SNC-Lavalin Hosts 2021 Investor Day, Unveils Three-Year Global Growth Plan and New Operational Structure

·9 min read
  • Strategic direction re-affirmed with clear growth agenda to 2024, focused on core geographies of UK, Canada and the U.S.

  • New operational structure ensures global capabilities are focused to deliver growth across clearly defined customer end markets, and drive value creation

  • SNCL Services target of 4% to 6% annual organic revenue growth and 8% to 10% Segment Adjusted EBIT to segment revenue ratio(3) from 2022-2024(1)

  • Delivery of positive net cash flow from operations will be prioritized with a view to targeting an investment grade rating and further accelerate the growth strategy

MONTREAL, Sept. 28, 2021 /CNW Telbec/ - SNC-Lavalin Group Inc. (TSX: SNC), a fully integrated professional services and project management company with offices around the world, today released "Pivoting to Growth Strategy'', its three-year global strategic plan outlining how and where the Company intends to drive profitable growth through 2024. The plan will be the focus of the Company's 2021 Investor Day, held today virtually.

"Two years ago, I set a goal of simplifying and de-risking our business to unlock SNC-Lavalin's potential to create sustainable solutions that connect people, data and technology to design, deliver and operate the most complex projects across the world," said Ian L. Edwards, President and CEO of SNC-Lavalin Group Inc. "Today, our team begins the next phase in our journey as we pivot to growth, and we look forward to providing the core elements of our plan – where we play, how we win, and how we will grow with a view to creating long-term value."

"With our leading ability to deploy our teams' expertise and capabilities locally to our clients, our unique offering of end-to-end services across the whole life cycle of an asset, and the opportunities created by government investments in the built and natural environment, I am confident SNC-Lavalin should be positioned to deliver sustained organic growth through 2024," added Mr. Edwards.

Pivoting to Growth Strategy

The Pivoting to Growth Strategy is underpinned by the following core elements:

  1. Focused on core geographic areas of operation and end customer markets targeted in the built and natural environment

  2. Leverages SNC-Lavalin's unique end-to-end global capabilities to deliver high value products and services locally

  3. Driven by identified key growth areas

  4. Supported by capital allocation priorities to strengthen business and drive further value creation opportunities

Focused on Core Geographies and Clearly Defined End Markets
SNC-Lavalin will focus its efforts on its three core regions— United Kingdom, Canada and the United States—where it has a leading presence in each region. The Company will also maintain more targeted operations in select markets in Europe, the Middle East, Asia-Pacific, and Latin America.

Within these geographies, SNC-Lavalin will focus on seven clearly defined customer end markets:

  1. Transportation – Rail and Transit, Road and Bridges, Aviation and Ports

  2. Buildings and Places – Social Infrastructure, Commercial and Residential Property, Urban Development

  3. Defence – Aerospace, Defence, Security

  4. Water – Water Utilities, Industrial Water Users, Water Resource Management

  5. Industrial and Mining – Pharma, Agri-food, Data Centres, Industrial, Life Sciences, Mining and Metallurgy

  6. Power and Renewables – Transmission and Distribution, Energy Storage, Hydropower, Renewable Energy

  7. Nuclear – Decommissioning and Waste Management, Reactor Support, New Builds

Leveraging Global Capabilities Locally
SNC-Lavalin intends to drive growth by deploying global capabilities locally to its clients and delivering unique end-to-end services across the whole life cycle of an asset, including:

  • Consulting, Advisory and Environmental Services

  • Intelligent Networks and Cybersecurity

  • Design and Engineering

  • Procurement

  • Project and Construction Management

  • Operations and Maintenance

  • Capital

  • Decommissioning

The Company will leverage its capabilities across services to meet client needs for de-carbonization and sustainable solutions by connecting people, data and technology. Its services can be offered individually or as a seamless, integrated partner, on small projects, long–term frameworks, and through collaborative roles on major projects.

Identifying Key Growth Areas
SNC-Lavalin will deploy its capabilities with a view to driving growth across the business, but with a particular focus on:

  • Engineering Services in the U.S., expanding our deep presence in select states

  • Nuclear Decommissioning and Waste Management, primarily in the U.S.

