TRANSFORMING
TODAY
FOR A WORLD
OF TOMORROW
20
19
ANNUAL REPORT
FINANCIAL
HIGHLIGHTS
2019 REVENUES
BY INDUSTRY SEGMENT (%)
SNCL Engineering Services
41% EDPM
12% Infrastructure Services
10% Nuclear
3% Capital
SNCL Projects
23% Resources
11% Infrastructure EPC Projects
REVENUES
(IN BILLIONS CA$)
BACKLOG
(IN BILLIONS CA$)
19
18
17
9.5
10.1
9.3
19
18
17
15.3
14.9
10.4
Financial highlights
President’s message
Leadership team
2019 highlights
Chairman’s message
2019 management’s discussion
and analysis
Information for shareholders
I
III
VI
VII
XI
1
189
BY GEOGRAPHIC AREA (%)
51% Americas
22% Middle East & Africa
22% Europe
5% Asia-Pacific
NET INCOME (LOSS)
ATTRIBUTABLE
TO SNC-LAVALIN
SHAREHOLDERS
(IN MILLIONS CA$)
DILUTED EARNINGS
(LOSS) PER SHARE
(IN CA$)
19
18
17
328.2
(1,316.9)
382.0
19
18
17
1.87
(7.50)
2.34
II
SNC-Lavalin 2019 Annual Report
PRESIDENT’S
MESSAGE
Transforming today
for a world of tomorrow
2019 was a pivotal year for SNC-Lavalin. We navigated challenging
conditions and took decisive action to set the Company in a new
strategic direction that yielded results in short order and put us on
a sustainable path forward. 2019 tested our resilience and
demonstrated our ability to be agile and leverage our strengths. I
am extremely proud of what we accomplished, and we are excited
about our future, and the transformation of SNC-Lavalin into a
leading global provider of professional engineering services and
project management solutions.
IDENTIFYING THE ROOT CAUSE TO
CHART A SUSTAINABLE PATH FORWARD
When I was asked to lead the Company forward in June 2019, it
was clear to me that we needed to immediately address the root
cause of the volatility that had affected earnings and cash flows
for some time. It required making a radical decision to exit the
lump-sum turnkey (LSTK) contracting model altogether and
simplify the business so that we could unleash the power and
potential of our high-value engineering services business, including
Engineering, Design, and Project Management (EDPM), Nuclear
and Infrastructure Services.
In July, we unveiled our new strategic direction, which had very
clear objectives: to de-risk the business and generate consistent
earnings and cash flow. The new strategy included three key
initiatives:
Reorganizing the business into two distinct business lines:
SNCL Engineering Services, which focuses on our highest-
value, most differentiated segments (EDPM, Nuclear,
Infrastructure Services, and Capital) and which will form the
future of the Company. We have key market positions and are
tier-one players in EDPM, Nuclear, and Infrastructure Services,
all of which are strong performers that provide a solid platform
for growth. Secondly, SNCL Projects, which comprises LSTK
projects for the Resources and Infrastructure segments, and
the Resources services business.
Exiting LSTK by immediately ceasing to bid on all new LSTK
work and running off our existing LSTK project backlog as
efficiently as possible. This reduces risk and optimizes the free
cash flow generated from SNCL Engineering Services.
$9.5B
IN REVENUE
66%
OF SNCL ENGINEERING
SERVICES CONTRACTS
$15.3B
DIVERSIFIED REVENUE
BACKLOG AT YEAR-END
Restructuring Resources, exploring all options for the
business, particularly with regards to our Oil & Gas business,
including transitioning to a services-based business or
divestitures, and right-sizing overhead.
NEW STRATEGIC DIRECTION
DELIVERING RESULTS
The Company’s financial performance improved significantly in
the second half of 2019, demonstrating that the new strategy is
delivering results. In the second half of 2019, we generated $261
million in operating cash flow, which included a very strong fourth
quarter, the highest quarterly figure in two years. This was a great
achievement and direct result of our actions, that significantly
strengthened our balance sheet and raised our cash position to
$1.2 billion at the end of 2019. We also generated in the second
half of 2019 an adjusted net income from E&C of $244.4 million,
a significant improvement over the adjusted net loss in the first
half of 2019.
We had consistent growth in SNCL Engineering Services,
increasing year-over-year Revenue and Backlog, and delivered
strong Segment EBIT, with a double-digit Segment EBIT ratio.
At the same time, we steadily ran off a portion of our LSTK project
backlog, focused on reducing the losses associated with LSTK
Resources projects, and initiated a restructure of our Resources
sector, with overhead reductions and closure of an
underperforming midstream oil & gas facility.
As part of our efforts to de-risk the business, we also significantly
reduced our debt levels. We achieved this in large part by selling a
portion of our stake in the Highway 407 ETR for $3 billion – a net
gain after tax of $2.6 billion— and used much of the proceeds to
repay debt. This, together with the increased cash flow in the
second half of the year, resulted in substantially improved debt
ratios, well within our covenants.
While our focus on operations and performance delivered results,
we also accomplished a long term aim; the settlement in
December of the federal charges resulting from the Company’s
legacy activities in Libya from 2001 to 2011. I want to be clear
that this past behavior runs contrary to our values and we deeply
regret the events that took place; the SNC-Lavalin of today has a
robust ethics and compliance program that meets the highest
international standards. We have put this issue firmly behind us,
removing a reputational risk to the Company for past events by
people long since gone, and providing clarity on our ability to bid
on future government contracts.
III
IV
SNC-Lavalin 2019 Annual Report LEADERSHIP
TEAM
From left to right:
Craig Muir
President, Resources
James Cullens
Executive Vice-President,
Human Resources
Stéphanie Vaillancourt
Executive Vice-President,
Capital and Treasurer
Philip Hoare
President, Atkins, Engineering,
Design & Project Management
Jonathan Wilkinson
President, Infrastructure Projects
Ian L. Edwards
President and
Chief Executive Officer
Charlene Ripley
Executive Vice-President and General Counsel
Nigel W.M. White
Executive Vice-President, Project Oversight
Jeff Bell
Executive Vice President and
Chief Financial Officer
Alexander (Sandy) Taylor
President, Nuclear
Erik J. Ryan
Executive Vice-President, Strategy, Marketing
and External Relations
Louis G. Véronneau
Executive Vice-President and
Chief Transformation Officer
A PROUD 100+ YEAR HISTORY, AN
EXCITING FUTURE
In summary, we accomplished a tremendous amount of progress
in a relatively short period of time and placed the Company on a
strong and robust footing as we enter 2020. We have a diversified
business that is well positioned to navigate any market
uncertainty, and our long-term strategy to transform SNC-Lavalin
into a leading global provider of professional engineering services
and project management solutions remains on course.
At the time of writing, I along with the leadership team, have put
resiliency measures in place to help weather the impact of the
COVID-19 pandemic of the last several months. We have swiftly
been able to pivot the majority of our professional services
operations to working remotely, and in the main our physical
projects are deemed essential, where we provide operations &
maintenance or support nuclear facilities. Our priority remains
the health and well-being of the staff, while maintaining business
operations for customers where allowable and possible, as we
move quickly to maximize financial flexibility and liquidity. We
have taken all appropriate actions to protect our employees, our
work, and the future of our organization.
Having already been focused through 2019 on identifying issues
and risks, and addressing them swiftly with affirmative action, we
have been well prepared to face this unprecedented global
situation. Throughout the crisis we have continued to support
governments and clients with their response to the pandemic and
are working with them on their longer term needs for
infrastructure and innovative solutions.
I look forward to achieving our goals with a renewed senior
leadership team that includes the appointment of a new role in
the Chief Transformation Officer, a new Chief Financial Officer,
General Counsel, and Chief Information Officer. I also want to
extend my gratitude to our Board of Directors for their support
and guidance, and thank our shareholders for the patience and
commitment they’ve shown this year while we embarked on our
new strategic direction.
Most importantly, I want to acknowledge our dedicated and
talented employees, who are the foundation of our continued
success. SNC-Lavalin has survived and thrived for more than 100
years by adapting and innovating and employing top talent. I look
forward to the next chapter in our shared history together.
Ian L Edwards
President and Chief Executive Officer
V
SNC-Lavalin 2019 Annual Report
VI
2019
HIGHLIGHTS
Integrity
SETTLED
Canadian federal charges arising from legacy
activities in Libya between 2001 and 2011
AWARDED
the Compliance Leader Verification from the
Ethisphere Institute
COMPLETED
40,000 hours of Integrity Training for our
personnel.
LAUNCHED
Scotty, an AI chatbot for employee questions on
any subject covered in the Code of Conduct, 24/7.
Health, safety &
environment (HSE)
RECORDED
a total of 105 Perfect Days free of any safety
injury, security event or environmental release
– 50 days over target and 55 more than
recorded in 2018.
Leadership team
appointments
IAN L. EDWARDS
as President and Chief Executive Officer
JEFF BELL
as Executive Vice-President and Chief Financial Officer
CRAIG MUIR
as President, Resources
CHARLENE RIPLEY
as Executive Vice-President and
General Counsel
STÉPHANIE VAILLANCOURT
as Executive Vice-President, Capital
and Treasurer
LOUIS G. VÉRONNEAU
as Executive Vice-President and
Chief Transformation Officer
NIGEL W.M. WHITE
as Executive Vice-President,
Project Oversight
VII
VIII
SNC-Lavalin 2019 Annual Report Project
wins
AWARDED
CONTRACT TO START
DECOMMISSIONING
THE LINGEN NUCLEAR POWER PLANT
IN GERMANY
SIGNED
EXTENDED CONTRACT WITH
THE U.S. DEPARTMENT OF
ENERGY (DOE)
TO CONTINUE SAFE MANAGEMENT OF
HANFORD’S HIGH-LEVEL WASTE
SECURED
THREE-YEAR EXTENDABLE
CONTRACT WITH UAE’S
AL YASAT PETROLEUM
TO PROVIDE ENGINEERING AND
PROJECT SUPPORT
APPOINTED
TO HELP DEVELOP AUSTRALIA’S
LARGEST FREIGHT RAIL
INFRASTRUCTURE PROJECT,
THE 1,710 KM INLAND RAIL PROGRAMME
CONNECTING REGIONAL AUSTRALIA TO DOMESTIC
AND INTERNATIONAL MARKETS.
SELECTED
BY HIGHWAYS ENGLAND TO
PROVIDE DETAILED DESIGNS
AND TECHNICAL SUPPORT
FOR ROAD IMPROVEMENTS IN THE EAST
OF ENGLAND
WON
$1.7-BILLION CONTRACT
FROM NETWORK RAIL (UK)
TO DESIGN TRACK UPGRADES FOR
THE NEXT DECADE
CLOSED
DEAL THROUGH JOINT
VENTURE COMPANY
COMPREHENSIVE
DECOMMISSIONING
INTERNATIONAL (CDI)
TO DECOMMISSION OYSTER CREEK
NUCLEAR POWER PLANT
Key
milestones
CELEBRATED
second Leadership in Energy and Environmental Design (LEED)
Gold certification for the McGill University Health Centre’s Glen
site, a first for a hospital in Quebec
RECEIVED
the Award of Excellence by the Association of Consulting
Engineering Companies British Columbia (ACEC-BC) for work on
the John Hart Generating Station Replacement Project
HONOURED
with an Excellence in Engineering Award by National Council of
Structural Engineers Associations (NCSEA) for the Samuel De
Champlain Bridge project
OPENED
the $1-billion New Orleans International Airport’s North Terminal
following seven years of design and planning
DELIVERED
Ottawa’s 12.5km, 13-station light rail Confederation Line
PARTNERED
with Bill Gates’ TerraPower and U.S. Department of Energy (DOE)
to provide isotopes for next generation cancer research and
treatment
COMMITTED
to a culture of inclusiveness in the Middle East by signing the
United Nations Women’s Empowerment Principles
DELIVERED
workshops to break unconscious bias within the organization.
Mitigating biases supports an inclusive culture and increases
collaboration, one of SNC-Lavalin’s core values. The workshops
promote the ‘AWARENESS’ pillar of the global Diversity and
Inclusion strategy.
COMPLETED
CONSTRUCTION OF
MONTREAL’S NEW AWARD-
WINNING 3.4KM SAMUEL
DE CHAMPLAIN BRIDGE
OPENED
THE 11KM HEUNG YUEN
WAI HIGHWAY IN HONG
KONG AFTER SIX YEARS OF
WORK ON THE PROJECT
SOLD
10% STAKE OF HIGHWAY
407 ETR, THE FIRST ALL-
ELECTRONIC OPEN ACCESS
TOLLED HIGHWAY IN THE
WORLD
IX
X
SNC-Lavalin 2019 Annual Report
CHAIRMAN’S
MESSAGE
For SNC-Lavalin, 2019 was both a
challenging year for the company
and its stakeholders and a pivotal
year for the changes made to our
strategic direction, our leadership
team, our legal circumstances and
our Board of Directors.
I would like to thank our shareholders and other stakeholders for their support and
patience as we navigated through this unprecedented year and for remaining confident
in SNC-Lavalin’s long-term value and its importance to the economy as a Canadian
engineering services company with operations spanning the globe.
As is evident in the financial results, the second half of 2019 demonstrated a very
different company from the first half. SNC-Lavalin is a changed organization: a new and
clear strategic direction focused on engineering services, a new senior leadership team
led by a new CEO, a settlement of important legal issues that have hung over the
company and sapped its energies for years, and a renewed Board. I believe the Board has
acted decisively in the interests of all stakeholders to put SNC-Lavalin on a new
trajectory for long-term success.
RENEWAL OF THE SENIOR
LEADERSHIP TEAM
One of the most significant actions the Board undertook in 2019
was the appointment of Ian L. Edwards, first as Interim CEO in
June 2019 and then permanently in October 2019. Ian impressed
the Board with his outreach to investors, customers and
employees as SNC-Lavalin was buffeted by significant challenges
in 2019, and his ability to take these insights and formulate a new
strategic direction for the Company that he and the management
team are now implementing. To help guide this rapid
transformation to the new strategic direction, Ian has also
renewed the senior leadership team by appointing a new Chief
Financial Officer (Jeff Bell), a new General Counsel (Charlene
Ripley), a new Executive Vice-President, Capital (Stéphanie
Vaillancourt), a Executive Vice-President, Project Oversight
(Nigel W.M. White), a newly created role, and a Chief
Transformation Officer (Louis G. Véronneau), also a newly
created role.
SETTLEMENT OF THE FEDERAL
CHARGES
The settlement of the federal charges in December 2019 was a
crucial step in the renewal of the Company’s prospects. Resolving
legacy legal challenges, which had been overhanging the
Company for many years, allows SNC-Lavalin to focus entirely on
implementing the new strategic direction. The settlement was
fair for all concerned, with a construction subsidiary pleading
guilty to a single charge of fraud and paying a $280 million fine
over five years, while all charges were dropped against SNC-
Lavalin Group and SNC-Lavalin International. The Company
deeply regrets this past behaviour, which was contrary to our
values and ethical standards. SNC-Lavalin has changed a great
deal, has embraced a world-class integrity regime and culture, and
is going forward with renewed confidence in the future.
NEW STRATEGIC DIRECTION
RENEWAL OF THE BOARD
In July 2019, we announced a new strategic direction for SNC-Lavalin aimed at focusing
on the Company’s core, high-value engineering services, and de-risking the business.
Under Ian L. Edwards’ leadership, SNC-Lavalin has been successfully reorganized into
two separate lines of business, engineering services including nuclear and projects. We
are no longer bidding on LSTK contracts and we are focusing on running off the
remaining LSTK backlog as rapidly as possible. We are exploring all options with regards
to the Resources segment, including possible divestitures. We will reduce leverage and
improve cash generation, and we are reducing our geographic footprint, simplifying our
operations, and reducing our overhead costs. In short, SNC-Lavalin now has a clear
strategic path forward that is grounded in expanding our high-value engineering services,
delivering predictable results, consistency in execution, and sustainable growth.
The ongoing process of Board renewal is also a priority, and with
the retirement of four directors, we will continue to ensure we
align the Board with the transformation of SNC-Lavalin into a
global engineering services company and away from LSTK
construction projects. In this regard we anticipate renewing
nearly half of the independent Board directors, with four new
Board nominees standing for election by shareholders at the
SNC-Lavalin Annual General Meeting on May 7th, 2020. This is a
pivotal time in SNC-Lavalin’s evolution and these new nominees
bring a wealth of expertise in global operations, financial services
and corporate restructuring.
On behalf of the Board of Directors and SNC-Lavalin
management, I would like to thank the retiring Board members—
Mr. Jacques Bougie, Ms. Catherine J. Hughes, Mr. Alain Rhéaume
and Mr. Eric D. Siegel— for their steady leadership, sound counsel
and especially their unwavering commitment to SNC-Lavalin and
its stakeholders through challenging times.
The Board of Directors had established a Special Committee in
December 2018 to explore a range of alternatives to protect and
enhance value for SNC-Lavalin given the extent of the challenges
the company was encountering. The Company has now chartered
a new strategic direction and resolved legacy legal matters.
Having now fulfilled its mandate, the Committee has been
disbanded and the Board thanks the directors who served on it
for their dedicated service.
LOOKING TO THE FUTURE
The coming year will be one of transformation for SNC-Lavalin as
we fully implement our new strategic direction, reduce our
backlog of LSTK projects and consider possible divestitures in
our Resources segment in a volatile global economy beset with
coronavirus uncertainties. Going forward, we will expand our
technology capabilities as we believe this creates competitive
advantage in an era of innovation and technological disruption.
We will invest in attracting and developing superb talent as it will
differentiate SNC-Lavalin as a global engineering services
company. We will make greater use of our unique engineering
design center to complement our global operations. And we will
make strong governance and accountability a hallmark of how
we do business globally.
Moving beyond the issues of the past, we are now focused on the
future. I believe SNC-Lavalin is a changed organization, a
renewed company, with a new and clear sense of direction and
the management team to deliver on it.
In closing, on behalf of the Board of Directors, I want to express
our appreciation to our investors, who believe in the potential of
SNC-Lavalin as a Canadian global engineering champion
headquartered in Montreal, and to our dedicated employees, who
are such a key part of unleashing the future potential of this
great company.
The Honourable Kevin Lynch,
Chair, Board of Directors,
SNC-Lavalin
XI
XII
SNC-Lavalin 2019 Annual Report At SNC-Lavalin,
we recognize
the importance
of helping protect
the environment.
Our financial report is available online.
We invite you to visit our website at
www.snclavalin.com for a list of our offices
and to learn more about SNC-Lavalin.
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FINANCIAL REPORT
Head Office
455 René-Lévesque Blvd. West
Montreal, QC, H2Z 1Z3, Canada
Tel.: 514-393-1000 Fax: 514-866-0795
Table of contents
2019 Management’s Discussion and Analysis
1
Management’s Responsibility for Financial Reporting 85
86
88
Consolidated Financial Statements
Independent Auditor’s Report
Notes to Consolidated Financial Statements
Glossary
Ten-year statistical summary
Information for shareholders
93
185
187
189
Information for shareholders
Common Share Information
Code of Conduct
LISTED: Toronto Stock Exchange
SYMBOL: SNC
Our Code of Conduct seeks to promote integrity and transparency
in the conduct of our business and in our relations with our
SHARES OUTSTANDING: 175.6 million (December 31, 2019)
colleagues, directors, shareholders and business partners, including
MARKET CAPITALIZATION: $5,258 million (December 31, 2019)
customers, associates and suppliers. To learn more on our
Code of Conduct, go to www.snclavalin.com/en/about/integrity.
Registrar and Transfer Agent
If you would like to modify your address, eliminate multiple
Proxy Circular
mailings, transfer SNC-Lavalin shares, or for other information
The proxy circular contains information about our directors,
on your shareholder account such as dividends and registration,
Board committee reports and further details of our corporate
please contact:
governance practices. This document is available online at
Computershare Investor Services Inc.
100 University Ave., 8th Floor, North Tower, Toronto ON, M5J 2Y1
www.snclavalin.com.
Have Your Say
Telephone: 1-800-564-6253
Website: www.investorcentre.com
Investor Relations
Denis Jasmin, Vice-President, Investor Relations
denis.jasmin@snclavalin.com
514-393-1000
If you would like to ask a question at our annual meeting of
shareholders, you can submit it in person. You can also send
your question in by writing to the Vice-President and Corporate
Secretary at:
Vice-President and Corporate Secretary
455 René-Lévesque Blvd. West, Montreal QC, H2Z 1Z3, Canada
Annual Meeting
Head Office
The Annual Shareholders’ Meeting will be held on Thursday,
SNC-Lavalin Group Inc.
May 7, 2020. To learn more, go to www.snclavalin.com/en/
455 René-Lévesque Blvd West, Montreal QC, H2Z 1Z3, Canada
investors/shareholder-information/general-information.
Corporate Governance
Our website provides information on our corporate governance
more about SNC-Lavalin, our governance practices, our continuous
practices, including our Code of Conduct, and the mandates for
disclosure materials and to obtain electronic copies of this and
We invite you to visit our website at www.snclavalin.com to learn
www.snclavalin.com
the Board of Directors and the Board committees as well as various
other reports.
position descriptions. To learn more, go to www.snclavalin.com
and click on About Us.
Exemplaires en français
Pour télécharger la version française de ce rapport ou
en demander un exemplaire, veuillez consulter la section
Investisseurs au www.snclavalin.com.
SNC-Lavalin 2019 Financial Report
189
SNC-LAVALIN
2019 Management’s Discussion and Analysis
February 27, 2020
Management’s Discussion and Analysis (“MD&A”) is designed to provide the reader with a greater understanding
of the Company’s business, the Company’s business strategy and performance, as well as how it manages risk
and capital resources. It is intended to enhance the understanding of the Company's 2019 audited annual
consolidated financial statements and accompanying notes, and should therefore be read in conjunction with
these documents, and should also be read together with the text below on forward-looking statements.
Reference in this MD&A 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 associates, or SNC-Lavalin Group Inc. or
one or more of its subsidiaries or joint arrangements or associates. Unless otherwise specified, references herein
to “Sections” means to Sections of this MD&A.
The Company’s quarterly and annual financial information, its Annual Information Form, its Management Proxy
Circular, other financial documents and additional information relating to the Company are available on both the
Company’s website at www.snclavalin.com and through SEDAR at www.sedar.com. SEDAR is the electronic
system for the official filing of documents by public companies with the Canadian securities regulatory authorities.
None of the information contained on, or connected to the SNC-Lavalin website is incorporated by reference or
otherwise part of this MD&A.
Unless otherwise indicated, all financial
information presented in this MD&A, including tabular amounts, is in
Canadian dollars and is prepared in accordance with International Financial Reporting Standards (“IFRS”).
Certain totals, subtotals and percentages may not reconcile due to rounding. Not applicable (“N/A”) is
used to indicate that the percentage change between the current and prior year figures is not meaningful,
or if the percentage change exceeds 1,000%.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
1
1
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
Non-IFRS Financial Measures and Additional IFRS Measures
Certain indicators used by the Company to analyze and evaluate its results, which are listed in the table below,
are non-IFRS financial measures or additional IFRS measures. Consequently, they do not have a standardized
meaning as prescribed by IFRS, and therefore may not be comparable to similar measures presented by other
issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS,
these non-IFRS financial measures provide additional
insight into the Company’s financial results and certain
investors may use this information to evaluate the Company’s performance from period to period. However, these
non-IFRS financial measures have limitations and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with IFRS.
NON-IFRS FINANCIAL MEASURE OR ADDITIONAL IFRS MEASURE
Performance
◦
◦
◦
◦
◦
◦
◦
◦
◦
Adjusted diluted earnings per share from Engineering & Construction (“E&C”) (“Adjusted diluted EPS from E&C”)
Adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”)
Adjusted net income from E&C
Booking-to-revenue ratio
Diluted earnings per share from E&C and Diluted earnings per share from Capital
Earnings before interest and income taxes (“EBIT”)
Earnings before interest, income taxes, depreciation and amortization (“EBITDA”)
Return on average shareholders’ equity (“ROASE”)
Segment EBIT
Liquidity
◦
◦
Current ratio
Net recourse debt (or Cash net of recourse debt)
◦ Working capital
Definitions of all non-IFRS financial measures and additional IFRS measures are provided in Section 14 to give
the reader a better understanding of the indicators used by management. In addition, when applicable, the
Company provides a clear quantitative reconciliation from the non-IFRS financial measures to the most directly
comparable measure calculated in accordance with IFRS, refer to Section 14 for references to the sections of this
MD&A where these reconciliations are provided.
2
2
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
Comparative figures
Effective January 1, 2019, the Company changed the definition of segment EBIT, its measure of profit or loss for
its reportable segments, to reflect a change made to its internal reporting. As such, segment EBIT now includes: i)
the contribution attributable to non-controlling interests before income taxes, whereas in the past it excluded such
contribution attributable to non-controlling interests before income taxes; and ii) an allocation to the segments of
certain other corporate selling, general and administrative expenses. As such, these changes resulted in: i) a
reclassification of
the negative contribution attributable to non-controlling interests before income taxes in
segment EBIT of $0.3 million for the year ended December 31, 2018; and ii) a reclassification of certain other
corporate selling, general and administrative expenses in segment EBIT of $23.3 million for the year ended
December 31, 2018. The Company believes that such inclusions improve the measure of profitability of its
reportable segments by better reflecting the overall performance of its reportable segments.
At the same time, given the Company’s aim to continue to simplify and de-risk its business, SNC-Lavalin further
simplified its market-facing structure. This simplification became effective January 1, 2019 and resulted in a
change to the Company’s reportable segments, which were: i) Engineering, Design and Project Management
(“EDPM”); ii) Infrastructure; iii) Nuclear; iv) Resources; and v) Capital. The Company’s new strategic direction
adopted for the second quarter of 2019 resulted in the restructuring of its activities into two distinct business lines,
SNCL Engineering Services and SNCL Projects. From a segmented information stand-point, this change resulted
in the split of the Infrastructure segment into two segments, Infrastructure Services and Infrastructure EPC
Projects, all other segments remaining the same. As such, the Company’s reportable segments are now EDPM,
Infrastructure Services and Capital, all part of SNCL Engineering Services, and Resources and
Nuclear,
Infrastructure EPC projects, which form SNCL Projects.
These changes were made in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and
Errors, resulting in the restatement of prior figures.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
3
3
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
“vision”,
“target”,
“will”, or
Forward-Looking Statements
Statements made in this MD&A that describe the Company’s or management’s budgets, estimates, expectations,
forecasts, objectives, predictions, projections of the future or strategies may be “forward-looking statements”,
which can be identified by the use of the conditional or forward-looking terminology such as “aims”, “anticipates”,
“assumes”, “believes”, “cost savings”, “estimates”, “expects”, “goal”, “intends”, “may”, “plans”, “projects”, “should”,
“synergies”,
the negative thereof or other variations thereon. Forward-looking
statements also include any other statements that do not refer to historical facts. Forward-looking statements also
i) future capital expenditures, revenues, expenses, earnings,
include statements relating to the following:
economic performance, indebtedness, financial condition, losses and future prospects; and ii) business and
management strategies and the expansion and growth of the Company’s operations. All such forward-looking
statements are made pursuant to the “safe-harbour” provisions of applicable Canadian securities laws. The
Company cautions that, by their nature, forward-looking statements involve risks and uncertainties, and that its
actual actions and/or results could differ materially from those expressed or implied in such forward-looking
statements, or could affect the extent to which a particular projection materializes. Forward-looking statements are
presented for the purpose of assisting investors and others in understanding certain key elements of
the
Company’s current objectives, strategic priorities, expectations and plans, and in obtaining a better understanding
of the Company’s business and anticipated operating environment. Readers are cautioned that such information
may not be appropriate for other purposes.
limited to: (a) results of
(h) ownership interests in Capital
Forward-looking statements made in this MD&A are based on a number of assumptions believed by the Company
to be reasonable on February 27, 2020. The assumptions are set out throughout this MD&A (particularly, in the
sections entitled “Critical Accounting Judgments and Key Sources of Estimation Uncertainty” and “How We
Analyze and Report our Results” in this MD&A). If these assumptions are inaccurate, the Company’s actual
results could differ materially from those expressed or implied in such forward-looking statements. In addition,
important risk factors could cause the Company’s assumptions and estimates to be inaccurate and actual results
or events to differ materially from those expressed in or implied by these forward-looking statements. These risks
include, but are not
the new 2019 strategic direction coupled with a corporate
reorganization; (b) fixed-price contracts or the Company’s failure to meet contractual schedule, performance
requirements or to execute projects efficiently; (c) contract awards and timing; (d) remaining performance
international operations; (g) Nuclear
obligations; (e) being a provider of services to government agencies; (f)
investments; (i) dependence on third parties; (j) joint ventures and
liability;
partnerships; (k) information systems and data; (l) competition; (m) professional
liability or liability for faulty
services; (n) monetary damages and penalties in connection with professional and engineering reports and
opinions; (o) insurance coverage; (p) health and safety; (q) qualified personnel; (r) work stoppages, union
negotiations and other labour matters; (s) extreme weather conditions and the impact of natural or other disasters
and global health crises; (t) intellectual property; (u) divestitures and the sale of significant assets; (v) impact of
operating results and level of
liquidity and financial position;
(x) indebtedness; (y) security under the SNC-Lavalin Highway Holdings Loan; (z) dependence on subsidiaries to
help repay indebtedness; (aa) dividends; (bb) post-employment benefit obligations, including pension-related
obligations; (cc) working capital requirements; (dd) collection from customers; (ee) impairment of goodwill and
other assets; (ff) outcome of pending and future claims and litigations; (gg) ongoing and potential investigations;
(hh) settlements; (ii) further regulatory developments as well as employee, agent or partner misconduct or failure
the Company;
to comply with anti-bribery and other government
(kk) inherent limitations to the Company’s control framework; (ll) environmental laws and regulations; (mm) Brexit;
(nn) global economic conditions; and (oo) fluctuations in commodity prices.
laws and regulations; (jj) reputation of
indebtedness on financial situation;
(w)
The Company cautions that the foregoing list of factors is not exhaustive. For more information on risks and
uncertainties, and assumptions that could cause the Company’s actual results to differ from current expectations,
please refer to the sections “Risks and Uncertainties”, “How We Analyze and Report Our Results” and “Critical
Accounting Judgments and Key Sources of Estimation Uncertainty” in this report.
The forward-looking statements herein reflect the Company’s expectations as at February 27, 2020, when
the Company’s Board of Directors approved this document, and are subject to change after this date. The
Company does not undertake to update publicly or to revise any such forward-looking statements
whether as a result of new information, future events or otherwise, unless required by applicable
legislation or regulation.
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Management’s Discussion and Analysis – Table of Contents
1
2
3
4
5
6
7
8
9
Our Business
How We Analyze and Report Our Results
2019 Executive Summary
Financial Performance Analysis
Backlog (Remaining Performance Obligations)
Geographic Breakdown of Revenues
Segment Information
Fourth Quarter Results
Liquidity and Capital Resources
10
Financial Position
11 Related Party Transactions
12 Critical Accounting Judgments and Key Sources of Estimation
13 Accounting Policies and Changes
14 Non-IFRS Financial Measures and Additional IFRS Measures
15 Risks and Uncertainties
16 Controls and Procedures
17 Quarterly Information
6
10
14
17
26
29
30
42
44
52
55
55
56
57
61
83
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report Our Business
1.1
OUR BUSINESS
Founded in 1911, SNC-Lavalin is a fully integrated
professional services and project management
company with offices around the world.
SNC-Lavalin connects people, technology
and data to help shape and deliver
world-leading concepts and projects,
while offering comprehensive
innovative solutions across
the asset lifecycle. Our
expertise is wide-ranging –
consulting & advisory, intelligent
networks & cybersecurity, design &
engineering, procurement, project &
construction management, operations &
maintenance ("O&M"), decommissioning and
sustaining capital.
SNC-Lavalin maintains exceptionally high standards for health and safety, ethics and compliance, and
environmental protection. The Company is committed to delivering quality projects on budget and on schedule to
the complete satisfaction of its clients.
The Company presents its results separately for its two business lines, SNCL Engineering Services and SNCL
Projects. In certain parts of this MD&A, activities from Engineering and Construction are collectively referred to as
“E&C” to distinguish them from “Capital” activities.
1.2
NEW STRATEGIC DIRECTION FOR SNC-LAVALIN
On July 22, 2019, SNC-Lavalin announced its new strategic direction to enable the Company to focus more
effectively on its most profitable work: engineering, design, project management and construction management
services, O&M and Capital. The Company’s new strategic direction is centered around:
◦
Creating a simplified and more predictable business;
◦ Generating more consistent earnings, increased cash flow, and profitability;
◦
◦
Lowering the Company’s risk profile; and
Enabling an improved strategic focus on better margin markets in which the Company has clearly
differentiated capabilities.
SNC-Lavalin’s new strategic direction has two main focal points. The first is a focus on the high-performing and
growth areas of the business and exiting LSTK construction contracting. The second is to reorganize into two
separate business lines:
◦
◦
SNCL Engineering Services
SNCL Projects
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin believes that this simplified business model will allow it to generate increased profitability while
minimizing its exposure to downside risk, subject to the risks and limitations described in Section 15.
Simplify, Focus, Grow
The Company’s strategic review was led by its President and CEO, Ian L. Edwards, and builds upon the actions
first announced in March 2019 to simplify, focus, and sustainably grow the business. SNC-Lavalin’s new strategic
direction involves focusing on what the Company does best – providing world-class services and integration of
large, complex projects – while reducing its risk profile, and growing from this position of strength.
Simplify
SNC-Lavalin’s new, more simplified, focused business approach reduces the Company’s risk profile by no longer
bidding on LSTK construction projects. This is due to the challenges in executing such contracts, which typically
transfer many risks (known and unknown, manageable or not) from the project owner to the Company.
The Company will, however, continue its repetitive Engineering, Procurement and Construction (“EPC”) offerings
that are lower-risk, standardized solutions for: i) district cooling plants; and ii) power substations executed through
its Linxon subsidiary. The Company may also continue to work on projects based on risk-sharing contracts
between the project owner and suppliers, where the Company can limit its downside exposure.
Focus & Grow
SNC-Lavalin has been reorganized into and operates as two distinct businesses that are reported on and
managed separately.
SNCL Engineering Services
SNC-Lavalin intends to continue growing where it is strongest and has a differentiated market position, which is
the focus of its SNCL Engineering Services business line. The SNCL Engineering Services business line consists
of the Company’s EDPM and Nuclear segments, Linxon, the services portions of the Company’s previous
Infrastructure segment (namely O&M, District Cooling and Clean Power services), and Capital. The former
Infrastructure segment is shifting its focus toward becoming a program integrator with a greater emphasis on
Program and Project Management and Construction Management services.
SNC-Lavalin’s objectives for the Engineering Services business are:
A. Become recognized as a market leader, or expand its market leadership, in the following areas:
◦
◦
◦
◦
◦
◦
Advisory, design and project management services for infrastructure projects globally.
Nuclear services, including life extension, decontamination and decommissioning (“D&D”), and
remediation.
Project Management / Construction Management / Operations & Management / Project
integration in transportation, especially in rail and transit.
Capital – Ownership and management of infrastructure assets.
Clean power – Global electrical AC substation projects and renewables engineering services.
Linxon (supplier of power substations).
B. Establish more predictable and strong financial performance and restore investor confidence by
delivering:
◦
◦
Industry leading EBITDA margins.
Strong cash flow results to build a sustainable future.
SNC-Lavalin will continue to be a strong player in the advisory, engineering and design space with EDPM, and
expects to maintain its global market-leading position in rail and transit. Rail and transit remains a key focus area
for the Company’s infrastructure business, where market growth is expected to be above GDP growth levels in the
Company’s core markets, creating ongoing opportunities for SNC-Lavalin’s revised offering.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
The Company also has a well-established position in nuclear plant life extension, including a leading position in
CANDU-related services and products, and a demonstrated ability to successfully act as a Project Manager/
Construction Manager and to provide O&M for complex transportation projects and social
infrastructure.
Sustained concerns of climate change are also driving the need for clean energy, and thus a need for life
extension in nuclear power plants. Directly and through Comprehensive Decommissioning International, LLC, its
joint venture company with Holtec International,
the Company is addressing a growing need for nuclear
decommissioning along with sustained need for nuclear clean-up services.
SNCL Projects
The SNCL Projects business consists of the Company’s current Resources segment and the EPC portion of its
former Infrastructure segment. The focus of this business is very straightforward:
◦
Complete the Company’s obligations to our customers;
◦ Work to mitigate risks of future losses;
◦
◦
Aggressively pursue resolution of the Company’s claims collection and recoveries; and
Assess the Company’s future options for the services part of Oil & Gas and Mining & Metallurgy.
SNC-Lavalin believes that accelerating the pace of risk reduction and organizational effectiveness activities will
result in the Company delivering stronger operational and financial performance on a more consistent basis.
Further, SNC-Lavalin will continue to right-size the Company and concentrate on streamlining its overhead costs.
SNC Lavalin is also reducing its geographic footprint to reduce risk and complexity by focusing on its core growth
regions: Canada, the U.S., and the U.K., along with regional markets such as the Middle East and Asia Pacific
and exiting unprofitable operations in certain countries.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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1.3
NEW STRATEGIC DIRECTION PROGRESS - SCORECARD
We began implementation of our new strategic direction in the third quarter of 2019 and have seen progress
toward meeting our objectives from various perspectives, for example:
Objectives
Exit LSTK construction
contracting
Progress
◦
The Company’s backlog from LSTK focused projects businesses in
Resources and Infrastructure declined by 28% and 1%, respectively, year over
year, representing a reduction of approximately $543.6 million. The Company
expects to consume a significant portion of the remaining LSTK construction
projects backlog by the end of 2021 and the rest by the end of 2024.
Focus on the high-
performing and growth
areas of the business
◦ Overall Engineering Services revenue (excluding Capital) growth of 9% in
2019 compared with the corresponding period of 2018 with increased
profitability.
◦
◦
◦
◦
The PMO (Programme Management Office) award by Inland Rail in Australia
supports our focus on advisory and related services in the rail and transit
market and our intention to grow our project management services business.
The Washington River Protection Solutions (“WRPS”) contract extension by
the US Department of Energy for our nuclear waste remediation activities is
an example of our ability to address the need for nuclear clean-up services.
The Company’s backlog now comprises $11.3 billion reimbursable and
engineering services, or 74% of total backlog, which percentage is expected
to continue to increase.
The assessment
comprises $973.8 million in reimbursable engineering services.
is ongoing. For
reference, backlog of Resources now
◦ EBIT margins in EDPM and Nuclear businesses were 9.2% and 13.7%,
respectively, in 2019.
Assess the Company’s
future options for the
services part of Oil & Gas
and Mining & Metallurgy
Deliver industry leading
EBIT margins in our
Engineering Services
business
Work to mitigate risks of
future losses
◦
In addition to exiting LSTK construction contracting:
◦
Exiting the unprofitable midstream fabrication business, including our
compression and production equipment product lines, which were also
known under the Valerus brand.
◦
Continued the right-sizing of the Company and streamlining of overhead
costs.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
How We Analyze and Report Our
Results
2.1
HOW WE REPORT OUR RESULTS
In accordance with its new strategy, the Company carries out its business through two broad lines of business,
SNCL Engineering Services and SNCL Projects, which are in turn comprised of six operating and reportable
segments as described below.
We report and break down the results of our SNCL Engineering Services line of business through four operating
and reportable segments, namely: (i) EPDM; (ii) Nuclear; (iii) Infrastructure Services; and (iv) Capital; while we
report and break down the results of our SNCL Projects line of business through two operating and reportable
segments, namely: (v) Resources; and (vi) Infrastructure EPC Projects.
In addition, we further report certain results and provide certain financial information separately for (i) engineering
and construction (“E&C”) activities across our lines of business, which is thus comprised of five of our six
operating and reportable segments, namely EDPM, Nuclear, Infrastructure Services, Resources and Infrastructure
EPC Projects, and (ii) Capital.
E&C
What we report in E&C includes contracts generating revenues related mainly to consulting & advisory, intelligent
networks & cybersecurity, design & engineering, procurement, project & construction management, O&M,
decommissioning and sustaining capital. It also includes revenues from LSTK construction contracts, for which
the Company ceased to bid in July 2019, except
for certain repetitive EPC offerings that are lower-risk,
standardized solutions.
Contracts that provide for engineering, procurement and construction management services are often referred to
as “EPCM” contracts. Contracts that include engineering services, providing materials and providing or fabricating
equipment, and construction activities are often referred to as “EPC” contracts.
While our contracts are negotiated using a variety of contracting options, E&C revenues are derived primarily from
three major types of contracts: Reimbursable and engineering services contracts, EPC Fixed-price contracts, and
Standardized EPC contracts. E&C contracts can be found in the following segments and lines of business
(excluding Capital):
Reimbursable and engineering service
EPC Fixed-Price contracts
Standardized EPC Contracts
E&C Breakdown
SNCL Engineering Services (1)
SNCL Projects
EDPM
ü
N/A
N/A
Nuclear
ü
N/A (2)
N/A
Infrastructure
Services
ü
N/A
ü
Infrastructure
EPC
N/A
ü
N/A
Resources
ü
ü
N/A
(1)
(2)
The SNCL Engineering Services business line also includes Capital activities, which segment is excluded from E&C.
Nuclear includes certain legacy EPC Fixed-Price contracts.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
CAPITAL
Capital is SNC-Lavalin’s investment, financing and asset management arm, responsible for developing projects,
arranging financing, investing equity, undertaking complex financial modeling and managing its infrastructure
investments for optimal returns. Its activities are principally concentrated in infrastructure such as bridges,
highways, mass transit systems, power facilities, energy infrastructure, water treatment plants and social
infrastructure (e.g. hospitals). The Capital segment includes SNC-Lavalin's 20% ownership interest in and
management of SNCL IP Partnership. Also, as mentioned above, although Capital is a segment forming part of
the Company's SNCL Engineering Services line of business, it is excluded from E&C.
Capital’s business model
Company’s geographical
ownership, finance, operate and maintain their assets, usually for a defined period of time.
incorporates new project creation in the Company’s E&C segments, as well as the
to take
regions. Furthermore, many countries are turning to the private sector
These arrangements allow for the transfer to the private sector of many of the risks associated with designing,
building, operating, maintaining and financing such assets. In return, the client will either: i) commit to making
regular payments, usually in the form of availability payments, upon the start of operations of the infrastructure for
a defined period of time (typically 20 to 40 years); or ii) authorize the infrastructure concession entity to charge
users of the infrastructure for a defined period of time; or iii) a combination of both.
All investments are structured to earn a return on capital adequate for the risk profile of each individual project.
Capital investment revenues are generated mainly from dividends or distributions received by SNC-Lavalin from
the investment concession entities or from all or a portion of an investment concession entity’s revenues or net
results, depending on the accounting method required by IFRS.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
2.2
HOW WE BUDGET AND FORECAST OUR RESULTS
The Company prepares a formal annual budget (“Annual Budget”) in the fourth quarter of each year.
The Annual Budget is a key tool used by management to monitor the Company’s performance and progress
against key financial objectives in accordance with the Company’s strategic plan. The Company updates its
annual expected results in the first, second and third quarters (“Quarterly Forecasts”), which are also presented to
the Board of Directors. In addition, the performance of projects (i.e. its estimated revenues and costs to complete)
is reviewed by its respective project manager and, depending on the size and risk profile of the project, by,
amongst others, key management personnel, including the divisional manager, the business unit executive vice-
president, the sector president, the Chief Financial Officer (“CFO”) and the Chief Executive Officer (“CEO”).
The key elements taken into account when estimating revenues and gross margin for budget and forecast
purposes from E&C activities are the following:
KEY ELEMENTS
IMPACT ON THE ANNUAL BUDGET
Backlog
Firm contracts used to estimate a portion of future revenues taking into account the execution and
expected performance of each individual project.
Prospects list
Execution and
expected performance
Unsigned contracts that the Company is currently bidding on, and/or future projects on which it
intends to bid. Management selects specific prospects, which are deemed representative of its
upcoming activities, to include in the budget together with other sources of revenues such as
recurring business from known clients and expected service orders under master service
agreements.
Revenues and costs (or execution) of projects are determined on an individual project basis for
major projects or by groups of projects and take into consideration assumptions on risks and
uncertainties that can have an impact on the progress and/or profitability of that project. This
includes, but is not limited to, performance of the Company’s employees and of subcontractors or
equipment suppliers, as well as price and availability of labour, equipment and materials.
12
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
Regarding its Capital budget and forecast, the Company establishes the expected results based on assumptions
specific to each investment.
One of the key management tools for monitoring the Company’s performance is the monthly and quarterly
evaluation and analysis of actual results compared with the Annual Budget or the Quarterly Forecasts, for
revenues and profitability. This enables management to analyze its performance and, if necessary, take remedial
actions.
Variations from plan may arise mainly from the following:
SOURCE OF VARIATION
EXPLANATION
Level of activity
Changes in the estimated costs to
complete each individual project
(“cost reforecasts”)
Variation depends on the number of newly awarded, ongoing, completed or near-
completed projects, and on the progress made on each of these projects in the
period.
Variation of the estimated costs to complete projects for fixed-price contracts result
in either a positive or negative impact to a project’s results. Increases or decreases
in profitability for any given fixed-price project are largely dependent on project
execution.
Changes in the estimated revenues
and in the recovery of such revenues
Variation of the estimated revenues of projects, including the impact from change
orders and claims, as well as the change in estimates on the recovery of trade
receivables and contract assets may impact the financial results of the Company.
Changes in the results of its Capital
investments
Variation in the financial results of each Capital investment accounted for under the
consolidation or equity methods will impact the financial results of the Company.
Additions to the Company’s Capital investments portfolio, or divestitures from it,
can also impact the Company’s results.
Level of selling, general and
administrative expenses
Acquisition-related costs and
integration costs
Restructuring costs, goodwill and
other intangible assets impairment
Income taxes
Variation in selling, general and administrative expenses has a direct impact on the
profitability of
the Company. The level of selling, general and administrative
expenses is influenced by the level of activity, and can depend on several other
factors not related to project execution or performance that can be recurring or not.
Business acquisitions might require the Company to incur significant acquisition-
related costs and integration costs, which have an impact on actual and future
results.
Changes made to the way the Company operates, closure of certain locations
where it conducts business, modifications to its offerings and changes in market
perspectives might result, amongst other factors, in restructuring costs, goodwill
and other intangible assets impairment, having an impact on actual and future
results.
Variation in income taxes impact the profitability of the Company, and depends on
various factors, such as the geographic areas in which the Company is present,
the statutory tax rates enacted, the nature of the revenues earned by the Company
as well as tax assessments made by authorities.
Finance expense
Variation in interest rates could have an impact on the Company’s results, as some
of its financing bears interest at a variable rate.
Foreign exchange
As the Company operates in many countries, foreign currency exchange rates can
cause variances to estimates as the budgets and forecasts are prepared at
specific rates.
the Company has a foreign exchange
hedging policy that
limits the volatility in results caused by foreign exchange
fluctuations.
It should be noted that
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
2019 Executive Summary
3.1
EXECUTIVE SUMMARY – KEY FINANCIAL INDICATORS
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Income Statements
Revenues
Net income (loss) attributable to SNC-Lavalin shareholders
Adjusted net income (loss) attributable to SNC-Lavalin shareholders from E&C
Earnings (loss) per share diluted (“Diluted EPS”) (in $)
Adjusted diluted EPS from E&C (in $)
EBIT
EBITDA
Adjusted E&C EBITDA (% of revenues)
(1)
(1)
(1)
(1)
(1)
Financial Position & Cash Flows
Cash and cash equivalents (at December 31)
Cash net of recourse debt (net recourse debt) (at December 31)
Net cash used for operating activities
(1)
Additional Indicator
Revenue backlog (at December 31)
2019
2018
CHANGE (%)
$
9,515.6 $
328.2
(70.3)
1.87
(0.40)
741.4
3,017.5
3.0 %
10,084.0
(1,316.9)
43.1
(7.50)
0.25
(1,160.4)
404.6
(5.6%)
N/A
N/A
N/A
N/A
N/A
645.8%
3.9 %
(23.1%)
$
1,188.6 $
7.7
(355.3)
634.1
(1,657.2)
(303.5)
87.4%
N/A
17.1%
$
15,262.5 $
14,885.0
2.5%
(1)
Non-IFRS financial measures or additional IFRS measures. Please refer to Section 14 for further information on these financial measures and for the reference to the reconciliation from
these financial measures to the most directly comparable measure specified under IFRS, when applicable.
The Company's financial highlights reflect the following major items:
2019
◦
◦
◦
◦
◦
The disposal by the Company of 10.01% of the shares of 407 International Inc. (“Highway 407 ETR”) resulting
in:
◦
◦
◦
$3.0 billion of cash proceeds collected at closing in August 2019 and up to $250 million contingently
payable over a period of 10 years;
A gain before taxes of $3.0 billion; and
The ability to repay some recourse and limited recourse debt.
The settlement of the federal charges (PPSC), resulting in an expense of $257.3 million.
An impairment of goodwill and intangible assets related to Resources totaling $1.9 billion largely attributable
to the Company's decision to cease bidding on LSTK construction projects, as well as lower than expected
performance in Resources in the first half of the year and challenges in replenishing the backlog;
A Segment EBIT of $802.1 million from SNCL Engineering Services and a negative Segment EBIT of
$448.0 million from SNCL Projects;
Restructuring costs of $182.8 million.
2018
◦
An impairment of goodwill related to Resources totaling $1.2 billion;
◦
◦
◦
A Segment EBIT of $776.5 million from SNCL Engineering Services, and a negative Segment EBIT of
$237.3 million from SNCL Projects;
The settlement of 2012 class action lawsuits resulting in a $89.4 million net expense;
Restructuring costs of $68.6 million.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
3.2
EXECUTIVE SUMMARY – OTHER ITEMS
APPOINTMENT OF CHIEF EXECUTIVE OFFICER
Effective October 31, 2019, Ian L. Edwards was appointed as President and Chief Executive Officer of the
Company. Mr. Edwards was previously appointed as SNC-Lavalin’s Interim President and Chief Executive Officer
on June 11, 2019, after spending approximately five months in the role of Chief Operating Officer.
NEW STRATEGIC DIRECTION WITH CORPORATE REORGANIZATION
On July 22, 2019, the Company announced that it would be focusing on the high-performing and growth areas of
the business and that it was exiting LSTK construction contracting.
The Company also announced a reorganization into two separate business lines:
◦
◦
SNCL Engineering Services which includes EDPM, Nuclear, Infrastructure Services (including Linxon) and
Capital.
SNCL Projects which includes Resources (Oil & Gas and Mining & Metallurgy) and the then existing
Infrastructure LSTK construction projects.
The Company also announced that
it was exploring all options for its Resources activities, particularly its
Oil & Gas business, including transition to a services-based business or divestiture. At the end of 2019, the
Company decided to exit
including its compression and
production equipment product lines, which were also known under the Valerus brand.
the unprofitable midstream fabrication business,
The reorganization and exit from LSTK construction contracting are aligned with the new strategic direction of the
Company that is focused on de-risking the business and generating more consistent earnings and cash flow. The
is to strengthen the balance sheet and enhance financial flexibility, while removing volatility.
Company’s goal
While the Company is exiting the LSTK construction activity, it will fulfil the contractual obligations of its current
projects. It may be necessary for the Company to accept change orders under existing LSTK construction
contracts, which may temporarily extend the performance timeframe of such contracts.
APPOINTMENT OF EXECUTIVE VICE-PRESIDENT, PROJECT OVERSIGHT
On June 18, 2019, the Company appointed Nigel W.M. White as Executive Vice-President, Project Oversight,
effective August 1, 2019. Mr. White reports to Mr. Edwards and leads the newly created Project Oversight
function. Project Oversight is an operational function that focuses on assisting all operating segments in achieving
timely delivery and on-budget project execution. The objective is to drive consistency and assess risk for the
Company in a way that enhances its ability to foresee and fix project-related issues in a timely fashion.
APPOINTMENT OF CHIEF TRANSFORMATION OFFICER
On January 22, 2020, the Company announced the appointment of Louis G. Véronneau to the newly created role
of Chief Transformation Officer (CTO), charged with rapidly simplifying the Company’s structure and processes,
while supporting the new strategic direction with a focus on Information Technology (IT) and divestitures.
APPOINTMENT OF CHIEF FINANCIAL OFFICER
On February 10, 2020, the Company announced the appointment of Jeff Bell as Chief Financial Officer (CFO),
effective April 14, 2020. His appointment follows a number of recent appointments that is a part of the ongoing
strengthening process of the Company's leadership team focused on supporting the execution of the Company's
new strategic direction.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
FEDERAL CHARGES SETTLEMENT (PPSC)
On December 18, 2019, the Company announced that the federal charges arising from legacy activities in Libya
between 2001 and 2011 had been settled with the Public Prosecution Service of Canada (“PPSC”). The Court of
Quebec accepted a guilty plea from SNC-Lavalin Construction Inc. (a subsidiary of the Company) to a single
Inc., and SNC-Lavalin
charge of
Construction Inc. have been withdrawn by the PPSC. As part of the settlement, SNC-Lavalin Construction Inc. will
pay a fine in the amount of $280 million, payable in equal installments over 5 years, and will be subject to a three-
year probation order.
the Company, SNC-Lavalin International
fraud. All other charges against
DISPOSAL OF 10.01% INTEREST IN HIGHWAY 407 ETR
On August 15, 2019 SNC-Lavalin announced that it completed the sale of 10.01% of the shares of Highway 407
ETR to a company controlled by Canada Pension Plan Investment Board (“CPPIB”). At closing and in accordance
with the terms and conditions of the agreement, SNC-Lavalin received the base purchase price proceeds of
$3.0 billion, with up to an additional $250 million contingently payable over a period of 10 years, conditional on the
attainment of certain financial thresholds related to the ongoing performance of Highway 407 ETR and recognized
a net gain of $2.6 billion on this transaction. A portion of the $2.9 billion net proceeds from this transaction was
used to repay borrowings made under the Company's second amended and restated credit agreement dated as
of April 30, 2018 ("the Credit Agreement"), a portion of the Company's limited recourse loan and a bridge credit
facility in full.
SNC-Lavalin’s remaining 6.76% ownership interest in Highway 407 ETR continues to be accounted for under the
equity method of accounting.
OTHER CHANGES TO THE MANAGEMENT TEAM
Effective April 2019, the Company appointed Craig Muir as President, Resources.
On September 18, 2019, the Company appointed Charlene A. Ripley to the role of Executive Vice-President and
General Counsel, effective October 15, 2019.
Effective February 3, 2020, the Company appointed Jonathan Wilkinson, previously President, Infrastructure, to
the newly created role of President of Infrastructure Projects, charged with overseeing the rapid and successful
run-off of the Company’s LSTK backlog. At the same time, the Company has appointed, on an interim basis, Dale
Clarke, previously Executive Vice-President, Strategy and Growth, Infrastructure, to the newly created role of
Executive Vice-President Infrastructure Services, responsible for growing the high-performing services business
in North America.
SETTLEMENT WITH CODELCO ON ACID PLANT PROJECT
On October 11, 2019, the Company announced that it had reached a full and final settlement with Codelco,
following the latter's decision to terminate its Mining & Metallurgy contract, as announced on March 25, 2019. This
settlement eliminated the potential for any and all future risk stemming from the disputes related to the contract
termination.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
Financial Performance Analysis
4.1
SELECTED ANNUAL FINANCIAL INFORMATION
The selected annual financial information presented in the table below has been derived from the Company’s
audited annual consolidated financial statements prepared in accordance with IFRS for each of the three most
recently completed financial years, with the exception of the non-IFRS financial measures specifically identified in
the “Additional selected financial information” section below.
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$, EXCEPT EARNINGS (LOSS) PER SHARE, ADJUSTED DILUTED EPS FROM E&C
AND DIVIDENDS PER SHARE DECLARED TO SNC-LAVALIN SHAREHOLDERS)
2019
2018
2017
Revenues:
From E&C
From Capital
Total Revenue
Net income (loss) attributable to SNC-Lavalin shareholders:
From E&C
From Capital
Net income (loss) attributable to SNC-Lavalin shareholders
Earnings (loss) per share (in $):
Basic
Diluted:
From E&C
From Capital
Diluted earnings (loss) per share
Additional selected financial information:
Backlog (at December 31)
Adjusted EBITDA from E&C
Total assets (at December 31)
Non-current financial liabilities (at December 31)
Adjusted diluted EPS from E&C (in $)
Dividends per share declared to SNC-Lavalin shareholders (in $)
(2)
(1)
(1)
$
9,252.9 $
9,819.3 $
262.7
264.7
$
9,515.6 $
10,084.0 $
$
(2,444.6) $
2,772.8
(1,563.0) $
246.1
$
328.2 $
(1,316.9) $
9,096.7
238.0
9,334.7
176.0
206.0
382.0
$
$
$
$
$
$
$
$
$
1.87 $
(7.50) $
2.35
(13.93) $
15.80
1.87 $
(8.90) $
1.40
(7.50) $
1.08
1.26
2.34
15,262.5 $
279.1 $
11,644.7 $
2,378.1 $
(0.40) $
0.160 $
14,885.0 $
385.6 $
12,939.7 $
2,551.9 $
0.25 $
0.961 $
10,406.4
629.0
13,762.5
2,824.6
2.15
1.106
(1)
(2)
Non-IFRS financial measure. Please refer to Section 14 for further information on these financial measures and for the reference to the reconciliation from these financial measures to
the most directly comparable measure specified under IFRS, when applicable.
Non-current financial liabilities include long-term debt (Recourse, Limited recourse and Non-recourse), the financial portion of the Non-current portion of provisions, Other non-current
financial liabilities, and the Non-current portion of lease liabilities.
While the variances between 2019 and 2018 are further described in the following sections of the MD&A, the main
variances between 2018 and 2017 are explained as follows:
Revenue growth in 2018 is partially explained by the first full year of results of Atkins, acquired in July 2017.
There was a net loss in 2018 compared to a net income in 2017. The variance is mainly attributable to the
goodwill impairment of $1,240.4 million recognized in the fourth quarter of 2018. The remaining variance is due to
lower Segment EBIT, the increase in amortization of intangible assets related to business combinations, the gain
on disposal of the head office building in 2017 and the net expense in 2018 for the 2012 class action lawsuits
settlement, partially offset by lower acquisition-related costs and integration costs in 2018.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
4.2
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31
(IN MILLIONS OF CA$, EXCEPT EARNINGS (LOSS) PER SHARE)
Revenues
Total Segment EBIT
Corporate selling, general and administrative expenses
Impairment loss arising from expected credit losses
Loss arising on financial assets (liabilities) at fair value
Net 2012 class action lawsuits settlement expense and related legal costs
Federal charges settlement (PPSC)
Restructuring costs
Acquisition-related costs and integration costs
Amortization of intangible assets related to business combinations
Gain on disposal of a Capital investment
Loss from adjustment on disposals of E&C businesses
Impairment of intangible assets related to business combinations
Impairment of goodwill
Earnings (loss) before interest and income taxes
Net financial expenses
Earnings (loss) before income taxes
Income taxes
Net income (loss)
Net income (loss) attributable to:
SNC-Lavalin shareholders
Non-controlling interests
Net income (loss)
Earnings (loss) per share (in $):
Basic
Diluted
Additional financial indicators:
Diluted EPS from E&C (in $) (1)
Adjusted diluted EPS from E&C (in $)
Adjusted EBITDA from E&C
(1)
(1)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2019
9,515.6 $
354.1 $
(73.9) $
(0.2)
(4.7)
—
(257.3)
(182.8)
(8.3)
(182.0)
2,970.8
(0.3)
(72.8)
(1,801.0)
741.4 $
212.1 $
529.3 $
198.7 $
330.6 $
328.2 $
2.4
330.6 $
1.87 $
1.87 $
(13.93) $
(0.40) $
279.1 $
(2)
2018
10,084.0
539.1
(98.0)
(1.3)
(7.4)
(89.4)
—
(68.6)
(54.9)
(206.5)
67.6
(0.5)
—
(1,240.4)
(1,160.4)
167.4
(1,327.8)
(11.5)
(1,316.3)
(1,316.9)
0.6
(1,316.3)
(7.50)
(7.50)
(8.90)
0.25
385.6
(1)
(2)
Non-IFRS financial measure. Please refer to Section 14 for further information on these financial measures and for the reference to the reconciliation from these financial measures to
the most directly comparable measure specified under IFRS, when applicable.
Comparative figures have been restated to reflect a change made to the Company’s reporting of its financial results. Please refer to Section 13 for further details.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
4.2.1 REVENUE ANALYSIS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Revenues:
From E&C
SNCL Engineering Services (excluding Capital)
SNCL Projects
Total from E&C
From Capital
Total Revenues
REVENUES FROM E&C
2019
2018
$
$
6,017.3 $
3,235.6
9,252.9 $
262.7
$
9,515.6 $
5,521.7
4,297.6
9,819.3
264.7
10,084.0
E&C revenues decreased to $9.3 billion in 2019, compared with $9.8 billion in 2018. The variance is largely
attributable to lower revenues in SNCL Projects, in both Resources and Infrastructure EPC Projects, partially
offset by an increase in revenues in SNCL Engineering Services from E&C, mainly in Infrastructure Services and
EDPM. The decrease in revenues from SNCL Projects reflects the completion or near completion of certain major
projects, combined with the Company's decision in July 2019 to stop bidding on LSTK construction contracts. The
increase in revenues from SNCL Engineering Services (excluding Capital) reflects mainly the first full year of
operations of Linxon, acquired in September 2018, and an overall growth in activities in EDPM.
REVENUES FROM CAPITAL
Revenues from Capital in 2019 are in line with those of 2018, as the decrease in contribution from Highway 407
ETR following the disposal of a portion of this investment by the Company in August 2019 was offset by a higher
level of activity on certain other investments.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
4.2.2 SEGMENT EBIT ANALYSIS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$, EXCEPT RATIO IN %)
Total Segment EBIT:
From E&C
SNCL Engineering Services (excluding Capital)
SNCL Projects
Total from E&C
From Capital
Total Segment EBIT
Total Segment EBIT-to-revenue ratio (%):
From E&C
SNCL Engineering Services (excluding Capital)
SNCL Projects
Total from E&C
From Capital
Total Segment EBIT-to-revenue ratio (%)
2019
(1)
2018
$
$
$
558.9 $
(448.0)
110.9 $
243.2
354.1 $
9.3%
(13.8%)
1.2%
92.6%
3.7%
551.5
(237.3)
314.2
225.0
539.1
10.0%
(5.5%)
3.2%
85.0%
5.3%
(1)
Comparative figures have been restated to reflect a change made to the Company’s reporting of its financial results. Please refer to Section 13 for further details.
SEGMENT EBIT FROM E&C
E&C total segment EBIT in 2019 was $110.9 million, compared with $314.2 million in 2018. The variance is
largely attributable to the increased loss in SNCL Projects, reflecting a loss in Infrastructure EPC Projects in 2019
and the higher level of loss in Resources in 2019 compared to 2018, partially offset by the higher Segment EBIT
in SNCL Engineering Services excluding Capital, mainly from Infrastructure Services.
SEGMENT EBIT FROM CAPITAL
The relationship between revenues and EBIT for Capital investments is not meaningful, as a significant portion of
the investments are accounted for under either the equity or cost methods, which do not reflect the line-by-line
items of the individual Capital investment’s financial results.
Segment EBIT from Capital increased to $243.2 million in 2019, compared with $225.0 million in 2018, mainly
due to an increased contribution from certain investments and lower selling, general and administrative expenses
in 2019, partly offset by a lower contribution from Highway 407 ETR following the disposal of a portion of this
investment by the Company in August 2019.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
4.2.3 CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ANALYSIS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
2019
(1)
2018
Corporate selling, general and
administrative expenses
$
45.8 $
28.2 $
73.9 $
70.4 $
27.7 $
98.0
(1)
Comparative figures have been restated to reflect a change made to the Company’s reporting of its financial results. Please refer to Section 13 for further details.
FROM E&C
FROM CAPITAL
TOTAL
FROM E&C
FROM CAPITAL
TOTAL
Corporate selling, general and administrative expenses totaled $73.9 million in 2019, compared with
$98.0 million in 2018, mainly reflecting efficiencies obtained from restructuring and right-sizing efforts. The
Corporate selling, general and administrative expenses in 2018 included a $16.2 million favorable impact from
revised estimates on legacy sites environmental liability and other asset retirement obligations and a $25.1 million
Guaranteed Minimum Pension (“GMP”) equalization cost recognized by the Company for past service cost.
4.2.4 NET 2012 CLASS ACTION LAWSUITS SETTLEMENT EXPENSE AND RELATED LEGAL
COSTS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
2019
Net 2012 class action lawsuits settlement expense and related legal costs
$
— $
2018
89.4
On May 22, 2018, the Company reached a settlement agreement in relation to class actions in Quebec and
Ontario filed in 2012 on behalf of security holders, resulting in a net expense of $89.4 million, including the related
legal costs.
4.2.5 FEDERAL CHARGES SETTLEMENT (PPSC)
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Federal charges settlement (PPSC)
2019
$
257.3 $
2018
—
As part of the settlement reached on December 18, 2019, a subsidiary of the Company will pay a fine in the
amount of $280 million, payable in equal
installments over the next 5 years. The $257.3 million expense
recognized in 2019 represents the net present value of these installments.
4.2.6 RESTRUCTURING COSTS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Restructuring costs
2019
$
182.8 $
2018
68.6
Over the past years, the Company has been engaged in restructuring its activities. In 2019, the Company
announced a new strategy under which the Company is no longer bidding on LSTK construction contracts.
SNC-Lavalin is also reducing its geographic footprint to reduce risk and complexity by focusing on its core growth
regions: Canada, the U.S., and the U.K., along with regional markets such as the Middle East and Asia Pacific,
which involves exiting unprofitable operations in certain countries. At the end of 2019, the Company decided to
exit the midstream fabrication business, including its compression and production equipment product lines, which
were also known under the Valerus brand.
