Good afternoon, and welcome to the annual general meeting of the shareholders of Shawcor Ltd. My name is Don Wishart, and it is my privilege to chair Shawcor Ltd. and chair the meeting today. I would like to welcome all of the shareholders and guests present here today at the InterContinental Toronto Centre, and the shareholders who are joining us via the World Wide Web . I would also like to extend a special welcome to all of our employees, our customers, and our suppliers. You are critical to our success, and we appreciate your support. Finally, I'd like to introduce those joining me at the head table. To my right, Steve Orr, CEO of Shawcor Ltd., and Gaston Tano, Senior Vice President Finance and CFO of Shawcor Ltd. To my left, Darrell Ewert, Corporate Secretary of Shawcor Ltd.
Before we begin the formal meeting, I would like to please ask you to turn off your cell phones or silence them if you would. I would also like to briefly deal with one other matter: the health and safety of our employees and shareholders and other stakeholders is important to Shawcor. Accordingly, in the event of an emergency, please follow the instructions of the hotel staff and first responders. If it is necessary for us to evacuate this room, there are three emergency exits on the left side of the room. Once through the doors, turn to your left at the end of the hall, turn right again, out to the main lobby, and from there go out to the Front Street and meet on the evacuation side, which would be on the west side of the exit. There are evacuation instructions posted beside each of the exit doors.
With your approval, I shall ask Darrell Ewert, Corporate Secretary, to act as Secretary of the Meeting, and the representatives of AST Trust Company to act as the scrutineers. A notice of this meeting, together with a form of proxy, the Management Proxy Circular, and the 2018 Annual Report, have been made available to all shareholders. We have additional copies of the circular and the 2018 Annual Report available at the scrutineers' table. With your approval, we will dispense with the reading of the notice of the meeting. Proof of the meeting, of the mailing of the notice of calling this meeting, has been duly filed, and I would ask that the Secretary keep a copy of the notice and the proof of mailing with the records of this meeting. I understand that there is a quorum present, and the scrutineers' report is now ready.
I would ask the Secretary to read the scrutineers' report.
Thank you, Mr. Chair. We are pleased to report that there are 69 shareholders holding 62,300,497 common shares represented in person or by proxy at this meeting. This represents 88.83% of the 70,135,769 issued and outstanding common shares.
Thank you, Darrell. I now declare that this meeting is regularly called and properly constituted for the transaction of business. Would the Secretary please table the minutes of the meeting of the shareholders held on May 8, 2018?
Here are the minutes, Mr. Chair.
Thank you, Darrell. The minutes are available for review by any shareholder. The next item of business is the presentation of the Annual Report, the Financial Statements, and the Auditor's Report. With your approval, we shall dispense with the reading of the Auditor's Report, which is available to all shareholders in the 2018 Annual Report. We will now proceed with the election of directors. I declare the meeting open for nominations. Tim Hitzel will now present the nominations.
Mr. Chair, I nominate John Baldwin, Derek Blackwood, James Derrick, Kevin Forbes, Michael Hanley, Robert Mionis, Steve Orr, Pamela Pierce, Charlene Ripley, and Donald Wishart as directors of the Corporation to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed, subject to the provisions of the Corporation's bylaws. Thank you.
Thank you. I now declare the nominations closed, and Tim Hitzel will propose a motion in that regard.
I move that the persons nominated as directors be elected as directors of the Corporation to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed, subject to the provision of the Corporation's bylaws.
Vinay Kashyap will second the motion.
I second the motion.
All in favor of the election of those nominated, please signify by raising your right hand. Contrary, if any? I declare the motion carried. I shall ask the elected directors to stand and remain standing as a board to be recognized by your shareholders as I call your names. I declare that John Baldwin, Derek Blackwood, James Derrick, Kevin Forbes, Michael Hanley, Robert Mionis, Stephen Orr, Pamela Pierce, Charlene Ripley, and Donald Wishart have been duly elected as directors of the Corporation. Thank you. The next item of business is the appointment of the auditor for the Corporation, and I believe that Michael Hanley of our audit committee has a motion in this regard.
