MONTREAL, Feb. 11, 2019 /CNW Telbec/ - SNC-Lavalin
Group Inc. (TSX: SNC) announces that its full year 2018 results
will be lower than expected and announced on January 28, 2019
(www.snclavalin.com/en/media/press-releases/2019/snc-lavalin-announces-lower-than-anticipated-q4-results-impacting-full-year-2018.aspx),
due to the inability to reach an agreement with the Company's
client on the Mining & Metallurgy project indicated in the
January 28th press
release.
Following further negotiations and discussions with the Mining
& Metallurgy client in question subsequent to January 28, 2019, the parties have agreed to
settle the dispute through an accelerated arbitration process, out
of which the Company currently expects significant recoveries in
the future. Management concluded that having the project claims
fast-tracked into arbitration by an independent third party was the
appropriate alternative, given the circumstances. In the meantime,
SNC-Lavalin will continue to work to complete the project. Due to
the fact that SNC-Lavalin cannot achieve the necessary required
level of agreement at this time with the client to meet the IFRS
standards for revenue recognition, the loss in the Company's Mining
& Metallurgy Segment EBIT(5) will be higher in 2018
than the Company expected or could have known on January 28, 2019. The challenges on this mining
project are mainly due to unexpected site conditions, greater than
expected environmental and safety measures, and under-performance
from sub-contractors. As the Company expects some recoveries in the
future, significant of the current write-downs on the project
should not be considered a permanent write-off until the
arbitration process is concluded. The project is located in
Latin America and is anticipated
to be completed in the second quarter of 2019. Due to the negative
impact from the above-mentioned project, the Mining &
Metallurgy fourth quarter Segment EBIT(5) will be
up to negative $350
million.
The Company continues to view this as an isolated incident of a
non-recurring nature. The Company does not have any other Mining
& Metallurgy projects that have similar characteristics.
To address this disappointing result, management has so far
taken the following actions: stopped all bidding on future Mining
EPC projects, reviewed the Mining & Metallurgy management
structure and asked Mr. Ian Edwards,
the new Chief Operating Officer, to personally engage to
immediately strengthen the local project team.
The Company has discussed the cash flow impact of this project
with its lenders, with whom it has been agreed that the net
recourse debt to EBITDA covenant and ratio calculation be
temporarily increased to 4 times and that the forecasted loss on
the Mining & Metallurgy project be considered as a
non-recurring item, up to a maximum of $310
million. The Company confirms that it has no plans to raise
equity, as it continues to have nearly $1.8
billion drawings available under its credit facility and it
is not in breach of its covenants under its credit agreement, as
amended.
Due solely to the above mentioned Mining & Metallurgy
project revised forecasts resulting from newly uncovered facts
and developments since January 28th,
the Company now expects that its adjusted diluted EPS from
E&C(1) for the year ended December 31, 2018 to be in the range of
$0.20 to $0.35, and expects that its adjusted consolidated
diluted EPS(2) to be in the range of $1.20 to $1.35.
The Company is also establishing its initial 2019 outlook for
the adjusted diluted EPS from E&C(1) in the range of
$2.00 to $2.20, and for the adjusted consolidated diluted
EPS(2) in the range of $3.00 to $3.20.
More details on the Company's 2019 guidance will be provided in
its upcoming fourth quarter earnings release, on February 22, 2019, at which time the Company will
also provide further details concerning its 2018 results during the
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.
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)
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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.
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(2)
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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.
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(3)
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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.
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(4)
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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.
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(5)
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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.
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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 (including the outcome of the pending arbitration
proceedings involving the Mining & Metallurgy client in
Latin America referenced herein)
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