Good afternoon, and welcome to the annual and special meeting of the shareholders of Shawcor Limited. My name is Don Wishart, and it is my privilege to be the Chair of Shawcor and the chair of today's meeting. I would like to welcome all the shareholders and guests present today at the InterContinental Toronto Centre , and shareholders and guests that are joining us by the webcast worldwide. I would also like to extend a special welcome to all of our employees, customers, and suppliers. You are critical to our success, and we appreciate your support. Finally, I would like to introduce those joining me at the head table. To my right, Steve Orr, CEO of Shawcor Limited. Gaston Tano, Senior Vice President of Finance and CFO of Shawcor Limited. To my left, Darrell Ewert , Senior Vice President, Legal, and Secretary of Shawcor Limited.
Before we begin the formal business of the meeting, I would like to briefly deal with one other matter. Health and safety of our employees, shareholders, and other stakeholders is important to Shawcor. Accordingly, in the event of an emergency during the meeting, please follow the instructions of the hotel staff and first responders. If it is necessary for us to evacuate, there are three emergency exits on my left. Once through the doors, turn right, go past the escalators to the valet parking exit, and when outside, turn left and gather at Simcoe Street for further instructions. 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 scrutineers.
Notice of this meeting, together with a form of proxy, the management proxy circular, and the 2017 annual report have been made available to all shareholders. We have additional copies of the circular and the 2017 annual report available at the scrutineers' table. With your approval, we will dispense of the reading of the notice of the meeting. Proof of the mailing and the notice of calling the meeting have been duly filed, and I would ask the secretary to keep copies of the notice and proof of the mailing with the records of the meeting. I understand there is a quorum present. The scrutineer's report is now ready, and I would ask the secretary to read the scrutineer's report.
Thank you, Mr. Chair. We are pleased to report that there are 79 shareholders holding 61,093,157 common shares represented in person or by proxy at this meeting. This represents 87.22% of the 70,044,318 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 9th, 2017 ?
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 of the reading of the auditor's report, which is available to all shareholders in the 2017 annual report. We will now proceed with the election of directors. I declare the meeting open for nominations. Tim Hutzul will now present the nominations.
Mr. Chair, I nominate John Baldwin, Derek Blackwood, James Derrick, Kevin Forbes, Michael Hanley, Steven Orr, Pamela Pierce, Charlene Valiquette, 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 provision of the corporation's bylaws.
Thank you. I now declare the nominations are closed, and Tim Hutzul will propose a motion in this 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 provisions of the corporation's bylaws.
Vikram Kashyap will second the motion.
I second the motion.
All in favor of those 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 our shareholders as I call their names. I declare that John Baldwin, Derek Blackwood, James Derrick, Kevin Forbes, Michael Hanley, Steven Orr, Pamela Pierce, Charlene Valiquette, and Donald Wishart have been duly elected as directors of the corporation. Unfortunately, Michael Hanley had to leave right after our board meeting this afternoon and expresses his regrets of not being able to attend today's annual meeting. Thank you. The next item of business is the appointment of auditors for the corporation, and I believe that Charlene Valiquette of our audit committee has a motion in this regard.
... 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 Hutzul will second the motion.
I second the motion.
You've heard the motion. All in favor, please signify by raising your right hand. Contrary? I declare the motion carried. The next items of business are the confirmation of the amended and restated By-Law No. 2 of the corporation, and the advisory vote on the approach to executive compensation. As the vote on each of these matters will be conducted by ballot, so as to proceed as efficiently as possible, we'll move each of the motions and then conduct the balloting concurrently. On the balloting proxies previously received, on the matters by our transfer agent, AST Trust, will be voted in accordance with the instructions there, 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're 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. Seeing none. Please complete the ballot by placing an X in either For or Against in the box appropriately and for the appropriate resolution. Please sign the ballot and clearly print your name or the applicable name of the shareholder who you represent as a proxy holder and the number of shares represented. We will now proceed with the motion regarding the amended and restated By-Law No. 2 .
Tim Hutzul will propose this motion in this regard.
I move that By-Law No. 2 , as amended and restated, relating generally to the advance notice of nominations for the election to the company's board of directors in the form attached to the management proxy circular of the company, dated March 9, 2018, as Schedule A, is hereby confirmed a bylaw of the company.
Vikram Kashyap will second the motion.
I second the motion.
Is there any discussion? Okay, we will now proceed with the motion on the advisory vote on the company's approach to executive compensation. Tim Hutzul will propose this 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 and special meeting of shareholders.
