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Wed August 21 2019

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Projects losses prompt SNC-Lavalin to quit turnkey contracting

23 Jul Canadian construction group SNC-Lavalin, parent company of the UK’s WS Atkins, is restructuring after second-quarter project losses.

Montreal’s transit megaproject, the Réseau express métropolitain (REM)
Montreal’s transit megaproject, the Réseau express métropolitain (REM)

SNC-Lavalin is quitting lump-sum turnkey contracting and reorganising its Resources (Oil & Gas and Mining & Metallurgy) and Infrastructure Construction segments into a separate business line following continued poor performance of these segments.

The company is also exploring options for its Resources segment, particularly its Oil & Gas (O&G) business, including selling it.

The SNC-Lavalin board wants to focus on the high-performing and growth areas of the business, which will be reported under SNCL Engineering Services.

All current contractual obligations will be met, including on the Réseau Express Métropolitain (REM) in Quebec and will be reorganised as SNCL Projects, with separate financial reporting to keep the accounts of the core business ‘clean’.

The strategy rethink comes on the back of losses on lump-sum turnkey construction project, which forced the company to issue a profits warning.

It is also represents a further tightening of belts at SNC-Lavalin after its decision just two months ago to withdraw from 15 countries to focus on core geographies.

“Lump-sum, turnkey projects have been the root cause of the company’s performance issues,” said Ian Edwards, interim president and chief executive. “By exiting such contracting and splitting it off from what is otherwise a healthy and robust business, we are tackling the problem at the source, and as a result we expect to see a material improvement in the predictability and clarity of our results.”

He added: “We have a very impressive integrated professional services offering in EDPM (engineering, design and project management), Nuclear, Infrastructure Operations & Maintenance (O&M) and Linxon, as well as a robust investment in Capital, the results of which have been overshadowed by LSTK (lump-sum turnkey) projects. Going forward, the reorganisation will allow us to focus on leveraging growth opportunities and end-to-end project management capabilities that we have in SNCL Engineering Services, delivering consistent earnings and cash flow, with a leaner capital structure, to our shareholders.”

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