Mr. Chairman, I move that Ernst & Young LLP be appointed auditor of the Corporation until the next Annual Meeting and that the Board of Directors be authorized to fix the remuneration of the auditor.
Tim Hitzel will second the motion.
Mr. Chair, I second that motion.
You've heard the motion. All in favor, please signify by raising your right hand. Contrary, if any? I declare the motion carried. The next item of business is the advisory vote on the company's approach to executive compensation. The vote on this matter will be conducted by ballot. On the balloting proxies previously received on this matter by your transfer agent, AST Trust Company, will be noted in accordance with the instructions provided thereon. If you've already returned your proxy, you need not complete a ballot unless you wish to change your previous voting instructions. Registered holders of shares or proxy holders who have not submitted a proxy or who wish to change their previous voting instructions may complete a ballot which was provided to you by the scrutineers when you entered the meeting.
If you are a registered shareholder or a proxy holder and wish to submit a ballot but did not receive one, please raise your hand and the scrutineers will provide you with a ballot. Okay, please complete the ballot by placing an X either in the for or the against box of the resolution. Please sign the ballot and clearly print your name or, if applicable, the name of the shareholder who you represent as a proxy holder and the number of shares represented. Tim Hitzel will now propose the motion.
I move, on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, that the shareholders accept the approach to executive compensation disclosed in the company's Management Proxy Circular delivered in advance of the 2018 Annual Meeting of Shareholders.
Vinay Kashyap will second the motion.
I second the motion.
Is there any discussion? As there is no discussion, please complete your ballot, and when you have done so, raise your hand and the scrutineers will collect them. We will now wait briefly for the scrutineers to collect any remaining ballots and deliver their report. I believe the scrutineers' report on the outcome of the ballot is now available. On the resolution to accept the company's approach to executive compensation, the scrutineers report that the majority of shares have voted in favor of this resolution. Accordingly, I declare that the resolution confirming the company's approach to executive compensation has been approved. This concludes the formal business of the meeting, and while we have a number of post-meeting remarks, I declare that this Annual Meeting is now terminated.
I would like to call on Steve Orr, CEO of Shawcor, to make a few remarks, but before doing so, I would like to take this opportunity to welcome Robert Mionis to Shawcor Board. Mr. Mionis joined Shawcor Board in December 2018, and this is his first Shawcor Annual Meeting. Rob is President and CEO and a Director of Celestica, a Toronto-based company engaged in global electronics manufacturing and other related businesses. He has over 30 years of senior leadership experience with manufacturing, aerospace, and semiconductor markets. Thank you, Rob. I would also like to recognize the dedication and hard work of all of the Shawcor employees since the downturn in our industry, which commenced in the fourth quarter of 2014, including the outstanding leadership of Steve and the rest of his management team, in which the Shawcor Board has full confidence.
I would like to add a special thank you to our shareholders, particularly our long-term shareholders who have stayed with us through the last few years as the whole industry has been significantly challenged. Your board continues to be optimistic of the future of our performance in the company and the health of the industry in general. Steve?
Well, thank you, Mr. Chair, and good afternoon to everyone, and welcome to Shawcor's Annual General Meeting. Before I start, let me echo the Chairman's remarks by thanking all Shawcor employees whose efforts and dedication have enabled us to continue to navigate the very rough waters of a very difficult and persistent cycle. They should take great pride in what they have accomplished. Our employees are, indeed, the company's greatest asset. To the Shawcor Management Team, many of them in the audience, and the Board of Directors, your support, and the Board of Directors, your support and trust, has been very much appreciated. I do look forward to being part of this team as we take on the opportunities and challenges that lay ahead. So today, I'll comment on the recent performance and provide insight on the positioning of the company for the near and longer term.