Vikram 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 their remaining ballots and deliver the report. ...The scrutineer's report on the outcome of the ballots is now available. On the resolutions to confirm the amended and restated By-Law No. 2 of the company, and to accept the company's approach to executive compensation, the scrutineer's report that a majority of shares voted on each of the resolutions has voted in favor. Accordingly, I declare the resolutions confirming the amended and restated By-Law No. 2 , and the resolution confirming the company's approach to executive compensation have both 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 and special meeting is now terminated. I would like to call on Steve Orr, CEO, to make a few comments. But before doing so, I'd like to take this opportunity to personally, and on behalf of Shawcor Board, to thank Paul Robinson, who retired as chair of Shawcor earlier today. Unfortunately, Paul is unable to be here today. Mr. Robinson has been a director of the company since 2001, and its chair since the beginning of 2016. Previously, Mr. Robinson served as chair of the Audit Committee and as a member of the Special Committee, which was constituted in the fall of 2012 in connection with Shawcor's strategic review process.
This process, in which Mr. Robinson played an instrumental role, led to the elimination of the company's dual-class share structure. Paul was the second-generation Robinson on the Shawcor board, as his father, John, a business associate of Les Shaw, served on the board from 1987- 1999.
On behalf of the Shawcor Board of Directors, the company's shareholders, management, and employees, I would like to thank Paul Robinson for his long and dedicated service to the company. I would also like to recognize the dedication and hard work of all Shawcor employees since the downturn in our industry, which commenced in the fourth quarter of 2014, including the outstanding leadership from Steve and the rest of the management team, in which the Shawcor Board has full confidence.
I would also like to thank you, our shareholders, particularly our long-term shareholders, who stayed with us through these last years as the whole industry has been significantly challenged. Your board continues to be optimistic of the future performance of our company and the health of the industry in general. I'll now invite Steve to provide some remarks.
Well, thank you, Mr. Chair, and good afternoon to everyone, and welcome to Shawcor's Annual General Meeting. Before I start, let me echo Chair's remarks by thanking all Shawcor's employees, whose effort and dedication has enabled us to navigate the rough waters of a very difficult cycle. They should take great pride in what they have accomplished. Our employees are indeed the company's greatest asset. To the Shawcor management and board of directors, your support and trust has been very much appreciated, and I look forward to being part of this team as we take on the opportunities and challenges that lay ahead. Today, I will make comments on recent performance to provide insight on the positioning of the company for the future and for the near term. Accordingly, I now draw your attention to the disclaimer regarding forward-looking statements.
Let me first start with a brief introduction to Shawcor. Shawcor has 14 customer-facing products and service brands, each a leader in their respective markets. 12 of these brands, comprising approximately 87% of Shawcor's revenue, are in the Pipeline and Pipe Services segment . The businesses in this segment have a mandate to provide distinct pipeline products and services to our global customers. We've now organized 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 13% of our revenue is our Petrochemical and Industrial segment . In this segment, the application of material technology that was developed for pipelines is used to produce products for industrial markets.
Increasingly, we are seeking to differentiate the products in this segment by providing connectivity solutions that link the application process and equipment with the product and are pushing the operating specifications to meet more demanding environments, such as electric vehicles. Shawcor has been serving the industry for more than 86 years and has been a publicly traded company for 49. 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 products and service quality, and business ethics that are above reproach. Execution is demonstrated by 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.
Alignment with long-term fundamentals is critical to the success of any company. For Shawcor, over the long term, we expect that three fundamentals will drive our business. The first, when we look at the state of the world's existing pipeline infrastructure, what is striking is the increasing age of this infrastructure, with over 60% of North American pipelines in service today and over 45% globally older than 20 years, and now older than the original design life of the pipeline. Multiple opportunities flow from the aging of pipelines, including capital expenditures for replacement, but also increasing operating expenditures on integrity, maintenance, and rehabilitation to extend pipeline life. Second, despite global markets showing signs of balance, the impact of natural depletion of producing reservoirs will have to be addressed through investments in finding and developing new sources and programs to increase recovery rates of existing reservoirs.
Pre-2014, it was estimated that major producing fields of the world had a decline rate of 7%. If you now consider the increased contribution from shale source production that has a greater depletion rate than conventional reservoirs, and the recent reduction in spending on finding and developing new production and enhanced recovery of currently producing reservoirs, there is increased confidence that investment will be required on supply-side infrastructure, even in an unlikely scenario that demand remains flat. Third, there exists a growing gap between where energy demand is increasing, primarily in emerging markets, Asia in particular, and where new sources of supply exist to fill this increasing demand. In addition, the move to greener energy alternatives, together with the need to bridge this gap between source and demand, will result in investments in infrastructure to transport energy.
Underlying the fundamentals of aging infrastructure, reservoir depletion, and sustainability is the reality that public and regulatory scrutiny is increasing. We can confidently predict there will be increased demand for products and services that enhance operators' confidence in the integrity of their assets. Now, similar to last year, I'll make the observation that our industry has had a cyclic characteristic, but this downturn has surprised many by its severity and duration. First visible in late 2014, when the WTI oil price was greater than $100 per barrel, and the rig count in North America and internationally were greater than 2,300 and 1,300, respectively, the downturn took hold.
