In July SNC-Lavalin announced that it was exiting lump sum turnkey contracting and would reorganize the Company’s Resources (Oil & Gas and Mining & Metallurgy) and Infrastructure Construction segments into a separate business line. This strategic decision was based on what the Company itself views as “continued poor performance of these segments”. The Company also indicated that it was exploring options for its resources segment, particularly its oil and gas business, including a transition to a services-based business or divestiture.
A month after announcing that it would forge a new strategic direction, SNC-Lavalin sold a 10% stake of its interest in Highway 407. On the closing of the sale, SNC-Lavalin received $3 billion. An additional $250 million is payable to SNC-Lavalin over a period of 10 years, conditional on the attainment of certain financial performance indicators related to Highway 407. Shareholders of Highway 407 now consist of companies controlled by CPPIB owning approximately 50.01% of the common shares, a subsidiary of Cintra Global with 43.23% of the shares, and SNC-Lavalin, with 6.76% of the common shares.
Exiting from lump sum turnkey contracting is the first step of a new strategic direction set out by the Company that is focused on de-risking its business and generating more consistent earnings and cash flow. Together with the sale of 10% of Highway 407 for $3 billion, the Company’s goal is to strengthen the balance sheet and enhance financial flexibility, while reducing risk. The Company views lump-sum, turnkey projects as being the root cause of the Company’s performance issues. By exiting from such contracting, the Company expects improvements in its cash flow and profitability.
During an interview at the annual Canadian Council for Public-Private Partnerships conference in November in Toronto, with Jonathan Wilkinson, President, Infrastructure, SNC-Lavalin, he emphasized that existing lump sum turnkey projects such as the renewal of the Champlain Bridge and the construction of the Réseau express métropolitain (REM), the Eglinton Crosstown LRT, the Trillium Line in Ottawa and the St. Johns Husky Energy Float would be completed. The Company expects to complete most of these construction projects by the end of 2021.
Jonathan Wilkinson, Vice President, Infrastructure, SNC-Lavalin, speaks at the CCPPP Conference in Toronto
SNC-Lavalin, along with partners Toronto-based ACS Infrastructure and Germany-based Hochtief Aktiengesellschaft, is part of the Signature on the Saint Lawrence Group consortium, which is responsible for the design, construction, financing, operations and maintenance of the new Champlain Bridge. The Champlain Bridge Corridor Project is being built under a public-private partnership agreement between the federal government and Signature on the Saint Lawrence Group.
Construction on the New Champlain Bridge in Montreal
The Réseau express métropolitain (REM) is a new, 67 kilometer integrated public transit network that will feature 26 stations and link downtown Montreal, universities, South Shore, West Island, North Shore and Montréal Trudeau airport through a fully automated, electric light rail system. REM will offer high-frequency service and will be connected to three main Montreal metro lines.
The Eglinton Crosstown Light Rail project consists of 19 kilometers of light-rail transit running both underground and at-grade and includes 15 underground stations, 10 stops and a maintenance and storage facility for the vehicle fleet. This project is the largest public transit project currently under construction in Canada.
Schematic of the Eglinton Crosstown Light Rail Project in Toronto
SNC-Lavalin is building a twelve kilometer extension to the Trillium Line, a light rail transit system in Ottawa, which is expected to be completed by 2022 at an estimated cost of $1.63 billion.
In August 2017, a partnership between SNC Lavalin, Dragados Canada and Pennecon Ltd was awarded a construction contract from Husky Energy for its West White Rose Project in Newfoundland and Labrador. The consortium is building a concrete gravity structure for a fixed drilling platform, which will have an overall height of 145 meters and base diameter of 122 meters. The construction will take place in a purpose built dry dock from 2017 to 2021. Once completed and installed in the White Rose field, this platform will enable drilling and oil extraction 350 kilometers away from the coast of Newfoundland in the Atlantic Ocean.
Construction of the base of the White Rose Platform
SNC’s new strategic direction is already showing positive results. Its Q3 2019 financial statements indicate that debt was reduced by $2.4 billion, lump sum turnkey projects were reduced from $3.4 billion to $3.2 billion as of the end of June 2019, seven new contracts were signed with a value of approximately $500 million and the Company expects to realize $100 in cost savings by year end.
These financial results are evidence that SNC-Lavalin may be recovering from a year that has presented numerous challenges for the Company.
Article authored by Beverley Brooks.
