MONTREAL, Jan. 28, 2019 /CNW Telbec/ - SNC-Lavalin
Group Inc. (TSX: SNC) announces that its full year 2018 results
will be lower than expected.
Neil Bruce, President and Chief
Executive Officer said "A serious problem has just come to light in
relation to a single project in the Mining & Metallurgy
segment. The contract was awarded in 2016 and its year-end
under-performance relative to internal budgets will materially
affect our Q4 results, and therefore our full year 2018 results.
This isolated incident is unacceptable and I intend to take
appropriate actions to mitigate the financial impacts for the
Company."
The Mining & Metallurgy Segment EBIT(5) will be
lower in 2018 than the Company expected due to the
under-performance of aforementioned project, mainly due to the fact
that we cannot meet the required level of agreement at this time
with our client in order to meet the IFRS standards for revenue
recognition, as well as the substantially increased costs in Q4
associated with delivering this project. This unfavorable cost
reforecast surfaced as we were closing 2018. We will be
aggressively pursuing our project claims through the contract
protocols up to and including engaging in a dispute resolution
process.
In addition, we are experiencing worse than expected trading
challenges in Oil & Gas in the Middle
East, and Saudi Arabia in
particular, the potential impact of which was highlighted in our
August disclosure
www.snclavalin.com/en/media/press-releases/2018/snc-lavalin-comments-canada-kingdom-saudi-arabia-commercial-relations.aspx.
Since that announcement, relations between Saudi Arabia and Canada have further deteriorated. Over 15% of
our global workforce is employed on work in Saudi Arabia, which has been an important
source of revenue growth for our Company in recent years.
The Oil & Gas Segment EBIT(5) will be lower in
2018 than the Company expected, mainly due to lower revenue
recognition on some costs incurred on projects whereby we cannot
meet the required level of agreement at this time with our clients
to meet the IFRS 15 standards for revenue recognition. We will
continue to progress these contracts and are confident that over
time a proportion of these revenues will be agreed with our
clients. We also lost an arbitration process with a client for an
Oil & Gas project in Australia, in respect of which we recently
received a preliminary decision, the financial impact of which we
are recognizing in the final quarter of 2018.
Our business continues to face several well-documented macro
challenges as well as some Company specific headwinds, which are
impacting our ability to grow. Inter-governmental relations between
Canada and Saudi Arabia, together with unpredictable
commodity prices and uncertain client investment plans, have led to
deterioration in our near-term prospects which we cannot ignore.
Consequently, the impairment tests we carry out on an on-going
basis indicate that the fair value of our Oil & Gas segment is
lower than the carrying value in our financial statements. We will
therefore be taking a non-cash after-tax goodwill impairment charge
of approximately $1.24 billion, or
$7.06 per diluted share.
Mr. Bruce also commented "We have already announced the
appointment of Craig Muir as
President, Oil & Gas – see disclosure
http://www.snclavalin.com/en/media/press-releases/2019/craig-muir-appointed-president-oil-gas-effective-april-2019.aspx
and I will ensure a smooth transition takes place in the
leadership team of Oil & Gas. A further update on our plans
will be provided with our results announcement on February 22, 2019."
Due to the above mentioned forecasted loss in Q4 and revised
revenue forecasts, the Company expects that its adjusted diluted
EPS from E&C(1) for the year ended December 31, 2018 to be in the range of
$1.15 to $1.30, and expects that its adjusted consolidated
diluted EPS(2) to be in the range of $2.15 to $2.30.
As a result of all these factors, unavoidably we will take a
more cautious view towards our 2019 prospects to reflect these
uncertainties. Details on our 2019 guidance will be provided in our
upcoming fourth quarter earnings release, on February 22, 2019, at which time the Company will
also provide further details concerning our 2018 results and
goodwill impairment during its conference call and webcast.
The above updated outlook is based on the assumptions and
methodology described in the Company's 2017 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, which
are more fully described in the Company's public disclosure
documents.
Conference Call
SNC-Lavalin will hold a conference call today at 11:00 a.m. EST to discuss this press release. To
join the conference call, please dial toll free at 1 800 263 0877
in North America, 438 968 3557 in
Montreal, or 080 0358 6377 in the
United Kingdom. A recording of the
conference call will be available on our website within 24 hours
following the call.
About SNC-Lavalin
Founded in 1911, SNC-Lavalin is a global fully integrated
professional services and project management company and a major
player in the ownership of infrastructure. From offices around the
world, SNC-Lavalin's employees are proud to build what matters. Our
teams provide comprehensive end-to-end project solutions –
including capital investment, consulting, design, engineering,
construction management, sustaining capital and operations and
maintenance – to clients across Oil and Gas, Mining and Metallurgy,
Infrastructure, Clean Power, Nuclear and EDPM (engineering, design
and project management). On July 3,
2017, SNC-Lavalin acquired Atkins, one of the world's most
respected design, engineering and project management consultancies,
which has been integrated into our
sectors. www.snclavalin.com
(1)Adjusted diluted EPS from E&C
is defined as the adjusted net income from E&C(3)
divided by the diluted weighted average number of outstanding
shares for the period.
(2) Adjusted consolidated diluted EPS
is defined as the adjusted net income from E&C(3)
plus the adjusted net income from Capital(4) divided by
the diluted weighted average number of outstanding shares for the
period.
