SNC-Lavalin Reports Second Quarter 2020 Results

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MONTREAL, July 31, 2020 /CNW Telbec/ – SNC-Lavalin Group Inc. (TSX: SNC) today announced its results for the second quarter ended June 30, 2020. 

2020 Second Quarter Highlights

  • Net loss attributable to SNC-Lavalin shareholders of $111.6 million, or $(0.64) per diluted share, compared with a net loss of $2,118.3 million, or $(12.07) per diluted share for Q2 2019
    • Q2 2020 net loss includes $47.3 million of restructuring costs mainly related to the Resources Services transformation (see press release issued earlier today) and EDPM.
  • SNCL Engineering Services; resilient through COVID-19, outlook provided
    • Total Segment Adjusted EBIT(3) of $132.5 million, representing a 9.0% margin. EDPM Segment Adjusted EBIT(3) of $78.8 million, representing an 8.4% margin. 
    • SNCL Engineering Services revenue for the second half of 2020 forecast to decrease by a low to mid single digit percentage, compared to the second half of 2019, and Segment Adjusted EBIT(3) as a percentage of revenue expected to be between 8% and 10%.
  • SNCL Projects; backlog continued to reduce, results impacted by COVID-19 
    • LSTK projects backlog reduced by $0.2 billion in the quarter to $2.7 billion, with $2.4 billion being Infrastructure EPC Projects. 
    • Resources LSTK Backlog reduced to $0.2 billion and remains on track to be largely completed by end of 2020, considerably improving management’s visibility on completion risks. 
    • Total negative Segment Adjusted EBIT(3) of $141.3 million, which included a loss of $122.3 million in Resources and a loss of $19.0 million in Infrastructure EPC Projects. 
    • Lower productivity from COVID-19 impacted LSTK projects in both Resources and Infrastructure EPC Projects resulting in project reforecasts, with Resources taking a $70 million charge related to client disputes on a project. 
  • Strong financial position and operating cash flows
    • Cash and cash equivalents at $1.6 billion and net recourse debt to EBITDA ratio at 1.0x (calculated in accordance with Credit Agreement). 
    • $129.8 million of net cash generated from operating activities during Q2, with SNCL Engineering Services generating $222 million.

CEO Commentary

Ian L. Edwards, President and CEO of SNC-Lavalin Group Inc., made the following comments:

“During the last quarter, our business has demonstrated resilience through the challenges posed by COVID-19. This would not have been possible without the commitment and efforts of our employees, to whom I offer my thanks and appreciation. The unprecedented economic situation precipitated by COVID-19 and the downturn in oil prices has demonstrated that we made the right decision in changing our business model and exiting LSTK contracting to focus on our core engineering services strengths. Our Engineering Services business in Q2 delivered solid financial results.”

“COVID-19 did have an impact on our LSTK projects productivity, contributing to project reforecasts; however, we do not consider these losses to be representative of future quarterly performance. The LSTK backlog continued to reduce and we are now in the final phases of closing out the Resources LSTK projects, improving management’s visibility on completion risks. We are confident about transforming and resizing our Resources Services business, and its potential to add real value to our Professional Services and Project Management capabilities and to complement our existing Engineering Services focused strategy.”

Second Quarter Financial Highlights

Note that effective from the second quarter of 2020, the Company presents financial results of Capital outside of SNCL Engineering Services.

 (in thousands of dollars, unless otherwise indicated)Second Quarter
Total revenue1,952,7392,284,177
Net loss attributable to SNC-Lavalin shareholders(111,647)(2,118,320)
Diluted EPS ($)(0.64)(12.07)
SNCL Engineering Services 
Segment Adjusted EBIT(3)132,526123,358
Segment Adjusted EBIT to revenue ratio(6) (%)9.0%8.2%
SNCL Projects
Revenue   461,646709,679
Segment Adjusted EBIT(3)(141,307)(307,704)
Segment Adjusted EBIT to revenue ratio(6) (%)(30.6%)(43.4%)
Segment Adjusted EBIT(3)18,37569,189
Net cash generated from (used for) operating activities129,818(367,603)
Adjusted EBITDA from PS&PM(4)39,578(151,783)
Adjusted diluted EPS(2)  from PS&PM ($)(0.22)(1.71)