The Company incurred $182.8 million of restructuring costs in 2019 (2018: $68.6 million). The restructuring costs
recognized in 2019 included approximately $72 million related to Valerus, of which $52.5 million related to non-
cash charges, notably $31.2 million of inventory write-down, $11.3 million of impairment of right-of-use assets and
$10.0 million of impairment of property and equipment. The remaining balance of restructuring costs recognized in
2019 were mainly for severances. The restructuring costs recognized in 2018 were mainly for severances across
the Company’s segments and corporate functions.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
4.2.7 ACQUISITION-RELATED COSTS AND INTEGRATION COSTS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Acquisition-related costs and integration costs
2019
$
8.3 $
2018
54.9
In 2019, the Company incurred acquisition-related costs and integration costs totalling $8.3 million,
compared with $54.9 million in 2018, a variance that was largely attributable to lower professional fees, reflecting
the completion of the integration of Atkins and Linxon.
4.2.8 AMORTIZATION OF INTANGIBLE ASSETS RELATED TO BUSINESS COMBINATIONS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
2019
2018
Amortization of intangible assets related to business combinations
$
182.0 $
206.5
Amortization of intangible assets related to business combinations amounted to $182.0 million in 2019,
and to $206.5 million in 2018, both mainly attributable to the amortization expense of intangible assets related to
Atkins.
4.2.9 NET GAIN ON DISPOSAL
In August 2019, SNC-Lavalin completed the sale of 10.01% of the shares of Highway 407 ETR to a company
controlled by CPPIB. SNC-Lavalin recognized a gain before taxes of $2,970.8 million on this transaction.
SNC-Lavalin’s remaining 6.76% ownership interest in Highway 407 ETR continues to be accounted for under the
equity method of accounting.
4.2.10 IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS RELATED TO BUSINESS
COMBINATIONS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Impairment of goodwill
Impairment of intangible assets related to business combinations
2019
2018
$
1,801.0 $
1,240.4
72.8
—
Impairment of goodwill and intangible assets related to business combinations
$
1,873.8 $
1,240.4
Impairment of goodwill has increased in 2019 due to the impairment loss on goodwill of $1.8 billion which was
recognized in 2019 for the Resources CGU, largely attributable to the Company’s decision to cease bidding on
LSTK construction projects, as well as lower than expected performance in Resources in the first half of the year
the intangible assets related to business
and challenges in replenishing the backlog. At
combinations in the Resources segment were impaired by $72.8 million.
the same time,
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
4.2.11 EBIT, EBITDA ANALYSIS
EBIT, EBITDA are non-IFRS financial measures. Definitions and reconciliations of these financial measures to
Net Income are presented in Section 14.
In 2019, EBIT from E&C was negative $2,441.9 million, compared with $1,424.5 million in 2018, a variance
mainly due to the higher amount of goodwill impairment related to Resources in 2019, combined with a lower
Segment EBIT from E&C in 2019, mainly attributable to losses in Resources and Infrastructure EPC Projects,
offset by a higher Segment EBIT from Infrastructure Services. Also explaining the higher loss were the federal
charges settlement expense, higher restructuring costs and an impairment of
intangible assets related to
Resources in 2019, partially offset by the net 2012 class action lawsuits settlement expenses and related legal
costs in 2018. This also resulted in an EBITDA from E&C of negative $166.0 million in 2019, compared with
$140.5 million in 2018. When adjusting for the charges related to restructuring, right-sizing and other, the
acquisition-related costs and integration costs, the net expense for the 2012 class action lawsuits settlement and
related legal costs, the federal charges settlement (PPSC) expense, the GMP equalization expense, as well as
the gains (losses) on disposals of E&C businesses and Capital investments, the adjusted EBITDA from E&C
amounted to $279.1 million in 2019, compared with $385.6 million in 2018.
EBIT and EBITDA from Capital were favorably impacted in 2019 mainly due to the gain on disposal by the
Company of a 10.01% of the shares of Highway 407 ETR.
4.2.12 NET FINANCIAL EXPENSES
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Interest revenues
Interest on debt:
Recourse
Limited recourse
Non-recourse
Net foreign exchange losses
Interest on lease liabilities
Other
Net financial expenses
2019
2018
FROM E&C
FROM CAPITAL
$
(10.8) $
(0.2) $
TOTAL
(11.0) $
FROM E&C
FROM CAPITAL
(7.9) $
(4.4) $
85.0
45.1
5.7
(2.7)
23.4
48.5
—
—
18.1
(0.2)
0.2
—
85.0
45.1
23.8
(3.0)
23.6
48.5
78.2
85.2
2.1
0.2
—
(1.8)
—
—
15.8
0.1
—
—
$
194.2 $
17.8 $
212.1 $
156.0 $
11.5 $
TOTAL
(12.3)
78.2
85.2
17.9
0.2
—
(1.8)
167.4
Net financial expenses from E&C increased to $194.2 million in 2019 compared with $156.0 million in 2018, a
variance mainly due to $33.8 million of loss related to the amendments of the SNC-Lavalin Holdings Loan
Agreement and $3.7 million related to other E&C financing arrangements in connection with the sale by the
Company of 10.01% of the shares of Highway 407 ETR, both included in “Other” in the table above, combined
with the additional financial expenses related to lease liabilities in 2019, following the adoption of IFRS 16 on
January 1, 2019 without restatement of comparative figures.
Net financial expenses from Capital were $17.8 million in 2019, compared with $11.5 million in 2018, mainly
explained by the decrease in interest revenues.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
4.2.13 INCOME TAXES ANALYSIS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
2019
2018
FROM E&C
FROM CAPITAL
TOTAL
FROM E&C
FROM CAPITAL
Earnings before income
Income taxes
Effective income tax rate
$
$
(2,636.1) $
(193.9) $
7.4 %
3,165.5 $
392.7 $
12.4 %
529.3 $
198.7 $
37.5 %
(1,580.5) $
(18.1) $
1.2 %
252.6 $
6.6 $
2.6 %
TOTAL
(1,327.8)
(11.5)
0.9 %
In 2019, the Company reported an income tax expense of $198.7 million, compared to an income tax
recovery of $11.5 million in 2018.
The effective income tax recovery rate from E&C was lower than the Canadian statutory income tax rate
of 26.5% in 2019, mainly due to the impact of the non-tax deductible portion of the goodwill impairment, the write
down of previously recognized deferred income tax assets, the non-tax deductible Federal Charges Settlement
and other permanent items. These impacts were partially offset by the recognition of income tax recoveries on
capital losses and earnings not affected by tax.
In 2018, the effective income tax recovery rate from E&C was lower than the Canadian statutory income tax rate
of 26.7% mainly due to the impact of the non-tax deductible goodwill impairment, net losses that did not generate
an income tax benefit and by adjustments to deferred income taxes due to the US tax reform and the net reversal
of previously recognized deferred tax assets. These impacts were partially offset by the geographic mix of
earnings before income taxes as well as earnings not affected by tax and other permanent items.
The effective income tax rate from Capital investments increased in 2019 compared with 2018, but was
lower than the Canadian statutory income tax rate of 26.5%, mainly due to the non-taxable portion of the gain on
the disposal of a 10.01% stake in Highway 407 ETR.
In 2018, the effective income tax rate was lower than the
Canadian statutory income tax rate of 26.7% mainly due to the non-taxable dividends received from Highway 407
ETR and the non-taxable portion of the gain on the disposition of MHIG to the SNCL IP Partnership.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
4.2.14 NET INCOME ANALYSIS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Net income (loss) attributable to SNC-Lavalin shareholders:
From E&C
From Capital
Net income (loss) attributable to SNC-Lavalin shareholders
Non-controlling interests
Net income (loss)
NET INCOME FROM E&C
2019
2018
$
(2,444.6) $
2,772.8
$
328.2 $
2.4
$
330.6 $
(1,563.0)
246.1
(1,316.9)
0.6
(1,316.3)
Net loss attributable to SNC-Lavalin shareholders from E&C was $2,444.6 million in 2019, compared to a
net loss attributable to SNC-Lavalin shareholders from E&C of $1,563.0 million in 2018, a variance mainly due to
the higher amount of goodwill impairment related to Resources in 2019, combined with a lower Segment EBIT
from E&C in 2019, mainly attributable to losses in Resources and Infrastructure EPC Projects, offset by a higher
Segment EBIT from Infrastructure Services. Also explaining the higher loss were the federal charges settlement
expense, higher net financial expenses, higher restructuring costs and an impairment of intangible assets related
to Resources in 2019, partially offset by the net 2012 class action lawsuits settlement expenses and related legal
costs in 2018.
NET INCOME FROM CAPITAL
Net income attributable to SNC-Lavalin shareholders from Capital increased to $2,772.8 million in 2019,
compared with $246.1 million in 2018, mainly from a gain on the disposal by the Company of 10.01% of the
shares of Highway 407 ETR, an increased contribution from certain other investments and lower selling, general
and administrative expenses in 2019.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
Backlog (Remaining Performance
Obligations)
The backlog is defined as a forward-looking indicator of anticipated revenues to be recognized by the Company,
determined based on contract awards that are firm and amounting to the transaction price allocated to remaining
performance obligations. Management could be required to make estimates regarding the revenue to be
generated for certain contracts.
Revenue backlog is derived primarily from three major types of contracts: Reimbursable and engineering
service contracts, Standardized EPC contracts and LSTK construction contracts.
◦
◦
◦
Reimbursable and engineering service contracts: Under reimbursable contracts, the Company charges
the customer for the actual cost incurred plus a mark-up that could take various forms such as a fixed-fee per
unit, a percentage of costs incurred or an incentive fee based on achieving certain targets, performance
factors or contractual milestones. Reimbursable contracts also include unit-rate contracts for which a fixed
amount per quantity is charged to the customer, and reimbursable contracts with a cap. Engineering service
contracts include i) time and material agreements based on hourly rates and fixed-price lump-sum contracts
with limited procurement or construction risks, and ii) O&M contracts.
Standardized EPC contracts: Under standardized EPC contracts, the Company provides its repetitive EPC
offerings that are lower-risk, standardized solutions for: i) district cooling plants; and ii) power substations
executed through its Linxon subsidiary.
LSTK construction contracts: Under LSTK construction contracts, the Company completes the work
required for the project at a lump-sum price. Before entering into such contracts, the Company estimates the
total cost of the project, plus a profit margin. The Company’s actual profit margin may vary based on its ability
to achieve the project requirements at above or below the initial estimated costs.
REVENUE BACKLOG BY SEGMENT AND GEOGRAPHIC AREA
The following table provides a breakdown of revenue backlog by segment and geographic area.
AT DECEMBER 31
(IN MILLIONS CA$)
BY SEGMENT
(1)
SNCL Engineering Services
EDPM
Nuclear
Infrastructure Services
Capital
Total SNCL Engineering Services
SNCL Projects
Resources
Infrastructure EPC Projects
Total SNCL Projects
Total
From Canada
Outside Canada
Total
2019
(2)
2018
$
2,630.0 $
1,154.0
7,337.0
176.9
$
11,297.9 $
$
$
$
$
1,380.1 $
2,584.5
3,964.6 $
15,262.5 $
9,152.8 $
6,109.7
$
15,262.5 $
2,793.1
1,202.9
6,225.4
155.4
10,376.8
1,907.3
2,600.9
4,508.2
14,885.0
8,560.4
6,324.6
14,885.0
(1)
(2)
Backlog from Capital represents the amount that will be recognized as revenue from contracts with customers in the Capital segment from a concession agreement.
Comparative figures have been restated to reflect a change made to the Company’s reporting of its financial results. Please refer to Section 13 for further details.
26
26
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
The Company’s revenue backlog increased to $15.3 billion as at December 31, 2019 compared with
$14.9 billion as at December 31, 2018, mainly reflecting an increase in Infrastructure Services partially offset by a
decrease in Resources.
Backlog from Canada increased in 2019, reflecting an increase mostly in Infrastructure Services explained
mainly by major bookings in O&M.
Backlog from Outside Canada decreased in 2019, principally due to a decrease in Resources, mainly due to
the completion or near completion of certain major projects in 2019.
BACKLOG RECONCILIATION
In the following section,
the Company presents its “booking-to-revenue ratio”, a non-IFRS measure, which
corresponds to the contract bookings divided by the revenues for a given period. This measure provides a basis
for assessing the renewal of business. However, the revenue backlog measure does not include prospects, one of
the key elements taken into account when estimating revenues and gross margin for budget and forecast
purposes described in Section 2.2, which can be a significant portion of the budgeted and/or forecasted revenues.
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$ EXCEPT FOR BOOKING-TO-REVENUE RATIO)
Opening backlog
IFRS 15 opening balance adjustment
Plus: Contract bookings during the year
Backlog from a business combination
Less: Revenues from contracts with customers recognized during the year
Ending backlog
Booking-to-revenue ratio
(1)
$
$
2019
14,885.0 $
—
9,623.1
—
9,245.6
15,262.5 $
1.04
2018
10,406.4
3,390.5
10,362.4
526.1
9,800.4
14,885.0
1.06
(1)
Non-IFRS financial measures. Please refer to Section 14 for further information on these financial measures and for the reference to the reconciliation from these financial measures to
the most directly comparable measure specified under IFRS, when applicable.
MAJOR CONTRACT AWARDS
In 2019, the Company was awarded several contracts in North America, and in the U.K. notably the Trillium Line
Extension project awarded in Canada.
In 2018, the Company was awarded several contracts in North America, Africa and in the U.K., notably the
contract related to the Réseau express métropolitain (“REM”) in Infrastructure EPC Projects. In the Resources
segment, the Company was awarded contracts in the Middle East. The backlog from a business combination
resulted from Linxon’s opening backlog of $526.1 million.
BACKLOG BY TYPES OF CONTRACTS
The following table shows the amounts and proportions of reimbursable and engineering service contracts,
standardized EPC contracts and LSTK construction contracts included in each segment’s backlog as at
December 31, 2019:
REIMBURSABLE &
ENGINEERING SERVICES
CONTRACTS
STANDARDIZED
EPC CONTRACTS
LSTK
CONSTRUCTION
CONTRACTS
BY SEGMENT
SNCL Engineering Services
EDPM
Nuclear
Infrastructure Services
Capital
Total SNCL Engineering
SNCL Projects
Resources
Infrastructure EPC Projects
Total SNCL Projects
Total
$
$
$
$
$
2,630.0
1,079.0
6,444.5
176.9
10,330.4
973.8
—
973.8
11,304.2
100 % $
94 %
88 %
100 %
91 % $
71 % $
— %
25 % $
74 % $
—
—
892.5
—
892.5
—
—
—
892.5
— % $
— %
12 %
— %
8 % $
—
75.0
—
—
75.0
— % $
— %
— % $
6 % $
406.3
2,584.5
2,990.8
3,065.8
— %
6 %
— %
— %
1 %
29 %
100 %
75 %
20 %
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
27
27
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
BACKLOG PHASING
The backlog as at December 31, 2019, is expected to be recognized in revenues as follows: 2020 – $5.6 billion,
2021 – $2.3 billion, 2022 – $1.2 billion, and thereafter – $6.1 billion (2018: 2019 – $5.8 billion, 2020 – $2.3 billion,
2021 – $1.2 billion, and thereafter – $5.6 billion). It should be noted that these amounts exclude any estimated
amounts of variable consideration that are excluded from the transaction price.
The LSTK construction contracts included in the backlog of the Resources and Infrastructure EPC Projects
segments have expected completions between 2020 and 2024. The Company will fulfill the contractual obligations
of its current LSTK construction projects. It may be necessary for the Company to accept change orders under
existing LSTK construction contracts, which may temporarily extend the performance timeframe of such contracts.
Most of the backlog from LSTK construction contracts in these sectors is derived from the following projects:
Réseau Express Métropolitan (REM), Trillium Line Extension, Eglinton LRT and Husky White Rose.
28
28
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
Geographic Breakdown of Revenues
YEAR ENDED DECEMBER 31
(IN MILLIONS CA$)
Americas:
Canada
United States
Latin America
Middle East and Africa:
Saudi Arabia
Other Middle East countries
Africa
Asia Pacific:
Australia
Other
Europe:
United Kingdom
Other
Total
2019
TOTAL
2018
%
TOTAL
$
$
2,813.7
1,825.5
181.6
871.1
817.6
363.0
173.7
326.8
1,794.1
348.4
9,515.6
30 % $
19 %
2 %
9 %
9 %
4 %
2 %
3 %
19 %
4 %
100 % $
2,962.6
1,665.6
302.4
1,020.7
962.5
469.1
511.3
227.6
1,658.4
303.8
10,084.0
%
29 %
17 %
3 %
10 %
10 %
5 %
5 %
2 %
16 %
3 %
100 %
AMERICAS:
◦
Revenues in Canada in 2019 decreased from 2018, mainly due to a decrease in Infrastructure EPC and
Infrastructure Services.
Revenues in the United States increased in 2019 compared with 2018, reflecting an increase in
Resources, EDPM and Nuclear, mostly offset by a decrease in Infrastructure EPC Projects, due to the
completion or near completion of certain major projects.
Revenues in Latin America decreased in 2019 compared with the previous year, principally reflecting a
decrease in Resources.
◦
◦
MIDDLE EAST AND AFRICA:
◦
◦
◦
Revenues in Saudi Arabia decreased in 2019 compared with 2018, primarily due to Resources.
Revenues in other Middle East countries decreased in 2019 compared with 2018, mainly due to
Resources, partially offset by activities from the Linxon business in Infrastructure Services.
Revenues in Africa in 2019 decreased compared with 2018, primarily due to a decrease in Resources.
ASIA PACIFIC:
◦
◦
Revenues in Australia decreased in 2019 compared with the previous year, mainly attributable to a
decrease in Resources due to completion or near completion of certain major projects in 2018, partially offset
by an increase in Infrastructure EPC Projects.
Revenues in other countries,
incremental activities of the Linxon business in Infrastructure Services as well as those in EDPM.
increased in 2019 compared with the previous year, mainly reflecting
EUROPE:
◦
◦
Revenues in the United Kingdom, increased in 2019 compared with the previous year, mainly due to
EDPM and an increase in Infrastructure Services.
Revenues in other countries increased in 2019 compared with 2018, mainly due to incremental activities of
the Linxon business in Infrastructure Services.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
29
29
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
Segment Information
The Company evaluates segment performance, using Segment EBIT, which is a non-IFRS financial measures
defined in Section 14. Effective January 1, 2019, the Company changed the definition of segment EBIT, its
measure of profit or loss for its reportable segments, to reflect a change made to its internal reporting. As such,
segment EBIT now includes: i) the contribution attributable to non-controlling interests before income taxes,
whereas in the past it excluded such contribution attributable to non-controlling interests before income taxes; and
ii) an allocation to the segments of certain other corporate selling, general and administrative expenses. As such,
these changes resulted in: i) a reclassification of the negative contribution attributable to non-controlling interests
before income taxes in segment EBIT of $0.3 million for the year ended December 31, 2018; and ii) a
reclassification of certain other corporate selling, general and administrative expenses in segment EBIT of $23.3
million for the year ended December 31, 2018. The Company believes that such inclusions improve the measure
of profitability of its reportable segments by better reflecting the overall performance of its reportable segments.
At the same time, given the Company’s aim to continue to simplify and de-risk its business, SNC-Lavalin further
simplified its market-facing structure. This simplification became effective January 1, 2019 and resulted in a
change to the Company’s reportable segments, which were i) EDPM; ii) Infrastructure; iii) Nuclear; iv) Resources;
and v) Capital. As further discussed in Section 2, the Company’s new strategic direction adopted for the second
quarter of 2019 resulted in the restructuring of its activities into two distinct business lines, SNCL Engineering
Services and SNCL Projects. From a segmented information stand-point, this change resulted in the split of the
Infrastructure segment into two segments, Infrastructure Services and Infrastructure EPC Projects, all other
the Company’s reportable segments are now EDPM, Nuclear;
segments remaining the same. As such,
Infrastructure Services and Capital, all part of SNCL Engineering Services, and Resources and
Infrastructure EPC projects, which form SNCL Projects.
These changes were made in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and
Errors, resulting in the restatement of prior figures.
this new accounting standard is explained in detail
On January 1, 2019, the Company adopted IFRS 16 under the modified retrospective approach. While the impact
of
in Note 2 to the Company's 2019 audited annual
consolidated financial statements, such change applied without restatement of comparative figures resulted in an
increase of Segment EBIT in 2019 due to the presentation of the interest expense on lease liabilities, when such
expense is not considered a project cost, in net financial expenses, which are excluded from the measure of
Segment EBIT.
The Company derived its revenues from reimbursable and engineering service contracts (2019: 76%; 2018: 73%),
standardized EPC contracts (2019: 5%; 2018: 2%) and LSTK construction contracts (2019: 19%; 2018: 25%). The
following discussion reviews the Company’s segment revenues and Segment EBIT.
30
30
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
YEAR ENDED DECEMBER 31
(IN MILLIONS CA$)
BY SEGMENT
EDPM
Nuclear
Infrastructure Services
Capital
Total SNCL Engineering Services
Resources
Infrastructure EPC Projects
Total SNCL Projects
Total revenues and Segment EBIT
YEAR ENDED DECEMBER 31
(IN MILLIONS CA$)
BY SEGMENT
EDPM
Nuclear
Infrastructure Services
Capital
Total SNCL Engineering Services
Resources
Infrastructure EPC Projects
Total SNCL Projects
Total revenues and Segment EBIT
2019
REVENUES
SEGMENT EBIT
FROM E&C
SEGMENT EBIT
FROM CAPITAL
$
3,908.9 $
929.8
1,178.6
262.7
$
6,280.0 $
2,158.9
1,076.7
3,235.6 $
$
$
357.8 $
127.6
73.5
—
558.9 $
(341.5)
(106.5)
(448.0) $
9,515.6 $
110.9 $
243.2 $
— $
—
—
243.2
243.2 $
—
—
— $
TOTAL
SEGMENT EBIT
357.8
127.6
73.5
243.2
802.1
(341.5)
(106.5)
(448.0)
354.1
(1)
2018
REVENUES
SEGMENT EBIT
FROM E&C
SEGMENT EBIT
FROM CAPITAL
TOTAL
SEGMENT EBIT
$
3,676.4 $
932.6
912.7
264.7
$
5,786.4 $
3,001.4
1,296.3
4,297.7 $
$
$
354.7 $
143.9
52.9
—
551.5 $
(256.6)
19.3
(237.3) $
— $
—
—
225.0
225.0 $
—
—
— $
354.7
143.9
52.9
225.0
776.5
(256.6)
19.3
(237.3)
539.1
10,084.0 $
314.2 $
225.0 $
(1)
Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company’s reportable segments and a change made to the Company’s
reporting structure. Please refer to Section 13 for further details.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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31
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
7.1 SNCL ENGINEERING SERVICES
7.1.1 – EDPM
EDPM incorporates all consultancy, engineering, design and project management services around the world
(including the Canadian market, which was previously in the former Infrastructure segment prior to January 1,
2019). It also leads our efforts to transform the global infrastructure sector by leveraging data and technology to
improve the delivery of our clients’ projects from conception through to eventual operation. EDPM projects are
mainly in transportation (including rail, mass transit, roads and airports), civil infrastructure, aerospace, defence
and security and technology, including some of the world’s most transformational projects. A significant portion of
including national, provincial, state and local and municipal
revenues are derived from the public sector,
authorities. Similar to 2018,
its 2019 revenues from reimbursable and
engineering service contracts.
the EDPM segment derived all of
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Revenues from EDPM
Segment EBIT from EDPM
Segment EBIT over revenues from EDPM (%)
Backlog at year end
2019
3,908.9 $
357.8 $
9.2%
2,630.0 $
(1)
2018
3,676.4
354.7
9.6%
2,793.1
$
$
$
CHANGE (%)
6.3%
0.9%
(5.8%)
(1)
Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company’s reportable segments and a change made to the Company’s
reporting structure. Please refer to Section 13 for further details.
EDPM revenues increased to $3,908.9 million in 2019 compared with $3,676.4 million in 2018. The variance
was mainly attributable to revenues generated by an increased level of activity in the United Kingdom and Europe,
North America and the Middle East.
The major revenue contributors in 2019 included work from the United Kingdom and Europe as a result of a
higher volume of rail and infrastructure projects as Governments maintain their spending on critical infrastructure.
In addition, EDPM secured an increased volume of work in the defence and security sector.
In North America, EDPM continues to expand its geographic footprint, as well as benefiting from ongoing disaster
recovery work with the Federal Emergency Management Agency (FEMA) and ongoing major projects, notably the
Purple Line light rail project in Maryland.
In the Middle East, EDPM celebrated its 10-year anniversary of operating in the Kingdom of Saudi Arabia where it
continues to expand, supporting local efforts to manoeuvre the economy to be less oil dependent. The United
Arab Emirates (UAE) has seen a flatter market following the work on Dubai Expo 2020.
Segment EBIT from EDPM was $357.8 million in 2019 compared with a Segment EBIT of $354.7 million in
2018, primarily due to the increase in the level of activities, partially offset by a lower profitability ratio, mainly due
to an unfavorable geographic mix.
32
32
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
7.1.2 – NUCLEAR
Nuclear supports clients across the entire nuclear life cycle with the full spectrum of services from consultancy,
EPCM services, field services, technology services, spare parts, reactor support & decommissioning and waste
management. As stewards of the CANDU technology, it also provides new-build and full refurbishment services
of CANDU reactors. The Nuclear segment derives its revenues from reimbursable and engineering service
contracts (2019: 98%; 2018: 99%), and two legacy LSTK construction contracts (2019: 2%; 2018: 1%).
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Revenues from Nuclear
Segment EBIT from Nuclear
Segment EBIT over revenues from Nuclear (%)
Backlog at year end
2019
929.8 $
127.6 $
13.7%
1,154.0 $
(1)
2018
932.6
143.9
15.4%
1,202.9
$
$
$
CHANGE (%)
(0.3%)
(11.3%)
(4.1%)
(1)
Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company’s reportable segments and a change made to the Company’s
reporting structure. Please refer to Section 13 for further details.
Nuclear revenues amounted to $929.8 million in 2019, in line with $932.6 million in 2018, mostly driven by
higher technology products and services in Asia Pacific, higher volume in the United States operations, offset by
slightly lower volume in Europe, the Middle East and in Canada.
The major revenue contributors in 2019 are services for decommissioning, waste management and
environmental clean-up projects and services for life extension projects.
In 2019, Segment EBIT from Nuclear decreased to $127.6 million compared with $143.9 million in 2018,
attributable to a lower profitability ratio mainly driven by higher forecasted costs on a specific legacy LSTK
construction project in Canada nearing completion.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
33
33
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
7.1.3 – INFRASTRUCTURE SERVICES
Infrastructure Services includes O&M projects, as well as the Company’s repetitive EPC offerings that are
lower-risk, standardized solutions for: i) district cooling plants; and ii) power substations executed through its
Linxon subsidiary. The segment also includes engineering solutions in hydro, transmission and distribution,
renewables, energy storage, and intelligent networks and cybersecurity. As previously mentioned, Segment EBIT
now includes the contribution attributable to non-controlling interests. As such, the Segment EBIT of Linxon, a
51% subsidiary, is reported at 100% both in 2019 and 2018. The Infrastructure Services segment derives its
revenues from both reimbursable and engineering service contracts (2019: 59%; 2018: 81%) and standardized
EPC contracts (2019: 41%; 2018: 19%).
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Revenues from Infrastructure Services
Segment EBIT from Infrastructure Services
Segment EBIT over revenues from Infrastructure Services (%)
Backlog at year end
$
$
2019
1,178.6 $
73.5 $
6.2%
$
7,337.0 $
(1)
2018
912.7
52.9
5.8%
6,225.4
CHANGE (%)
29.1%
38.9%
17.9%
(1)
Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company’s reportable segments and a change made to the Company’s
reporting structure. Please refer to Section 13 for further details.
Infrastructure Services revenues were $1,178.6 million in 2019 compared with $912.7 million in 2018, an
increase mainly reflecting the activities of Linxon, acquired in September 2018.
The major revenue contributors in 2019 were mainly O&M contracts in Canada and power substation projects
from Linxon.
In 2019, Segment EBIT from Infrastructure Services increased to $73.5 million compared with $52.9 million
in 2018, mainly attributable to the increased contribution of the Linxon business and the net favorable impact of
reforecasts on certain long-term O&M contracts.
34
34
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
7.1.4 – CAPITAL
Capital is SNC-Lavalin’s investment, financing and asset management arm, responsible for developing projects,
arranging financing, investing equity, undertaking complex financial modeling and managing its infrastructure
investments for optimal returns. Its activities are principally concentrated in infrastructure such as bridges,
highways, mass transit systems, power facilities, energy infrastructure, water treatment plants and social
infrastructure (e.g. hospitals). The Capital segment includes SNC-Lavalin's 20% ownership interest in, and
management of, SNCL IP Partnership. Also, as mentioned above, although Capital is a segment forming part of
the SNCL Engineering Services line of business, it is excluded from E&C.
It is the Company’s view that the aggregate fair value of its Capital investments is much higher than their net book
value of $356.0 million as at December 31, 2019. Highway 407 ETR represents the most significant portion of the
total fair value of the Company’s Capital investments portfolio.
Capital investments net book value, as at December 31, 2019 and 2018, can be summarized as follows:
AT DECEMBER 31
(IN MILLIONS CA$)
(1)
Highway 407 ETR
Others
Total
2019
— $
356.0
356.0 $
2018
—
369.1
369.1
$
$
(1)
The net book value is $nil as the Company had previously stopped recognizing its share of the losses of Highway 407 ETR when the cumulative losses and dividends resulted in a
negative balance for the Company’s investment in Highway 407 ETR.
ACCOUNTING METHODOLOGY FOR CAPITAL INVESTMENTS
The Company’s investments are accounted for by either the cost, equity or consolidation methods depending on
whether SNC-Lavalin exercises, or not, significant influence, joint control or control. The revenues included in the
Company’s consolidated income statement are influenced by the consolidation method applied to a Capital
investment, as described below:
ACCOUNTING METHODS FOR THE
COMPANY’S INVESTMENTS IN CAPITAL
INVESTMENTS
REVENUES INCLUDED IN THE COMPANY’S CONSOLIDATED INCOME STATEMENT
Consolidation
Revenues that are recognized and reported by the Capital investments
Equity method
SNC-Lavalin’s share of net results of the Capital investment or dividends from its Capital
investments for which the carrying amount is $nil, which are recognized when the Company’s right
to receive payment has been established
Cost method
Dividends and distributions from the Capital investments
In evaluating the performance of the segment, the relationship between revenues and EBIT is not meaningful, as
a significant portion of the investments are accounted for by the cost and equity methods, which do not reflect the
line by line items of the individual Capital investment’s financial results.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
35
35
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
REVENUES, SEGMENT EBIT AND DIVIDENDS OF THE CAPITAL SEGMENT
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Revenues from Capital
Segment EBIT from Capital investments:
From Highway 407 ETR
From other Capital investments
(2)
Segment EBIT from Capital
Dividends and distributions received by SNC-Lavalin from Capital investments accounted for by the
equity method:
From Highway 407 ETR
From other Capital investments
Total
2019
(1)
2018
$
262.7 $
264.7
$
146.1 $
97.1
$
243.2 $
$
146.1 $
14.0
$
160.1 $
154.3
70.7
225.0
154.3
16.2
170.5
(1)
(2)
Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company’s reportable segments and a change made to the Company’s
reporting structure. Please refer to Section 13 for further details.
Segment EBIT from other Capital investments is net of divisional and allocated corporate selling, general and administrative expenses, as well as from selling, general and
administrative expenses from all other capital investments accounted for by the consolidation method.
Under the equity method of accounting, distributions from a joint venture reduce the carrying amount of the
investment. The equity method of accounting requires the Company to stop recognizing its share of the losses of
a joint venture when the recognition of such losses results in a negative balance for its investment, or where
dividends declared by the joint venture are in excess of the carrying amount of the investment. In these events,
the carrying value of the investment is reduced to $nil, but does not become negative, unless the Company has
incurred legal or constructive obligations or made payments on behalf of the joint venture. In these situations, the
Company no longer recognizes its share of net income of a Capital investment based on its ownership, but rather
recognizes the excess amount of dividends declared by a joint venture in its net income.
As a result, the Company recognized in its income statement, dividends from Highway 407 ETR of $146.1 million
in 2019 (2018: $154.3 million) and did not recognize its share of Highway 407 ETR’s net income of $72.0 million
(2018: $90.4 million) in the same period, as the carrying amount of its investment in Highway 407 ETR was $nil at
December 31, 2019 and 2018. The negative carrying value of the Company’s investment in Highway 407 ETR,
which is not recognized on the Company’s statement of financial position, amounted to $716.2 million as at
December 31, 2019 (2018: negative carrying value of $642.0 million).
Revenues from Capital of $262.7 million in 2019 were in line with the level of revenues in 2018.
Segment EBIT from Capital increased to $243.2 million in 2019 compared with $225.0 million in 2018, mainly
due to an increased contribution from certain investments and lower selling, general and administrative expenses
in 2019, partly offset by a lower contribution from Highway 407 ETR following the disposal of a portion of this
investment by the Company in August 2019.
36
36
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
CAPITAL INVESTMENTS PORTFOLIO
The following table presents a list of SNC-Lavalin’s main Capital investments as at December 31, 2019:
NAME
OWNERSHIP
INTEREST
ACCOUNTING
METHOD
SUBJECT TO
IFRIC 12
HELD
SINCE
MATURITY OF
CONCESSION
AGREEMENT
STATUS
DESCRIPTION OF ACTIVITIES
407 EAST DEVELOPMENT
GROUP GENERAL
PARTNERSHIP (“407
EDGGP”)
INPOWER BC GENERAL
PARTNERSHIP (“INPOWER
BC”)
RIDEAU TRANSIT GROUP
PARTNERSHIP (“RIDEAU”)
CARLYLE GLOBAL
INFRASTRUCTURE
OPPORTUNITY FUND L.P.
50%
Equity
Yes
2012
2045
In operation
100% Consolidation
Yes
2014
2033
In operation
40%
Equity
Yes
2013
2043
In operation
4.5%
Cost
N/A
2018
N/A
N/A
HIGHWAY 407 ETR
6.76%
Equity
No
1999
2098
In operation
Operates, maintains and rehabilitates
Phase 1 of the new highway 407, east of
Brock Road.
Designs, builds, partially finances,
maintains and rehabilitates the John Hart
Generating Replacement Facility in
Canada.
Designs, builds, finances and maintains
the Confederation Line, City of Ottawa’s
light rail transit system.
Holding investments in infrastructure
projects related to energy, power and
natural resources.
Operates, maintains and manages
highway 407, a 108-km all-electronic toll
highway in the Greater Toronto Area,
under a 99-year concession agreement.
TRANSITNEXT GENERAL
PARTNERSHIP
(“TransitNEXT”)
100% Consolidation
Yes
2019
2049
Under
construction
Designs, builds, finances and maintains
the new Trillium Line extension, and also
assumes responsibility for the long-term
maintenance of the existing Trillium Line,
under a 30-year contract.
MYAH TIPAZA S.p.A. (“MYAH
TIPAZA”)
25.5%
Equity
No
2008
N/A
In operation
SHARIKET KAHRABA
HADJRET EN NOUSS S.p.A.
(“SKH”)
26%
Equity
No
2006
N/A
In operation
TC DÔME S.A.S. (“TC
DÔME”)
HIGHWAY CONCESSIONS
ONE PRIVATE LIMITED
51%
10%
Equity
Yes
2008
2043
In operation
Cost
N/A
2012
N/A
N/A
50%
Equity
Yes
2015
2049
In operation
25%
Equity
Yes
2015
2051
Under
construction
20%
Equity
No
2017
N/A
N/A
SIGNATURE ON THE SAINT-
LAURENT GROUP GENERAL
PARTNERSHIP (“SSL”)
CROSSLINX TRANSIT
SOLUTIONS GENERAL
PARTNERSHIP (“EGLINTON
CROSSTOWN”)
SNC-LAVALIN
INFRASTRUCTURE
PARTNERS LP
(“PARTNERSHIP”)
N/A: not applicable
/day seawater
Myah Tipaza owns, operates and
3
maintains a 120,000 m
desalination plant in Algeria and sells the
total capacity of treated water to
Sonatrach and l’Algérienne des Eaux
(“ADE”) under a 25-year take-or-pay
agreement.
Owns, operates and maintains a
1,227-MW gas-fired thermal power plant
in Algeria; the total capacity of electricity
is sold to Sonelgaz S.p.A. under a 20-
year take-or-pay agreement.
Operates a 5.3-km electric cog railway in
France.
Engages in the business of bidding for,
owning, acquiring, investing, developing,
implementing and operating
infrastructure in the roads sector of India.
Designs, builds, finances, operates and
maintains the New Champlain Bridge
Corridor project.
Designs, builds, finances and, once
construction is completed, will operate
and maintain the Eglinton Crosstown 19-
km light rail line.
Holds the participations in Rainbow
Hospital Partnership, Chinook Roads
Partnership, InTransit BC Limited
Partnership, Okanagan Lake Concession
Limited Partnership and McGill
Healthcare Infrastructure Group.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
37
37
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
HIGHWAY 407 ETR PERFORMANCE SUMMARY
As Highway 407 ETR issues public debt, Highway 407 ETR financial statements, MD&A and other relevant
financial materials can be found on www.sedar.com, which is the website maintained by the Canadian securities
regulators, under the name of 407 International Inc.
On February 19, 2020, Highway 407 ETR announced (at 100% level) revenues of $1,505.3 million for 2019,
compared to $1,390.3 million for 2018 and reported net income of $575.7 million for 2019, compared to net
income of $539.0 million for 2018. The Board of Directors of Highway 407 ETR declared an eligible dividend of
$0.403 per common share, payable on or about February 19, 2020 to shareholders of record on February 19,
2020, representing approximately $21.1 million for the Company.
ADDITION TO CAPITAL INVESTMENTS IN 2019
2019
TransitNEXT General Partnership (“TransitNEXT”)
On March 29, 2019, the Company announced that its wholly-owned subsidiary, TransitNEXT General Partnership
(“TransitNEXT”), had finalized an agreement on the Trillium Line Extension project with the City of Ottawa.
Through TransitNEXT, SNC-Lavalin will design, build, finance and maintain the new extension, and will also
assume long-term maintenance of the existing Trillium line. The project, including the long-term cost to maintain
and rehabilitate both the existing Trillium Line and its new extension, was valued at $1.6 billion.
DISPOSALS OF CAPITAL INVESTMENTS IN 2019 AND 2018
2019
Highway 407 ETR
On August 15, 2019 SNC-Lavalin announced that it completed the sale of 10.01% of the shares of Highway 407
ETR to a company controlled by CPPIB. At closing and in accordance with the terms and conditions of the
agreement, SNC-Lavalin received the base purchase price proceeds of $3.0 billion, with up to an additional
$250 million contingently payable over a period of 10 years, conditional on the attainment of certain financial
thresholds related to the ongoing performance of Highway 407 ETR. This contingent consideration receivable was
recognized at $56.1 million, its estimated fair value at the date of sale. The Company was also entitled to receive
additional consideration based on the dividend to be declared in October 2019, for which the fair value was
determined at $12.3 million. SNC-Lavalin recognized a gain before taxes of $2,970.8 million on this transaction.
SNC-Lavalin’s remaining 6.76% ownership interest in Highway 407 ETR continues to be accounted for under the
equity method of accounting.
2018
McGill Healthcare Infrastructure Group
On June 28, 2018, SNC-Lavalin announced that it had finalized the transfer of its investment in McGill Healthcare
Infrastructure Group (“MHIG”) and its holding company to SNC-Lavalin Infrastructure Partners LP (the “SNCL IP
Partnership”). This transaction completed the transfer of SNC-Lavalin’s interest in five mature Canadian P3 assets
into the SNCL IP Partnership. This transaction resulted in a gain on disposal of $62.7 million ($58.4 million after
taxes) in the second quarter of 2018.
The SNCL IP Partnership is SNC-Lavalin’s infrastructure investment vehicle, which was established in 2017 to
efficiently redeploy capital back into new development opportunities.
Astoria Project Partners II LLC
On August 28, 2018, SNC-Lavalin announced that it had reached an agreement to sell its remaining ownership
interest in Astoria Project Partners II LLC, the legal entity that owned and operated the Astoria II power plant in
New York City. The purchaser, NM Harbert Astoria LLC, is a limited liability company, owned by affiliates of
38
38
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
Northwestern Mutual and Harbert Management Corporation. On October 24, 2018, SNC-Lavalin completed the
sale of its ownership interest in Astoria Project Partners II LLC in exchange of total consideration received of US
$41.4 million (CA$54.1 million), resulting in a gain before taxes of $4.8 million.
ADDITIONAL FINANCIAL INFORMATION ON CAPITAL INVESTMENTS
The Company provides additional financial information on its Capital investments to allow the reader to have a
better understanding of the financial position, results of operations and cash flows for E&C activities and Capital
investments. As such,
investments is included in the
Company's 2019 audited annual consolidated financial statements:
the following information on the Company’s Capital
Consolidated statement of
financial position and related
notes
Consolidated statement of
cash flows and related notes
Other notes to the audited
annual consolidated financial
statements
The net book value of Capital investments accounted for by the equity and cost methods, distinctively.
Non-recourse debt from Capital investments controlled by the Company.
For Capital investments controlled by the Company:
Repayment and increase of non-recourse debt from Capital investments.
Net income attributable to SNC-Lavalin shareholders from Capital investments.
Certain other notes provide information regarding Capital investments separately from E&C.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
39
39
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
7.2 SNCL PROJECTS
7.2.1 – RESOURCES
Resources provides a full suite of delivery services to the oil & gas and mining & metallurgy sectors, covering
the project lifecycle from project development through project delivery and support services. Resources have
ceased bidding for new EPC projects under the LSTK construction contracting model. Resources is now focused
on providing engineering, EPCM, project management consultancy (“PMC”), construction & commissioning and
technical support services through a lower risk contracting model. The operational delivery is focused on key
regions and global clients. The Resources segment derives its revenues from reimbursable and engineering
service contracts (2019: 68%; 2018: 61%) and LSTK construction contracts (2019: 32%; 2018: 39%).
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Revenues from Resources
Segment EBIT from Resources
Segment EBIT over revenues from Resources (%)
Backlog at year end
2019
2,158.9 $
(341.5) $
(15.8%)
1,380.1 $
(1)
2018
3,001.4
(256.6)
(8.5%)
1,907.3
$
$
$
CHANGE (%)
(28.1%)
N/A
(27.6%)
(1)
Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company’s reportable segments and a change made to the Company’s
reporting structure. Please refer to Section 13 for further details.
Resources revenues were $2,158.9 million in 2019, compared with $3,001.4 million in the previous year,
mainly attributable to the challenges in replenishing the revenue backlog in the first half of 2019 and the strategic
decision announced on July 22, 2019 to stop bidding on LSTK construction contracts, combined with the
completion or near completion of certain major LSTK construction contracts and the termination of a major
mining and metallurgy project in 2019.
The major revenue contributors in 2019 included unconventional gas facilities in the Middle East, work on oil
and gas infrastructure and processing facilities across the globe, production and processing solutions in the
Americas, as well as revenue derived from book and burn service contracts.
Segment EBIT from Resources was negative $341.5 million in 2019, compared with negative $256.6 million in
2018, mainly due to net unfavorable reforecasts on certain major LSTK construction contracts, a lower level of
activity and a lower profitability ratio in 2019, coupled with a net positive impact from certain settlements and
reforecasts in 2018. The results for 2019 also reflect continuous challenges from production and processing
facilities in the Americas and do not yet include the full benefits from an overall ongoing effort to reduce selling,
general and administrative expenses.
The Resources segment has recorded in the first half of 2019 $243.0 million of negative Segment EBIT. In July
2019, the Company announced its new strategic direction, which included the cessation of bidding for new EPC
projects under the LSTK construction contracting model. Since then, losses have decreased and the Company
took a further step at the end of 2019 and decided to exit the unprofitable midstream fabrication business,
including the compression and production equipment product lines, which were also known under the Valerus
brand. The Company continues to explore other options, such as a combination of closures and divestitures and
potential transition to a services-based business.
40
40
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
7.2.2 – INFRASTRUCTURE EPC PROJECTS
Infrastructure EPC Projects includes LSTK construction contracts related to mass transit, heavy rail, roads,
bridges, airports, ports and harbours and water infrastructure. In addition, Infrastructure EPC Projects includes the
LSTK construction contracts related to the former Clean Power segment, as well as from thermal power activities
which the Company exited in 2018. As previously mentioned, the Company decided, in 2019, to cease contracting
for new LSTK construction contracts. The Infrastructure EPC Projects segment derives 100% of its revenues from
LSTK construction contracts.
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Revenues from Infrastructure EPC Projects
Segment EBIT from Infrastructure EPC Projects
Segment EBIT over revenues from Infrastructure EPC Projects (%)
Backlog at year end
$
$
2019
1,076.7 $
(106.5) $
(9.9%)
$
2,584.5 $
(1)
2018
1,296.3
19.3
1.5%
2,600.9
CHANGE (%)
(16.9%)
(651.8%)
(0.6%)
(1)
Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company’s reportable segments and a change made to the Company’s
reporting structure. Please refer to Section 13 for further details.
Infrastructure EPC Projects revenues were $1,076.7 million for 2019, compared with $1,296.3 million in 2018,
as the higher revenues from certain major construction projects was more than offset by the lower level of activity
mainly due to the completion or near completion of certain major construction and clean power projects, coupled
with no new bidding by the Company in this market.
The major revenue contributors in 2019 included multiple projects for mass transit systems and general
infrastructure projects in Central and Eastern Canada, as well as the construction of a new bridge corridor in
Eastern Canada.
In 2019, Infrastructure EPC Projects Segment EBIT decreased to negative $106.5 million, compared with
positive $19.3 million for the corresponding period of 2018. The decrease in Segment EBIT of 2019 is mainly
attributable to the net unfavorable reforecasts totaling approximately $130 million on certain major projects
resulting from higher forecasted costs or increased warranty costs as reported in the second quarter of 2019,
primarily on two LSTK construction contracts nearing completion and on smaller clean power projects also
nearing completion, combined with a lower level of activity.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
41
41
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
.
Fourth Quarter Results
FOURTH QUARTERS ENDED DECEMBER 31
(IN MILLIONS CA$)
Income Statements
Revenues
Net income (loss) attributable to SNC-Lavalin shareholders:
From E&C
From Capital
Net loss attributable to SNC-Lavalin shareholders
Adjusted net income (loss) attributable to SNC-Lavalin shareholders from E&C
Diluted loss per share (“Diluted EPS”) (in $)
Adjusted diluted EPS from E&C (in $)
EBIT
EBITDA
Adjusted E&C EBITDA (% of revenues)
(1)
(1)
(1)
(1)
(1)
2019
2018
CHANGE (%)
$
2,436.1 $
2,562.5
(4.9%)
(310.4)
17.5
$
(292.9) $
$
$
79.1
(1.67) $
0.45 $
(266.6)
(176.1)
6.9%
(1,654.3)
55.6
(1,598.7)
(284.1)
(9.11)
(1.62)
(1,584.7)
(256.6)
(8.2%)
(81.2%)
(68.5%)
(81.7%)
N/A
(81.7%)
N/A
(83.2%)
(31.4%)
N/A
(1)
◦
◦
◦
◦
Non-IFRS financial measure. Please refer to Section 14 for further information on these financial measures and for the reference to the reconciliation from these financial measures to
the most directly comparable measure specified under IFRS, when applicable.
Revenues totalled $2,436.1 million in the fourth quarter of 2019, compared with $2,562.5 million in the
fourth quarter of 2018, mainly reflecting lower revenues in Resources, principally due to the completion or
near completion of certain major projects, partially offset by higher revenues in Infrastructure Services and
EDPM.
For the fourth quarter of 2019, net loss attributable to SNC-Lavalin shareholders was $292.9 million
($1.67 per diluted share), compared with $1,598.7 million ($9.11 per diluted share) for the comparable
quarter in 2018, reflecting mainly the impairment of goodwill of $1.2 billion recognized in the fourth quarter of
2018, a higher Segment EBIT from SNCL Engineering Services in 2019 compared to the corresponding
period of 2018 combined with the decrease in corporate selling, general and administrative expenses, lower
amortization of intangible assets related to business combinations, lower acquisition-related and integration
costs, partly offset by the federal charges settlement (PPSC), combined with a negative Segment EBIT from
SNCL Projects in 2019 and higher restructuring costs.
For the fourth quarter of 2019, adjusted net income attributable to SNC-Lavalin shareholders from
E&C was $79.1 million ($0.45 per diluted share), compared with an adjusted net loss attributable to
SNC-Lavalin shareholders from E&C of $284.1 million ($1.62 per diluted share) for the comparable quarter in
2018.
EBIT, EBITDA and Adjusted E&C EBITDA (% of revenues) have improved in the fourth quarter of 2019
compared to the fourth quarter of 2018, mainly due to the factors described above.
AS AT
(IN MILLIONS CA$)
Additional Indicator
Cash and cash equivalents
Revenue backlog
December 31, 2019
September 30, 2019
CHANGE (%)
$
$
1,188.6 $
15,262.5 $
938.9
15,632.7
26.6%
(2.4%)
◦
◦
At the end of December, 2019, the Company’s cash and cash equivalents amounted to $1.2 billion,
compared with $0.9 billion at the end of September, 2019. The increase is mainly attributable to cash
generated by operating activities.
Revenue backlog was $15.3 billion as at December 31, 2019, compared with $15.6 billion as at
September 30, 2019, mostly reflecting a decrease in Resources and Infrastructure Services. The Company’s
contract bookings during the quarter amounted to $2.0 billion.
42
42
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
The following table summarizes the Company’s revenues and Segment EBIT and reconciles the Segment EBIT to
the Company’s net income (loss) for the fourth quarters ended December 31, 2019 and 2018.
FOURTH QUARTERS ENDED DECEMBER 31
(IN MILLIONS CA$)
2019
(1)
2018
BY SEGMENT
EDPM
Nuclear
Infrastructure Services
Capital
Total SNCL Engineering Services
Resources
Infrastructure EPC Projects
Total SNCL Projects
Total revenues and Segment EBIT
Corporate selling, general and
administrative expenses and others
not allocated to the segments
Reversal of impairment loss
(Impairment loss) arising from
expected credit losses
Gain (loss) arising on financial assets
(liabilities) at fair value through profit
or loss
Net 2012 class action lawsuits
settlement expense and related legal
costs
Restructuring costs
Acquisition-related costs and integration
costs
Amortization of intangible assets related
to business combinations
Gain on disposals of Capital
Loss from adjustment on disposals of
E&C businesses
Impairment of goodwill
Federal charges settlement (PPSC)
EBIT
Net financial expenses
Earnings (loss) before income taxes
Income taxes
Net income (loss)
SEGMENT
EBIT
FROM
E&C
93.4 $
45.4
20.2
—
159.0 $
(51.2)
23.4
(27.8) $
131.2 $
REVENUES
$
984.0 $
250.8
338.7
36.2
$ 1,609.8 $
532.5
293.8
$
826.3 $
$ 2,436.1 $
SEGMENT
EBIT
FROM
CAPITAL
TOTAL
SEGMENT
EBIT
REVENUES
— $
—
—
31.5
31.5 $
—
—
— $
31.5 $
93.4 $
45.4
20.2
31.5
970.8 $
251.7
280.4
77.1
190.5 $ 1,580.0 $
605.5
(51.2)
377.0
23.4
(27.8) $
982.5 $
162.7 $ 2,562.5 $
SEGMENT
EBIT
FROM
E&C
98.7 $
38.5
19.3
—
156.5 $
(374.3)
9.7
(364.6) $
(208.1) $
SEGMENT
EBIT
FROM
CAPITAL
TOTAL
SEGMENT
EBIT
98.7
— $
38.5
—
19.3
—
62.6
62.6
219.1
62.6 $
(374.3)
—
9.7
—
— $ (364.6)
62.6 $ (145.5)
(21.4)
(6.7)
(28.0)
(54.8)
(7.6)
(62.4)
0.5
6.0
—
(111.4)
(0.1)
(40.0)
—
(0.1)
—
1.1
—
—
—
—
—
—
0.5
7.1
—
(111.4)
(0.1)
(40.0)
—
(0.1)
—
(257.3)
(292.5)
20.2
(312.7)
(6.3)
(306.5) $
—
—
25.9
4.4
21.5
4.0
—
(257.3)
(266.6)
24.6
(291.2)
(2.2)
17.5 $ (289.0)
$
—
(3.0)
(1.4)
(63.8)
(20.8)
(51.6)
—
(0.2)
(1,240.4)
—
(1,644.2)
40.0
(1,684.3)
(29.9)
$ (1,654.3) $
—
—
—
(0.3)
—
—
4.8
—
—
(3.0)
(1.4)
(64.1)
(20.8)
(51.6)
4.8
(0.2)
— (1,240.4)
—
—
(1,584.7)
59.6
44.3
4.3
(1,629.0)
55.3
(0.3)
(30.2)
55.6 $(1,598.8)
(1)
Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company’s reportable segments and a change made to the Company’s
reporting structure. Please refer to Section 13 for further details.
E&C total segment EBIT in the fourth quarter of 2019 was $131.2 million, compared with a negative segment
EBIT of $208.1 million in the fourth quarter of 2018. The variance is largely attributable to the lower loss in
Resources, and an increased contribution from Infrastructure EPC Projects and Nuclear.
The negative Segment EBIT in Resources in the fourth quarter of 2018 included the impact from the under-
performance of a major EPC project in mining & metallurgy having a forecasted loss of approximately $346 million
at that time and the unfavorable impact of $46.6 million related to a preliminary decision of an arbitration process
connected to an oil & gas project in Australia.
The corporate selling, general and administrative expenses in the fourth quarter of 2018 included $25.1 million of
GMP equalization costs related to past services in the U.K.
Segment EBIT from Capital decreased to $31.5 million in the fourth quarter of 2019, compared with
$62.6 million in the corresponding period of 2018, mainly due to lower contributions from certain Capital
investments, notably from Highway 407 ETR following the disposal of a portion of this investment by the Company
in August 2019.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
43
43
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
Liquidity and Capital Resources
This section has been prepared to provide the reader with a better understanding of the major components of the
Company’s liquidity and capital resources and has been structured as follows:
◦
◦
◦
◦
◦
◦
A cash flow analysis, providing details on how the Company generated and used its cash and cash
equivalents;
A discussion on the Company’s capital structure management and its capital resources;
A description of the Company’s debt and financing agreements and its capital management indicators;
An update on the Company’s credit ratings;
A review of the Company’s contractual obligations and financial instruments, which provides additional
information for a better understanding of the Company’s financial situation; and
The presentation of the Company’s dividends declared over the past three years.
9.1
CASH FLOWS ANALYSIS
SUMMARY OF CASH FLOWS
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
Cash flows generated from (used for):
Operating activities
Investing activities
Financing activities
Increase (decrease) in exchange differences on translating cash and cash equivalents held in foreign
operations
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2019
2018
$
(355.3) $
2,718.5
(1,802.1)
(6.5)
554.6
634.1
$
1,188.6 $
(303.5)
(45.4)
269.7
6.7
(72.5)
706.6
634.1
Cash and cash equivalents increased by $554.6 million in 2019, compared with a decrease of $72.5 million in
2018, as discussed further below.
44
44
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
OPERATING ACTIVITIES
Net cash used for operating activities totaled $355.3 million in 2019, compared with $303.5 million in 2018, a
variance reconciled as follows:
(IN MILLIONS CA$)
Net cash used from operating activities for the year ended December 31, 2018
Changes between the years ended December 31, 2018 and 2019:
$
(303.5)
Increase in net income
Decrease in depreciation of property and equipment and amortization of other non-current assets
Depreciation of right-of-use assets
Increase in income taxes recognized in net income
Increase in net financial expenses recognized in net income
Increase in interest paid
Decrease in share-based expense
Net change in provisions related to forecasted losses on certain contracts
Increase in gain on disposal of Capital investments
Increase in restructuring costs recognized in net income
Increase in restructuring costs paid
Impairment of intangible assets related to business combinations
Increase in impairment of goodwill
Federal Charges settlement (PPSC)
Other items
Changes in the net cash generated/used by operating activities before net change in non-cash working capital items
Decrease in cash used by the changes in non-cash working capital items
Net cash used for operating activities for the year ended December 31, 2019
$
1,646.9
(34.3)
112.0
210.3
44.6
(31.3)
(29.5)
(108.7)
(2,903.2)
114.2
(70.8)
72.8
560.6
257.3
(63.8)
(222.9)
171.2
(355.3)
◦
◦
◦
Net cash used for operating activities before net change in non-cash working capital items totalled
$20.7 million in 2019, compared with net cash generated from operating activities before net change in
working capital items of $202.2 million in 2018. The variance is mainly explained by the elements in the table
above. It should be noted that the net income (loss) of both periods included certain major items that did not
have an impact on the Company’s operating cash flows, such as the gain on disposal of Capital investments,
and the impairment on goodwill.
As detailed in Note 28B to the Company's 2019 audited annual consolidated financial statements, changes in
non-cash working capital items used net cash of $334.5 million in 2019, compared with $505.7 million in
2018. This difference reflected mainly a favorable variance in contract assets and in other current non-
financial liabilities, partly offset by an unfavorable variance in contract liabilities and in trade payables.
From a business line perspective, SNCL Engineering Services (excluding Capital) generated $732.6 million of
cash from operating activities in 2019 while Capital generated $196.7 million. During the same period,
SNCL Projects used $731.7 million of cash for operating activities, with the remaining use of cash being
related to Corporate activities and to items not allocated to the Company's segments.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
45
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
INVESTING ACTIVITIES
Net cash generated from investing activities amounted to $2,718.5 million in 2019, compared with net cash
used for investing activities of $45.4 million in 2018, a variance reconciled as follows:
(IN MILLIONS CA$)
Net cash used for investing activities for the year ended December 31, 2018
Changes between the years ended December 31, 2018 and 2019:
Decrease in acquisitions of property and equipment
Payments for Capital investments in 2019
Change in restricted cash position
Lower increase in receivables under service concession arrangements, net of recovery
Higher net cash inflow on disposals of Capital investments accounted for by the equity method
Net cash inflow in 2018 on disposal of a Capital investment accounted for by the cost method
Higher payments for disposition-related costs on disposals of Capital investments
Other items
$
(45.4)
30.5
(40.0)
(32.7)
39.6
2,920.0
(51.3)
(92.9)
(9.4)
2,718.5
Net cash generated from investing activities for the year ended December 31, 2019
$
◦
◦
◦
In 2019, there was a cash inflow of $3.0 billion on disposal by the Company of 10.01% of the shares of
Highway 407 ETR. In 2018, there was a net cash inflow of $92.2 million on the transfer of the investment in
MHIG and its holding company to the SNCL IP Partnership. Both transactions are described in Note 5A to the
Company’s 2019 audited annual consolidated financial statements.
In 2018, the Company completed the sale of its ownership in Astoria Project Partners II LLC. This resulted in
a cash inflow on disposals of Capital investments accounted for by the cost method of $51.3 million. This
transaction is described in Note 5A to the Company’s 2019 audited annual consolidated financial statements.
In 2019 and 2018, a significant portion of
computer equipment.
the acquisition of property and equipment was related to
46
46
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
FINANCING ACTIVITIES
Net cash used for financing activities totaled $1,802.1 million in 2019, compared with net cash generated
from financing activities of $269.7 million in 2018, a variance reconciled as follows:
(IN MILLIONS CA$)
Net cash generated from financing activities for the year ended December 31, 2018
Changes between the years ended December 31, 2018 and 2019:
$
269.7
Increase in repayment of recourse debt
Lower increase in recourse debt
Increase in repayment of limited recourse debt
Repayment of lease liabilities in 2019
Decrease in payment of dividends to SNC-Lavalin shareholders
Lower increase in other non-current financial liabilities
Other items
Net cash used for financing activities for the year ended December 31, 2019
$
(1,211.0)
(779.1)
(100.0)
(119.1)
159.4
(6.6)
(15.4)
(1,802.1)
◦
◦
◦
◦
◦
The changes in cash flows related to financing activities between 2018 and 2019 were primarily explained by
the elements in the table above. Notably, the following transactions on recourse debt, limited recourse and
non-recourse debt took place during 2019:
◦
◦
◦
◦
The repayment of the balance outstanding on the revolving facility under the Credit Agreement;
The repayment of $600 million of limited recourse debt;
The repayment in full of certain debentures maturing in 2019; and
The borrowing and repayment in full of $300 million on a bridge credit facility.
The repayment of lease liabilities in 2019 results from the change in presentation of a portion of certain lease
payments following the adoption of IFRS 16 on January 1, 2019, without restatement of comparative figures.
The Company also provides a reconciliation between the opening and closing balances in its statement of
financial position for liabilities arising from financing activities for the years ended December 31, 2019 and
2018 in Note 28C in its 2019 audited annual consolidated financial statements.
The Company did not issue and did not repurchase any shares in 2019 (issuance of 66,000 shares under the
Company's stock option plan in 2018 for proceeds of $3.3 million). The number of common shares
outstanding as at February 19, 2020 was 175,554,252.
The dividend paid decreased to $42.1 million in 2019, from $201.5 million in 2018, as the Company reduced
the amount of dividend per share in order to deleverage and strengthen its balance sheet.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report
SNC-LAVALIN
9.2
CAPITAL STRUCTURE MANAGEMENT
The Company’s sources of funds stem primarily from its operating cash flows from E&C projects and Capital
investments, the divestiture of matured Capital investments and non-core assets, the issuance of debt and the
additional financial leverage available through the Credit Agreement. The Company’s funds are mainly used to
meet working capital requirements and sustain capital expenditures on projects, make equity investments, pay
dividends to shareholders and complete mergers and acquisitions activities.
SNC-Lavalin’s key objectives for its capital allocation framework are:
◦
To drive organic and inorganic E&C growth;
◦ Optimize its balance sheet; and
◦
Return capital to shareholders.
9.3
CAPITAL RESOURCES
AT DECEMBER 31
(IN MILLIONS CA$)
Cash and cash equivalents
Unused portion of committed revolving credit facilities
Available short-term capital resources
(1), (2)
2019
$
$
1,188.6 $
2,411.9
3,600.5 $
2018
634.1
2,051.4
2,685.5
(1)
(2)
Including cash draws and letters of credit issued on a committed basis, but excluding bilateral letters of credit that can be issued on a non-committed basis.
Before considering potential limitations resulting from contractual covenants.
As at December 31, 2019, the Company has a committed revolving facility of $2,600 million (December 31, 2018:
$2,600 million), of which $2,411.9 million was unused as at December 31, 2019 (December 31, 2018:
$2,051.4 million), and uncommitted credit facilities by way of bilateral letters of credit. The increase in cash and
cash equivalents as at December 31, 2019 compared with the previous year is explained in Section 9.1.
While liquidity remains subject to numerous risks and limitations, including but not limited to the risks described
under Section 15 “Risks and Uncertainties” and in this Section, the Company believes that its current liquidity
position, including its cash position, unused credit capacity and cash generated from its operations, should be
sufficient to fund its operations over the foreseeable future. Due to the nature of the Company’s activities and the
fact that its operations are conducted through multiple entities and joint arrangements on an international level,
the Company’s cash and cash equivalents are distributed across numerous locations. In order to manage its cash
needs and reserves, the Company is part of various cash pooling agreements with financial institutions and may
transfer cash balances between subsidiaries, joint arrangements or investees or use credit facilities to meet the
capital requirements of certain projects or other cash disbursements.
9.4
DEBT AND FINANCING AGREEMENTS
NON-RECOURSE AND LIMITED RECOURSE DEBT
The Company does not consider non-recourse and limited recourse debt when monitoring its capital because
such debt results from the consolidation of certain Capital investments or holding entities held by the Company.
As such, the lenders of such debt do not have recourse to the general credit of the Company, but rather to the
specific assets of the Capital
investments they finance. The Company’s
investments and underlying assets in its Capital investments accounted for by the consolidation or equity methods
may be at risk, however, if such investments or holding entities were unable to repay their long-term debt.
investments or investment in Capital
AMENDMENTS TO THE SNC-LAVALIN HIGHWAY HOLDINGS LOAN AGREEMENT AND TO THE CREDIT
AGREEMENT
On February 1, 2019, the Company amended the Credit Agreement, modifying the definition of EBITDA to provide
that losses related to EPC contracts in Mining & Metallurgy, a segment of
that time, be
considered as non-recurring items, up to an amount of $310 million. The Credit Agreement was also amended to
the Company at
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
provide that the net recourse debt to EBITDA ratio calculation be temporarily increased to 4x. It should be noted
that the ratio calculation in the Credit Agreement excludes interest and depreciation and amortization resulting
from the adoption of IFRS 16, Leases. In the third quarter of 2019, the Company and its lenders amended the
Credit Agreement to extend the temporary increase in the net recourse debt to EBITDA ratio to 4x from June 30,
2019 to December 31, 2019.
In the second quarter of 2019, the Company and CDPQ Revenu Fixe Inc. ("CDPQ RF") renegotiated certain
terms of the SNC-Lavalin Highway Holdings Loan Agreement, which included, among others, the following
amendments:
◦ modification to the net recourse debt to EBITDA ratio covenant to align it with the Credit Agreement and
extend the application of such covenant from March 31, 2019 to June 30, 2019;
◦
◦
following the then expected disposal by the Company of 10.01% of the shares of Highway 407 ETR, the
Company committed to repay an amount of $600 million out of $1 billion outstanding under tranche A of the
CDPQ Loan; and
decrease of the margin applicable to the base rate and payment by the Company of fees of $15 million.
On October 15, 2019 and similar to the last amendments to the Credit Agreement, the SNC-Lavalin Highway
Holdings Loan Agreement was also amended to extend the temporary increase in the net recourse debt to
EBITDA ratio to 4x from June 30, 2019 to December 31, 2019.
As at December 31, 2019, the net recourse debt to EBITDA ratio in accordance with the terms of the Company’s
Credit Agreement, as amended, was 2.1x.
The terms “net recourse debt” and “EBITDA” are defined in the Credit Agreement and in the SNC-Lavalin
Highway Holdings Loan Agreement and do not correspond to the specific terms used in this MD&A. Furthermore,
such ratio is calculated using certain financial
information not disclosed in the Company’s annual audited
consolidated financial statements or annual MD&A. For example, the ratio includes the amount of downpayments
on contracts totaling $322.4 million as at December 31, 2019 (December 31, 2018: $340.2 million) and the
amount of financial letters of credit outstanding totaling $259.6 million as at December 31, 2019 (December 31,
2018: $255.4 million) as part of the net recourse debt calculation.
