Company advances focused plan to drive growth and build a global Tier-1 E&C company
Activities aim to deliver approximately $100 million in annual after tax operational efficiencies beginning in 2015
2014 EPS guidance revised to reflect actions, including restructuring and right-sizing, Kentz acquisition and end-market environment
MONTREAL, Nov. 6, 2014 /CNW Telbec/ - SNC-Lavalin (TSX: SNC) today announced that it will take a number of steps to restructure and right-size certain areas of its business as it continues to execute its five-year Strategic Plan to build a global Tier-1 engineering and construction firm.
"Over the past two years, we have made significant progress on our focused plan to become a global Tier-1 engineering and construction company, with industry leading capabilities in the resources, power and infrastructure markets," said Robert G. Card, President and CEO, SNC-Lavalin Group Inc. "We have substantially transformed our business and rapidly met key milestones for creating shareholder value."
SNC-Lavalin has implemented the following initiatives over the past 24 months and will continue to execute certain aspects of each program. The Company has:
- Built a major Oil & Gas business with the acquisition of Kentz, allowing the Company to target increasing opportunities in a sector that continues to expand on a global basis. The Kentz transaction bolstered the Company's expertise and capabilities in this sector, while strengthening its geographic mix, particularly in the Middle East;
- Maintained its commitment to the highest standards of governance, ethics and compliance, while substantially improving safety, environmental and sustainability performance across the organization at all levels;
- Improved efficiency and competitive positioning, by, among other things, making key executive hires and reducing SG&A expenses;
- Enhanced its project proposal review and approval processes, as well as its efficiency around project cost controls; and
- Strategically rebalanced its ICI portfolio, while continuing to evaluate how best to manage assets to position the Company to continue to win business and deliver growth.
In the next phase of its plan, which aims to deliver sustainable and long-term value for SNC-Lavalin shareholders, the Company will enhance client focus and generate greater cross-company efficiencies by further restructuring and right-sizing its operations. These actions will enhance SNC-Lavalin's agility, while improving its ability to address the needs of its clients and compete on a global scale.
Accordingly, over the next 18 months, SNC-Lavalin plans to scale back certain underperforming activities and adjust, consolidate and streamline some of its operations and corporate structure to improve efficiency, effectiveness and competitive positioning. While some of the restructuring and right-sizing will affect the Company's Canadian operations, approximately three-quarters of the plan is directed at activities outside of Canada, in sectors and end markets that face a more difficult operating environment.
"We are taking definitive action to reshape our platform and enhance our ability to deliver outstanding services to clients, long-term value for our stakeholders and exciting opportunities for our team. This is the next major phase in our five-year Strategic Plan, and we will build on the tremendous opportunity set created through the acquisition of Kentz and on the successful execution of our Value-Up initiatives," added Mr. Card.
"As we prepared for the next phase of our plan, we took a hard look at our structure, portfolio and pipeline of opportunities and decided that further action is required to align our expertise and internal resources with the realities of our markets and client needs. While we remain committed to maintaining a leadership position in mining, a major global slowdown in the sector has created a ripple effect through other industries, and is combining with a general economic slowdown, particularly in the BRIC countries. We must therefore improve our agility and client focus in order to capitalize on the most promising opportunities in key growth markets," concluded Mr. Card.
This restructuring and right-sizing, which is expected to result in $200 million (after taxes) in charges over the next 18 months, aims to deliver approximately $100 million (after taxes) in annual operational efficiencies beginning in 2015, and will require a reduction of the Company's global workforce of about 4,000, or 9 percent, over this period. Simultaneously, the Company is expected to record approximately $100 million (after taxes) in non-cash charges over this time. The Company recognizes the impact of its decision to reduce its workforce, but notes that the restructuring and right-sizing actions are intended to ensure that SNC-Lavalin's global employee base has a stronger platform from which to grow, as well as access to an increasing number of professional opportunities.
