New services business complements Engineering
Services, with profitability expected in 2021
MONTREAL, July 31, 2020 /CNW Telbec/ - SNC-Lavalin
Group Inc. (TSX: SNC) announces it is transforming its Resources
Business to focus on a Services offering in a limited number of
existing primary markets, that complement the Company's broader
engineering services capabilities and strategy, which should return
the Resources Business to profitability in 2021.
The Company announced in July 2019
that it would be exploring all options with regard to its Resources
Business, as part of its decision to exit LSTK contracting and
focus on its high potential Engineering Services. It has since
completed a strategic review of the Resources Business, with the
decision to transform the Business to focus solely on the
profitable parts of the service business and sell or close
non-primary parts of the business, including the exit of multiple
geographies.
The new Resources Services business will be a targeted service
offering that management expects to be profitable in full year
2021. The legacy Resources Projects business and associated
LSTK projects will be largely wound down and the projects complete
by the end of 2020.
Highlights
- Client offering to be focused on engineering consulting,
project management services, and advising on construction
management in the energy, mining and metallurgy sectors.
- Focused on the Americas and the Middle East, the primary energy and mining
regions where the business has existing profitable relationships
with long-standing customers, and clear visibility on
opportunities.
- Geographic footprint significantly reduced from 30 to 9
countries, exiting all non-primary markets through either sale or
closure.
- Agreements reached to dispose of the South African Resources
business, with 1,800 employees, to local management, and divestment
of the European Fertilizer business.
- Headcount expected to be reduced from approximately 15,000 to
8,000 by the end of 2020 and to 6,000 by the end of 2021.
- Revenue from Resources Services Business expected to contribute
approximately 10% of overall SNC-Lavalin total revenue in
20211.
- Expected to be profitable for full year 2021, reaching break
even on a Segment adjusted EBIT(1) basis in first half
of 2021.
"Our decision to transform and redefine our resources
services is the conclusion of a thorough and extensive strategic
review of our whole Resources business. With the Resources LSTK
Projects largely complete by the end of the year, this is the right
time to transform and redefine our services business, which we
believe can be valuable in its own right and complement our other
SNCL Engineering Services businesses," said Ian L. Edwards, President and CEO of
SNC-Lavalin. "We are confident about moving forward with the
Resources Services business and its potential to add real value to
our Professional Services and Project Management capabilities
across service lines and primary markets."
Path to Profitability
Management believes that, upon successful execution of a
newly transformed service offering, the Resources Services business
should have the capability, scale and market potential to become a
profitable and attractive component of SNCL Engineering Services -
with profit margins over time that would be expected to be in line
with the other engineering services businesses.
"After the challenges we have faced over the last period, we
are energized about the opportunity ahead to redefine and build our
new services business, which will look different as we will exit
non-primary geographies, and focus on the primary markets of the
Americas and the Middle East. We
have already been taking clear steps to focus our oil and gas, and
mining service offerings, reducing overheads and reviewing all
parts of our business to identify and build the areas where we have
expertise that our clients value, and can deliver sustainable
services profitably. I would like to thank both the team for all
their hard work through the review and the actions already taken,
and our clients for the support shown as we transform our business
and enhance our services," said Craig
Muir, President, Resources, SNC-Lavalin.
The business is expected to break even at a Segment adjusted
EBIT(1) level in the first half of 2021, and be
profitable for the full year 2021. The Resources Services business
has a clear path forward to achieving profitability due to a
combination of factors, including a significant reduction in
overhead costs, which is expected to decrease by 50% by the end of
2020 compared to 2019, and be further reduced by an additional 25%
by the end of 2021.
Resizing the business will result in expected one-time
restructuring costs of approximately $50
million to $60 million, with
$30 million of this restructuring
charge being recorded in Q2 2020. As a result of the restructuring,
the Resources Services Business is expected to deliver a quarterly
negative Segment adjusted EBIT(1) in the range of
$15 million to $25 million for the remainder of 2020.
