SNC-Lavalin restructures resources business
MONTREAL — SNC-Lavalin Group Inc. is restructuring its moneylosing resources business with a plan to sell off or shut down the non-profitable parts and fold the remnants into its engineering services division.
Friday’s announcement came alongside earnings that fell short of analysts’ expectations as the engineering giant lost $111.6 million in the second quarter, compared with $2.12 billion a year earlier.
“The legacy resources projects business and associated lump-sum turnkey projects will be largely wound down and the projects complete by the end of 2020,” SNC-Lavalin said.
The company forecast the business will be profitable next year.
The move, which wraps up a strategic review launched by CEO Ian Edwards when he took the helm in June 2019, narrows SNC’s focus on resources to the Americas and the Middle East, where, the company said, it has “profitable relationships with long-standing customers” in energy and mining.
The turn away from resources will reduce that segment’s operations to nine countries from 30 and cut its headcount to 8,000 from 15,000 by the end of the year, with 2,000 more departures expected by 2021, SNC said.
The resources division continued to drag on profitability last quarter.
Its so-called lump-sum turnkey projects — fixed-price contracts under which companies have to eat any cost overruns — accounted for 78 per cent of the company’s $122 million in adjusted losses before interest and taxes.
Edwards pledged one year ago to retreat from fixed-price projects, with one resources contract completed last quarter and the vast majority of work on the four remaining ones on track for completion by the end of 2020 — “a key milestone in terms of derisking the business,” Desjardins Securities analyst Benoit Poirier said in a research note.
“Bottom line, while we acknowledge that SNC’s [secondquarter] results were below expectations, we note that the miss was related to lump-sum turnkey projects which management is in the progress of exiting,” Poirier said.