As announced today in our third quarter earnings release, the Company revised its 2014 Earnings per Share ("EPS") guidance range to $0.40 to $0.55. This revised guidance takes into account the charges referred to above, the impact of the acquisition of Kentz completed on August 22, 2014, and the acquisition costs relating thereto, the continuing downturn in the mining and metallurgy sector and the heightened challenges of certain legacy projects. The guidance revision does not take into account the eventual gain on the sale of the Company's interest in AltaLink.
Founded in 1911, SNC-Lavalin is one of the leading engineering and construction groups in the world and a major player in the ownership of infrastructure. From offices in over 50 countries, SNC-Lavalin's 45,000 employees provide EPC and EPCM services to clients in a variety of industry sectors, including mining and metallurgy, oil and gas, environment and water, infrastructure and clean power. SNC-Lavalin can also combine these services with its financing and operations and maintenance capabilities to provide complete end-to-end project solutions. www.snclavalin.com
Robert G. Card, President and CEO and Erik Ryan, Executive Vice-President, Strategy, Marketing, External Relations, will be available for media questions immediately following today's 3 p.m. conference call to present the Company's third quarter results. Journalists are therefore asked to remain on the line for this interview period, which will last no more than 30 minutes.
To join the conference, please dial toll-free at 1-866-530-1554 in North America, or 416-849-1847 in Toronto, or 514-223-0614 in Montreal, 08002790444 in the United Kingdom or 1800992284 in Ireland.
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.
The above revised outlook is principally based on the expectations that challenges will continue in the Mining & Metallurgy sub-segment, which continues to be affected by the softening of the commodity markets, and in the Infrastructure & Construction and pre-Kentz Oil & Gas sub-segments, mainly due to certain challenging legacy projects, as well as in the Environment & Water sub-segment. It is also expected that the ICI segment and the O&M sub-segment should increase their contributions. This outlook assumes that SG&A expenses will continue to decrease, mainly as a result of new initiatives and ongoing activities associated with SNC-Lavalin's company-wide Value Up profit improvement program, as well as the restructuring and right-sizing actions referred to above. The outlook continues to be based on the assumptions and methodology described in the Company's 2013 Management's Discussion and Analysis under the heading "How We Budget and Forecast Our Results", which should be read in conjunction with the "Forward Looking Statements" section below and is subject to the risks and uncertainties summarized therein, which are more fully described in the Company's public disclosure documents.
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", "will", "synergies", 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; and (ii) business and management strategies and the expansion and growth of the Company's operations and potential synergies resulting from the Acquisition. 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.
The 2014 outlook referred to in this press release is forward-looking information and is based on the methodology described in the Company's 2013 Management's Discussion and Analysis under the heading "How We Budget and Forecast Our Results" and is subject to the risks and uncertainties described in the Company's public disclosure documents. The purpose of the 2014 outlook is to provide the reader with an indication of management's expectations, at the date of this press release, regarding the Company's future financial performance and readers are cautioned that this 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 2013 Management's Discussion and Analysis (particularly, in the sections entitled "Critical Accounting Judgments and Key Sources of Estimation Uncertainty" and "How We Analyze and Report our Results" in the Company's 2013 Management's Discussion and Analysis), as updated in the Company's Third Quarter 2014 Management's Discussion and Analysis. The 2014 outlook also assumes that previously disclosed amounts relating to a claim in Algeria will not be reversed and does not take into account the eventual gain on the sale of the Company's interest in AltaLink. 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) the outcome of pending and future claims and litigation could have a material adverse impact on the Company's business, financial condition and results of operation; (b) the Company is subject to ongoing investigations which could subject the Company to criminal and administrative enforcement actions, civil actions and sanctions, fines and other penalties, some of which may be significant, which, in turn, could harm the Company's reputation, result in suspension, prohibition or debarment of the Company from participating in certain projects, reduce its revenues and net income and adversely affect its business; (c) further regulatory developments could have a significant adverse impact on the Company's results, and employee, agent or partner misconduct or failure to comply with anti-bribery and other government laws and regulations could harm the Company's reputation, reduce its revenues and net income, and subject