  • Major Projects with a focus on collaborative contract models, leveraging our breadth of capability across the asset life cycle

  • Digital Transformation, by deploying our expertise and global capabilities to meet client needs in the sector and pioneer data driven approaches to transform the way that projects are delivered.

Allocating Capital to Further Strengthen Financial Resilience and Support Growth
Future delivery of positive free cash flows(6) will be prioritized to further improve SNC-Lavalin's leverage and target a return to an investment grade credit rating. The Company's growth strategy may also be accelerated through organic and inorganic investments. Opportunistically and depending on the Company's cash resources, surplus capital may be returned to shareholders through share buybacks or dividend growth.

New Operational Structure to Drive Growth

To support the next phase of its transformation journey to growth, the Company has undertaken an operational realignment of the business. The new global market-facing structure will best serve the evolving needs of its clients, as well as support win-work efforts across its three core geographical markets.

The new operating structure will be as follows, effective January 1, 2022:

  • Philip Hoare and Steve Morriss will co-lead the newly formed Engineering Services business, bringing together EDPM, Mining and Metallurgy, as well as Infrastructure Services.

  • Steve Morriss will also retain responsibility for our majority-owned subsidiary, Linxon, a global leader in delivering sustainable energy solutions and an essential component of our Power and Renewables market offering.

  • The global Nuclear business, a cornerstone of our organization and instrumental components of the Company's future growth will continue to be led by Sandy Taylor.

  • Stéphanie Vaillancourt, who currently leads the Capital business, will also oversee Operations & Maintenance ("O&M") to better leverage synergies between those business' respective clients and projects.

  • Robert Alger will continue to oversee the Infrastructure LSTK Projects in the final run-off of the remaining three major Lump Sum Turnkey ("LSTK") projects – REM, Eglinton and Trillium.

The Engineering Services, Nuclear, O&M and Linxon businesses will be separate operating and reportable segments and be grouped as our SNCL Services line of business, while Infrastructure LSTK Projects and Capital will continue to be separate operating and reportable segments. The Company's financial reporting will be changed, starting in Q1 2022, with comparable figures restated to reflect these new operating and reportable segments and lines of businesses.

SNC-Lavalin's ability to deliver and succeed is driven by its people and their ideas. As such, the leadership team will be supported by a corporate culture characterized by inclusivity and diversity, as well as an energized work environment founded on the core values of safety, integrity, innovation, and collaboration.

Key Financial Targets

"We have taken deliberate actions over the last two years to de-risk and strengthen the business and are now at a point where we can further focus on growth. Today we are making a substantial commitment to deliver growth and target positive cash flows, which should position us to grow organically and inorganically," said Jeff Bell, Executive Vice-President and CFO of SNC-Lavalin Group Inc. "We will continue to work to strengthen the business, and we are excited by the growth plans we are unveiling today and what it means for shareholder valuation creation over time."

SNC-Lavalin's three-year "Pivoting to Growth Strategy" aims for the following targets:


Targets 2022-2024

SNCL Services

Revenue organic growth

Annually

4 – 6%

Segment adjusted EBIT to segment revenue ratio(3)

8 – 10%



Consolidated

Free cash flow(6) to consolidated adjusted net income(5) ratio

By end of 2024

80 – 90%*

Net limited recourse & recourse debt / consolidated adjusted EBITDA(4)

1.5 – 2.0



*Excluding the Federal charges settlement of $56M per year (2022-2024)






Segment
Adjusted
EBIT to
Segment
Revenue
Ratio(3)

Segment

Adjusted

EBITDA to

Segment

Net Revenue

Ratio(7)

SNCL Services



Engineering Services

8 – 10%

14 – 16%

Nuclear

13 – 15%

n/a

Linxon

4 – 6%

n/a

Operation & Maintenance (O&M)

5 – 7%

n/a

These key financial targets are meant to assist analysts and shareholders in forming their respective views on the Company's strategy. The reader is cautioned that using this information for other purposes may be inappropriate. These measures are subject to change. The financial targets presented above were prepared assuming current foreign exchange rate in markets in which the Company operates. The Company considered numerous economic and market assumptions regarding the competitive landscape, political environment and economic performance of each region where it operates. In preparing its 2022-2024 Pivoting to Growth Strategy forecast, the Company also assumed that economic factors and market competition in regions where it operates would remain stable.

