Morningstar | SNC-Lavalin Names Ian Edwards Interim CEO as Neil Bruce Retires; Maintaining Our FVE
In 2019, SNC-Lavalin consolidated its engineering and construction operations to four segments from seven: resources (which includes the mining and metallurgy and the oil and gas businesses), nuclear, infrastructure, and engineering design and project management, or EDPM.A key differentiator for SNC-Lavalin is its capital segment, through which it invests in infrastructure projects through P3s, or public-private partnerships. The firm seeks to be involved in all stages of a project, from financing infrastructure projects alongside government agencies, through performing engineering and construction and operations and maintenance work, to selling or retaining its interest in the asset after it is built. This comprehensive package distinguishes SNC-Lavalin from many competitors, which lack the same broad capabilities, and puts the firm in a favorable position to capitalize on infrastructure investment opportunities in Canada.SNC-Lavalin owns attractive assets in its portfolio, including its lucrative stake in Highway 407, as well as its nuclear, EDPM, and capital segments. However, issues have continued to mount in recent years. SNC-Lavalin faces bribery and corruption charges related to projects in Libya, and the company could face a 10-year ban from bidding on Canadian federal government projects. Furthermore, icy relations between Canada and Saudi Arabia have led to a CAD 1.2 billion goodwill impairment in the firm’s oil and gas business due to materially dimmed prospects in the region. The company also took a nearly CAD 350 million charge in 2018 due to cost overruns on a mining project in South America.SNC-Lavalin faces very high uncertainty due to this host of issues coupled with high leverage. The company carries a high debt balance after acquiring WS Atkins in 2017, and management has cut the quarterly dividend from CAD 0.287 to CAD 0.10 and announced the sale of 10% of its interest in Highway 407 to help pay off debt. Management is also exploring further options, which could include the sale of WS Atkins.SNC-Lavalin Group is an engineering and construction group, and is engaged in the ownership of infrastructure and in the provision of operations and maintenance services. Co.'s segments are: mining and metallurgy, which provide tailored solutions for projects in the aluminum, gold, copper product sectors, among others; oil and gas, which includes projects for oil and gas and resources companies; power, which includes projects and services in hydro, and nuclear and thermal power generation, among others; infrastructure, which include infrastructure & construction, and operations and maintenance; capital, which invest in equity or subordinated debt into projects for public services.
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