the Company to criminal and administrative enforcement actions and civil actions; (d) if the Company is not able to successfully execute on its new strategic plan, its business and results of operations would be adversely affected; (e) a negative impact on the Company's public image could influence its ability to obtain future projects; (f) fixed-price contracts or the Company's failure to meet contractual schedule or performance requirements may increase the volatility and unpredictability of its revenue and profitability; (g) the Company's revenue and profitability are largely dependent on the awarding of new contracts, which it does not directly control, and the uncertainty of contract award timing could have an adverse effect on the Company's ability to match its workforce size with its contract needs; (h) the Company's backlog is subject to unexpected adjustments and cancellations, including under "termination for convenience" provisions, and does not represent a guarantee of the Company's future revenues or profitability; (i) SNC-Lavalin is a provider of services to government agencies and is exposed to risks associated with government contracting; (j) the Company's international operations are exposed to various risks and uncertainties, including unfavourable political environments, weak foreign economies and the exposure to foreign currency risk; (k) there are risks associated with the Company's ownership interests in ICI that could adversely affect it; (l) the Company is dependent on third parties to complete many of its contracts; (m) the Company's use of joint ventures and partnerships exposes it to risks and uncertainties, many of which are outside of the Company's control; (n) the competitive nature of the markets in which the Company does business could adversely affect it; (o) the Company's project execution activities may result in professional liability or liability for faulty services; (p) the Company could be subject to monetary damages and penalties in connection with professional and engineering reports and opinions that it provides; (q) the Company may not have in place sufficient insurance coverage to satisfy its needs; (r) the Company's employees work on projects that are inherently dangerous and a failure to maintain a safe work site could result in significant losses and/or an inability to obtain future projects; (s) the Company's failure to attract and retain qualified personnel could have an adverse effect on its activities; (t) work stoppages, union negotiations and other labour matters could adversely affect the Company; (u) the Company relies on information systems and data in its operations. Failure in the availability or security of the Company's information systems or in data security could adversely affect its business and results of operations; (v) any acquisition or other investment may present risks or uncertainties; (w) the Company may be unable to successfully integrate the businesses of SNC-Lavalin and Kentz and realize the anticipated benefits of the Acquisition; * a deterioration or weakening of the Company's financial position, including its cash net of recourse debt, would have a material adverse effect on its business and results of operations; (y) the Company may have significant working capital requirements, which if unfunded could negatively impact its business, financial condition and cash flows; (z) an inability of SNC-Lavalin's clients to fulfill their obligations on a timely basis could adversely affect the Company; (aa) the Company may be required to impair certain of its goodwill, and it may also be required to write down or write off the value of certain of its assets and investments, either of which could have a material adverse impact on the Company's results of operations and financial condition; (bb) the Company's indebtedness following completion of the Acquisition is substantial. This indebtedness could have adverse consequences for the Company, including reducing funds available for other business purposes; (cc) global economic conditions could affect the Company's client base, partners, subcontractors and suppliers and could materially affect its backlog, revenues, net income and ability to secure and maintain financing; (dd) fluctuations in commodity prices may affect clients' investment decisions and therefore subject the Company to risks of cancellation, delays in existing work, or changes in the timing and funding of new awards, and may affect the costs of the Company's projects; (ee) inherent limitations to the Company's control framework could result in a material misstatement of financial information, and; (ff) environmental laws and regulations expose the Company to certain risks, could increase costs and liabilities and impact demand for the Company's services. The Company cautions that the foregoing list of factors is not exhaustive. For more information on risks and uncertainties, and assumptions that would 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 2013 Management's Discussion and Analysis, and as updated in the Company's Third Quarter 2014 Management's Discussion and Analysis.
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 any obligation 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.
For further information:
Public Relations Manager,
Global Corporate Communications
SNC-Lavalin Group Inc.
514-393-8000, ext. 54772
Vice-President, Investor Relations
SNC-Lavalin Group Inc.
514-393-8000, ext. 57553