SNC-Lavalin completes South African Resources business sale

By Dominic Ellis
Sale forms part of the company’s strategy to focus on becoming a leading professional services and project management company...

SNC-Lavalin, the Canadian construction multinational giant, has completed the previously announced agreement to sell its South African Resources business to local management.

In a statement, the firm says that the sale forms part of the company’ strategy to focus on becoming a leading professional services and project management company, and to generate consistent earnings and cash flow.

The South African Resources business, with approximately 1,800 employees, primarily serves construction and site maintenance clients. The sale and exit of this business is in line with SNC-Lavalin’s strategic focus on engineering services.

It follows on from both the closure and exit of Valerus in March 2020, a non-core, mid-stream oil and gas business based in Houston, and the divestment of the company’s European fertiliser business in September this year.

“Since announcing in July the restructuring of our Resources business into a pure services business, we have made great progress. The closure of this sale is part of that progress, alongside the continued right-sizing of overheads, and importantly; winning new services contracts such as the new framework agreement with bp announced in September,” says Ian L Edwards, President and CEO, SNC-Lavalin Group Inc. 

“More broadly, Engineering Services, has delivered strong results through 2020 and this is where our future lies going forward,” he continues.

According to the company’s third quarter results, the SNCL Engineering Services line of business (comprising EDPM, Nuclear and Infrastructure Services segments) delivered solid results, underpinned by a diversified business model, long-term client relationships and strong public sector focus. 

Many services provided by SNCL Engineering Services are deemed essential and characterised by long-term contracts, particularly in the Nuclear and Infrastructure Services segments. Revenue from SNCL Engineering Services totalled $1,447.7 million in Q3 2020, a 3.6% decrease from the corresponding period in 2019, while Segment Adjusted EBIT (1) totalled $142.4 million, compared to $175.7 million in Q3 2019. (The Darlington nuclear generating station - Canada's second largest nuclear facility by total energy output - is pictured).

EDPM Segment Adjusted EBIT (1) totalled $81.1 million, representing a margin of 9 percent, in Q3 2020, compared to $102.6 million, representing a margin of 10.6 percent, in Q3 2019, which included some positive project settlements. 

The strength in several sectors, including transportation and defence within the core region of the UK & Europe region, partially offset the adverse impact of COVID-19 in some markets (aviation and commercial property) and in the Middle East, that has also suffered from reduced investment associated with the fall in the oil price. Backlog continues to be strong at $2.8 billion, with $943 million of bookings in the quarter, representing a 1.05 booking-to-revenue ratio (6) for Q3 2020.

Nuclear Segment Adjusted EBIT (1) totalled $36.2 million in Q3 2020, compared to $39.5 million in Q3 2019. While Q3 2020 revenues were 5.5 percent higher than Q3 2019, restricted work site access in the US due to COVID-19 reduced performance milestone bonuses, impacting profitability. The segment continues to be awarded significant long-term contracts, such as a US federal nuclear assets remediation and decommissioning project in the USA, and backlog continues to be strong at $1.0 billion.

Infrastructure Services Segments Adjusted EBIT (1) totalled $25.1 million in Q3 2020, compared to $33.6 million in Q3 2019, which included favourable reforecasts on certain long-term contracts. Revenues were 1.6% higher than Q3 2019, mainly due to an increase in Linxon’s revenue in the UK & Europe region. Backlog remains strong at $7 billion, which includes long-term Operations & Maintenance contracts, which can cover a period up to 40 years.

SNCL Engineering Services' total backlog amounted to $10.7 billion as of September 30, 2020, compared with $11.1 billion at the end of 2019. Total bookings for Q3 2020 amounted to $1.2 billion despite the current COVID-19 environment. 

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