In 2015, and now with more than three years later, and with a bottom price of WTI in February 2016 of $26 per barrel, the industry is still not fully recovered. To manage the cycle, operators, resource holders, and service industry had to cut costs and prioritize. With much lower cash flows, debt-weighted balance sheets, and uncertainty in supply-side equation due to the self-imposed production caps from major producing states, the industry adjusted its behavior. The largest resulting impact was the emergence of an industry strategy that favored projects with short-term investment profiles to mitigate risk.
This was visible first in the step change in activity in North America shale, related to exploitation in late 2016, and 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 infrastructures, such as tie-ins and step-outs in the offshore. Although far from certain and still influenced by self-imposed production caps and, more recently, geopolitical risk, the current commodity prices are supportive of increased capital spending. As we move to 2018 and beyond, North America is expected to remain strong, with spending in the international markets increasing as confidence in industry fundamentals improves. I'll speak more, I'll speak more on the near-term outlook in later slides, but I'll make the comment here that Shawcor historically is a late-cycle player. Now, turning to 2017.
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 in the initiative 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 activity is different than the conventional pyramid approach, where effort is placed on widening the base level by volume of incident reporting, the goal is the same: elimination of catastrophic events. The concept of using ratios to proactively manage our highest risk, driving, pipe and reel movements, and forklifts, has matured. For 2017, the company's total recordable case frequency per million man-hours worked was 4.5, the same as 2017.
As expected, 2017 financial results were an improvement over 2016. Revenue reached $1.57 billion, an increase of 30% year-over-year. This increase was primarily the result of increased demand for our products and services in North America, the strong execution of the Sur de Texas – Tuxpan pipe coating project, and continued strength of our petrochemical and industrial segment.... Throughout the year, our adjusted EBITDA increased each quarter, totaling $226 million for the full year, up from the $56 million delivered in 2016. Cash flow from operations was $178 million in the year, which contributed to the strengthening of the balance sheet year-over-year.
Our backlog at December 31, 2017, was $385 million, a decrease from the $650 million at the end of 2016. The decrease was driven by the completion of the coating work for the Sur de Texas – Tuxpan project, captured more than one year ago, and the absence of a large project to replace this order. In terms of tactical actions, the execution of work we had in hand and the pursuit and winning of major projects was important. Without question, the completion of the Sur de Texas – Tuxpan coating project that was delivered as promised in terms of HSE, quality, and schedule, was a highlight. The execution of this work demonstrates Shawcor's ability to provide a solution that leverages technology, geographical footprint, and expertise.
Overall, Shawcor continued to win its share of available work in 2017, the largest being the $40 million award of the fifth transmission pipeline in Thailand. Shawcor's investments in composite pipe, proprietary coatings, differentiating mobile field technical equipment, and data enablement provided revenue growth from new technology. In 2017, revenue from new technology exceeded $80 million. One of the most exciting, certainly, is the start of commercial production of our proprietary large-diameter composite pipe platform, FlexFlow. Matching resources to ensure the flawless execution of projects has been a strength in Shawcor. We have demonstrated as we ramped up and down for the Australia work in 2012 and 2013, the Shah Deniz project in 2015, and most recently, the Sur de Texas – Tuxpan project.
In 2017, as the North American drilling and completion activity sharply increased, we showed that we can do the same in our book and turn businesses. Effective deployment of facilities and field resources serving North America enabled the company to exit 2017 at a run rate that was equal to pre-downturn levels in this market. The final tactical highlight is a discipline that we have shown in both capital and cost that is evident in our results. A systematic approach is used to prioritize capital allocation that is driven by activity-based maintenance needs, return on investment thresholds, and critical strategic positioning. On the cost side, the company's SG&A level also showed discipline. In 2017, SG&A returned to a healthy level of 22% of total revenue from the 26.5% seen in 2016.
In 2017, strategic traction was gained in several areas. The first was the positioning for success in capturing the large projects. Currently, the company has visibility on several developments that have the potential to be greater than CAD 100 million in revenue for Shawcor. These large projects all have elements of technology, execution risk, multiple plan scenarios, and complex project management. By pure scale, they also have the potential to be either very positive or very negative for the winning party, should the terms and conditions not be correctly managed or aligned with compensation structure and risk profile. This is why we take preliminary actions, such as hiring, moving, and/or assigning resources to pursue teams with skill sets that cover technical, legal, commercial, and local knowledge, early investments to demonstrate technology and process, and the readying of idle assets.
