Atkinsrealis Group Inc. · TSX:ATRL
Atkinsrealis — SNC-Lavalin Group — Q2 2019 Earnings Presentation
28 slides from Atkinsrealis's earnings presentation, Aug 1, 2019
Slide 1: Second Quarter 2019 Conference Call Presentation
Second Quarter 2019 › Conference Call Presentation › August 1st, 2019
Slide 2: Forward-Looking Statements and Non-IFRS Financial Measures
Forward-Looking Statements Reference in this presentation, 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 ar
Slide 3: Ian Edwards, Interim President and CEO
Ian Edwards Interim President and CEO
Slide 4: SNC-Lavalin's Plan for Sustainable Success
SNC-Lavalin’s Plan for Sustainable Success > Exiting lump-sum turnkey construction contracts > Simplifying the business > Reducing risk 4
Slide 5: A Plan for Sustainable Success
A Plan for Sustainable Success › SNC-Lavalin has made several significant operational and organizational changes geared towards sustainable success, consistent earnings, and cash flow generation › The focal point of SNC-Lavalin’s operational change is de-risking the business by exiting lump-sum turn
Slide 6: Focus, Simplify, Grow, Right-size
Focus, Simplify, Grow, Right-size 4 key pillars allow us to focus on what we do best, build on our strengths, and grow 1 Exit LSTK construction work › Reduce risk by no longer bidding on lump-sum turnkey construction projects. Focus SNC-Lavalin to be reorganized into two business lines: › SNCL Engin
Slide 7: Exiting Lump-Sum Turnkey Construction Projects
Exiting Lump-Sum Turnkey Construction Projects 7
Slide 8: Why Exit Lump-Sum Turnkey Construction Projects?
Why Exit Lump-Sum Turnkey Construction Projects? Large lump-sum turnkey projects have generally been value-destructive across the industry. Over the past five years (2014-2018) firms in SNC-Lavalin’s peer group with a greater percentage of EPC work have, in general, shown: › Lower total shareholder
Slide 9: Remaining a Leading Global Integrated Professional Services & Project Management Company
Remaining a Leading Global Integrated Professional Services & Project Management Company While SNC-Lavalin is simplifying its business, the Company will continue to provide its unique selling proposition to clients covering the full spectrum of the asset lifecycle, including: Consulting & Advisory D
Slide 10: SNC-Lavalin's Product Offering Going Forward
SNC-Lavalin’s Product Offering Going Forward: The Company’s decision to exit lump-sum turnkey construction contracts reduces risk while providing upside exposure to our highest-margin projects What we WILL focus on: ✓ Consulting services ✓ Design and engineering services ✓ Fee-for-service contracts
Slide 11: Reorganizing SNC-Lavalin
Reorganizing SNC-Lavalin 11
Slide 12: The Reorganized SNC-Lavalin
The Reorganized SNC-Lavalin SNC-Lavalin is reorganizing its product offering into two clear business lines. The newly-reorganized SNC-Lavalin will be structured as follows: SNCL Engineering Services SNCL Projects › EDPM › Resources (Oil & Gas, Mining & Metallurgy) › Nuclear › Infrastructure EPC Proj
Slide 13: Q2-2019 Backlog
Q2-2019 Backlog SNCL Engineering Services incorporates the professional services business and high growth areas, while SNCL Projects encompasses Resources and existing lump-sum turnkey construction contracts SNCL Engineering Services SNCL Projects Backlog Backlog June 30, 2019 June 30, 2019 EDPM 2%
Slide 14: 2018 Preliminary Revised Revenues
2018 Preliminary Revised Revenues SNC-Lavalin expects its simplified, more streamlined structure will eventually reduce top-line revenue, but will be more profitable and cash flow generating SNCL Engineering Services SNCL Projects 2018 Revenues 2018 Revenues 4% EDPM Americas Americas 5% 11% 16% 12%
Slide 15: Reducing Risk
Reducing Risk )) SNC>LAVALIN
Slide 16: Two main operational risks mitigated by the new strategy