The 2022-2024 Pivoting to Growth Strategy forecast was prepared and based on the same methodology described in the Company's Annual 2020 Management's Discussion and Analysis under the heading, "How We Budget and Forecast Our Results" (extrapolated out through 2024) and the "Forward-Looking Statements" section below and is subject to the risks and uncertainties summarized therein and in the Company's 2020 Annual Management's Discussion and Analysis and as updated in the Company's first and second quarter 2021 Management's Discussion and Analysis.

Virtual Investor Day Event Details

SNC-Lavalin will host a virtual Investor Day today at 8:30 a.m. Eastern Time. A live webcast of the presentation, including question and answer sessions, is available on the Company's Investor Day 2021 webpage. Registration is required and can be completed by clicking here. The event is also accessible by telephone, please dial toll free at 1 800 319 4610 in North America or dial 1 604 638 5340 outside North America. You can also use the following numbers: 416 915 3239 in Toronto, 514 375 0364 in Montreal, or 080 8101 2791 in the United Kingdom. A recording of the event and its transcript will be available on the Company's website within 48 hours following the event.

About SNC-Lavalin

Founded in 1911, SNC-Lavalin is a fully integrated professional services and project management company with offices around the world dedicated to engineering a better future for our planet and its people. We create sustainable solutions that connect people, technology and data to design, deliver and operate the most complex projects. We deploy global capabilities locally to our clients and deliver unique end-to-end services across the whole life cycle of an asset including consulting, advisory & environmental services, intelligent networks & cybersecurity, design & engineering, procurement, project & construction management, operations & maintenance, decommissioning and capital. – and delivered to clients in key strategic sectors such as Engineering Services, Nuclear, Operations & Maintenance and Capital. News and information are available at snclavalin.com or follow us on LinkedIn and Twitter.

Non-IFRS Financial Measures and Additional IFRS Measures

The Company reports its financial results in accordance with IFRS. However, the following non–IFRS measures, ratios and additional IFRS measures are used by the Company in this press release: Segment Adjusted EBIT, Segment Adjusted EBIT to segment revenue ratio, Adjusted EBITDA, Free Cash Flow, Segment Adjusted EBITDA to segment net revenue ratio, Segment adjusted EBITDA and Segment net revenue. Additional details for these non-IFRS measures and ratios can be found either below or in Section 9 of SNC-Lavalin's Management's Discussion and Analysis ("MD&A") for the second quarter of 2021, filed with the securities regulatory authorities in Canada, available on SEDAR at www.sedar.com and on the Company's website at www.snclavalin.com under the "Investors" section. Non-IFRS financial measures do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS, these non-IFRS measures provide additional insight into the Company's operating performance and financial position and certain investors may use this information to evaluate the Company's performance from period to period. However, these non-IFRS financial measures have limitations and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

(1) The target is for the new business line of SNCL Services, which will be effective January 1, 2022, and will include the following operating and reportable segments: Engineering Services, Nuclear, O&M and Linxon.

(2) Segment Adjusted EBIT consists of revenues allocated to the applicable segment less i) direct costs 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 and transformation costs, amortization of intangible assets related to business combinations, gains (losses) on disposals of PS&PM businesses and Capital investments (or adjustments to gains or losses on such disposals), gain on remeasurement of assets of disposal group classified as held for sale to fair value less cost to sell, net financial expenses and income taxes. It should be noted that the following adjustments were 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: acquisition-related costs and integration costs and the Federal charges settlement (PPSC) expense. See a reconciliation of total Segment Adjusted EBIT to net income (loss) in Section 4 of the Annual MD&A and Section 4 of the Q2 2021 MD&A.

(3) Segment Adjusted EBIT to segment revenue ratio is a measure used to analyze the profitability of the Company's segments and facilitate period-to-period comparisons, as well as comparison with peers. This financial measure is calculated by dividing the amount of Segment Adjusted EBIT of a given period by the amount of segment revenue for the same period. See a reconciliation of Segment Adjusted EBIT to segment revenue ratio in Section 4 of the Annual MD&A and Section 4 of the Q2 2021 MD&A.