9.5
CAPITAL MANAGEMENT INDICATORS
The Company periodically monitors capital using certain ratios, which are described further below.
NET RECOURSE DEBT
Net recourse debt (or Cash net of recourse debt) is a non-IFRS financial measure. A definition of this financial
measure is provided in Section 14.
AT DECEMBER 31
(IN MILLIONS OF CA$)
Cash and cash equivalents
Less:
Cash and cash equivalents of Capital investments accounted for by the consolidation
2019
2018
2017
$
1,188.6 $
634.1 $
706.5
method
Recourse debt
(1)
:
Revolving facility
Term Loan
Series 2 Debentures
Series 3 Debentures
Series 4 Debentures
Series 5 Debentures
Term facility
2019 Debentures
2020 Debentures
8.3
—
499.1
—
174.7
199.3
—
—
—
299.5
3.3
466.9
498.8
149.9
174.5
199.1
149.9
—
349.9
299.0
Cash net of recourse debt (Net recourse debt)
$
7.7 $
(1,657.2) $
(1)
Refer to Note 20 to the Company’s 2019 annual audited consolidated financial statements for a description of each debt instrument.
1.8
318.8
—
—
—
—
—
378.4
349.6
298.8
(640.8)
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
◦
Cash net of recourse debt as at December 31, 2019 was $7.7 million, compared with Net recourse debt of
$1,657.2 million as at December 31, 2018, mainly resulting from the receipt of $3.0 billion cash proceeds from
the disposal by the Company of 10.01% of the shares of Highway 407 ETR in August 2019. The decrease in
recourse debt reflects the repayment of the balance outstanding on the revolving facility under the Credit
Agreement, and the repayment in full of certain debentures maturing in 2019.
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY (“ROASE”)
ROASE is a non-IFRS financial measure. A definition of this financial measure is provided in Section 14.
ROASE was 9.9% for 2019, compared with -28.2% for 2018 and 9.5% for 2017.
9.6
CREDIT RATING
On August 19, 2019, S&P downgraded the Company’s rating to BB+ from BBB- and maintained its negative
outlook. The downgrade primarily reflects the significant losses realized on LSTK construction contracts year-to-
date. The negative outlook primarily reflects uncertainty in the Company’s ability to recover earnings and cash
flow so that the adjusted debt-to-EBITDA ratio, as per S&P’s methodology, returns below 3x by 2020.
On July 24, 2019, DBRS issued a rating report downgrading the Company to BBB (low) from BBB and changed
the trend to negative from stable. The downgrade reflects considerably weaker than anticipated Q2 2019 results,
which DBRS estimated would reduce 2019 forecast earnings resulting in a slower recovery of the Company’s
financial metrics.
9.7
CONTRACTUAL OBLIGATIONS AND FINANCIAL INSTRUMENTS
CONTRACTUAL OBLIGATIONS
In the normal course of business, SNC-Lavalin has various contractual obligations. The following table provides a
summary of SNC-Lavalin’s future contractual commitments specifically related to short-term debt and long-term
debt repayments, commitments to invest in Capital investments and lease liabilities:
(IN MILLIONS CA$)
2020
2021-2022
2023-2024
THEREAFTER
TOTAL
Short-term debt, long-term debt repayments,
commitments to invest and lease liabilities:
Recourse
Limited recourse
Non-recourse
Commitments to invest in Capital investments
Lease liabilities
Total
$
300.0 $
175.0 $
700.0 $
— $
1,175.0
—
95.2
70.7
154.4
—
121.8
—
212.4
400.0
65.4
—
134.0
—
215.2
—
255.6
400.0
497.6
70.7
756.4
$
620.3 $
509.2 $
1,299.4 $
470.8 $
2,899.7
Additional details of the future principal repayments of the Company’s recourse and non-recourse short-term debt
and long-term debt are provided in Note 20D to the Company’s 2019 audited annual consolidated financial
statements. The commitments to invest in Capital
investments result from SNC-Lavalin not being required to
make its contribution immediately when investing, but instead contributing over time, as detailed in Note 5C to the
Company's 2019 audited annual consolidated financial statements. At December 31, 2019, the commitments to
investments were related to contributions for SSL, Eglinton Crosstown and Carlyle Global
invest in Capital
Infrastructure Opportunity Fund, L.P. (2018: Rideau, SSL, Eglinton Crosstown and Carlyle Global Infrastructure
Opportunity Fund, L.P.) and were presented as “Other current financial liabilities” (see Note 18 to the Company's
2019 audited annual consolidated financial statements) since they are either expected to be paid in the following
year or are callable on demand. Information regarding the Company's lease liabilities can be obtained in Note 34
to the Company's 2019 audited annual consolidated financial statements.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
In 2016, SNC-Lavalin signed an agreement to support a commitment of US$100 million to a fund focused on
global infrastructure investments sponsored by The Carlyle Group (“Carlyle”), subject to certain conditions. The
intent of this agreement is for SNC-Lavalin and Carlyle to cooperate with respect to investments in, and work on,
infrastructure projects. Such commitment to invest amounted to US$89.3 million (approximately CA$117.2 million)
as at December 31, 2019 (2018: US$92.5 million [approximately CA$126.0 million]) and will be recognized as a
liability, as a whole or in part, when the accounting conditions will be met.
FINANCIAL INSTRUMENTS
The Company discloses information on the classification and fair value of its financial instruments, as well as on
the nature and extent of risks arising from financial instruments, and related risk management in Note 30 to the
Company's 2019 audited annual consolidated financial statements.
SNC-Lavalin enters or may enter into derivative financial instruments, namely:
Derivative financial instruments
◦
◦
◦
◦
Forward currency exchange contracts to hedge its exposure to fluctuations in foreign currency exchange rates;
Interest-rate swaps to hedge the variability of interest rates relating to financing arrangements;
Derivative financial instruments to limit its exposure to the variability of the fair value of the share units awarded as
part of share unit plans, which fluctuates according to the Company’s share price; and
Commodity swap agreements for certain contracts to hedge the variability of commodity prices.
Refer to Note 30 to the Company's 2019 audited annual consolidated financial statements for further details.
All financial instruments are entered into with sound financial institutions, which SNC-Lavalin anticipates will satisfy their
obligations under the contracts.
The derivative financial
management and risk monitoring procedures.
instruments are subject to normal credit terms and conditions, financial controls and
9.8
DIVIDENDS DECLARED
The table below summarizes the dividends declared for each of the past three years:
YEARS ENDED DECEMBER 31
(IN CA$)
Dividends per share declared to SNC-Lavalin shareholders
(1)
Dividend increase (decrease) (%)
2019
2018
$
0.160 $
(83%)
0.961 $
(13%)
2017
1.106
5%
(1)
The dividends declared are classified in the period for which the financial results are publicly announced, notwithstanding the declaration or payment date.
Total cash dividends paid in 2019 were $42.1 million, compared with $201.5 million in 2018. The Company
has paid quarterly dividends for 30 consecutive years. The Board of Directors of the Company determines the
dividend policy.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
Financial Position
10.1
CONSOLIDATED FINANCIAL POSITION ANALYSIS
ASSETS
AT DECEMBER 31
(IN MILLIONS CA$)
Current Assets
2019
2018 CHANGE ($) EXPLANATIONS
Cash and cash equivalents
$ 1,188.6 $ 634.1 $ 554.6 See discussion in Section 9.1.
Restricted cash
Trade receivables
Contract assets
Inventories
34.1
12.7
21.4
Increase in restricted cash mainly from a certain Capital
investment.
1,533.4
1,755.3
1,503.8
1,751.1
29.6 Increase is mainly due to variation on multiple projects.
4.3 Not a significant change compared with prior year.
84.9
104.2
(19.3)
Variation mainly due to a $31.7 million write-down of
inventories in 2019 (refer to Section 4.2.6).
Other current financial assets
222.3
247.3
(25.0)
Other current non-financial assets
331.4
404.8
(73.4)
Total current assets
$ 5,150.1 $ 4,658.0 $ 492.1
Decrease is mainly due to a decrease in fair value of
favorable derivative financial instruments, partly offset by
an increase in advances to suppliers, subcontractors and
employees and deposits on contracts.
Decrease is due to a decrease in both taxes receivable and
prepaid expenses.
Property and equipment
$
470.6 $ 482.6 $ (12.0) Property and equipment is in line with prior year.
Right-of-use-assets
438.8
—
438.8
399.5
357.2
42.3
Right-of-use assets arising from the implementation of
IFRS 16 on January 1, 2019.
Increase is due to income exceeding dividends received in
2019, revaluation gain and foreign exchange currency
translation.
8.1
10.7
(2.6) Not a significant change compared with prior year.
Capital investments accounted for
by the equity method
Capital investments accounted for
by the cost method
Goodwill
3,429.1
5,369.7
(1,940.6)
Intangible assets related to business
combinations
665.6
920.6
(255.0)
Decrease is mainly due to the impairment of goodwill
related to the Resources CGU, as well as foreign currency
translation.
Decrease is primarily due to the amortization expense of
2019 and the impairment of intangible assets related to
Resources.
Deferred income tax asset
520.5
652.2
(131.7) Decrease is mainly due to decrease of unused tax losses.
Non-current portion of receivables
under service concession
arrangements
353.0
327.3
25.7
Increase is mainly due to progress of the construction
phase of a service concession arrangement.
Other non-current financial assets
115.9
30.0
85.9
Increase is mainly due to the contingent consideration
receivable related to the sale of 10.01% of the shares of
Highway 407 ETR.
Other non-current non-financial
assets
93.5
131.4
(37.9)
Decrease is mainly due to certain E&C investments
accounted for by the equity method.
Total assets
$ 11,644.7 $12,939.7 $(1,295.0)
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
LIABILITIES
AT DECEMBER 31
(IN MILLIONS CA$)
Current Liabilities
Trade payables
Contract liabilities
2019
2018 CHANGE ($) EXPLANATIONS
$ 2,153.5 $ 2,352.9 $ (199.4) Variation is principally attributable to multiple projects.
890.0
973.0
(83.0) Variation is principally attributable to multiple projects.
Other current financial liabilities
287.7
298.7
(11.0)
Other current non-financial liabilities
383.2
424.9
(41.7)
Current portion of provisions
289.2
381.8
(92.6)
Current portion of lease liabilities
131.1
—
131.1
Short-term debt and current portion of
long-term debt:
Recourse
299.5
1,116.6
(817.1)
Variation is due to a decrease in liability from derivative
financial instruments and in commitments to invest in
certain Capital investments, partly offset by the current
portion of the federal charges settlement (PPSC)
recognized in 2019.
Variance mainly reflects a decrease in share unit plan
liabilities and a decrease in income taxes payable.
Refer to Note 22 to the 2019 audited annual consolidated
financial statements of the Company for details.
Current portion of lease liabilities arising from the
implementation of IFRS 16 on January 1, 2019.
Decrease is mainly due to the repayment of borrowings
made under the revolving facility, as well as certain debt
instruments that were repaid in full at maturity in 2019,
partly offset by certain debentures maturing in 2020.
Non-recourse
93.7
60.2
33.5 Increase mainly due to the credit facility of InPower BC.
Total current liabilities
$ 4,527.9 $ 5,608.1 $(1,080.2)
Long-term debt:
Recourse
$
873.1 $
1,171.4 $ (298.3)
Decrease mainly due to the maturity of certain debentures
in 2020 now presented in the current portion of recourse
debt.
Limited recourse
Non-recourse
Other non-current financial liabilities
Non-current portion of provisions
Non-current portion of lease liabilities
400.0
391.5
232.6
672.1
480.7
980.3
(580.3)
Decrease mainly due to the $600 million repayment on the
CDPQ Loan in 2019.
339.5
51.9 Increase is mostly due to the credit facility of TransitNext.
53.5
179.1
Increase mainly due to the non-current portion of the federal
charges settlement (PPSC) recognized in 2019.
706.4
(34.3)
Refer to Note 22 to the 2019 audited annual consolidated
financial statements of the Company for details.
—
480.7
Non-current portion of
implementation of IFRS 16 on January 1, 2019.
lease liabilities arising from the
Other non-current non-financial
liabilities
0.6
61.5
(61.0)
Decrease mainly due to reclassification of non-current
deferred lease incentives and deferred rent upon adoption
of IFRS 16 on January 1, 2019.
Deferred income tax liability
348.9
363.1
(14.2) Deferred income tax liabilities in line with prior year.
Total liabilities
$
7,927.3 $
9,283.8 $(1,356.5)
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
EQUITY
AT DECEMBER 31
(IN MILLIONS CA$)
Share capital
2019
2018 CHANGE ($) EXPLANATIONS
$ 1,805.1 $ 1,805.1 $
— Share capital in line with prior year.
Retained earnings
1,555.9
1,346.6
209.2
Other components of equity
354.1
499.2
(145.1)
Equity attributable to SNC-Lavalin
shareholders
$ 3,715.0 $ 3,650.9 $
64.1
The increase was mainly attributable to the 2019 results,
partially offset by transitional adjustments on adoption of a
new accounting standard and by dividends declared.
The decrease was largely due to exchange differences on
translating foreign operations.
Non-controlling interests
2.4
5.0
(2.5) Not a significant balance.
Total Equity
$ 3,717.4 $ 3,655.9 $
61.6
WORKING CAPITAL
AT DECEMBER 31
(IN MILLIONS CA$, EXCEPT CURRENT RATIO)
2019
2018 CHANGE ($) EXPLANATIONS
Working Capital
(1)
Current Ratio
(1)
$
622.2 $
(950.1) $ 1,572.3
1.14
0.83
0.31
Increase is mainly due to the decrease of current liabilities,
reflecting a lower level of short-term recourse debt and of
the current portion of recourse debt, as well as an increase
in cash and cash equivalents.
(1)
Additional IFRS financial measures. Please refer to Section 14 for further information on these financial measures.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
Related Party Transactions
The Company discloses information on its related party transactions, as defined in IAS 24, Related party
disclosures, in Note 36 to its 2019 annual audited consolidated financial statements.
In addition to its transactions concluded in the normal course of its operations, SNC-Lavalin transferred its
investment in MHIG and its holding company to an investment accounted for by the equity method, namely the
SNCL IP Partnership, which resulted in a gain on disposal of $62.7 million before income taxes ($58.4 million after
income taxes) in 2018. Refer to Section 7.1.4 Capital – Disposals of Capital Investments – 2018 – McGill
Healthcare Infrastructure Group.
In the second quarter of 2019, the Company and CDPQ renegotiated certain terms of the CDPQ Loan. Refer to
Section 9.4 - Debt and Financing Agreements - Amendments to the SNC-Lavalin Highway Holdings Loan
Agreement and to the Credit Agreement.
Critical Accounting Judgments and Key
Sources of Estimation Uncertainty
In the application of the Company’s accounting policies, which are described in Note 2 to the Company’s 2019
audited annual consolidated financial statements, management is required to make judgments, estimates, and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and underlying assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and future periods.
Critical accounting judgments and key estimates concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are described in detail in Note 3 to the
Company’s 2019 audited annual consolidated financial statements.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
Accounting Policies and Changes
Please refer to Note 2 of
the Company's 2019 audited annual consolidated financial statements for more
information regarding the Company's significant accounting policies and changes, including the changes made to
its segment disclosure in 2019, with restatement of comparative figures.
As supplementary information, in 2019, the Company adopted IFRS 16, Leases, using the modified retrospective
approach. As such, comparative figures were not restated. Under IFRS 16, the accounting for lease contracts
gives rise to depreciation and interest expenses, rather than operating expenses for a portion of the lease
payments. Although the total expense recognized under IFRS 16 in a given period is not equal to the expense
recognized in the same period under the previous standard on leases, the classification of the expense had the
following impact (excluding potential timing differences) on the Company’s EBIT and EBITDA:
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$)
EBIT as reported
(1)
2019
2018
FROM E&C
FROM CAPITAL
TOTAL
FROM E&C
FROM CAPITAL
TOTAL
$ (2,441.9) $
3,183.3 $
741.4 $ (1,424.5) $
264.1 $ (1,160.4)
Interest expense on lease liabilities
23.4
0.2
23.6
—
—
—
EBIT excluding presentation impact
from IFRS 16
(1)
$ (2,465.3) $
3,183.1 $
717.8 $ (1,424.5) $
264.1 $ (1,160.4)
EBITDA as reported
(1)
Interest expense on lease liabilities
Depreciation and amortization of right-
of-use assets
(166.0)
3,183.5
3,017.5
140.5
264.1
404.6
23.4
111.8
0.2
0.2
23.6
112.0
—
—
—
—
—
—
EBITDA excluding presentation
impact from IFRS 16
(1)
$
(301.3) $
3,183.1 $
2,881.9 $
140.5 $
264.1 $
404.6
(1)
Non-IFRS financial measures or additional IFRS measures. Please refer to Section 14 for further information on these financial measures and for the reference to the reconciliation
from these financial measures to the most directly comparable measure specified under IFRS, when applicable.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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Non-IFRS Financial Measures and
Additional IFRS Measures
The following section provides information regarding non-IFRS financial measures and additional IFRS measures
used by the Company to analyze and evaluate its results. Non-IFRS financial measures do not have any
standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other
issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS,
these non-IFRS measures provide additional insight into the Company’s financial results and certain investors
may use this information to evaluate the Company’s performance from period to period. However, these non-IFRS
financial measures have limitations and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS.
14.1 Performance
Adjusted diluted earnings per share from E&C (“Adjusted diluted EPS from E&C”) is defined as adjusted
net income from E&C, divided by the diluted weighted average number of outstanding shares for the period.
Adjusted diluted EPS from E&C is a non-IFRS financial measure that is an indicator of the financial performance
of the Company’s E&C activities. Refer to Section 14.3 for the reconciliation of Adjusted diluted EPS from E&C to
net income as determined under IFRS.
Adjusted EBITDA is defined as earnings before net financial expenses (income), income taxes, depreciation and
amortization, and excludes charges related to restructuring, right-sizing and other, the acquisition-related costs
and integration costs, the net expense for the 2012 class action lawsuits settlement, and related legal costs, the
federal charges settlement (PPSC) expense, the GMP equalization expense, as well as the gains (losses) on
disposals of E&C businesses and Capital investments. Refer to Section 14.3 for a reconciliation of adjusted
EBITDA to net income as determined under IFRS.
Adjusted net income (loss) from E&C is defined as net income (loss) attributable to SNC-Lavalin shareholders
from E&C, excluding charges related to restructuring, right-sizing and other, acquisition-related costs and
integration costs, as well as amortization of intangible assets related to business combinations, impairment of
goodwill, impairment of intangible assets related to business combinations, the net expense for the 2012 class
action lawsuits settlement and related legal costs, the federal charges settlement (PPSC) expense, the GMP
equalization expense, the gains (losses) on disposals of E&C businesses, the impact of U.S corporate tax reform
and the incremental financing costs related to the amendments to the CDPQ Loan and other E&C financing
arrangements in connection with the sale by the Company of 10.01% of the shares of Highway 407 ETR. Adjusted
net income (loss) from E&C is a non-IFRS financial measure that is an indicator of the financial performance of
the Company’s E&C activities. Refer to Section 14.3 for a reconciliation of adjusted net income (loss) from E&C
to net income as determined under IFRS.
Booking-to-revenue ratio corresponds to contract bookings divided by the revenues, for a given period. This
measure provides a basis for assessing the renewal of business.
Diluted earnings per share from E&C and Diluted earnings per share from Capital correspond to diluted
earnings per share as determined under IFRS, reported separately for E&C and for Capital.
EBIT is an indicator of the entity’s capacity to generate earnings from operations before taking into account
management’s financing decisions. Accordingly, EBIT is defined as earnings before net
financial expenses
(income) and income taxes. Refer to Section 14.3 for a reconciliation of EBIT to net income as determined under
IFRS.
EBITDA is defined as earnings before net
amortization. Refer to Section 14.3 for a reconciliation of EBITDA to net income as determined under IFRS.
financial expenses (income),
income taxes, depreciation and
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
income
Return on Average Shareholders’ Equity (“ROASE”) corresponds to the trailing 12-month net
attributable to SNC-Lavalin shareholders, divided by a trailing 13-month average equity attributable to SNC-
Lavalin shareholders, excluding “other components of equity”. The Company excludes “other components of
equity” because this element of equity results in part from the translation into Canadian dollars of its foreign
functional currency, and from the accounting treatment of cash flow hedges,
operations having a different
including its accumulated share of other comprehensive income of investments accounted for by the equity
method. These amounts are not representative of the way the Company evaluates the management of its foreign
currency risk and interest risk. Accordingly, the “other components of equity” are not representative of the
Company’s financial position.
Segment EBIT consists of revenues less i) direct cost of activities, ii) directly related selling, general and
administrative expenses, and iii) corporate selling, general and administrative expenses that are allocated to
segments. Expenses that are not allocated to the Company’s segments include: certain corporate selling, general
and administrative expenses that are not directly related to projects or segments, impairment loss arising from
expected credit losses, gain (loss) arising on financial assets (liabilities) at fair value through profit or loss,
restructuring costs, impairment of goodwill, impairment of intangible assets related to business combinations,
acquisition-related costs and integration costs, amortization of intangible assets related to business combinations,
the net expense for the 2012 class action lawsuits settlement and related legal costs, the federal charges
settlement (PPSC) expense, and the GMP equalization expense, as well as gains (losses) on disposals of E&C
businesses and Capital investments. See reconciliation of Segment EBIT to the most directly comparable IFRS
measure in Section 4.2.
14.2 Liquidity
(or Cash net of recourse debt) corresponds to cash and cash equivalents,
less
Net recourse debt
cash and cash equivalents from Capital
investments accounted for by the consolidation method and the
Company’s recourse debt. Refer to Section 9.5 for a reconciliation of net recourse debt (or cash net of recourse
debt) to cash and cash equivalents as determined under IFRS.
Working capital corresponds to the amount of the Company’s total current assets minus its total current liabilities
and the Current ratio corresponds to the Company’s total current assets divided by its total current liabilities.
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14.3 Reconciliations
The tables below provide a quantitative reconciliation between certain non-IFRS measures to the most
comparable measure specified under IFRS.
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$, EXCEPT PER DILUTED SHARE INFORMATION [$])
Net income (loss)
Less:
2019
2018
PER
DILUTED SHARE
PER
DILUTED SHARE
$
330.6
N/A $ (1,316.3)
N/A
Non-controlling interests
Net income attributable to SNC-Lavalin shareholders from Capital
2.4
2,772.8
N/A
15.79
0.6
246.1
N/A
1.40
Net income (loss) attributable to SNC-Lavalin shareholders from E&C /
Diluted EPS from E&C
Adjustments (net of income taxes):
Restructuring, right-sizing costs and other
Acquisition-related costs and integration costs
(1)
Amortization of intangible assets related to business combinations
Federal charges settlement (PPSC)
Net 2012 class action lawsuits settlement expense and related legal costs
Loss from adjustment on disposals of E&C businesses
Financing costs related to the agreement to sell shares of Highway 407 ETR
Impact of U.S corporate tax reform
GMP equalization
Impairment of intangible assets related to business combinations
Impairment of goodwill
Adjusted net income (loss) attributable to SNC-Lavalin shareholders from
$ (2,444.6) $
(13.92) $ (1,563.0) $
(8.90)
$
154.0 $
5.9
148.3
257.3
—
0.3
27.4
—
—
60.1
1,720.9
0.88 $
0.03
58.7 $
42.8
0.85
1.47
—
—
0.16
—
—
0.34
9.80
171.1
—
65.7
0.5
—
6.0
20.8
—
1,240.4
0.33
0.24
0.97
—
0.37
—
—
0.03
0.12
—
7.06
(1)
E&C / Adjusted diluted EPS from E&C
It should be noted that this adjustment includes a net amount of $6.9 million ($5.6 million after taxes) in 2018 which did not meet the criteria to be classified under restructuring costs as
defined in accordance with IFRS.
$
(70.3) $
(0.40) $
43.1 $
0.25
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$, EXCEPT %)
Net income (loss)
Net financial expenses
Income taxes
EBIT
Depreciation and amortization
Amortization of intangible assets
related to business combinations
Impairment of goodwill and of intangible
assets related to business combinations
EBITDA
(as % of Revenues)
Restructuring, right-sizing costs
and other
(1)
2019
2018
FROM E&C
FROM CAPITAL
TOTAL
FROM E&C
FROM CAPITAL
TOTAL
$ (2,442.2) $ 2,772.8 $
194.2
(193.9)
17.8
392.7
$ (2,441.9) $ 3,183.3 $
0.2 $
$
220.0 $
330.6 $ (1,562.4) $
212.1
198.7
741.4 $ (1,424.5) $
118.1 $
220.3 $
156.0
(18.1)
246.1 $ (1,316.3)
167.4
(11.5)
11.5
6.6
264.1 $ (1,160.4)
118.1
— $
182.0
1,873.8
—
—
182.0
206.5
1,873.8
1,240.4
—
—
206.5
1,240.4
$
(166.0) $ 3,183.5 $ 3,017.5 $
N/A
(1.8)%
31.7 %
140.5 $
1.4 %
264.1 $
N/A
404.6
4.0 %
$
179.2 $
3.6 $
182.8 $
75.2 $
0.3 $
Federal charges settlement (PPSC)
Net 2012 class action lawsuits settlement
expense and related legal costs
Acquisition-related costs and
integration costs
Loss from adjustment on disposals of
E&C businesses
GMP equalization
Gain on disposal of Capital investments
257.3
—
8.3
0.3
—
—
—
—
—
—
257.3
—
8.3
0.3
—
(2,970.8)
—
(2,970.8)
—
89.4
54.9
0.5
25.1
—
Adjusted EBITDA
(as % of Revenues)
$
279.1 $
3.0 %
216.3 $
N/A
495.5 $
5.2 %
385.6 $
3.9 %
—
—
—
—
—
(67.6)
196.8 $
N/A
75.5
—
89.4
54.9
0.5
25.1
(67.6)
582.4
5.8 %
(1)
It should be noted that this adjustment includes a net amount of $6.9 million ($5.6 million after taxes) in 2018 which did not meet the criteria to be classified under restructuring costs as
defined in accordance with IFRS.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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The tables below provide a quantitative reconciliation between certain non-IFRS measures to the most
comparable measure specified under IFRS.
FOURTH QUARTERS ENDED DECEMBER 31
(IN MILLIONS CA$, EXCEPT PER DILUTED SHARE INFORMATION [$])
Net loss
Less:
Non-controlling interests
Net income attributable to SNC-Lavalin shareholders from Capital
Net loss attributable to SNC-Lavalin shareholders from E&C / Diluted EPS
from E&C
Adjustments (net of income taxes):
Restructuring, right-sizing costs and other
Acquisition-related costs and integration costs
Amortization of intangible assets related to business combinations
Federal charges settlement (PPSC)
Net 2012 class actions lawsuits settlement expense and related legal costs
Loss from adjustment on disposals of E&C businesses
GMP equalization
Impairment of goodwill
2019
2018
PER DILUTED
SHARE
PER DILUTED
SHARE
$
(289.0)
N/A $ (1,598.7)
N/A
3.9
17.5
N/A
— N/A
0.10
55.6
0.32
$
(310.4) $
(1.77) $ (1,654.3) $
(9.42)
$
99.6 $
0.57 $
48.5 $
—
32.4
257.3
—
0.1
—
—
—
0.18
1.47
—
—
—
—
16.1
42.9
—
1.2
0.2
20.8
1,240.4
0.28
0.09
0.24
—
—
—
0.12
7.07
Adjusted net income (loss) attributable to SNC-Lavalin shareholders from
E&C / Adjusted diluted EPS from E&C
$
79.1 $
0.45 $
(284.1) $
(1.62)
FOURTH QUARTERS ENDED DECEMBER 31
(IN MILLIONS CA$, EXCEPT %)
2019
2018
Net income (loss)
Net financial expenses
Income taxes
EBIT
Depreciation and amortization
Amortization of intangible assets
related to business combinations
Impairment of goodwill
FROM E&C
FROM CAPITAL
TOTAL
FROM E&C
FROM CAPITAL
TOTAL
$
(306.5) $
17.5 $
(289.0) $ (1,654.3) $
55.6 $ (1,598.7)
$
$
20.2
(6.3)
4.4
4.0
24.6
(2.2)
39.9
(29.9)
4.3
(0.3)
44.1
(30.2)
(292.5) $
25.9 $
(266.6) $ (1,644.2) $
59.6 $ (1,584.7)
50.4 $
0.1 $
50.5 $
36.1 $
— $
40.0
—
—
—
40.0
—
51.6
1,240.4
—
—
36.1
51.6
1,240.4
EBITDA
$
(202.1) $
25.9 $
(176.1) $
(316.2) $
59.6 $
(256.6)
(as % of Revenues)
Restructuring, right-sizing costs and other
Federal charges settlement (PPSC)
Net 2012 class action lawsuits settlement
expense and related legal costs
Acquisition-related costs and
integration costs
Loss from adjustment on disposals of
E&C businesses
GMP equalization
Gain on disposal of a Capital investment
(8.4)%
N/A
(7.2)%
(12.7)%
N/A
(10.0)%
$
111.4 $
— $
257.3
—
0.1
0.1
—
—
—
—
—
—
—
—
111.4 $
257.3
—
0.1
0.1
—
—
63.8 $
0.3 $
—
1.4
20.8
0.2
25.1
—
—
—
—
—
—
(4.8)
64.1
—
1.4
20.8
0.2
25.1
(4.8)
Adjusted EBITDA
(as % of Revenues)
$
166.8 $
25.9 $
192.7 $
(204.9) $
55.0 $
(149.8)
6.9 %
N/A
7.9 %
(8.2)%
N/A
(5.8)%
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Risks and Uncertainties
15.1 PRINCIPAL RISKS AND UNCERTAINTIES
The Company is subject to a number of risks and uncertainties in carrying out its activities. SNC-Lavalin has
measures in place to identify, monitor and, to a certain extent, mitigate such risks and uncertainties. Such
measures include, among others, the enterprise risk management program, the work performed by various
committees at
levels, as well as the enforcement of numerous policies and
procedures. You should carefully consider the risks and uncertainties below before investing in the Company’s
securities. Additional risks not currently known or that the Company currently believes are immaterial may also
impair its business, results of operations, financial condition and liquidity.
the Board and management
RESULTS OF THE NEW 2019 STRATEGIC DIRECTION COUPLED WITH A CORPORATE
REORGANIZATION
On July 22, 2019, the Company announced that it is focusing on the high-performing and growth areas of the
business and is exiting lump-sum turnkey construction contracting. The Company has reorganized into two
separate business lines:
◦
◦
SNCL Engineering Services, which includes EDPM, Nuclear, Infrastructure Services (including Linxon) and
Capital.
SNCL Projects, which includes Resources (comprised of the previous Oil & Gas and Mining & Metallurgy
segments) and the then existing Infrastructure LSTK construction projects. The Company is exploring all
options for its Resources activities, particularly its Oil & Gas business, including transition to a services-based
business or divestiture. The Company will fulfill the contractual obligations of its current lump-sum turnkey
construction projects. It may be necessary for the Company to accept change orders under existing lump-sum
turnkey construction contracts, which may temporarily extend the performance timeframe of such contracts.
The Company expects to complete a significant portion of the remaining lump-sum turnkey construction
projects by the end of 2021 and the rest by the end of 2024.
There can be no assurance that the new strategic direction will succeed in whole or in part. Implementation of this
plan presents various managerial, organizational, administrative, operational and other challenges, and the
Company’s organizational, administrative and operational systems may require adjustments in order
to
appropriately implement the new direction.
The new strategic direction may also be affected by various factors, notably that it will take several years for the
exit from lump-sum turnkey construction projects to be fully reflected in the Company’s backlog. Until that exit is
completed by the run-off or transfer of existing lump-sum turnkey construction projects, the Company may
experience losses resulting from the risks inherent in such projects.
If the Company is unable to successfully execute on any or all of the initiatives in its new strategic direction
announced on July 22, 2019, the Company's revenues, operating results and profitability may be adversely
affected. Even if the Company successfully implements its new strategic direction, there can be no guarantee that
it will achieve its intended objectives of improved revenues, operating results and/or profitability. Modifications to
the new strategic direction may also be required to achieve such objectives.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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RISKS RELATING TO THE COMPANY’S OPERATIONS
Fixed-price contracts or the Company’s failure to meet contractual schedule, performance requirements
or to execute projects efficiently
While the Company has announced a new strategic direction and its expectation is that it will complete a
significant portion of its lump-sum turnkey construction projects by 2021 and the rest by the end of 2024, a
significant portion of the Company’s current business and revenues remains dependent on fixed-price contracts.
The Company bears the risk for cost overruns from fixed-price contracts. Contract revenues and costs are
established, in part, based on estimates which are subject to a number of assumptions, such as those regarding
future economic conditions, productivity, performance of the Company’s employees and of subcontractors or
equipment suppliers, price, inflation, availability of labour, equipment and materials and other requirements that
may affect project costs or schedule, such as obtaining the required environmental permits and approvals on a
timely basis. Cost overruns may also occur when unforeseen circumstances arise. In addition, reimbursable
contracts such as unit-rate contracts for which a fixed amount per quantity is charged to the customer and
reimbursable contracts with a cap bear some risks that are similar to those related to fixed-price contracts, as the
estimates used to establish the contract unit-rate and/or the contractual cap are also subject to the assumptions
listed above.
Furthermore, should the Company experience difficulties in the execution of projects due to various factors, such
as a lack of efficiency in the implementation of its processes, failure to estimate accurately project costs and/or
conclude strategic transactions pertaining to project resources, such difficulties could have an adverse impact on
the Company’s financial results from these projects.
If cost overruns occur, the Company could experience reduced profits or, in some cases, a loss for that project. A
significant cost overrun can occur on both large and smaller contracts or projects. If a large cost overrun occurs,
or if cost overruns occur on multiple projects, such cost overruns could increase the unpredictability and volatility
of the Company’s profitability as well as have a material adverse impact on its business.
In addition, in certain instances, SNC-Lavalin may guarantee a client that it will complete a project by a scheduled
date or that a facility will achieve certain performance standards. As such, SNC-Lavalin may incur additional costs
should the project or facility subsequently fail to meet the scheduled completion date or performance standards. A
project’s revenues could also be reduced in the event the Company is required to pay liquidated damages or in
connection with contractual penalty provisions, which can be substantial and can accrue on a daily basis.
Contract awards and timing
Obtaining new contract awards, which is a key component for the sustainability of net income, is a risk factor in a
competitive environment. A substantial portion of SNC-Lavalin’s revenue and profitability is generated from large-
scale project awards. The timing of when project awards will be made is unpredictable and outside of the
Company’s control. SNC-Lavalin operates in highly competitive markets where it is difficult to predict whether and
when it will receive awards since these awards and projects often involve complex and lengthy negotiations and
bidding processes. These processes can be impacted by a wide variety of
factors including governmental
approvals, financing contingencies, commodity prices, environmental conditions and overall market and economic
conditions. In addition, the Company may not win contracts that it has bid upon due to price, a client's perception
the Company’s reputation, ability to perform and/or perceived technology or other advantages held by
of
competitors. SNC-Lavalin’s competitors may be more inclined to take greater or unusual risks or accept terms and
conditions in a contract that the Company might not otherwise deem market or acceptable. Because a significant
portion of the Company’s revenue is generated from large projects, the Company’s results of operations can
fluctuate from quarter to quarter and year to year depending on whether and when project awards occur and the
commencement and progress of work under awarded contracts. As a result, SNC-Lavalin is subject to the risk of
losing new awards to competitors or the risk that revenue may not be derived from awarded projects as quickly as
anticipated. Furthermore, the Company may incur significant costs in order to bid on certain projects that may not
be awarded to the Company, thus resulting in expenses that did not generate any profit for the Company.
In addition, fluctuating demand cycles are common in the engineering and construction industries and can have a
significant impact on the degree of competition for available projects and the awarding of new contracts. As such,
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
fluctuations in the demand for engineering and construction services or the ability of the private and/or public
sector to fund projects in a depressed economic climate could adversely affect the awarding of new contracts and
margin and thus SNC-Lavalin’s results. Given the cyclical nature of the engineering and construction industries,
the financial results of SNC-Lavalin, like others in such industries, may be impacted in any given period by a wide
variety of factors beyond its control, and as a result there may, from time to time, be significant and unpredictable
variations in the Company’s quarterly and annual financial results.
including the extent
future performance depend on, among other matters, whether and when the
SNC-Lavalin’s estimates of
Company will receive certain new contract awards,
to which the Company utilizes its
workforce. The rate at which SNC-Lavalin utilizes its workforce is impacted by a variety of factors including: the
Company’s ability to manage attrition; the Company’s ability to forecast its need for services which in turn allows
the Company to maintain an appropriately sized workforce; the Company’s ability to transition employees from
completed projects to new projects or between internal business groups; and the Company’s need to devote
resources to non-chargeable activities such as training or business development. While SNC-Lavalin’s estimates
are based upon its good faith judgment, these estimates can be unreliable and may frequently change based on
newly available information. In the case of large-scale domestic and international projects where timing is often
uncertain, it is particularly difficult to predict whether and when the Company will receive a contract award. The
uncertainty of contract award timing can present difficulties in matching the Company’s workforce size with its
contract needs. If an expected contract award is delayed or not received, or if an ongoing contract is cancelled,
the Company could incur costs resulting from reductions in staff or redundancy of facilities that would have the
effect of reducing the Company’s operational efficiency, margins and profits.
Remaining performance obligations
The Company’s remaining performance obligations are derived from contract awards that are considered firm or
management’s estimates of revenues to be generated from firm contract awards for reimbursable contracts, thus
an indication of expected future revenues. Project delays, suspensions, terminations, cancellations or reductions
in scope do occur from time to time in the Company’s industry due to considerations beyond the control of SNC-
Lavalin and may have a material impact on the amount of reported remaining performance obligations with a
corresponding adverse impact on future revenues and profitability. In addition, many of the Company’s contracts
contain “termination for convenience” provisions, which permit the client to terminate or cancel the contract at its
convenience upon providing the Company with notice a specified period of time before the termination date and/or
paying the Company equitable compensation, depending on the specific contract terms. In the event a significant
number of the Company’s clients were to avail themselves of such “termination for convenience” provisions, or if
one or more significant contracts were terminated for convenience,
the Company’s reported remaining
performance obligations would be adversely affected with a corresponding adverse impact on expected future
revenues and profitability.
Being a provider of services to government agencies
SNC-Lavalin is a provider of services to government agencies and is exposed to risks associated with
government contracting. SNC-Lavalin’s failure to comply with the terms of one or more government contracts or
government statutes and regulations could result in the Company’s contracts with government agencies being
terminated or the Company being suspended or debarred from future government projects for a significant period
of time, possible civil or criminal fines and penalties and the risk of public scrutiny of the Company’s performance,
and potential harm to its reputation, each of which could have a material adverse effect on SNC-Lavalin’s
business. Other remedies that the Company’s government clients may seek for improper activities or performance
issues include sanctions such as forfeiture of profits and suspension of payments. In addition, virtually all of the
Company’s contracts with governments contain “termination for convenience” provisions, as described in the risk
factor above entitled “Remaining performance obligations”.
Government contracts present SNC-Lavalin with other risks as well. Legislatures typically appropriate funds on a
year-by-year basis, while contract performance may take more than one year. As a result, the Company’s
contracts with government agencies may be only partially funded or may be terminated, and the Company may
not realize all of its potential revenues and profits from those contracts. Appropriations and the timing of payment
may be influenced by, among other things, the state of the economy, competing political priorities, curtailments in
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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SNC-Lavalin 2019 Financial Report SNC-LAVALIN
the use of government contracting firms, budget constraints, the timing and amount of tax receipts and the overall
level of government expenditures.
International operations
A significant portion of SNC-Lavalin’s revenues are attributable to projects in international markets outside of
Canada. SNC-Lavalin’s business is dependent on the continued success of its international operations, and the
Company expects its international operations to continue to account for a significant portion of total revenues. The
Company’s international operations are subject to a variety of risks, most of which also apply to its Canadian
operations, including:
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
recessions and other economic crises in other regions, or specific foreign economies and the impact on the
Company’s costs of doing business in those countries;
difficulties in staffing and managing foreign operations,
challenges;
including logistical, security and communication
changes in foreign government policies, laws, regulations and regulatory requirements, or the interpretation,
application and/or enforcement thereof;
difficulty or expense in enforcing contractual rights due to a lack of a developed legal system or otherwise;
renegotiation or nullification of existing contracts;
the adoption of new, and the expansion of existing, trade or other restrictions, such as recent retaliatory tariffs
between the United States and China;
difficulties, delays and expense that may be experienced or incurred in connection with the movement and
clearance of personnel and goods through the customs and immigration authorities of multiple jurisdictions;
embargoes;
acts of war, civil unrest, force majeure and terrorism;
social, political and economic instability;
expropriation of property;
the risk that inter-governmental relationships may deteriorate such that the Company’s operations in a given
country may be negatively impacted because the Company is head-quartered in Canada or because we carry
on business in another country;
tax increases or changes in tax laws, legislation or regulation or in the interpretation, application and/or
enforcement thereof; and
limitations on the Company’s ability to repatriate cash, funds or capital invested or held in jurisdictions outside
Canada.
To the extent SNC-Lavalin’s international or Canadian operations are affected by unexpected or adverse
economic, political and other conditions, the Company’s business, financial condition and results of operations
may be adversely affected.
In addition, the Company’s activities outside Canada expose SNC-Lavalin to foreign currency exchange risks,
which could adversely impact its operating results. The Company is particularly vulnerable to fluctuations in British
pounds, in U.S. dollars and in currencies pegged to U.S. dollars. While SNC-Lavalin has a hedging strategy in
place to mitigate some of the effects of certain foreign currency exposures, there can be no assurance that such
hedging strategy will be effective. Furthermore, the volatility of the Company’s financial results and cash flows
could increase if certain countries cease to peg their currencies to the U.S. dollar. The Company does not have
hedging strategies in place with respect to all currencies in which it does business. The Company’s hedging
strategy includes the use of forward foreign exchange contracts, which also contain an inherent credit risk related
to default on obligations by the counterparties to such contracts.
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2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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Nuclear liability
The Company’s Nuclear segment supports clients across the entire Nuclear life cycle with the full spectrum of
services from consultancy, EPCM services, field services, technology services, spare parts, reactor support &
decommissioning and waste management. As stewards of the CANDU technology, it also provides new-build and
full refurbishment services of CANDU reactors. Such services can subject the Company to risks arising out of a
nuclear, radiological or criticality incident, whether or not within the Company’s control.
Indemnification provisions contained in the domestic legislation of the jurisdictions in which the Company’s
Nuclear segment operates, such as Canada's Nuclear Liability and Compensation Act, the United Kingdom’s
Nuclear Installations Act 1965, the United States’ Price-Anderson Act, or equivalent protections afforded under
international conventions, seek to ensure compensation for the general public, while indemnifying nuclear industry
participants against liability arising from nuclear incidents, subject to possible exclusions.
liabilities incurred while performing
These legislative indemnification provisions may however not apply to all
services as a contractor for the nuclear industry. If an incident or certain damages resulting therefrom are not
covered under applicable legislative indemnification provisions, the Company could be held liable for damages
which could have a material adverse impact on the Company’s financial condition and results of operations. In
addition to legislative indemnification provisions, the Company seeks to protect itself from liability associated with
nuclear incidents and damages resulting therefrom in its contracts, but there can be no assurance that such
contractual limitations on liability will be effective in all cases or that the Company’s or its clients’ insurance will
cover all the liabilities assumed under those contracts. The costs of defending against claims arising out of a
nuclear incident, and any damages that could be awarded as a result of such claims, could have a material
adverse impact on the Company’s financial condition and results of operations.
Ownership interests in Capital investments
SNC-Lavalin holds investments through its investment and asset management arm, Capital. When SNC-Lavalin
holds an ownership interest in such an investment, it assumes a degree of risk associated with the financial
performance of such investment. The value of the Company’s investment is dependent on the ability of the Capital
investment to attain its revenue and cost projections as well as the ability to secure initial and ongoing financing,
which can be influenced by numerous factors, some partially beyond Capital ’s control, including, but not limited
to, political or
lifecycle maintenance, operating revenues, collection success, cost
management and the general state of the capital and/or credit markets.
legislative changes,
The Company sometimes makes investments in project entities in which it does not hold a controlling interest.
These investments may not be subject to the same requirements regarding internal controls and internal control
over financial reporting that SNC-Lavalin follows. To the extent
the controlling entity makes decisions that
negatively impact such investments or internal controls relating thereto and, consequently, problems arise within
such investments, it could have a material adverse impact on the Company’s business, financial condition and
results of operations.
The Company’s non-recourse debt from Capital’s investments can be affected by fluctuations in interest rates. A
hedging strategy is put in place when the management body of the project entity for such investment deems it
appropriate. However, the assumptions and estimates inherent to the hedging strategy could be erroneous, thus
rendering the hedging strategy ineffective or partially ineffective. Furthermore, the financial instruments associated
with the hedging strategy contain an inherent credit risk related to defaults on obligations by the counterparties to
such instruments.
In addition, many of the Company’s investments made through Capital are governed by shareholder, partnership
or similar joint venture agreements or arrangements, many of which restrict the Company's ability or right to freely
sell or otherwise dispose of its investments and/or that affect the timing of any such sale or other disposition.
Consequently, the Company’s ability to efficiently or timely dispose of or monetize one or more of its investments
could be limited by such contractual arrangements, which could in turn have an adverse impact on SNC-Lavalin's
liquidity or capital resources.
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Dependence on third parties
SNC-Lavalin undertakes contracts wherein it subcontracts a portion of the project or the supply of material and
equipment to third parties. If the amount the Company is required to pay for subcontractors or equipment and
supplies exceeds what was estimated, the Company may suffer losses on these contracts. If a supplier or
subcontractor fails to provide supplies, equipment or services as required under a negotiated contract for any
reason, or provides supplies, equipment or services that are not of an acceptable quality, the Company may be
required to source those supplies, equipment or services on a delayed basis or at a higher price than anticipated,
which could impact contract profitability. In addition, faulty equipment or materials could impact the overall project,
resulting in claims against SNC-Lavalin for failure to meet required project specifications. These risks may be
intensified during an economic downturn if these suppliers or subcontractors experience financial difficulties or
find it difficult to obtain sufficient financing to fund their operations or access to bonding, and are not able to
provide the services or supplies or the requisite quality or grade of services or supplies necessary for the
Company’s business. In addition, in instances where SNC-Lavalin relies on a single contracted supplier or
subcontractor or a small number of subcontractors, there can be no assurance that the marketplace can provide
these products or services on a timely basis, or at the costs the Company had anticipated. A failure by a third-
party subcontractor or supplier to comply with applicable laws, rules or regulations could negatively impact SNC-
Lavalin’s business and, in the case of government contracts, could result in fines, penalties, suspension or even
debarment being imposed on the Company.
Joint ventures and partnerships
SNC-Lavalin undertakes certain contracts with joint venture partners, as a member of partnerships, and under
other similar arrangements. This situation exposes the Company to a number of risks, including the risk that its
partners may be unable or unwilling to fulfill
their contractual obligations to the Company or its clients.
SNC-Lavalin’s partners may also be unable or unwilling to provide the required levels of financial support to the
partnerships. If these circumstances occur, the Company may be required to pay financial penalties or liquidated
damages, provide additional services, or make additional
investments to ensure adequate performance and
delivery of the contracted services. Under agreements with joint and several (or solidary) liabilities, SNC-Lavalin
could be liable for both its obligations and those of its partners. These circumstances could also lead to disputes
and litigation with the Company’s partners or clients, all of which could have a material adverse impact on the
Company’s reputation, business, financial condition and results of operations.
SNC-Lavalin participates in joint ventures and similar arrangements in which it is not the controlling partner. In
these cases, the Company has limited control over the actions or decisions of the joint venture. These joint
ventures may not be subject to the same requirements regarding internal controls and internal control over
financial reporting that SNC-Lavalin follows. To the extent the controlling partner makes decisions that negatively
impact the joint venture or internal control problems arise within the joint venture, it could have a material adverse
impact on the Company’s business, financial condition and results of operations.
regulations, or contract
The failure by a joint venture partner
requirements, could negatively impact SNC-Lavalin’s business and, in the case of government contracts, could
result in fines, penalties, suspension or even debarment being imposed on the Company, which could have a
material adverse impact on the Company’s reputation, business, financial condition and results of operations.
to comply with applicable laws,
rules or
Information systems and data
The integrity, reliability and security of information in all forms are critical to the Company’s daily and strategic
operations.
Cyber-attacks have become more frequent and sophisticated and the Company’s information technology and
other defences must be adequate to repel them. Cyber-attacks include insertion of malware, hacking, industrial
espionage, unauthorized access to confidential or proprietary information, phishing or other security breaches and
system disruptions. If the Company is unable to protect its information systems, they could be interrupted or
delayed. The Company’s information systems and operations could also be interrupted or damaged by natural
disasters, failures, acts of war, terrorism or cyber-attacks, among others.
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Due to changes in technologies, new laws and regulations governing data privacy and the unauthorized
disclosure of confidential information, including the European Union General Data Protection Regulation and the
California Consumer Privacy Act, pose increasingly complex compliance challenges and potentially elevate costs,
and any failure to comply with these laws and regulations could result in significant penalties and legal liability.
Changes in legislation related to the protection of personal information could accelerate in several jurisdictions,
including Canada.
A successful cyber-attack could harm the Company’s reputation and adversely affect its business, financial
condition and results of operations as it may lead to network failures; unauthorized access to confidential or
proprietary information about its business, customers or employees; theft, loss, leakage, destruction or corruption
of data, including information about its customers or employees; physical damage to network assets; litigation,
fines and liability for failure to comply with privacy and information security laws; increased fraud; lost revenues;
the potential for loss of customers or impairment of the Company ability to attract new ones; and higher insurance
premiums.
In addition, cyber-attacks affecting the Company’s suppliers or other business partners could also adversely affect
the Company’s business, financial condition and results of operations.
The Company relies on industry-accepted security measures and technology to protect the confidential and
proprietary information on its computer systems. The Company also seeks to adapt
its security policies,
procedures and controls to protect its assets. There is no assurance that these measures will prevent the
occurrence of cyber-attacks, or that any insurance the Company may have will cover the costs, damages,
liabilities or losses that could result therefrom.
Competition
SNC-Lavalin operates businesses in highly competitive industry segments and geographic markets both in
Canada and internationally. SNC-Lavalin competes with both large as well as many mid-size and smaller
companies across a range of industry segments. In addition, an increase in international companies entering into
the Canadian marketplace has also made such market more competitive. New contract awards and contract
margin are dependent on the level of competition and the general state of the markets in which the Company
operates. Fluctuations in demand in the segments in which the Company operates may impact the degree of
competition for work. Competitive position is based on a multitude of factors, including pricing, ability to obtain
adequate bonding, remaining performance obligations, financial strength, appetite for risk, availability of partners,
suppliers and workforce, and reputation for quality, timeliness and experience. If the Company is unable to
effectively respond to these competitive factors, results of operations and financial condition will be adversely
impacted. In addition, a prolonged economic slump or slower than anticipated recovery may also result in
increased competition in certain market segments, price or margin reductions or decreased demand which may
adversely affect results.
Professional liability or liability for faulty services.
The Company’s failure to act or to make judgments and recommendations in accordance with applicable
professional standards could result in large monetary damages awards against the Company. The Company’s
business involves making professional
judgments regarding the planning, design, development, construction,
operations and management of industrial facilities and public infrastructure projects. A failure or event at one of
SNC-Lavalin’s project sites or completed projects resulting from the work it has performed could result
in
significant professional or product liability, warranty or other claims against the Company as well as reputational
harm, especially if public safety is impacted. These liabilities could exceed the Company’s insurance limits or the
fees it generates, or could impact the Company’s ability to obtain insurance in the future. In addition, clients or
subcontractors who have agreed to indemnify SNC-Lavalin against any such liabilities or losses might refuse or
be unable to pay. An uninsured claim, either in part or in whole, if successful and of a material magnitude, could
have a material adverse impact on the Company’s financial condition and results of operations.
In some jurisdictions where the Company does business, it may be held statutorily jointly and severally (solidarily)
liable for both its obligations and those of other parties working on a particular project, notwithstanding the
absence of a contractual relationship between the Company and such other parties.
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Monetary damages and penalties in connection with professional and engineering reports and opinions
SNC-Lavalin issues reports and opinions to clients based on its professional engineering expertise, as well as its
other professional credentials. The Company’s reports and opinions are often required to comply with professional
standards,
licensing requirements, securities regulations and other laws, regulations, rules and standards
governing the performance of professional services in the jurisdiction where the services are performed. In
addition, the Company could be liable to third parties who use or rely upon the Company’s reports or opinions
even if it is not contractually bound to those third parties, which may result in monetary damages or penalties.
Insurance coverage
As part of SNC-Lavalin’s business operations, the Company maintains insurance coverage. There can be no
assurance that the Company has in place sufficient insurance coverage to satisfy its needs, or that it will be able
to secure all necessary or sufficient insurance coverage in the future. The Company’s insurance is purchased
from a number of third-party insurers, often in layered insurance arrangements. If any of its third-party insurers
fail, refuse to renew or revoke coverage or otherwise cannot satisfy their insurance requirements to SNC-Lavalin,
then the Company’s overall risk exposure and operational expenses could be increased and its business
operations could be interrupted.
SNC-Lavalin has obtained directors’ and officers’ liability insurance insuring directors and officers against liability
for acts or omissions in their capacities as directors and officers of the Company, subject to certain exclusions.
Such insurance also insures SNC-Lavalin against losses which the Company may incur in indemnifying officers
and directors. In addition, SNC-Lavalin may enter into indemnification agreements with key officers and directors
and such persons may also have indemnification rights under applicable laws and the Company’s constating
documents. SNC-Lavalin’s obligations to indemnify directors and officers may pose substantial risks to the
Company’s financial condition as the Company may not be able to maintain its insurance or, even if the Company
is able to maintain its insurance, claims in excess of the Company’s insurance coverage could materially deplete
its assets.
Health & Safety
The nature of SNC-Lavalin’s work places employees and others near large equipment, dangerous processes or
highly regulated materials, and in challenging environments. Many clients require that the Company meet certain
safety standards or criteria to be eligible to bid on contracts, and the payment of a portion of the Company’s
contract fees or profits may be subject to satisfying safety standards or criteria. Unsafe work conditions also have
the potential of increasing employee turnover, increasing project and operating costs and could negatively impact
the awarding of new contracts. If SNC-Lavalin fails to implement appropriate safety procedures and/or if its
procedures fail, employees or others may suffer injuries. Failure to comply with such procedures, client contracts
or applicable regulations could subject SNC-Lavalin to losses and liability and adversely impact the Company’s
business, financial condition and operating results as well as its ability to obtain future projects.
Qualified personnel
The success of SNC-Lavalin heavily depends on its workforce and the ability to attract and retain qualified
personnel in a competitive work environment. The inability to attract and retain qualified personnel could result in,
among other factors, lost opportunities, cost overruns, failure to perform on projects and inability to mitigate risks
and uncertainties.
Work stoppages, union negotiations and other labour matters
A portion of the Company’s workforce and employees working for various subcontractors are unionized. A lengthy
strike or other work stoppages, caused by unionized or non-unionized employees, in connection with any of the
Company’s projects could have a material adverse effect on the Company. There is an inherent risk that on-going
or future negotiations relating to collective bargaining agreements or union representation may not be favourable
to the Company. From time to time, the Company has also experienced attempts to unionize the Company’s non-
unionized employees. Such efforts can often disrupt or delay work and present risk of labour unrest.
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Extreme weather conditions and the impact of natural or other disasters and global health crises
The Company’s field activities are generally performed outdoors and include professional surveying, resident
engineering services, field data surveys and collection, archeology, geotechnical investigations and exploratory
drilling, construction oversight and inspection, plant start-up and testing and plant operations. Extreme weather
conditions or natural or other disasters, such as earthquakes, fires, floods, epidemics or pandemics (including the
current coronavirus) and similar events, may cause postponements in the initiation and/or completion of the
Company’s field activities and may hinder the ability of its employees to perform their duties, which may result in
delays or loss of revenues that otherwise would be recognized while certain costs continue to be incurred.
Extreme weather conditions or disasters may also delay or eliminate the start and/or completion of various phases
of work relating to other services that commence concurrently with or subsequent
to field activities. The
Company’s financial and/or operating performance could also be adversely affected by the outbreak of epidemics
or other public health crises. For example, in late December 2019, a novel coronavirus (2019-nCoV/COVID-19)
was identified as originating in Wuhan, the capital of the Hubei Province of China, with cases subsequently
confirmed in multiple Provinces throughout China, as well as in other countries throughout the world. The risks to
the Company of epidemics and other public health crises, such as the ongoing coronavirus, include risks to
employee health and safety. The Company’s business could also experience a slowdown or
temporary
suspension in operations in geographic locations impacted by an outbreak in the short term, including but not
limited to China. Any prolonged restrictive measures put in place in order to contain an outbreak of a contagious
disease or other adverse public health development, in China or in any other jurisdictions where the Company
operates or holds any assets, may have a material and adverse effect on the Company’s financial and/or
operating performance. Any delay in the completion of the Company’s services may require the Company to incur
additional non-compensable costs, including overtime work, that are necessary to meet clients’ schedules. Due to
various factors, a delay in the commencement or completion of a project may also result in penalties or sanctions
under contracts or even the cancellation of contracts.
Intellectual property
intellectual property policies and other contractual arrangements to protect much of
SNC-Lavalin’s success depends, in part, upon its ability to protect its intellectual property. The Company relies on
a combination of
its
intellectual property where it does not believe that trademark, patent or copyright protection is appropriate or
obtainable. Trade secrets are generally difficult to protect. Although SNC-Lavalin’s employees are subject to
confidentiality obligations,
the
Company’s confidential information and/or the infringement of the Company’s patents and copyrights. Further, the
Company may be unable to detect unauthorized use of its intellectual property or otherwise take appropriate steps
to enforce its rights. Failure to adequately protect, maintain, or enforce the Company’s intellectual property rights
may adversely limit the Company’s competitive position.
this protection may be inadequate to deter or prevent misappropriation of
Divestitures and the sale of significant assets
The sale of a business unit and/or significant assets is a complex process that involves certain risks, such as
failure to properly plan, prepare and execute the transaction and to prepare a contract that protects the Company
from post-closing adjustments and additional costs. In addition, the Company is exposed to the risk of the deal
falling through, selling at a lower price than the asking price and/or extended deal close times.
RISKS RELATED TO THE COMPANY’S LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
Impact of operating results and level of indebtedness on financial situation
The Company reported a significantly reduced adjusted EBITDA in 2019 relative to its historical results while
reporting negative cash flows from operations during the same period. The Adjusted EBITDA, described in
Section 14 of this MD&A, does not exactly correspond to the definition of “adjusted EBITDA” used to calculate the
net recourse debt
to adjusted EBITDA ratio under the Company’s Credit Agreement and the SNC-Lavalin
Highway Holdings Loan Agreement. However, it reflects the fact that operating results had an unfavorable impact
on such ratio. The Company amended the Credit Agreement and the SNC-Lavalin Highway Holdings Loan
Agreement to, among other things, extend the temporary loosening of the net recourse debt to adjusted EBITDA
ratio from 3.75x to 4x for the period from June 30, 2019 to December 31, 2019. While the Company met its
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
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modified covenant requirements as at December 31, 2019, an increase of net recourse debt due to items such as
cash requirements of operating activities or the delay/acceleration of certain investing/divestitures or financing
transactions, or an inability to generate sufficient adjusted EBITDA to support the level of indebtedness in the ratio
calculation in the future, could have a negative impact on the Company, as further described in the risk factor
entitled “Indebtedness” below.
Liquidity and financial position
The Company relies both on its cash, its credit facilities and other debt instruments, as well as the capital market
to provide some of its capital requirements and it is, in certain instances, required to obtain bank guarantees as a
means to secure its various contractual obligations for its underlying projects. Significant instability or disruptions
of the capital markets or a deterioration in or weakening of its financial position due to internal or external factors,
could restrict or prohibit the Company’s access to, or significantly increase the cost of one or more of these
financing sources, including credit facilities, the issuance of long-term debt, or the availability of letters of credit to
guarantee its contractual and project obligations. There can be no assurance that the Company will maintain an
adequate cash balance and generate sufficient cash flow from operations in an amount to enable itself to fund its
operations and liquidity needs, service its debt and/or maintain its ability to obtain and secure bank guarantees.
A deterioration in the Company’s financial condition could also result in a reduction or downgrade of its credit
ratings, which could limit the Company’s ability to issue new letters of credit or performance guarantees or
accessing external sources of short-term and long-term debt financing or could significantly increase the costs
associated with utilizing such letters of credit and performance guarantees, bank credit facilities and issuing long-
term debt, which would in turn have a material adverse effect on the Company’s business, financial condition and
results of operations.
A draw on letters of credit or bank guarantees by one or more third parties could, among other things, significantly
reduce the Company’s cash position and have a material adverse effect on its business and results of operations.
Indebtedness
The Company had approximately $2.1 billion of consolidated indebtedness as at December 31, 2019 under
recourse, limited recourse and non-recourse debt.
The Company will need to refinance or reimburse amounts outstanding under the Company’s consolidated
indebtedness. There can be no assurance that any indebtedness of the Company will be refinanced or that
additional financing on commercially reasonable terms will be obtained, if at all.
The Company’s degree of leverage could have other important consequences, including the following:
◦
◦
it may have a negative effect on the current credit ratings of the Company’s rated long-term debt;
it may limit the Company’s ability to obtain additional financing for working capital, capital expenditures, debt
service requirements, acquisitions and general corporate or other purposes on commercially reasonable
terms, if at all;
◦ most of the Company’s borrowings are at variable rates of interest and expose the Company to the risk of
increased interest rates;
◦
◦
◦
◦
it may limit the Company’s ability to adjust to changing market conditions and place the Company at a
competitive disadvantage (including if the Company’s credit rating is negatively affected) compared to its
competitors that have less debt or greater financial resources;
it may limit the Company’s ability to declare and pay dividends on its Common Shares;
the Company may be vulnerable in a downturn in general economic conditions; and
the Company may be unable to make capital expenditures that are important to its growth and strategies.
facilities and instruments governing the Company’s consolidated debt contain certain financial
The credit
covenants requiring the Company, on a consolidated basis, to satisfy net recourse debt to adjusted earnings
before interest, taxes, depreciation and amortization ratios. Such credit facilities and instruments also contain
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covenants restricting the Company’s ability to incur liens on its assets, incur additional debt or effect dispositions
of assets or fundamental changes in its business, pay dividends and make certain other disbursements, or use
the proceeds from the sale of assets and capital stock of subsidiaries. These covenants limit the Company’s
discretion and financial flexibility in the operation of its business. Under the terms of these credit facilities and
instruments, the Company and its subsidiaries are permitted to incur additional debt only in certain circumstances.
However, doing so could increase the risks described above. In addition, if the Company or its subsidiaries incur
additional debt in the future, the Company may be subject to additional covenants, which may be more restrictive
than those that it is subject to now.
A breach of any of these agreements or the Company’s inability to comply with these covenants (as the case may
be) could, if not cured or waived, result in an acceleration of the Company’s consolidated debt or a cross-default
under certain of its debt instruments. If the Company’s indebtedness is accelerated, the Company may not be
able to service its indebtedness, or borrow sufficient funds to refinance its indebtedness.
The Company’s ability to service its consolidated debt will depend upon, among other things, its future financial
and operating performance, which will be affected by prevailing economic conditions, interest rate fluctuations and
financial, business, legal, regulatory and other factors, some of which are beyond the Company’s control. If the
Company’s operating results or
future consolidated
indebtedness, the Company may be forced to take actions such as reducing dividends, reducing or delaying
business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing its
debt, or seeking additional equity capital.
liquidity are not sufficient
to service its current or
Security under the SNC-Lavalin Highway Holdings Loan
SNC-Lavalin Highway Holdings Inc. (the “Borrower”), an indirect wholly-owned subsidiary of the Company, has a
loan agreement with CDPQ RF, a wholly-owned subsidiary of Caisse de dépôt et placement du Québec,
establishing a limited recourse loan (the “CDPQ Loan” and such agreement being the “SNC-Lavalin Highway
Holdings Loan Agreement”).
The CDPQ Loan is secured by all of the Borrower’s assets, excluding the Highway 407 ETR shares held by the
Borrower (until such time as the Borrower may elect to grant a pledge thereon), as well as the rights and loan
receivables of the Borrower under the intercompany loan agreement, dated July 10, 2017, between the Borrower,
as lender, and the Company, as borrower. In addition to this security, SNC-Lavalin Inc. has provided a guarantee
(the “Guarantee”) in favour of CDPQ RF secured by a pledge given by SNC-Lavalin Inc. to CDPQ RF over 20,900
common shares held by SNC-Lavalin Inc. in the share capital of the Borrower (representing approximately 29.9%
of the outstanding common shares of the Borrower). CDPQ RF’s sole recourse against SNC-Lavalin Inc. in
connection with the Guarantee and any potential breach or default by the Borrower under the SNC-Lavalin
Highway Holdings Loan Agreement is limited to enforcement on or against the shares of the capital of the
Borrower held by SNC-Lavalin Inc. The Company has a 6.76% ownership interest in Highway 407 ETR through
the Borrower. The terms of the SNC-Lavalin Highway Holdings Loan Agreement include various covenants that
must be satisfied by the Borrower. There can be no assurance that such covenants will be satisfied. Any event of
default under the SNC-Lavalin Highway Holdings Loan Agreement, including in respect of covenants thereunder,
could result in, among other things, CDPQ RF demanding immediate payment of all amounts outstanding under
the SNC-Lavalin Highway Holdings Loan Agreement, or forcing the sale of the Highway 407 ETR shares held by
the Borrower in compliance with the Highway 407 ETR shareholders’ agreement at a time, price and in
circumstances outside of the Company’s control and/or that may not allow for an optimal sale price of such
Highway 407 ETR shares, which could have a material adverse effect on the Company’s business and financial
position.
Dependence on subsidiaries to help repay indebtedness
A significant portion of the Company’s assets are the capital stock of its subsidiaries and the Company conducts
an important portion of its business through its subsidiaries. Consequently, the Company’s cash flow and ability to
service its debt obligations are dependent to a great extent upon the earnings of its subsidiaries and the
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distribution of those earnings to the Company, or upon loans, advances or other payments made by these entities
to the Company.