Accordingly, I draw your attention to our disclaimer regarding forward-looking statements. So let me start with our long-term fundamentals. Identifying and aligning with the correct long-term fundamentals is critical to the success of any company. For Shawcor, over the long term, we expect that three fundamentals will drive and be supportive of our business. The first, investments will be required to replace, maintain, and rehabilitate infrastructure that is at or beyond its useful design life. Additionally, newer technologies that enhance performance will be in demand in this replacement cycle. The age profile of infrastructure in oil and gas, in water pipelines, in transit systems, and electrical networks results in ever-increasing opportunities for the company that is forecasted and focused on bringing to market products and services that extend the useful life and in the replacement cycle of underperforming at-risk assets.
Second, the impact of natural depletion of producing reservoirs will have to be addressed through investments in finding new sources and programs to increase recovery rates of existing reservoirs. Recent estimates see expected decline rates to increase substantially over historical levels due to the increased contribution from shale source production that has greater depletion rates than conventional reservoirs and the impact of the large reduction in spending on finding and developing new production sources. Depletion is one of the main elements behind why all the current producing regions of the world, apart from OPEC and U.S. shales, that are forecasted to see decline volumes produced post-2020. There is increased confidence that investments will have to be made on the supply side. Ultimately, this will translate into demand for products and services that bring additional barrels of oil and cubic feet of gas on land and offshore to market.
Third, supported by stable demand and the reality that for the foreseeable future, oil and gas will be required in vast volumes, nations must find solutions to their energy requirements. An additional factor is the push to do so using greener or more environmentally friendly sources of energy. The quest for energy sustainability will result in investments in infrastructure to bridge supply and demand and to move greener alternatives, especially gas. Products and services that are involved in transport and storage of energy will see supportive demand. Underlying the fundamentals of aging infrastructure, reservoir depletion, and sustainability is the reality that public and regulatory scrutiny is increasing. We can confidently predict that there will be increased demand for products and services that enhance operators' confidence in the integrity of their assets. Including ZCL Composites, today, Shawcor has 15 customer-facing product and service brands, each a leader in their respective markets.
In 2018, there were 14 customer-facing brands, 12, and comprising approximately 86% of Shawcor's revenue in the pipeline and pipe services segment. The businesses in this segment have the mandate to provide distinct pipeline products and services to our global customers. We are organized in these businesses to better integrate solutions that offer value to our pipeline customers in pipeline performance, composite production systems, integrity management, and oilfield asset management . Representing about 14% of our revenue is the petrochemical industrial segment. In this segment, the application of materials that was developed for pipelines is used to produce products for the downstream and industrial markets. Increasingly, we are seeking to differentiate the products in this segment to provide connectivity solutions that link the application process with the equipment, with the product, and push the operating specifications to meet more demanding environments and specifications, such as those found in electric vehicles.
With the recent acquisition of ZCL Composites, we anticipate that we will amend our reporting segments from two to three: pipeline and pipe services, petrochemical and industrial, and composite systems. Shawcor has been serving the industry for more than 87 years, and 2019 marks the 50th anniversary of our becoming a publicly traded company. Embraced at the core of the company are three elements: integrity, execution, and technology. Integrity is reflected in our commitment to ensure an incident and injury-free workplace, industry-leading product and service quality, and business ethics that are above reproach. Execution is demonstrated in our ability to deliver to our customers as promised. Customers trust Shawcor to execute their most demanding projects in any oil and gas basin across the globe. Technology has translated into strong market leadership through our commitment to continuously develop and introduce innovative solutions.