(4) Adjusted EBITDA is a non-IFRS financial measure used by management to facilitate operating performance comparison from period to period and to prepare annual operating budgets and forecasts. Adjusted EBITDA is based on EBITDA from continuing operations and excludes charges related to restructuring and transformation costs, gains (losses) on disposals of PS&PM businesses and Capital investments (or adjustments to gains or losses on such disposals), the adjustment to provision for the Pyrrhotite Case litigation (described in Note 33 to the 2020 Annual Financial Statements, as updated in Note 12 to the Company's unaudited interim condensed consolidated financial statements for the three-month and six-month periods ended June 30, 2021), the fair value revaluation of the Highway 407 ETR contingent consideration receivable, the Guaranteed Minimum Pension ("GMP") equalization expenses and the gain on remeasurement of assets of disposal group classified as held for sale to fair value less cost to sell. It should be noted that the following adjustments were 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: acquisition-related costs and integration costs and the Federal charges settlement (PPSC) expense. The Company believes that Adjusted EBITDA is useful for providing securities analysts, investors and others with additional information to assist them in understanding components of its financial results, including a more complete understanding of factors and trends affecting the Company's operating performance. Adjusted EBITDA is believed to supplement information provided, as it highlights trends that may not otherwise be apparent when relying solely on IFRS financial measures. Refer to the Q2 2021 MD&A, Section 9.4 and to the Annual MD&A, Section 13.3, for a reconciliation of Adjusted EBITDA to net income (loss) from continuing operations as determined under IFRS. Such reconciliation is provided on a consolidated basis and also separately for PS&PM activities, as the Company believes that such measures are useful since these PS&PM activities are analyzed separately by the Company.

(5) Adjusted net income (loss) attributable to SNC-Lavalin shareholders is defined as net income (loss) attributable to SNC-Lavalin shareholders from continuing operations, adjusted for certain specific items that are significant but are not, based on management's judgement, reflective of the Company's underlying operations. These adjustments are restructuring and transformation costs, amortization of intangible assets related to business combinations, gains (losses) on disposals of PS&PM businesses and Capital investments (or adjustments to gains or losses on such disposals), the fair value revaluation of the Highway 407 ETR contingent consideration receivable, the adjustment to provision for the Pyrrhotite Case litigation, gain on remeasurement of assets of disposal group classified as held for sale to fair value less cost to sell, the GMP equalization expense, as well as income taxes and non-controlling interests on these adjustments. It should be noted that the following adjustments were removed from the list of adjustments disclosed in prior periods as there was no adjustment of this nature in the current and comparative periods: acquisition-related costs and integration costs, financing costs related to the agreement to sell shares of Highway 407 ETR and the federal charges settlement (PPSC) expense. The Company believes that Adjusted net income (loss) attributable to SNC-Lavalin shareholders is useful for providing securities analysts, investors and others with additional information to assist them in understanding components of its financial results, including a more complete understanding of factors and trends affecting the Company's operating performance. Adjusted net income (loss) attributable to SNC-Lavalin shareholders is believed to supplement information provided, as it highlights trends that may not otherwise be apparent when relying solely on IFRS financial measures. It is also used by management to evaluate the performance of the activities of the Company from period to period. Refer to the Q2 2021 MD&A, Section 9.4 and to the Annual MD&A, Section 13.3, for a reconciliation of Adjusted net income (loss) attributable to SNC-Lavalin shareholders to net income (loss) as determined under IFRS.

