Chief executive officer Ian Edwards and his team are optimistic SNC can book more business based on contract models in which financial risk is spread out more evenly among those involved.Dario Ayala/Reuters
Canadian engineering company SNC-Lavalin Group Inc . is eyeing a bigger push into the United States as it positions itself to win a piece of billions of dollars in planned infrastructure spending and prove it can make money on a consistent basis after years of crisis.
Montreal-based SNC has 5,000 employees in the U.S., far fewer than its main rivals, with staff working on infrastructure projects in southern states such as Texas, Florida and Georgia, according to chief executive officer Ian Edwards. The company has a “potential market share grab” in more northern states, as well as California, where it sees “heavy investment” and demand to replace aging systems from public transit lines to power grids, he said.
“We’ll continue to build on” SNC’s existing footprint, Mr. Edwards told The Globe and Mail on Thursday after the company posted a fourth quarter loss from continuing operations of $322.9-million, or $1.84 a share, on revenue of $1.7-billion. “The key right now for us is organic growth.”
Hobbled for years by corruption allegations and a business model under which it bled cash to complete lump-sum, turnkey contracts, SNC is trying to reshape itself into a lower-risk engineering services company. It has put in place more rigorous ethics and compliance policies, and is closing out its lump-sum construction projects, which required the company to assume responsibility for cost overruns and shifting to more consulting services-type of work.
SNC has developed expertise for cleaning up waste in the U.S. nuclear sector. The company won a contract last September from the U.S. Department of Energy to decommission and dismantle several facilities at the Hanford nuclear site near Richland, Wash., and plans to bid on more business.
It got a separate contract last month to help Rye Development LLC boost hydroelectric generating capacity on three dams in southwestern Pennsylvania owned by the U.S. Army Corps of Engineers, the first contract of its kind for SNC in the U.S. The work is symbolic for SNC because its first contracts more than 100 years ago were for hydropower facilities.
U.S. President Joe Biden’s plan for major infrastructure spending also presents “great potential” to add growth opportunities for SNC, Mr. Edwards said. The exact size of the President’s proposal, which is separate from a US$1.9-trillion virus relief package poised to win approval in the House of Representatives, is not yet clear but there are reports it could be even bigger than that stimulus effort.
SNC announced plans last month to sell its oil and gas business and take charges and other adjustments worth $480-million after doing a comprehensive review of continuing litigation and commercial claims receivable on all projects. The charges make up most of the loss reported for the fourth quarter on Tuesday.
SNC ended 2020 with cash of $932.9-million, a backlog of work worth $10.9-billion, and a net debt-to-earnings ratio of 2.1. It generated net cash from operations of $121.5-million for the year, the first time it has been net cash positive on an annual basis since fiscal 2016.
Mr. Edwards and his team are optimistic SNC can book more business based on contract models in which financial risk is spread out more evenly among those involved. One such example is the East West Rail project between Oxford and Cambridge in Britain, which is being organized through what SNC calls “an alliance” with three other partners working under a single project agreement.
Decisions on the East West project are made as a collective, and benefits and risks are shared as it progresses, according to SNC. Unlike lump-sum turnkey projects such as Montreal’s new Champlain Bridge, the collaborative model has a capped level of risk, Mr. Edwards said.
“The light at the end of the tunnel is becoming more visible” for SNC as two of the remaining three lump-sum turnkey projects are expected to be completed by the end of 2022 and the last by 2024, National Bank of Canada analyst Maxim Sytchev said in a research note. “After that, we are talking about a high-quality engineering business with a 407 ETR [concession asset] attached to it. We could face some bumps along the way, but the rerating potential is material.”
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