A MESSAGE FROM OUR CEO
Another rewarding year for our shareholders
2017 was a very exciting year for FirstService in many ways. We made significant progress in advancing our most important operating strategies; we laid the groundwork for the launch of our Social Purpose initiative in January of this year and we enjoyed another excellent year of top and bottom line growth. Our proven business model enables us to leverage the enormous property service markets in which we operate to drive consistent growth. 2017 represents our 23rd consecutive year of revenue growth.
Our highlights this year include:
Strong Organic Revenue Growth
We pride ourselves on being an organic growth company first and our goal across every service line is to grow on an organic basis at a higher rate than the market. We largely achieved this in 2017 and generated a consolidated organic growth rate of 6%, buoyed by a strong economy but also a reflection of our ability to consistently take market share.
Robust Acquisition Activity
We followed up our record 2016 acquisition year with another very strong year of acquisition activity. We closed nine transactions in total; five in our FirstService Residential division and four within FirstService Brands; investing $40 million for over $80 million in annualized revenue. Our disciplined acquisition program enabled us to more than double our organic revenue growth for a total 15% increase for the year.
Continued Margin Improvement
Our consolidated EBITDA margin expanded again this year, improving by 70 basis points driven by operating efficiencies at FirstService Residential and several of our other brands. While our consolidated margin will be influenced year to year as we add acquired operations to our results, our operational focus is to enhance margins annually at existing operations within each service line.
Conservative Capital Structure
Our business model drives very strong free cash flow which we use first, to invest aggressively in organic growth initiatives and acquisitions, and secondly, to reward our shareholders through dividends and a judicious share repurchase program; all while maintaining a very conservative capital structure. Our net debt to EBITDA ratio at 2017 year-end was 1.3X, modestly down from a level of 1.5X at the two prior year-ends. Subsequent to year-end, we enhanced our financial flexibility by amending our credit facility with an increased capacity to $250 million and extension for another five years. And lastly, in early February of this year, we increased our dividend by 10% for the third time in less than three years since our June 1, 2015 spin-off into a new public company.
Stock Price Appreciation
During 2017, the FirstService stock price increased by an impressive 47%. This built further upon significant appreciation over the previous two years, resulting in a cumulative 150% increase since becoming an independent public company. The public markets have been robust over the last couple of years but the FirstService story and business model have very clearly been recognized and appreciated since the spin-off.
The highlight I am most proud of during 2017 is the work we did to lay the foundation for our Social Purpose launch at the outset of this year. We undertook a nine-month exercise to find out what was important to our people, businesses and customers in terms of social responsibility and made a commitment to incorporate this feedback into our business model and messaging for 2018. What we found was inspirational and gave us clear direction. You can find out more in the sidebar of this report and also on our website. This is just the start for us - we are committed to consistently build on our efforts to positively impact society.
FirstService has entered 2018 in a great position. Our markets remain buoyant and our operating management teams and platforms have never been stronger. Our long term goal is to grow our revenues at an average rate of at least 10% per year with incremental growth at the EBITDA line. We have accomplished this for many years and we believe we will continue for the foreseeable future driven by the following factors:
- We have leadership positions but modest shares in huge, fragmented markets. There is significant running room for growth both organically and through acquisition. In terms of organic growth, we need to continue to differentiate our service offering and win on a day-to-day basis. This is the principal focus of our operators. We add to organic growth through selected tuck-under acquisitions that expand our geographic reach, broaden our service offering or increase our market share. There is a multitude of small tuck-under prospects in our markets.
- We maintain a conservative, flexible balance sheet to ensure that we have ample capital to invest in aggressively driving towards our business plan targets and to opportunistically pursue acquisitions as they arise.
- Our people are aligned with our vision and aspirations and driven to make a difference for our customers every day. We have a unique culture at FirstService that I am very proud of.
Our strong results in 2017 are a direct result of the efforts of the 33,000 employees that work for FirstService companies and franchises. We want to thank our operating partners and employees for all they do to drive our success. We also thank our shareholders for their continued support.
D. Scott Patterson
Chief Executive Officer