(6) SNC-Lavalin has determined to commence presenting free cash flow in its financial disclosures. Free cash flow is a non-IFRS measure without a standardized definition within IFRS. Other issuers may define a similar measure differently and, accordingly, this measure may not be comparable to similar measures used by other issuers. SNC-Lavalin defines and calculates free cash flow as being net cash generated from (used for) operating activities less acquisition of property and equipment and less payment of lease liabilities. SNC-Lavalin believes that, as a financial measure, free cash flow provides a meaningful measure of discretionary cash generated by and available to the Company to service debt, meet other payment obligations and make strategic investments, among other things. For the financial year ended December 31, 2020, SNC-Lavalin's free cash flow would have been reported as $(73.0) million, representing $121.5 million of net cash generated from operating activities less $75.8 million in acquisition of property and equipment and $118.7 million in payment of lease liabilities. For the three and six months ended June 30, 2021, free cash flow would have been reported as $25.6 million and $(13.1) million, respectively, representing $78.1 million of net cash generated from operating activities less $19.6 million in acquisition of property and equipment and $32.9 million in payment of lease liabilities for the second quarter of 2021 and $83.7 million of net cash generated from operating activities less $38.2 million in acquisition of property and equipment and $58.6 million in payment of lease liabilities for the first half of 2021.

(7) Segment Adjusted EBITDA to segment net revenue ratio is a measure used to analyze the profitability of the Company's segments and facilitate period-to-period comparisons, as well as comparison with peers. This financial measure is calculated by dividing the amount of Segment adjusted EBITDA of a given period by the amount of segment net revenue for the same period.

(8) Segment adjusted EBITDA is a supplemental measure derived from Segment Adjusted EBIT and used by management to evaluate the performance of the Company's segments but excluding certain items related to investing activities, through the exclusion of depreciation and amortization from direct costs of activities. Management believes that this measure is used by certain securities analysts and investors when comparing the Company's performance against competitors. See a reconciliation of Segment Adjusted EBITDA to Segment Adjusted EBIT in the Company's Q2 2021 MD&A Section 9.4 and to the Annual MD&A, Section 13.3, whereas total Segment Adjusted EBIT is reconciled to consolidated net income (loss) in Section 4 of the Annual MD&A and Section 4 of the Q2 2021 MD&A.

(9) SNC-Lavalin will begin presenting in Q1 2022, Segment net revenue for its Engineering Services segment in its financial disclosures. Segment net revenue is a non-IFRS measure without a standardized definition within IFRS. Other issuers may define a similar measure differently and, accordingly, this measure may not be comparable to similar measures used by other issuers. Segment net revenue consists of revenues less direct costs for sub-contractors and other direct expenses that are recoverable directly from clients. Management believes that this measure is used by certain securities analysts and investors when comparing the Company's performance against competitors and peer companies.

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 associates, or SNC-Lavalin Group Inc. or one or more of its subsidiaries or joint arrangements or associates.

Statements made in this press release that describe the Company's or management's, budgets, estimates, expectations, financial targets, 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", "outlooks", "estimates", "expects", "goal", "intends", "may", "plans", "projects", "forecasts", "should", "synergies", "target", "vision", "will", "likely", 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 additional 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 2020 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 2021 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) additional impacts of the COVID-19 pandemic; (b) execution of the strategic direction announced in 2019; (c) fixed-price contracts or the Company's failure to meet contractual schedule, performance requirements or to execute projects efficiently; (d) remaining performance obligations; (e) contract awards and timing; (f) being a provider of services to government agencies; (g) international operations; (h) Nuclear liability; (i) ownership interests in investments; (j) dependence on third parties; (k) joint ventures and partnerships; (l) information systems and data and compliance with privacy legislation; (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) divestitures and the sale of significant assets; (v) intellectual property; (w) liquidity and financial position; * indebtedness; (y) impact of operating results and level of indebtedness on financial situation; (z) security under the CDPQ Loan Agreement; (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) the impact on the Company of legal and regulatory proceedings, investigations and litigation settlements; (hh) further regulatory developments as well as employee, agent or partner misconduct or failure to comply with anti-bribery and other government laws and regulations; (ii) reputation of the Company; (jj) inherent limitations to the Company's control framework; (kk) environmental laws and regulations; (ll) Brexit; (mm) global economic conditions; (nn) fluctuations in commodity prices; and (oo) income taxes.

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 2020 Annual MD&A and as updated in the first and second quarter 2021 MD&A, each filed with the securities regulatory authorities in Canada, available on SEDAR at www.sedar.com and on the Company's website at www.snclavalin.com under the "Investors" section.

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

Cision
Cision

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