The Company’s subsidiaries are separate and distinct legal entities and may have significant liabilities. The ability
of these entities to pay dividends or make other loans, advances or payments to the Company will depend upon
to applicable laws and contractual restrictions contained in the
their operating results and will be subject
instruments governing debt including, for example, the financial covenants set out in the SNC-Lavalin Highway
Holdings Loan Agreement pursuant to which the Company’s consolidated net recourse debt to adjusted earnings
before interest, taxes, depreciation and amortization ratio cannot exceed a certain limit. In addition, certain other
deeds and agreements governing certain subsidiaries of the Company contain restrictions on the payment of
dividends and distributions, as well as specified liquidity covenants.
The ability of the Company’s subsidiaries to generate sufficient cash flow from operations will depend on their
future financial performance, which will be affected by a range of economic, competitive and business factors,
including those discussed in this section, many of which are outside of the control of the Company or its
subsidiaries. The cash flow and earnings of the Company’s operating subsidiaries and the amount that they are
able to distribute to the Company as dividends or otherwise may not generate sufficient cash flow from operations
to satisfy the Company’s debt obligations. Accordingly, the Company may have to undertake alternative financing
plans, such as refinancing or restructuring its debt, selling assets, reducing or delaying capital investments or
seeking to raise additional capital. The Company cannot assure that any such alternatives would be possible, that
any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those
sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would
be permitted under the terms of the Company’s various debt instruments then in effect. The Company’s inability to
generate sufficient cash flow to satisfy its debt obligations, or to refinance its obligations on commercially
reasonable terms, would have a material adverse effect on its business,
financial condition and results of
operations.
Dividends
The declaration and payment of dividends on Common Shares are at the discretion of the board of directors of the
Company. The cash available for dividends is a function of numerous factors, including the Company’s financial
performance, the impact of interest rates, debt covenants and obligations, working capital requirements and future
capital requirements. In addition, the Company’s ability to pay dividends depends upon the payment of dividends
by certain of the Company’s subsidiaries or the repayment of funds to the Company by its subsidiaries. The
Company’s subsidiaries, in turn, may be restricted from paying dividends, making repayments or making other
distributions to the Company for financial, regulatory, legal or other reasons. To the extent the Company’s
subsidiaries are not able to pay dividends or repay funds to the Company, it may adversely affect the Company’s
ability to pay dividends on common shares.
Post-Employment Benefit Obligations, Including Pension-Related Obligations
The Company operates certain defined benefits plans and provides other post-employment benefits. More
specifically, Atkins operates two significant defined benefit plans, namely the Atkins Pension Plan and the
Railways Pension Scheme, with combined net significant retirement benefit liabilities. The majority of Atkins’ post-
employment benefits obligations sits within its U.K. business and is comprised of defined benefit pension
obligations. In the U.K., defined benefit pension schemes funding requirements are based on actuarial valuations
of the assets and liabilities of each scheme. A scheme’s assets are determined by the value of investments held
by the scheme and the returns. The valuation of plan liabilities requires significant levels of judgement and
technical expertise in choosing appropriate assumptions. Changes in a number of key assumptions can have a
material impact on the calculation of the liability. There is also some judgement in the measurement of the fair
value of pension assets giving rise to a risk of material misstatement in their valuation.
The nature of the funding regime in the U.K. creates uncertainty around the size and timing of cash that Atkins will
be required to pay to the pension schemes. The scheduled contribution to the Atkins Pension Plan and the
Railways Pension Scheme from Atkins totalled £36.0 million (or approximately CA$61.0 million) for the year
ending December 31, 2019, with annual contributions escalating by 2.5% each year until March 31, 2025. If Atkins
is required to increase cash funding contributions, this will reduce the availability of such funds for other corporate
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purposes and limit its ability to invest in growth. Deteriorating economic conditions may result in significant
increases in Atkins’
funding obligations, which could restrict available cash for Atkins’ operations, capital
expenditures and other requirements, and have a material adverse effect on Atkins’ business, financial condition
and results of operations.
including its pension-related liabilities, and its future
The Company’s post-employment benefit obligations,
payment obligations thereunder could restrict cash available for the Company’s operations, capital expenditures
and other requirements and may materially adversely affect its financial condition and liquidity.
Working capital requirements
SNC-Lavalin may require significant amounts of working capital to finance the purchase of materials and/or the
performance of engineering, construction and other work on certain projects before it receives payment from
clients. In some cases, the Company is contractually obligated to its clients to fund working capital on projects.
Increases in working capital requirements could negatively impact SNC-Lavalin’s business, financial condition and
cash flows.
Additionally, the Company could temporarily experience a liquidity shortfall
if it is unable to access its cash
balances, short- term investments or the Credit Agreement to meet the Company’s working capital requirements.
SNC-Lavalin’s cash balances and short-term investments are in accounts held by banks and financial institutions,
and some of the Company’s deposits exceed available insurance. There is a risk that such banks and financial
institutions may, in the future, go into bankruptcy or forced receivership, or that their assets may be seized by their
governments, which may cause the Company to experience a temporary liquidity shortfall or fail to recover its
deposits in excess of available insurance, if any.
A significant deterioration of
SNC-Lavalin’s efforts to maintain a diversified asset allocation with creditworthy financial institutions.
the current global economic and credit market environment could challenge
In addition, SNC-Lavalin may invest some of its cash in longer-term investment opportunities, including the
acquisition of other entities or operations, the reduction of certain liabilities such as unfunded pension liabilities
and/or repurchases of the Company’s outstanding shares. To the extent the Company uses cash for such other
purposes, the amount of cash available for the working capital needs described above would be reduced.
Collection from customers
SNC-Lavalin is subject to the risk of loss due to the client’s inability to fulfill its obligations with respect to trade
receivables, contracts in progress and other financial assets. A client’s inability to fulfill its obligations could have
an adverse impact on the Company’s financial condition and profitability.
In addition, the Company typically bills clients for engineering services in arrears and is, therefore, subject to its
clients delaying or failing to pay invoices after the Company has already committed resources to their projects. If
one or more clients delays in paying or fails to pay a significant amount of
the Company’s outstanding
receivables, it could have a material adverse impact on the Company’s liquidity, financial condition and results of
operations.
Impairment of goodwill and other assets
In accordance with IFRS, goodwill
is assessed for impairment at least annually by determining whether the
recoverable amount of a cash-generating unit (“CGU”) or group of CGUs exceeds its carrying amount.
Determining whether goodwill is impaired requires an estimation of the value in use of the CGU or group of CGU
to which goodwill has been allocated, requiring management’s estimates and judgments that are inherently
subjective and uncertain, and thus may change over time. The key assumptions required for the value in use
estimation are the future cash flows growth rate and the discount rate. The determination of these estimated cash
flows require the exercise of judgment, which might result in significant variances in the carrying amount of these
assets.
The Company cannot guarantee that new events or unfavorable circumstances will not take place that would lead
it to reassess the value of goodwill and record a significant goodwill impairment loss, which could have a material
adverse effect on the Company’s results of operations and financial position.
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Financial assets, including the Company’s investments, other than those accounted for at fair value, are assessed
for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired
when there is objective evidence that, as a result of one or more events that occurred after the initial recognition
of the financial asset, the estimated future cash flows of the investment have been affected. In such instance, the
Company may be required to reduce carrying values to their estimated fair value. The inherent subjectivity of the
Company’s estimates of future cash flows could have a significant impact on its analysis. Any future write-offs or
write-downs of assets or in the carrying value of the Company’s investments could also have a material adverse
effect on its financial condition or results of operations.
RISKS RELATED TO LITIGATION, INVESTIGATIONS, SETTLEMENTS AND REGULATORY MATTERS
Outcome of pending and future claims and litigation
SNC-Lavalin itself, or the entities through which Capital makes its investments or its other subsidiaries, are or can
be party to litigation in the normal course of business. Since the Company engages in engineering and
construction, and O&M activities for facilities and projects where design, construction or systems failures can
result in substantial injury or damage to employees or others, the Company is exposed to substantial claims and
litigation if there is a failure at any such project. Such claims could relate to, among other things, personal injury,
loss of life, business interruption, property damage, pollution, and environmental damage and be brought by
clients or third parties, such as those who use or reside near clients’ projects. SNC-Lavalin can also be exposed
to claims if it agreed that a project will achieve certain performance standards or satisfy certain technical
requirements and those standards or requirements are not met. In many contracts with clients, subcontractors,
and vendors, the Company agrees to retain or assume potential liabilities for damages, penalties, losses and
other exposures relating to projects that could result in claims that greatly exceed the anticipated profits relating to
those contracts. In addition, while clients and subcontractors may agree to indemnify the Company against certain
liabilities, such third parties may refuse or be unable to pay.
Class actions
Ruediger Class Action
On February 6, 2019, a Motion for authorization of a class action and for authorization to bring an action pursuant
to section 225.4 of Quebec’s Securities Act (the “Ruediger Class Action Motion”) was filed with the Quebec
Superior Court (the “Ruediger Class Action”), on behalf of persons who acquired SNC-Lavalin securities from
February 22, 2018 through January 27, 2019 (the “Ruediger Class Period”), and held some or all of such
securities as of the commencement of trading on January 28, 2019.
The Ruediger Class Action Motion alleges that certain documents filed by SNC-Lavalin and oral statements made
by its then Chief Executive Officer during the Ruediger Class Period contained misrepresentations related to
SNC-Lavalin’s revenue forecasts and to the financial performance of the Mining & Metallurgy and Oil & Gas
segments, which misrepresentations would have been corrected by way of SNC-Lavalin’s January 28, 2019 press
release.
The Ruediger Class Action Motion seeks leave from the Quebec Superior Court
to bring a statutory
misrepresentation claim under Quebec’s Securities Act. The proposed action claims damages and seeks the
condemnation of the Defendants to pay the class members an unspecified amount for compensatory damages
with interest and additional indemnity as well as full costs and expenses, including expert fees, notice fees and
fees relating to administering the plan of distribution.
On October 15, 2019, the plaintiffs in the Ruediger Class Action Motion delivered an amended “Motion for
authorization of a class action and for authorization to bring an action pursuant to section 225.4 of Quebec’s
Securities Act”. The amendments extend the class period for the Ruediger Class Action Motion to July 22, 2019
and broaden the scope of the claim from the Codelco project to the Company’s general execution of fixed price
contracts for engineering services, materials, equipment or construction.
SNC-Lavalin believes the claims outlined in the Ruediger Class Action Motion are completely without merit.
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Drywall Class Action
On June 5, 2019, a Statement of Claim was filed with the Ontario Superior Court of Justice (the “Drywall Class
Action”), on behalf of persons who acquired SNC-Lavalin securities from February 22, 2018 through May 2, 2019
(the “Drywall Class Period”).
The Drywall Class Action claim alleges that disclosures by SNC-Lavalin during the Drywall Class Period contained
misrepresentations related to: (i) its IFRS 15 reporting systems and controls compliance; (ii) its revenue
recognition in respect of the Mining & Metallurgy segment being non-compliant with IFRS 15; (iii) revenue on the
Company’s Codelco project in Chile being overstated in 2018 due to non-compliance with IFRS 15; (iv) the failure
of the Company’s disclosure controls and procedures and its internal controls over financial reporting which led to
a $350 million write-down on the Codelco project; (v) when IFRS was applied to the Mining & Metallurgy segment
results in 2019, this led to the Company disbanding its Mining & Metallurgy segment; and (vi) the Company’s
financial statements during the Drywall Class Period being materially non-compliant with IFRS.
The Drywall Class Action seeks leave from the Ontario Superior Court of Justice to bring a statutory
misrepresentation claim under Ontario’s Securities Act. The proposed action claims damages and seeks the
condemnation of the Defendants to pay the class members $1.2 billion or such other compensatory damages as
the court may award, with interest and additional indemnity as well as full costs and expenses, including expert
fees, notice fees and fees relating to administering the plan of distribution.
On September 13, 2019, counsel to the plaintiffs in the Ruediger Class Action brought a motion to stay the
Drywall Class Action on the grounds that it is duplicative of the Ruediger Class Action Motion. Counsel for the
Company filed a companion motion in support of this motion on October 1, 2019. These companion motions were
heard together on November 8, 2019 and the Ontario Superior Court of Justice rendered its decision on
November 21, 2019, dismissing the motions. On December 6, 2019, the plaintiff in the Ruediger Class Action and
the Company brought motions for leave to appeal the dismissal of these motions.
On October 15, 2019, the plaintiffs in the Drywall Class Action delivered a proposed Amended Statement of Claim
that contemplates expanding the Drywall Class Period to include SNC-Lavalin’s July 22, 2019 and August 1, 2019
press releases and increasing the claim for damages from $1.2 billion to $1.8 billion.
Peters Class Action
On February 25, 2019, a Notice of Action was issued with the Ontario Superior Court of Justice, on behalf of
persons who acquired SNC-Lavalin securities from September 4, 2018 through October 10, 2018. On March 25,
2019, a Statement of Claim was filed with the Ontario Superior Court of Justice with respect to the claims set out
in the Notice of Action (together, the Notice of Action and the Statement of Claim are the “Peters Class Action”).
The Peters Class Action alleges that the defendants, including the Company, its Chairman and certain of its
officers,
failed to make timely disclosure of a material change in the business, operations or capital of
SNC-Lavalin, by failing to disclose that on September 4, 2018, the Director of the PPSC communicated her
decision to SNC-Lavalin not to award an opportunity to negotiate a remediation agreement.
The Peters Class Action seeks leave from the Ontario Superior Court of Justice to bring a statutory
misrepresentation claim under Ontario’s Securities Act and the comparable acts in other provinces. The Peters
Class Action claims damages in the sum of $75 million or such other amount as the Superior Court may
determine plus interest and costs.
SNC-Lavalin intends to defend the Ruediger Class Action, the Drywall Class Action, and the Peters Class Action
vigorously. Due to the inherent uncertainties of litigation, it is not possible to predict the final outcome of the
Ruediger Class Action, the Drywall Class Action or the Peters Class Action, or determine the amount of any
potential losses, if any, and SNC-Lavalin may, in the future, be subject to further class action lawsuits or other
litigation. SNC-Lavalin has directors’ and officers’ liability insurance insuring individuals against liability for acts or
omissions in their capacity as directors and officers, and the Company itself has coverage for such claims. The
amount of coverage under the directors’ and officers’ policy is limited and such coverage may be less than any
amounts the Company is required or determines to pay in connection with these proceedings. If the Company is
required or determines to pay an amount in connection with the Ruediger Class Action, the Drywall Class Action
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or the Peters Class Action, such amount could have a material adverse effect on SNC-Lavalin’s liquidity and
financial results.
Other Class Actions
In 2018, the Company reached a settlement agreement in relation to class actions in Quebec and Ontario filed in
2012 on behalf of security holders resulting in a net expense of $89.4 million, including the related legal costs.
Pyrrhotite case
On June 12, 2014, the Quebec Superior Court rendered a decision in “Wave 1” of the matter commonly referred
to as the “Pyrrhotite Case” in Trois-Rivières, Quebec and in which SNC-Lavalin is one of numerous defendants.
The Quebec Superior Court ruled in favour of the plaintiffs, awarding an aggregate amount of approximately $168
million in damages apportioned amongst the then-known defendants, on an in solidum basis (the “Wave 1
claims”). SNC-Lavalin, among other parties, filed a Notice to Appeal the Quebec Superior Court decision both on
merit and on the apportionment of liability. Based on the current judgment, SNC-Lavalin’s share of the damages
would be approximately 70%, a significant portion of which the Company would expect to recover from its external
insurers (such insurance coverage is itself subject to litigation). The appeal hearing started in October 2017 and
was completed during the week of April 30th, 2018. A decision from the Quebec Court of Appeal is expected in
early 2020.
In addition to the appeal of the decision, a recourse in warranty was filed against another party seeking its
contribution to the damages awarded against SNC-Lavalin in the Wave 1 judgement. This recourse, for which the
trial commenced in March 2019 and should be completed in early 2020, may result in a reduction of SNC-
Lavalin’s share of the damages.
In parallel to the appeal and warranty recourses for Wave 1 claims, additional potential claims were notified and
continue to be notified against numerous defendants, including SNC-Lavalin, in “Wave 2” of the Pyrrhotite Case.
Wave 2 claims are currently undergoing discovery stage and it is still premature to evaluate SNC-Lavalin’s total
liability exposure in respect of same, if any. It is currently estimated that a significant portion of the damages
claimed are in respect of buildings for which the concrete foundations were poured outside of SNC-Lavalin’s
liability period, as determined in the Wave 1 judgement. SNC-Lavalin also expects some insurance coverage for
Wave 2 claims. In addition, SNC-Lavalin has undertaken a warranty recourse against another party with respect
to Wave 2 claims.
Dubai civil case
In November, 2018, WS Atkins & Partners Overseas, a subsidiary of the Company, was named as respondent
together with other parties by the subrogated insurers of a property developer in a civil case initiated before the
courts of Dubai. The claimant is seeking damages jointly from the respondents on account of the alleged
refurbishment costs and loss of income arising from a fire at the property developer’s building. WS Atkins &
Partners Overseas was a subcontractor in the hotel’s design and construction supervision and the claim revolves
around alleged negligence in the specification, testing and installation of the building cladding which is claimed to
have exacerbated the fire, thereby increasing the damage to the building. The claim is in preliminary stages and
the Company is not currently in a position to estimate potential liability or amount of loss, if any.
Australian arbitration
One of the Company’s subsidiaries has a 35% interest in a joint operation for a project that has been completed.
The construction joint operation is in a dispute with the project owner over labour rates. Under the relevant project
contract, the Company’s subsidiary is jointly and severally liable with the other joint operator vis-à-vis the project
owner for performance and other liabilities. In December 2018, the joint operation received a split award of liability
from an arbitration tribunal resulting in an adverse decision on certain aspects of the dispute. A hearing on the
quantum of damages to be awarded against the joint operation (if any) is scheduled for 2020. The other joint
operator holding the balance of the joint operation interest (65%), CBI Constructors Pty. Ltd., is part of the
McDermott International, Inc. (“McDermott”), group, which filed for Chapter 11 bankruptcy protection in January
2020. While the Company’s consolidated statement of financial position reflects its share (35%) of the estimated
quantum of the damages, such position might need to be adjusted pending the outcome of the quantum decision
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and/or the McDermott Chapter 11 bankruptcy proceedings in light of the underlying joint and several
between the parties of the joint operation.
liability
General litigation risk
Due to the inherent uncertainties of litigation, it is not possible to (a) predict the final outcome of these and other
related proceedings generally, (b) determine if the amount included in the Company’s provisions is sufficient or
(c) determine the amount of any potential
losses, if any, that may be incurred in connection with any final
judgment on these matters.
SNC-Lavalin maintains insurance coverage for various aspects of its business and operations. The Company’s
insurance programs have varying coverage limits and maximums, and insurance companies may seek to deny
claims the Company might make. In addition, SNC-Lavalin has elected to retain a portion of losses that may occur
through the use of various deductibles, limits and retentions under these programs. As a result, the Company may
be subject to future liability in respect of lawsuits or investigations for which it is only partially insured, or
completely uninsured.
In addition, the nature of the Company’s business sometimes results in clients, subcontractors, and vendors
presenting claims for, among other things, recovery of costs related to certain projects. Similarly, SNC-Lavalin
occasionally presents change orders and other claims to clients, subcontractors, and vendors. If the Company
fails to document properly the nature of claims and change orders or is otherwise unsuccessful in negotiating
reasonable settlements with clients, subcontractors and vendors,
the Company could incur cost overruns,
reduced profits or, in some cases, a loss for a project. A failure to recover promptly on these types of claims could
have a material adverse impact on SNC-Lavalin’s liquidity and financial results. Additionally, irrespective of how
well the Company documents the nature of its claims and change orders, the cost to prosecute and defend claims
and change orders can be significant.
Litigation and regulatory proceedings are subject to inherent uncertainties and unfavourable rulings can and do
occur. Pending or future claims against SNC-Lavalin could result in professional liability, product liability, criminal
liability, warranty obligations, and other liabilities which, to the extent the Company is not insured against a loss or
its insurer fails to provide coverage, could have a material adverse impact on the Company’s business, financial
condition and results of operations.
The Company is subject to ongoing investigations that could subject the Company to criminal and administrative
enforcement actions, civil actions and sanctions, fines and other penalties, some of which may be significant.
These investigations, and potential results thereof, could harm the Company’s reputation, result in suspension,
prohibition or debarment of the Company from participating in certain projects, reduce its revenues and net
income and adversely affect its business.
Ongoing and potential investigations
The Company understands that there are investigations by various authorities which may remain ongoing in
connection with certain legacy matters (unrelated to the settlements described below) in various jurisdictions,
including, without limitation, Algeria.
The Company also understands that a Royal Canadian Mounted Police (the “RCMP”) investigation relating to
alleged payments in connection with a 2002 contract for the refurbishment of the Jacques Cartier Bridge by a
consortium which included SNC-Lavalin and which led to a guilty plea by the former head of the Canada Federal
Bridges Corporation in 2017, continues and its scope may include the Company.
The Company is currently unable to determine when any of these investigations will be completed or whether
other investigations of the Company by these or other authorities will be initiated or the scope of current
investigations broadened. The Company continues to cooperate and communicate with authorities in connection
with all ongoing investigations.
If regulatory, enforcement or administrative authorities or third parties determine to take action against the
Company or to sanction the Company in connection with possible violations of law, contracts or otherwise as a
result of ongoing or future investigations, the consequences of any such sanctions or other actions, whether
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actual or alleged, could require the Company to pay material fines or damages, consent to injunctions on future
conduct or lead to other penalties, including temporary or permanent, mandatory or discretionary suspension,
prohibition or debarment from participating in projects, or the revocation of authorizations or certifications, by
certain administrative organizations or by governments (such as the Government of Canada and/or the
Government of Quebec) under applicable procurement laws, regulations, policies or practices. The Company
derives a significant percentage of its annual global revenue from government and government-related contracts.
Further, public and private sector bid processes in some instances assess whether the bidder, or an affiliate
thereof, has ever been the object of any investigations, or sanctions or other actions resulting therefrom. In such
instances, if a member of the Company’s group must answer affirmatively to a query as to past or current
investigations, or sanctions or other actions resulting therefrom, such answer may affect that entity’s ability to be
considered for the applicable project. In addition, the Company may not win contracts that it has bid upon due to a
client’s perception of the Company’s reputation and/or perceived reputational advantages held by competitors as
a result of such investigations, sanctions or other actions. Loss of bidding opportunities resulting from such
investigations, sanctions or other actions, whether discretionary (including as a result of reputational factors) or
mandatory,
from participating in certain government, government-related and private contracts (in Canada,
Canadian provinces or elsewhere) could materially adversely affect the Company’s business, financial condition
and liquidity and the market price of the Company’s publicly traded securities.
The outcomes of ongoing or future investigations could also result in, among other things, (i) covenant defaults
under various project contracts, (ii) third party claims, which may include claims for special, indirect, derivative or
consequential damages, or (iii) adverse consequences on the Company’s ability to secure or continue its own
financing, or to continue or secure financing for current or future projects, any of which could materially adversely
affect the Company’s business, financial condition and liquidity and the market prices of the Company’s publicly
traded securities. In addition, these investigations and outcomes of these investigations and any negative publicity
associated therewith, could damage SNC-Lavalin’s reputation and ability to do business.
Due to the uncertainties related to the outcome of ongoing or future investigations, the Company is currently
unable to reliably estimate an amount of potential liabilities or a range of potential liabilities, if any, in connection
with any of these investigations.
The Company’s senior management and Board of Directors have been required to devote significant time and
resources to the investigations described above and ongoing related matters, as well as the investigations leading
to the settlements described below, which have distracted and may continue to distract from the conduct of the
Company’s daily business, and significant expenses have been and may continue to be incurred in connection
with such investigations including substantial fees of lawyers and other advisors. In addition, the Company and/or
other employees or additional former employees of the Company could become the subject of these or other
investigations by law enforcement and/or regulatory authorities in respect of the matters described above or
below, or other matters, which, in turn, could require the devotion of additional time of senior management and the
diversion or utilization of other resources.
Settlements
PPSC Settlement
On February 19, 2015, the RCMP and the Public Prosecution Service of Canada (“PPSC”) laid charges against
the Company and its indirect subsidiaries SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. Each
entity was charged with one count of fraud under Section 380 of the Criminal Code (Canada) (the “Criminal
Code”) and one count of corruption under Section 3(1)(b) of the Corruption of Foreign Public Officials Act
(Canada) (the “CFPOA”) (the “Charges”). These Charges followed the RCMP’s formal investigation (including in
connection with the search warrant executed by the RCMP at the Company on April 13, 2012) into whether
improper payments were made or offered, directly or indirectly, to be made, to a government official of Libya to
influence the award of certain engineering and construction contracts between 2001 and 2011. This investigation
also led to criminal charges being laid against two former employees of the Company.
On December 18, 2019, the Company announced it had reached a settlement with the PPSC regarding the
Charges (the “PPSC Settlement”). As part of the PPSC Settlement, SNC-Lavalin Construction Inc. has accepted a
plea of guilty to a single charge of fraud (the “Plea”). All other Charges against the Company, SNC-Lavalin
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International Inc. and SNC-Lavalin Construction Inc. have been withdrawn by the PPSC. Also as part of the PPSC
Settlement, SNC-Lavalin Construction Inc. will pay a fine in the amount of $280 million, payable in equal
installments over 5 years, and will be subject to a three-year probation order. The Company estimated the net
present value of these installments at $257.3 million at the date of settlement. The Company will comply with the
probation order for the three-year period.
The Plea may result
in, among other things, (i) breaches and/or events of default under various project
agreements giving rise to discretionary termination rights in favour of the counterparties thereto, (ii) third party
claims, which may include claims for special, indirect, derivative or consequential damages, or (iii) adverse
consequences on the Company’s ability to secure financing, or to continue to secure financing for current or future
projects, any of which could materially adversely affect the Company’s business, financial condition and liquidity
and the market prices of the Company’s publicly traded securities.
In addition, potential consequences of the Plea could include, in respect of the Company or one or more of its
subsidiaries, suspension, prohibition or debarment from participating in public or private sector projects or bids, or
the revocation of authorizations or certifications, by certain governments or by certain administrative
organizations. While the Company does not anticipate that the Plea will affect the eligibility of the Company to bid
on future projects that are aligned with its newly announced strategic direction, possible suspension, prohibition,
debarment or loss of bidding opportunities or the revocation of authorizations or certifications in the short term, as
a result of the Plea, could have a short term material adverse effect on the Company’s business, financial
condition and liquidity and the market prices of the Company’s publicly traded securities.
The Company cannot predict if any other actions may be taken by any other applicable government or authority or
the Company’s customers or other third parties as a result of the Plea.
World Bank Settlement
the right
the Company announced a settlement
On April 17, 2013,
in connection with the previously announced
investigations by the World Bank Group relating to a project in Bangladesh and a project in Cambodia, which
includes a suspension of
to bid on and to be awarded World Bank Group-financed projects by
SNC-Lavalin Inc., a subsidiary of the Company, and its controlled affiliates for a period of 10 years (the “World
Bank Settlement”). The suspension could be lifted after eight years, if the terms and conditions of the settlement
agreement are complied with fully. According to the terms of the World Bank Settlement, the Company and certain
of its other affiliates continue to be eligible to bid on and be awarded World Bank Group-financed projects as long
as they comply with all of the terms and conditions imposed upon them under the terms of the World Bank
Settlement, including an obligation not to evade the sanction imposed. The World Bank Settlement also requires
that the Company cooperate with the World Bank on various compliance matters in the future. The World Bank
Settlement has led to certain other multilateral development banks following suit, debarring SNC-Lavalin Inc. and
its controlled affiliates on the same terms.
Canada’s Integrity Regime
The Canadian government announced the Integrity Regime for procurement and real property transactions on
July 3, 2015. The scope of offences which may cause a supplier to be deemed ineligible to carry on business with
the federal government is broad and encompasses offences under the Criminal Code, the Competition Act, and
the CFPOA, among others. Some of the offences qualifying for ineligibility include: bribery, fraud against Canada,
money laundering, falsification of books and documents, extortion, and offences related to drug trafficking. A
determination of ineligibility to participate in federal government procurement projects may apply for 10 years for
listed offences. However, the Integrity Regime permits the ineligibility period to be reduced by up to five years if a
supplier can establish that it has cooperated with law enforcement authorities or addressed the causes of
misconduct. The Canadian government is currently considering further revisions to the Integrity Regime.
If a supplier pleads guilty or is charged with a listed offence (which does not currently include the Plea), it and its
affiliates may under the Integrity Regime be ineligible to do business with the Canadian government.
If a supplier applies for a reduced ineligibility period, or if a supplier charged with a listed offence is notified that it
could be ineligible to do business with the Canadian government, as a condition of granting the reduced
ineligibility period or not suspending the supplier an administrative agreement may be imposed to monitor the
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supplier. Administrative agreements include conditions and compliance measures that the supplier must meet to
remain eligible to contract with the federal government. In December 2015, the Company entered into an
administrative agreement with the Canadian government under the Integrity Regime in connection with the
Charges (the “Administrative Agreement”) which, according to its terms, will remain in force for 12 further months
from the date of the Plea and will then terminate.
Other Risks Resulting from Settlements
Failure by the Company to abide by the terms of the PPSC Settlement, the World Bank Settlement or the
Administrative Agreement could result in serious consequences for the Company, including new sanctions, legal
actions and/or suspension from eligibility to carry on business with the government or agency involved or to work
on projects funded by them. The Company is taking steps that are expected to mitigate these risks.
Further regulatory developments as well as employee, agent or partner misconduct or failure to comply
with anti-bribery and other government laws and regulations
The Company is subject
requirements, enforced by
governments or other authorities. Further regulatory developments, namely abrupt changes in foreign government
policies and regulations, could have a significant adverse impact on the Company’s results.
to various rules,
laws, and other
regulations,
legal
In addition, misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities
by one of
the Company’s employees, agents or partners could have a significant negative impact on
SNC-Lavalin’s business and reputation. Such misconduct could include the failure to comply with government
procurement regulations, regulations regarding the protection of classified information, regulations prohibiting
labour and other costs in
bribery and other foreign corrupt practices, regulations regarding the pricing of
government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal control
over financial reporting, environmental
laws and any other applicable laws or regulations. For example, the
CFPOA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries
from making improper payments to foreign officials for the purpose of obtaining or retaining business. In addition,
SNC-Lavalin provides services that may be highly sensitive or that could relate to critical national security matters;
if a security breach were to occur, the Company’s ability to procure future government contracts could be severely
limited.
SNC-Lavalin’s policies mandate compliance with these regulations and laws, and the Company takes precautions
intended to prevent and detect misconduct. However, since internal controls are subject to inherent limitations,
including human error, it is possible that these controls could be intentionally circumvented or become inadequate
because of changed conditions. As a result, SNC-Lavalin cannot assure that its controls will protect the Company
from reckless or criminal acts committed by employees, agents or partners. Failure to comply with applicable laws
or regulations or acts of misconduct could subject SNC- Lavalin to fines and penalties, loss of security clearances,
and suspension, prohibition or debarment from contracting, any or all of which could harm the Company’s
reputation, subject the Company to criminal and administrative enforcement actions and civil actions and have a
negative impact on SNC-Lavalin’s business.
Reputation of the Company
The consequence of reputational risk is a negative impact on the Company’s public image, which may cause the
cancellation of current projects and influence the Company’s ability to obtain future projects. Reputational risk
may arise under many situations including, among others, quality or performance issues on the Company’s
projects, a poor health and safety record, alleged or proven non-compliance with laws or regulations by the
Company’s employees, agents, subcontractors, suppliers and/or partners, and creation of pollution and
contamination.
RISKS RELATING TO COMPLIANCE AND FINANCIAL REPORTING
Inherent limitations to the Company’s control framework
SNC-Lavalin maintains accounting systems and internal controls over its financial reporting and disclosure
controls and procedures. There are inherent limitations to any control framework, as controls can be circumvented
80
80
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
by acts of individuals, intentional or not, by collusion of two or more individuals, by management override of
controls, by lapses in judgment and breakdowns resulting from human error. There are no systems or controls
that can provide absolute assurance that all fraud, errors, circumvention of controls or omission of disclosure can
and will be prevented or detected. Such fraud, errors, circumvention of controls or omission of disclosure could
result in a material misstatement of financial information. Also, projections of any evaluation of the effectiveness of
controls to future periods are subject to the risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies or procedures may deteriorate.
Environmental laws and regulations
SNC-Lavalin is exposed to various environmental risks and is subject to complying with environmental laws and
regulations which vary from country to country and are subject to change. The Company’s inability to comply with
environmental laws and regulations could result in penalties, lawsuits and potential harm to its reputation.
legacy sites for which the Company has potential exposure to the costs of
The Company manages several
environmental remediation and possible harm to neighbouring properties and communities. While the Company is
taking steps to manage this risk and has provisions in its books for the related risk and expense, there can be no
assurance that it will not be subject to claims for damages, remediation and other related matters, and its
provisions may not fully cover any such future claim or expense.
Growing concerns about climate change may also result in the imposition of additional environmental regulations.
Legislation,
in increased
international protocols, regulation or other restrictions on emissions could result
compliance costs for the Company and its clients, including those who are involved in the exploration, production
or refining of fossil fuels, emit greenhouse gases through the combustion of fossil fuels or emit greenhouse gases
through the mining, manufacture, utilization or production of materials or goods. Such policy changes could
increase the costs of projects for clients or, in some cases, prevent a project from going forward, thereby
potentially reducing the need for the Company’s services, which would in turn have a material adverse impact on
the Company’s business, financial condition and results of operations. However, these changes could also
increase the pace of projects, such as carbon capture or storage projects, that could have a positive impact on the
Company’s business. SNC-Lavalin cannot predict when or whether any of these various proposals may be
enacted or what their effect will be on the Company or on its customers.
GLOBAL / MACROECONOMIC RISKS
Brexit
On June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the
European Union (E.U.), commonly referred to as “Brexit”. Brexit could result
in increased geopolitical and
economic risks, currency exchange fluctuations, and could cause disruptions to and create uncertainty
surrounding the Company’s businesses, including affecting the Company’s relationships with existing and future
customers, suppliers and employees, which could in turn have a material adverse effect on the Company’s
financial results and operations. There could also be greater restrictions on imports and exports between the U.K.
and E.U. countries and could also result in increased regulatory complexities. These changes may adversely
affect the Company’s operations and financial results.
Global economic conditions
Fluctuations in global economic conditions may have an impact on clients’ willingness and ability to fund their
projects. These conditions could make it difficult for the Company’s clients to accurately forecast and plan future
business trends and activities, thereby causing clients to slow or even curb spending on the Company’s services,
or seek contract terms more favourable to them. SNC-Lavalin’s government clients may face budget deficits that
prohibit them from funding proposed and existing projects or that cause them to exercise their right to terminate
contracts with little or no prior notice. Furthermore, any financial difficulties suffered by the Company’s partners,
subcontractors or suppliers could increase cost or adversely impact project schedules. These economic
conditions continue to reduce the availability of liquidity and credit to fund or support the continuation and
expansion of industrial business operations worldwide. Volatile financial market conditions and adverse credit
market conditions could adversely affect clients’, partners’ or the Company’s own borrowing capacity, which
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
81
81
SNC-Lavalin 2019 Financial Report SNC-LAVALIN
support the continuation and expansion of projects worldwide, and could result in contract cancellations or
suspensions, project delays, payment delays or defaults by the Company’s clients. SNC-Lavalin’s ability to
operate or expand its business would be limited if, in the future, the Company is unable to access sufficient credit
capacity, including capital market funding, bank credit, such as letters of credit, and surety bonding on favourable
terms or at all. These disruptions could materially impact the Company’s remaining performance obligations,
revenues and net income.
Fluctuations in commodity prices
Commodity prices can affect SNC-Lavalin’s clients in a number of ways. For example, for those clients that
produce commodity products, fluctuations in price can have a direct effect on their profitability and cash flow and,
therefore, their willingness to continue to invest or make new capital investments. To the extent commodity prices
decline and the Company’s clients defer new investments or cancel or delay existing projects, the demand for the
Company’s services decreases, which may have a material adverse impact on SNC-Lavalin’s business, financial
condition and results of operations.
Commodity prices can also strongly affect the costs of projects. Rising commodity prices can negatively impact
the cost of completing future projects as well as those in progress, and could have a material adverse impact on
SNC-Lavalin’s business, financial condition and results of operations.
82
82
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
SNC-LAVALIN
Controls and Procedures
The Company’s Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) are responsible for
establishing and maintaining the Company’s disclosure controls and procedures as well as its internal control over
financial reporting, as those terms are defined in National Instrument 52-109, Certification of Disclosure in Issuers’
Annual and Interim Filings (“NI 52-109”) of the Canadian securities regulatory authorities.
16.1 DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER
FINANCIAL REPORTING
The CEO and the CFO have designed disclosure controls and procedures, or caused them to be designed under
their supervision, to provide reasonable assurance that:
i.
ii.
Material information relating to the Company is made known to them by others, particularly during
the period in which the annual filings are being prepared; and
Information required to be disclosed by the Company in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized
and reported within the time periods specified in securities legislation.
Based on their evaluation carried out to assess the effectiveness of the Company’s disclosure controls and
procedures, the CEO and the CFO have concluded that the disclosure controls and procedures were designed
and operated effectively as at December 31, 2019.
The CEO and the CFO have also evaluated, or caused to be evaluated under their supervision, the effectiveness
of the Company’s disclosure controls and procedures, and its internal control over financial reporting, in each
case as at December 31, 2019.
Based on their evaluation carried out to assess the effectiveness of the Company’s internal control over financial
reporting, the CEO and the CFO have concluded that the internal control over financial reporting was designed
and operated effectively as at December 31, 2019, using the Internal Control – Integrated Framework (2013
Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013
Framework”).
16.2 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company’s internal control over financial reporting that occurred during the
most recent interim period and year ended December 31, 2019 that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting other than changes resulting from the
remedial measures that were implemented during the first three quarters of 2019 to address the previously
identified material weaknesses that no longer exist as at December 31, 2019.
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
83
83
SNC-Lavalin 2019 Financial Report Quarterly Information
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$, EXCEPT PER SHARE AMOUNTS)
2019
2018
FIRST
QUARTER
SECOND
QUARTER
THIRD
QUARTER
FOURTH
QUARTER
TOTAL
FIRST
QUARTER
SECOND
QUARTER
THIRD
QUARTER
FOURTH
QUARTER
TOTAL
Revenues :
From E&C
From Capital
2,291.0
2,209.4
2,352.6
2,399.9
9,252.9
2,367.2
2,469.9
2,496.8
2,485.4
9,819.3
72.2
74.7
79.6
36.2
262.7
64.2
57.2
66.2
77.1
264.7
2,363.2
2,284.2
2,432.2
2,436.1
9,515.6
2,431.4
2,527.1
2,563.0
2,562.5 10,084.0
EBIT
13.9 (2,113.9) 3,108.0
(266.6)
741.4
129.8
109.1
185.4 (1,584.7) (1,160.4)
Net financial expenses
52.4
92.9
42.1
24.6
212.1
Earnings (loss) before income taxes
(38.5) (2,206.8) 3,065.9
(291.2)
(20.2)
(88.1)
309.3
(2.2)
(18.3) (2,118.7) 2,756.6
(289.0)
330.6
529.3
198.7
Income taxes
Net income (loss)
Net income (loss) attributable to:
SNC-Lavalin shareholders
(17.3) (2,118.3) 2,756.7
(292.9)
328.2
Non-controlling interests
(1.0)
(0.4)
(0.1)
3.9
2.4
Net income (loss)
(18.3) (2,118.7) 2,756.6
(289.0)
330.6
42.0
87.7
9.5
78.3
78.1
0.2
78.3
37.1
72.0
44.0
44.3
167.4
141.4 (1,629.0) 1,327.8
(11.2)
20.4
(30.2)
(11.5)
83.2
121.0 (1,598.8) (1,316.3)
83.0
0.2
83.2
120.7 (1,598.7) (1,316.9)
0.2
—
0.6
120.9 (1,598.7) (1,316.3)
(0.10)
(12.07)
15.70
(1.67)
1.87
0.44
0.47
0.69
(9.11)
(7.50)
Basic earnings (loss) per
share ($)
Diluted earnings (loss) per share ($):
From E&C
From Capital
Diluted earnings (loss) per
share ($)
Dividend declared per share ($)
0.10
0.02
0.02
0.02
(0.10)
(12.07)
15.70
(1.67)
(0.38)
(12.44)
0.67
(1.77)
(13.92)
0.29
0.37
15.04
0.10
15.79
0.18
0.26
0.44
0.29
(0.10)
0.56
0.47
0.29
0.44
0.25
0.69
0.29
(9.42)
(8.90)
0.32
1.40
(9.11)
(7.50)
0.10
0.96
1.87
0.16
Net income (loss) attributable to
SNC-Lavalin shareholders from
E&C
Net income (loss) attributable to
SNC-Lavalin shareholders from
Capital investments:
(67.4) (2,183.8)
116.9
(310.4) (2,444.6)
31.5
(16.8)
76.6 (1,654.3) (1,563.0)
From Highway 407 ETR
From other Capital investments
41.9
8.1
41.9
41.9
20.3
146.1
23.5
2,597.9
(2.8) 2,626.7
38.0
8.6
38.0
61.9
39.3
4.9
39.2
16.4
154.3
91.8
Net income (loss) attributable to
SNC-Lavalin shareholders
(17.3) (2,118.3) 2,756.7
(292.9)
328.2
78.1
83.0
120.7 (1,598.7) (1,316.9)
84
84
2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Responsibility for Financial Reporting
The accompanying audited consolidated financial statements (“financial statements”) of SNC-Lavalin Group Inc. and all
the information in this financial report are the responsibility of management and are approved by the Board of Directors.
The financial statements have been prepared by management in accordance with International Financial Reporting
Standards. When alternative accounting methods exist, management has chosen those it considers most appropriate in
the circumstances.
The significant accounting policies used are described in Note 2 to the financial statements. Certain amounts in the
financial statements are based on estimates and judgments. Management has determined such amounts on a reasonable
basis in order to ensure that the financial statements are presented fairly, in all material respects. Management has
prepared the financial information presented elsewhere in the financial report and has ensured that it is consistent with
that in the financial statements.
The Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”) are responsible for
having established and maintaining disclosure controls and procedures and internal controls over financial reporting. The
CEO and the CFO have supervised an evaluation of the effectiveness of the Company’s internal control over financial
reporting, as at December 31, 2019, in accordance with the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this evaluation, the CEO and the CFO have concluded that the Company’s internal control over financial reporting, as
at December 31, 2019, was effective to provide reasonable assurance regarding the reliability of the Company’s financial
reporting and the preparation of its financial statements for external purposes in accordance with International Financial
Reporting Standards.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and
is ultimately responsible for reviewing and approving the financial statements. The Board of Directors carries out this
responsibility principally through its Audit Committee.
The Audit Committee is appointed by the Board of Directors, and all of its members are independent directors. The
Audit Committee meets periodically with management, as well as with the internal and independent auditors, to discuss
information systems,
disclosure controls and procedures,
accounting policies, auditing and financial reporting issues, to satisfy itself that each party is properly discharging its
responsibilities, and to review the financial statements, the Management’s Discussion and Analysis and the independent
auditor’s report. The Audit Committee reports its findings to the Board of Directors for consideration when approving
the financial statements for issuance to the shareholders. The Audit Committee also considers, for review by the Board
of Directors and approval by the shareholders, the engagement or reappointment of the independent auditor, and reviews
and approves the terms of its engagement as well as the fee, scope and timing of its services.
internal control over financial reporting, management
The financial statements have been audited, on behalf of the shareholders, by Deloitte LLP, the independent auditor, in
accordance with Canadian generally accepted auditing standards. The independent auditor has full and free access to the
Audit Committee and may meet with or without the presence of management.
IAN L. EDWARDS (signed)
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
FEBRUARY 27, 2020
MONTREAL, CANADA
SYLVAIN GIRARD (signed)
EXECUTIVE VICE-PRESIDENT AND
CHIEF FINANCIAL OFFICER
85
85
SNC-Lavalin 2019 Financial Report Independent Auditor’s Report
To the Shareholders of SNC-Lavalin Group Inc.
Opinion
We have audited the consolidated financial statements of SNC-Lavalin Group Inc. (the “Company”), which comprise the
consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated income statements,
consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated
statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary
of significant accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the
Company as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
•
The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form
of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we
have performed on this other information, we conclude that there is a material misstatement of this other information, we
are required to report that fact in this auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we
will perform on this other information, we conclude that there is a material misstatement of this other information, we are
required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS,
and for such internal control as management determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do
so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
86
86
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and
whether the financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Company to express an opinion on the financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during
our audit.
that we have complied with relevant ethical
We also provide those charged with governance with a statement
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Christian Jacques.
/s/ Deloitte LLP (1)
FEBRUARY 27, 2020
MONTREAL, QUEBEC
___________________________________
(1) CPA auditor, CA, public accountancy permit No. A124341
87
87
SNC-Lavalin 2019 Financial Report SNC-LAVALIN GROUP INC.
Consolidated Statements of Financial Position
(IN THOUSANDS OF CANADIAN DOLLARS)
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Trade receivables
Contract assets
Inventories
Other current financial assets
Other current non-financial assets
Total current assets
Property and equipment
Right-of-use assets
Capital investments accounted for by the equity method
Capital investments accounted for by the cost method
Goodwill
Intangible assets related to business combinations
Deferred income tax asset
Non-current portion of receivables under service concession arrangements
Other non-current financial assets
Other non-current non-financial assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Trade payables
Contract liabilities
Other current financial liabilities
Other current non-financial liabilities
Current portion of provisions
Current portion of lease liabilities
Short-term debt and current portion of long-term debt:
Recourse
Non-recourse
Total current liabilities
Long-term debt:
Recourse
Limited recourse
Non-recourse
Other non-current financial liabilities
Non-current portion of provisions
Non-current portion of lease liabilities
Other non-current non-financial liabilities
Deferred income tax liability
Total liabilities
Equity
Share capital
Retained earnings
Other components of equity
Equity attributable to SNC-Lavalin shareholders
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements
Approved, on behalf of the Board of Directors, by:
Note
DECEMBER 31
2019
DECEMBER 31
2018
7
7
8A, 9B
8B, 9B
10
11
12
13
34
5
5
14
15
29A
16
17
9B
18
19
22
34
20
20
20
20
20
21
22
34
29A
23
24
$
1,188,636 $
34,118
1,533,442
1,755,325
84,888
222,308
331,375
5,150,092
470,630
438,787
399,539
8,107
3,429,094
665,598
520,451
352,987
115,941
93,498
11,644,724 $
$
634,084
12,722
1,503,824
1,751,068
104,205
247,291
404,819
4,658,013
482,619
—
357,249
10,663
5,369,723
920,586
652,155
327,299
30,023
131,362
12,939,692
$
2,153,520 $
2,352,944
889,953
287,716
383,200
289,227
131,075
299,518
93,664
4,527,873
873,145
400,000
391,454
232,569
672,096
480,675
551
348,934
7,927,297
1,805,080
1,555,853
354,073
3,715,006
2,421
3,717,427
972,959
298,701
424,861
381,848
—
1,116,587
60,168
5,608,068
1,171,433
980,303
339,537
53,505
706,386
—
61,508
363,087
9,283,827
1,805,080
1,346,624
499,199
3,650,903
4,962
3,655,865
$
11,644,724 $
12,939,692
IAN L. EDWARDS (signed)
DIRECTOR
88
88
2019 CONSOLIDATED FINANCIAL STATEMENTS
BENITA M. WARMBOLD (signed)
DIRECTOR
SNC-LAVALIN GROUP INC.
Consolidated Statements of Changes in Equity
YEAR ENDED DECEMBER 31
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT NUMBER OF
COMMON SHARES)
EQUITY ATTRIBUTABLE TO SNC-LAVALIN SHAREHOLDERS
SHARE CAPITAL
2019
Balance at beginning of year
Transitional adjustments on adoption of a
new accounting standard (Note 2B)
Adjusted balance at beginning of year
Net income
Other comprehensive loss
Total comprehensive income (loss)
Dividends declared (Note 23E)
Dividends declared by subsidiaries to non-
controlling interests
Additional non-controlling interest arising
on acquisition of Linxon
Capital contributions by non-controlling
interests
Balance at end of year
COMMON
SHARES
(IN THOUSANDS)
AMOUNT
RETAINED
EARNINGS
OTHER
COMPONENTS
OF EQUITY
(NOTE 24)
TOTAL
NON-
CONTROLLING
INTERESTS
TOTAL EQUITY
175,554 $ 1,805,080 $ 1,346,624 $ 499,199 $ 3,650,903 $
4,962 $ 3,655,865
—
—
(25,495)
—
(25,495)
175,554
1,805,080
1,321,129
499,199
3,625,408
—
—
—
—
—
—
—
—
—
—
—
—
—
—
328,219
—
328,219
(51,362)
(145,126)
(196,488)
276,857
(145,126)
(42,133)
—
—
—
—
—
—
—
131,731
(42,133)
—
—
—
—
4,962
2,368
(1,266)
1,102
—
(2)
(25,495)
3,630,370
330,587
(197,754)
132,833
(42,133)
(2)
(3,671)
(3,671)
30
30
175,554 $ 1,805,080 $ 1,555,853 $ 354,073 $ 3,715,006 $
2,421 $ 3,717,427
YEAR ENDED DECEMBER 31
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT NUMBER OF
COMMON SHARES)
EQUITY ATTRIBUTABLE TO SNC-LAVALIN SHAREHOLDERS
2018
Balance at beginning of year
Transitional adjustments on adoption of
new accounting standards
Adjusted balance at beginning of year
Net income (loss)
Other comprehensive income
Total comprehensive income (loss)
Dividends declared (Note 23E)
Shares issued under stock option plan
(Note 23B)
Measurement of a loan from a non-
controlling interest at its initial fair
value (Note 28C)
Non-controlling interesting arising on
acquisition of Linxon
Capital contributions by non-controlling
interests
Balance at end of year
SHARE CAPITAL
COMMON
SHARES
(IN THOUSANDS)
AMOUNT
RETAINED
EARNINGS
OTHER
COMPONENTS
OF EQUITY
(NOTE 24)
TOTAL
NON-
CONTROLLING
INTERESTS
TOTAL EQUITY
175,488 $ 1,801,733 $ 3,145,424 $ 277,974 $ 5,225,131 $
(1,909) $ 5,223,222
—
—
(327,387)
5,448
(321,939)
369
(321,570)
175,488
1,801,733
2,818,037
283,422
4,903,192
(1,540)
4,901,652
— (1,316,898)
—
(1,316,898)
—
47,652
215,777
263,429
— (1,269,246)
215,777
(1,053,469)
603
261
864
—
—
(1,316,295)
263,690
(1,052,605)
(201,521)
2,701
(201,521)
2,701
—
—
—
—
66
—
—
—
—
(201,521)
3,347
(646)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,155
5,155
394
89
394
89
175,554 $ 1,805,080 $ 1,346,624 $ 499,199 $ 3,650,903 $
4,962 $ 3,655,865
See accompanying notes to consolidated financial statements
2019 CONSOLIDATED FINANCIAL STATEMENTS
89 89
SNC-Lavalin 2019 Financial Report SNC-LAVALIN GROUP INC.
Consolidated Income Statements
YEARS ENDED DECEMBER 31
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT EARNINGS (LOSS) PER SHARE AND NUMBER OF SHARES)
Revenues from:
E&C
Capital investments accounted for by the consolidation or cost methods
Capital investments accounted for by the equity method
Direct costs of activities
Total segment EBIT (2)
Corporate selling, general and administrative expenses
Impairment loss arising from expected credit losses
Loss arising on financial assets (liabilities) at fair value through profit or loss
Net 2012 class action lawsuits settlement expense and related legal costs
Restructuring costs
Acquisition-related costs and integration costs
Amortization of intangible assets related to business combinations
Gain on disposals of Capital investments
Loss from adjustment on disposals of E&C businesses
Impairment of intangible assets related to business combinations
Impairment of goodwill
Federal charges settlement (PPSC)
EBIT (2)
Financial expenses
Financial income and foreign exchange losses (gains)
Earnings (loss) before income taxes
Income taxes
Net income (loss)
Net income (loss) attributable to:
SNC-Lavalin shareholders
Non-controlling interests
Net income (loss)
Earnings (loss) per share (in $)
Basic
Diluted
Weighted average number of outstanding shares (in thousands)
Basic
Diluted
(1)
Comparative figures have been revised (see Note 2C)
(2)
Earnings before interest and taxes (“EBIT”)
See accompanying notes to consolidated financial statements
Note
2019
(1)
2018
$
9,252,890 $
9,819,349
52,177
210,543
9,515,610
9,161,492
354,118
73,944
240
4,743
—
182,801
8,315
181,983
(2,970,783)
294
72,831
1,801,015
257,327
741,408
226,063
(13,980)
529,325
25
33
26
6
15
5A
15
14
33
27
27
29B
$
198,738
330,587 $
60,570
204,087
10,084,006
9,544,871
539,135
98,034
1,349
7,427
89,443
68,591
54,878
206,471
(67,552)
474
—
1,240,415
—
(1,160,395)
179,528
(12,083)
(1,327,840)
(11,545)
(1,316,295)
$
328,219 $
(1,316,898)
2,368
603
$
330,587 $
(1,316,295)
$
$
1.87 $
1.87 $
(7.50)
(7.50)
23D
175,554
175,554
175,541
175,541
90
90
2019 CONSOLIDATED FINANCIAL STATEMENTS
SNC-LAVALIN GROUP INC.
Consolidated Statements of Comprehensive Income
YEAR ENDED DECEMBER 31
(IN THOUSANDS OF CANADIAN DOLLARS)
Net income
Other comprehensive income (loss):
Exchange differences on translating foreign operations (Note 24)
Cash flow hedges (Note 24)
Share of other comprehensive loss of investments accounted for by
the equity method (Note 24)
Income taxes (Note 24)
Total of items that will be reclassified subsequently to net income
Equity instruments designated at fair value through other
comprehensive income (Note 24)
Income taxes (Note 24)
Remeasurement of defined benefit plans (Note 24)
Income taxes (Note 24)
Share of other comprehensive loss of investments accounted for by
the equity method (Note 24)
Total of items that will not be reclassified subsequently to net
income
Total other comprehensive loss
Total comprehensive income
YEAR ENDED DECEMBER 31
(IN THOUSANDS OF CANADIAN DOLLARS)
Net income (loss)
Other comprehensive income (loss):
Exchange differences on translating foreign operations (Note 24)
Cash flow hedges (Note 24)
Share of other comprehensive loss of investments accounted for by
the equity method (Note 24)
Income taxes (Note 24)
Total of items that will be reclassified subsequently to net income
Equity instruments designated at fair value through other
comprehensive income (Note 24)
Income taxes (Note 24)
Remeasurement of defined benefit plans (Note 24)
Income taxes (Note 24)
Total of items that will not be reclassified subsequently to net
income
Total other comprehensive income
Total comprehensive income (loss)
See accompanying notes to consolidated financial statements
2019
ATTRIBUTABLE TO
SNC-LAVALIN
SHAREHOLDERS
NON-CONTROLLING
INTERESTS
$
328,219 $
2,368 $
(139,697)
(410)
(2,403)
(2,616)
(196)
(1,070)
—
—
TOTAL
330,587
(139,893)
(1,480)
(2,403)
(2,616)
(145,126)
(1,266)
(146,392)
(2,034)
16
(55,344)
8,234
(2,234)
(51,362)
(196,488)
—
—
—
—
—
—
(1,266)
$
131,731 $
1,102 $
(2,034)
16
(55,344)
8,234
(2,234)
(51,362)
(197,754)
132,833
2018
ATTRIBUTABLE TO
SNC-LAVALIN
SHAREHOLDERS
NON-CONTROLLING
INTERESTS
TOTAL
$
(1,316,898) $
603 $
(1,316,295)
224,478
(9,459)
(1,739)
2,497
215,777
(1)
49
57,932
(10,328)
47,652
263,429
261
—
—
—
261
—
—
—
—
—
261
224,739
(9,459)
(1,739)
2,497
216,038
(1)
49
57,932
(10,328)
47,652
263,690
$
(1,053,469) $
864 $
(1,052,605)
2019 CONSOLIDATED FINANCIAL STATEMENTS
91 91
SNC-Lavalin 2019 Financial Report SNC-LAVALIN GROUP INC.
Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31
(IN THOUSANDS OF CANADIAN DOLLARS)
Operating activities
Net income (loss)
Income taxes paid
Interest paid from E&C
Interest paid from Capital investments
Other reconciling items
Net change in non-cash working capital items
Net cash used for operating activities
Investing activities
Acquisition of property and equipment
Payments for Capital investments
Refunds for Capital investments
Net cash inflow on acquisition of businesses
Change in restricted cash position
Increase in receivables under service concession arrangements
Recovery of receivables under service concession arrangements
Decrease in short-term and long-term investments
Net cash inflow on disposals of Capital investments accounted for by the equity
method
Net cash inflow on disposal of a Capital investments accounted for by the cost
method
Payments for disposition-related costs on disposals of Capital investments (1)
Other (1)
Net cash generated from (used for) investing activities
Financing activities
Increase in debt
Repayment of debt and payment for debt issue costs
Payment of lease liabilities
Proceeds from exercise of stock options
Dividends paid to SNC-Lavalin shareholders
Other
Net cash generated from (used for) financing activities
Increase (decrease) from exchange differences on translating cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year (2)
Cash and cash equivalents at end of year
Note
2019
2018
$
330,587 $
(1,316,295)
28A
28B
5C
6
5A
5A
5A
28C
28C
28C
23E, 28C
28C
(9,967)
(199,201)
(18,285)
(123,861)
(20,727)
(334,546)
(355,273)
(122,444)
(39,967)
4,391
14,890
(24,210)
(176,638)
155,645
—
3,012,256
—
(94,856)
(10,593)
2,718,474
1,926,212
(3,563,049)
(119,106)
—
(42,133)
(4,071)
(1,802,147)
(6,502)
554,552
634,084
$
1,188,636 $
(15,164)
(171,336)
(14,817)
1,719,817
202,205
(505,734)
(303,529)
(152,945)
—
—
19,466
8,535
(130,460)
69,825
1,707
92,214
51,336
(1,921)
(3,134)
(45,377)
2,704,293
(2,248,558)
—
2,701
(201,521)
12,800
269,715
6,705
(72,486)
706,570
634,084
(1)
(2)
In 2018, “Payments for disposition-related costs on disposals of Capital investments” were included in “Other” in investing activities.
The amount of $706.6 million as at December 31, 2017 included $39 thousand of cash and cash equivalents comprised within “Assets of disposal group
classified as held for sale and assets held for sale”.
See accompanying notes to consolidated financial statements
92
92
2019 CONSOLIDATED FINANCIAL STATEMENTS
SNC-LAVALIN GROUP INC.
Notes to Consolidated Financial Statements
NOTE............................................................................................................................................................................ PAGE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
DESCRIPTION OF BUSINESS......................................................................................................................
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.......................................................................
CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
SEGMENT DISCLOSURES...........................................................................................................................
CAPITAL INVESTMENTS............................................................................................................................
BUSINESS COMBINATION..........................................................................................................................
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH...............................................................
TRADE RECEIVABLES AND CONTRACT ASSETS.................................................................................
REVENUE.......................................................................................................................................................
INVENTORIES...............................................................................................................................................
OTHER CURRENT FINANCIAL ASSETS...................................................................................................
OTHER CURRENT NON-FINANCIAL ASSETS.........................................................................................
PROPERTY AND EQUIPMENT....................................................................................................................
GOODWILL....................................................................................................................................................
INTANGIBLE ASSETS RELATED TO BUSINESS COMBINATIONS.....................................................
OTHER NON-CURRENT FINANCIAL ASSETS.........................................................................................
OTHER NON-CURRENT NON-FINANCIAL ASSETS...............................................................................
OTHER CURRENT FINANCIAL LIABILITIES...........................................................................................
OTHER CURRENT NON-FINANCIAL LIABILITIES.................................................................................
SHORT-TERM DEBT AND LONG-TERM DEBT.......................................................................................
OTHER NON-CURRENT FINANCIAL LIABILITIES.................................................................................
PROVISIONS..................................................................................................................................................
SHARE CAPITAL...........................................................................................................................................
OTHER COMPONENTS OF EQUITY..........................................................................................................
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..........................................
RESTRUCTURING COSTS...........................................................................................................................
NET FINANCIAL EXPENSES.......................................................................................................................
STATEMENTS OF CASH FLOWS................................................................................................................
INCOME TAXES............................................................................................................................................
FINANCIAL INSTRUMENTS.......................................................................................................................
CAPITAL MANAGEMENT...........................................................................................................................
PENSION PLANS, OTHER LONG-TERM BENEFITS AND OTHER POST-EMPLOYMENT
BENEFITS....................................................................................................................................................
CONTINGENT LIABILITIES........................................................................................................................
LEASES...........................................................................................................................................................
REMUNERATION..........................................................................................................................................
RELATED PARTY TRANSACTIONS..........................................................................................................
SUBSIDIARIES, JOINT ARRANGEMENTS AND ASSOCIATES.............................................................
94
94
110
114
118
126
128
128
129
131
132
132
132
133
135
135
136
137
137
138
141
141
142
145
148
148
148
149
154
157
165
166
173
179
180
181
182
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS 93
93
SNC-Lavalin 2019 Financial Report Notes to Consolidated Financial Statements
(ALL TABULAR FIGURES IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED
DESCRIPTION OF BUSINESS
1.
SNC-Lavalin Group Inc. is incorporated under the Canada Business Corporations Act and has its registered office at
455 René-Lévesque Boulevard West, Montreal, Quebec, Canada H2Z 1Z3. SNC-Lavalin Group Inc. is a public
company listed on the Toronto Stock Exchange in Canada. Reference 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 arrangements.
Founded in 1911, SNC-Lavalin is a fully integrated professional services and project management company with offices
around the world. SNC-Lavalin connects people, technology and data to help shape and deliver world-leading concepts
and projects, while offering comprehensive innovative solutions across the asset lifecycle.
The Company reports its revenues as follows:
•
•
E&C includes contracts generating revenues related mainly to consulting & advisory, intelligent networks &
cybersecurity, design & engineering, procurement, project & construction management, operations &
maintenance (“O&M”), decommissioning and sustaining capital. It also includes revenues from lump-sum
turnkey construction contracts, for which the Company ceased to bid in July 2019, except for certain repetitive
engineering, procurement and construction (“EPC”) offerings that are lower-risk, standardized solutions.
Capital investments include SNC-Lavalin’s investments in infrastructure concessions for public services or in
certain other long-term assets.
In these consolidated financial statements (“financial statements”), activities related to E&C are collectively referred to
as “from E&C” or “excluding Capital investments” to distinguish them from activities related to the Capital investments.
2.
A)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The Company’s financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) issued and effective for the year ended December 31, 2019, and are presented in Canadian
dollars. All values are rounded to the nearest thousand dollars, except where otherwise indicated.
The accounting policies set out below were consistently applied to all periods presented, except for the accounting
policy affected by a new standard adopted in 2019 and the change in an accounting policy, as described in Notes 2B and
2C.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The
areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant are
disclosed in Note 3.
The Company’s financial statements have been prepared on the historical cost basis, with the exception of i) certain
financial instruments, derivative financial instruments and liabilities for share unit plans, which are measured at fair
value; ii) the defined benefit liabilities, which are measured as the net total of the present value of the defined benefit
obligation minus the fair value of plan assets; and iii) investments measured at fair value, which are held by SNC-
Lavalin Infrastructure Partners LP, an investment entity accounted for by the equity method and for which SNC-Lavalin
elected to retain the fair value measurement applied by this investment entity. Historical cost generally represents the
fair value of consideration given in exchange for assets upon initial recognition.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of whether that price is directly observable or estimated
using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account
the characteristics of the asset or liability if market participants would take those characteristics into account when
pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these
consolidated financial statements is determined on such a basis, except for share-based payment transactions that are
within the scope of IFRS 2, Share-based Payment, and measurements that have some similarities to fair value but are
not fair value, such as net realisable value in IAS 2, Inventories, or value in use in IAS 36, Impairment of Assets.
The Company’s financial statements were authorized for issue by the Board of Directors on February 27, 2020.
94
94 NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
2.
B)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW STANDARD, AMENDMENTS AND AN INTERPRETATION ADOPTED IN 2019
The following standard, amendments to existing standards and interpretation have been adopted by the Company on
January 1, 2019:
•
•
•
•
•
•
•
•
•
IFRS 16, Leases, (“IFRS 16”) provides a comprehensive model for the identification of lease arrangements and
their treatment in the financial statements of both lessees and lessors. It superseded IAS 17, Leases, (“IAS 17”)
and its associated interpretative guidance.
Prepayment Features with Negative Compensation (Amendments to IFRS 9, Financial Instruments) allow
financial assets with a prepayment option that could result in the option’s holder receiving compensation for
early termination to meet the solely payments of principal and interest condition if specified criteria are met.
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28, Investments in Associates and
Joint Ventures) clarify that an entity applies IFRS 9, including its impairment requirements, to long-term
interests in an associate or joint venture that form part of the net investment in the associate or joint venture but
to which the equity method is not applied.
Amendments to IFRS 3, Business Combinations, state that an entity shall remeasure its previously held interest
in a joint operation when it obtains control of the business.
Amendments to IFRS 11, Joint Arrangements, state that an entity shall not remeasure its previously held
interest in a joint operation when it obtains joint control of the business.
Amendments to IAS 12, Income Taxes, clarify that all income tax consequences of dividends (i.e., distribution
of profits) should be recognized in profit or loss, regardless of how the tax arises.
Amendments to IAS 23, Borrowing Costs, clarify that if any specific borrowing remains outstanding after the
related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity
borrows generally when calculating the capitalization rate on general borrowings.
Plan Amendment, Curtailment or Settlement (Amendments to IAS 19, Employee Benefits) specifies how an
entity determines pension expenses when changes to a defined benefit pension plan occur. When a change to a
plan – an amendment, curtailment or settlement – takes place, IAS 19 requires an entity to remeasure its net
defined benefit liability or asset. The amendments require an entity to use the updated assumptions from this
remeasurement to determine current service cost and net interest for the remainder of the reporting period after
the change to the plan.
