weld inspection associated with our acquisition of Desert, which is North American businesses. Then again this one was hit with a rig count and its late cycle.

The wells need to be drilled and then the gathering linesneed to be put in place before we see that generating revenue, right. So I would say we’re three-fifth’s into it, now we’ve gained $100 million back.

That’s very useful, thanks. My next one, so pipeline gross margin was down about 160 basis points quarter-over-quarter, we’re kind of thinking it might not up with increased contributions from Tuxpan and shot any.

As noted, it was a combination of product and project mix. Can you provide any additional clarity on that front?

Well, no as I mentioned in my commentary, if you add back the one-time inventory adjustment, inventory valuation adjustment, $4.8 million our fourth quarter gross margin for the whole company was over 34%. So it was actually up versus the third quarter and up versus a year-ago.

And if you drill down to just the Pipeline segment, we were at 34.8%. And again that’s higher than the third quarter and year-ago fourth quarter.

So we did see – again backing out that non-operational inventory evaluation adjustment, backing that out we did see an improvement in the pipeline segment gross margin. Now 34.8% is certainly well off where we’ve been historically.

And if we even look back to – well certainly if we go back to 2014, prior to the downturn, we were north of 40%. We’re not suggesting we’re going to be back at those levels in the very short term.

But certainly continued improvement in North American activity is going to be positive for gross margin. And then particularly as we get into the latter part of the second quarter and then the second half of the year as the Sur de Texas Tuxpan project becomes a significant part of the company’s overall revenue.

That will be accretive to gross margin, it will be very accretive to operating margin, but it will also be accretive to gross margin.

Understood, thanks. Next one here is just, so it sounds like there’s some additional improved line-of-sight to converting additional project budgetary estimates to firm bids through the first half of 2017, you wouldn’t be able to provide a ballpark estimate on what that figure might look like would you?

No, I think it’s more granularity that we like to give to be direct.

And I think we have said pretty consistently and we have to continue to restate this point, the one – the biggest challenge of the current environment is the pace at which operators come into new projects. It is still the most uncertain element that we that we face.

The total activity is extremely strong but where we struggle is trying to estimate…

Conversion rate, it’s still a big uncertainly in our business.

But I think maybe what we could provide some color in is the ones that appear to be translating and moving forward are the ones are one of two things. So first of all, there’s a complete absence with the – probably the exception of domestic requirements, large offshore greenfield projects.

So they’re not present. What we are seeing in particular in the Gulf of Mexico is moving forward of tie-in projects.

So Mad Dog, for example, is a project that’s moving ahead that has – that we’ve now firm bid. The other area where we see movement going is in projects that are related to non-commodity price or a good way to look at that are at arm’s-length from the commodity price.

And these are being driven by factors such as trying to maintain share of an existing market or to like the Mexico project, converting oil and coal into gas for lower cost electricity. And the final one is domestic consumption.

So the domestic consumption where energy security for a country and they have assets that they are going to develop, they are moving ahead now.

Thanks for that color. And last one here for me, shifting gears a little bit.

It’s been four years since we’ve seen a year-over-year decline in the top line of the Petrochemical and Industrial segment. It looks like and part of that would be a fall off in demand in the auto sector.

I was wondering, would you be able to provide some additional color on the underlying drivers in that market and whether you would expect a return to growth in 2017?

Yes absolutely we’re projecting growth in 2017. If we look at the four your peer, zeroing it on the fourth quarter revenue, it was down year-over-year.

What we often experience in our EMAR segment of the Petrochemical and Industrial segment is it fluctuates with European automotive production. So there was a an impact in Europe and that’s not unusual.

And it’s certainly not – doesn’t dissuade us from our view that we will see growth, in the – continued growth in the segment in 2017, versus 2016. You may recall that in a number of the products within that segment we have been capacity constrained.

We’ve been capacity constrained here in North America and also in China. And we are bringing online additional capacity.

So continued growth in the segment in 2017 is our operating assumption today.

That’s great that’s it for me. Thanks.

Congrats again on a great quarter.

Thank you.

All right. Well thank you very much for joining us today.

And I look forward to speaking to all of you again in the next quarter. And again kind of a final message, this will probably be Gary’s last call.

So again I’d like to recognize his contribution to the company. And welcome Gaston into the seat.

So thank you and we look forward to the next quarter.