New services business complements Engineering Services, with profitability expected in 2021
The Company announced in
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 theMiddle 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
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
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
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 |
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
(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
Forward-looking Statements
Reference in this press release, and hereafter, to the "Company" or to "SNC-Lavalin" means, as the context may require,
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
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.
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