In 2013, Shawcor had eight customer-facing product and service brands and was benefiting from and very heavily weighted to late-cycle business of pipe coating. Today's expanded portfolio is much better positioned to bring full-cycle sustainability, while maintaining the ability to capture the peaks of industry spending that have been so important to the company's historical performance. Shawcor's performance is tied to the spending of exploration and production companies. E&P companies look for supportive commodity prices before they sanction capital expenditures to develop new sources of existing energy or expand existing fields. Our industry has always been cyclic, and those that have been involved often base their experience not in years, but in the number of down cycles they have witnessed. This down cycle, however, has been especially brutal as its severity, uncertainty, and duration continue to surprise. First visible in 2014 when WTI and Brent oil prices exceeded $100 U.S.
dollars per barrel, and rig counts in North America and internationally were greater than 2,300 and 1,300 respectively, and E&P spending was pushing well above $350 billion, the industry started the down cycle. From bottom seen, three years later in 2016, with WTI reaching $26 per barrel and E&P spending down below $200 billion, the industry started what has been a slow recovery, first in North America and now recently internationally. To manage the cycle, operators and service industry had to cut costs and prioritize. With much lower cash flows, debt-weighted balance sheets, and uncertainty in the supply side of the equation due to self-imposed production caps from major producing states, the industry adjusted its behavior. The largest resultant impact was the embracement of a strategy that favored projects with short investment return profiles to mitigate risk.
This was first visible in the step change activity in North American shale, specifically in the United States land, and in late 2016 with the off-the-bottom increase in the number of final investment decisions in 2017, and the heavy weighting of those FIDs to the build-out of existing infrastructure such as tie-ins and step-outs from the offshore. In 2018, the recovery was supported by continued momentum from United States shale developments and a continued increase year-on-year in the number of FIDs. An important footnote for 2018 was the cycle's first return of greenfield developments. Greenfield developments are large and have longer return profiles and therefore require longer-term operator confidence.
For 2019, North America has uncertainty, but overall, it is expected to be stable and similar to 2018 with continued activity related to shale exploitation and the Gulf of Mexico in the United States, and with Canada remaining very depressed until an off-take solution is in place. In international markets, we expect 2019 will see an increase in spending over 2018, but more importantly, a continued increase in FIDs both in terms of numbers, with a forecasted increase of more than 30 year-on-year, and magnitude as more greenfields are sanctioned. I'll speak in more detail on a later slide, but the industry is very adaptive. New technology, innovative contracting models often gain traction when the industry is under the most pressure. I believe these elements, along with strengthening commodity prices, are aiding in building the confidence required to support the recovery we are seeing in international and offshore markets.
Now, turning to 2018 results, outstanding HSE performance will only be truly achieved when we are 100% injury and incident-free throughout the company. We're not there yet. However, momentum and initiatives to prevent catastrophic injuries and our efforts to ensure commitment and leadership are making our employees and those that we work with less likely to be injured when they work for or adjacent to Shawcor. Although our approach of focusing on high-risk activities, pipe and rail movements, driving, and working around rolling stock is different than the conventional approach where effort is placed on widening the base level of volume incident reporting, the goal is the same: elimination of catastrophic events. Using ratios to proactively manage our highest risk is maturing, and the impact is seen in the reduction of high-potential incidents that have been reduced by over 62% year-on-year.
For 2018, the company's total recordable case frequency per million man-hours worked was 6.2, up from the 4.5 seen in 2016 and 2017, and 65% better than the industry average. The financial results for 2018 saw revenue at $1.41 billion, a 10% decrease year-on-year. This decrease was a result of the absence of any material contribution of a large $100 million+ pipe coating project. Adjusted EBITDA was $135 million, down from the $226 million in the prior year. Cash flow from operations was $31 million in the year, which contributed to our strong balance sheet and cash and short-term investment at year-end of $219 million, and with total debt of $268 million. Our backlog at December 31, 2018, was $459 million, an increase from $385 million at the end of 2017. The increase was driven primarily by pipe coating-related activity in offshore and international markets.
