Significant step forward in the Company's
strategy to enhance focus on its growing Engineering Services
business
MONTREAL, Feb. 9, 2021 /CNW Telbec/ - SNC-Lavalin
Group Inc. (TSX: SNC), a fully integrated professional services and
project management company, has entered into a binding agreement to
sell its Resources Oil & Gas business, a significant step
forward in the Company's strategy to reduce its risk profile and
accelerate its ongoing transition to becoming a leading provider of
professional engineering services and project management
solutions.
The Company has also completed its previously announced review
of legacy Lump-Sum Turnkey ("LSTK") litigation matters, which was
expanded to include all other significant claims, while
concurrently reassessing the costs associated with its three
remaining Canadian light rail projects in light of COVID-19. The
actions that the Company is taking today resulting from these
reviews, together with the sale of the Oil & Gas business,
reduce the remaining financial uncertainty associated with
SNC-Lavalin's legacy businesses, while allowing the Company to
further focus on its strategy of realizing the value and growth
potential of Engineering Services business.
- Strategic divestiture of the Resources Oil & Gas
business. The Company has entered into a binding agreement to
sell its Oil & Gas business, including Services and LSTK,
de-risking operations and reducing LSTK delivery and warranty
obligations, and accelerating the realization of SNC-Lavalin's
strategy. Closing is targeted for Q2 2021, at which time the
transaction is expected to generate a gain on sale, as the
elimination of foreign exchange cumulative translation adjustments
("CTA") should be greater than the fair value write down taken in
Q4 as an "Asset Held for Sale". The net cash impact for the
transaction is expected to be minimal.
-
- A charge of $95 million on the
retained Resources business, related to historical legacy positions
and one remaining LSTK mining project, will be taken in Q4
2020.
- Review of legacy LSTK litigation matters and commercial
claims completed. To ensure a holistic review of legacy risks,
taking into account new and updated information, the previously
announced risk review was expanded to include all significant
litigation matters and commercial claims receivable, resulting in
$140 million of provisions and
$155 million of commercial claims
receivable reduction in Q4 2020, which are largely non-cash in
nature. The Company will continue to aggressively pursue all claims
receivable, which it believes it is entitled to contractually and
will vigorously defend the litigation matters.
- Remaining Canadian LSTK infrastructure projects continue to
progress well, costs to complete reassessed in light of
COVID-19. Projects continue to be affected by unprecedented
COVID-19 challenges, the primary driver in $90 million of charges to be taken in Q4 2020,
largely reflecting the decision to delay recognition of any
COVID-19 related revenue.
- Previously announced financial outlook for SNCL Engineering
Services reconfirmed.
"Over the past 18 months, we have made significant strides in
advancing our strategy and de-risking the business. Following the
introduction of our new strategy in July
2019, we have significantly improved our operating cash
flows and demonstrated that our Engineering Services line of
business is resilient and can deliver strong results," said
Ian L. Edwards, President and CEO of
SNC-Lavalin Group Inc. "The sale of the Oil & Gas business
further simplifies and de-risks our business and allows us to
enhance our focus on growing our high potential core Engineering
Services business. I would like to thank all of our Oil & Gas
employees for their contributions over the years and wish them well
in the next stage of their journey."
"As previously announced, we have undertaken a rigorous risk
review of our legacy LSTK litigation matters, which we expanded to
include all other significant current litigation matters and legacy
commercial claims receivable. Concurrently, we have also reviewed
our remaining Canadian light rail transit LSTK projects to
consider, in particular, the significant impact and challenges that
COVID-19 has had, and will continue to have, on costs. The
objective of this exercise was to further ensure we are taking a
prudent and reasonable view of these projects in light of the
ongoing COVID-19 situation and further reduce uncertainty on the
final financial outcome," added Mr. Edwards.
"Since my appointment in September
2020, the Board has overseen the work of management and
external advisors in assessing and reducing the Company's risk
areas and quantifying the LSTK financial risks. Our goal is to
reduce remaining financial uncertainty of the Company's legacy
issues. The sale of the Oil & Gas business allows us to enhance
our focus on the future growth potential and profitability in
SNC-Lavalin's Engineering Services business. We believe this
approach supports our overall objective to unlock and ultimately
create long-term shareholder value," said William L. Young, Chair of the Board.
Strategic divestiture of the Resources Oil & Gas
business
On February 8, 2021, SNC-Lavalin
Group Inc. entered into a binding agreement to sell its Oil &
Gas business, including Services and LSTK, to Kentech Corporate
Holdings Limited. The transaction is subject to regulatory
approvals and satisfaction of customary closing conditions and the
closing is targeted for Q2 2021.
