To Our Fellow Shareholders:
2015 was a milestone year for FirstService Corporation marked by the separation on June 1 of "old" FirstService into two independent public companies: Colliers International and "new" FirstService. I am proud and honoured to have been named President and Chief Executive Officer of new FirstService which comprises our FirstService Residential and FirstService Brands operating divisions. I have been integrally involved in the growth and strategy of these businesses for over 20 years and am a passionate believer in our proven business model, operating partners and future opportunities.
This annual report reflects the financial performance of newly independent FirstService for the full 2015 year and establishes a foundation to measure our progress as we embark on our exciting new path forward.
Our 2015 highlights include:
Strong Organic Growth
Revenue grew across all our business lines - 12% in total, driven largely by robust organic growth of 8%.
Expanded EBITDA Margins
EBITDA grew by 37% and margins expanded by 160 basis points to 8.2%, primarily through cost reduction and operating efficiencies at FirstService Residential.
Significant Cash Flow Generation
Cash flow from operations almost doubled in 2015 allowing us to aggressively invest in our future while also paying down total debt. Our leverage ratio declined from 2.3x net debt to EBITDA to 1.5x at year-end.
Continued Investments to Drive Operational Improvements
During the year, we continued to deploy capital across our businesses to propel further operational efficiencies. At California Closets, we established a new state-of-the-art production facility in Phoenix, Arizona which opened in June. This location will serve as a centralized hub for several of our company-owned operations, resulting in margin expansion through scale related production improvements and cost reductions. At FirstService Residential, we continued our multi-year investment in the operating platform to improve our service offering, support our national brand and drive further efficiencies, while continuing to differentiate ourselves from our competitors.
Strategically Important Tuck-Under Acquisitions
2015 was an important year in terms of the strategic significance of several of our acquisitions, including:
- Southwest Management Services - the residential property management leader in Austin, Texas, one of the fastest growing metropolitan areas in the U.S.
- American Leisure - the NYC-based leader in the management of luxury high-rise amenity facilities, expanding our capability in this important market; and
- Paul Davis Pennsylvania - one of our largest and most successful Paul Davis Restoration franchisees marking the first acquisition towards achieving a national company-owned platform.
Several important changes were made in the leadership and governance of our new stand-alone public company. Jay Hennick, our founder and largest shareholder became our Chairman. I thank him on behalf of all our shareholders for his vision and tireless efforts in building our company. On a personal level - I want to thank him for the opportunity of working closely with him over the years and the privilege of continuing to build upon the legacy. Jeremy Rakusin assumed the role of Chief Financial Officer. He previously served for three years as VP, Acquisitions and Strategy following 15 years of blue chip investment banking experience. And Erin Wallace joined the Board of Directors in October adding extensive experience from her 30-year tenure as a senior operating executive at The Walt Disney Company.
As we reflect on 2015 and look forward to the future, it is worthwhile reviewing the unique characteristics of our proven business model.
Across our businesses, we enjoy leadership positions in very large, fragmented, essential property service markets. Yet our market shares remain modest - generally in the low single digits. This dynamic is conducive to consistent long-term organic growth and significant acquisition opportunity. We enhance organic growth by leveraging our leadership position and capital to create value for our clients and offer tangible differentiators that cannot be easily replicated by our smaller, generally undercapitalized competitors.
Our greatest differentiator - and our greatest asset - is our people. We recognized many years ago that our long-term success would depend on our quality of service which in turn is dependent on the professionalism and engagement of our people. We continually invest in improving our ability to recruit and develop the best talent in our markets. Today our employee base of 16,000 is more committed than ever to delivering exceptional customer service. We know this because we measure it continuously. Together we understand that our growth is driven by customer loyalty and "word of mouth" referral, which is our focus each and every day.
Our business is first and foremost an organic growth story. Two-thirds of our 11% average annual growth rate over the last five years is organic with tuck-under acquisitions accounting for the remaining one-third. We believe we can continue to grow at a similar rate for the foreseeable future. Our consistent growth and recurring revenue combined with the low capital intensity of our business model results in very strong free cash flow - cash flow that will enable us to aggressively invest in growth while de-levering our balance sheet over time. Our debt leverage ratios will likely fluctuate with the pace of acquisition activity over the next several years but, on average, we expect them to decline over time.
We often get asked what we are going to do with our cash. We consider this a high class "problem" to have. Our conservative balance sheet provides financial strength and stability. We have ample capital available to accelerate investment at FirstService Residential along with newer initiatives such as the expansion of our company-owned operations at California Closets and Paul Davis Restoration. We are also well-positioned to be opportunistic when it comes to a larger-sized acquisition that meets our strategic objectives and valuation criteria. As stewards of our shareholders' investment dollars, we are always mindful of deploying capital efficiently towards maximizing investor returns.
We enter 2016 with great excitement about the opportunities in front of us and a determined focus to continue to "create value one step at a time" which has been the FirstService motto for 20 years. The motto guides our daily decision-making and reflects our operating philosophy and long-term vision - and it has served our shareholders well. A $100,000 investment in 1995 was worth about $4.5 million at the end of 2015 - a 20% compound annual return over the 20-year period. We are proud of this track record and determined to build on it for many years to come.
We thank our partners and employees for their efforts in helping us achieve such strong results in 2015, our customers for their trust and confidence in our service offerings and our shareholders for their continued belief in the future of our Company. With this continued support, we look forward to another successful year.
D. Scott Patterson
President & Chief Executive Officer