Two main operational risks mitigate by the new strategy The Company’s decision to exit lump-sum 1 turnkey construction projects and reorganize Lump-Sum Turnkey Construction Projects in the business significantly should, going SNCL Projects Backlog forward, reduce risk in two of the Company’s risk ar
Slide 17: Lump-Sum Turnkey Construction Contracts in SNCL Projects Backlog
1. Lump-Sum Turnkey Construction Contracts in SNCL Projects Backlog SNCL Projects Total Backlog Resources (June 30, 2019) Main Project Reimbursable & Engineering Service Contracts 5 projects in total: $1.1B 3 in North America Resources 38% 2 in MENA Resources Lump-sum turnkey construction contracts
Slide 18: Main Lump-Sum Turnkey Construction Projects in SNCL Projects Backlog
1. Main Lump-Sum Turnkey Construction Projects in SNCL Projects Backlog Resources Country Completion % Expected completion year Client Project (SNC portion) Project #1 MENA 50 2021 Confidential Project #2 North America 15 2021 Confidential Project #3 MENA 85 2019 Confidential Project #4 MENA 25 2020
Slide 19: Expected Phase Out of Lump-Sum Turnkey Projects in Backlog
1.Expected Phase Out of the Main Lump-Sum Turnkey Construction Projects in SNCL Projects Backlog Backlog Phasing 1,400 Backlog (in C$ millions) 1,200 Infrastructure EPC Projects 1,000 Resources 800 600 400 200 0 2019 2020 2021 2022 2023 2024 (last 6 months) Expected Annual Conversion to Revenue 19
Slide 20: Country Risk Exposure in the Resources Segment
2. Country Risk Exposure in the Resources Segment Exiting Lump-sum turnkey construction projects significantly reduces the Resources segment’s exposure to the Middle East and Latin America (from $1.4B in 2018 to $0.6B pro forma and $247M to $99M, respectively) 2018 Resources Revenues Pro Forma* Reso
Slide 21: Guidance
Guidance The Company is withdrawing all pre-issued annual financial guidance for 2019 › In 2019, the Company’s SNCL Engineering Services are expected to deliver Segment EBIT margin consistent with prior periods. 21
Slide 22: Sylvain Girard, Chief Financial Officer
Sylvain Girard Chief Financial Officer
Slide 23: Q2 2019 Financial Performance (vs Q2 2018)
Q2 2019 Financial Performance (vs Q2 2018) Net loss attributable to SNC-Lavalin Shareholders of $2.1B Financial Expenses from E&C increased by $53M › $34M related to the amendments of the CDPQ loan and $4M related to other Goodwill and intangible asset impairments of $1.9B E&C financing arrangements
Slide 24: Operating Cash Flow
Operating Cash Flow Cash Balance as December 31, 2018 634 Net cash used for operating activities: Cash flows from operations (616) Capital expenditures (61) Net increase in receivables from long-term concession Q2 2019: ($368M) arrangements (44) Q2 2018: ($60M) Increase in recourse debt 1,120 Increa
Slide 25: E&C Segment EBIT – Q2 2019 vs Q2 2018
E&C Segment EBIT – Q2 2019 vs Q2 2018 (in M$) Net unfavourable reforecasts on certain major projects totaling ~$150M Resources from higher forecasted costs, SNCL EPC Projects SNCL Engineering Services -$198M increased warranty costs or partial de- scoping primarily from 3 LSTK 16 projects in O&G and
Slide 26: Appendix
Appendix )) SNC>LAVALIN
Slide 27: 2018 preliminary revised figures (1 of 2)
2018 preliminary revised figures1 (1 of 2) On a comparable basis with our new 2019 reorganized structure2 SNCL Engineering Services Segment Q1 2018 Q2 2018 Q3 2018 Q4 2018 Total EBIT % Q1 2019 (in thousands of $) EDPM (Engineering, Design and Project Management) Revenues 879,010 913,604 912,998 970,
Slide 28: 2018 preliminary revised figures (2 of 2)
2018 preliminary revised figures1 (1 of 2) On a comparable basis with our new 2019 reorganized structure2 SNCL Projects Segment Q1 2018 Q2 2018 Q3 2018 Q4 2018 Total EBIT % Q1 2019 (in thousands of $) Resources Revenues 757,099 794,648 844,141 605,476 3,001,364 585,232 Segment EBIT 52,348 15,797 49,