Basis for Financial Outlook of Resources Services Business and
Segment
The financial outlook for the Resources business and segment
provided herein is based on the assumptions and methodology
described above as well as in the Company's second quarter 2020
Management's Discussion and Analysis under the heading, "How We
Budget and Forecast Our Results" and the "Forward-Looking
Statements" section below and is subject to the risks and
uncertainties summarized therein and in the Company's 2019 Annual
and second quarter 2020 Management's Discussion and Analysis, which
are more fully described in the Company's public disclosure
documents.
|
|
|
1
|
Assumes SNC-Lavalin's
current level of revenues and operations and assumes and gives
effect to transformation plan for Resources as announced in this
press release.
|
Non-IFRS Financial Measures and Additional IFRS
Measures
The Company reports its financial results in accordance with
IFRS. However, the following non–IFRS measures Segment Adjusted
EBIT is used by the Company in this press release. Additional
details for this non-IFRS measure can be found below and in section
9 of SNC-Lavalin's Management's Discussion and Analysis
("MD&A") for the second quarter of 2020, filed with the
securities regulatory authorities in Canada, available on SEDAR at
www.sedar.com and on the Company's website at
www.snclavalin.com under the "Investors" section. Non-IFRS
financial measures do not have any standardized meaning under IFRS
and therefore may not be comparable to similar measures presented
by other issuers. Management believes that, in addition to
conventional measures prepared in accordance with IFRS, these
non-IFRS measures provide additional insight into the Company's
operating performance and financial position and certain investors
may use this information to evaluate the Company's performance from
period to period. However, these non-IFRS financial measures have
limitations and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
IFRS.
(1) Segment Adjusted EBIT consists of
revenues allocated to the applicable segment less i) direct cost of
activities, ii) directly related selling, general and
administrative expenses, and iii) corporate selling, general and
administrative expenses that are allocated to segments. Segment
Adjusted EBIT is the measure used by management to evaluate the
performance of the Company's segments, and gives investors an
indication of the profitability of each segment, as it excludes
certain items that the Company believes are not reflective of the
segment's underlying operations. Such financial measure also
facilitates period-to-period comparisons of the underlying
segment's performance. Expenses that are not allocated to the
Company's segments are: certain corporate selling, general and
administrative expenses that are not directly related to projects
or segments, impairment loss arising from expected credit losses,
gain (loss) arising on financial assets (liabilities) at fair value
through profit or loss, restructuring costs, impairment of
goodwill, impairment of intangible assets related to business
combinations, acquisition-related costs and integration costs,
amortization of intangible assets related to business combinations,
the federal charges settlement (PPSC) expense and gains (losses) on
disposals of PS&PM businesses and Capital investments (or
adjustments to gains or losses on such disposals), net financial
expenses and income taxes. Also, it should be noted that the
following adjustment was removed from the list of adjustments
disclosed in prior periods as there was no adjustment of this
nature in the current periods and the previous year: the net
expense for the 2012 class action lawsuit settlement and related
legal costs. See reconciliation of Segment Adjusted EBIT to net
income (loss) in Q2 2020 MD&A, Section 4. A reconciliation of
Segment Adjusted EBIT from PS&PM and from Capital to net income
(loss) as determined under IFRS is presented in Note 3 of the
Company's unaudited interim condensed consolidated financial
statements for the three-month and six-month periods ended
June 30, 2020.
Forward-looking Statements
Reference in this press release, and hereafter, to the
"Company" or to "SNC-Lavalin" means, as the context may require,
SNC-Lavalin Group Inc. and all or some of its subsidiaries or joint
arrangements, or SNC-Lavalin Group Inc. or one or more of its
subsidiaries or joint arrangements.
Statements made in this press release that describe the
Company's or management's budgets, estimates, expectations,
forecasts, objectives, predictions, projections of the future or
strategies may be "forward-looking statements", which can be
identified by the use of the conditional or forward-looking
terminology such as "aims", "anticipates", "assumes", "believes",
"cost savings", "estimates", "expects", "goal", "intends", "may",
"plans", "projects", "should", "synergies", "target", "vision",
"will", or the negative thereof or other variations thereon.
Forward-looking statements also include any other statements that
do not refer to historical facts. Forward-looking statements also
include statements relating to the following: i) future capital
expenditures, revenues, expenses, earnings, economic performance,
indebtedness, financial condition, losses and future prospects; ii)
business and management strategies and the expansion and growth of
the Company's operations; and iii) the expected impacts of the
ongoing COVID-19 pandemic on the business and its operating and
reportable segments as well as elements of uncertainty related
thereto. All such forward-looking statements are made pursuant to
the "safe-harbour" provisions of applicable Canadian securities
laws. The Company cautions that, by their nature, forward-looking
statements involve risks and uncertainties, and that its actual
actions and/or results could differ materially from those expressed
or implied in such forward-looking statements, or could affect the
extent to which a particular projection materializes.