Second Quarter Results

The Company reported a net loss attributable to SNC-Lavalin shareholders of $111.6 million, or $(0.64) per diluted share in Q2 2020, compared with a net loss of $2,118.3 million, or $(12.07) per diluted share, for the corresponding period in 2019, as the latter included a non-cash goodwill impairment charge and an impairment of intangible assets relating to the Company’s Resources segment totaling $1.8 billion (after taxes) and unfavorable reforecasts on certain LSTK construction projects of approximately $280 million. Q2 2020 net loss included restructuring costs of $47.3 million (after taxes), mainly related to restructuring activity in EDPM and Resources Services.

Adjusted net loss(1) from PS&PM in Q2 2020 amounted to $38.2 million, or $(0.22)per diluted share, compared with an adjusted net loss(1) from PS&PM of $299.8 million, or $(1.71) per diluted share, for the corresponding period in 2019. 

SNCL Engineering Services

The SNCL Engineering Services business (comprised of the EDPM, Nuclear and Infrastructure Services segments) has been resilient through COVID-19, as the decisive and early actions that management took to align costs have proven to be effective. Revenue from SNCL Engineering Services totaled $1,469.5 million in Q2 2020, a 2.0% decrease from the corresponding period in 2019, while Segment Adjusted EBIT(3) totaled $132.5 million, representing a 7.4% increase, compared to Q2 2019. The EDPM segment has performed strongly over the last quarter, underpinned by its long-term client relationships and strong public sector focus. The Nuclear and Infrastructure Services segments continue to be resilient in the current COVID-19 environment, due to a combination of their services being considered essential and the long-term nature of their contracts.

SNCL Engineering Services also generated $222 million of cash from operations in Q2 2020, although approximately $100 million of this benefit will reverse over time related to COVID-19 government payment terms and sales tax deferrals.

EDPM Segment Adjusted EBIT(3) was $78.8 million, representing a margin of 8.4%, in Q2 2020, compared to $81.5 million, representing a margin of 8.4%, in Q2 2019, as the decrease in revenue as a consequence of COVID-19 was largely offset by cost mitigation measures. 

The Nuclear and Infrastructure Services Segments Adjusted EBIT(3) increased to $53.8 million in Q2 2020, compared to $41.8 million in Q2 2019, mainly driven by increased scopes of work on certain Operations & Maintenance (“O&M”) contracts and improved performance on other existing and new contracts.

SNCL Engineering Services backlog totaled $11.0 billion as at June 30, 2020, compared to $11.1 billion at the end of 2019. Total bookings for Q2 2020 amounted to $1.5 billion, representing a 1.1 booking-to-revenue ratio(5), a strong result despite the current COVID-19 environment.

SNCL Projects

In line with the Company’s previous decision to exit LSTK projects, revenue from the SNCL Projects line of business (comprised of Resources and Infrastructure EPC Projects segments), which includes LSTK construction contracting, continued to decrease and totaled $461.6 million in Q2 2020, a decrease of 35.0% compared to Q2 2019. This was mainly due to the continuing backlog run-off of Resources and Canadian light rail transit LSTK construction projects. 

SNCL Projects backlog continues to decrease and totaled $3.4 billion as at June 30, 2020, compared to $3.9 billion as at March 31, 2020. SNCL Projects backlog at the end of June 30, 2020 included $0.8 billion of reimbursable & engineering services contracts and $2.7 billion of LSTK construction contracts, split between Infrastructure EPC Projects with $2.4 billion, and Resources with $0.2 billion. The Resources LSTK construction contracts backlog remains on track to be largely completed by end of 2020. Since announcing the exit of LSTK projects in Q2 2019, the Resources LSTK project backlog has reduced from $581 million to $234 million, which has considerably improved management visibility of the remaining completion risks in Resources LSTK.