In line with the Company's strategy, the sale of the business,
which includes all ongoing and recently completed Oil & Gas
LSTK projects, is expected to significantly reduce operational and
execution risks and will simplify the Company's corporate structure
and enable management to dedicate more time, effort and resources
to growing the higher margin and more stable Engineering Services
business. The transaction is also an important milestone in the
Company's journey towards its sustainability business strategy, as
highlighted in the Company's 2019 Sustainability Report.
At closing, the transaction is expected to create a gain on
sale. The Oil & Gas business will be classified as an "Asset
Held for Sale" in Q4 2020 and is expected to result in a fair value
write down in the range of $260 to
$295 million, which is almost
entirely non-cash in nature. At closing, the transaction is
expected to generate a gain on the sale in excess of the fair value
write down, after accounting for the elimination of foreign
exchange CTA included in the historical carrying amounts of the
disposed Oil & Gas business.
The remaining Resources business will be mainly comprised of
Services projects in the Mining & Metallurgy ("M&M")
sector. The remaining Resources project positions, including
historical claims and litigation matters, have been reassessed
based on the latest information, including ongoing commercial
discussions with clients. An updated cost forecast was also
completed in Q4 2020 on the one remaining Resources M&M LSTK
project, which is expected to be completed in 2021. Based on these
actions for the remaining Resources business, a charge of
approximately $95 million, for which
approximately 30% is non-cash, will be taken in Q4 2020.
Previously announced review of legacy LSTK litigation
matters completed, expanded to include all other significant
claims
As indicated in the Company's press release dated October 30, 2020, the Company undertook a review
of the remaining LSTK legacy litigation matters, taking into
account all new and updated information. A decision was also made
by management to expand this exercise to include all other
significant litigation matters, as well as commercial claims
receivable on all legacy and ongoing LSTK projects. This review
process was an enhancement of the robust process normally done in
connection with the preparation of the annual financial
statements. At the same time, the latest commercial
discussions with customers, updated cost forecasts, and realized
litigation matter outcomes were incorporated into the review
process.
The review was performed by senior management utilizing internal
and external experts and advisors, and was overseen by a special
committee of the Board of Directors. The review is now
complete.
Based on the combination of the latest commercial outcomes and
the expanded review process, the Company will be recognizing in Q4
2020 additional provisions of approximately $140 million, and a reduction in commercial
claims receivable of $155 million.
Approximately 75% of the total is non-cash in nature, with the
balance impacting cash and spread over a number of future years
depending on the eventual timing of litigation outcomes.
Notwithstanding these provisions, the Company will continue to
aggressively pursue all claims receivable, which it believes it is
entitled to contractually and will vigorously defend the litigation
matters.
Remaining Canadian LSTK infrastructure projects continue
to progress well, costs to complete reassessed in light of
COVID-19
Concurrently with the above-mentioned review, the Company has
also reviewed its remaining three Canadian LSTK infrastructure
projects, taking into consideration the ongoing significant impact
and challenges resulting from COVID-19. These projects continue to
be materially affected by lower productivity attributable to
revised working conditions caused by COVID-19 and supply chain
disruptions, creating unprecedented challenges. Following the
review of these projects and a cost reassessment based on the
latest facts and information, and in light of the ongoing
uncertainty on the timing and scope of reimbursement of these
COVID-19 incremental costs, no revenue associated with the
additional COVID-19 costs has been recognized by the Company for
these projects. As a result, the Company expects to take a charge
of approximately $90 million in Q4
2020 related to these projects, most of which is due to COVID-19
challenges and the decision to not recognize associated revenue at
this time. The Company strongly believes that it is entitled to
these revenues, but until greater clarity is forthcoming, it will
continue to only recognize COVID-19 expenses on the ongoing LSTK
infrastructure projects.
Despite the COVID-19 related challenges, these Canadian
infrastructure LSTK projects, which are being built with strong and
reputable partners, continue to progress well.
SNCL Engineering Services 2020 Outlook
Reconfirmed
As stated in the Company's Q3 2020 results announcement, the
Company expects that SNCL Engineering Services revenue for Q4 2020
should decrease by a low to mid single digit percentage, compared
to Q4 2019, and that its Segment Adjusted EBIT to revenue
ratio(2) should be between 8.5% and 9.5% for the same
period.
This outlook is based on the assumptions and methodology
described in the Company's Q3 2020 Management's Discussion and
Analysis under the heading, "How We Budget and Forecast Our
Results" and the "Forward-Looking Statements" section below and is
subject to the risks and uncertainties summarized therein and in
the Company's 2019 Annual Management's Discussion and Analysis as
updated in the Company's interim quarterly Management's Discussion
and Analysis throughout 2020, which are more fully described in the
Company's public disclosure documents.
