Troubled SNC-Lavalin shakes things up
Struggling company shuffles leaders, restructures in bid to ‘de-risk’ business
As the political furor over whether SNC-Lavalin Group Inc. received special treatment from the prime minister dominates national headlines, the Montreal engineering and construction company has been suffering through its own, separate business drama — reshuffling much of its executive lineup this year in the face of losses and mishaps.
On Thursday, the Montreal-based engineering company announced an official restructuring of its business, and made three leadership changes, adding to earlier turnover in its ranks.
The company framed the changes as an attempt to “de-risk” its business by consolidating certain segments. It follows several damaging mishaps, including the loss of a $350-million contract in Chile this month, and a cloud that moved over its oil and gas business particularly in Saudi Arabia, both of which led to major writedowns and earnings revisions.
“This new organizational structure will position us for further improving project delivery, driving sustainable growth and more consistent cash flow generation,” Neil Bruce, chief executive of SNC, said in a news release.
SNC has twice slashed its profit forecasts this year and last month it reported a $1.6-billion loss for the fourth quarter. That prompted Standard & Poor’s Ratings agency to downgrade its credit from BBB to BBB minus, the lowest investment grade rating for its bonds to still be eligible for bank investment.
Part of its losses flowed from a dispute with the Chilean-run copper producer Codelco. In January, Bruce said he was “deeply disappointed” in his mining team for cost overruns on the project, and the company’s chief financial officer said it would result in hundreds of millions of dollars in losses. This week, SNC confirmed it had been fired from a $350-million contract to build acid plants for Codelco. SNC had agreed to design and build the project at a set price. Such contracts are higher risk as the company is responsible for cost overruns.
As part of the restructuring, SNC announced a new “project oversight” position to “foresee and fix project-related issues in a timely fashion,” that will report directly to Bruce.
He has stressed that there won’t be any future debacles similar to what happened with Codelco on its outstanding contracts.
this new organizational structure will position us for further improving project delivery.
“We have gone through 20 of our top contracts,” Bruce said during the last earnings call in February.
“We’ve done all the checks again to make sure that what we approved is what we signed and that they are on track and we don’t have anything of any similar nature whatsoever.”
The company said it will be focusing on four core segments including nuclear, infrastructure, resources and engineering, design and project management, or EDPM.
It will also have a technology business, which includes clean power and cybersecurity, and its capital business, meaning six discrete units down from seven.
SNC also announced new people to lead its EDPM, capital and resources segments — the last of which combines the old mining with the oil and gas segment.
This follows the appointment of new chief operating officer Ian Edwards in January, a replacement named to succeed him as head of infrastructure, and the planned exit of its former head of the oil and gas business unit this summer.
Meanwhile, in Ottawa, SNC has faced heightened scrutiny after former attorney general Jody Wilson-Raybould testified earlier this month that the Trudeau administration pressured her to reach a deal with SNC on criminal charges.
The situation has led to speculation about whether SNC may seek to break up some of its business, and sell certain units.
Market reaction to the latest news was tepid, with the price barely moving from around $34.