IFRIC Interpretation 23, Uncertainty over Income Tax Treatments, sets out how to determine the accounting for
tax positions when there is uncertainty over the income tax treatment. The interpretation requires an entity to:
i) determine whether uncertain tax positions are assessed separately or as a group; and ii) assess whether it is
probable that a tax authority will accept an uncertain tax treatment as filed, or proposed to be filed, by an entity
in its tax filings.
Except for IFRS 16, the amendments and interpretation listed above did not have a significant impact on the Company’s
financial statements.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS 95
95
SNC-Lavalin 2019 Financial Report 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADOPTION OF IFRS 16
The Company adopted IFRS 16, Leases, on January 1, 2019. Until that date, the Company classified leases as operating
or finance leases, in accordance with IAS 17, Leases, based on its assessment of whether the lease transferred
significantly all of the risks and rewards incidental to ownership of the underlying asset to the lessee. Under IFRS 16, a
lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease
liability representing its obligation to make lease payments. The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to
restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is
subsequently measured at cost, unless it qualifies for fair value measurement, less accumulated depreciation and
impairment losses and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured
at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate. The lease
liability is subsequently measured at amortized cost using the effective interest method and is remeasured to reflect
changes in the lease payments, such as upon a lease modification that is not accounted for as a separate lease.
Based on the change in accounting for leases, depreciation expense on the right-of-use asset and interest expense on the
lease liability are replacing the corresponding operating lease expense that was recognized under IAS 17.
The Company has elected to apply IFRS 16 using the modified retrospective method, which consists of applying such
the date of initial
standard retrospectively with the cumulative effect being recognized in retained earnings at
application. Under this method, the lessee could elect, on a lease-by-lease basis, to measure the right-of-use asset based
on two methodologies. The first methodology consisted of recognizing a right-of-use asset at a value equal to the lease
the date of transition. The second
liability, adjusted for the amount of prepaid or accrued lease payments, at
methodology consisted of measuring the right-of-use asset at the date of transition as if IFRS 16 had been applied since
the commencement date of the lease, but discounted using a rate at the date of initial application. The Company used
both methodologies when using the modified retrospective method.
The implementation of IFRS 16 allowed for certain optional practical expedients and optional exemptions at the date of
initial application, such as the main options summarized in the following table:
OPTIONAL PRACTICAL EXPEDIENT OR EXEMPTION
BASIS FOR APPLICATION
COMPANY'S ELECTION AT THE DATE OF INITIAL APPLICATION
No reassessment on whether a contract is, or contains,
a lease, based on current standards
All leases
Used such practical expedient
Use of the same discount rate for a portfolio of leases
with similar characteristics
By portfolio of
leases
Used such practical expedient when possible
Use of onerous lease provision instead of impairment
review on the right-of-use asset
Exemption from recognizing a right-of-use asset and a
lease liability when the lease term ends within 12
months of the date of initial application
Lease by lease
Used on leases when applicable
Lease by lease
Not applied to most of office real estate leases,
applied to certain other leases
Exemption from recognizing a right-of-use asset and a
lease liability when the underlying asset is of low value
Lease by lease
Did not recognize a right-of-use asset and a lease
is of low
liability when the underlying asset
value
Exemption from recognizing a right-of-use asset and a
lease liability when the lease is short term
By class of
underlying asset
Not applied to office real estate leases, applied to
certain other leases
Exclude initial direct costs from the measurement of
the right-of-use asset on transition, when such asset is
not deemed to be equal to the lease liability at the date
of initial application
Use of hindsight for lease terms for the measurement
of the right-of-use asset on transition, when such asset
is not deemed to be equal to the lease liability at the
date of initial application
Lease by lease
Applied to all leases for which the right-of-use
asset was not deemed equal to the lease liability
at the date of initial application
Lease by lease
Applied to all leases for which the right-of-use
asset is not deemed equal to the lease liability at
the date of initial application
96
96 NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Since the Company elected to adopt IFRS 16 using the modified retrospective method, the following table summarizes
the impacts of adopting IFRS 16 on the Company’s consolidated statement of financial position as at January 1, 2019:
Impact on the consolidated statement of financial position
(IN THOUSANDS OF CANADIAN DOLLARS)
ASSETS
Right-of-use assets
Deferred income tax asset
Other assets
Total assets
LIABILITIES
Lease liabilities
Provisions
Deferred income tax liability
Other liabilities
Total liabilities
EQUITY
Retained earnings
Other
Total equity
Total liabilities and equity
Note
DECEMBER 31
2018
IFRS 16
ADOPTION
JANUARY 1
2019
$
— $
452,366 $
(a)
652,155
12,287,537
8,892
26,573
452,366
661,047
12,314,110
$
12,939,692 $
487,831 $
13,427,523
(b), (c)
$
— $
614,152 $
614,152
(d)
(d)
1,088,234
363,087
7,832,506
9,283,827
1,346,624
2,309,241
3,655,865
(19,042)
1,346
(83,130)
513,326
(25,495)
—
(25,495)
1,069,192
364,433
7,749,376
9,797,153
1,321,129
2,309,241
3,630,370
$
12,939,692 $
487,831 $
13,427,523
(a) Additional assets of $26.6 million include mainly net investments in subleases.
(b) Lease liabilities have been determined using incremental borrowing rates as at January 1, 2019 (weighted-average rate of 4.15%).
(c) The difference between the amount of lease liabilities and the $840.4 million of future minimum lease payments under non-cancellable operating
leases as at December 31, 2018 was mainly due to: (i) the discounting factors applied to the fixed lease payments; (ii) the exclusion of lease
liabilities related to operating leases for which the Company had future committed payments but for which the leased space was not yet available
as at January 1, 2019; and (iii) assumptions made on the probability of exercising early termination or renewal options.
(d) Decrease of other liabilities includes mainly deferred lease incentives, deferred rent and provisions for onerous leases that were incorporated in
the measurement of right-of-use assets and/or lease liabilities.
Procedures and controls
The Company has updated and implemented revised procedures and controls in order to meet the requirements of
IFRS 16, notably the recording of the transition adjustment and the change in presentation to be reported in the
Company’s consolidated financial statements for the year ended December 31, 2019, as well as additional disclosures
provided in the Company’s 2019 audited annual consolidated financial statements.
C)
CHANGES IN AN ACCOUNTING POLICY AND IN PRESENTATION
Segment disclosures
Effective January 1, 2019, the Company changed the definition of segment EBIT, its measure of profit or loss for its
reportable segments, to reflect a change made to its internal reporting. As such, segment EBIT now includes: i) the
contribution attributable to non-controlling interests before income taxes, whereas in the past
it excluded such
contribution attributable to non-controlling interests before income taxes; and ii) an allocation to the segments of certain
other corporate selling, general and administrative expenses. As such, these changes resulted in: i) a reclassification of
the negative contribution attributable to non-controlling interests before income taxes in segment EBIT of $0.3 million
for the year ended December 31, 2018; and ii) a reclassification of certain other corporate selling, general and
administrative expenses in segment EBIT of $23.3 million for the year ended December 31, 2018. The Company
believes that such inclusions improve the measure of profitability of its reportable segments by better reflecting the
overall performance of its reportable segments.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS 97
97
SNC-Lavalin 2019 Financial Report 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At the same time, given the Company’s aim to continue to simplify and de-risk its business, SNC-Lavalin further
simplified its market-facing structure. This simplification became effective January 1, 2019 and resulted in a change to
the Company’s reportable segments, which were:
i) Engineering, Design and Project Management (“EDPM”);
ii) Infrastructure; iii) Nuclear; iv) Resources; and v) Capital. The Company’s new strategic direction adopted for the
second quarter of 2019 resulted in the restructuring of its activities into two distinct business lines, SNCL Engineering
Services and SNCL Projects. From a segmented information stand-point, this change resulted in the split of the
Infrastructure segment into two segments, Infrastructure Services and Infrastructure EPC Projects, all other segments
remaining the same. As such, the Company’s reportable segments are now EDPM, Nuclear, Infrastructure Services and
Capital, all part of SNCL Engineering Services, and Resources and Infrastructure EPC projects, which form SNCL
Projects. See Note 4 for a description of each of the segments.
These changes were made in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors,
resulting in the restatement of prior figures.
D)
AMENDMENTS ISSUED TO BE ADOPTED AT A LATER DATE
The following amendments to standards have been issued and are applicable to the Company for its annual periods
beginning on January 1, 2020 and thereafter, with an earlier application permitted:
• Amendments to IFRS 3, Business Combinations, improve the definition of a business. The amendments help
entities determine whether an acquisition made is of a business or a group of assets. The amended definition
emphasises that the output of a business is to provide goods and services to customers, whereas the previous
definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and
others.
• Definition of Material (Amendments to IAS 1, Presentation of Financial Statements, [“IAS 1”] and to IAS 8,
Accounting Policies, Changes in Accounting Estimates and Errors [“IAS 8”]) is intended to make the definition
of material in IAS 1 easier to understand and is not intended to alter the underlying concept of materiality in IFRS
Standards. The concept of “obscuring” material information with immaterial information has been included as
part of the new definition. The threshold for materiality influencing users has been changed from “could
influence” to “could reasonably be expected to influence”. The definition of material in IAS 8 has been replaced
by a reference to the definition of material in IAS 1.
• Amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement,
and IFRS 7, Financial Instruments: Disclosures, are designed to support the provision of useful financial
information by entities during the period of uncertainty arising from the phasing out of interest-rate benchmarks
such as interbank offered rates (“IBORs”). The amendments modify some specific hedge accounting
requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform. In addition,
the amendments require entities to provide additional information to investors about their hedging relationships
which are directly affected by these uncertainties.
The following amendments to a standard have been issued and are applicable to the Company for its annual periods
beginning on January 1, 2022 and thereafter, with an earlier application permitted:
• Amendments to IAS 1, Presentation of Financial Statements, clarify how to classify debt and other liabilities as
current or non-current. The amendments help to determine whether, in the statement of financial position, debt
and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be
settled within one year) or non-current. The amendments also include clarifying the classification requirements
for debt an entity might settle by converting it into equity.
The Company is currently evaluating the impact of adopting these amendments on its financial statements.
98
98 NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
2.
E)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF CONSOLIDATION
In accordance with IFRS, SNC-Lavalin’s interests in other entities subject to control, joint control or significant
influence are accounted for as follows:
TYPE OF INTEREST
Subsidiary
Joint venture
Joint operation
Associate
Investment
TYPE OF INFLUENCE
Control
Joint control
Joint control
ACCOUNTING METHOD
Consolidation method
Equity method
SNC-Lavalin’s share of interest
Significant influence
Non-significant influence
Equity method
Cost method
A subsidiary that is not wholly-owned by SNC-Lavalin results in non-controlling interests that are presented separately
on the consolidated statement of financial position, while the portions of net income and of other comprehensive income
attributable to such non-controlling interests are also shown separately on the consolidated income statement and on the
consolidated statement of comprehensive income, respectively.
When necessary, adjustments are made to the financial statements of subsidiaries, joint arrangements and associates to
bring their accounting policies in line with those used by the Company.
Business acquisitions
Acquisitions of businesses are accounted for using the acquisition method. The consideration for each acquisition is
measured at the aggregate of the fair values (at the date of acquisition) of assets given, liabilities incurred or assumed,
and equity instruments issued by the Company, if any, in exchange for control of the acquiree. Provisional fair values
allocated at a reporting date are finalized within twelve months of the acquisition date.
At the date of acquisition, the identifiable assets acquired and the liabilities assumed are recognized at fair value, except
that:
•
•
•
deferred income tax asset or liability, and assets or liabilities related to employee benefit arrangements are
recognized and measured in accordance with IAS 12, Income Taxes, and IAS 19, Employee Benefits,
respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based
payment arrangements of the Company entered into to replace share-based payment arrangements of the
acquiree are measured in accordance with IFRS 2, Share-based Payment, at the date of acquisition; and
assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5, Non-current Assets
Held for Sale and Discontinued Operations, are measured in accordance with this standard.
Acquisition-related costs are expensed in the periods in which these costs are incurred and the services are received.
The results of businesses acquired are included in the consolidated financial statements from the date on which control is
obtained.
F)
FOREIGN CURRENCY TRANSLATION
Functional and presentation currency
The individual financial statements of each entity within the Company are prepared in the currency of the primary
economic environment in which the entity operates (its functional currency). For the purpose of the consolidated
financial statements, the results and financial position of each entity within the Company are expressed in Canadian
dollars, which is the presentation currency of the Company for its consolidated financial statements.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS 99
99
SNC-Lavalin 2019 Financial Report 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currency transactions and balances
For the purpose of preparing financial statements, Canadian and foreign operations apply the following procedure on
transactions and balances in currencies other than their functional currency: 1) monetary items are translated in their
functional currency using the exchange rate in effect at the period end rate; 2) non-monetary items are translated in their
functional currency using the historical exchange rate if they are measured at cost, or using the exchange rate at the
measurement date if they are measured at fair value; and 3) revenues and expenses are translated in their functional
currency using the appropriate average exchange rate of the period. Any resulting gains or losses are recognized in net
income and, if hedge accounting is applied, offsetting losses or gains from the hedging items are also recognized in net
income.
As a result of applying the procedures described above, Canadian and foreign operations produce financial statements
presented in their functional currency.
Translation of financial statements of foreign operations
For the purpose of presenting consolidated financial statements in Canadian dollars, the assets and liabilities of the
Company’s foreign operations that have a functional currency other than Canadian dollars are expressed in Canadian
dollars using exchange rates prevailing at the end of the reporting period, while revenues and expenses items are
translated at the appropriate average exchange rate for the period. Exchange differences arising on consolidation, if any,
are recognized initially in other comprehensive income and reclassified from equity to net income on disposal or partial
disposal of foreign operations.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities
of the foreign operation and translated at the period end rate.
G)
REVENUE RECOGNITION
Revenue from contracts with customers is recognized, for each performance obligation, either over a period of time or at
a point in time, depending on which method reflects the transfer of control of the goods or services underlying the
particular performance obligation to the customer.
In most cases, for performance obligations satisfied over time, the Company recognizes revenue over time using an
input method, based on costs incurred to date relative to total estimated costs at completion, to measure progress toward
satisfying such performance obligations. Under this method, costs that do not contribute to the performance of the
Company in transferring control of goods or services to the customer are excluded from the measurement of progress
toward satisfying the performance obligation. For certain contracts, notably certain cost-plus contracts or unit-rate
contracts, the Company recognizes revenue based on its right to consideration when such amount corresponds directly
with the value to the customer of the entity’s performance completed to date. In certain other situations, the Company
might recognize revenue at a point in time, when the criteria to recognize revenue over time are not met. In any event,
when the total anticipated costs exceed the total anticipated revenues on a contract, such loss is recognized in its entirety
in the period it becomes known.
The amount of revenue recognized by the Company is based on the transaction price allocated to each performance
obligation. Such transaction price corresponds to the amount of consideration to which the Company expects to be
entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of
third parties. The transaction price includes, among other things and when applicable, an estimate of variable
consideration only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Variable consideration is usually derived from incentives, performance bonuses, and penalties, and could include claims
and unpriced change orders. When a contract includes a significant financing component, the value of such component
is excluded from the transaction price and is recognized separately as finance income or expense, as applicable.
100
100 NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SNC-Lavalin may enter into contractual arrangements with a client to deliver services on one project which span more
than one performance obligation, such as Engineering, Procurement and Construction (“EPC”) or Engineering,
Procurement, and Construction and Management (“EPCM”), Operations and Maintenance (“O&M”) and/or Capital
investments. When entering into such arrangements, the Company allocates the transaction price by reference to the
stand-alone selling price of each performance obligation. Accordingly, when such arrangements exist on the same
project, the value of each performance obligation is based on its stand-alone selling price and recognized according to
the respective revenue recognition methods described above.
The Company accounts for a contract modification, which consists of a change in the scope or price (or both) of a
contract, as a separate contract when the remaining goods or services to be delivered after the modification are distinct
from those delivered prior to the modification and the price of the contract increases by an amount of consideration that
reflects the Company’s stand-alone selling price of the additional promised good or services. When the contract
modification is not accounted for as a separate contract, the Company recognizes an adjustment to revenue on a
cumulative catch-up basis at the date of contract modification.
The Company recognizes assurance-type warranty costs as a provision in accordance with IAS 37, Provisions,
Contingent Liabilities and Contingent Assets, based on the advancement of the projects, and the provision recognized is
then either used when costs are incurred or reversed if it is no longer needed.
In all cases, the value of construction activities, material and equipment purchased by SNC-Lavalin, when acting as
purchasing agent for a client, is not recorded as revenue.
The Company may apply its revenue recognition policy to a portfolio of contracts or performance obligations with
similar characteristics if the effect on its financial statements of applying such policy to the portfolio is not reasonably
expected to differ materially from applying its policy to the individual contracts or performance obligations within that
portfolio.
The Company presents its contract balances, on a contract-by-contract basis, in a net contract asset or liability position,
separately from its trade receivables. Contract assets and trade receivables are both rights to consideration in exchange
for goods or services that the Company has transferred to a customer, however the classification depends on whether
such right is only conditional on the passage of time (trade receivables) or if it is also conditional on something else
(contract assets), such as the satisfaction of further performance obligations under the contract. A contract liability is the
cumulative amount received and contractually receivable by the Company that exceeds the right to consideration
resulting from the Company’s performance under a given contract.
Revenues from Capital investments include the following:
ACCOUNTING METHODS FOR THE
COMPANY’S CAPITAL INVESTMENTS
Consolidation
Equity method
REVENUES INCLUDED IN THE COMPANY’S CONSOLIDATED INCOME STATEMENT
Revenues that are recognized and reported by the Capital investments
SNC-Lavalin’s share of net results of the Capital investments or dividends from its Capital investments for
which the carrying amount is $nil but would otherwise be negative based on historical financial results and
dividends if SNC-Lavalin had an obligation to fund the investment. Dividends are recognized when the
Company’s right to receive payment has been established
Cost method
Dividends and distributions from the Capital investments
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS 101
101
SNC-Lavalin 2019 Financial Report 2.
H)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
FINANCIAL ASSETS AND LIABILITIES
Unless specifically covered by another accounting policy, the measurement of financial assets and financial liabilities is
based on their classification, which is one of the following for SNC-Lavalin:
CATEGORY –
SUBSEQUENTLY
MEASURED AT
Fair value
through profit
or loss
(“FVTPL”)
Fair value
through other
comprehensive
income
(“FVTOCI”)
APPLICABLE TO
INITIAL MEASUREMENT
SUBSEQUENT MEASUREMENT
RECOGNITION OF INCOME/EXPENSE AND
GAINS/LOSSES ON REMEASUREMENT, IF ANY
Financial assets
and financial
liabilities
Financial assets
Fair value
Fair value
All recognized in net income
Fair value including
transaction costs
Fair value derived from published bid
price quotations for listed securities.
Where there is no active market, fair
value is determined using valuation
techniques. Where fair value cannot
be
are
carried at cost.
reliably measured,
assets
income, which
includes
Investment
interest, dividends and distributions, is
income. For equity
recognized in net
instruments,
from
revaluation are recognized in other
no
comprehensive
on
reclassification
disposal of such assets.
income
net
to
with
income
(losses)
gains
Amortized cost
Financial assets
and financial
liabilities
Fair value including
transaction costs
Amortized cost using the effective
interest method
All recognized in net income
Impairment of assets subsequently measured at amortized cost
For “Trade receivables”, “Contract assets” and “Finance lease receivables”, the amount of the loss allowance recognized
is the amount equal to lifetime expected credit losses that result from all possible default events over the expected life of
a financial instrument.
For “Non-current portion of receivables under service concession arrangements”, if the credit risk has not increased
significantly since initial recognition, the amount of the loss allowance recognized is the amount equal to 12-month
expected credit losses that result from default events on a financial instrument that are possible within the 12 months
after the reporting date.
Write-off
The gross carrying amount of a financial asset is reduced when there are no reasonable expectations of recovering a
financial asset in its entirety or a portion thereof.
HEDGING (APPLYING IAS 39)
In the normal course of its business, SNC-Lavalin enters into derivative financial instruments, mainly i) forward
exchange contracts to hedge its exposure to fluctuations in foreign currency exchange rates on projects; and ii) interest-
rate swaps to hedge the variability of interest rates relating to financing arrangements. SNC-Lavalin may also enter into
other derivative financial
instruments to hedge its exposure to market risk. When applying hedge accounting,
SNC-Lavalin formally documents its accounting choice, the relationship between hedging instruments and hedged
items, as well as its risk management objective and strategy for undertaking these hedge transactions, and regularly
assesses the effectiveness of these hedges.
CASH FLOW HEDGES
Derivative financial instruments designated as cash flow hedges are measured at fair value established by using
valuation techniques based on observable market data and taking into account the credit quality of the instruments. The
effective portion of the change in fair value of the derivative financial instruments is recorded in other components of
equity, while the ineffective portion, if any, of such change is recognized in net income. Gains or losses from cash flow
hedges included in other components of equity are reclassified to net income as an offset to the losses or gains
recognized on the underlying hedged items.
102
102 NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE HEDGES
Changes in the fair value of derivatives that are designated and qualify as fair value hedges of an available-for-sale
investment are recognized in net income immediately, together with any changes in the fair value of the hedged
available-for-sale investment that are attributable to the hedged risk. The change in the fair value of the hedging
instrument and the change in the hedged item attributable to the hedged risk are recognized in net income in the same
line item.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument
expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.
HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the
hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income and
accumulated under “Exchange differences on translating foreign operations” in the “Other components of equity”. The
gain or loss relating to the ineffective portion is recognized immediately in net income, and is included in the “Financial
expenses” line item.
Gains and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the “Exchange
differences on translating foreign operations” are reclassified to net income on the disposal of the foreign operation.
I)
SERVICE CONCESSION ARRANGEMENTS UNDER IFRIC INTERPRETATION 12
IFRIC Interpretation 12, Service Concession Arrangements, (“IFRIC 12”) provides guidance on the accounting for
certain qualifying public-private partnership arrangements, whereby the grantor (i.e., usually a government):
▪
▪
controls or regulates what services the operator (i.e. “the concessionaire”) must provide with the
infrastructure, to whom it must provide them, and at what price; and
controls any significant residual interest in the infrastructure at the end of the term of the arrangement.
Under such concession arrangements, the concessionaire accounts for the infrastructure asset by applying one of the
following accounting models depending on the allocation of the demand risk through the usage of the infrastructure
between the grantor and the concessionaire:
ACCOUNTING MODEL
DEMAND RISK
Financial asset model
The concessionaire does not bear demand risk through the usage of the infrastructure (i.e., it has an unconditional
right to receive cash irrespective of the usage of the infrastructure, e.g. availability payments).
Intangible asset model
The concessionaire bears demand risk (i.e., it has a right to charge fees for usage of the infrastructure).
Bifurcated model
The concessionaire shares demand risk with the grantor (i.e., the grantor pays the concessionaire for its services
partly by a financial asset and partly by granting a right to charge users of the infrastructure).
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS 103
103
SNC-Lavalin 2019 Financial Report 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues from service concession arrangements accounted for under IFRIC 12 are recognized as follows:
ACTIVITIES PROVIDED BY THE CONCESSIONAIRE
REVENUE RECOGNITION
CLASSIFICATION OF REVENUES IN THE COMPANY’S CONSOLIDATED
INCOME STATEMENT
Construction or upgrade
(when a service concession arrangement
involves the construction or upgrade of
the public service infrastructure)
Operations and maintenance
(these activities may include maintenance
of the infrastructure and other activities
provided directly to the grantor or the
users)
Rehabilitation
(when a service concession arrangement
requires the concessionaire to rehabilitate
the infrastructure such that the
infrastructure can deliver a specified
standard of service at all times)
a
Revenues relating to such activities
under
concession
service
arrangement are recognized based on
the Company’s accounting policy on
recognizing revenue (see Note 2G).
The Company classifies these revenues as “from E&C”
when SNC-Lavalin acts as an EPC contractor. When
SNC-Lavalin does not act as an EPC contractor,
revenues are recognized by the concession as part of
“Capital investments” activities.
The Company classifies these revenues as “from E&C”
when SNC-Lavalin acts as an O&M contractor. When
SNC-Lavalin does not act as an O&M contractor,
revenues are recognized by the concession as part of
“Capital investments” activities.
The Company classifies these revenues as “from E&C”
activities when SNC-Lavalin acts as a rehabilitation
contractor. When
SNC-Lavalin does not act as a
rehabilitation contractor, revenues are recognized by the
concession as part of “Capital investments” activities.
Financing
(when financial asset model or bifurcated
model is applied)
Finance income generated on financial
assets is recognized using the effective
interest method.
The Company classifies this finance income as “Capital
investments” activities.
Financial asset model
When the Company delivers more than one category of activity in a service concession arrangement, the consideration
received or receivable is allocated by reference to the stand-alone selling price of the activity delivered.
Revenues recognized by the Company under the financial asset model are accumulated in “Receivables under service
concession arrangements”, a financial asset that is recovered through payments received from the grantor.
Intangible asset model
The Company recognizes an intangible asset arising from a service concession arrangement when it has a right to charge
for usage of the concession infrastructure. The intangible asset received as consideration for providing construction or
upgrade services in a service concession arrangement is measured at fair value upon initial recognition. Borrowing costs,
if any, are capitalized until the infrastructure is ready for its intended use as part of the carrying amount of the intangible
asset.
The intangible asset is then amortized over its expected useful life, which is the concession period in a service
concession arrangement. Amortization period begins when the infrastructure is available for use.
Fees collected by the concessionaire upon the usage of the infrastructure are classified as revenues from “Capital
investments” activities.
J)
CASH EQUIVALENTS
Cash equivalents include short-term liquid investments that are readily convertible into a known amount of cash and
which are subject to an insignificant risk of changes in value. Cash equivalents are designated as at FVTPL and
accounted for at fair value.
K)
RESTRICTED CASH
Restricted cash includes cash and cash equivalents for which the use is restricted for specific purposes under certain
arrangements. Restricted cash that is not expected to become unrestricted within the next twelve months is included in
“Other non-current financial assets”. Restricted cash is designated as at FVTPL and accounted for at fair value.
L)
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined: i) by using
specific identification of the individual costs; or ii) on a weighted average cost basis. Net realisable value represents the
estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.
104
104 NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
2.
M)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is recorded at rates set to charge operations with the cost of
depreciable assets less their residual values (if any) over their estimated useful lives.
Property and equipment are primarily:
CATEGORY
Buildings
Computer equipment
Office furniture
Machinery
DEPRECIATION METHOD
Straight-line, by component
Straight-line
DEPRECIATION PERIOD
10 to 50 years
2 to 5 years
Diminishing balance or straight-line
20% or from 2 to 10 years
Straight-line
1 to 15 years
N)
INTANGIBLE ASSETS OTHER THAN GOODWILL
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at
their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less
accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired
separately.
Intangible assets with definite useful life related to business combinations are primarily:
CATEGORY
Revenue backlog
Customer relationships
Trademarks
AMORTIZATION METHOD
Straight-line
Straight-line
Straight-line
AMORTIZATION PERIOD
0.5 to 3.5 years
7 and 10 years
4 to 8 years
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal.
Gains and losses arising from derecognition of an intangible asset, measured as the difference between the net disposal
proceeds and the carrying amount of the asset, are recognized in net income when the asset is derecognized.
O)
IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS OTHER THAN GOODWILL
At the end of each reporting period, the Company reviews the carrying amounts of its tangible assets, which mainly
include property and equipment, and its intangible assets other than goodwill to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the
asset is estimated to determine the extent of the impairment loss, if any. Where it is not possible to estimate the
recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit
(“CGU”) to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate
assets are also allocated to an individual CGU, or otherwise they are allocated to the smallest group of CGU for which a
reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of: i) fair value less costs to sell; and ii) value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current
market assessments of the time value of money and risks. If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An
impairment loss is recognized immediately in net income.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognized for the asset (or CGU) in prior periods. A reversal
of an impairment loss is recognized immediately in net income.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS 105
105
SNC-Lavalin 2019 Financial Report 2.
P)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill represents the excess of the purchase price of an acquired business over the fair value assigned to assets
acquired and liabilities assumed. Goodwill on acquisition of subsidiaries is separately disclosed and goodwill on
acquisitions of associates and joint ventures is included within investments accounted for by the equity method. For the
purpose of impairment testing, goodwill is allocated to each of the Company’s CGU or group of CGU expected to
benefit from the synergies of the combination. A CGU or group of CGU to which goodwill has been allocated are tested
for impairment annually, or more frequently when there is an indication that the CGU or group of CGU may be
impaired. If the recoverable amount of the CGU or group of CGU is less than its carrying amount, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the CGU or group of CGU and then to the
other assets of the CGU or group of CGU pro-rata on the basis of the carrying amount of each asset in the CGU or group
of CGU. An impairment loss recognized for goodwill is not reversed in a subsequent period.
The Company has designated October 31 as the date for the annual impairment test.
Q)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred, except if the costs are related to the development and setup of
new products, processes and systems and satisfy generally accepted conditions for capitalization, including reasonable
assurance that they will be recovered. All capitalized development costs are amortized when commercial production
begins, using the straight-line method over a period not exceeding five years.
R)
INCOME TAXES
Income taxes recognized in net income comprise the sum of deferred income tax and current income tax not recognized
in other comprehensive income or directly in equity.
Current income tax assets and/or liabilities comprise amounts receivable from or payable to tax authorities relating to the
current or prior reporting periods, which are uncollected or unpaid at the reporting date. Current tax is payable on
taxable income, which differs from net income in the financial statements. Calculation of current tax is based on tax
rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts
of assets and liabilities and their tax bases. Deferred income tax on temporary differences associated with shares in
subsidiaries, joint arrangements and associates is not provided for if reversal of these temporary differences can be
controlled by the Company and it is probable that reversal will not occur in the foreseeable future.
Deferred income tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to
their respective period of realization, provided they are enacted or substantively enacted by the end of the reporting
period.
Deferred income tax assets are recognized for unused tax losses, tax credits and deductible temporary differences, to the
extent that it is probable that future taxable income will be available against which they can be utilized. For
management’s assessment of the probability of future taxable income to utilize against deferred income tax assets, see
Note 3.
Deferred income tax assets and liabilities are offset only when the Company has a right and intention to offset current
tax assets and liabilities from the same taxation authority.
Changes in deferred income tax assets or liabilities are recognized as a component of income taxes in net income, except
where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the
related deferred income tax is recognized in other comprehensive income or equity, respectively.
S)
DEFINED BENEFIT PENSION PLANS, OTHER LONG-TERM BENEFITS AND OTHER POST-EMPLOYMENT
BENEFITS
Defined benefit pension plans, other long-term benefits and other post-employment benefits obligations are included in
“Provisions” in the consolidated statement of financial position and have been determined using the projected unit credit
method, which sees each period of service as giving rise to an additional unit of benefit entitlement to the eligible
employees and measures each unit separately to build up the final obligation. In valuing the defined benefit cost as well
as other post-employment benefits, assumptions are based on management’s best estimates, except for the discount rate
where the Company uses the market interest rate at the measurement date based on high quality corporate bonds with
cash flows that match the timing and amount of expected benefit payments.
106
106 NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Remeasurement, comprising: i) actuarial gains and losses; ii) the effect of the changes to the asset ceiling (if applicable);
and iii) the return on plans’ assets (excluding interest), is credited or charged to equity in other comprehensive income in
the period in which it arises. Remeasurement recognized in other comprehensive income is not reclassified to net
income in subsequent periods. The cumulative amount of remeasurement is included in retained earnings.
Defined benefit costs comprise: i) service cost (including current service cost, past service cost, as well as gains and
losses on curtailments and settlements); ii) net interest expense or income; and iii) remeasurement. Service cost and net
interest income or expense are recognized in net income while the remeasurement is recognized in other comprehensive
income in the period. Net interest is calculated by applying the discount rate at the beginning of the period to the net
defined benefit liability or asset.
T)
EARNINGS PER SHARE
Basic and diluted earnings per share have been determined by dividing the consolidated net income attributable to
SNC-Lavalin shareholders for the period by the basic and diluted weighted average number of shares, respectively.
The diluted weighted average number of shares outstanding is calculated as if all dilutive options had been exercised at
the later of the beginning of the reporting period or date of grant with deemed proceeds from the exercise of such
dilutive options used to repurchase common shares at the average market price for the period.
U)
SHARE-BASED PAYMENTS
Stock options
Stock options granted to employees are measured at their fair value at the grant date. The estimated fair value of the
stock options is determined using the Black-Scholes option pricing model.
The fair value determined at the grant date of the stock options is expensed on a straight-line basis over the shorter of the
vesting period or the term over which an employee becomes eligible to retire, based on the Company’s estimate of stock
options that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of
stock options expected to vest and the impact of such revision, if any, is recognized in net income.
Share units
The 2019 Performance Share Unit plan (“2019 PSU plan”), 2017 Performance Share Unit plan (“2017 PSU plan”), 2014
Performance Share Unit plan (“2014 PSU plan”), 2019 Restricted Share Unit plan (“2019 RSU plan”), Restricted Share
Unit plan (“RSU plan”), 2009 Deferred Share Unit plan (“2009 DSU plan”), and Deferred Share Unit plan (“DSU plan”)
are collectively referred as “share unit plans”. For share units granted to employees under the share unit plans, a liability
is recognized and measured at the fair value of the liability, which is based on the Company’s share price. At the end of
each reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is
remeasured, with any changes in fair value recognized in net income for the period. From January 1, 2018, the fair value
of the grants of share units is expensed in the income statement on a straight-line basis over the vesting period, based on
the Company’s estimate of share units that will eventually vest.
V)
PROVISIONS
A provision is a liability of uncertain timing or amount that is recognized in the consolidated statement of financial
position.
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event,
it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the
amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at
the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present
value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party,
a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the
receivable can be measured reliably.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS 107
107
SNC-Lavalin 2019 Financial Report 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Restructuring
A restructuring provision is recognized when the Company has developed a detailed formal plan for the restructuring
and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the
plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only
the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the
restructuring and not associated with the ongoing activities of the entity.
Onerous contracts
Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is
considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be received from the contract.
W)
NON-CURRENT ASSETS HELD FOR SALE
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than continuing use. This condition is regarded as met only when the asset
(or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and
customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to
the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of
classification.
When the Company is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities
of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the
Company will retain non-controlling interest in its former subsidiary after the sale.
When the Company is committed to a sale plan involving disposal of an investment, or a portion of an investment, in an
associate or a joint venture, the investment or the portion of the investment that will be disposed of is classified as held
for sale when the criteria described above are met, and the Company discontinues the use of the equity method in
relation to the portion that is classified as held for sale. Any retained portion of an investment in an associate or a joint
venture that has not been classified as held for sale continues to be accounted for using the equity method. The Company
discontinues the use of the equity method at the time of disposal when the disposal results in the Company losing
significant influence over the associate or joint control over the joint venture.
After the disposal takes place, the Company accounts for any retained interest in the associate or joint venture in
accordance with IFRS 9, Financial Instruments, unless the retained interest continues to be an associate or a joint
venture, in which case the Company uses the equity method.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying
amount and fair value less costs to sell.
X)
LEASING
POLICY APPLICABLE FROM JANUARY 1, 2019
Accounting for leases as a lessee
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any
lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the
commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term, and
represents a period ranging from 1 to 30 years for office real estate leases and 1 to 8 years for other leased assets. In
addition, the right-of-use asset is reduced by impairment losses resulting from impairment tests conducted in accordance
with IAS 36, Impairment of Assets, if any, and adjusted for certain remeasurements of the lease liability.
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108 NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee's
incremental borrowing rate. Lease payments used for the calculations comprise mainly fixed payments, including in-
substance fixed payments, variable lease payments that depend on an index or a rate, the exercise price of a purchase
option if the lessee is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if
the lease term reflects the lessee exercising an option to terminate the lease. The lease liability is subsequently measured
at amortized cost using the effective interest method and is remeasured to reflect changes in the lease payments, such as
upon a lease modification that is not accounted for as a separate lease.
A lease modification is considered a separate lease if the modification increases the scope of the lease by adding the
right to use one or more underlying assets and the consideration for the lease increases by an amount commensurate with
the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the
circumstances of the particular contract. Any other modification is not accounted for as a separate lease.
For a lease modification that is not accounted for as a separate lease, the Company accounts for the modification, at its
effective date, as follows:
a.
for a lease modification resulting in a decrease in the scope of the lease, such as a reduction in the term of a
lease or in the space being leased, the lease liability is remeasured to reflect the revised lease payments and the
carrying amount of the right-of-use asset is reduced to reflect the partial or full termination of the lease. If the
carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement
of the lease liability, a lessee shall recognize any remaining amount of the remeasurement in profit or loss.
Furthermore, the difference between the reduction in the lease liability and the reduction in the corresponding
right-of-use asset’s carrying value is recognized in profit or loss.
b.
for all other lease modifications, the lease liability is remeasured to reflect the revised lease payments, with a
corresponding adjustment to the right-of-use asset.
The remeasurement of a lease liability upon a lease modification, or upon any change to the lease payments resulting
from a change in the lease term or in the assessment of an option to purchase the underlying asset, is based on a revised
discount rate reflecting the remainder of the lease term. The remeasurement of a lease liability to reflect revised lease
payments due to a change in the amounts expected to be payable to the lessor under a residual value guarantee or to a
change in an index or a rate used to determine those payments, other than a change in floating interest rates, is based on
an unchanged discount rate.
Accounting for leases as a lessor
When acting as a lessor, the Company determines at lease commencement whether each lease is a finance lease or an
operating lease. To classify each lease, the Company makes an overall assessment of whether the lease transfers to the
lessee substantially all of the risks and rewards of ownership incidental to ownership of the underlying asset. If this is
the case, then the lease is a finance lease; if not, then it is an operating lease.
As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of
the economic life of the asset. When the Company subleases one of its leases and concludes that it is a finance lease, it
derecognizes the right-of-use asset relating to the head lease being sublet, recognizes a receivable equal to the net
investment in the sublease and retains the previously recognized lease liability in its capacity as lessee. The Company
then recognizes interest expense on its lease liability and interest income on the receivable in its capacity as finance
lessor.
Accounting for sale and lease back transactions
In a sale and lease back transaction, the transfer of an asset is recognized as a sale when the customer has obtained
control of such asset based on the Company’s revenue recognition policy, otherwise the Company continues to
recognize the transferred asset on its statement of financial position and recognizes a financial liability equal to the
proceeds transferred. When the transfer of an asset satisfies the Company’s revenue recognition policy to be accounted
for as a sale, a partial recognition of the gain on disposal is recognized immediately after the sale, based on the
proportion of the asset not retained by the Company through the lease. The proportion of the asset retained by the
Company through the lease is recognized as a right-of-use asset and the lease liability is measured as the present value
of future lease payments.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS 109
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SNC-Lavalin 2019 Financial Report 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY APPLICABLE BEFORE JANUARY 1, 2019
Leases were classified as finance leases whenever the terms of the lease transferred substantially all the risk and rewards
of ownership to the lessee. All other leases were classified as operating leases.
Operating leases
Operating lease payments were recognized as an expense on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time pattern in which economic benefits from the leased assets
were consumed.
Contingent rentals, if any, arising under operating leases were recognized as an expense in the period in which they were
incurred.
In the event that lease incentives were received to enter into operating leases, such incentives were recognized as a
liability. The aggregate benefit of incentives was recognized as a reduction of rental expense on a straight-line basis,
except where another systematic basis was more representative of the time pattern in which economic benefits from the
leased asset were consumed.
Finance leases
Assets held under finance leases were initially recognized as assets of the Company at their fair value at the inception of
the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor was
included in the consolidated statement of financial position as a finance lease obligation.
Lease payments were apportioned between financial expenses and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability. Financial expenses were recognized immediately in net
income, unless they were directly attributable to qualifying assets, which were assets that necessarily take a substantial
period of time to get ready for their intended use or sale, in which case they were capitalized to the cost of those assets.
Contingent rentals, if any, were recognized as expenses in the periods in which they were incurred.
Sale and lease back transactions
A sale and leaseback transaction involves the sale of an asset by the Company and the leasing back of the same asset
from the buyer.
Where a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount
is not immediately recognized as income by a seller-lessee. Instead, it is deferred and amortized over the lease term.
Where a leaseback transaction results in an operating lease:
•
•
•
if the sale price of the asset is at fair value, the gain or loss from the sale is recognized immediately in the
Company’s income statement;
if the sale price of the asset is above fair value, the excess over fair value is deferred and amortized over the
period for which the asset is expected to be used; and
if the sale price of the asset is below fair value, any gain or loss is recognized immediately in the Company’s
income statement except that, if the loss is compensated for by future lease payments at below market price, it
is deferred and amortized in proportion to the lease payments over the period for which the asset is expected to
be used.
3.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF
ESTIMATION UNCERTAINTY
In the application of the Company’s accounting policies, which are described in Note 2, management is required to
make judgments, estimates, and assumptions about the carrying amounts of assets and liabilities recognized that are not
readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods.
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110 NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
3.
CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (CONTINUED)
The following are the critical accounting judgments and key estimates concerning the future, and other key sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year.
Revenue recognition
The identification of revenue-generating contracts with customers, the identification of performance obligations, the
determination of the transaction price and its allocation between identified performance obligations, the use of the
appropriate revenue recognition method (over time or at a point in time) for each performance obligation and the
measure of progress for performance obligation satisfied over time are the main aspects of the revenue recognition
process, all of which require the exercise of judgment and the use of assumptions.
The transaction price corresponds to the amount of consideration to which the Company expects to be entitled in
exchange for transferring promised goods or services to a customer. Such amount may require the Company to estimate
an amount of variable consideration, notably from estimated volume of work, claims and unpriced change orders,
incentives or penalties, among others. Furthermore, the Company needs to constraint
the transaction price by including
only the amount for which it is highly probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The
amount of variable consideration to be included in the transaction price of a given contract is determined by using
various estimates and assumptions, which could be based on historical experience with the same customer or other
interpretation of relevant contractual clauses, and probabilistic
similar contracts,
methodologies, among others. Due to the uncertain nature of the estimations, the amount of variable consideration may
vary significantly over time. Such estimated amount of variable consideration then needs to be updated at the end of
each reporting period.
third-party assessments,
legal
The determination of anticipated costs for completing a contract is based on estimates that can be affected by a variety
of factors such as potential variances in scheduling and cost of materials along with the availability and cost of qualified
labour and subcontractors, productivity, and possible claims from subcontractors.
Service concession arrangements
The accounting for certain Capital investment activities requires the application of judgment in determining if they fall
within the scope of IFRIC Interpretation 12, Service Concession Arrangements, (“IFRIC 12”). Additional judgments
need to be exercised when determining, among other things, the accounting model to be applied under IFRIC 12, the
allocation of the consideration receivable between revenue-generating activities, the classification of costs incurred on
such activities, the accounting treatment of rehabilitation costs and associated estimates, as well as the effective interest
rate to be applied to the financial asset. As the accounting for Capital investments under IFRIC 12 requires the use of
estimates over the term of the arrangement, any changes to these long-term estimates could result in a significant
variation in the accounting for the Capital investments.
Basis of consolidation
Under certain circumstances, the determination of the Company’s level of power over an investee requires exercise of
judgment. As such, the classification of the entity as a subsidiary, a joint arrangement, an associate or a cost investment
might require the application of judgment through the analysis of various indicators, such as the percentage of
ownership interest held in the entity, the representation on the entity’s board of directors, and various other factors.
Values used in impairment tests
Determining whether goodwill is impaired requires an estimation of the recoverable amount of the CGU or group of
CGU. Such recoverable amount corresponds, for the purpose of impairment assessment, to the higher of the value in use
or the fair value less costs of disposal of the CGU or group of CGU to which goodwill has been allocated.
The value in use calculation requires management to estimate future cash flows expected to arise from the CGU or
group of CGU and a suitable discount rate in order to calculate present value. The key assumptions required for the
value in use estimation are the future cash flows growth rate and the discount rate.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
111
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SNC-Lavalin 2019 Financial Report 3.
CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (CONTINUED)
When using the value in use approach, cash flows for each CGU or group of CGU are derived from the budget for the
upcoming year, which is approved on an annual basis by members of the Company’s Board of Directors, and a
long-term forecast prepared by management, which covers an additional period from 3 to 5 years. Cash flows beyond
the long-term forecast are extrapolated using a growth rate estimated by management. The discount rate is derived from
the Company’s post-tax weighted average cost of capital and is adjusted, where applicable, to take into account any
specific risks.
When the fair value less costs of disposal approach is used, the fair value is derived from a market multiple approach.
Under this approach, transaction multiples are applied to such CGU’s future results, mainly EBIT and earnings before
interest, income taxes, depreciation and amortization. The key assumptions required for the fair value less costs of
disposal are the future results of the CGU or group of CGU, the multiples being used and the costs of disposal.
Future results for each CGU or group of CGU are derived from the budget for the upcoming year. Transaction multiples
are derived from observable market value of comparable publicly traded companies or fair value observed from recent
acquisitions or disposals of businesses that are comparable to the CGU or group of CGU. Costs of disposal, which
usually corresponds to a percentage of the fair value of the CGU or group of CGU, are estimated based on historical
transactions of the Company or on input from recent transactions.
For both the value in use and the fair value less costs of disposal approaches, the values assigned to key assumptions
reflect past experience and external sources of information that are deemed accurate and reliable. The value in use and
the fair value are categorized as Level 3 in the fair value hierarchy described under IFRS 13, Fair Value Measurement,
as one or more key assumption used is based on unobservable data requiring the use of judgement.
When there is any indication that the tangible and intangible assets other than goodwill have suffered an impairment
loss, the determination of the recoverable amount of tangible and intangible assets other than goodwill requires
management to estimate cash flows expected to arise from these assets and a suitable discount rate in order to calculate
the present value in a manner described above for goodwill.
The identification of events that could have an impact on the estimated cash flows of the assets and the determination of
these estimated cash flows require the exercise of judgment, which might result in significant variances in the carrying
amount of these assets if found to be impaired.
Measurement of retirement benefit obligations, other long-term benefit and other post-employment benefit obligations
SNC-Lavalin’s obligations and expenses relating to defined benefit pension plans, other long-term benefits and other
post-employment benefits are determined using actuarial valuations, and are dependent on assumptions such as the rate
of compensation increase, as determined by management. While management believes these assumptions represent its
best estimate, differences in actual results or changes in assumptions could have an impact on the obligations, expenses
and amounts of actuarial gains (losses) recognized in the consolidated statement of comprehensive income.
October 26, 2018 U.K. High Court ruling
As at December 31, 2018, SNC-Lavalin has certain defined benefit pension plans in United Kingdom (“U.K.”) that are
subject to guaranteed minimum pension (“GMP”) accruals. An October 26, 2018 U.K. High Court ruling resulted in a
higher pension obligation for SNC-Lavalin since the judgment: (i) requires plans to amend their pension formula to
equalize benefits for men and women to adjust for the unequal results produce by the GMP between May 1990 and
April 1997; (ii) provides permissible equalization methods under the law and allows the plan sponsors to use the lowest
cost method; and (iii) requires plans to make back payments subject to plan rule limitations, with interest applied at one
percentage point over the Bank of England base rate.
Whilst the judgment has put forward a range of possible approaches that could be adopted to equalize GMPs, it left it up
to individual pension plan trustees and employers to determine their preferred approach. SNC-Lavalin expects that it
will take time for trustees and employers to decide on the approach for GMP equalization, gather data for plan
participants, calculate the new benefit and cost, and ultimately make payments to members.
As per its preliminary assessment, SNC-Lavalin recognized $25.1 million as past service cost in its consolidated income
statement for the year ended December 31, 2018. In the year ended December 31, 2019, there was no change to the
preliminary assessment determined by the Company in 2018.
112
112
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
3.
CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (CONTINUED)
Measurement of provisions shown in the consolidated statement of financial position
In measuring a provision, the Company takes risks and uncertainties into account. The uncertainties mainly relate to
timing and amount of a provision. Also, risks and uncertainties arise from discounting a provision, where the effect of
the time value of money is significant, using a pre-tax discount rate that reflects current market assessments of the time
value of money. Additionally, the Company takes future events, such as changes in the law, into account where there is
sufficient objective evidence that they will occur when measuring a provision.
Contingent liabilities
As described in more detail in Note 33, the Company is subject to certain ongoing investigations and class action
lawsuits have been filed against the Company. The outcome of these investigations or actions, while not determinable,
could have a material adverse impact on the Company’s liquidity and financial results.
Measurement of share-based payment expenses
The Company offers PSU plans to selected individuals within the organization. Subject to performance conditions, the
number of units granted is adjusted depending on specific indicators to determine the number of units to which all
participants receiving the award will be entitled at the end of the vesting period. At each measurement date, management
is required to estimate the number of performance share units that will vest, which impacts the amount of associated
liabilities and expenses.
Assessment of deferred income tax assets and liabilities
Deferred income tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities
and their carrying amounts reported in the financial statements. Deferred income tax assets also reflect the benefit of
unutilized tax losses that can be carried forward to reduce income taxes in future years. This method requires the
exercise of significant judgment in determining whether or not the Company’s deferred income tax assets are probable
to be recovered from future taxable income and therefore, can be recognized in the Company’s consolidated financial
statements. Also, estimates are required to determine the expected timing upon which tax assets will be realized and
upon which tax liabilities will be settled, and the enacted or substantively enacted tax rates that will apply at such time.
Measurement of financial instruments at fair value
The Company measures some of its financial instruments at fair value. The determination of such fair value is based on
the most readily available market data. When data is not readily available, management is required to estimate the fair
value of the instrument using various inputs that are either directly or indirectly observable, or that are not based on
observable market data.
Assets and liabilities acquired in a business combination
Intangible assets and goodwill arising out of business combinations are accounted for by applying the acquisition
method of accounting to these transactions. In measuring the fair value of the assets acquired and the liabilities assumed
and estimating their useful lives, the Company uses significant estimates and assumptions regarding cash flow
projections, economic risk, and weighted average cost of capital.
These estimates and assumptions determine the amount allocated to intangible assets and goodwill, as well as the
amortization period for intangible assets with finite lives. If results differ from estimates, the Company may increase
amortization or recognize impairment charges.
Identification of functional currency
The functional currency for each subsidiary, joint operation, joint venture and associate, is the currency of the primary
economic environment in which it operates. Determination of functional currency involves significant judgment and
other entities may make different judgments based on similar facts. SNC-Lavalin reconsiders the functional currency of
its businesses if there is a change in the underlying transactions, events or conditions which determine their primary
economic environment.
The determination of functional currency affects the carrying value of non-current assets included in the statement of
financial position and, as a consequence, the amortization of those assets included in the income statement. It also
impacts exchange gains and losses included in the income statement and in equity.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
113
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SNC-Lavalin 2019 Financial Report CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (CONTINUED)
3.
Leases
Estimate of the lease term
When the Company recognizes a lease as a lessee, it assesses the lease term based on the conditions of the lease and
determines whether it is reasonably certain that it will exercise its extension or termination option, if any. It then uses the
expected modified term under such option if it is reasonably certain that it will be exercised. As such, a change in the
assumption used could result in a significant impact in the amount recognized as right-of-use asset and lease liability, as
well as in the amount of depreciation of right-of-use asset and interest expense on lease liability.
Assessment of whether a right-of-use asset is impaired
The Company assesses whether a right-of-use asset is impaired in accordance with IAS 36, Impairment of assets. Such
assessment occurs particularly when it vacates an office space and it must determine the recoverability of the asset, to
the extent that the Company can sublease the assets or surrender the lease and recover its costs. The Company examines
its lease conditions as well as local market conditions and estimates its recoverability potential for each vacated premise.
The determination of the lease cost recovery rate involves significant management estimates based on market
availability of similar office space and local market conditions. This significant estimate could affect its future results if
the Company succeeds in subleasing their vacated offices at a higher or lower rate or at different dates than initially
anticipated.
Determining the discount rate for leases
IFRS 16 requires the Company to discount the lease payments using the rate implicit in the lease if that rate is readily
available. If that rate cannot be readily determined, the lessee is required to use its incremental borrowing rate (“IBR”).
The Company generally used its IBR when recording leases initially, since the implicit rates are not readily available
due to information not being available from the lessor regarding the fair value of underlying assets and directs costs
incurred by the lessor related to the leased assets. The determination of the IBR requires the use of various assumptions
which, if different than those being used, could result in a significant impact in the amount recognized as right-of-use
asset and lease liability, as well as in the amount of depreciation of right-of-use asset and interest expense on lease
liability.
Determining if a contract modification increasing the scope of a lease is a separate lease or not
When a lease modification increasing the scope of a lease occurs, the Company needs to determine if such modification
is to be accounted for as a separate lease or not. Such determination requires the use of judgment on the stand-alone
selling price and any appropriate adjustments to the stand-alone selling price reflecting the circumstance of the particular
contract.
4.
SEGMENT DISCLOSURES
SNC-Lavalin’s reportable segments are i) Engineering, Design and Project Management (“EDPM”); ii) Nuclear;
iii) Infrastructure Services; iv) Capital; v) Resources; and vi) Infrastructure EPC Projects.
The description of each of the segments is as follows:
EDPM incorporates all consultancy, engineering, design and project management services around the world (including
the Canadian market, which was previously in the former Infrastructure segment prior to January 1, 2019). It also leads
our efforts to transform the global infrastructure sector by leveraging data and technology to improve the delivery of our
clients’ projects from conception through to eventual operation. EDPM projects are mainly in transportation (including
rail, mass transit, roads and airports), civil infrastructure, aerospace, defence and security and technology, including
some of the world’s most transformational projects. A significant portion of revenues are derived from the public sector,
including national, provincial, state and local and municipal authorities.
Nuclear supports clients across the entire nuclear life cycle with the full spectrum of services from consultancy,
engineering, procurement and construction management (“EPCM”) services, field services, technology services, spare
parts, reactor support & decommissioning and waste management. As stewards of the CANDU technology, it also
provides new-build and full refurbishment services of CANDU reactors.
114
114
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
4.
SEGMENT DISCLOSURES (CONTINUED)
Infrastructure Services includes O&M projects, as well as the Company’s repetitive EPC offerings that are lower-risk,
standardized solutions for: i) district cooling plants; and ii) power substations executed through its Linxon subsidiary.
The segment also includes engineering solutions in hydro, transmission and distribution, renewables, energy storage,
and intelligent networks and cybersecurity.
Capital is SNC-Lavalin’s investment, financing and asset management arm, responsible for developing projects,
arranging financing,
investing equity, undertaking complex financial modeling and managing its infrastructure
investments for optimal returns. Its activities are principally concentrated in infrastructure such as bridges, highways,
mass transit systems, power facilities, energy infrastructure, water treatment plants and social infrastructure (e.g.
hospitals). The Capital segment includes SNC-Lavalin's 20% ownership interest in and management of SNCL IP
Partnership.
Resources provides a full suite of delivery services to the oil & gas and mining & metallurgy sectors, covering the
project lifecycle from project development through project delivery and support services. Resources have ceased the
new contracting of projects under the lump-sum turnkey construction contracting model. Resources is now focused on
providing engineering, EPCM, project management consultancy (“PMC”), construction & commissioning and technical
support services through a lower risk contracting model. The operational delivery is focused on key regions and global
clients.
Infrastructure EPC Projects includes LSTK construction contracts related to mass transit, heavy rail, roads, bridges,
airports, ports and harbours and water infrastructure. In addition, Infrastructure EPC Projects includes the LSTK
construction projects related to the former Clean Power segment, as well as from thermal power activities which the
Company exited in 2018. As previously mentioned, the Company decided, in 2019, to cease contracting for new LSTK
construction contracts but will fulfil its contractual obligations for such current projects.
As disclosed in Note 2C, the Company changed the definition of segment EBIT, its measure of profit or loss for its
reportable segments, to reflect a change made to its internal reporting. As such, segment EBIT now includes: i) the
contribution attributable to non-controlling interests before income taxes, whereas in the past
it excluded such
contribution attributable to non-controlling interests before income taxes; and ii) an allocation to the segments of certain
other corporate selling, general and administrative expenses.
Also, as disclosed in Note 2C, given the Company’s aim to continue to simplify and de-risk its business, SNC-Lavalin
further simplified its market-facing structure. This simplification became effective January 1, 2019 and resulted in a
change to the Company’s reportable segments, which were: i) Engineering, Design and Project Management (“EDPM”);
ii) Infrastructure; iii) Nuclear; iv) Resources; and v) Capital. The Company’s new strategic direction adopted for the
second quarter of 2019 resulted in the restructuring of its activities into two distinct business lines, SNCL Engineering
Services and SNCL Projects. From a segmented information stand-point, this change resulted in the split of the
Infrastructure segment into two segments, Infrastructure Services and Infrastructure EPC Projects, all other segments
remaining the same.
The accounting policies for the segments are the same as those described in the Summary of Significant Accounting
Policies (Note 2). The Company evaluates segment performance using segment EBIT, which consists, except for the
Capital segment, of Total segment EBIT less i) directly related selling, general and administrative expenses; and ii)
corporate selling, general and administrative expenses that are directly and indirectly related to projects or segments.
Corporate selling, general and administrative expenses that are not directly or indirectly related to projects or segments,
impairment losses (reversal of impairment losses) arising from expected credit losses, gains (losses) arising on financial
assets (liabilities) at fair value through profit or loss, net 2012 class action lawsuits settlement expense and related legal
costs, restructuring costs, goodwill impairment, acquisition-related costs and integration costs, amortization of intangible
assets related to business combinations, impairment of intangible assets related to business combinations, gains (losses)
from disposal(s) or adjustment on disposal(s) of E&C businesses and federal charges settlement (PPSC) are not
allocated to the Company’s segments.
The Company evaluates the Capital segment performance using: i) dividends or distributions received from investments
accounted for by the cost method; ii) SNC-Lavalin’s share of the net results of its investments, or dividends from its
Capital investments for which the carrying amount is $nil, but would otherwise be negative based on historical financial
results and dividends, for investments accounted for by the equity method; and iii) net result from investments
accounted for by the consolidation method.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
115
115
SNC-Lavalin 2019 Financial Report 4.
SEGMENT DISCLOSURES (CONTINUED)
The Capital segment EBIT also reflects selling, general and administrative expenses, including corporate selling, general
and administrative expenses that are directly and indirectly related to the segment. Accordingly, the segment EBIT
from Capital is reported net of selling, general and administrative expenses.
The following table presents revenues and segment EBIT according to the Company’s segments for the year ended
December 31, 2019:
YEAR ENDED DECEMBER 31
EDPM
Nuclear
Infrastructure Services
Capital
SNCL Engineering Services
Resources (1)
Infrastructure EPC Projects (2)
SNCL Projects
Total segment EBIT
Corporate selling, general and administrative expenses not
allocated to the segments (Note 25)
Impairment loss arising from expected credit losses
Gain (loss) arising on financial assets (liabilities) at fair value
through profit or loss
Restructuring costs (Note 26)
Amortization of intangible assets related to business
combinations (Note 15)
Acquisition-related costs and integration costs (Note 6)
Gain on disposal of a Capital investment (Note 5A)
Loss from adjustment on disposals of E&C businesses
Impairment of intangible assets related to business
combinations (Note 15)
Impairment of goodwill (Note 14)
Federal charges settlement (PPSC) (Note 33)
EBIT
Net financial expenses (Note 27)
Earnings (loss) before income taxes
Income taxes (Note 29B)
Net income (loss)
Net income (loss) attributable to:
SNC-Lavalin shareholders
Non-controlling interests
2019
SEGMENT EBIT
REVENUES
E&C
CAPITAL
TOTAL
$ 3,908,900 $
357,766 $
— $
357,766
929,809
1,178,582
262,720
6,280,011
2,158,855
1,076,744
3,235,599
$ 9,515,610
127,601
73,511
—
558,878
(341,520)
(106,480)
(448,000)
—
—
243,240
243,240
—
—
—
127,601
73,511
243,240
802,118
(341,520)
(106,480)
(448,000)
110,878
243,240
354,118
(45,750)
(28,194)
(73,944)
(240)
—
(240)
(5,807)
(179,207)
(181,983)
(8,315)
—
(294)
(72,831)
(1,801,015)
(257,327)
1,064
(3,594)
—
—
(4,743)
(182,801)
(181,983)
(8,315)
2,970,783
2,970,783
—
—
—
—
(294)
(72,831)
(1,801,015)
(257,327)
741,408
212,083
529,325
198,738
(2,441,891)
3,183,299
194,241
17,842
(2,636,132)
3,165,457
(193,917)
392,655
$ (2,442,215) $ 2,772,802 $
330,587
$ (2,444,583) $ 2,772,802 $
328,219
2,368
—
2,368
Net income (loss)
330,587
(1) The negative segment EBIT is mainly due to net unfavorable reforecasts on certain major lump-sum turnkey construction contracts, a lower
$ (2,442,215) $ 2,772,802 $
level of activity and a lower profitability ratio in 2019.
(2)
The negative segment EBIT is mainly attributable to the net unfavorable reforecasts totaling approximately $130 million on certain major
projects resulting from higher forecasted costs or increased warranty costs, primarily on two lump-sum turnkey construction contracts nearing
completion and on smaller clean power projects also nearing completion, combined with a lower level of activities.
116
116
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
4.
SEGMENT DISCLOSURES (CONTINUED)
The following table presents revenues and segment EBIT according to the Company’s segments for the year ended
December 31, 2018:
YEAR ENDED DECEMBER 31
EDPM
Nuclear
Infrastructure Services
Capital
SNCL Engineering Services
Resources (2)
Infrastructure EPC Projects
SNCL Projects
Total segment EBIT
Corporate selling, general and administrative expenses not
allocated to the segments (Note 25) (3)
Impairment loss arising from expected credit losses
Loss arising on financial assets (liabilities) at fair value
through profit or loss
Net 2012 class action lawsuits settlement expense and related
legal costs (Note 33)
Restructuring costs (Note 26)
Amortization of intangible assets related to business
combinations (Note 15)
Acquisition-related costs and integration costs (Note 6)
Gain on disposals of Capital investments (Note 5A)
Loss from adjustment on disposals of E&C businesses
Impairment of goodwill (Note 14)
EBIT
Net financial expenses (Note 27)
Earnings (loss) before income taxes
Income taxes (Note 29B)
Net income (loss)
Net income (loss) attributable to:
SNC-Lavalin shareholders
Non-controlling interests
Net income (loss)
(1)
(1)
2018
SEGMENT EBIT
REVENUES
E&C
CAPITAL
TOTAL
$ 3,676,397 $
354,745 $
— $
354,745
932,616
912,704
264,657
5,786,374
3,001,364
1,296,268
4,297,632
$ 10,084,006
143,858
52,854
—
551,457
(256,595)
19,298
(237,297)
—
—
224,975
224,975
—
—
—
143,858
52,854
224,975
776,432
(256,595)
19,298
(237,297)
314,160
224,975
539,135
(70,377)
(1,349)
(6,938)
(89,443)
(68,312)
(206,471)
(54,878)
—
(474)
(1,240,415)
(1,424,497)
155,986
(1,580,483)
(18,100)
(27,657)
—
(489)
—
(279)
—
—
67,552
—
—
264,102
11,459
252,643
6,555
(98,034)
(1,349)
(7,427)
(89,443)
(68,591)
(206,471)
(54,878)
67,552
(474)
(1,240,415)
(1,160,395)
167,445
(1,327,840)
(11,545)
$ (1,562,383) $
246,088 $ (1,316,295)
$ (1,562,986) $
246,088 $ (1,316,898)
603
—
603
$ (1,562,383) $
246,088 $ (1,316,295)
Comparative figures have been revised to reflect changes made to the measure of profit or loss for the Company’s reportable segments and
changes made to the Company's reporting structure (see Note 2C).
(2)
(3)
The negative segment EBIT is primarily due to the under-performance of a major EPC project mainly due to the fact that the Company did not
reach the required level of agreement with the client in order to meet the IFRS 15 conditions for revenue recognition, as well as substantial
negative cost reforecast in the fourth quarter of 2018 required to deliver this project to completion.
Includes $25.1 million of past service cost related to guaranteed minimum pension arising from October 26, 2018 U.K. High Court ruling (see
Note 3).
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
117
117
SNC-Lavalin 2019 Financial Report 4.
SEGMENT DISCLOSURES (CONTINUED)
The Company also discloses in the table below supplementary information such as its net income (loss) from E&C, its
dividends from 407 International Inc. (“Highway 407 ETR”), and its net income from other Capital investments, as this
information may be useful in assessing the Company’s value.
It should be noted that supplementary information provided in the following table does not reflect information related to
the Company’s segments, but is rather an allocation of net income (loss) attributable to SNC-Lavalin shareholders
between various components.
YEARS ENDED DECEMBER 31
Supplementary information:
Net loss from adjustment on disposals of E&C businesses
Net 2012 class action lawsuits settlement expense and related legal costs, after income taxes
(Note 33)
Impairment of intangible assets related to business combinations (Note 15)
Impairment of goodwill (Note 14)
Federal charges settlement (PPSC) (Note 33)
Excluding the items listed above
Net loss attributable to SNC-Lavalin shareholders from E&C
Net gain on disposals of Capital investments (Note 5A)
Highway 407 ETR dividends
Excluding the items listed above
Net income attributable to SNC-Lavalin shareholders from Capital
Net income (loss) attributable to SNC-Lavalin shareholders
2019
2018
$
(294) $
(474)
—
(60,135)
(1,720,889)
(257,327)
(405,938)
(2,444,583)
2,585,998
146,099
40,705
2,772,802
(65,740)
—
(1,240,415)
—
(256,357)
(1,562,986)
59,823
154,324
31,941
246,088
$
328,219 $
(1,316,898)
The following table presents property, equipment, goodwill and intangible assets inside and outside Canada reflected on
the Company’s consolidated statements of financial position:
Property, equipment, goodwill and intangible assets (1)
Canada
Outside Canada
(1)
5.
All related to E&C activities
CAPITAL INVESTMENTS
DECEMBER 31
2019
DECEMBER 31
2018
$
250,826 $
349,347
4,314,496
6,423,581
$
4,565,322 $
6,772,928
SNC-Lavalin makes investments in infrastructure concessions for public services such as bridges, highways, mass
transit systems, power facilities, energy infrastructure, water treatment plants and social infrastructure (e.g. hospitals).