Financial Impacts Summary
For ease of reference, the table below summarizes the
above-mentioned financial metrics.
|
Amount*
($m)
|
Cash /
Non-cash
|
Segment
|
Recognized
in
|
Strategic
divestiture of the Resources Oil & Gas business
|
Fair value write down
of Oil & Gas business
|
(260 to
295)
|
Largely
Non-cash
|
Discontinued
Operations
|
Q4 2020
|
|
|
|
|
|
Elimination of
foreign exchange CTA included in the historical carrying amount of
the disposed Oil & Gas business
|
Expected to be
greater than above FV write down
|
Non-cash
|
Discontinued
Operations
|
At closing, targeting
Q2 2021
|
|
|
|
|
|
Charge for remaining
LSTK M&M project and other historical claims and litigation
matters in the Resources sector
|
(95)
|
~30%
Non-cash
|
Resources
|
Q4 2020
|
Review of legacy
LSTK litigation matters and all other significant
claims
|
Commercial claims
receivable reduction
|
(155)
|
~75%
Non-cash
|
10%
Corporate
10%
Resources
80%
Infrastructure
EPC
Projects
|
Q4 2020
|
Additional provisions
related to legacy litigation matters
|
(140)
|
Reassessment of
the three remaining Canadian LSTK infrastructure projects cost to
complete
|
Additional charge,
mainly due to unprecedented COVID-19 challenges
|
(90)
|
Cash
|
Infrastructure
EPC
Projects
|
Q4 2020
|
|
* Amounts are before
taxes
|
Conference Call / Webcast
SNC-Lavalin will hold a conference call today at 8:30 a.m. EST to discuss this announcement. A
live audio webcast of the conference call and an
accompanying slide presentation will be available at
www.investors.snclavalin.com. The call will also be
accessible by telephone, please dial toll free at 1 800 319
4610 in North America or dial
1 604 638 5340 outside North
America. You can also use the following numbers: 416 915
3239 in Toronto, 514 375
0364 in Montreal, or 080 8101
2791 in the United Kingdom. A
recording of the conference call and its transcript will be
available on the Company's website within 24 hours following the
call.
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
Non-IFRS Financial Measures
The Company reports its financial results in accordance with
IFRS. However, the following non-IFRS measures are used by the
Company in this press release: Segment Adjusted EBIT and Segment
Adjusted EBIT to revenue ratio. Additional details for these
non-IFRS measures can be found in section 9 of SNC-Lavalin's
Management's Discussion and Analysis ("MD&A") for the third
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. Furthermore, certain non-IFRS financial measures are
presented separately for each PS&PM and Capital, as the Company
believes that such measures are useful as these activities are
usually analyzed separately by the Company. Reconciliations of
historical non-IFRS measures to the most comparable IFRS measures
are set forth in Section 9.3 of the third quarter 2020
MD&A.
(1) Segment Adjusted EBIT
consists of revenues allocated to the applicable segment less i)
direct costs 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 Q3 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 to the
Company's unaudited interim condensed consolidated financial
statements for the three-month and nine-month periods ended
September 30, 2020.
|
|
(2) Segment Adjusted
EBIT to revenue ratio is a measure used to analyze the
profitability of the Company's segments and facilitate
period-to-period comparisons, as well as comparison with peers.
This financial measure is calculated by dividing the amount of
Segment Adjusted EBIT of a given period to the amount of revenue
for the same period.
|
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 associates, or SNC-Lavalin Group Inc. or one or
more of its subsidiaries or joint arrangements or
associates. References below to the "Sale Transaction"
refer to the sale by the Company of its Resources Oil & Gas
business as announced and disclosed in this press release.
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; 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 and
other near-term risks and uncertainties, and (iv) the announced
Sale Transaction and the expected impact thereof on SNC-Lavalin's
strategic and operational plans and financial results, the expected
completion of the Sale Transaction, the anticipated cash
consideration therefrom and the timing for completion thereof. 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 include the
satisfaction of all conditions to closing the Sale Transaction and
the receipt of all necessary regulatory (including competition
authority) and other consents and approvals, as well as the
assumptions 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,
second and third 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. In relation to the Sale
Transaction, these risks include: the failure to receive or delay
in receiving regulatory (including competition authority) approvals
or otherwise satisfy the conditions to the completion of the Sale
Transaction or delay in completing it and uncertainty regarding the
length of time required to complete the Sale Transaction; and the
impact of the announcement of the Sale Transaction on SNC-Lavalin's
relationships with third parties, including commercial
counterparties, employees and competitors, strategic relationships,
operating results and businesses generally. These risks also
include, but are not limited to: (a) impacts of the COVID-19
pandemic and other near-term risks and uncertainties; (b) results
of the 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 and volatility 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, second and third 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.
SOURCE SNC-Lavalin