While we are not satisfied with these results, I believe they do demonstrate our progress in building a diversified portfolio, a portfolio that makes it possible to generate sustainable returns in a year where our core pipe coating business is underperforming. The overarching highlight of 2018 was that it was a pivotal year, pivotal as traction from efforts have been made since 2013, where the risk of being heavily weighted to the late cycle was identified, produced profitable results, while enabling the company to invest in positioning for increased pipe coating in international and offshore markets. Now, let's briefly discuss our first quarter results that we've just released. First quarter revenue of CAD 350 million was in line with CAD 351 million reported in the first quarter of 2018.
Adjusted EBITDA of $28 million in the first quarter decreased by 19% compared to the prior year due to costs related to readiness of pipe coating facility needed for future work and international pipe coating activity remaining low. The operating results translated into adjusted net income in the first quarter of $3.2 million, or $0.05 per share compared to $4 million in the first quarter of last year. At the end of March 2019, our backlog was $454 million, basically flat with $459 million reported in December 2018. The backlog represents revenue on booked orders that we estimate will be realized in the next 12 months. Not included in the end-of-the-quarter backlog is the recently announced $30 million award of the BP Tortue project or projects that are under agreement that are conditional on project sanctioning that today are estimated at over $150 million.
I'm pleased to report that our board today approved the dividend at the current level of CAD 0.15 per share per quarter. In 2019, we expect we will continue to benefit from strengthening in U.S. market as drilling and completion remains robust and as spending in pipeline infrastructure occurs. Canada, on the other hand, is expected to continue to be very disappointing and muted and lacking a solution to move additional volumes to buyers. Shawcor is expecting to see activity from spending associated with the past two years' FIDs. Our petrochemical and industrial businesses will see similar support as was seen in 2018. The net result of these factors is that 2019 is currently forecasted to be a year that will see a marginal improvement over 2018 before the contribution of recently acquired ZCL Composites.
The second half will also be stronger than the first due to the increasing strength of pipe coating as the year progresses. To provide some additional insights into the current and future market potential for pipe coating, I would first note that we communicate future activity in three categories: backlog, bid, and budgetary. The definition and tracking of these categories is straightforward. Backlog is work that we have secured that is under contract and has a production schedule to be executed in the upcoming 12 months. Bid is work on which we have provided firm pricing with terms and conditions against a defined scope. In most cases, but not all cases, this is in response to a formal tender process, and should we be awarded, we are prepared to go to work.
Budgetary estimates that we have discussed with customers where we have visibility on a scope of work with a tentative timetable and are considering possible execution options. Backlog, bid, and budgetary continue to be a very good indicator of future pipe coating activity as the majority of all three are made up of pipe coating work. At the end of Q1 2019, our backlog was $454 million, bid was $1.1 billion, and budgetary was over $1.8 billion. When looking at bid and budgetary together and plotting the projects geographically, what becomes apparent is the funnel of opportunities is global, and without question, the offshore markets of the world are present. Further evaluation highlights that there are three broad groupings of projects. The first is offshore developments such as projects in the Gulf of Mexico, Brazil, and North Sea. The second is transmission lines.
These developments are either land infrastructure constructions such as those in North America or are marine traverses such as those that are associated with gas in Europe. The third is developments that are being considered to address the pending gap in supply and demand for liquefied natural gas, which is projects to supply gas from Australia, Western Canada, and Papua New Guinea, for example. There are two uncertainties that determine whether Shawcor will be awarded work associated with any individual project. The first is, will the project be sanctioned, and the second is, will Shawcor be the coater of choice? Individual project sanctioning is a function of economics of the development, geopolitics of the region, and the ability of the operator to fund the project. In today's environment, one should increasingly expect projects will be sanctioned.