Forward-looking statements are presented for the purpose of
assisting investors and others in understanding certain key
elements of the Company's current objectives, strategic priorities,
expectations and plans, and in obtaining a better understanding of
the Company's business and anticipated operating environment.
Readers are cautioned that such information may not be appropriate
for other purposes.
Forward-looking statements made in this press release are
based on a number of assumptions believed by the Company to be
reasonable as at the date hereof. The assumptions are set out
throughout the Company's 2019 annual MD&A (particularly in the
sections entitled "Critical Accounting Judgments and Key Sources of
Estimation Uncertainty" and "How We Analyze and Report our
Results") and as updated in the first and second quarter 2020
MD&A. If these assumptions are inaccurate, the Company's actual
results could differ materially from those expressed or implied in
such forward-looking statements. In addition, important risk
factors could cause the Company's assumptions and estimates to be
inaccurate and actual results or events to differ materially from
those expressed in or implied by these forward-looking statements.
These risks include, but are not limited to: (a) impacts of the
COVID-19 pandemic and the elements of uncertainty related thereto;
(b) results of the new 2019 strategic direction coupled with a
corporate reorganization; (c) fixed-price contracts or the
Company's failure to meet contractual schedule, performance
requirements or to execute projects efficiently; (d) contract
awards and timing; (e) remaining performance obligations; (f) being
a provider of services to government agencies; (g) international
operations; (h) Nuclear liability; (i) ownership interests in
Capital investments; (j) dependence on third parties; (k) joint
ventures and partnerships; (l) information systems and data; (m)
competition; (n) professional liability or liability for faulty
services; (o) monetary damages and penalties in connection
with professional and engineering reports and opinions; (p)
insurance coverage; (q) health and safety; (r) qualified personnel;
(s) work stoppages, union negotiations and other labour matters;
(t) extreme weather conditions and the impact of natural or other
disasters and global health crises; (u) intellectual property;
(v) divestitures and the sale of significant assets; (w)
impact of operating results and level of indebtedness on financial
situation; * liquidity and financial position; (y) indebtedness;
(z) security under the SNC–Lavalin Highway Holdings Loan; (aa)
dependence on subsidiaries to help repay indebtedness; (bb)
dividends; (cc) post-employment benefit obligations, including
pension-related obligations; (dd) working capital requirements;
(ee) collection from customers; (ff) impairment of goodwill
and other assets; (gg) outcome of pending and future claims and
litigations; (hh) ongoing and potential investigations; (ii)
settlements; (jj) further regulatory developments as well as
employee, agent or partner misconduct or failure to comply with
anti-bribery and other government laws and regulations; (kk)
reputation of the Company; (ll) inherent limitations to the
Company's control framework; (mm) environmental laws and
regulations; (nn) Brexit; (oo) global economic conditions; and
(pp) fluctuations in commodity prices.
The Company cautions that the foregoing list of factors is
not exhaustive. For more information on risks and uncertainties,
and assumptions that could cause the Company's actual results to
differ from current expectations, please refer to the sections
"Risks and Uncertainties", "How We Analyze and Report Our Results"
and "Critical Accounting Judgments and Key Sources of Estimation
Uncertainty" in the Company's 2019 annual MD&A and as updated
in the first and second quarter 2020 MD&A, each filed with the
securities regulatory authorities in Canada, available on SEDAR at
www.sedar.com and on the Company's website at
www.snclavalin.com under the "Investors"
section.
The forward-looking statements herein reflect the Company's
expectations as at the date of this press release and are subject
to change after this date. The Company does not undertake to update
publicly or to revise any such forward-looking statements whether
as a result of new information, future events or otherwise, unless
required by applicable legislation or regulation.
About SNC-Lavalin
Founded in 1911,
SNC-Lavalin is a fully integrated professional services and project
management company with offices around the world. SNC-Lavalin
connects people, technology and data to help shape and deliver
world-leading concepts and projects, while offering comprehensive
innovative solutions across the asset lifecycle. Our expertise is
wide-ranging — consulting & advisory, intelligent networks
& cybersecurity, design & engineering, procurement, project
& construction management, operations & maintenance,
decommissioning and sustaining capital – and delivered to clients
in four strategic sectors: EDPM (engineering, design and project
management), Infrastructure, Nuclear and Resources, supported by
Capital. People. Drive. Results.
www.snclavalin.com
SOURCE SNC-Lavalin