The Resources segment recorded a negative Segment Adjusted EBIT(3) of $122.3 million in Q2 2020, compared to a negative Segment Adjusted EBIT(3) of $181.6 million in Q2 2019. The loss in Q2 2020 was driven by the underperforming Services business, as cost reduction and restructuring activity from the new strategic direction (see press release issued earlier today) was at an early stage, and by a $70 million charge related to client disputes on a Middle East LSTK project, as well as lower productivity on LSTK projects, all of which has been impacted by COVID-19. The Company does not consider the charge in Q2 representative of current performance.

All Infrastructure LSTK construction projects, except the Husky project, which was suspended in March by the client, continue to progress well, despite COVID-19 having had some impact on pace of delivery. The Infrastructure EPC Projects segment delivered a negative Segment Adjusted EBIT(3) of $19.0 million in Q2 2020, compared to a negative Segment Adjusted EBIT(3) of $126.1 million in Q2 2019, as project reforecasts and lower productivity since mid-March due to revised working conditions caused by COVID-19 impacted margin and profitability. The Company remains confident that the Infrastructure LSTK projects should be cash positive over their project life and that the Q2 loss does not represent a new trend.


Capital Segment Adjusted EBIT(3) decreased to $18.4 million, compared to $69.2 million in Q2 2019, as no dividends were received in the quarter from the Company’s reduced interest in Highway 407 ETR. Highway 407 ETR has seen significant reductions in traffic volumes since mid-March, and while the full duration and scope of the impact on Highway 407 ETR from the pandemic remain unknown, management continue to strongly believe in the long-term concession value. Excluding the Highway 407 ETR, the Capital segment businesses are primarily availability-based contracts and have not been significantly impacted by the COVID-19 pandemic.

Second Quarter Financial Position and Cash Flows

The Company generated $129.8 million of net cash from operating activities in Q2 2020, compared to a net cash used for operating activities of $367.6 million in Q2 2019, which benefited from temporary positive working capital from certain projects and included approximately $100 million of benefit from COVID-19 government payment terms and sales tax deferrals, which will reverse in the coming quarters. The remaining improvement is mainly due to improved profitability, particularly in SNCL Engineering Services, which generated $222 million of net cash from operating activities in Q2 2020, compared to $45 millionin Q2 2019. 

As a result of these actions, and other working capital initiatives, as at June 30, 2020, the Company had $1.6 billion of cash and cash equivalents. The Company has an additional $1.5 billion available on its revolving credit facility should it so need. The Company has $1.7 billion of recourse debt, of which $0.3 billion is due for repayment in Q4 2020, with the remainder not due until 2021 and beyond, and $0.4 billion of limited recourse debt. 

As at June 30, 2020, the net recourse debt to EBITDA ratio calculated in accordance with the terms of the Company’s Credit Agreement was 1.0x, well below the required covenant level of 3.75x.

Quarterly Dividend

The Board of Directors today declared a cash dividend of $0.02 per share, unchanged from the previous quarter. The dividend is payable on August 28, 2020to shareholders of record on August 14, 2020. This dividend is an “eligible dividend” for Canadian federal and provincial income tax purposes.

2020 Outlook 

As the scale and economic impact on the business from COVID-19 becomes clearer, and the resiliency of the Company’s businesses are supplemented by management actions, it provides improved visibility on the forecasted financial outcome for the remainder of the year. The Company now expects, assuming no significant deviation from the current COVID-19 worldwide situation, that SNCL Engineering Services revenue for the second half of 2020 should decrease by a low to mid single digit percentage, compared to the second half of 2019, and that its Segment Adjusted EBIT(3) as a percentage of revenue should be between 8% and 10% for the same period. 

This outlook is based on the assumptions and methodology described in the Company’s  second quarter 2020 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 and in the Company’s 2019 Annual Management’s Discussion and Analysis, which are more fully described in the Company’s public disclosure documents.

Second Quarter 2020 Earnings Conference Call / Webcast

SNC-Lavalin will hold a conference call today at 8:30 a.m. EDT to review results for its second quarter of 2020. A live audio webcast of the conference call and an accompanying slide presentation will be available at The call will also be 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 conference call and its transcript will be available on the Company’s website within 24 hours following the call.

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