This is supported by improved economics as lower break-even thresholds are being achieved due to standardization, reservoir replacement has been underfunded, national resource holders are opening up acreage, and operators' cash balances are now very healthy. Being the coater of choice requires Shawcor to establish a value proposition that balances price with technology and execution certainty. Shawcor has leading technology, a track record of execution, and the ability to offer multiple options from our fixed and mobile plans to address the many scenarios and combination of pipe sources and construction contractors that are being considered. It should be expected that with the strengths Shawcor has, we will win our share of projects that move forward. On recent analyst calls, I have described the Liza development and the contracting model that is becoming more and more frequent.
In this model, the operator selects engineering and procurement and construction partner in advance of the project being sanctioned. The scope of the EPC includes pipe coating, and therefore, work is carried out in advance with the pipe coater to establish an execution strategy, which results in a contract that is conditional on final sanctioning of the project. For Shawcor, this modification and contracting model provides earlier assessment of the likelihood of award. To this point, at the end of Q1, there is more than $150 million that is under an agreement for award but is conditional on sanctioning captured in our bid, but not our backlog. As I earlier stated, since 2013, we've been moving ahead with a strategy to diversify the services and products that we offer our customers.
This strategy was based on leveraging the strengths of Shawcor's global footprint, material science expertise, and a culture of continuous improvement. This strategy has resulted in building a supportive-based business that was important to our financial results in 2018. In 2019, with the acquisition of ZCL Composites, we plan on further strengthening Shawcor by expanding the products and services that we offer our customers to include composite tanks and increase the addressable market. There's been lots of energy and activity before and since the April 2nd closing to ensure that the combination of ZCL and Shawcor resulted in positives for our customers, our employees, and you, our shareholders. This work has resulted in better resolution on what we feel can be achieved in both cost and revenue synergies.
Cost synergies are now estimated at $8 million on an annualized run rate by the end of the first year, double the $4 million we previously communicated. Furthermore, 54% of the $8 million or $4.4 million has been secured since the April close. Cost synergies come from the removal of public company expenses and the organizational overlap of ZCL with our composite business systems, as well as the greater Shawcor, and operational synergies such as those that come from greater buying power and implementing process improvements. We estimate that the combination of ZCL with Shawcor has increased the addressable market by greater than $500 million from the Shawcor and ZCL standalone markets. There are three main strategies being deployed to gain share in this newly available market. The first is simply using established channels to markets to cross-sell established products.
An example of this is the ZCL order we just received for some tanks from a U.S. pipeline that happened through our Lake Superior Consulting business. The second strategy is linking of discrete components of piping, storage, engineering, and digital enablement into a differentiating solution. Already, we are seeing that in all three of the targeted markets, fuel, water, and wastewater, and oil and gas, there are real opportunities. The third strategy is the leveraging of Shawcor's global footprint and worldwide partner network to expand ZCL's Parabeam license model to more regions. Today, we are in early stages, but already we have identified and have several engagements in new geographies. With a three-year time horizon, we are now targeting CAD 35 million or 7% of the additional addressable market of annualized revenue per year.
The last four years have been difficult for Shawcor and those that participate in the energy services sector. Pressure from a severe and long-duration cycle has resulted in the need to focus on near-term tactical and underperformance problems. For Shawcor, we have attempted to balance near-term actions with maintaining our core competencies and moving ahead with a strategy of building a company that is positioned for the long-term sustainable growth. Today, investors should consider three reasons to own Shawcor. The first is Shawcor's expanded portfolio is diversified and has the potential to be supportive throughout the cycle. The second reason is the expectation that our core business of Pipe Coating will see a substantial increase in activity in the near future and that this activity will continue for several years.
Third and final reason, from our alignment with fundamentals and our organization structure through to our enabling capital structure, Shawcor is well-positioned for the long term. With that final comment, I will turn the podium over to our chair.
Thank you, Steve. We will be available after the meeting to answer your questions, but if there are any shareholders who would like to ask a question from the floor, I invite them to come to one of the microphones now. Seeing no one stepping forward, I thank you very much for your attendance here today at the InterContinental Toronto Centre and on the web. This concludes our meeting. Thank you.