(3) Adjusted net income from E&C
is defined as net income attributable to SNC-Lavalin shareholders
from E&C, excluding charges related to restructuring,
right-sizing and other, acquisition-related costs and integration
costs, impact of U.S. corporate tax reform as well as amortization
of intangible assets related to business combinations, the net
expense for the 2012 class action lawsuits settlement and the gains
(losses) on disposals of E&C businesses and the head office
building. E&C is defined in the Company's 2017 financial
statements and Management's Discussion and Analysis. The term
"Adjusted net income from E&C" does not have any standardized
meaning as prescribed by IFRS. Therefore, it may not be comparable
to similar measures presented by other issuers. Management uses
this measure as a more meaningful way to compare the Company's
financial performance from period to period. Management believes
that, in addition to conventional measures prepared in accordance
with IFRS, certain investors use this information to evaluate the
Company's performance.
(4) Adjusted net income from Capital
is defined as net income attributable to SNC-Lavalin shareholders
from Capital, excluding the gains on disposals of Capital
Investments.
(5) Segment EBIT consists of revenues less
i) direct costs of activities, ii) directly related selling,
general and administrative expenses, iii) corporate selling,
general and administrative expenses that are allocated to segments;
and iv) non-controlling interests before taxes. Expenses that are
not allocated to the Company's segments include: 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 at
fair value through profit or loss, restructuring costs, goodwill
impairment, acquisition-related costs and integration costs,
amortization of intangible assets related to business combinations,
and the net expense for the 2012 class action lawsuits settlement,
as well as gains (losses) on disposals of E&C businesses,
Capital investments and the head office building. The term "Segment
EBIT" does not have any standardized meaning as prescribed by IFRS.
Therefore, it may not be comparable to similar measures presented
by other issuers. Management uses this measure as a more meaningful
way to compare the Company's financial performance from period to
period. Management believes that, in addition to conventional
measures prepared in accordance with IFRS, certain investors use
this information to evaluate the Company's performance.
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 SNC-Lavalin Group Inc. or one or more of its
subsidiaries or joint arrangements.
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; and
ii) business and management strategies and the expansion and growth
of the Company's operations. 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 2018 and 2019 outlook referred to in this press release
is forward-looking information and is based on the methodology
described in the Company's 2017 Management's Discussion and
Analysis ("MD&A") 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 2018 and 2019 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 2017 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
2018 MD&A. The 2018 and 2019 outlook also assumes that the
federal charges laid against the Company and its indirect
subsidiaries SNC-Lavalin International Inc. and SNC-Lavalin
Construction Inc. on February 19,
2015, will not have a significant adverse impact on the
Company's business in 2018 and 2019. 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 operations; (b) on
February 19, 2015, the Company was
charged with one count of corruption under the Corruption of
Foreign Public Officials Act (Canada) (the "CFPOA") and one count of fraud
under the Criminal Code (Canada),
and is also subject to other 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. These charges and investigations,
and potential results thereof, 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) a
negative impact on the Company's public image could influence its
ability to obtain future projects; (e) fixed-price contracts or the
Company's failure to meet contractual schedule or performance
requirements or to execute projects efficiently may increase the
volatility and unpredictability of its revenue and profitability;
(f) 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; (g) the Company's remaining performance
obligations are 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; (h) SNC-Lavalin is a provider of
services to government agencies and is exposed to risks associated
with government contracting; (i) 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; (j) there are
risks associated with the Company's ownership interests in Capital
investments that could adversely affect it; (k) the Company is
dependent on third parties to complete many of its contracts; (l)
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; (m) the competitive nature of the markets in which the
Company does business could adversely affect it; (n) the Company's
project execution activities may result in professional liability
or liability for faulty services; (o) the Company could be subject
to monetary damages and penalties in connection with professional
and engineering reports and opinions that it provides; (p) the
Company may not have in place sufficient insurance coverage to
satisfy its needs; (q) 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; (r) the Company's failure to attract and
retain qualified personnel could have an adverse effect on its
activities; (s) work stoppages, union negotiations and other labour
matters could adversely affect the Company; (t) 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, financial
condition and results of operations; (u) any acquisition or other
investment may present risks or uncertainties; (v) divestitures and
the sale of significant assets may present risks or uncertainties;
(w) increased indebtedness as a result of the Atkins Acquisition; *
dependence on subsidiaries to help repay indebtedness as a result
of the Atkins Acquisition; (y) security under the SNC-Lavalin
Highway Holdings Loan being called at an inopportune time; (z)
ability to pay dividends; (aa) Atkins' pension-related obligations;
(bb) a deterioration or weakening of the Company's financial
position could have a material adverse effect on its business and
results of operations; (cc) the Company may have significant
working capital requirements, which if unfunded could negatively
impact its business, financial condition and cash flows; (dd) an
inability of SNC-Lavalin's clients to fulfill their obligations on
a timely basis could adversely affect the Company; (ee) 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; (ff) global economic conditions could affect the
Company's client base, partners, subcontractors and suppliers and
could materially affect its remaining performance obligations,
revenues, net income and ability to secure and maintain financing;
(gg) 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; (hh) inherent limitations to the Company's control
framework could result in a material misstatement of financial
information; and (ii) 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 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 2017 MD&A and as updated in the
first, second and third quarter 2018 MD&A.
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