With the expectation that projects will move forward, the positioning carried out in 2017 does bring confidence that Shawcor will capture our share. Effort to expand the portfolio of the company continued through developments that support new products and services, systems, and geographies. Examples of such would be the positioning of our proprietary flow assurance systems in new geographies, the expanded channel to market for the Pipeline Performance products business, the added offering of lined tubing and sucker rods to Oilfield Asset Management , and the additional capacity for connection systems in emerging markets. It should be noted that efforts made in 2017 laid the groundwork for the recent announcement of our planned expansion of composite pipe manufacturing in the Middle East. Technology continues to be part of Shawcor's DNA.
In 2017, progress was made in the fundamental blocks of data enablement, modeling, and materials. Our model of using sustainable technology partnership and in-house competency has allowed technology programs to continue even at the lowest period of the cycle. Finally, Shawcor's organization structure continued to evolve. Aided by co-location, we continue to leverage Shawcor's back office to create differentiation for the business. In 2018, I expect that we'll be testing this approach as we continue to scale up to match increasing activity with minimum adds and no reduction of service levels to the business. Now, let's briefly discuss our first quarter results we've just released. First quarter revenue of $351 million was below the $360 million reported in the first quarter of 2017.
Adjusted EBITDA of $35 million in the first quarter decreased 19% compared to the prior period, due to the absence of large project activity to replace the Sur de Texas – Tuxpan and Shah Deniz work completed in 2017. Despite this, the company's results in the first quarter of 2018 demonstrates the strength of the emerging diversified base business that is benefiting from a robust North American activity. The operating results translated into net income in the first quarter of $5 million, or $0.07 per share, compared with net income in the first quarter of the last year at $15 million, or $0.22 per share.
At the end of March 2018, our backlog increased to $459 million from $385 million reported in December 2017, reflecting new orders on our base business and the inclusion of projects from 2017 customer FIDs. The backlog represents revenue on booked orders that we estimate will be realized over the next 12 months. I'm also very pleased to report that our board today approved dividend at the current level of $0.15 per share per quarter. Previously, I have discussed and made visible three distinct elements that will drive Shawcor's business over the near term. The first element is the level of capital spending on infrastructure projects globally, and in particular, where operators begin to commit capital to both large and small projects to sustain production.
This order flow is an important part of pipe coating, inspection, and engineering services businesses. Although slow to return and not near 2014 levels, we are seeing strengthening in the demand of our products and services across all of the pipeline and pipe services segment, which in turn, is supporting better utilization of resources. This trend is expected to continue. In contrast, our connection system business, which is more leveraged to industrial capital spending, has delivered and is forecasted to continue year-on-year profitable growth. The second element is the level of upstream activity in North America, which affects all of our pipeline and pipe services segment businesses. Here, we've seen increased rig counts since the depth of this downturn in the second quarter of 2016, and recent evidence that it will continue.
This bodes well for Shawcor's revenue growth, especially considering the additional products and services we have added to the portfolio since 2013, which have expanded our addressable market. The third element driving our outlook, and the one that is, without question, positive, is large project activity. Although many new large field projects are just now gaining the confidence required to move forward, those that are driven by domestic energy demand, reservoir replacement, or energy share protection are being sanctioned. In summary, all three elements have now swung to the positive and are expected to continue to remain strong or strengthen. By all indications, the bottom of the cycle has been reached. Within the company, there is excitement as 2018 has the potential to be a pivotal year. This is based on two factors.
The first is the traction of the base business that includes many new products and services that we did not have pre-2014. This base business is supported by increased spending across the industry and will provide a minimum base level of revenue and profitability. The second factor is the likelihood that in 2018, the company will reach an inflection point in backlog as projects are sanctioned and we win our share. In summary, and for clarity, 2018 will be a year where there will be no contribution from a large CAD 100 million-plus project, but the company is expected to deliver solid profitability similar to the annualized run rate of Q4 2016. Combined, an established base business and growth in order backlog would be supportive of superior performance beyond 2018.
There are four main reasons to invest in Shawcor. Shawcor is executing a strategy that is tied to strong fundamentals: aging infrastructure, reservoir depletion, and energy sustainability. The second, Shawcor has a solid foundation that is based on integrity, execution, and technology. Our track record is recognized by operators across the globe. Third, Shawcor's position has never been better. We have a robust, diversified portfolio, global footprint, strong balance sheet, and additionally, all three of the near-term elements for our businesses have swung to the positive. And finally, number four, Shawcor has demonstrated sustainability and management strength throughout the cycle. We have maintained, strengthened, and prepared the core of the company for our next stage of growth. With that final point, I'll now turn the podium back to our chair. Don?
Thank you, Steve. We will be available after the meeting to answer any questions, but if there are any shareholders who would like to ask a question from the floor, I invite them now to come forward to one of the microphones. All right, seeing none, thank you very much. I'd like to thank everybody for their attendance here today at the InterContinental Toronto Centre and for those of you on the web. Thank you very much.