The main concessions and public-private partnerships contracts reported under IFRIC Interpretation 12, Service
Concession Arrangements, (“IFRIC 12”) are all accounted for under the financial asset model.
In order to provide the reader of the financial statements with a better understanding of the financial position and results
of operations of its Capital investments, the Company presents certain distinct financial information related specifically
to its Capital investments throughout its financial statements, as well as additional information below.
A)
VARIATIONS IN OWNERSHIP INTERESTS IN INVESTMENTS
I)
IN 2019
TRANSITNEXT GENERAL PARTNERSHIP
On March 29, 2019, SNC-Lavalin announced that its wholly-owned subsidiary, TransitNEXT General Partnership
(“TransitNEXT”), signed an agreement with the City of Ottawa to design, build, finance and maintain the new Trillium
Line extension, and to also assume responsibility for the long-term maintenance of the existing Trillium Line, under a
30-year contract.
118
118
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
5.
CAPITAL INVESTMENTS (CONTINUED)
Also, TransitNEXT entered into a credit facility agreement, which is non-recourse to SNC-Lavalin. The aggregate
maximum principal amount of the credit facility is $149.0 million. The credit facility bears interest at a rate of CDOR
plus an applicable margin and is repayable the latest on February 10, 2024. The credit facility is secured by all assets of
TransitNEXT.
Furthermore, in relation to the credit facility above, TransitNEXT entered into an interest rate swap agreement with
financial institutions under which TransitNEXT pays interest at a fixed rate and receives interest at a rate of CDOR.
In addition, a wholly-owned entity indirectly holding TransitNEXT entered into a term loan facility agreement, which is
non-recourse to SNC-Lavalin. The aggregate principal amount of the term loan facility is $99.7 million and cannot be
drawn until substantial completion of the Trillium project is achieved. The term loan facility bears interest at a rate of:
i) 4.82% prior to August 10, 2026; and ii) CDOR plus an applicable margin from and after August 10, 2026. The
maturity of the term loan facility is the earlier of: i) the date that is 4 years after the substantial completion date of the
Trillium project; and ii) March 29, 2028. The term loan facility is secured by all assets of such entity indirectly holding
TransitNEXT.
SNC-Lavalin’s investment in TransitNEXT is accounted for by the consolidation method.
407 INTERNATIONAL INC. (“HIGHWAY 407 ETR”)
On April 5, 2019, SNC-Lavalin announced that the Company entered into an agreement with Ontario Municipal
Employees Retirement System (“OMERS”) to sell 10.01% of the shares of Highway 407 ETR (the “Subject Shares”),
subject to shareholders’ rights, including rights of first refusal in favour of certain other shareholders of Highway 407
ETR.
On May 17, 2019, SNC-Lavalin announced, prior to the expiry of the relevant notice and acceptance period, that another
shareholder of Highway 407 ETR exercised its right of first refusal to purchase all of the Subject Shares on the same
terms and conditions as those set out in the transaction documents with OMERS. On the basis of the shareholder
exercising such a right of first refusal and in accordance with the sale contract, SNC-Lavalin terminated the transaction
with OMERS and became subject to the payment of a break fee once the sale is completed.
On August 15, 2019, SNC-Lavalin announced that it had completed the sale of 10.01% of the shares of Highway 407
ETR to a company controlled by Canada Pension Plan Investment Board. Based on the terms of the agreement, SNC-
Lavalin received on closing the base purchase price proceeds of $3.0 billion, with up to an additional $250 million
contingently payable over a period of 10 years, conditional on the attainment of certain financial thresholds related to the
ongoing performance of Highway 407 ETR. The Company was also entitled to receive additional consideration based on
the dividend to be declared in October 2019, for which the fair value was determined at $12.3 million.
After the completion of the sale, SNC-Lavalin paid a break fee of $81.3 million to OMERS.
SNC-Lavalin’s remaining 6.76% ownership interest in Highway 407 ETR continues to be accounted for under the equity
method of accounting.
Net gain on partial disposal of Highway 407 ETR
YEAR ENDED DECEMBER 31
Consideration received in cash
Additional consideration received
Contingent consideration receivable (1)
Total consideration
Carrying amount of the investment sold
Disposition-related costs (2)
Gain on partial disposal of Highway 407 ETR
Income taxes
Net gain on partial disposal of Highway 407 ETR
(1)
2019
$ 3,000,000
12,256
56,143
3,068,399
—
(97,616)
2,970,783
(384,785)
$ 2,585,998
Under the sale agreement, SNC-Lavalin is entitled to receive up to $250 million over a period of 10 years, conditional on the attainment of
certain financial thresholds related to the ongoing performance of Highway 407 ETR. The amount of $56.1 million represents the estimated fair
value of this receivable at the date of sale.
(2)
Disposition-related costs included a break fee of $81.3 million related to the termination of the transaction with OMERS.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
119
119
SNC-Lavalin 2019 Financial Report 5.
CAPITAL INVESTMENTS (CONTINUED)
II)
IN 2018
MCGILL HEALTHCARE INFRASTRUCTURE GROUP
On June 28, 2018, SNC-Lavalin announced that it had finalized the transfer of its investment in McGill Healthcare
Infrastructure Group (“MHIG”) and its holding company to SNC-Lavalin Infrastructure Partners LP (the “SNCL IP
Partnership”).
Net gain on disposal of MHIG
YEAR ENDED DECEMBER 31
Consideration received in cash
Consideration received in equity instruments of the SNCL IP Partnership
Total consideration received
Net assets disposed of (1)
Disposition-related costs
Gain on disposal of MHIG
Income taxes
Net gain on disposal of MHIG
(1)
Net assets disposed of mainly included a loan receivable of $88.9 million, a Capital investment accounted for by the equity method of
$17.5 million, a deferred income tax liability of $59.3 million and other current net assets of $3.7 million.
ASTORIA PROJECT PARTNERS II LLC
On August 28, 2018, SNC-Lavalin announced that it had reached an agreement to sell its ownership interest in Astoria
Project Partners II LLC (“Astoria II”), the legal entity that owned and operated the Astoria II power plant in New York
City. The purchaser, NM Harbert Astoria LLC, is a limited liability company, owned by affiliates of Northwestern
Mutual and Harbert Management Corporation. On October 24, 2018, SNC-Lavalin completed the sale of its ownership
interest in Astoria II.
Net gain on disposal of Astoria II
YEAR ENDED DECEMBER 31
Consideration received in cash
Deferred sale proceeds
Total consideration received
Net assets disposed of (2)
Cumulative amount of exchange differences on translating foreign operations reclassified from equity
Disposition-related costs
Gain on disposal of Astoria II
Income taxes
Net gain on disposal of Astoria II
(2)
Net assets disposed of included a Capital investment accounted for by the cost method of $54.8 million and a deferred income tax liability of
$6.4 million.
For the year ended December 31, 2018, the gain on disposals of Capital investments is presented in the Company’s
consolidated income statement as follows:
YEAR ENDED DECEMBER 31
Gain on disposal of MHIG
Gain on disposal of Astoria II
Gain on disposals of Capital investments
2018
BEFORE TAXES
INCOME TAXES
NET OF TAXES
$
62,714 $
(4,311) $
58,403
4,838
(3,418)
1,420
$
67,552 $
(7,729) $
59,823
120
120
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
$
2018
92,214
23,054
115,268
(50,792)
(1,762)
62,714
(4,311)
$
58,403
2018
51,336
2,742
54,078
(48,403)
(678)
(159)
4,838
(3,418)
1,420
$
$
5.
B)
CAPITAL INVESTMENTS (CONTINUED)
NET BOOK VALUE AND DESCRIPTIONS OF CAPITAL INVESTMENTS
The Company’s consolidated statement of financial position includes the following net assets (liabilities) from its
consolidated Capital investments and net book value from its Capital investments accounted for by the equity and cost
methods.
Net assets (liabilities) from Capital investments accounted for by the consolidation method
Net book value of Capital investments accounted for by the equity method (1)
Net book value of Capital investments accounted for by the cost method
Total net book value of Capital investments
(1)
DECEMBER 31
2019
DECEMBER 31
2018
$
(51,620) $
399,539
8,107
$
356,026 $
1,200
357,249
10,663
369,112
Includes the Company’s investment in Highway 407 ETR, for which the net book value was $nil as at December 31, 2019 and 2018.
I) CAPITAL INVESTMENTS ACCOUNTED FOR BY THE CONSOLIDATION METHOD
SNC-Lavalin’s main Capital investment accounted for by the consolidation method is detailed below:
NAME OF CAPITAL
INVESTMENT
PRINCIPAL ACTIVITY
SUBJECT TO
IFRIC 12
MATURITY OF
CONCESSION
AGREEMENT
LOCATION
DECEMBER 31
2019
DECEMBER 31
2018
InPower BC General
Partnership
TransitNEXT
General
Partnership
John Hart Generating Replacement
Facility
New Trillium Line extension (under
construction)
Yes
Yes
2033
Canada
100.0%
100.0%
2049
Canada
100.0%
—%
OWNERSHIP INTEREST
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
121
121
SNC-Lavalin 2019 Financial Report 5.
CAPITAL INVESTMENTS (CONTINUED)
II) CAPITAL INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
SNC-Lavalin’s main Capital investments accounted for by the equity method are listed below:
PRINCIPAL ACTIVITY
SUBJECT TO
IFRIC 12
MATURITY OF
CONCESSION
AGREEMENT
LOCATION
DECEMBER 31
2019
DECEMBER 31
2018
OWNERSHIP INTEREST
32-km toll Highway 407 East
Yes
2045 Canada
50.0%
50.0%
NAME OF CAPITAL INVESTMENT
Joint ventures:
407 East Development Group
General Partnership
(“407 EDGGP”)
407 International Inc.(1)
(“Highway 407 ETR”)
108-km toll highway under a
99-year concession agreement
Crosslinx Transit Solutions
General Partnership
(“Eglinton Crosstown”)
Eglinton Crosstown Light Rail
Transit project (under
construction)
Rideau Transit Group
Partnership (“Rideau”)
Signature on the Saint-
Laurent Group General
Partnership (“SSL”)
The Confederation Line, City
of Ottawa’s light rail transit
system
New Champlain Bridge
Corridor
TC Dôme S.A.S.(2)
5.3-km electric cog railway
(“TC Dôme”)
Associates:
Myah Tipaza S.p.A.
Shariket Kahraba Hadjret En
Nouss S.p.A.
SNC-Lavalin Infrastructure
Partners LP
Seawater desalination plant to
supply treated water under a
25-year take-or-pay agreement
1,227 MW gas-fired thermal
power plant supplying
electricity under a 20-year
take-or-pay agreement
Holding interests in mature
Capital investments
No
Yes
Yes
Yes
Yes
No
No
2098 Canada
6.76%
16.77%
2051 Canada
25.0%
25.0%
2043 Canada
40.0%
40.0%
2049 Canada
50.0%
50.0%
2043
France
51.0%
51.0%
N/A
Algeria
25.5%
25.5%
N/A
Algeria
26.0%
26.0%
No
N/A
Canada
20.0%
20.0%
(1)
(2)
Although the Company holds less than 20% of the equity shares of Highway 407 ETR, the Company exercises joint control over this entity
based on its contractual agreements.
Although the Company’s ownership interest TC Dôme is more than 50%, the Company does not exercise control over this entity based on its
contractual agreements.
N/A: not applicable
122
122
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
5.
CAPITAL INVESTMENTS (CONTINUED)
Capital investments accounted for by the equity method – joint ventures
SNC-Lavalin carries out part of its Capital investment activity through joint ventures which are accounted for by the
equity method. The aggregate amounts of current assets, non-current assets, current liabilities, non-current liabilities,
revenues and expenses related to such joint ventures are summarized below:
YEAR ENDED DECEMBER 31, 2019
Income statements
Revenues (at 100%)
Interest income (at 100%)
Interest expense (at 100%)
Depreciation and amortization (at 100%)
Income tax expense (at 100%)
YEAR ENDED DECEMBER 31, 2018
Income statements
Revenues (at 100%)
Interest income (at 100%)
Interest expense (at 100%)
Depreciation and amortization (at 100%)
Income tax expense (at 100%)
YEAR ENDED DECEMBER 31, 2019
Statements of comprehensive income
Net income (at 100%)
Other comprehensive loss (at 100%)
Total comprehensive income (at 100%)
YEAR ENDED DECEMBER 31, 2018
Statements of comprehensive income
Net income (at 100%)
Other comprehensive loss (at 100%)
Total comprehensive income (at 100%)
HIGHWAY 407 ETR
OTHER CAPITAL
INVESTMENTS
TOTAL
1,505,301 $
1,271,169 $ 2,776,470
24,512 $
20,584 $
45,096
444,615 $
116,317 $
560,932
105,512 $
207,489 $
— $
105,512
4 $
207,493
HIGHWAY 407 ETR
OTHER CAPITAL
INVESTMENTS
TOTAL
1,390,314 $
1,899,232 $ 3,289,546
19,786 $
9,624 $
29,410
390,008 $
119,803 $
509,811
107,348 $
194,044 $
— $
107,348
4 $
194,048
$
$
$
$
$
$
$
$
$
$
HIGHWAY 407 ETR
OTHER CAPITAL
INVESTMENTS
TOTAL
$
575,748 $
93,281 $
669,029
(778)
(3,006)
(3,784)
$
574,970 $
90,275 $
665,245
HIGHWAY 407 ETR
OTHER CAPITAL
INVESTMENTS
TOTAL
$
538,888 $
79,786 $
618,674
(755)
(3,100)
(3,855)
$
538,133 $
76,686 $
614,819
YEARS ENDED DECEMBER 31
Company’s share of net income of Capital investments based on its
ownership interest (1)
Company’s net income from Capital investments included in its income
statement (1)
(1)
See Note 1 on the following page
2019
2018
$
109,565 $
122,878
$
185,266 $
188,345
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
123
123
SNC-Lavalin 2019 Financial Report 5.
CAPITAL INVESTMENTS (CONTINUED)
DECEMBER 31, 2019
Statements of financial position
Cash and cash equivalents (at 100%)
Other current assets (at 100%)
Non-current assets (at 100%)
Total assets (at 100%)
Trade payables (at 100%)
Other current financial liabilities (at 100%)
Other current non-financial liabilities (at 100%)
Other non-current financial liabilities (at 100%)
Other non-current non-financial liabilities (at 100%)
Total liabilities (at 100%)
HIGHWAY 407 ETR
OTHER CAPITAL
INVESTMENTS
TOTAL
$
557,316 $
122,903 $
680,219
254,470
4,539,752
5,351,538
81,248
142,614
18,008
8,868,430
529,066
9,639,366
663,691
2,669,759
3,456,353
102,259
568,539
56,908
918,161
7,209,511
8,807,891
183,507
711,153
74,916
2,321,948
11,190,378
428
529,494
3,050,082
12,689,448
Net assets (liabilities) (at 100%)
Company’s carrying value of Capital investments included in its
statement of financial position (1)
$
(4,287,828) $
406,271 $
(3,881,557)
$
— $
227,943 $
227,943
DECEMBER 31, 2018
Statements of financial position
Cash and cash equivalents (at 100%)
Other current assets (at 100%)
Non-current assets (at 100%)
Total assets (at 100%)
Trade payables (at 100%)
Other current financial liabilities (at 100%)
Other current non-financial liabilities (at 100%)
Other non-current financial liabilities (at 100%)
Other non-current non-financial liabilities (at 100%)
Total liabilities (at 100%)
HIGHWAY 407 ETR
OTHER CAPITAL
INVESTMENTS
TOTAL
$
308,156 $
7,225 $
315,381
483,441
4,469,457
5,261,054
57,700
104,566
47,065
8,350,991
513,529
9,073,851
380,000
3,594,777
3,982,002
38,053
450,367
–
863,441
8,064,234
9,243,056
95,753
554,933
47,065
3,245,870
11,596,861
884
514,413
3,735,174
12,809,025
$
(3,812,797) $
246,828 $
(3,565,969)
Net assets (liabilities) (at 100%)
Company’s carrying value of Capital investments included in its
statement of financial position (1)
$
192,474
(1) Under the equity method of accounting, distributions from a joint venture reduce the carrying amount of the
investment. The equity method of accounting requires the Company to stop recognizing its share of the losses of a
joint venture when the recognition of such losses results in a negative balance for its investment, or where dividends
declared by the joint venture are in excess of the carrying amount of the investment. In these events, the carrying
value of the investment is reduced to $nil, but does not become negative, unless the Company has incurred legal or
constructive obligations or made payments on behalf of the joint venture. In these situations, the Company no
longer recognizes its share of net income of a Capital investment based on its ownership, but rather recognizes the
excess amount of dividends declared by a joint venture in its net income.
192,474 $
— $
As a result, the Company recognized in its income statement dividends from Highway 407 ETR of $146.1 million
in 2019 (2018: $154.3 million) and did not recognize its share of Highway 407 ETR’s net income of $72.0 million
(2018: $90.4 million) in the same period, as the carrying amount of its investment in Highway 407 ETR was $nil at
December 31, 2019 and 2018. The negative carrying value of the Company’s investment in Highway 407 ETR,
which is not recognized on the Company’s statement of financial position, amounted to $716.2 million as at
December 31, 2019 (2018: negative carrying value of $642.0 million).
124
124
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
5.
CAPITAL INVESTMENTS (CONTINUED)
Capital investments accounted for by the equity method - associates
The summary tables below provide supplementary information in respect of Capital investments classified as associates:
YEARS ENDED DECEMBER 31
Statements of comprehensive income
Revenues (at 100%)
Expenses (at 100%)
Net income (at 100%)
Other comprehensive income (loss) (at 100%)
Total comprehensive income (at 100%)
Company’s share of net income of Capital investments based on its ownership interest
Company’s share of net income from Capital investments included in its income statement
Statements of financial position
Current assets (at 100%)
Non-current assets (at 100%)
Total assets (at 100%)
Current liabilities (at 100%)
Non-current liabilities (at 100%)
Total liabilities (at 100%)
Net assets (at 100%)
Company’s carrying value of Capital investments included in its statement of financial position
III) CAPITAL INVESTMENTS ACCOUNTED FOR BY THE COST METHOD
The main Capital investments accounted for by the cost method are listed below:
2019
2018
$
308,023 $
250,223
196,102
111,921
—
$
$
$
111,921 $
25,277 $
25,277 $
180,969
69,254
—
69,254
15,742
15,742
DECEMBER 31
2019
DECEMBER 31
2018
$
358,457 $
369,711
685,714
1,044,171
146,578
261,971
408,549
729,648
1,099,359
157,761
339,562
497,323
$
$
635,622 $
602,036
171,596 $
164,775
NAME OF CAPITAL INVESTMENT
PRINCIPAL ACTIVITY
Carlyle Global Infrastructure
Opportunity Fund, L.P. (1)
Holding investments in infrastructure projects
related to energy, power and other natural
resources
Highway Concessions One
Private Limited (1)
Engages in the business of bidding for, owning,
acquiring, investing, developing, implementing
and operating infrastructure in the roads sector
of India
OWNERSHIP INTEREST
LOCATION
U.S.A.
DECEMBER 31
2019
DECEMBER 31
2018
4.5%
8.1%
India
10.0%
10.0%
(1)
Included in the measurement category of “at fair value through other comprehensive income”
The investments in Carlyle Global Infrastructure Opportunity Fund, L.P. and in Highway Concession One Private
Limited are designated to be measured at fair value through other comprehensive income to avoid the variability of the
Company’s net income in the future periods.
For the years ended December 31, 2019 and 2018,
$1.9 million and $1.9 million, respectively, from investments accounted for by the cost method.
the Company’s consolidated income includes revenues of
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
125
125
SNC-Lavalin 2019 Financial Report 5.
C)
CAPITAL INVESTMENTS (CONTINUED)
PAYMENTS AND REMAINING COMMITMENTS IN CAPITAL INVESTMENTS
When making investments in infrastructure concessions, SNC-Lavalin may not be required to make its contribution
immediately but instead may commit to make its contribution over time.
The following table summarizes SNC-Lavalin’s payments and outstanding commitments to invest
investments accounted for by the equity or cost methods as at December 31, 2019 and 2018:
in Capital
Commitments to invest in Capital investments – January 1
Increase in commitments to invest in Capital investments
Payments for Capital investments during the year
Commitments to invest in Capital investments – December 31
$
2019
108,312 $
2,379
(39,967)
2018
98,050
10,262
—
$
70,724 $
108,312
At December 31, 2019, the commitments to invest in Capital investments were related to contributions for SSL,
Eglinton Crosstown and Carlyle Global Infrastructure Opportunity Fund, L.P. (2018: Rideau, SSL, Eglinton Crosstown
and Carlyle Global Infrastructure Opportunity Fund, L.P.) and were presented as “Other current financial liabilities” (see
Note 18) since they are either expected to be paid in the following year or are callable on demand.
In 2016, SNC-Lavalin signed an agreement to support a commitment of US$100 million to a fund focused on global
infrastructure investments sponsored by The Carlyle Group (“Carlyle”), subject to certain conditions. The intent of this
agreement is for SNC-Lavalin and Carlyle to cooperate with respect to investments in, and work on, infrastructure
to invest amounted to US$89.3 million (approximately CA$117.2 million) as at
projects. Such commitment
December 31, 2019 (2018: US$92.5 million [approximately CA$126.0 million]) and will be recognized as a liability, as
a whole or in part, when the accounting conditions will be met.
6.
BUSINESS COMBINATION
I)
IN 2019
In 2019, there was no business combination.
II)
IN 2018
LINXON PVT LTD
On September 1, 2018, SNC-Lavalin acquired from a subsidiary of ABB Ltd (“ABB”) a 51% ownership interest in
Linxon Pvt Ltd (“Linxon”), incorporated under the laws of England and Wales, for the execution of turnkey electrical
substation projects. Turnkey solutions include project design, engineering, procurement, construction, management,
commissioning and after-sales support. The primary reason for this business combination was to combine ABB’s
technology leadership with SNC-Lavalin’s expertise in managing projects to deliver enhanced customer value.
The acquisition of Linxon by SNC-Lavalin has been accounted for using the acquisition method and Linxon has been
consolidated from the effective date of acquisition, which is September 1, 2018, with a non-controlling interest of 49%.
In 2019, the Company modified its preliminary allocation of purchase price and has retrospectively revised the impact of
changes to the preliminary allocation of purchase price. However, since the effect on the 2018 net income was not
material, the cumulative adjustment to earnings was accounted for in 2019.
126
126
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
6.
BUSINESS COMBINATION (CONTINUED)
FAIR VALUE OF NET IDENTIFIABLE LIABILITIES OF BUSINESS ACQUIRED
AT SEPTEMBER 1, 2018
Cash
Trade receivables
Contract assets
Other current and non-current assets
Intangible assets related to Linxon acquisition (1)
Trade payables
Contract liabilities
Other current and non-current liabilities
PRELIMINARY
ALLOCATION
ADJUSTMENTS
FINAL
ALLOCATION
$
8,314 $
— $
9,398
14,208
9,919
—
(30,403)
(9,806)
(5,793)
—
—
5,216
14,138
—
—
(31,229)
8,314
9,398
14,208
15,135
14,138
(30,403)
(9,806)
(37,022)
$
(4,163) $
(11,875) $
(16,038)
Fair value of net identifiable liabilities of business acquired
(1)
Intangible assets with finite useful life related to Linxon acquisition are revenue backlog, which is amortized using the straight-line method over
a period from 0.5 to 3.5 years.
GOODWILL ARISING ON THE BUSINESS COMBINATION
AT SEPTEMBER 1, 2018
Contingent consideration to be transferred to seller (2)
Fair value of net identifiable liabilities of business acquired
Non-controlling interest of 49% (3)
Cash received by Linxon for working capital adjustment
Share of non-controlling interest of cash received by Linxon for
working capital adjustment
Goodwill (4)
PRELIMINARY
ALLOCATION
ADJUSTMENTS
FINAL
ALLOCATION
$
16,470 $
— $
4,163
(2,040)
—
—
11,875
(5,819)
(9,351)
4,582
$
18,593 $
1,287 $
16,470
16,038
(7,859)
(9,351)
4,582
19,880
(2)
(3)
(4)
Under the business combination arrangement, SNC-Lavalin is required to remit a portion of its future dividends distributed in cash by Linxon, if
any, to ABB for a total aggregate amount of US$25 million (approximately CA$32.6 million). The range of outcome of the contingent
consideration is between US$nil and US$25 million (approximately between CA$nil and CA$32.6 million). The amount of $16.5 million
represents the preliminary estimated fair value of this obligation at the acquisition date, which was determined using the present value technique.
The non-controlling interest recognized at the acquisition date was measured at its proportionate share of the value of net identifiable liabilities
acquired.
Goodwill represents the excess of the cost of acquisition and of non-controlling interest over the net identifiable tangible and intangible assets
acquired and liabilities assumed at their acquisition-date fair values. The fair value allocated to tangible and intangible assets acquired and
liabilities assumed are based on assumptions of management. The total amount of goodwill that is expected to be deductible for tax purposes is
$0.3 million.
NET CASH INFLOW ON ACQUISITION OF LINXON
YEAR ENDED DECEMBER 31
Consideration paid in cash
Less: Return of contingent consideration to be transferred to seller received in cash (5)
Less: Cash received by Linxon for working capital adjustment
Net cash inflow on acquisition of Linxon
(5)
$
2019
—
5,539
9,351
$
(14,890)
Under the business combination arrangement, ABB is required to compensate Linxon in cash an amount based on the date of transfer of certain
additional assets and liabilities, up to June 30, 2019. The range of outcome of such right to a return of contingent consideration to be transferred
to seller was between US$nil and US$8.3 million (approximately between CA$nil and CA$10.8 million).
III) ACQUISITION-RELATED COSTS AND INTEGRATION COSTS
Acquisition-related costs and integration costs amounted to $8.3 million in the year ended December 31, 2019 (2018:
$54.9 million), of which $nil million related solely to acquisition-related costs in the year ended December 31, 2019
(2018: $2.0 million).
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
127
127
SNC-Lavalin 2019 Financial Report 7.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
A) CASH AND CASH EQUIVALENTS
Bank balances, bank term deposits and bankers’ acceptances
Cash and cash equivalents
B) RESTRICTED CASH
Bank balances, bank term deposits and bankers’ acceptances
Restricted cash
DECEMBER 31
2019
DECEMBER 31
2018
$
$
1,188,636 $
1,188,636 $
634,084
634,084
DECEMBER 31
2019
DECEMBER 31
2018
$
$
34,118 $
34,118 $
12,722
12,722
8.
A)
TRADE RECEIVABLES AND CONTRACT ASSETS
TRADE RECEIVABLES
The following table presents the Company’s trade receivables that are within normal terms of payment separately from
those that are past due, with a reconciliation to the net carrying amount:
Trade receivables:
Within normal terms of payment
Past due
Total trade receivables
Allowance for expected credit losses
DECEMBER 31
2019
DECEMBER 31
2018
$
1,161,005 $
628,135
1,789,140
(255,698)
1,169,919
574,169
1,744,088
(240,264)
Trade receivables, net of allowance for expected credit losses
$
1,533,442 $
1,503,824
The change in the allowance for expected credit losses is detailed below:
YEARS ENDED DECEMBER 31
Balance at beginning of year
Transitional adjustment on adoption of a new accounting standard
Adjusted balance at beginning of year
Change in allowance, other than write-offs and recoveries
Write-offs of trade receivables
Recoveries
Balance at end of year
B)
CONTRACT ASSETS
$
2019
240,264 $
—
240,264
43,102
(9,133)
(18,535)
$
255,698 $
2018
163,985
3,044
167,029
128,897
(33,587)
(22,075)
240,264
As at December 31, 2019, the Company has contract assets of $1,755.3 million (2018: $1,751.1 million), which is net of
an allowance for expected credit losses of $18.3 million (2018: $11.2 million). The change in the allowance for expected
credit losses is detailed below:
YEARS ENDED DECEMBER 31
Balance at beginning of year
Transitional adjustment on adoption of a new accounting standard
Adjusted balance at beginning of year
Change in allowance, other than write-offs
Write-offs of contract assets
Balance at end of year
2019
$
11,193 $
—
11,193
10,523
(3,454)
$
18,262 $
2018
7,985
2,471
10,456
2,179
(1,442)
11,193
The significant changes in the balance of contract assets are disclosed in Note 9B, while the information about the credit
exposures is disclosed in Note 30B.
128
128
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
9.
A)
REVENUE
DISAGGREGATION OF REVENUE
Revenues by geographic area
The following tables present revenues by geographic area according to project
December 31, 2019 and 2018:
location for the years ended
YEAR ENDED DECEMBER 31
Americas:
Canada
United States
Latin America
Middle East and Africa:
Saudi Arabia
Other Middle East countries
Africa
Asia Pacific:
Australia
Other
Europe:
United Kingdom
Other
YEAR ENDED DECEMBER 31
Americas:
Canada
United States
Latin America
Middle East and Africa:
Saudi Arabia
Other Middle East countries
Africa
Asia Pacific:
Australia
Other
Europe:
United Kingdom
Other
REVENUE FROM CONTRACTS
WITH CUSTOMERS
OTHER REVENUE
$
2,594,964 $
218,757 $
1,803,940
181,598
871,054
812,486
343,401
173,746
326,771
1,791,162
346,474
21,592
—
—
5,143
19,636
—
35
2,933
1,918
$
9,245,596 $
270,014 $
REVENUE FROM CONTRACTS
WITH CUSTOMERS
OTHER REVENUE
$
2,729,692 $
232,864 $
1,641,622
302,412
1,020,724
957,560
457,609
511,288
227,604
1,648,358
303,539
23,940
—
—
4,896
11,517
—
26
10,064
291
2019
TOTAL
2,813,721
1,825,532
181,598
871,054
817,629
363,037
173,746
326,806
1,794,095
348,392
9,515,610
2018
TOTAL
2,962,556
1,665,562
302,412
1,020,724
962,456
469,126
511,288
227,630
1,658,422
303,830
In the year ended December 31, 2019, Canada, the United States and the United Kingdom (2018: Canada, the United
States, Saudi Arabia and the United Kingdom) were the only countries where the Company derived more than 10% of
its revenues.
$
9,800,408 $
283,598 $
10,084,006
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
129
129
SNC-Lavalin 2019 Financial Report 9.
REVENUE (CONTINUED)
Revenues by type of contracts
The types of contracts presented are defined as follow:
Reimbursable and engineering service contracts: Under reimbursable contracts, the Company charges the customer
for the actual cost incurred plus a mark-up that could take various forms such as a fixed-fee per unit, a percentage of
costs incurred or an incentive fee based on achieving certain targets, performance factors or contractual milestones.
Reimbursable contracts also include unit-rate contracts for which a fixed amount per quantity is charged to the customer,
and reimbursable contracts with a cap. Engineering service contracts include: i) time and material agreements based on
hourly rates and fixed-price lump-sum contracts with limited procurement or construction risks; and ii) O&M contracts.
Standardized EPC contracts: Under standardized EPC contracts, the Company provides its repetitive Engineering,
Procurement and Construction (“EPC”) offerings that are lower-risk, standardized solutions for: i) district cooling
plants; and ii) power substations executed through its Linxon subsidiary.
Lump-sum turnkey construction contracts: Under lump-sum turnkey construction contracts, the Company completes
the work required for the project at a lump-sum price. Before entering into such contracts, the Company estimates the
total cost of the project, plus a profit margin. The Company’s actual profit margin may vary based on its ability to
achieve the project requirements at above or below the initial estimated costs.
The following tables present revenues by type of contracts for the years ended December 31, 2019 and 2018:
REIMBURSABLE AND
ENGINEERING SERVICE
CONTRACTS
STANDARDIZED EPC
CONTRACTS
LUMP-SUM TURNKEY
CONSTRUCTION
CONTRACTS
2019
TOTAL
$
3,908,772 $
— $
— $
3,908,772
YEAR ENDED DECEMBER 31
EDPM
Nuclear
Infrastructure Services
Revenue from contracts with customers – SNCL
Engineering Services, excluding Capital
Resources
Infrastructure EPC Projects
Revenue from contracts with customers – SNCL
Projects
6,962,548 $
Revenue from E&C investments accounted for by the equity method (Note 17)
Revenue from contracts with customers – Capital segment
Other revenue – Capital segment
$
—
480,809
480,809
—
—
—
11,018
—
11,018
692,069
1,076,744
1,768,813
480,809 $
1,779,831 $
906,675
1,178,582
5,994,029
2,152,415
1,076,744
3,229,159
9,223,188
29,702
22,408
240,312
REIMBURSABLE AND
ENGINEERING SERVICE
CONTRACTS
STANDARDIZED EPC
CONTRACTS
LUMP-SUM TURNKEY
CONSTRUCTION
CONTRACTS
$
9,515,610
2018
TOTAL
$
3,666,341 $
— $
— $
3,666,341
YEAR ENDED DECEMBER 31
EDPM
Nuclear
Infrastructure Services
Revenue from contracts with customers – SNCL
Engineering Services, excluding Capital
Resources
Infrastructure EPC Projects
Revenue from contracts with customers – SNCL
Projects
7,127,852 $
Revenue from E&C investments accounted for by the equity method (Note 17)
Revenue from contracts with customers – Capital segment
Other revenue – Capital segment
$
130
130
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
—
168,679
168,679
—
—
—
7,898
—
7,898
1,181,375
1,296,268
911,305
912,046
5,489,692
2,996,112
1,296,268
2,477,643
4,292,380
168,679 $
2,485,541 $
9,782,072
37,277
18,336
246,321
$
10,084,006
895,657
697,773
5,502,202
1,460,346
—
1,460,346
903,407
743,367
5,313,115
1,814,737
—
1,814,737
9.
B)
REVENUE (CONTINUED)
CONTRACT BALANCES
Trade receivables (Note 8A)
Contract assets (Note 8B)
Contract liabilities
DECEMBER 31
2019
1,533,442 $
$
1,755,325
$
889,953 $
DECEMBER 31
2018
1,503,824
1,751,068
972,959
Trade receivables are rights to consideration in exchange of goods or services that the Company has transferred to a
customer when such rights are only conditional on the passage of time. Trade receivables are non-interest bearing and
are generally on terms of 30 to 90 days.
Contract assets are rights to consideration in exchange of goods or services that the Company has transferred to a
customer when such rights are not only conditional on passage of time, but also on something else, such as the
satisfaction of further performance obligations under the contract. Contract assets are initially recognized for revenue
earned from E&C activities and are usually derecognized when they become trade receivables.
Contracts liabilities arise from E&C activities and represent the cumulative amounts received and contractually
receivable from customers by the Company that exceed the right to consideration resulting from the Company’s
performance under a given contract.
The following table presents the amount of revenue recognized from:
YEARS ENDED DECEMBER 31
Amounts included in contract liabilities at the beginning of the year
Performance obligations satisfied or partially satisfied in previous years (reversal)
$
$
2019
486,775 $
(254,787) $
2018
767,037
143,581
As a significant portion the Company’s revenues are recognized over time, the contractual terms which determine when
consideration becomes receivable from the customer, such as upon the achievement of certain milestones,
the
Company’s reaching such milestones earlier or later than anticipated and the ability to obtain downpayments on
contracts will influence, among other factors, the balance of trade receivables, contract assets and contract liabilities on a
given contract. Due to i) the large number of contracts entered into by the Company; ii) the variety of contractual terms
of such contracts; and iii) the different level of progress of the underlying projects, the variance of the contract assets
and contract
liabilities balances is not usually attributable to one given factor, except for significant business
combinations or divestitures. In 2019, there were no business combination and no business divestiture. Also, while the
amount of contract balances at the end of 2019 was in line with the balance at the end of 2018, the amount of contract
liabilities decreased during the same period, reflecting in part progress made on certain major projects.
C)
REMAINING PERFORMANCE OBLIGATIONS
The amount of transaction price allocated to performance obligations that are unsatisfied (or partially satisfied) at
December 31, 2019, on all contracts with customers, is expected to be recognized in revenues as follows: 2020 –
$5.6 billion, 2021 – $2.3 billion, 2022 – $1.2 billion, and thereafter – $6.1 billion (2018: 2019 – $5.8 billion, 2020 –
$2.3 billion, 2021 – $1.2 billion, and thereafter – $5.6 billion). It should be noted that these amounts exclude any
estimated amounts of variable consideration that are excluded from the transaction price.
10.
INVENTORIES
Raw materials
Work in progress
Finished goods
Inventories
DECEMBER 31
2019
DECEMBER 31
2018
$
38,042 $
29,563
17,283
$
84,888 $
18,612
31,620
53,973
104,205
The cost of inventories recognized by the Company as an expense during the year ended December 31, 2019 was
$150.1 million (2018: $180.6 million). The amount of write-down of inventories recognized as an expense in the year
ended December 31, 2019 was $31.7 million (2018: $12.7 million).
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
131
131
SNC-Lavalin 2019 Financial Report 11. OTHER CURRENT FINANCIAL ASSETS
Advances to suppliers, subcontractors and employees and deposits on contracts
Derivative financial instruments used for hedges – favourable fair value
Life insurance policies measured at FVTPL (1)
Current portion of receivables under service concession arrangements
Return of contingent consideration to be transferred to seller (Note 6)
Recovery of costs expected from suppliers and subcontractors
Current portion of finance lease receivables
Derivative financial instruments related to share unit plans – favourable fair value
Other
Other current financial assets
(1)
Fair value through profit or loss (“FVTPL”)
12. OTHER CURRENT NON-FINANCIAL ASSETS
Income taxes and other taxes receivable
Prepaid expenses and other
Other current non-financial assets
13.
PROPERTY AND EQUIPMENT
DECEMBER 31
2019
DECEMBER 31
2018
$
54,895 $
19,246
6,047
17,556
—
49,687
3,277
1,900
69,700
$
222,308 $
42,939
39,952
5,903
14,160
5,671
48,926
—
—
89,740
247,291
DECEMBER 31
2019
DECEMBER 31
2018
$
$
220,629 $
110,746
331,375 $
262,470
142,349
404,819
Gross carrying amount
Balance as at January 1, 2019
Additions
Effect of foreign currency
exchange differences
Disposals / retirements / salvage
Balance as at December 31, 2019
Accumulated depreciation and
impairment losses
Balance as at January 1, 2019
Depreciation expense
Effect of foreign currency
exchange differences
Impairment loss
Disposals / retirements / salvage
Balance as at December 31, 2019
BUILDINGS
COMPUTER
EQUIPMENT
OFFICE
FURNITURE
MACHINERY
OTHER
TOTAL
$ 102,748 $ 433,670 $ 158,762 $ 147,060 $ 234,794 $ 1,077,034
366
51,291
8,377
17,235
48,243
125,512
(2,832)
(2,484)
(7,620)
(6,580)
(2,650)
(247)
(6,279)
(1,631)
(11,924)
(719)
(31,305)
(11,661)
$
97,798 $ 470,761 $ 164,242 $ 156,385 $ 270,394 $ 1,159,580
$
40,141 $ 311,800 $ 120,981 $
28,400 $
93,093 $ 594,415
4,509
43,704
8,960
31,584
19,483
108,240
(1,355)
33
(1,225)
(6,309)
92
(198)
(2,065)
446
(112)
(1,591)
9,429
(1,690)
(8,894)
—
(266)
(20,214)
10,000
(3,491)
$
42,103 $ 349,089 $ 128,210 $
66,132 $ 103,416 $ 688,950
132
132
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
13.
PROPERTY AND EQUIPMENT (CONTINUED)
Gross carrying amount
Balance as at January 1, 2018
$
89,639 $ 374,821 $ 150,180 $
83,986 $ 209,254 $ 907,880
BUILDINGS
COMPUTER
EQUIPMENT
OFFICE
FURNITURE
MACHINERY
OTHER
TOTAL
18,122
69,892
12,655
69,069
13,528
183,266
—
—
—
490
—
490
Additions
Additions through business
combinations
Effect of foreign currency
exchange differences
Disposals / retirements / salvage
(10,887)
(20,837)
5,874
9,794
2,278
(6,351)
7,858
(14,343)
16,155
(4,143)
41,959
(56,561)
Balance as at December 31, 2018
$ 102,748 $ 433,670 $ 158,762 $ 147,060 $ 234,794 $ 1,077,034
Accumulated depreciation
Balance as at January 1, 2018
$
26,254 $ 274,278 $ 107,987 $
12,633 $
72,590 $ 493,742
Depreciation expense
Effect of foreign currency
exchange differences
Disposals / retirements / salvage
21,417
40,942
16,466
22,346
16,927
118,098
2,140
(9,670)
9,366
(12,786)
1,204
(4,676)
2,224
(8,803)
5,309
(1,733)
20,243
(37,668)
Balance as at December 31, 2018
$
40,141 $ 311,800 $ 120,981 $
28,400 $
93,093 $ 594,415
Net book value:
As at December 31, 2019
As at December 31, 2018
$
$
55,695 $ 121,672 $
36,032 $
90,253 $ 166,978 $ 470,630
62,607 $ 121,870 $
37,781 $ 118,660 $ 141,701 $ 482,619
Net book value of assets subject to operating leases:
As at December 31, 2019
$
— $
— $
— $
66,570 $
— $
66,570
An amount of $23.9 million as at December 31, 2019 (2018: $17.5 million) of property and equipment was not being
depreciated as the assets were under construction. The non-cash additions of property and equipment amounted to
$3.1 million in the year ended December 31, 2019 (2018: $30.8 million).
14. GOODWILL
The following table details a reconciliation of the carrying amount of the Company’s goodwill:
Balance at January 1, 2018
Net foreign currency exchange differences
Additional amount recognized from the adjustments to the final allocation of purchase price of Atkins
Amount derecognized from the adjustments to the final allocation of purchase price of Data Transfer Solutions
Goodwill arising from the acquisition of Linxon completed in the year
Impairment of goodwill
Balance at December 31, 2018
Net foreign currency exchange differences
Additional amount recognized from the adjustments to the final allocation of purchase price of Linxon
Impairment of goodwill
Balance at December 31, 2019
$
6,323,440
279,943
11,358
(20,662)
16,059
(1,240,415)
5,369,723
(143,435)
3,821
(1,801,015)
$
3,429,094
For the purpose of annual impairment testing, goodwill is allocated to CGU or groups of CGU, which are the units
expected to benefit from the synergies of the business combinations in which the goodwill arises.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
133
133
SNC-Lavalin 2019 Financial Report 14.
GOODWILL (CONTINUED)
Following the Company’s new organizational structure that took effect on January 1, 2019 and the Company’s new
strategic direction (see Note 2C), the Company’s goodwill was reallocated to the following CGU and groups of CGU as
follows:
CGU OR GROUP OF CGU
EDPM
Infrastructure Services
Nuclear
Resources
Linxon
(1)
Comparative figures have been revised (see Note 2C)
I)
IN 2019
DECEMBER 31
2019
DECEMBER 31
(1)
2018
$
2,625,033 $
2,679,753
141,741
642,516
—
19,804
141,796
662,254
1,869,126
16,794
$
3,429,094 $
5,369,723
As at June 30, 2019, goodwill was impaired by $1.8 billion ($1.7 billion after income taxes) in the Resources CGU.
Such CGU corresponds to a reportable segment. The impairment is largely attributable to the Company’s decision to
cease bidding on lump-sum turnkey construction projects, as well as lower than expected performance in Resources in
the first half of the year and challenges in replenishing the backlog. The recoverable amount of this CGU was
determined using the value in use approach as at June 30, 2019, based on a terminal growth rate of 2.5% and a discount
rate of 11.3%.
In 2019, approximately 77% of the Company’s goodwill balance is allocated to the EDPM CGU. The recoverable
amount of this CGU, based on a terminal growth rate of 2.5% and a discount rate of 9.4%, exceeded its carrying amount
by approximately $829 million as at October 31, 2019. Assuming all other assumptions remained the same, a 220-basis
point decrease in the terminal growth rate or a 165-basis point increase in the discount rate would have caused the
EDPM CGU’s carrying amount to be comparable to its recoverable amount as at that date.
No reasonable change in the key assumptions used for the other CGU or group of CGU would have resulted in an
impairment loss as at October 31, 2019. The recoverable amount of other CGU or group of CGU was determined based
on the value in use approach. Under this approach, the following assumptions were used: cash flows beyond the
long-term forecast were extrapolated using a growth rate of 2.5% in 2019 and discount rates ranging from 9.5% to
11.0% have been used in 2019.
II)
IN 2018
As at October 31, 2018, goodwill was impaired by $1.24 billion in the previously called Oil & Gas CGU, which is part
of the Resources CGU starting from January 1st, 2019 (see Note 2C). Such CGU corresponded to a reportable segment.
The impairment reflected macro challenges as well as some Company specific headwinds, which were impacting its
ability to grow. Inter-governmental relations between Canada and Saudi Arabia, together with unpredictable commodity
prices and uncertain client investment plans, have led to deterioration in its near-term prospects. The recoverable amount
of this CGU was determined using the value in use approach as at October 31, 2018, based on a terminal growth rate of
2.5% and a discount rate of 11.3%.
In 2018, approximately 50% of the Company’s goodwill balance is allocated to the EDPM CGU, following the
acquisition of Atkins in July 2017 and Data Transfer Solutions LLC in October 2017. The recoverable amount of this
CGU, based on a terminal growth rate of 2.5% and a discount rate of 10.5%, exceeded its carrying amount by
$133.8 million as at October 31, 2018. Assuming all other assumptions remained the same, a 42-basis point decrease in
the terminal growth rate or a 45-basis point increase in the discount rate would have caused the EDPM CGU’s carrying
amount to be comparable to its recoverable amount as at that date.
No reasonable change in the key assumptions used for the other CGU or group of CGU would have resulted in an
impairment loss as at October 31, 2018. Except for the previously called Oil & Gas CGU, the recoverable amount of
other CGU or group of CGU was determined based on the value in use approach. Under this approach, the following
assumptions were used: cash flows beyond the long-term forecast were extrapolated using a growth rate of 2.5% in 2018
and discount rates ranging from 10.5% to 12.8% have been used in 2018.
134
134
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
15.
INTANGIBLE ASSETS RELATED TO BUSINESS COMBINATIONS
The following tables detail a reconciliation of the carrying amount of intangible assets related to business combinations:
REVENUE
BACKLOG
CUSTOMER
RELATIONSHIPS
TRADEMARKS
TOTAL
Gross carrying amount
Balance as at January 1, 2019
Additions through a business combination (Note 6)
Derecognition of intangible assets
Effect of foreign currency exchange differences
$
206,220 $
1,008,313 $
140,929 $
1,355,462
14,138
(3,815)
(1,913)
—
—
—
—
(8,406)
(2,948)
14,138
(3,815)
(13,267)
Balance as at December 31, 2019
$
214,630 $
999,907 $
137,981 $
1,352,518
Accumulated depreciation and impairment losses
Balance as at January 1, 2019
Amortization expense
Impairment loss
Derecognition of intangible assets
Effect of foreign currency exchange differences
$
106,414 $
264,830 $
63,632 $
434,876
70,663
—
(3,815)
(57)
91,657
71,756
—
1,995
19,663
1,075
—
(893)
181,983
72,831
(3,815)
1,045
Balance as at December 31, 2019
$
173,205 $
430,238 $
83,477 $
686,920
Gross carrying amount
Balance as at January 1, 2018
REVENUE
BACKLOG
CUSTOMER
RELATIONSHIPS
TRADEMARKS
TOTAL
$
324,707 $
969,963 $
131,547 $
1,426,217
Additions through a business combination
Derecognition of intangible assets
Effect of foreign currency exchange differences
2,466
(135,994)
15,041
15,410
—
22,940
7,269
—
2,113
25,145
(135,994)
40,094
Balance as at December 31, 2018
$
206,220 $
1,008,313 $
140,929 $
1,355,462
Accumulated depreciation
Balance as at January 1, 2018
Amortization expense
Derecognition of intangible assets
Effect of foreign currency exchange differences
$
164,046 $
139,517 $
32,817 $
336,380
70,888
(135,994)
7,474
108,289
—
17,024
27,294
—
3,521
206,471
(135,994)
28,019
Balance as at December 31, 2018
$
106,414 $
264,830 $
63,632 $
434,876
Net book value:
As at December 31, 2019
As at December 31, 2018
$
$
41,425 $
569,669 $
54,504 $
665,598
99,806 $
743,483 $
77,297 $
920,586
16. OTHER NON-CURRENT FINANCIAL ASSETS
Derivative financial instruments related to share unit plans – favourable fair value (Note 23C)
Other derivative financial instruments – favourable fair value
Non-current portion of finance lease receivables
Contingent consideration receivable related to disposal of the 10.01% interest in
Highway 407 ETR (Note 5A)
Other
Other non-current financial assets
DECEMBER 31
2019
DECEMBER 31
2018
$
6,561 $
2,436
24,666
57,207
25,071
$
115,941 $
—
5,981
—
—
24,042
30,023
The Company’s finance lease receivables relate mainly to the subleases of its unused office space. In 2019, the increase
of finance lease receivables was mainly due to the adoption of IFRS 16 using the modified retrospective method.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
135
135
SNC-Lavalin 2019 Financial Report 17. OTHER NON-CURRENT NON-FINANCIAL ASSETS
Post-employment benefit assets (Note 32A)
E&C investments accounted for by the equity method
Other
DECEMBER 31
2019
DECEMBER 31
2018
$
10,979 $
27,145
55,374
27,893
69,847
33,622
Other non-current non-financial assets
$
93,498 $
131,362
E&C investments accounted for by the equity method – joint ventures
SNC-Lavalin carries out part of its E&C investment activity through joint ventures which are accounted for by the
equity method. The aggregate amounts of current assets, non-current assets, current liabilities, non-current liabilities,
revenues and expenses related to such joint ventures are summarized below:
YEARS ENDED DECEMBER 31
Income statements
Revenues (at 100%)
Interest income (at 100%)
Interest expense (at 100%)
Depreciation and amortization (at 100%)
Income tax expense (at 100%)
YEARS ENDED DECEMBER 31
Statements of comprehensive income
Net income (at 100%)
Other comprehensive loss (at 100%)
Total comprehensive income (at 100%)
YEARS ENDED DECEMBER 31
Company’s share of net income of E&C investments based on its ownership interest
Company’s net income from E&C investments included in its income statement
Statements of financial position
Cash and cash equivalents (at 100%)
Other current assets (at 100%)
Non-current assets (at 100%)
Total assets (at 100%)
Trade payables (at 100%)
Other current financial liabilities (at 100%)
Other current non-financial liabilities (at 100%)
Other non-current financial liabilities (at 100%)
Other non-current non-financial liabilities (at 100%)
Total liabilities (at 100%)
Net assets (liabilities) (at 100%)
2019
2018
$
$
$
$
$
1,629,284 $
1,426,790
4,162 $
5,253 $
3,361 $
209 $
3,042
3,831
406
266
2019
2018
$
102,862 $
102,229
(2,025)
—
$
100,837 $
102,229
$
$
2019
29,702 $
29,702 $
2018
37,277
37,277
DECEMBER 31
2019
DECEMBER 31
2018
$
232,152 $
215,780
85,320
533,252
110,785
198,978
7,506
26,490
—
343,759
$
189,493 $
237,457
356,034
117,131
710,622
261,987
170,119
6,849
40,640
1,735
481,330
229,292
Company’s carrying value of E&C investments included in its statement of financial
position
$
27,145 $
69,847
136
136
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
17.
OTHER NON-CURRENT NON-FINANCIAL ASSETS (CONTINUED)
E&C investments accounted for by the equity method - associates
The summary tables below provide supplementary information in respect of E&C investments classified as associates:
YEARS ENDED DECEMBER 31
Statements of comprehensive income
Revenues (at 100%)
Expenses (at 100%)
Net income (loss) (at 100%)
Other comprehensive income (at 100%)
Total comprehensive income (loss) (at 100%)
Company’s share of net income of E&C investments based on its ownership
interest
Company’s share of net income from E&C investments included in its income
statement
2019
2018
$
181,922 $
180,505
1,417
—
1,417 $
— $
— $
$
$
$
166,333
166,147
186
—
186
—
—
DECEMBER 31
2019
DECEMBER 31
2018
Statements of financial position
Current assets (at 100%)
Non-current assets (at 100%)
Total assets (at 100%)
Current liabilities (at 100%)
Non-current liabilities (at 100%)
Total liabilities (at 100%)
Net assets (at 100%)
Company’s carrying value of E&C investments included in its statement of
financial position
18. OTHER CURRENT FINANCIAL LIABILITIES
$
62,649 $
4,527
67,176
54,320
3,168
57,488
9,688 $
36,604
3,524
40,128
31,165
1,248
32,413
7,715
— $
—
DECEMBER 31
2019
DECEMBER 31
2018
$
$
Commitments to invest in Capital investments accounted for by the equity and cost methods
(Note 5C)
$
70,724 $
108,312
Retentions on supplier contracts
Balance of purchase price payable relating to acquisition of businesses
Derivative financial instruments used for hedges – unfavourable fair value
Derivative financial instruments related to share unit plans – unfavourable fair value (Note 23C)
Federal charges settlement (PPSC) payable (Note 33)
Other
Other current financial liabilities
19. OTHER CURRENT NON-FINANCIAL LIABILITIES
Income taxes and other taxes payable
Share unit plans’ liabilities (Note 23C)
Other
Other current non-financial liabilities
112,470
1,736
17,086
—
55,625
30,075
112,679
1,808
59,592
662
—
15,648
$
287,716 $
298,701
DECEMBER 31
2019
DECEMBER 31
2018
$
324,662 $
343,772
56,122
2,416
74,790
6,299
$
383,200 $
424,861
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
137
137
SNC-Lavalin 2019 Financial Report 20.
SHORT-TERM DEBT AND LONG-TERM DEBT
As at December 31, 2019 and 2018, the Company’s short-term debt and long-term debt included in its consolidated
statement of financial position were as follows:
A)
RECOURSE DEBT
Recourse debt:
Revolving Facility (i)
Term Loan (ii)
Series 2 Debentures (iii)
Series 3 Debentures (iii)
Series 4 Debentures (iii)
Series 5 Debentures (iii)
2019 Debentures (iv)
2020 Debentures (v)
Total recourse short-term debt and long-term debt
Less: recourse short-term debt
Recourse long-term debt
B)
LIMITED RECOURSE DEBT
Limited recourse debt:
CDPQ Loan (vi)
Limited recourse long-term debt
DECEMBER 31
2019
DECEMBER 31
2018
$
— $
499,085
—
174,722
199,338
—
—
299,518
466,923
498,809
149,934
174,485
199,144
149,866
349,864
298,995
$
1,172,663 $
2,288,020
299,518
1,116,587
$
873,145 $
1,171,433
DECEMBER 31
2019
DECEMBER 31
2018
$
$
400,000 $
400,000 $
980,303
980,303
C)
NON-RECOURSE DEBT (UNSECURED OR SECURED ONLY BY CAPITAL OR E&C INVESTMENT’S SPECIFIC
ASSETS)
Non-recourse debt:
Senior bonds – InPower BC General Partnership (vii)
Credit facility – InPower BC General Partnership (vii)
Senior Secured Notes from an E&C investment (viii)
Unsecured Loan of Linxon (ix)
Credit facility – TransitNEXT General Partnership (x)
Other
Total non-recourse short-term debt and long-term debt
Less: non-recourse short-term debt
Non-recourse long-term debt
DECEMBER 31
2019
DECEMBER 31
2018
$
292,125 $
292,812
63,130
42,495
8,147
70,983
8,238
$
485,118 $
93,664
$
391,454 $
47,745
42,769
7,571
—
8,808
399,705
60,168
339,537
i. The Company’s unsecured revolving credit facility (the “Revolving Facility”), which is part of the Company’s
second amended and restated credit agreement, dated April 30, 2018, between, among others, the Company, as
borrower, and the syndicate of lenders party thereto (the “Credit Agreement”), comprises two tranches: (i) tranche
A is for an amount of $2,000 million (2018: $2,000 million); and (ii) tranche B is for an amount of $600 million
(2018: $600 million). Borrowings under tranche A may be obtained in the form of: (i) prime rate loans; (ii)
acceptances; (iii) US base rate loans; (iv) Libor loans in US dollars, Euros and British pounds; and (v) non-
financial, financial or documentary letters of credit. Borrowings under tranche B may be obtained only in the
form of non-financial or documentary letters of credit. The Revolving Facility maturity date is May 15, 2022
(2018: May 15, 2022) or such other date as may be agreed pursuant to extension provisions of the Credit
Agreement. The aggregate outstanding amount of uncommitted bilateral letters of credit allowed under the Credit
Agreement is $3,000 million (2018: $3,000 million).
138
138
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
20.
SHORT-TERM DEBT AND LONG-TERM DEBT (CONTINUED)
In 2019, the Company and its lenders amended the Credit Agreement to modify the calculation of a covenant and
to provide that such covenant be temporarily increased. Furthermore,
the Company amended its Credit
Agreement modifying the calculation of the net recourse debt to earnings before interest, taxes, depreciation and
amortization ratio to a pro-forma basis to include the sale of 10.01% of the shares of Highway 407 ETR for the
second quarter of 2019. The same amendments were made to the CDPQ Loan agreement (see below) in 2019.
As at December 31, 2019 and 2018, the cash draws and letters of credit outstanding under the Company’s
Revolving Facility were as follows:
DECEMBER 31, 2019
COMMITTED
CASH DRAWS
LETTERS OF
CREDIT
OUTSTANDING
Revolving Facility
(1) Includes $3.3 million of financial letters of credit.
$ 2,600,000 $
— $
188,062
DECEMBER 31, 2018
COMMITTED
CASH DRAWS
LETTERS OF
CREDIT
OUTSTANDING
Revolving Facility
(2) Includes $13.2 million of financial letters of credit.
$ 2,600,000 $ 474,570 $
74,072
(1)
(2)
UNUSED
$
2,411,938
UNUSED
$
2,051,358
In addition, as at December 31, 2019, $1,878.9 million (2018: $2,300.0 million) of uncommitted bilateral letters
of credit were outstanding, of which $256.3 million (2018: $242.2 million) related to financial letters of credit.
ii. The Company’s non-revolving term loan, which is part of the Company’s Credit Agreement, is in the principal
amount of $500 million (the “Term Loan”). Borrowings under the Term Loan were available by way of prime
rate loans or acceptances. The Term Loan maturity date is April 30, 2023.
iii. These unsecured debentures were in the aggregate principal amount of $675 million and were divided in four
series consisting of: (i) $150 million in floating rate Series 2 Debentures due in March 2019 (the “Series 2
Debentures”); (ii) $175 million in floating rate Series 3 Debentures due in March 2021 bearing interest at a rate
equal to the 3-month CDOR plus applicable margin (the “Series 3 Debentures”); (iii) $200 million in 3.235%
Series 4 Debentures due in March 2023 (the “Series 4 Debentures”); and (iv) $150 million in floating rate Series
5 Debentures due in June 2019 (the “Series 5 Debentures”). The Series 2 and 5 Debentures bore interest at a rate
equal to the 3-month CDOR plus an applicable margin. The Series 2 Debentures and the Series 5 Debentures
were repaid in full at maturity in 2019.
iv. These unsecured debentures in the principal amount of $350 million bore interest at a rate of 6.19% and were due
in July 2019 (the “2019 Debentures”). These debentures were repaid in full at maturity in 2019.
v. These unsecured debentures in the principal amount of $300 million bear interest at a rate of 2.689% and are due
in November 2020 (the “2020 Debentures”).
vi. The (“CDPQ Loan”) made under the loan agreement (“the CDPQ Loan Agreement”), dated April 20, 2017, as
further amended, between SNC-Lavalin Highway Holdings Inc. (“Highway Holdings”), an indirect wholly-
owned subsidiary of the Company holding the shares of Highway 407 ETR, as borrower, and CDPQ Revenu Fixe
Inc., is a limited recourse debt comprised of two tranches: (i) tranche A which is a non-revolving term loan in an
aggregate amount of $400 million (2018: $1,000 million); and (ii) tranche B which was a non-revolving term loan
in an aggregate amount of $500 million. Recourse is limited to specific circumstances of enforcement on or
against the shares of Highway Holdings. Each of tranche A and tranche B was available by way of a single
drawdown by Highway Holdings. Borrowings under tranche A and tranche B bear interest at a base rate, which is
the greater of: (i) the CDOR rate; and (ii) 0.9%, plus an applicable margin. In 2018, the Company repaid
borrowings under tranche B of its CDPQ Loan in full. The maturity of tranche A of the CDPQ Loan is in 2024.
In 2019, the Company and its lender amended the CDPQ Loan Agreement to align it with the amendments
adopted for the Credit Agreement (see above). The amendments to the CDPQ Loan Agreement, which also
included: i) the Company’s commitment to repay an amount of $600 million out of $1,000 million outstanding
under the tranche A of the CDPQ Loan; and ii) the decrease of the margin applicable to the base rate and payment
by the Company of fees of $15 million, were accounted for as an extinguishment of financial liability with the
issuance of a new financial liability, giving rise to a loss of $33.8 million recognized in “Net financial
expenses” (see Note 27). Such loss includes the $15 million cash outflow corresponding to the fees disclosed
above and the amount of $18.8 million representing the unamortized balance of deferred financing costs of the
CDPQ Loan on the date of its amendment.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
139
139
SNC-Lavalin 2019 Financial Report 20.
SHORT-TERM DEBT AND LONG-TERM DEBT (CONTINUED)
vii. The senior bonds of InPower BC General Partnership in the principal amount of $300 million bear interest at a
rate of 4.471% and are due in 2033. The credit facility of InPower BC General Partnership in the principal
amount of $63.2 million bear interest at a variable rate equal to CDOR plus an applicable margin (2018: fixed rate
of 4.15%) and is due in 2020 (2018: 2019). The senior bonds and the credit facility are secured by all assets of
InPower BC General Partnership.
viii. The senior secured notes of a subsidiary of the Company are up to US$40.0 million (approximately
CA$52.5 million) aggregate principal amount (the “Senior Secured Notes”), of which US$38.0 million
(approximately CA$49.9 million) (2018: US$33.0 million [approximately CA$43.1 million]) aggregate principal
amount was issued as at December 31, 2019. The Senior Secured Notes are due in 2026 and bear interest at a
variable rate. The net proceeds from the issuance of the senior secured notes are used by the subsidiary of the
Company to finance certain long-term assets associated to a BOO (Build-Own-Operate) contract.
ix.
In relation to the acquisition of Linxon by SNC-Lavalin in 2018 (see Note 6), the holder of the non-controlling
interest of 49% in Linxon granted an unsecured loan (the “Unsecured Loan”) and provided an unsecured working
capital revolving credit facility to Linxon. The loan in the principal amount of US$9.3 million (approximately
CA$12.2 million) is an interest-free loan and is repayable in full on September 1, 2023. The working capital
credit facility in a maximum aggregate amount of €30.0 million (approximately CA$43.7 million) bears interest
at a variable rate and is repayable the latest on September 30, 2022.
x. The credit facility of TransitNEXT General Partnership in the aggregate maximum principal amount of
$149.0 million bears interest at a rate of CDOR plus an applicable margin and is repayable the latest on
February 10, 2024. The credit facility is secured by all assets of TransitNEXT.
In July 2019, SNC-Lavalin and a group of financial institutions entered into a new credit agreement, which made
available to SNC-Lavalin an unsecured non-revolving bridge term facility (the “Bridge Facility”) in the principal
amount of $300 million and having a maturity of 1 year. The Bridge Facility was repayable in full upon receipt by
SNC-Lavalin of the proceeds from the sale of its 10.01% interest in Highway 407 ETR. Borrowings under the Bridge
Facility were available by way of prime rate loans or acceptances. In 2019, SNC-Lavalin borrowed and repaid
$300 million under the Bridge Facility.
D)
REPAYMENT OF PRINCIPAL OF SHORT-TERM DEBT AND LONG-TERM DEBT
The future principal payments of SNC-Lavalin’s recourse, limited recourse and non-recourse short-term and long-term
debt are summarized below and reconciled to their net carrying amount:
AT DECEMBER 31, 2019
2020
2021
2022
2023
2024
Thereafter
Total
Recourse
Limited
recourse
Non-recourse
Total
$
300,000 $
— $
95,211 $
395,211
175,000
—
700,000
—
—
—
—
—
400,000
24,587
97,244
38,379
27,036
—
215,171
199,587
97,244
738,379
427,036
215,171
$
1,175,000 $
400,000 $
497,628 $
2,072,628
Net unamortized deferred financing costs and
unamortized discounts
Net carrying amount of short-term debt and
long-term debt
(2,337)
—
(12,510)
(14,847)
$
1,172,663 $
400,000 $
485,118 $
2,057,781
140
140
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
21. OTHER NON-CURRENT FINANCIAL LIABILITIES
DECEMBER 31
2019
DECEMBER 31
2018
Federal charges settlement (PPSC) payable (Note 33)
$
201,764 $
Contingent consideration payable to seller related to Linxon acquisition
Derivative financial instrument used for hedges - unfavourable fair value
Derivative financial instrument related to share unit plans - unfavourable fair value
(Note 23C)
Other
14,405
2,345
—
14,055
Other non-current financial liabilities
$
232,569 $
—
17,889
7,721
7,873
20,022
53,505
22.
PROVISIONS
Balance at January 1, 2019
$
568,719 $
178,097 $
98,502 $
242,916 $ 1,088,234
Pension, other long-
term benefits and other
post-employment
benefits
Forecasted
losses on certain
contracts
Restructuring
(1)
Other
Total
Transitional adjustment on adoption of a
new accounting standard (Note 2B)
—
—
Adjusted balance at January 1, 2019
568,719
178,097
Additional provisions recognized in the
year
Amounts used during the year
Unused amounts reversed during the year
Remeasurement recognized in equity
Increase from the passage of time, effect
of changes in discount rates and effect
of foreign currency exchange
differences
Decrease in post-employment benefit
assets
23,215
(93,941)
—
55,344
64,056
(133,464)
(15,393)
—
7,137
(1,302)
(16,914)
—
(6,488)
92,014
121,520
(92,872)
—
—
714
—
(12,554)
(19,042)
230,362
1,069,192
56,218
(57,084)
(23,220)
—
265,009
(377,361)
(38,613)
55,344
(1,883)
4,666
—
(16,914)
Balance at December 31, 2019
$
543,560 $
91,994 $
121,376 $
204,393 $
961,323
Presented on the statement of financial position as follows:
Current portion of provisions
Non-current portion of provisions
(1)
$
289,227
$
672,096
Other provisions include mainly litigations, warranty provisions, environmental liabilities and other asset retirement obligations.
