SNC-Lavalin CEO retires, company to review strategic direction
MONTREAL — Neil Bruce, SNC-Lavalin Group Inc.’s CEO is stepping down from the beleaguered engineering giant after a nearly four-year tenure that saw its stock fall by roughly half and its projects overshadowed by a political controversy tied to an ongoing corruption case.
Neil Bruce, 58, will be succeeded on an interim basis by chief operating officer Ian Edwards, effective immediately. The board of directors has asked Edwards to review “the strategic direction of the company on an expedited basis” and develop a new plan “for sustainable success,” the company said in a release.
Analysts say the change at the top boosts the appeal of selloffs at the Montreal-based company’s costly construction unit, with a renewed focus on engineering and design.
After hitting successive 10-year lows since late January, the company’s stock jumped 6.6 per cent to $25.27 in mid-afternoon trading Tuesday.
SNC-Lavalin said Bruce is retiring and returning to his family in the United Kingdom. He is expected to remain an adviser to the board until the end of the year.
Bruce, who took the helm in October 2015 and steered SNC through its purchase of WS Atkins in 2017, has struggled to move beyond a difficult period in the company’s history, despite bolstering its backlog by more than $15 billion. Its reputation has taken a beating over fraud and corruption charges related to its work in Libya that preceded Bruce’s tenure, and the company has found itself ensnared in political controversies both at home and abroad.
The firm became the casualty of a diplomatic feud between Canada and Saudi Arabia — a key source of oil and gas revenue — last August, when Foreign Affairs Minister Chrystia Freeland tweeted her support for jailed dissidents, prompting the Saudi regime to suspend new trade and investment ties with Canada. SNC subsequently slashed its 2018 guidance twice in three weeks, more than halving its profit forecast and halting all bidding on future mining projects.
The company announced in May plans to wind down its operations in 15 countries and reported a $17-million loss in its latest quarter. It also recently announced the sale of a bigger-than-expected chunk of 407 International Inc., a move opposed by some prominent shareholders who sought to retain the lucrative Ontario toll road.
“For all the good things Mr. Bruce had done at SNC since arriving in 2013, these execution issues were nevertheless on his watch,” said Canaccord Genuity analyst Yuri Lynk in a note to investors. “Change at the top could spur a much-needed strategic shift.
“In terms of this move, the writing was on the wall in…January 2019 when Mr. Edwards was appointed as COO,” he added. The appointment came the same day the company announced about $350 million in unexpected cost overruns on its project with Codelco, Chile’s state-owned copper mining company, which has since cancelled the contract.
Lynk and others said the path to profit lies in SNC’s engineering services — which generate about 75 per cent of revenue — and scaling down or divesting construction activities, plagued by cost overruns and fixed-price contracts.
“We see this increasing the likelihood that SNC will explore divestitures around its infrastructure construction assets and resource-based segments in an effort to unlock value and reposition itself as a pure-play design firm,” said Derek Spronck of RBC Dominion Securities in a client note.
Analyst Maxim Sytchev of National Bank of Canada cited a “glimmer of hope” in the strategic review. “Focusing on consulting/nuclear makes sense. If the company itself cannot get there, a privatization should also be strongly considered,” he said in a note. “1/8The 3/8 level of apathy is palpable. Why stay public?”
READ MORE: Charges against SNC-Lavalin explained
A Quebec judge ruled last month there was enough evidence to send SNC-Lavalin to trial over charges of fraud and corruption. The company has pleaded not guilty.
The firm has been at the centre of a political controversy following accusations by former attorney general Jody Wilson-Raybould that top government officials pressured her to overrule federal prosecutors and negotiate a deferred prosecution agreement with the company.
© 2019 The Canadian Press