The expected timing of outflows of economic benefits relating to the Company’s provisions are as follows: i) most of
the litigation provisions are expected to be resolved within the next 5 years; ii) forecasted losses on certain contracts are
expected to be incurred over the period of a contract duration, usually up to 3 years; iii) most of the accrued
restructuring costs are expected to be disbursed within the next 12 months; iv) warranty expenditures are expected to
take place within the next 5 years; and v) most of the other provisions are expected to be resolved over the next 10 years.
The main assumptions used to determine the provision for pension, other long-term benefits and other post-employment
benefits and other information,
including the expected level of future funding payments in respect of those
arrangements, are given in Note 32.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
141
141
SNC-Lavalin 2019 Financial Report 23.
SHARE CAPITAL
A)
AUTHORIZED
The Company is authorized to issue an unlimited number of common shares, an unlimited number of first preferred
shares and an unlimited number of second preferred shares.
The Board of Directors is authorized to issue such preferred shares in one or more series and to establish the number of
shares in each series and the conditions attaching thereto, prior to their issue.
The share capital issued and outstanding of the Company consists only of fully paid common shares without nominal
value. All common shares are equally eligible to receive dividends, subject to the prior rights of the holders of preferred
shares. Each common share carries one vote at the shareholders’ meeting of the Company.
Subject to the prior rights of the holders of preferred shares, upon the liquidation or dissolution of the Company or any
other distribution of its assets among its shareholders for the purpose of winding-up its affairs, all the Company’s assets
available for payment or distribution to the holders of the common shares shall be paid or distributed equally, share for
share, to the holders of such common shares.
B)
STOCK OPTION PLAN
The main features of the stock option plan under which stock options were outstanding during the year ended
December 31, 2019 are summarized below:
Grant date
2013 STOCK OPTION PLAN
Sixth trading day following the approval by the Company’s Board of Directors
Exercise price of stock
options
The greater of: i) the average closing price for the five trading days preceding the grant date and ii) the closing price
on the first trading day immediately preceding the grant date
Vesting of stock options
Graded vesting in three equal tranches: two years, three years and four years, respectively, after the grant date
Expiry of stock options
Six years after the grant date
Other provisions
In the event of cessation of employment, except in the event of death or if the optionee is eligible to retire, unvested
options are cancelled immediately and vested options remain exercisable for a specified period not exceeding 30 days.
In the event of death or if the optionee is eligible to retire, both vested and unvested options continue to run their
normal course.
The table below presents the changes in the number of options outstanding in 2019 and 2018:
Options outstanding at beginning of year
Exercised (1)
Expired
Options outstanding at end of year
(1)
2019
WEIGHTED
AVERAGE
EXERCISE PRICE
(IN DOLLARS)
NUMBER OF
OPTIONS
260,866 $
40.98
— $
—
(260,866) $
40.98
2018
WEIGHTED
AVERAGE
EXERCISE PRICE
(IN DOLLARS)
NUMBER OF
OPTIONS
326,763 $
(65,897) $
— $
40.98
40.98
—
— $
—
260,866 $
40.98
No Company’s stock options were exercised in 2019 (2018: the weighted average market price of the Company’s common shares upon the
exercise of stock options was $57.22).
As at December 31, 2019, 2,787,863 stock options remained available for future grants under the 2013 stock option plan
(2018: 2,526,997 stock options).
The stock option compensation cost recorded in the year ended December 31, 2019 was $nil (2018: $nil).
142
142
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
23.
C)
SHARE CAPITAL (CONTINUED)
SHARE UNIT PLANS
As at December 31, 2019, the Company had six share unit compensation plans for executives, namely the 2019 PSU
plan, the 2019 RSU plan, the 2017 PSU plan, the 2014 PSU plan, the 2009 DSU plan, and the RSU plan (2018: the 2017
PSU plan, the 2014 PSU plan, the 2009 DSU plan, and the RSU plan), and a share unit compensation plan, the DSU
plan, for members of the Board of Directors of SNC-Lavalin Group Inc.
The terms and conditions of the executive plans are summarized below:
2009 DSU PLAN
2019 RSU PLAN / RSU PLAN
2019 PSU PLAN / 2017 PSU PLAN / 2014 PSU PLAN
Grant date
Date of approval by the Company’s
Board of Directors
Date of approval by the Company’s
Board of Directors
Date of approval by the Company’s
Board of Directors
Number
units
of
Determined at grant date, without any
further changes
Determined at grant date, without any
further changes
Subject to performance conditions, the
number of units granted shall be
adjusted
total
shareholder return compared to peers, as
defined in the plan
depending
the
on
Vesting
units
of
Payment
Redemption
price
Forfeiture
Units vest at a rate of 20% per year at
the end of each calendar year following
the grant date
Units vest in full three years following
their grant date
Units vest in full at the end of the third
calendar year following the grant date
Units are redeemable for cash by the
Company within thirty days following
the first anniversary of a participant’s
cessation of employment
Units are redeemable for cash by the
Company no later than March 15th of the
year following the end of the vesting
period
Units are redeemable for cash by the
Company no later than two and a half
months after the end of the performance
period of
such award. Performance
period means the period starting on
January 1st of the calendar year during
which the grant of such award was made
and ending on the vesting date
Average closing price per share on the
Toronto Stock Exchange on the first
anniversary of cessation of employment
and the last trading day on the Toronto
Stock Exchange of each of the 12 weeks
preceding that date
Average closing price per share on the
Toronto Stock Exchange on the five
trading days preceding the vesting date
Average closing price per share on the
Toronto Stock Exchange on the five
trading days preceding the vesting date
a
terminates
his
If
participant
employment voluntarily for
reasons
other than death or retirement or if a
cause
participant
before the end of the vesting period, the
units expire immediately on the date of
termination with no payment being
made
terminated for
is
a
terminates
his
If
participant
employment voluntarily for
reasons
other than death or retirement or if a
cause
participant
before the end of the vesting period, the
units expire immediately on the date of
termination with no payment being
made
terminated for
is
a
terminates
his
If
participant
employment voluntarily for
reasons
other than death or retirement or if a
cause
participant
before the end of the vesting period, the
units expire immediately on the date of
termination with no payment being
made
terminated for
is
Other
provisions
The units vest immediately in the event
of death or if a participant is retiring,
with payment being made on the date of
the
anniversary following the
participant’s last day of employment
first
In the event of death or retirement of a
participant before the end of the vesting
period, the
units vest on a pro rata
basis, with payment being made no later
than March 15th of the year following
the event
In the event of death or retirement of a
participant before the end of the vesting
period, the units vest on a pro rata basis,
with payment being made no later than
two and a half months following the
event
The terms and conditions of the DSU plan are as follows: each member of the Board of Directors of SNC-Lavalin Group
Inc. (the “member”) receives an annual retainer consisting of: (a) a lump sum credited in DSU plan units, and (b) a cash
award payment. Each member may elect to receive 100% of the cash award payment, as well as 100% of their
committee chair retainer, meeting fees and travel fees, if applicable, in either cash or DSU plan units. DSU plan units
track the price of SNC-Lavalin’s common shares on the Toronto Stock Exchange. They accumulate during a member’s
term in office and are redeemed in cash when the member leaves the Board of Directors. For the purposes of redeeming
DSU plan units, the value of a unit on any given date is equivalent to the average of the closing price for a common
share on the Toronto Stock Exchange for the five trading days immediately prior to such date. DSU plan units are
credited on a quarterly basis and do not carry voting rights. Furthermore, additional DSU plan units accumulate as
dividend equivalents whenever cash dividends are paid on common shares.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
143
143
SNC-Lavalin 2019 Financial Report 23.
SHARE CAPITAL (CONTINUED)
The table below presents the number of granted share units and the weighted average fair value per granted share unit
for the years ended December 31, 2019 and 2018:
2019 PSU plan
2019 RSU plan
2017 PSU plan
RSU plan
DSU plan
2009 DSU plan
NUMBER
OF GRANTED SHARE
UNITS
2019
WEIGHTED AVERAGE
FAIR VALUE PER
SHARE UNIT
(IN DOLLARS)
NUMBER
OF GRANTED SHARE
UNITS
2018
WEIGHTED AVERAGE
FAIR VALUE PER
SHARE UNIT
(IN DOLLARS)
595,778 $
870,946 $
35.87
35.73
— $
— $
—
—
14,781 $
79,652 $
36.22
26.15
— $
— $
386,272 $
556,931 $
51,253 $
69,965 $
—
—
56.45
56.41
53.09
56.45
In 2015, the Company entered into derivative financial instruments with investment grade financial institutions to limit
the Company’s exposure to the variability of the units caused by fluctuations in its share price. The derivative financial
instruments, the fair value of which fluctuates in accordance with the movement in the Company’s share price, are
required to be classified as at FVTPL. As such, they are measured at fair value on the consolidated statement of financial
position under “Other current financial assets” (see Note 11) and “Other non-current financial assets” (see Note 16) if
the fair value of a derivative financial instrument is favourable or under “Other current financial liabilities” (see
Note 18) and “Other non-current financial liabilities” (see Note 21) if the fair value of a derivative financial instrument
is unfavourable.
The compensation expense related to the share unit plans was $16.1 million for the year ended December 31, 2019
(2018: $45.6 million).
The total intrinsic value of the share unit plans’ liabilities for which the participants’ right to cash vested was
$12.4 million as at December 31, 2019 (2018: $34.7 million), while the share unit plans’ liabilities amounted to
$56.1 million as at December 31, 2019 (2018: $74.8 million).
D)
WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES – BASIC AND DILUTED
The weighted average number of outstanding shares in 2019 and 2018 used to calculate the basic and diluted earnings
per share were as follows:
YEARS ENDED DECEMBER 31 (IN THOUSANDS)
Weighted average number of outstanding shares – basic
Dilutive effect of stock options
Weighted average number of outstanding shares – diluted
2019
175,554
—
175,554
2018
175,541
—
175,541
In 2019 and 2018, 260,866 outstanding stock options have not been included in the computation of diluted loss per share
because they were anti-dilutive.
E)
DIVIDENDS
During the year ended December 31, 2019, the Company recognized as distributions to its equity shareholders dividends
of $42.1 million or $0.24 per share (2018: $201.5 million or $1.148 per share).
144
144
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
24. OTHER COMPONENTS OF EQUITY
The Company has the following elements, net of
December 31, 2019 and 2018:
income taxes, within its other components of equity at
Exchange differences on translating foreign operations
Cash flow hedges
Share of other comprehensive income of investments accounted for by the equity method
Other components of equity
DECEMBER 31
2019
DECEMBER 31
2018
$
365,600 $
505,297
(11,652)
125
(7,989)
1,891
$
354,073 $
499,199
•
•
▪
Exchange differences on translating foreign operations component represents exchange differences relating to the
translation from the functional currencies of the Company’s foreign operations into Canadian dollars. On disposal
of a foreign operation, the cumulative translation differences are reclassified to net income as part of the gain or loss
on disposal. Exchange differences also include gains and losses on hedging instruments, if any, relating to the
effective portion of hedges of net investments of foreign operations, which are reclassified to net income on the
disposal of the foreign operation.
Cash flow hedges component represents hedging gains and losses recognized on the effective portion of cash flow
hedges. The cumulative deferred gain or loss on the hedge is recognized in net income when the hedged transaction
impacts net income, or is included as a basis adjustment to the non-financial hedged item, consistent with the
applicable accounting policy.
Share of other comprehensive income (loss) of investments accounted for by the equity method component
represents the Company’s share of the other comprehensive income (loss) from its investments accounted for by the
equity method.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
145
145
SNC-Lavalin 2019 Financial Report 24.
A)
OTHER COMPONENTS OF EQUITY (CONTINUED)
ITEMS THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO NET INCOME
The following table provides a reconciliation of each element of other components of equity for the years ended
December 31, 2019 and 2018:
YEARS ENDED DECEMBER 31
Exchange differences on translating foreign operations:
Balance at beginning of year
Transitional adjustment on adoption of a new accounting standard
Current year gains (losses)
Reclassification to net income
Net investment hedge – current year gains (losses)
Balance at end of year
Available-for-sale financial assets:
Balance at beginning of year
Transitional adjustment on adoption of a new accounting standard
Balance at end of year
Cash flow hedges:
Balance at beginning of year
Current year gains (losses)
Income taxes relating to current year gains (losses)
Reclassification to net income
Income taxes relating to amounts reclassified to net income
Balance at end of year
Share of other comprehensive income (loss) of investments accounted for by the equity
method:
Balance at beginning of year
Current year share
Income taxes relating to current year share
Reclassification to net income
Income taxes relating to amounts reclassified to net income
Balance at end of year
Other components of equity
2019
2018
$
505,297 $
—
(140,686)
—
989
365,600
—
—
—
(7,989)
(7,595)
2,615
7,185
(5,868)
(11,652)
1,891
(2,403)
637
—
—
125
$
354,073 $
266,497
14,322
241,697
678
(17,897)
505,297
8,874
(8,874)
—
(566)
7,196
(9,668)
(16,655)
11,704
(7,989)
3,169
(1,904)
505
165
(44)
1,891
499,199
146
146
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
24.
B)
OTHER COMPONENTS OF EQUITY (CONTINUED)
ITEMS THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO NET INCOME
Remeasurement recognized in other comprehensive income
The following table provides changes in the cumulative amount of remeasurement gains (losses) recognized in other
comprehensive income relating to defined benefit pension plans and other post-employment benefits for the years ended
December 31, 2019 and 2018:
YEARS ENDED DECEMBER 31
2019
2018
Cumulative amount at January 1
$
5,756 $ (2,050) $
3,706 $
(52,176) $
8,278 $ (43,898)
BEFORE TAX
INCOME TAX
NET OF TAX
BEFORE TAX
INCOME TAX
NET OF TAX
Remeasurement recognized during the
year:
Defined benefit pension plans
Other post-employment benefits
(41,081)
(14,263)
(55,344)
6,067
2,167
8,234
(35,014)
(12,096)
(47,110)
55,851
2,081
57,932
(9,026)
(1,302)
46,825
779
(10,328)
47,604
Cumulative amount at December 31 $
(49,588) $
6,184 $ (43,404) $
5,756 $
(2,050) $
3,706
Equity instruments designated at fair value through other comprehensive income
The following table provides changes in fair value of the equity instruments designated at fair value through other
comprehensive income for the years ended December 31, 2019 and 2018:
YEARS ENDED DECEMBER 31
2019
2018
BEFORE TAX
INCOME TAX
NET OF TAX
BEFORE TAX
INCOME TAX
NET OF TAX
Cumulative amount at January 1
$
(1) $
49 $
48 $
— $
— $
Gains (losses) recognized during the
year
(2,034)
16
(2,018)
(1)
49
Cumulative amount at December 31 $
(2,035) $
65 $
(1,970) $
(1) $
49 $
—
48
48
Share of other comprehensive income (loss) of investments accounted for by the equity method
The following table provides the Company’s share of changes in the cumulative amount of remeasurement gains (losses)
recognized in other comprehensive income by the Company’s investments accounted for by the equity method relating
to their defined benefit plans for the years ended December 31, 2019 and 2018:
YEARS ENDED DECEMBER 31
2019
2018
BEFORE TAX
INCOME TAX
NET OF TAX
BEFORE TAX
INCOME TAX
NET OF TAX
Cumulative amount at January 1
Gains (losses) recognized during the
year
$
— $
— $
— $
— $
— $
(2,234)
—
(2,234)
—
—
Cumulative amount at December 31 $
(2,234) $
— $
(2,234) $
— $
— $
—
—
—
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
147
147
SNC-Lavalin 2019 Financial Report 25.
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31
Selling expenses
General and administrative expenses
Corporate selling, general and administrative expenses
(1)
Comparative figures have been revised (see Note 2C)
26.
RESTRUCTURING COSTS
2019
$
2,662 $
71,282
$
73,944 $
(1)
2018
1,827
96,207
98,034
Over the past years, the Company has been engaged in restructuring its activities. In 2019, the Company announced a
new strategy under which the Company is no longer bidding on lump-sum turnkey construction contracts.
SNC-Lavalin is also reducing its geographic footprint to reduce risk and complexity by focusing on its core growth
regions: Canada, the U.S., and the U.K., along with regional markets such as the Middle East and Asia Pacific, which
involves exiting unprofitable operations in certain countries.
At the end of 2019, the Company decided to exit the midstream fabrication business, including its compression and
production equipment product lines, which were also known under the Valerus brand.
The Company incurred $182.8 million of restructuring costs in 2019 (2018: $68.6 million).
The restructuring costs recognized in 2019 included approximately $72 million related to Valerus, of which
$52.5 million related to non-cash charges, notably $31.2 million of inventory write-down, $11.3 million of impairment
of right-of-use assets and $10.0 million of impairment of property and equipment. The remaining balance of
restructuring costs recognized in 2019 were mainly for severances.
The restructuring costs recognized in 2018 were mainly for severances across the Company’s segments and corporate
functions.
27.
NET FINANCIAL EXPENSES
YEARS ENDED DECEMBER 31
2019
FROM E&C
FROM CAPITAL
INVESTMENTS
TOTAL
FROM E&C
2018
FROM CAPITAL
INVESTMENTS
TOTAL
Interest on debt:
Recourse
Limited recourse
Non-recourse
Interest on lease liabilities
Other (1)
Financial expenses
Financial income
Net foreign exchange
losses (gains)
Financial income and net
foreign exchange
losses (gains)
$
85,048 $
— $
85,048 $
78,230 $
— $
78,230
45,128
5,733
23,439
48,479
207,827
(10,837)
—
18,085
151
—
18,236
(167)
45,128
23,818
23,590
48,479
226,063
(11,004)
85,185
2,097
—
(1,817)
163,695
(7,883)
—
15,833
—
—
15,833
(4,439)
85,185
17,930
—
(1,817)
179,528
(12,322)
(2,749)
(227)
(2,976)
174
65
239
(13,586)
(394)
(13,980)
(7,709)
(4,374)
(12,083)
Net financial expenses
$
194,241 $
17,842 $
212,083 $
155,986 $
11,459 $
167,445
(1)
In 2019, “Other” included $33.8 million of loss related to the amendments of the CDPQ Loan Agreement and $3.7 million related to the other E&C financing
arrangements in connection with the sale by the Company of 10.01% of the shares of Highway 407 ETR.
148
148
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
28.
STATEMENTS OF CASH FLOWS
A)
OTHER RECONCILING ITEMS
The following table presents the items to reconcile net income (loss) to cash flows from operating activities presented in
the statements of cash flows, for the years ended December 31:
Depreciation of property and equipment and amortization of other non-current
non-financial assets
Depreciation of right-of-use assets
Income taxes recognized in net income (Note 29B)
Net financial expenses recognized in net income (Note 27)
Share-based expense (Note 23C)
Income from Capital investments accounted for by the equity method
Dividends and distributions received from Capital investments accounted for by the equity
method
Income from E&C investments accounted for by the equity method
Dividends and distributions received from E&C investments accounted for by the equity
method
Net change in provisions related to forecasted losses on certain contracts
Gain on disposals of Capital investments (Note 5A)
Restructuring costs recognized in net income (Note 26)
Restructuring costs paid
Loss from adjustment on disposals of E&C businesses
Impairment of intangible assets related to business combinations (Note 15)
Impairment of goodwill (Note 14)
Federal charges settlement (PPSC) (Note 33)
Other
2019
2018
$
290,223 $
324,569
112,037
198,738
212,083
16,061
(210,543)
160,063
(29,702)
38,043
(84,861)
(2,970,783)
182,801
(92,872)
294
72,831
1,801,015
257,327
(76,616)
—
(11,545)
167,445
45,586
(204,087)
170,540
(37,277)
7,919
23,826
(67,552)
68,591
(22,045)
474
—
1,240,415
—
12,958
Other reconciling items
$
(123,861) $
1,719,817
B)
NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS
The following table presents the items included in the net change in non-cash working capital related to operating
activities presented in the statements of cash flows, for the years ended December 31:
Decrease (increase) in trade receivables
Increase in contract assets
Decrease in inventories
Increase in other current financial assets
Decrease (increase) in other current non-financial assets
Decrease in trade payables
Increase (decrease) in contract liabilities
Increase (decrease) in other current financial liabilities
Decrease in other current non-financial liabilities
Net change in non-cash working capital items
2019
$
(15,214) $
(34,506)
15,193
(2,970)
(12,926)
(193,288)
(91,888)
16,720
(15,667)
$
(334,546) $
2018
51,957
(453,412)
11,956
(43,979)
57,160
(14,614)
121,856
(19,195)
(217,463)
(505,734)
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
149
149
SNC-Lavalin 2019 Financial Report Balance at January 1, 2019
Transitional adjustment on adoption
of a new accounting standard
(Note 2B)
Changes arising from cash flows:
Increase
Repayment
Total – changes arising from cash
flows
Non-cash changes:
Declaration of dividends to
SNC-Lavalin shareholders
Effect of foreign currency exchange
differences
Amortization of deferred financing
costs and discounts
Gain on derivatives used for hedges
Change in fair value of contingent
consideration related to the
Linxon transaction
Reclassification of deferred
financing costs to “Other current
non-financial assets” and “Other
non-current non-financial assets”
upon repayment of Revolving
Facility
Net increase in lease liabilities
Federal charges settlement (PPSC)
(Note 33)
28.
C)
STATEMENTS OF CASH FLOWS (CONTINUED)
CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
The following table provides a reconciliation between the opening and closing balances in the statement of financial
position for liabilities arising from financing activities for the year ended December 31, 2019:
Recourse
(1)
debt
Limited
recourse debt
(2)
Non-
recourse
debt
Dividends
declared to
SNC-Lavalin
shareholders
Other non-
(4)
current
financial
liabilities
(4)
Other non-
current non-
financial
liabilities
(3)
Lease
liabilities
$ 2,288,020 $ 980,303 $ 399,705 $
— $
— $
53,505 $
61,508
Adjusted balance at January 1, 2019
2,288,020
980,303
399,705
614,152
—
—
—
614,152
—
—
—
(2,929)
(60,044)
50,576
1,464
608
5,543
1,829,988
—
96,224
—
(2,952,302)
(600,000)
(10,747)
(119,106)
(42,133)
(3,368)
(6,556)
(1,122,314)
(600,000)
85,477
(119,106)
(42,133)
(2,760)
(1,013)
—
(3,316)
—
—
(2,501)
(6,108)
—
—
42,133
—
—
4,321
19,697
2,437
—
—
5,952
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
122,812
—
—
—
—
—
—
—
—
(522)
100
—
(13,578)
(2,911)
—
—
201,764
—
—
—
—
—
—
Balance at December 31, 2019
(1), (2), (3), (4) See Notes 1, 2, 3 and 4 on the following page
$ 1,172,663 $ 400,000 $ 485,118 $ 611,750 $
— $ 232,569 $
551
150
150
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
28.
STATEMENTS OF CASH FLOWS (CONTINUED)
CHANGES ARISING FROM CASH FLOWS – RECOURSE DEBT, LIMITED RECOURSE DEBT AND NON-RECOURSE DEBT
YEAR ENDED DECEMBER 31
Recourse debt:
Revolving Facility
Bridge Facility
Series 2 Debentures
Series 5 Debentures
2019 Debentures
Bank overdraft
Total – Recourse debt
Limited recourse debt:
CDPQ Loan
Total – Limited recourse debt
Non-recourse debt:
Credit facility – InPower BC General Partnership
Senior Bonds – InPower BC General Partnership
Credit facility – TransitNEXT General Partnership
Senior Secured Notes of an E&C investment
Total – Non-recourse debt
Total
2019
INCREASE
OF DEBT
REPAYMENT
OF DEBT
PAYMENT FOR
DEBT ISSUE COSTS
$
1,529,988 $
(1,942,052) $
300,000
—
—
—
—
(300,000)
(150,000)
(150,000)
(350,000)
(59,190)
—
(1,060)
—
—
—
—
1,829,988
(2,951,242)
(1,060)
—
—
(600,000)
(600,000)
14,895
—
74,717
6,612
96,224
—
(1,350)
(2,859)
(5,540)
(9,749)
—
—
—
—
(998)
—
(998)
$
1,926,212 $
(3,560,991) $
(2,058)
(1)
(2)
(3)
(4)
Recourse short-term debt and recourse long-term debt were presented in the Company’s consolidated statements of financial position as follows:
Recourse short-term debt
Recourse long-term debt
Total
DECEMBER 31
2019
JANUARY 1
2019
$
299,518 $
1,116,587
873,145
1,171,433
$
1,172,663 $
2,288,020
Non-recourse short-term debt and non-recourse long-term debt were presented in the Company’s consolidated statements of financial position as
follows:
Non-recourse short-term debt
Non-recourse long-term debt
Total
DECEMBER 31
2019
$
93,664 $
391,454
$
485,118 $
JANUARY 1
2019
60,168
339,537
399,705
Lease liabilities were presented in the Company’s consolidated financial statements of financial position as follows:
Current portion of lease liabilities
Non-current portion of lease liabilities
Total
DECEMBER 31
2019
131,075 $
JANUARY 1
2019
—
$
480,675
$
611,750 $
—
—
Change arising from cash flows of other non-current financial liabilities and other non-current non-financial liabilities was presented in the
financing activities in the Company’s consolidated statement of cash flows as follows:
YEAR ENDED DECEMBER 31
Other non-current financial liabilities
Other non-current non-financial liabilities
Other
Total
$
$
2019
(2,760)
(1,013)
(298)
(4,071)
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
151
151
SNC-Lavalin 2019 Financial Report 28.
STATEMENTS OF CASH FLOWS (CONTINUED)
The following table provides a reconciliation between the opening and closing balances in the statement of financial
position for liabilities arising from financing activities for the year ended December 31, 2018:
Recourse
(1)
debt
Limited
recourse debt
Non-recourse
(2)
debt
Dividends
declared to
SNC-Lavalin
shareholders
Other non-
(3)
current
financial
liabilities
(3)
Other non-
current non-
financial
liabilities
Balance at January 1, 2018
$
1,345,539 $
1,475,177 $
312,964 $
— $
15,425 $
53,367
Changes arising from cash flows:
Increase
Repayment
2,609,134
—
95,159
—
7,250
20,663
(1,741,315)
(500,000)
(7,243)
(201,521)
(2,089)
(13,040)
Total – changes arising from cash flows
867,819
(500,000)
87,916
(201,521)
5,161
7,623
Non-cash changes:
Declaration of dividends to
SNC-Lavalin shareholders
Effect of foreign currency exchange
differences
Amortization of deferred financing
costs and discounts
Loss on derivatives used for hedges
Measurement of a loan from a non-
controlling interest at its initial fair
value
Contingent consideration related to the
Linxon transaction
Balance at December 31, 2018
(1), (2), (3)
See Notes 1, 2 and 3 on the following page
—
68,802
—
—
5,860
5,126
—
—
—
—
—
—
—
201,521
—
2,836
1,144
—
(5,155)
—
—
—
—
—
—
1,890
—
14,559
—
16,470
—
518
—
—
—
—
$
2,288,020 $
980,303 $
399,705 $
— $
53,505 $
61,508
CHANGES ARISING FROM CASH FLOWS – RECOURSE DEBT, LIMITED RECOURSE DEBT AND NON-RECOURSE DEBT
YEAR ENDED DECEMBER 31
Recourse debt:
Revolving Facility
Term Facility
Term Loan
2020 Debentures
Series 2, 3 and 4 Debentures
Series 5 Debentures
Bank overdraft
Total – Recourse debt
Limited recourse debt:
CDPQ Loan
Total – Limited recourse debt
Non-recourse debt:
Credit facility – InPower BC General Partnership
Senior Secured Notes of an E&C investment
Unsecured loan from Linxon
Other
Total – Non-recourse debt
Total
152
152
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
2018
INCREASE
OF DEBT
REPAYMENT
OF DEBT
PAYMENT FOR
DEBT ISSUE COSTS
$
1,376,381 $
(1,339,461) $
(1,586)
—
(397,553)
500,000
—
523,713
149,850
59,190
—
—
—
—
—
—
(1,375)
(357)
(823)
(160)
—
2,609,134
(1,737,014)
(4,301)
—
—
(500,000)
(500,000)
42,164
40,850
12,145
—
95,159
—
—
—
(7,243)
(7,243)
—
—
—
—
—
—
—
$
2,704,293 $
(2,244,257) $
(4,301)
28.
(1)
(2)
(3)
STATEMENTS OF CASH FLOWS (CONTINUED)
Recourse short-term debt and recourse long-term debt were presented in the Company’s consolidated statements of financial position as follows:
Recourse short-term debt
Recourse long-term debt
Total
DECEMBER 31
2018
JANUARY 1
2018
$
1,116,587 $
318,757
1,171,433
1,026,782
$
2,288,020 $
1,345,539
Non-recourse short-term debt and no-recourse long-term debt from Capital investments were presented in the Company’s consolidated
statements of financial position as follows:
Non-recourse short-term debt
Non-recourse long-term debt
Total
DECEMBER 31
2018
JANUARY 1
2018
$
60,168 $
15,566
339,537
297,398
$
399,705 $
312,964
Change arising from cash flows of other non-current financial liabilities and other non-current non-financial liabilities was presented in the
financing activities in the Company’s consolidated statement of cash flows as follows:
YEAR ENDED DECEMBER 31
Other non-current financial liabilities
Other non-current non-financial liabilities
Other
Total
$
2018
5,161
7,623
16
$
12,800
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
153
153
SNC-Lavalin 2019 Financial Report 29.
INCOME TAXES
A)
DEFERRED INCOME TAX ASSET AND DEFERRED INCOME TAX LIABILITY
Deferred income taxes arising from temporary differences and unused tax losses can be summarized as follows:
JANUARY 1
2019
Impact of
adoption of a
new standard
(Note 2B)
Recognized in
other
comprehensive
income
Recognized
directly in equity
Recognized in
net income
Exchange
differences and
other charges
DECEMBER 31
2019
$
(46,298) $
— $
— $
— $
15,438 $
398 $
(30,462)
16,609
34,320
74,587
22,138
—
—
—
(2,954)
(189,830)
—
—
(100,679)
(36,437)
(2,018)
(8,776)
(3,513)
(127,494)
—
—
140,463
87,943
66,318
389,230
—
(16,995)
—
—
—
—
—
—
—
16
—
637
—
8,234
(3,253)
—
—
—
—
—
—
—
—
—
—
—
—
(8,347)
(9,100)
—
7,509
(519)
(6,924)
(12,883)
74,439
22,292
3,389
(15,394)
(688)
(372)
(493)
3,586
1,195
—
(695)
33,113
67,291
5,808
(111,805)
(77,192)
(41,808)
(21,620)
10,541
(38,332)
—
(116,316)
(1,289)
100,842
(10,678)
4,332
—
(149,123)
(3,162)
(1,463)
(6,879)
82,337
40,592
233,228
Current:
Contract assets
Retentions on supplier
contracts
Accrued employee
compensation
Current liabilities
Other
Non-current:
Property and equipment,
and goodwill
Right-of-use assets
Other non-current
financial assets
Provisions
Capital investments
accounted for by the
equity or cost methods
Lease liabilities
Pension plans and other
post-employment
benefits
Other
Unused tax losses
Deferred income tax asset,
net
$
289,068 $
7,546 $
5,634 $
(8,347) $ (112,522) $
(9,862) $
171,517
Presented on the statement of financial position as follows:
Deferred income tax asset
$
652,155
Deferred income tax
liability
$
363,087
$
520,451
$
348,934
154
154
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
29.
INCOME TAXES (CONTINUED)
Deferred income taxes for the comparative period of 2018 can be summarized as follows:
Impact of
adoption of
new standards
and an
amendment
Recognized in
other
comprehensive
income
JANUARY 1
2018
Derecognized
upon disposals
of investments
Recognized in
net income
Exchange
differences and
other charges
DECEMBER 31
2018
Current:
Retentions on client
contracts
Contract assets
Contracts in progress
Retentions on supplier
contracts
Accrued employee
compensation
Current liabilities
Other
Non-current:
Property and equipment,
and goodwill
Other non-current
financial assets
Provisions
Capital investments
accounted for by the
equity or cost methods
Pension plans and other
post-employment
benefits
Other
Unused tax losses
Deferred income tax asset,
net
$
(32,352) $
32,352 $
— $
— $
— $
— $
—
—
(10,149)
18,573
28,112
81,501
8,968
(203,436)
(25,860)
(53)
(106,806)
101,833
32,367
275,628
(41,840)
10,149
—
(1,113)
815
—
—
117
—
—
—
51,988
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5,414)
—
(1,964)
5,960
(9,159)
12,261
956
—
—
1,361
1,430
909
(46,298)
—
16,609
34,320
74,587
22,138
18,761
(5,155)
(189,830)
(10,694)
(15,732)
—
13,767
(36,437)
(2,018)
5,192
6,419
(30,552)
(1,747)
(127,494)
(10,328)
2,037
—
—
—
—
(4,382)
(21,653)
108,238
820
1,579
5,364
87,943
66,318
389,230
$
168,326 $
52,468 $
(3,099) $
6,419 $
45,670 $
19,284 $
289,068
Presented on the statement of financial position as follows:
Deferred income tax asset
$
545,551
Deferred income tax
liability
$
377,225
$
652,155
$
363,087
As at December 31, 2019, the Company had $2,255.6 million (2018: $2,665.4million) of non-capital tax losses carried-forward of
which $1,288.7 million will expire in varying amounts from 2020 to 2040 (2018: $1,691.5 million expiring from 2019 to 2039). As
at December 31, 2019, a deferred income tax asset of $233.2 million (2018: $389.2 million) has been recognized on
$1,049.6 million (2018: $1,660.3 million) of these losses. The deferred income tax assets are recognized only to the extent that it is
probable that taxable income will be available against which the unused tax losses can be utilized. As at December 31, 2019, the
Company had $512.6 million of the unrecognized non-capital tax losses that will expire in varying amounts from 2020 to 2040
(2018: $275.5 million expiring in varying amounts from 2019 to 2039).
As at December 31, 2019, the Company had $82.1 million (2018: $187.5 million) of non-expiring capital tax losses carried-forward
on which no deferred income tax asset has been recognized (2018: $25.1 million expiring in 2031 and 2032).
As at December 31, 2019, a deferred income tax liability has not been recognized on taxable temporary differences of
$757.3 million (2018: $846.5 million) associated with investments in subsidiaries, associates and interests in joint arrangements, as
the Company controls the timing of the reversal and it is probable that the temporary differences will not reverse in the foreseeable
future.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
155155
SNC-Lavalin 2019 Financial Report 29.
B)
INCOME TAXES (CONTINUED)
INCOME TAXES
The relationship between the expected income taxes based on the Canadian effective tax rate of SNC-Lavalin at 26.5% (2018:
26.7%) and the reported income taxes in net income can be reconciled as follows:
YEARS ENDED DECEMBER 31
Income (loss) before income taxes
Canadian tax rate for SNC-Lavalin
Expected income taxes
Increase (decrease) resulting from:
Effect of goodwill impairment
Effect of Federal charges settlement (PPSC)
Effect of differences of foreign tax rates compared to Canadian
rates
Effect of Canadian provincial tax rate differences
Effect of adjustments to deferred tax attributable to changes
related to the U.S. Tax Reform
Net income and losses not affected by tax
Effect of benefit from a previously unrecognized tax loss used to
reduce current tax expense
Effect of differences between accounting gain and taxable gain
realized on disposals of Capital investments
Effect of reversal of a previous write-down of deferred income
tax asset
Effect of write-down of previously recognized deferred income
tax asset (liability)
Non-taxable income from certain Capital investments accounted
for by the equity or cost methods
Other permanent differences for tax purposes
Other
Income taxes at effective tax rate
AMOUNT
$
529,325
2019
%
26.5
AMOUNT
$
(1,327,840)
$
140,283
$
(354,706)
353,657
68,545
18,009
2,384
—
(20,982)
(47,773)
66.8
12.9
3.4
0.5
—
(4.0)
(9.0)
331,352
—
(24,829)
(672)
6,021
99,209
—
(405,443)
(76.5)
(11,113)
(20,470)
143,621
(44,075)
11,967
(985)
(3.9)
27.1
(8.3)
2.2
(0.1)
$
198,738
37.6 $
(2,181)
9,280
(45,793)
5,321
(23,434)
(11,545)
SNC-Lavalin’s income taxes were comprised of the following:
2018
%
26.7
(25.0)
—
1.9
0.1
(0.5)
(7.5)
—
0.8
0.2
(0.7)
3.4
(0.4)
1.9
0.9
YEARS ENDED DECEMBER 31
Current income taxes
Deferred income taxes
Income taxes
2019
2018
$
86,216 $
34,125
112,522
(45,670)
$
198,738 $
(11,545)
156
156
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
30.
FINANCIAL INSTRUMENTS
A)
CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying value of financial assets held by SNC-Lavalin at December 31, 2019 by
category and classification, with the corresponding fair value, when available:
AT DECEMBER 31
2019
Cash and cash equivalents
Restricted cash
Trade receivables
Other current financial assets:
Derivative financial instruments
Financial assets at FVTPL
Other
Capital investment accounted for by the
cost method
Non-current portion of receivables under
service concession arrangements (3)
Other non-current financial assets:
Derivative financial instruments
Financial asset at FVTOCI
Financial asset at FVTPL (4)
Other (3)
Total
(1)
Fair value through profit or loss (“FVTPL”)
CARRYING VALUE OF FINANCIAL ASSETS BY CATEGORY
(1)
FVTPL
(2)
FVTOCI
AMORTIZED
COST
DERIVATIVES
USED FOR
HEDGES
TOTAL
FAIR VALUE
$ 1,188,636 $
— $
— $
— $ 1,188,636 $ 1,188,636
34,118
—
—
6,047
—
—
—
—
—
57,207
—
—
—
—
—
—
—
1,533,442
—
—
195,115
8,107
—
—
352,987
—
303
—
—
—
—
—
49,434
—
—
34,118
34,118
1,533,442
1,533,442
21,146
—
—
—
—
8,997
—
—
—
21,146
6,047
21,146
6,047
195,115
196,483
8,107
8,107
352,987
387,060
8,997
303
57,207
49,434
8,997
303
57,207
49,434
$ 1,286,008 $
8,410 $ 2,130,978 $
30,143 $ 3,455,539 $ 3,490,980
(2)
(3)
(4)
Fair value through other comprehensive income (“FVTOCI”)
For non-current portion of receivables under service concession arrangements and most of the other non-current financial assets other than at fair
value, the Company uses the present value technique to determine the fair value.
In 2019, the gain on contingent consideration receivable from the acquirer of the 10.01% interest in Highway 407 ETR (see Note 5A) amounted
to $1.1 million and is included in “Loss (gain) arising on financial assets (liabilities) at fair value through profit or loss” in the consolidated
income statement.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
157
157
SNC-Lavalin 2019 Financial Report 30.
FINANCIAL INSTRUMENTS (CONTINUED)
The following table presents the carrying value of financial assets held by SNC-Lavalin at December 31, 2018 by
category and classification, with the corresponding fair value, when available:
AT DECEMBER 31
2018
Cash and cash equivalents
Restricted cash
Trade receivables
Other current financial assets:
Derivative financial instruments
Financial assets at FVTPL
Other
Capital investment accounted for by the
cost method
Non-current portion of receivables under
service concession arrangements (3)
Other non-current financial assets:
Derivative financial instruments
Financial asset at FVTOCI
Other (3)
Total
(1)
Fair value through profit or loss (“FVTPL”)
CARRYING VALUE OF FINANCIAL ASSETS BY CATEGORY
(1)
FVTPL
(2)
FVTOCI
AMORTIZED
COST
DERIVATIVES
USED FOR
HEDGES
TOTAL
FAIR VALUE
$ 634,084 $
— $
— $
— $
634,084 $
634,084
12,722
—
—
11,574
—
—
—
—
—
—
—
—
—
—
—
—
1,503,824
—
—
195,765
10,663
—
—
327,299
—
—
12,722
12,722
1,503,824
1,503,824
39,952
—
—
—
—
39,952
11,574
39,952
11,574
195,765
196,370
10,663
10,663
327,299
342,122
—
657
—
—
—
23,385
5,981
—
—
5,981
657
5,981
657
23,385
23,385
$ 658,380 $
11,320 $ 2,050,273 $
45,933 $ 2,765,906 $ 2,781,334
(2)
(3)
Fair value through other comprehensive income (“FVTOCI”)
For non-current portion of receivables under service concession arrangements and most of the other non-current financial assets other than at fair
value, the Company uses the present value technique to determine the fair value.
158
158
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
30.
FINANCIAL INSTRUMENTS (CONTINUED)
The following tables present the carrying value of SNC-Lavalin’s financial liabilities at December 31, 2019 and
December 31, 2018 by category and classification, with the corresponding fair value, when available:
AT DECEMBER 31
CARRYING VALUE OF FINANCIAL LIABILITIES BY CATEGORY
2019
Trade payables
Other current financial liabilities:
Derivative financial instruments
Other
Provisions
Lease liabilities
Short-term debt and long-term debt (3):
Recourse
Limited recourse
Non-recourse
Other non-current financial
liabilities (4)
Total
AT DECEMBER 31
Trade payables
Other current financial liabilities:
Derivative financial instruments
Other
Provisions
Short-term debt and long-term debt (3):
Recourse
Limited recourse
Non-recourse
Other non-current financial
liabilities (4)
Total
DERIVATIVES USED
FOR HEDGES
(1)
FVTPL
AMORTIZED COST
TOTAL
FAIR VALUE
$
— $
— $
2,153,520 $
2,153,520 $
2,153,520
17,086
—
—
—
—
—
—
—
—
—
—
—
—
—
—
270,630
121,376
611,750
17,086
270,630
121,376
611,750
17,086
270,630
121,376
(2)
N/A
1,172,663
1,172,663
1,172,458
400,000
485,118
400,000
485,118
400,000
511,838
2,345
14,405
215,819
232,569
232,569
$
19,431 $
14,405 $
5,430,876 $
5,464,712 $
4,879,477
CARRYING VALUE OF FINANCIAL LIABILITIES BY CATEGORY
2018
DERIVATIVES USED
FOR HEDGES
(1)
FVTPL
AMORTIZED COST
TOTAL
FAIR VALUE
$
— $
— $
2,352,944 $
2,352,944 $
2,352,944
60,254
—
—
—
—
—
—
—
—
—
—
—
—
238,447
98,502
60,254
238,447
98,502
60,254
238,447
98,502
2,288,020
2,288,020
2,290,682
980,303
399,705
980,303
399,705
980,303
415,577
15,594
17,889
20,022
53,505
53,505
$
75,848 $
17,889 $
6,377,943 $
6,471,680 $
6,490,214
(1)
(2)
(3)
(4)
Fair value through profit or loss (“FVTPL”)
N/A: not applicable
The fair value of short-term debt and long-term debt was determined using public quotations or the discounted cash flows method in accordance
with current financing arrangements. The discount rates used correspond to prevailing market rates offered to SNC-Lavalin or to the Capital
investments, depending on which entity has issued the debt instrument, for debt with the similar terms and conditions.
In 2019, the gain on contingent consideration payable to seller related to Linxon acquisition (see Note 6), which is a financial liability at FVTPL,
amounted to $2.9 million (2018: loss of $1.4 million) and is included in “Loss (gain) arising on financial assets (liabilities) at fair value through
profit or loss” in the consolidated income statement.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
159
159
SNC-Lavalin 2019 Financial Report 30.
FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The methodology used to measure the Company’s financial instruments accounted for at fair value is determined based
on the following hierarchy:
LEVEL
Level 1
Level 2
Level 3
BASIS FOR DETERMINATION OF FAIR VALUE
Quoted prices in active markets for identical assets or
liabilities
Inputs other than quoted prices included in Level 1 that are
directly or indirectly observable for the asset or liability
Inputs for the asset or liability that are not based on
observable market data
FINANCIAL INSTRUMENTS
None
Cash and cash equivalents, restricted cash, derivatives, life
insurance policies, which are included in “Other current
financial assets” and equity investments measured at FVTOCI
Contingent consideration receivable from the acquirer of the
10.01% interest in Highway 407 ETR included in “Other non-
current financial assets” and contingent consideration payable
to seller related to Linxon acquisition included in “Other non-
current financial liabilities”
ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE AND FOR WHICH THE FAIR VALUE IS DISCLOSED
The methodology used to determine the fair value of the following Company’s assets and liabilities not measured at fair
value is based on the following hierarchy:
LEVEL
Level 1
Level 2
BASIS FOR DETERMINATION OF FAIR VALUE
Quoted prices in active markets for
identical assets or liabilities
Inputs other than quoted prices included
in Level 1 that are directly or indirectly
observable for the asset or liability
ASSETS AND LIABILITIES
None
Trade receivables, receivables under service concession arrangements, trade
payables, short-term debt and long-term debt, as well as the following assets and
liabilities not measured at fair value: other current financial assets, other non-
current financial assets, other current financial liabilities, provisions and other
non-current financial liabilities
Level 3
Inputs for the asset or liability that are
not based on observable market data
None
For the years ended December 31, 2019 and 2018, there were no changes in valuation techniques and in inputs used in
the fair value measurements and there were no transfers between the levels of the fair value hierarchy.
LEVEL 3 FINANCIAL INSTRUMENTS
The following table presents changes in fair value of Level 3 financial
December 31, 2019:
instruments for
the year ended
CONTINGENT CONSIDERATION
RECEIVABLE FROM
THE ACQUIRER OF THE 10.01%
INTEREST IN HIGHWAY 407 ETR
CONTINGENT CONSIDERATION
PAYABLE TO SELLER RELATED TO
LINXON ACQUISITION
Balance as at January 1, 2019
$
— $
Disposal of the 10.01% interest in Highway 407 ETR (Note 5A)
Unrealized net gains
Effect of foreign currency exchange differences
Balance as at December 31, 2019
Assumptions
56,143
1,064
—
$
57,207 $
17,889
—
2,911
(573)
14,405
When measuring Level 3 financial instruments at fair value using the present value technique, some assumptions are not
derived from an observable market. The main assumptions developed internally relate to discount rate and to future
expected cash flows, based on the projected future performance. The projected future performance is an important input
for the determination of fair value and is prepared by management of SNC-Lavalin based on budget and strategic plan.
The significant assumptions used in measuring fair value of Level 3 financial instruments as at December 31, 2019 were
as follows: i) the discount rate, which was 7.80% for contingent consideration receivable from the acquirer of the
10.01% interest in Highway 407 ETR and 11.95% for contingent consideration payable to seller related to Linxon
acquisition; and ii) the expected future cash flows of Highway 407 ETR and Linxon.
160
160
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
30.
FINANCIAL INSTRUMENTS (CONTINUED)
Sensitivity analysis
These assumptions, not derived from an observable market, are established by management of SNC-Lavalin using
estimates and judgments that can have a significant effect on net income.
The following impact on net income has been calculated changing one of these assumptions to other reasonably possible
alternative assumption for the year ended December 31, 2019:
CONTINGENT CONSIDERATION
RECEIVABLE FROM
THE ACQUIRER OF THE 10.01%
INTEREST IN HIGHWAY 407 ETR
CONTINGENT CONSIDERATION
PAYABLE TO SELLER RELATED TO
LINXON ACQUISITION
IMPACT ON NET INCOME
Increase (decrease)
Increase (decrease)
Increase (decrease)
Increase (decrease)
If the discount rate is 100 basis points lower (1)
If the discount rate is 100 basis points higher (1)
If the expected future cash flows are 1% lower (1)
If the expected future cash flows are 1% higher (1)
$
$
$
$
4,834 $
(4,363) $
(11,431) $
11,787 $
(756)
693
—
—
(1)
B)
Assuming all other variables remain the same.
NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS AND RELATED RISK
MANAGEMENT
NATURE OF RISK
Credit risk
DESCRIPTION
Risk that SNC-Lavalin will incur a financial loss if the other party to a financial instrument fails to discharge an
obligation. The maximum exposure to credit risk for SNC-Lavalin at the end of a given period usually corresponds to
the carrying amount of its financial assets exposed to such risk, as presented in Note 30A.
Liquidity risk
Possibility that SNC-Lavalin will encounter difficulties in meeting the obligations associated with its financial liabilities
Market risk
Variability in the fair value or future cash flows of a financial instrument caused by a change in market prices in items
such as currency rates, interest rates and equity prices
CREDIT RISK
For SNC-Lavalin, credit risk arises from:
i) Cash and cash equivalents, and restricted cash, which are invested in liquid and high-grade financial
instruments, based on SNC-Lavalin’s investment policy.
ii) Derivative financial instruments with a favourable fair value, which contain an inherent credit risk relating to
default on obligations by the counterparty. This credit risk is reduced by entering into such contracts with high-
grade financial institutions, which are expected to satisfy their obligations under the contracts.
iii) Trade receivables, as detailed in Note 8A, and contract assets, as detailed in Note 8B. A given client may
represent a material portion of SNC-Lavalin’s consolidated revenues in any given year due to the size of a
particular project and the progress accomplished on such project.
The Company’s objective is to reduce credit risk by ensuring collection of its trade receivables on a timely
basis. The amounts of trade receivables presented in the consolidated statements of financial position are net of
an allowance for expected credit losses, estimated by the Company and based, in part, on the age of specific
and aggregated receivable balances, on the financial situation of specific customers and the current and
expected collection trends. When assessing the credit risk associated with its trade receivables, the Company
also considers the other financial and non-financial assets and liabilities recognized with the same customer or
within the same project to provide additional indications on the Company’s exposure to credit risk. As such, in
addition to the age of its trade receivables, the Company also considers the age of its contract assets, as well as
the existence of any contract liabilities on the same project or with the same customer.
In addition to providing for individual balances of trade receivables and other financial assets upon certain
events, the Company has an internal policy in place which requires to record, by default, an allowance on any
trade receivable or contract asset that has been outstanding longer than a specific threshold, unless it can be
demonstrated that the recovery of such trade receivable is not at risk or only partially at risk, in which case the
allowance is adjusted accordingly. Moreover, the Company records an amount of additional expected credit
losses on trade receivables and contract assets for balances that are not provided for and for which no
impairment indicator exist as at period end, but for which it can be reasonably expected that credit losses might
occur in the future. Such analysis incorporates the Company’s past experience, adjusted as needed to better
reflect anticipated conditions.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
161
161
SNC-Lavalin 2019 Financial Report 30.
FINANCIAL INSTRUMENTS (CONTINUED)
Generally, trade receivables and contract assets are written-off if they are no longer subject to enforcement
activity. As such, the amount of trade receivables and contract assets that have been written off but are still
being pursued is minimal.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset
disclosed in Note 8. The Company does not generally hold collateral as security.
iv) Other current financial assets, as detailed in Note 11, and other non-current financial assets, as detailed in Note
16. The current and non-current portions of receivables under service concession arrangements are within
normal terms of payment and there were no significant amounts that were past due as at December 31, 2019
and 2018.
LIQUIDITY RISK
SNC-Lavalin monitors its liquidity risk arising from financial instruments on an ongoing basis by ensuring that it has
access to sufficient resources to meet its obligations.
The Company’s liquidity is generally provided by available cash and cash equivalents, cash generated from operations,
credit facilities and access to capital markets, as needed. Due to the nature of the Company’s activities, the fact that its
operations are conducted through multiple entities and joint operations and that it operates in many countries, the
Company’s cash and cash equivalents are distributed across numerous locations. In order to manage its cash needs and
reserves, the Company is part of various cash pooling agreements with financial institutions, may transfer cash balances
between subsidiaries, joint arrangements or investees and use credit facilities to meet the capital requirements of certain
projects or other cash disbursements.
SNC-Lavalin’s consolidated statement of financial position included $482.4 million at December 31, 2019 (2018:
$356.5 million) of liabilities from Capital investments that are accounted for by the consolidation method. These
liabilities, which are non-recourse to the Company, are to be repaid by the Capital investments and are secured by the
respective concession’s assets, including $422.0 million of financial assets at December 31, 2019 (2018: $356.5
million), and by SNC-Lavalin’s shares or units in such concession investments. As such, the actual book value at risk for
SNC-Lavalin, assuming its Capital investments accounted for by the consolidation method were unable to meet their
obligations, corresponds to the carrying amount invested in these entities.
SNC-Lavalin’s future principal payments on its short-term debt and long-term debt are presented in Note 20.
I) MATURITY ANALYSIS OF FINANCIAL LETTERS OF CREDIT
A draw on letters of credit or bank guarantees (Note 30C) by one or more third parties could, among other things,
significantly reduce the Company’s cash position and have a material adverse effect on its business and results of
operations. The following table presents a maturity analysis for the financial letters of credit outstanding as at
December 31, 2019 and 2018:
MATURITY
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
II) MATURITY ANALYSIS OF TRADE PAYABLES
DECEMBER 31
2019
DECEMBER 31
2018
$
201,802 $
233,986
57,269
521
20,768
694
$
259,592 $
255,448
As at December 31, 2019, 99% (2018: 100%) of the outstanding balance of “Trade payables” of $2,153.5 million (2018:
$2,352.9 million) had a maturity of not later than 1 year.
MARKET RISK
I) CURRENCY RISK
SNC-Lavalin’s foreign currency risk arises from arrangements in currencies other than its reporting currency and from
the net assets (liabilities) of its foreign operations.
Foreign currency risk is managed by the Company by matching, when possible, the cash receipts in a foreign currency
and the cash disbursements in the same foreign currency, for revenue-generating projects in which foreign currencies are
involved. Derivative financial instruments with banks, usually forward foreign exchange contracts, are also used to
hedge the cash flows in foreign currencies.
162
162
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
30.
FINANCIAL INSTRUMENTS (CONTINUED)
The following table summarizes the major forward foreign exchange contracts that were outstanding, for which
SNC-Lavalin has committed to buy or sell foreign currencies:
AT DECEMBER 31, 2019
AT DECEMBER 31, 2018
BUY
SELL
MATURITY
BUY
SELL
MATURITY
CA$
943,877
US$
721,956
2020-2023
CA$ 1,756,097
US$ 1,323,215
2019-2023
CA$
13,205
€
8,593
2020-2022
US$
248,518
CA$
327,226
2020-2022
CA$
US$
19,435
721,989
€
53,512
CA$
79,623
2020-2022
€
60,240
€
12,512
2019-2022
CA$
CA$
964,180
2019-2021
91,968
2019-2022
CA$
213,508
£
124,000
AU$
58,787
CA$
52,926
£
€
131,344
CA$
226,473
57,765
US$
67,098
INR 5,305,000
US$
CHF
97,621
46,503
£
£
52,054
75,561
2020
2020
2020
2020
CA$
AU$
£
€
404,713
130,000
144,577
86,247
2020-2021
INR 7,124,000
2020
US$
CHF
57,560
60,867
£
235,700
126,066
245,627
2019
2019
2019
104,791
2019-2020
68,715
45,514
2019-2021
2019
CA$
CA$
US$
£
£
US$
48,208
2020-2021
US$
60,743
2019-2021
As at December 31, 2019, the forward foreign exchange contracts used for hedging purposes by the Company had a net
favourable fair value of $1.7 million (2018: net unfavourable fair value of $21.4 million). The majority of the forward
foreign exchange contracts that were outstanding at that date were to either buy or sell foreign currencies against the
Canadian dollar.
CURRENCY SENSITIVITY ANALYSIS
The following impact on equity for the year ended December 31, 2019 has been calculated from the Company’s net
assets (liabilities) denominated in US dollars, Saudi Arabian riyals and British pounds, from derivative financial
instruments used to hedge the exposure to US dollars, Saudi Arabian riyals and British pounds and from investments
made in foreign operations.
Increase (decrease)
Increase (decrease)
(1)
10% appreciation in the Canadian dollar (1)
10% depreciation in the Canadian dollar (1)
$
$
(142,512) $
(10,565) $
(244,243)
142,512 $
10,565 $
244,243
CA$/US$
(2), (3)
CA$/SAR
(2), (4)
IMPACT ON EQUITY
(2), (5)
CA$/£
(2)
(3)
(4)
(5)
Assuming all other variables remain the same.
The Company’s exposure to other currencies is not significant.
Includes mainly $156.8 million of change in exchange differences on translating foreign operations.
Includes mainly $10.9 million of change in exchange differences on translating foreign operations.
Includes mainly $223.3 million of change in exchange differences on translating foreign operations.
As at December 31, 2019, the 10% appreciation in the Canadian dollar comparing to: i) the US dollar would decrease
the Company’s net income by $0.2 million (10% depreciation in the Canadian dollar comparing to the US dollar would
increase the Company’s net income by $0.2 million); ii) the Saudi Arabian riyal would increase the Company’s net
income by $0.4 million (10% depreciation in the Canadian dollar comparing to the Saudi Arabian riyal would decrease
the Company’s net income by $0.4 million); and iii) the British pound would increase the Company’s net income by
$0.6 million (10% depreciation in the Canadian dollar comparing to the British pound would decrease the Company’s
net income by $0.6 million).
II) INTEREST RATE RISK
Cash and cash equivalents, and restricted cash, usually involve limited interest rate risk due to their short-term nature.
NON-RECOURSE DEBT
Unlike E&C activities, Capital investments are often capital intensive due to the ownership of assets that are financed
mainly with project-specific debt, which is usually non-recourse to the general credit of the Company. These
investments usually reduce their exposure to interest rate risk by entering into fixed-rate financing arrangements or by
hedging the variability of interest rates through derivative financial instruments. Fixing the interest rates gives the
Capital investments stable and predictable financing cash outflows, which are usually structured to match the expected
timing of their cash inflows.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
163
163
SNC-Lavalin 2019 Financial Report 30.
FINANCIAL INSTRUMENTS (CONTINUED)
In 2019 and 2018, a subsidiary of the Company from E&C activities issued senior secured notes to finance certain long-
term assets associated to a BOO (Build-Own-Operate) contract. The senior secured notes bear interest at a variable rate
which exposes the Company to interest rate risk. Also, in relation to the acquisition of Linxon by SNC-Lavalin in 2018,
the holder of non-controlling interest of 49% in Linxon granted an interest-free loan and provided a working capital
revolving credit facility to Linxon. The working capital revolving credit facility bears interest at a variable rate which
exposes the Company to the interest rate risk.
LIMITED RECOURSE DEBT
SNC-Lavalin’s limited recourse debt bears interest at a variable rate which exposes the Company to the interest rate risk.
RECOURSE DEBT
SNC-Lavalin’s recourse short-term debt bears interest at a variable rate which exposes the Company to interest rate risk.
Certain SNC-Lavalin’s debentures bear interest at a fixed rate and are measured at amortized cost; therefore, the
Company’s net income is not exposed to a change in interest rates on these financial liabilities.
SNC-Lavalin’s Term Loan and certain debentures bear interest at a variable rate which exposes the Company to interest
rate risk.
INTEREST RATE SWAP
TransitNEXT General Partnership (see Note 5A) entered into an interest rate swap agreement with financial institutions
related to its credit facility in the aggregate maximum principal amount of $149.0 million, which bears interest at a rate
of CDOR plus an applicable margin, to hedge the variability of the interest rate. Under the interest rate swap agreement,
TransitNEXT pays interest at a fixed rate and receives interest at a rate of CDOR. This hedge is classified as a cash flow
hedge.
INTEREST RATE SENSITIVTY ANALYSIS
For floating rate debt, the analysis is prepared assuming the amount of the debt outstanding at the end of the reporting
period was outstanding for the whole year. A 1% (100 basis points) increase or decrease is used when reporting interest
rate risk internally to key management personnel and represents management’s assessment of the reasonably possible
change in interest rates.
If interest rates had been 1% higher/lower of the base rate and all other variables were held constant, the Company’s net
income for the year ended December 31, 2019 would decrease/increase by $9.2 million. This is mainly attributable to
the Company’s exposure to interest rates on its variable rate borrowings.
The Company’s sensitivity to interest rates has decreased in 2019 mainly due to repayment of certain variable rate debt
instruments.
III) EQUITY PRICE RISK
SNC-Lavalin limits its exposure arising from the share unit plans caused by fluctuations in its share price, through
financial arrangements with investment high-grade financial institutions described in Note 23C.
IV) COMMODITY PRICE RISK
In 2019, the Company entered into a copper commodity swap agreement with a financial institution related to its
standardized EPC contracts for power substations executed through its Linxon subsidiary to hedge the variability of the
copper price. The copper commodity agreement
is for 1,308 metric tones at an average price of US$5,805
(approximately CA$7,617) per metric ton with gradual settlement dates until September 2020. This hedge is classified
as a cash flow hedge.
C)
LETTERS OF CREDIT
Under certain circumstances, SNC-Lavalin provides bank letters of credit as collateral for the fulfillment of contractual
obligations, including guarantees for performance, advance payments, contractual retentions and bid bonds. Certain
letters of credit decrease in relation to the percentage of completion of projects. As at December 31, 2019, SNC-Lavalin
had outstanding letters of credit of $2,067.0 million (2018: $2,347.1 million).
164
164
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
31.
CAPITAL MANAGEMENT
SNC-Lavalin’s main objective when managing its capital is to maintain an adequate balance between: i) having
sufficient capital for financing net asset positions, maintaining satisfactory bank lines of credit and capacity to absorb
project net retained risks, while at the same time, ii) maximizing return on equity.
The Company defines its capital as its equity attributable to SNC-Lavalin shareholders excluding other components of
equity plus its recourse debt. The Company excludes other components of equity from its definition of capital because
this element of equity results in part from the translation into Canadian dollars of its foreign operations having a
different functional currency, and from the accounting treatment of cash flow hedges, including its accumulated share of
other comprehensive income of investments accounted for by the equity method. These amounts are not representative
of the way the Company evaluates the management of its foreign currency risk and interest risk. Accordingly, the other
components of equity are not representative of the Company’s financial position.
The Company does not consider non-recourse and limited recourse debt when monitoring its capital because such debt
results from the consolidation of certain E&C investments and Capital investments or holding entities held by the
Company. As such, the lenders of such debt do not have recourse to the general credit of the Company, but rather to the
specific assets of the E&C investments and Capital investments or investment in Capital investments they finance. The
Company’s investments and underlying assets in its E&C investments and Capital investments accounted for by the
consolidation or equity methods may be at risk, however, if such investments or holding entities were unable to repay
their long-term debt.
The Company’s capital for the years ended December 31, 2019 and 2018 was as follows:
Recourse debt
Equity attributable to SNC-Lavalin shareholders
Less: Other components of equity
Plus: Recourse debt
Total amount of capital
DECEMBER 31
2019
1,172,663 $
3,715,006 $
$
$
354,073
1,172,663
$
4,533,596 $
DECEMBER 31
2018
2,288,020
3,650,903
499,199
2,288,020
5,439,724
The Company has paid quarterly dividends for 30 consecutive years. Dividend policy is determined by the Board of
Directors of the Company.
COVENANTS ON RECOURSE AND LIMITED RECOURSE DEBT
The Company’s unsecured recourse debentures are committed and subject to affirmative and negative covenants, as
defined in the underlying indentures related thereto.
The Company’s Revolving Facility and Term Loan are committed and subject to affirmative, negative and financial
covenants, including a requirement to maintain at all times, on a rolling 12-month basis, a net recourse debt to earnings
before interest, taxes, depreciation and amortization (“EBITDA”) ratio, as defined in the Credit Agreement, not
exceeding a certain limit.
The terms “net recourse debt” and “EBITDA” are defined in the Credit Agreement and do not correspond to the
Company’s metrics as presented above and/or to the specific terms used in the Company’s Management’s Discussion
and Analysis for the year ended December 31, 2019.
The CDPQ Loan is subject to affirmative and negative covenants, as well as financial covenants, notably not to exceed,
on a rolling 12-month and consolidated basis, a maximum net recourse debt to EBITDA ratio, as defined under the
CDPQ Loan Agreement, on two consecutive quarters, starting six full quarters after the initial funding date.
In case of an event of default, the Company’s debentures, the Revolving Facility, the Term Loan and the CDPQ Loan
are subject to customary accelerated repayment terms.
In 2019, the Company complied with all of the covenants, as amended from time to time, related to its debentures,
Revolving Facility, Term Loan and CDPQ Loan.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
165
165
SNC-Lavalin 2019 Financial Report 32.
PENSION PLANS, OTHER LONG-TERM BENEFITS AND OTHER POST-
EMPLOYMENT BENEFITS
A)
PENSION PLANS
SNC-Lavalin has defined contribution and defined benefit pension plans. The total cash amount paid by SNC-Lavalin
for its pension plans, consisting of contributions to its defined contribution and defined benefit pension plans, was
$228.4 million in 2019 (2018: $208.9 million).
DEFINED CONTRIBUTION PENSION PLANS
SNC-Lavalin’s contributions to its defined contribution plans are recorded as expenses in the year in which they are
incurred and totaled $153.3 million in 2019 (2018: $134.8 million).
DEFINED BENEFIT PENSION PLANS
SNC-Lavalin has a number of defined benefit pension plans, which are mostly closed to new entrants, and that provide
pension benefits based on length of service and final pensionable earnings. An individual actuarial valuation is
performed every year for two plans and at least every three years for the remaining plans. The measurement date used
for the benefit obligation and plan assets is December 31 of each year. All SNC-Lavalin’s defined benefit pension plans
are partly funded, except for two plans, of which one plan is unfunded and one plan is secured by a letter of credit.
The defined benefit plans are administrated by committees composed of a number of representatives from employer’s
representatives, active employees, inactive employees and independent members. Members of the committees are
required by law and by their articles of association to act in the best interest of the pension plans and all their relevant
stakeholders, i.e. active employees, inactive employees, retirees and employers. The pension plan committees are
responsible for the investment policy with regard to the assets of the pension plans, which are held by a trustee legally
separated from SNC-Lavalin.
SNC-Lavalin’s defined benefit pension plans typically expose the Company to actuarial risks such as: investment risk,
interest rate risk, compensation risk and longevity risk.
NATURE OF RISK
Investment risk
DESCRIPTION
The present value of the defined benefit pension plan obligation is calculated using a discount rate determined by
reference to high quality corporate bond yields; if the return on the plans’ assets is below this rate, it will create a plan
deficit.
Interest risk
A decrease in the bond interest rate will increase the plans’ liabilities; however, this will be partially offset by an increase
in the return on the plans’ debt securities.
Compensation risk
The present value of the defined benefit pension plan obligation is calculated by reference to the final pensionable
earnings of the plans’ participants.
Longevity risk
The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of
the plans’ participants both during and after their employment. An increase in the life expectancy of the plans’
participants will increase the plans’ liability.
The two main defined benefit schemes of the Company are the Atkins Pension Plan and the U.K. Railways Pension
Scheme (the “Railways Pension Scheme”), both of which are funded final salary schemes in the U.K. The latest
actuarial valuations were performed on March 31, 2016 for the Atkins Pension Plan and on December 31, 2016 for the
Railways Pension Scheme.
166
166
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
32.
PENSION PLANS, OTHER LONG-TERM BENEFITS AND OTHER POST-EMPLOYMENT
BENEFITS (CONTINUED)
The following tables set forth the change in pension benefit obligation and pension plan assets, as well as the funded
status of SNC-Lavalin’s defined benefit pension plans:
YEAR ENDED DECEMBER 31, 2019
Change in pension benefit obligation:
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
TOTAL
Pension benefit obligation at beginning of year
$ 2,810,839 $
646,364 $
288,948 $
3,746,151
Current service cost
Interest cost
Past service cost
Benefits paid
Contributions by plan participants
Remeasurement:
Actuarial gains arising from changes in demographic
assumptions
Actuarial losses arising from changes in financial
assumptions
Actuarial losses arising from experience adjustments
Effect of foreign currency exchange differences
169
75,882
—
(112,468)
—
4,065
17,446
—
(24,221)
2,710
1,027
7,431
(478)
5,261
100,759
(478)
(13,198)
(149,887)
425
3,135
(11,179)
(678)
(847)
(12,704)
267,790
68,091
(25,520)
62,163
1,694
(5,889)
28,818
1,710
(7,763)
358,771
71,495
(39,172)
Pension benefit obligation at end of year
$ 3,073,604 $
703,654 $
306,073 $
4,083,331
Change in pension plan assets:
Fair value of pension plan assets at beginning of year
$ 2,520,543 $
489,508 $
283,036 $
3,293,087
Interest income
Remeasurement:
Return on plan assets (excluding interest income)
Administration costs
Benefits paid
Contributions by the employer
Contributions by plan participants
Effect of foreign currency exchange differences
68,768
13,211
7,493
89,472
329,464
—
(112,468)
61,146
—
(22,319)
45,908
(847)
(24,221)
5,759
2,710
(4,501)
(1,744)
(278)
(13,198)
8,195
425
(7,369)
373,628
(1,125)
(149,887)
75,100
3,135
(34,189)
Fair value of pension plan assets at end of year
$ 2,845,134 $
527,527 $
276,560 $
3,649,221
AT DECEMBER 31, 2019
Funded status reflected in the statement of financial
position:
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
TOTAL
Present value of pension benefit obligation
$ 3,073,604 $
703,654 $
306,073 $
4,083,331
Fair value of pension plan assets
Funded status
Additional liability due to minimum funding
requirements
Net accrued pension benefit liability
2,845,134
228,470
527,527
176,127
276,560
29,513
3,649,221
434,110
—
—
—
—
$
228,470 $
176,127 $
29,513 $
434,110
Presented on the statement of financial position as follows:
Other non-current non-financial assets (Note 17)
Non-current portion of provisions
$
$
10,979
445,089
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
167
167
SNC-Lavalin 2019 Financial Report 32.
PENSION PLANS, OTHER LONG-TERM BENEFITS AND OTHER POST-EMPLOYMENT
BENEFITS (CONTINUED)
The following tables set forth the change in pension benefit obligation and pension plan assets, as well as the funded
status of SNC-Lavalin’s defined benefit pension plans:
YEAR ENDED DECEMBER 31, 2018
Change in pension benefit obligation:
Pension benefit obligation at beginning of year
Acquisition of Linxon
Current service cost
Interest cost
Past service cost (1)
Benefits paid
Contributions by plan participants
Remeasurement:
Actuarial gains arising from changes in demographic
assumptions
Actuarial gains arising from changes in financial
assumptions
Actuarial losses (gains) arising from experience
adjustments
Effect of foreign currency exchange differences
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
TOTAL
$ 3,053,563 $
683,728 $
294,439 $
4,031,730
—
173
72,281
19,668
(155,801)
—
—
4,496
16,600
4,722
(23,517)
2,594
9,175
727
7,553
672
(15,810)
107
9,175
5,396
96,434
25,062
(195,128)
2,701
(17,638)
(15,217)
(1,938)
(34,793)
(203,354)
(42,365)
(12,125)
(257,844)
(1,729)
43,676
5,879
9,444
923
5,225
5,073
58,345
Pension benefit obligation at end of year
$ 2,810,839 $
646,364 $
288,948 $
3,746,151
Change in pension plan assets:
Fair value of pension plan assets at beginning of year
Acquisition of Linxon
Interest income
Remeasurement:
Return on plan assets (excluding interest income)
Administration costs
Benefits paid
Contributions by the employer
Contributions by plan participants
Effect of foreign currency exchange differences
$ 2,720,318 $
503,537 $
281,530 $
3,505,385
—
64,326
(207,108)
—
(155,801)
60,868
—
37,940
—
12,277
(16,886)
(682)
(23,517)
5,361
2,594
6,824
5,806
7,166
(7,823)
(264)
(15,810)
7,875
107
4,449
5,806
83,769
(231,817)
(946)
(195,128)
74,104
2,701
49,213
Fair value of pension plan assets at end of year
$ 2,520,543 $
489,508 $
283,036 $
3,293,087
AT DECEMBER 31, 2018
Funded status reflected in the statement of financial
position:
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
TOTAL
Present value of pension benefit obligation
$ 2,810,839 $
646,364 $
288,948 $
3,746,151
Fair value of pension plan assets
Funded status
Additional liability due to minimum funding requirements
2,520,543
290,296
—
489,508
156,856
—
283,036
3,293,087
5,912
2,758
453,064
2,758
Net accrued pension benefit liability
$
290,296 $
156,856 $
8,670 $
455,822
Presented on the statement of financial position as follows:
Other non-current non-financial assets (Note 17)
Non-current portion of provisions
(1)
Relates to October 26, 2018 U.K. High Court ruling (see Note 3)
$
$
27,893
483,715
168
168
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
32.
PENSION PLANS, OTHER LONG-TERM BENEFITS AND OTHER POST-EMPLOYMENT
BENEFITS (CONTINUED)
SNC-Lavalin’s net defined benefit pension costs recognized in net income were comprised of:
YEAR ENDED DECEMBER 31, 2019
Current service cost
Net interest expense
Administration costs
Past service cost
Components of benefit pension costs recognized in net
income
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
$
169 $
4,065 $
1,027 $
7,114
—
—
4,235
847
—
33
278
(478)
TOTAL
5,261
11,382
1,125
(478)
$
7,283 $
9,147 $
860 $
17,290
YEAR ENDED DECEMBER 31, 2018
Current service cost
Net interest expense
Administration costs
Past service cost (1)
Components of benefit pension costs recognized in net
income
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
$
173 $
4,496 $
727 $
7,954
—
19,668
4,323
682
4,722
476
264
672
TOTAL
5,396
12,753
946
25,062
$
27,795 $
14,223 $
2,139 $
44,157
(1)
Relates to October 26, 2018 U.K. High Court ruling (see Note 3)
SNC-Lavalin’s net defined benefit pension costs recognized in other comprehensive income were comprised of:
YEAR ENDED DECEMBER 31, 2019
Remeasurement on the net defined benefit liability:
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
TOTAL
Return on plan assets (excluding interest income)
$
(329,464) $
(45,908) $
1,744 $
(373,628)
Actuarial gains arising from changes in demographic
assumptions
Actuarial losses arising from changes in financial
assumptions
Actuarial losses arising from experience adjustments
Variation in liability due to minimum funding
requirements
Components of (reversal of) benefit pension costs
recognized in other comprehensive income
(11,179)
(678)
(847)
(12,704)
267,790
68,091
62,163
1,694
28,818
1,710
358,771
71,495
—
—
(2,853)
(2,853)
$
(4,762) $
17,271 $
28,572 $
41,081
YEAR ENDED DECEMBER 31, 2018
Remeasurement on the net defined benefit liability:
Return on plan assets (excluding interest income)
Actuarial gains arising from changes in demographic
assumptions
Actuarial gains arising from changes in financial
assumptions
Actuarial (gains) losses arising from experience
adjustments
Variation in liability due to minimum funding
requirements
Components of reversal of benefit pension costs
recognized in other comprehensive income
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
TOTAL
$
207,108 $
16,886 $
7,823 $
231,817
(17,638)
(15,217)
(1,938)
(34,793)
(203,354)
(42,365)
(12,125)
(257,844)
(1,729)
5,879
—
—
923
(104)
5,073
(104)
$
(15,613) $
(34,817) $
(5,421) $
(55,851)
SNC-Lavalin expects to make contributions of $77.5 million in 2020 to its defined benefit pension plans.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
169
169
SNC-Lavalin 2019 Financial Report 32.
PENSION PLANS, OTHER LONG-TERM BENEFITS AND OTHER POST-EMPLOYMENT
BENEFITS (CONTINUED)
The following tables present the fair value of the major categories of assets of SNC-Lavalin’s defined benefit pension
plans:
AT DECEMBER 31, 2019
Asset category
Equity securities
Debt securities
Other (1)
Total
AT DECEMBER 31, 2018
Asset category
Equity securities
Debt securities
Other (1)
Total
(1)
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
TOTAL
$
676,885 $
224,208 $
32,841 $
1,757,514
410,735
200,679
102,640
178,879
64,840
933,934
2,137,072
578,215
$
2,845,134 $
527,527 $
276,560 $
3,649,221
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
OTHER
PLANS
TOTAL
$
570,777 $
206,272 $
27,624 $
1,603,512
346,254
185,782
97,454
243,924
11,488
804,673
2,033,218
455,196
$
2,520,543 $
489,508 $
283,036 $
3,293,087
As at December 31, 2019 and 2018, the asset category “Other” includes mainly property and cash.
The fair values of the above equity and debt instruments are mainly determined based on quoted prices in active
markets.
The following is a summary of significant weighted average assumptions used in measuring SNC-Lavalin’s accrued
pension benefit obligation as at December 31, 2019:
AT DECEMBER 31, 2019
Accrued pension benefit obligation
Discount rate
Rate of compensation increase (2)
Inflation (3)
Longevity at age 65 for current pensioners
Men
Women
Longevity at age 65 for future pensioners (current age 45)
Men
Women
ATKINS
PENSION
PLAN
2.00%
2.70%
2.70%
23.0 years
24.9 years
24.4 years
26.3 years
RAILWAYS
PENSION
SCHEME
2.00%
2.70%
2.70%
OTHER
PLANS
1.96%
1.72%
1.87%
22.6 years
23.7 years
23.2 years
25.1 years
23.9 years
25.2 years
24.6 years
26.5 years
(2)
(3)
The weighted average rate of compensation increase for other plans, excluding pension plans for which benefits are not linked to future salary
levels, represented 2.51% as at December 31, 2019.
The inflation assumption shown for Atkins Pension Plan and the Railways Pension Scheme is for the Retail Price Index. The assumption for the
Consumer Price Index was 1.8% as at December 31, 2019.
170
170
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
32.
PENSION PLANS, OTHER LONG-TERM BENEFITS AND OTHER POST-EMPLOYMENT
BENEFITS (CONTINUED)
The following is a summary of significant weighted average assumptions used in measuring SNC-Lavalin’s accrued
pension benefit obligation as at December 31, 2018:
AT DECEMBER 31, 2018
Accrued pension benefit obligation
Discount rate
Rate of compensation increase (1)
Inflation (2)
Longevity at age 65 for current pensioners
Men
Women
Longevity at age 65 for future pensioners (current age 45)
Men
Women
ATKINS
PENSION
PLAN
RAILWAYS
PENSION
SCHEME
2.80%
3.10%
3.10%
2.80%
3.10%
3.10%
OTHER
PLANS
2.71%
1.88%
2.19%
23.2 years
22.5 years
23.1 years
24.4 years
23.6 years
25.1 years
24.6 years
23.9 years
24.6 years
25.9 years
25.1 years
26.5 years
(1)
(2)
The weighted average rate of compensation increase for other plans, excluding pension plans for which benefits are not linked to future salary
levels, represented 2.76% as at December 31, 2018.
The inflation assumption shown for Atkins Pension Plan and the Railways Pension Scheme is for the Retail Price Index. The assumption for the
Consumer Price Index was 2.10% as at December 31, 2018.
The sensitivity analysis below was determined based on reasonable possible changes of the respective assumptions
occurring at December 31, 2019, while holding all other assumptions constant.
If the discount rate is 1% higher (lower), the defined benefit pension obligation would decrease by an estimated amount
of $804.4 million (increase by an estimated amount of $809.8 million).
If the rate of compensation increase is 1% higher (lower), the defined benefit pension obligation would increase by an
estimated amount of $24.7 million (decrease by an estimated amount of $24.7 million).
If the inflation is 1% higher (lower), the defined benefit pension obligation would increase by an estimated amount of
$613.1 million (decrease by an estimated amount of $611.3 million).
If the longevity increases by 1 year, the defined benefit pension obligation would increase by an estimated amount of
$144.4 million.
The sensitivity analyses presented above may not be representative of the actual change in the defined benefit pension
obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the
assumptions may be correlated. Furthermore, in presenting the above sensitivity analyses, the present value of the
defined benefit pension obligation was calculated using the projected unit credit method at the end of the reporting
period, which is the same method applied in calculating the defined benefit obligation liability recognized in the
statement of financial position.
The weighted average duration of the pension benefit obligation as at December 31, 2019 was 18.0 years for Atkins
Pension Plan (2018: 19.0 years), 17.1 years for Railways Pension Scheme (2018: 17.1 years) and 16.5 years for the other
plans (2018: 15.5 years).
B)
OTHER LONG-TERM BENEFITS AND OTHER POST-EMPLOYMENT BENEFITS
SNC-Lavalin has a number of other long-term benefit and other post-employment benefit plans, which are all defined
benefit plans and include mainly termination indemnities, medical and dental care benefits, and life insurance benefits.
SNC-Lavalin’s other long-term benefit and other post-employment benefit plans are unfunded plans.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
171
171
SNC-Lavalin 2019 Financial Report 32.
PENSION PLANS, OTHER LONG-TERM BENEFITS AND OTHER POST-EMPLOYMENT
BENEFITS (CONTINUED)
The following table sets forth the change in obligation of SNC-Lavalin’s other long-term benefit and other post-
employment benefit plans:
YEARS ENDED DECEMBER 31
Change in obligation:
Obligation at beginning of year
Acquisition of Linxon
Current service cost
Past service cost
Interest cost
Remeasurement (1)
Benefits paid
Actuarial losses (gains) (Note 24)
Effect of foreign currency exchange differences
Obligation at end of year
2019
2018
$
85,004 $
—
16,819
—
4,216
393
(18,841)
14,263
(3,383)
$
98,471 $
78,885
3,728
14,989
667
3,732
(171)
(18,640)
(2,081)
3,895
85,004
SNC-Lavalin’s net defined other long-term benefit and other post-employment benefit costs recognized in net income
were comprised of:
YEARS ENDED DECEMBER 31
Current service cost
Past service cost
Interest cost
Remeasurement (1)
Components of other long-term benefit and other post-employment benefit costs
recognized in net income
2019
$
16,819 $
—
4,216
393
2018
14,989
667
3,732
(171)
$
21,428 $
19,217
(1)
Remeasurement relates to two other long-term employee benefit plans of SNC-Lavalin for which remeasurement is not recognized in other
comprehensive income, but rather in the income statement.
The following is a summary of significant weighted average assumptions used in measuring SNC-Lavalin’s accrued
other long-term benefit and other post-employment benefit obligation:
Accrued other long-term benefit and other post-employment benefit obligation
Discount rate
Rate of compensation increase (2)
(2)
Rate of compensation increase applies only to termination indemnities.
DECEMBER 31
2019
DECEMBER 31
2018
4.45%
4.55%
4.73%
4.50%
172
172
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
33.
CONTINGENT LIABILITIES
Class actions
Ruediger Class Action
On February 6, 2019, a Motion for authorization of a class action and for authorization to bring an action pursuant to
section 225.4 of Quebec’s Securities Act (the “Ruediger Class Action Motion”) was filed with the Quebec Superior
Court (the “Ruediger Class Action”), on behalf of persons who acquired SNC-Lavalin securities from February 22, 2018
through January 27, 2019 (the “Ruediger Class Period”), and held some or all of such securities as of the
commencement of trading on January 28, 2019.
The Ruediger Class Action Motion alleges that certain documents filed by SNC-Lavalin and oral statements made by its
then Chief Executive Officer during the Ruediger Class Period contained misrepresentations related to SNC-Lavalin’s
revenue forecasts and to the financial performance of the Mining & Metallurgy and Oil & Gas segments, which
misrepresentations would have been corrected by way of SNC-Lavalin’s January 28, 2019 press release.
The Ruediger Class Action Motion seeks leave from the Quebec Superior Court to bring a statutory misrepresentation
claim under Quebec’s Securities Act. The proposed action claims damages and seeks the condemnation of the
Defendants to pay the class members an unspecified amount for compensatory damages with interest and additional
indemnity as well as full costs and expenses, including expert fees, notice fees and fees relating to administering the plan
of distribution.
On October 15, 2019,
the plaintiffs in the Ruediger Class Action Motion delivered an amended “Motion for
authorization of a class action and for authorization to bring an action pursuant to section 225.4 of Quebec’s Securities
Act”. The amendments extend the class period for the Ruediger Class Action Motion to July 22, 2019 and broaden the
scope of the claim from the Codelco project to the Company’s general execution of fixed price contracts for engineering
services, materials, equipment or construction.
SNC-Lavalin believes the claims outlined in the Ruediger Class Action Motion are completely without merit.
Drywall Class Action
On June 5, 2019, a Statement of Claim was filed with the Ontario Superior Court of Justice (the “Drywall Class
Action”), on behalf of persons who acquired SNC-Lavalin securities from February 22, 2018 through May 2, 2019 (the
“Drywall Class Period”).
The Drywall Class Action claim alleges that disclosures by SNC-Lavalin during the Drywall Class Period contained
misrepresentations related to: (i) its IFRS 15 reporting systems and controls compliance; (ii) its revenue recognition in
respect of the Mining & Metallurgy segment being non-compliant with IFRS 15; (iii) revenue on the Company’s
Codelco project in Chile being overstated in 2018 due to non-compliance with IFRS 15; (iv) the failure of the
Company’s disclosure controls and procedures and its internal controls over financial reporting which led to a $350
million write-down on the Codelco project; (v) when IFRS was applied to the Mining & Metallurgy segment results in
2019, this led to the Company disbanding its Mining & Metallurgy segment; and (vi) the Company’s financial
statements during the Drywall Class Period being materially non-compliant with IFRS.
The Drywall Class Action seeks leave from the Ontario Superior Court of Justice to bring a statutory misrepresentation
claim under Ontario’s Securities Act. The proposed action claims damages and seeks the condemnation of the
Defendants to pay the class members $1.2 billion or such other compensatory damages as the court may award, with
interest and additional indemnity as well as full costs and expenses, including expert fees, notice fees and fees relating to
administering the plan of distribution.
On September 13, 2019, counsel to the plaintiffs in the Ruediger Class Action brought a motion to stay the Drywall
Class Action on the grounds that it is duplicative of the Ruediger Class Action Motion. Counsel for the Company filed a
companion motion in support of this motion on October 1, 2019. These companion motions were heard together on
November 8, 2019 and the Ontario Superior Court of Justice rendered its decision on November 21, 2019, dismissing
the motions. On December 6, 2019, the plaintiff in the Ruediger Class Action and the Company brought motions for
leave to appeal the dismissal of these motions.
On October 15, 2019, the plaintiffs in the Drywall Class Action delivered a proposed Amended Statement of Claim that
contemplates expanding the Drywall Class Period to include SNC-Lavalin’s July 22, 2019 and August 1, 2019 press
releases and increasing the claim for damages from $1.2 billion to $1.8 billion.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
173
173
SNC-Lavalin 2019 Financial Report 33.
CONTINGENT LIABILITIES (CONTINUED)
Peters Class Action
On February 25, 2019, a Notice of Action was issued with the Ontario Superior Court of Justice, on behalf of persons
who acquired SNC-Lavalin securities from September 4, 2018 through October 10, 2018. On March 25, 2019, a
Statement of Claim was filed with the Ontario Superior Court of Justice with respect to the claims set out in the Notice
of Action (together, the Notice of Action and the Statement of Claim are the “Peters Class Action”).
The Peters Class Action alleges that the defendants, including the Company, its Chairman and certain of its officers,
failed to make timely disclosure of a material change in the business, operations or capital of SNC-Lavalin, by failing to
disclose that on September 4, 2018, the Director of the PPSC communicated her decision to SNC-Lavalin not to award
an opportunity to negotiate a remediation agreement.
The Peters Class Action seeks leave from the Ontario Superior Court of Justice to bring a statutory misrepresentation
claim under Ontario’s Securities Act and the comparable acts in other provinces. The Peters Class Action claims
damages in the sum of $75 million or such other amount as the Superior Court may determine plus interest and costs.
SNC-Lavalin intends to defend the Ruediger Class Action, the Drywall Class Action, and the Peters Class Action
vigorously. Due to the inherent uncertainties of litigation, it is not possible to predict the final outcome of the Ruediger
Class Action, the Drywall Class Action or the Peters Class Action, or determine the amount of any potential losses, if
any, and SNC-Lavalin may, in the future, be subject to further class action lawsuits or other litigation. SNC-Lavalin has
directors’ and officers’ liability insurance insuring individuals against liability for acts or omissions in their capacity as
directors and officers, and the Company itself has coverage for such claims. The amount of coverage under the
directors’ and officers’ policy is limited and such coverage may be less than any amounts the Company is required or
determines to pay in connection with these proceedings. If the Company is required or determines to pay an amount in
connection with the Ruediger Class Action, the Drywall Class Action or the Peters Class Action, such amount could
have a material adverse effect on SNC-Lavalin’s liquidity and financial results.
Other Class Actions
In 2018, the Company reached a settlement agreement in relation to class actions in Quebec and Ontario filed in 2012 on
behalf of security holders resulting in a net expense of $89.4 million, including the related legal costs.
Pyrrhotite case
On June 12, 2014, the Quebec Superior Court rendered a decision in “Wave 1” of the matter commonly referred to as
the “Pyrrhotite Case” in Trois-Rivières, Quebec and in which SNC-Lavalin is one of numerous defendants. The Quebec
Superior Court ruled in favour of the plaintiffs, awarding an aggregate amount of approximately $168 million in
damages apportioned amongst the then-known defendants, on an in solidum basis (the “Wave 1 claims”). SNC-Lavalin,
among other parties, filed a Notice to Appeal
the Quebec Superior Court decision both on merit and on the
apportionment of liability. Based on the current judgment, SNC-Lavalin’s share of the damages would be approximately
70%, a significant portion of which the Company would expect to recover from its external insurers (such insurance
coverage is itself subject to litigation). The appeal hearing started in October 2017 and was completed during the week
of April 30th, 2018. A decision from the Quebec Court of Appeal is expected in early 2020.
In addition to the appeal of the decision, a recourse in warranty was filed against another party seeking its contribution
to the damages awarded against SNC-Lavalin in the Wave 1 judgement. This recourse, for which the trial commenced in
March 2019 and should be completed in early 2020, may result in a reduction of SNC-Lavalin’s share of the damages.
In parallel to the appeal and warranty recourses for Wave 1 claims, additional potential claims were notified and
continue to be notified against numerous defendants, including SNC-Lavalin, in “Wave 2” of the Pyrrhotite Case. Wave
2 claims are currently undergoing discovery stage and it is still premature to evaluate SNC-Lavalin’s total liability
exposure in respect of same, if any. It is currently estimated that a significant portion of the damages claimed are in
respect of buildings for which the concrete foundations were poured outside of SNC-Lavalin’s liability period, as
determined in the Wave 1 judgement. SNC-Lavalin also expects some insurance coverage for Wave 2 claims. In
addition, SNC-Lavalin has undertaken a warranty recourse against another party with respect to Wave 2 claims.
174
174
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
33.
CONTINGENT LIABILITIES (CONTINUED)
Dubai civil case
In November, 2018, WS Atkins & Partners Overseas, a subsidiary of the Company, was named as respondent together
with other parties by the subrogated insurers of a property developer in a civil case initiated before the courts of Dubai.
The claimant is seeking damages jointly from the respondents on account of the alleged refurbishment costs and loss of
income arising from a fire at the property developer’s building. WS Atkins & Partners Overseas was a subcontractor in
the hotel’s design and construction supervision and the claim revolves around alleged negligence in the specification,
testing and installation of the building cladding which is claimed to have exacerbated the fire, thereby increasing the
damage to the building. The claim is in preliminary stages and the Company is not currently in a position to estimate
potential liability or amount of loss, if any.
Australian Arbitration
One of the Company’s subsidiaries has a 35% interest in a joint operation for a project that has been completed. The
construction joint operation is in a dispute with the project owner over labour rates. Under the relevant project contract,
the Company’s subsidiary is jointly and severally liable with the other joint operator vis-à-vis the project owner for
performance and other liabilities. In December 2018, the joint operation received a split award of liability from an
arbitration tribunal resulting in an adverse decision on certain aspects of the dispute. A hearing on the quantum of
damages to be awarded against the joint operation (if any) is scheduled for 2020. The other joint operator holding the
balance of the joint operation interest (65%), CBI Constructors Pty. Ltd., is part of the McDermott International, Inc.
(“`McDermott”) group, which filed for Chapter 11 bankruptcy protection in January 2020. While the Company’s
consolidated statement of financial position reflects its share (35%) of the estimated quantum of the damages, such
position might need to be adjusted pending the outcome of the quantum decision and/or the McDermott Chapter 11
bankruptcy proceedings in light of the underlying joint and several liability between the parties of the joint operation.
General litigation risk
Due to the inherent uncertainties of litigation, it is not possible to (a) predict the final outcome of these and other related
proceedings generally, (b) determine if the amount included in the Company’s provisions is sufficient or (c) determine
the amount of any potential losses, if any, that may be incurred in connection with any final judgment on these matters.
SNC-Lavalin maintains insurance coverage for various aspects of its business and operations. The Company’s insurance
programs have varying coverage limits and maximums, and insurance companies may seek to deny claims the Company
might make. In addition, SNC-Lavalin has elected to retain a portion of losses that may occur through the use of various
deductibles, limits and retentions under these programs. As a result, the Company may be subject to future liability in
respect of lawsuits or investigations for which it is only partially insured, or completely uninsured.
In addition, the nature of the Company’s business sometimes results in clients, subcontractors, and vendors presenting
claims for, among other things, recovery of costs related to certain projects. Similarly, SNC-Lavalin occasionally
presents change orders and other claims to clients, subcontractors, and vendors. If the Company fails to document
properly the nature of claims and change orders or is otherwise unsuccessful in negotiating reasonable settlements with
clients, subcontractors and vendors, the Company could incur cost overruns, reduced profits or, in some cases, a loss for
a project. A failure to recover promptly on these types of claims could have a material adverse impact on SNC-Lavalin’s
liquidity and financial results. Additionally, irrespective of how well the Company documents the nature of its claims
and change orders, the cost to prosecute and defend claims and change orders can be significant.
Litigation and regulatory proceedings are subject to inherent uncertainties and unfavourable rulings can and do occur.
Pending or future claims against SNC-Lavalin could result in professional liability, product liability, criminal liability,
warranty obligations, and other liabilities which, to the extent the Company is not insured against a loss or its insurer
fails to provide coverage, could have a material adverse impact on the Company’s business, financial condition and
results of operations.
The Company is subject to ongoing investigations that could subject the Company to criminal and administrative
enforcement actions, civil actions and sanctions, fines and other penalties, some of which may be significant. These
investigations, and potential results thereof, could harm the Company’s reputation, result in suspension, prohibition or
debarment of the Company from participating in certain projects, reduce its revenues and net income and adversely
affect its business.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
175
175
SNC-Lavalin 2019 Financial Report 33.
CONTINGENT LIABILITIES (CONTINUED)
Ongoing and potential investigations
The Company understands that there are investigations by various authorities which may remain ongoing in connection
with certain legacy matters (unrelated to the settlements described below) in various jurisdictions, including, without
limitation, Algeria.
The Company also understands that a Royal Canadian Mounted Police (the “RCMP”) investigation relating to alleged
payments in connection with a 2002 contract for the refurbishment of the Jacques Cartier Bridge by a consortium which
included SNC-Lavalin and which led to a guilty plea by the former head of the Canada Federal Bridges Corporation in
2017, continues and its scope may include the Company.
The Company is currently unable to determine when any of these investigations will be completed or whether other
investigations of the Company by these or other authorities will be initiated or the scope of current investigations
broadened. The Company continues to cooperate and communicate with authorities in connection with all ongoing
investigations.
If regulatory, enforcement or administrative authorities or third parties determine to take action against the Company or
to sanction the Company in connection with possible violations of law, contracts or otherwise as a result of ongoing or
future investigations, the consequences of any such sanctions or other actions, whether actual or alleged, could require
the Company to pay material fines or damages, consent to injunctions on future conduct or lead to other penalties,
including temporary or permanent, mandatory or discretionary suspension, prohibition or debarment from participating
in projects, or the revocation of authorizations or certifications, by certain administrative organizations or by
governments (such as the Government of Canada and/or the Government of Quebec) under applicable procurement
laws, regulations, policies or practices. The Company derives a significant percentage of its annual global revenue from
government and government-related contracts. Further, public and private sector bid processes in some instances assess
whether the bidder, or an affiliate thereof, has ever been the object of any investigations, or sanctions or other actions
resulting therefrom. In such instances, if a member of the Company’s group must answer affirmatively to a query as to
past or current investigations, or sanctions or other actions resulting therefrom, such answer may affect that entity’s
ability to be considered for the applicable project. In addition, the Company may not win contracts that it has bid upon
due to a client’s perception of the Company’s reputation and/or perceived reputational advantages held by competitors
as a result of such investigations, sanctions or other actions. Loss of bidding opportunities resulting from such
investigations, sanctions or other actions, whether discretionary (including as a result of reputational factors) or
mandatory, from participating in certain government, government-related and private contracts (in Canada, Canadian
provinces or elsewhere) could materially adversely affect the Company’s business, financial condition and liquidity and
the market price of the Company’s publicly traded securities.
The outcomes of ongoing or future investigations could also result in, among other things, (i) covenant defaults under
various project contracts, (ii) third party claims, which may include claims for special,
indirect, derivative or
consequential damages, or (iii) adverse consequences on the Company’s ability to secure or continue its own financing,
or to continue or secure financing for current or future projects, any of which could materially adversely affect the
Company’s business, financial condition and liquidity and the market prices of the Company’s publicly traded securities.
In addition, these investigations and outcomes of these investigations and any negative publicity associated therewith,
could damage SNC-Lavalin’s reputation and ability to do business.
Due to the uncertainties related to the outcome of ongoing or future investigations, the Company is currently unable to
reliably estimate an amount of potential liabilities or a range of potential liabilities, if any, in connection with any of
these investigations.
The Company’s senior management and Board of Directors have been required to devote significant time and resources
to the investigations described above and ongoing related matters, as well as the investigations leading to the settlements
described below, which have distracted and may continue to distract from the conduct of the Company’s daily business,
and significant expenses have been and may continue to be incurred in connection with such investigations including
substantial fees of lawyers and other advisors. In addition, the Company and/or other employees or additional former
employees of the Company could become the subject of these or other investigations by law enforcement and/or
regulatory authorities in respect of the matters described above or below, or other matters, which, in turn, could require
the devotion of additional time of senior management and the diversion or utilization of other resources.
176
176
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
33.
CONTINGENT LIABILITIES (CONTINUED)
Settlements
PPSC Settlement
On February 19, 2015, the RCMP and the Public Prosecution Service of Canada (“PPSC”) laid charges against the
Company and its indirect subsidiaries SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. Each entity
was charged with one count of fraud under Section 380 of the Criminal Code (Canada) (the “Criminal Code”) and one
count of corruption under Section 3(1)(b) of the Corruption of Foreign Public Officials Act (Canada) (the “CFPOA”)
(the “Charges”). These Charges followed the RCMP’s formal investigation (including in connection with the search
warrant executed by the RCMP at the Company on April 13, 2012) into whether improper payments were made or
offered, directly or indirectly, to be made, to a government official of Libya to influence the award of certain
engineering and construction contracts between 2001 and 2011. This investigation also led to criminal charges being laid
against two former employees of the Company.
On December 18, 2019, the Company announced it had reached a settlement with the PPSC regarding the Charges (the
“PPSC Settlement”). As part of the PPSC Settlement, SNC-Lavalin Construction Inc. has accepted a plea of guilty to a
single charge of fraud (the “Plea”). All other Charges against the Company, SNC-Lavalin International Inc. and SNC-
Lavalin Construction Inc. have been withdrawn by the PPSC. Also as part of the PPSC Settlement, SNC-Lavalin
Construction Inc. will pay a fine in the amount of $280 million, payable in equal installments over 5 years, and will be
subject to a three-year probation order. The Company estimated the net present value of these installments at
$257.3 million at the date of settlement. The Company will comply with the probation order for the three-year period.
The Plea may result in, among other things, (i) breaches and/or events of default under various project agreements
giving rise to discretionary termination rights in favour of the counterparties thereto, (ii) third party claims, which may
include claims for special,
indirect, derivative or consequential damages, or (iii) adverse consequences on the
Company’s ability to secure financing, or to continue to secure financing for current or future projects, any of which
could materially adversely affect the Company’s business, financial condition and liquidity and the market prices of the
Company’s publicly traded securities.
In addition, potential consequences of the Plea could include, in respect of the Company or one or more of its
subsidiaries, suspension, prohibition or debarment from participating in public or private sector projects or bids, or the
revocation of authorizations or certifications, by certain governments or by certain administrative organizations. While
the Company does not anticipate that the Plea will affect the eligibility of the Company to bid on future projects that are
aligned with its newly announced strategic direction, possible suspension, prohibition, debarment or loss of bidding
opportunities or the revocation of authorizations or certifications in the short term, as a result of the Plea, could have a
short term material adverse effect on the Company’s business, financial condition and liquidity and the market prices of
the Company’s publicly traded securities.
The Company cannot predict if any other actions may be taken by any other applicable government or authority or the
Company’s customers or other third parties as a result of the Plea.
World Bank Settlement
On April 17, 2013, the Company announced a settlement in connection with the previously announced investigations by
the World Bank Group relating to a project in Bangladesh and a project in Cambodia, which includes a suspension of the
right to bid on and to be awarded World Bank Group-financed projects by SNC-Lavalin Inc., a subsidiary of the
Company, and its controlled affiliates for a period of 10 years (the “World Bank Settlement”). The suspension could be
lifted after eight years, if the terms and conditions of the settlement agreement are complied with fully. According to the
terms of the World Bank Settlement, the Company and certain of its other affiliates continue to be eligible to bid on and
be awarded World Bank Group-financed projects as long as they comply with all of the terms and conditions imposed
upon them under the terms of the World Bank Settlement, including an obligation not to evade the sanction imposed.
The World Bank Settlement also requires that the Company cooperate with the World Bank on various compliance
matters in the future. The World Bank Settlement has led to certain other multilateral development banks following suit,
debarring SNC-Lavalin Inc. and its controlled affiliates on the same terms.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
177
177
SNC-Lavalin 2019 Financial Report 33.
CONTINGENT LIABILITIES (CONTINUED)
Canada’s Integrity Regime
The Canadian government announced the Integrity Regime for procurement and real property transactions on
July 3, 2015. The scope of offences which may cause a supplier to be deemed ineligible to carry on business with the
federal government is broad and encompasses offences under the Criminal Code, the Competition Act, and the CFPOA,
among others. Some of the offences qualifying for ineligibility include: bribery, fraud against Canada, money
laundering, falsification of books and documents, extortion, and offences related to drug trafficking. A determination of
ineligibility to participate in federal government procurement projects may apply for 10 years for listed offences.
However, the Integrity Regime permits the ineligibility period to be reduced by up to five years if a supplier can
establish that it has cooperated with law enforcement authorities or addressed the causes of misconduct. The Canadian
government is currently considering further revisions to the Integrity Regime.
If a supplier pleads guilty or is charged with a listed offence (which does not currently include the Plea), it and its
affiliates may under the Integrity Regime be ineligible to do business with the Canadian government.
If a supplier applies for a reduced ineligibility period, or if a supplier charged with a listed offence is notified that it
could be ineligible to do business with the Canadian government, as a condition of granting the reduced ineligibility
period or not suspending the supplier an administrative agreement may be imposed to monitor the supplier.
Administrative agreements include conditions and compliance measures that the supplier must meet to remain eligible to
contract with the federal government. In December 2015, the Company entered into an administrative agreement with
the Canadian government under the Integrity Regime in connection with the Charges (the “Administrative Agreement”)
which, according to its terms, will remain in force for 12 further months from the date of the Plea and will then
terminate.
Other legal proceedings
SNC-Lavalin becomes involved in various legal proceedings as a part of its ordinary course of business and this section
describes certain important ordinary course of business legal proceedings, including the general cautionary language
relating to the risks inherent to all litigation and proceedings against SNC-Lavalin, which is equally applicable to the
legal proceedings described below.
SNC-Lavalin Inc. has initiated court proceedings against a Canadian client stemming from engineering, procurement,
and construction management services that SNC-Lavalin Inc. provided in relation to the client’s expansion of an ore-
processing facility. SNC-Lavalin claimed from the client certain amounts due under the project contract. The client has
counterclaimed alleging that SNC-Lavalin defaulted under the project contracts and is seeking damages.
Due to the inherent uncertainties of litigation, it is not possible to (a) predict the final outcome of this and other legal
proceedings generally, (b) determine if the amount included in the Company’s provisions is sufficient or (c) determine
the amount of any potential losses, if any, that may be incurred in connection with any final judgment on these matters.
The Company is a party to other claims and litigation arising in the normal course of operations, including by clients,
subcontractors, and vendors presenting claims for, amongst other things, recovery of costs related to certain projects.
Due to the inherent uncertainties of litigation and-or the early stage of certain proceedings, it is not possible to predict
the final outcome of all ongoing claims and litigation at any given time or to determine the amount of any potential
losses, if any. With respect to claims or litigation arising in the normal course of operations which are at a more
advanced stage and which permit a better assessment of potential outcome, the Company does not expect the resolution
of these matters to have a materially adverse effect on its financial position or results of operations.
178
178
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
34.
LEASES
Right-of-use assets
YEAR ENDED DECEMBER 31, 2019
Depreciation expense on right-of-use assets
Additions
Net book value:
As at December 31, 2019
Lease liabilities
OFFICE REAL
ESTATE
EQUIPMENT
TOTAL
$
$
99,266 $
12,771 $
112,037
136,727 $
22,207 $
158,934
$
406,990 $
31,797 $
438,787
The table below presents the future gross lease liabilities payments as at December 31, 2019:
MATURITY
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Amounts recognized in the income statement
YEAR ENDED DECEMBER 31
Depreciation expense on right-of-use assets (Note 28A)
Interest expense on lease liabilities (Note 27)
Expense relating to short-term leases
Expense relating to variable lease payments not included in the measurement of the lease liabilities
Income from subleasing right-of-use assets
Amounts recognized in the statement of cash flows
DECEMBER 31
2019
$
154,432
346,427
255,566
$
756,425
2019
112,037
23,590
4,149
39,852
11,993
$
$
$
$
$
Total cash outflows for leases amounted to $186.7 million for the year ended December 31, 2019.
Operating leases
Operating leases, in which the Company is the lessor, relate mainly to equipment owned by the Company. For the year
ended December 31, 2019, the lease income on operating leases amounted to $13.4 million.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
179
179
SNC-Lavalin 2019 Financial Report 35.
REMUNERATION
A)
EMPLOYEE REMUNERATION
Expenses recognized for employee benefits, including expenses recognized for key management remuneration and
directors’ fees, are analyzed as follows:
YEARS ENDED DECEMBER 31
Short-term benefits (1)
Share-based payments
Defined contribution pension plans
Defined benefit pension plans, other long-term benefits and other post-employment
benefits
2019
2018
$
4,098,596 $
4,203,622
16,061
153,327
38,718
45,586
134,770
63,374
$
4,306,702 $
4,447,352
(1)
B)
Short-term benefits include mainly wages, salaries, social security contributions, sick leaves, profit-sharing and bonuses, non-monetary benefits
and termination benefits that are expected to be settled within twelve months after the end of the annual reporting period.
KEY MANAGEMENT REMUNERATION AND DIRECTORS’ FEES
The Company’s key management include all employees that are classified at the executive levels, corresponding mainly
to the vice-presidents and above, and all members of the Company’s Board of Directors.
The number of individuals included as key management was 177 people in 2019 (2018: 142 people).
Expenses recognized for key management remuneration and directors’ fees, even if the services were provided only for
a portion of the year, are detailed as follows:
YEARS ENDED DECEMBER 31
Short-term benefits (2)
Share-based payments
Termination benefits
Defined benefit and defined contribution pension plans, other long-term benefits and other
post-employment benefits
2019
$
103,222 $
2,219
8,419
2,131
2018
76,616
29,084
1,668
2,939
(2)
Short-term benefits include mainly wages, salaries, social security contributions, sick leaves, profit-sharing and bonuses and non-monetary
benefits that are expected to be settled within twelve months after the end of the annual reporting period.
$
115,991 $
110,307
180
180
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
36.
RELATED PARTY TRANSACTIONS
In the normal course of its operations, SNC-Lavalin enters into transactions with certain of its associates and joint
ventures, mainly its Capital investments. Investments in which SNC-Lavalin has significant influence or joint control,
which are accounted for by the equity method, are considered related parties.
For the year ended December 31, 2019 and 2018, SNC-Lavalin recognized the following transactions with its related
parties:
YEARS ENDED DECEMBER 31
2019
2018
E&C revenue from contracts with investments accounted for by the equity method
$
717,471 $
1,102,920
Income from Capital investments accounted for by the equity method
Dividends and distributions received from Capital investments accounted for by the
equity method
Income from E&C investments accounted for by the equity method
Dividends and distributions received from E&C investments accounted for by the equity
method
210,543
160,063
29,702
204,087
170,540
37,277
$
38,043 $
7,919
As at December 31, 2019 and 2018, SNC-Lavalin has the following balances with its related parties:
AT DECEMBER 31
2019
2018
Trade receivables from investments accounted for by the equity method
$
165,371 $
117,359
Other current financial assets receivable from investments accounted for by the equity
method
108,330
131,694
Remaining commitment to invest in Capital investments accounted for by the equity
method (Note 5C)
$
70,724 $
108,312
In 2018, SNC-Lavalin transferred its investment in MHIG and its holding company to an investment accounted for by
the equity method, namely the SNCL IP Partnership, which resulted in a gain on disposal of $62.7 million before
income taxes ($58.4 million after income taxes) (see Note 5A).
All of these related party transactions are measured at fair value.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
181
181
SNC-Lavalin 2019 Financial Report 37.
SUBSIDIARIES, JOINT ARRANGEMENTS AND ASSOCIATES
The main subsidiaries, joint ventures, joint operations and associates of the Company at December 31, 2019 and 2018,
except where otherwise indicated, in addition to their jurisdiction of incorporation and the percentage of voting shares
beneficially owned, or controlled, or directed, directly or indirectly by the Company or the percentage of joint
arrangement interest are set out below:
SUBSIDIARIES
Atkins China Limited
Atkins Danmark A/S
Atkins Limited
Atkins North America, Inc.
Atkins US Holdings Inc.
Candu Energy Inc.
Faithful+Gould, Inc.
Faithful+Gould Limited
Faithful+Gould Saudi Arabia Limited
InPower BC General Partnership
Kentz Canada Holdings Limited
Kentz Corporation Limited
Kentz Pty Ltd.
Linxon Gulf LLC (1)
Linxon Pvt Ltd
Linxon Switzerland Ltd
Protrans BC Operations Ltd.
P.T. SNC-Lavalin TPS
Saudi Arabia Kentz Co. LLC
SNC-Lavalin
SNC-Lavalin (GB) Holdings Limited
SNC-Lavalin (GB) Limited
SNC-Lavalin (Malaysia) Sdn. Bhd.
SNC-Lavalin (Proprietary) Limited
SNC-Lavalin Algérie EURL
SNC-Lavalin Arabia LLC
SNC-Lavalin ATP Inc.
SNC-Lavalin Australia Pty. Ltd.
SNC-Lavalin Capital Inc.
SNC-Lavalin Chile SpA
SNC-Lavalin Colombia S.A.S.
SNC-Lavalin Construction Inc.
SNC-Lavalin Construction (Ontario) Inc.
SNC-Lavalin Constructors Inc.
SNC-Lavalin Constructors International Inc.
SNC-Lavalin Constructors (Pacific) Inc.
SNC-Lavalin Defence Programs Inc.
SNC-Lavalin Engineering India Private Limited
SNC-Lavalin Engineers & Constructors, Inc.
SNC-Lavalin Europe B.V.
SNC-Lavalin Europe S.A.S.
SNC-Lavalin GEM Ontario Inc.
SNC-Lavalin GEM Québec Inc.
SNC-Lavalin Highway Holdings Inc.
SNC-Lavalin Inc.
SNC-Lavalin International Inc.
SNC-Lavalin International S.A.S.
(1)
2019
%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
100.0
100.0
100.0
100.0
49.0
51.0
100.0
100.0
95.0
75.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
2018
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
100.0
100.0
100.0
100.0
%
COUNTRY
China
Denmark
United Kingdom
United States
United States
Canada
United States
United Kingdom
Saudi Arabia
Canada
Canada
Channel Islands
Australia
— United Arab Emirates
United Kingdom
Switzerland
Canada
Indonesia
Saudi Arabia
Belgium
United Kingdom
United Kingdom
Malaysia
South Africa
Algeria
Saudi Arabia
Canada
Australia
Canada
Chile
Colombia
Canada
Canada
United States
Canada
Canada
Canada
India
United States
Netherlands
France
Canada
Canada
Canada
Canada
Canada
France
51.0
100.0
100.0
95.0
75.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Although the Company holds less than 50% of the equity shares of Linxon Gulf LLC, the Company exercises control over this entity based on its
contractual agreements.
182
182
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
37.
SUBSIDIARIES, JOINT ARRANGEMENTS AND ASSOCIATES (CONTINUED)
SUBSIDIARIES
SNC-Lavalin Major Projects Inc.
SNC-Lavalin Nuclear Inc.
SNC-Lavalin Operations & Maintenance Inc.
SNC-Lavalin Peru S.A.
SNC-Lavalin Polska Sp. Z o.o.
SNC-Lavalin Projetos Industriais Ltda.
SNC-Lavalin Rail & Transit Limited
SNC-Lavalin Romania S.A.
SNC-Lavalin SA (PTY) LTD
SNC-Lavalin Stavibel Inc.
SNC-Lavalin UK Limited
The Atkins North America Holdings Corporation
The SNC-Lavalin Corporation
TransitNEXT General Partnership
Valerus Field Solutions Holdings LLC
WS Atkins International Limited
WS Atkins Limited (previously WS Atkins plc)
JOINT VENTURES
Capital investments
407 East Development Group General Partnership
407 International Inc. (1)
Crosslinx Transit Solutions General Partnership
Rideau Transit Group General Partnership
Signature on the Saint-Laurent Group General Partnership
TC Dôme S.A.S. (2)
Other
Canadian National Energy Alliance Ltd.
Central Plateau Cleanup Company LLC
Comprehensive Decommissioning International, LLC
SNC-Lavalin International Inc. and Zuhair Fayez Engineering
Consultancies Company
JOINT OPERATIONS
407 East Construction General Partnership
Crosslinx Transit Solutions Constructors G.P.
NouvLR General Partnership
Signature on the Saint Lawrence Construction General
Partnership
SLN-Aecon JV
SNC-Dragados-Pennecon G.P.
UGL Kentz Joint Venture
(1)
2019
%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
70.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
2019
%
50.0
6.76
25.0
40.0
50.0
51.0
50.0
22.0
40.0
50.0
2019
%
50.0
25.0
24.0
45.0
40.0
40.0
50.0
2018
%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
70.0
100.0
100.0
100.0
100.0
—
100.0
100.0
100.0
2018
%
50.0
16.77
25.0
40.0
50.0
51.0
50.0
—
40.0
50.0
2018
%
50.0
25.0
24.0
45.0
40.0
40.0
50.0
COUNTRY
Canada
Canada
Canada
Peru
Poland
Brazil
United Kingdom
Romania
South Africa
Canada
United Kingdom
United States
United States
Canada
United States
United Kingdom
United Kingdom
COUNTRY
Canada
Canada
Canada
Canada
Canada
France
Canada
United States
United States
Saudi Arabia
COUNTRY
Canada
Canada
Canada
Canada
Canada
Canada
Australia
Although the Company holds less than 20% of the equity shares of 407 International Inc., the Company exercises joint control over this entity
based on its contractual agreements.
(2)
Although the Company’s ownership interest in TC Dôme S.A.S. is more than 50%, the Company does not exercise control over this entity based
on its contractual agreements.
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
183
183
SNC-Lavalin 2019 Financial Report 37.
SUBSIDIARIES, JOINT ARRANGEMENTS AND ASSOCIATES (CONTINUED)
Glossary
ASSOCIATES
Capital investments
Myah Tipaza S.p.A.
Shariket Kahraba Hadjret En Nouss S.p.A.
SNC-Lavalin Infrastructure Partners LP
2019
%
25.5
26.0
20.0
2018
%
25.5
26.0
20.0
COUNTRY
Algeria
Algeria
Canada
Adjusted diluted earnings per share from E&C (“Adjusted
EBIT is defined as earnings before net financial expenses
diluted EPS from E&C”) is defined as adjusted net income from
(income) and income taxes.
E&C, divided by the diluted weighted average number of
outstanding shares for the period. Adjusted diluted EPS from
E&C is a non-IFRS financial measure that is an indicator of the
financial performance of the Company’s E&C activities.
Adjusted EBITDA is a non-IFRS financial measure defined as
earnings before net financial expenses (income), income taxes,
depreciation and amortization, and excludes charges related to
restructuring, right-sizing and other, the acquisition-related costs
and integration costs, the net expense for the 2012 class action
lawsuits settlement and related legal costs, the federal charges
EBITDA is defined as earnings before net financial expenses
(income), income taxes, depreciation and amortization.
E&C (engineering and construction) includes contracts
generating revenues related mainly to consulting & advisory,
intelligent networks & cybersecurity, design & engineering,
procurement, project & construction management, operations &
maintenance (“O&M”), decommissioning and sustaining capital. It
also includes revenues from LSTK construction contracts, for
which the Company ceased to bid in July 2019, except for certain
repetitive EPC offerings that are lower-risk, standardized
settlement (PPSC) expense, the GMP equalization expense, as
well as the gains (losses) on disposals of E&C businesses and
solutions.
Capital investments.
Adjusted net income (loss) from E&C is a non-IFRS financial
measure defined as net income (loss) attributable to SNC-Lavalin
shareholders from E&C, excluding charges related to
restructuring, right-sizing and other, acquisition-related costs and
integration costs, as well as amortization of intangible assets
related to business combinations, impairment of goodwill,
impairment of intangible assets related to business combinations,
the net expense for the 2012 class action lawsuits settlement
and related legal costs, the federal charges settlement (PPSC)
expense, the GMP equalization expense, the gains (losses) on
disposals of E&C businesses, the impact of U.S corporate tax
reform and the incremental financing costs related to the
amendments to the CDPQ Loan and other E&C financing
EDPM incorporates all consultancy, engineering, design and
project management services around the world (including the
Canadian market, which was previously in the former
Infrastructure segment prior to January 1, 2019). It also leads our
efforts to transform the global infrastructure sector by leveraging
data and technology to improve the delivery of our clients’
projects from conception through to eventual operation. EDPM
projects are mainly in transportation (including rail, mass transit,
roads and airports), civil infrastructure, aerospace, defence and
security and technology, including some of the world’s most
transformational projects. A significant portion of revenues are
derived from the public sector, including national, provincial, state
and local and municipal authorities.
EPC Type of agreement whereby the Company provides
arrangements in connection with the sale by the Company of
Engineering, Procurement and Construction.
10.01% of the shares of Highway 407 ETR.
EPCM Type of agreement whereby the Company provides
Booking-to-revenue ratio corresponds to contract bookings
services related to Engineering, Procurement, and Construction
divided by the revenues, for a given period.
Management activities.
Capital is SNC-Lavalin’s investment, financing and asset
IFRS International financial reporting standards.
management arm, responsible for developing projects, arranging
financing, investing equity, undertaking complex financial
modeling and managing its infrastructure investments for
optimal returns. Its activities are principally concentrated in
infrastructure such as bridges, highways, mass transit systems,
power facilities, energy infrastructure, water treatment plants
and social infrastructure (e.g. hospitals).
Infrastructure EPC Projects includes LSTK construction
contracts related to mass transit, heavy rail, roads, bridges,
airports, ports and harbours and water infrastructure. In addition,
Infrastructure EPC Projects includes the LSTK construction
contracts related to the former Clean Power segment, as well as
from thermal power activities which the Company exited in 2018.
The Company decided, in 2019, to cease contracting for new
Diluted earnings per share from E&C and Diluted earnings
LSTK construction contracts.
per share from Capital correspond to diluted earnings per share
as determined under IFRS, reported separately for E&C and for
Capital.
184
184
NOTES TO 2019 CONSOLIDATED FINANCIAL STATEMENTS
SNC-Lavalin 2019 Financial Report
185
Glossary
Adjusted diluted earnings per share from E&C (“Adjusted
diluted EPS from E&C”) is defined as adjusted net income from
E&C, divided by the diluted weighted average number of
outstanding shares for the period. Adjusted diluted EPS from
E&C is a non-IFRS financial measure that is an indicator of the
financial performance of the Company’s E&C activities.
Adjusted EBITDA is a non-IFRS financial measure defined as
earnings before net financial expenses (income), income taxes,
depreciation and amortization, and excludes charges related to
restructuring, right-sizing and other, the acquisition-related costs
and integration costs, the net expense for the 2012 class action
lawsuits settlement and related legal costs, the federal charges
settlement (PPSC) expense, the GMP equalization expense, as
well as the gains (losses) on disposals of E&C businesses and
Capital investments.
Adjusted net income (loss) from E&C is a non-IFRS financial
measure defined as net income (loss) attributable to SNC-Lavalin
shareholders from E&C, excluding charges related to
restructuring, right-sizing and other, acquisition-related costs and
integration costs, as well as amortization of intangible assets
related to business combinations, impairment of goodwill,
impairment of intangible assets related to business combinations,
the net expense for the 2012 class action lawsuits settlement
and related legal costs, the federal charges settlement (PPSC)
expense, the GMP equalization expense, the gains (losses) on
disposals of E&C businesses, the impact of U.S corporate tax
reform and the incremental financing costs related to the
amendments to the CDPQ Loan and other E&C financing
arrangements in connection with the sale by the Company of
10.01% of the shares of Highway 407 ETR.
Booking-to-revenue ratio corresponds to contract bookings
divided by the revenues, for a given period.
Capital is SNC-Lavalin’s investment, financing and asset
management arm, responsible for developing projects, arranging
financing, investing equity, undertaking complex financial
modeling and managing its infrastructure investments for
optimal returns. Its activities are principally concentrated in
infrastructure such as bridges, highways, mass transit systems,
power facilities, energy infrastructure, water treatment plants
and social infrastructure (e.g. hospitals).
Diluted earnings per share from E&C and Diluted earnings
per share from Capital correspond to diluted earnings per share
as determined under IFRS, reported separately for E&C and for
Capital.
EBIT is defined as earnings before net financial expenses
(income) and income taxes.
EBITDA is defined as earnings before net financial expenses
(income), income taxes, depreciation and amortization.
E&C (engineering and construction) includes contracts
generating revenues related mainly to consulting & advisory,
intelligent networks & cybersecurity, design & engineering,
procurement, project & construction management, operations &
maintenance (“O&M”), decommissioning and sustaining capital. It
also includes revenues from LSTK construction contracts, for
which the Company ceased to bid in July 2019, except for certain
repetitive EPC offerings that are lower-risk, standardized
solutions.
EDPM incorporates all consultancy, engineering, design and
project management services around the world (including the
Canadian market, which was previously in the former
Infrastructure segment prior to January 1, 2019). It also leads our
efforts to transform the global infrastructure sector by leveraging
data and technology to improve the delivery of our clients’
projects from conception through to eventual operation. EDPM
projects are mainly in transportation (including rail, mass transit,
roads and airports), civil infrastructure, aerospace, defence and
security and technology, including some of the world’s most
transformational projects. A significant portion of revenues are
derived from the public sector, including national, provincial, state
and local and municipal authorities.
EPC Type of agreement whereby the Company provides
Engineering, Procurement and Construction.
EPCM Type of agreement whereby the Company provides
services related to Engineering, Procurement, and Construction
Management activities.
IFRS International financial reporting standards.
Infrastructure EPC Projects includes LSTK construction
contracts related to mass transit, heavy rail, roads, bridges,
airports, ports and harbours and water infrastructure. In addition,
Infrastructure EPC Projects includes the LSTK construction
contracts related to the former Clean Power segment, as well as
from thermal power activities which the Company exited in 2018.
The Company decided, in 2019, to cease contracting for new
LSTK construction contracts.
SNC-Lavalin 2019 Financial Report
185
185
SNC-Lavalin 2019 Financial Report Glossary (continued)
Ten-year statistical summary
Infrastructure Services includes O&M projects, as well as the
Company’s repetitive EPC offerings that are lower-risk,
standardized solutions for: i) district cooling plants; and ii) power
substations executed through its Linxon subsidiary. The segment
also includes engineering solutions in hydro, transmission and
distribution, renewables, energy storage, and intelligent networks
and cybersecurity.
LSTK stands for lump-sum turnkey.
LSTK construction contracts: Under LSTK construction
contracts, the Company completes the work required for the
project at a lump-sum price. Before entering into such contracts,
the Company estimates the total cost of the project, plus a profit
margin. The Company’s actual profit margin may vary based on
its ability to achieve the project requirements at above or below
the initial estimated costs.
Net recourse debt (or Cash net of recourse debt) corresponds
to cash and cash equivalents, less cash and cash equivalents
from Capital investments accounted for by the consolidation
method and the Company’s recourse debt.
Nuclear supports clients across the entire nuclear life cycle with
the full spectrum of services from consultancy, EPCM services,
field services, technology services, spare parts, reactor support &
decommissioning and waste management. As stewards of the
CANDU technology, it also provides new build and full
refurbishment services of CANDU reactors.
Reimbursable and engineering service contracts: Under
reimbursable contracts, the Company charges the customer for
the actual cost incurred plus a mark-up that could take various
forms such as a fixed-fee per unit, a percentage of costs incurred
or an incentive fee based on achieving certain targets,
performance factors or contractual milestones. Reimbursable
contracts also include unit-rate contracts for which a fixed
amount per quantity is charged to the customer, and
reimbursable contracts with a cap. Engineering service contracts
include i) time and material agreements based on hourly rates
and fixed-price lump-sum contracts with limited procurement or
construction risks, and ii) O&M contracts.
Resources provides a full suite of delivery services to the oil &
gas and mining & metallurgy sectors, covering the project
lifecycle from project development through project delivery and
support services. Resources have ceased bidding for new EPC
projects under the LSTK construction contracting model.
Resources is now focused on providing engineering, EPCM,
project management consultancy (“PMC”), construction &
commissioning and technical support services through a lower
risk contracting model. The operational delivery is focused on key
regions and global clients.
Return on Average Shareholders’ Equity (“ROASE”)
corresponds to the trailing 12-month net income attributable to
SNC-Lavalin shareholders, divided by a trailing 13-month average
equity attributable to SNC-Lavalin shareholders, excluding “other
components of equity”.
Revenue backlog is defined as a forward-looking indicator of
anticipated revenues to be recognized by the Company,
determined based on contract awards that are firm and
amounting to the transaction price allocated to remaining
performance obligations. Management could be required to make
estimates regarding the revenue to be generated for certain
contracts.
Segment EBIT consists of revenues less i) direct cost of
activities, ii) directly related selling, general and administrative
expenses, and iii) corporate selling, general and administrative
expenses that are allocated to segments. Expenses that are not
allocated to the Company’s segments include: certain corporate
selling, general and administrative expenses that are not directly
related to projects or segments, impairment loss arising from
expected credit losses, gain (loss) arising on financial assets
(liabilities) at fair value through profit or loss, restructuring costs,
impairment of goodwill, impairment of intangible assets related
to business combinations, acquisition-related costs and
integration costs, amortization of intangible assets related to
business combinations, the net expense for the 2012 class action
lawsuits settlement and related legal costs, the federal charges
settlement (PPSC) expense, and the GMP equalization expense,
as well as gains (losses) on disposals of E&C businesses and
Capital investments.
Standardized EPC contracts: Under standardized EPC
contracts, the Company provides its repetitive EPC offerings that
are lower-risk, standardized solutions for: i) district cooling
plants; and ii) power substations executed through its Linxon
subsidiary.
Working capital corresponds to the amount of the Company’s
total current assets minus its total current liabilities and the
Current ratio corresponds to the Company’s total current assets
divided by its total current liabilities.
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$,
UNLESS OTHERWISE INDICATED)
Revenues:
From E&C
From Capital
Restructuring costs and Impairment of
goodwill and of intangible assets
related to business combinations
Acquisition-related costs and
integration costs
EBIT(1)
Net income (loss) attributable to:
SNC-Lavalin shareholders
Non-controlling interests
Net income (loss)
Acquisition of property and equipment:
From E&C
From Capital
From E&C
From Capital
Depreciation and amortization(1):
Net financial expenses(1):
From E&C
From Capital
EBITDA(1):
From E&C
From Capital
Return on average
shareholders’ equity(2)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
9,252.9
9,819.3
9,096.7
8,223.1
9,363.5
7,334.7
7,149.3
7,525.9
6,708.5
5,521.6
262.7
264.7
238.0
247.7
223.4
904.1
763.8
565.1
501.4
442.7
9,515.6
10,084.0
9,334.7
8,470.8
9,587.0
8,238.8
7,913.2
8,091.0
7,209.9
5,964.3
2,056.6
1,309.0
26.4
115.4
116.4
109.9
123.5
62.5
–
1,877.4
228.8
499.5
595.6
717.8
19.6
521.6
404.3
33.2
437.5
1,333.3
1.2
1,334.6
35.8
0.6
36.4
122.4
152.9
124.8
151.4
116.0
70.2
55.5
–
–
1,522.4
1,545.9
122.4
152.9
124.8
151.4
116.0
1,592.5
1,601.5
8.3
54.9
741.4
(1,160.4)
328.2
(1,316.9)
2.4
0.6
330.6
(1,316.3)
124.3
603.4
382.0
1.1
383.2
324.6
215.6
324.6
215.6
–
402.0
0.2
402.2
194.2
17.8
212.1
(166.0)
3,183.5
3,017.5
–
–
156.0
11.5
167.5
140.5
264.1
404.6
–
–
107.8
10.0
117.8
589.4
229.6
818.9
4.4
312.1
255.5
1.0
256.6
140.6
2.5
143.1
27.9
14.2
42.1
219.1
236.1
455.2
–
–
305.9
0.4
306.3
96.2
849.2
945.4
61.6
99.2
13.7
112.5
126.2
273.1
387.2
660.3
–
–
377.4
8.5
385.9
67.2
545.8
613.0
45.4
93.1
–
–
475.5
10.7
486.3
46.0
402.0
448.0
39.6
86.9
15.5
99.7
26.0
85.1
115.2
111.1
389.9
344.1
734.0
513.7
330.6
844.3
160.8
138.5
126.5
162.4
–
162.4
( 7.7)
8.0
0.3
113.7
53.5
167.2
38.9
180.9
219.8
67.9
133.1
201.0
19.5
131.2
150.7
333.7
350.3
684.0
(160.0)
(131.6)
2,233.1
2,073.1
617.8
486.2
9.9%
(28.2)%
9.5%
7.1%
12.0%
58.7%
1.6%
14.6%
19.1%
28.2%
Certain totals, subtotals and percentages may not be reconciled due to rounding.
Certain indicators used by the Company to analyze and evaluate its results, which are listed in the ten-year statistical summary table, are non-IFRS financial measures or
additional IFRS measures. Consequently, they do not have a standardized meaning as prescribed by IFRS, and therefore may not be comparable to similar measures
presented by other issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS, these non-IFRS financial measures provide
additional insight into the Company’s financial results and certain investors may use this information to evaluate the Company’s performance from period to period. However,
these non-IFRS financial measures have limitations and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with
IFRS. Definitions of all non-IFRS financial measures and additional IFRS measures are provided in Section 14 of the Company’s 2019 Management’s Discussion and Analysis
(“MD&A”) to give the reader a better understanding of the indicators used by management. In addition, when applicable, the Company provides a clear quantitative
reconciliation from the non-IFRS financial measures to the most directly comparable measure calculated in accordance with IFRS in its 2019 MD&A.
(1) Effective January 1, 2019, the Company adopted IFRS 16, Leases, using the modified retrospective approach. Under IFRS 16, depreciation of right-of-use asset and interest
expense on the lease liability replace the operating lease expenses which were recognized under the previous standard. As permitted under the modified retrospective
approach, the prior periods were not restated. Please refer to Section 13 “Accounting Policies and Changes” in the Company’s 2019 Management’s Discussion and Analysis
(“MD&A”) and to Note 2 to the Company’s 2019 audited annual consolidated financial statements for more information.
(2) Excluding other components of equity.
186
186
SNC-Lavalin 2019 Financial Report
SNC-Lavalin 2019 Financial Report
187
Glossary (continued)
Ten-year statistical summary
Infrastructure Services includes O&M projects, as well as the
project management consultancy (“PMC”), construction &
Company’s repetitive EPC offerings that are lower-risk,
commissioning and technical support services through a lower
standardized solutions for: i) district cooling plants; and ii) power
risk contracting model. The operational delivery is focused on key
substations executed through its Linxon subsidiary. The segment
regions and global clients.
also includes engineering solutions in hydro, transmission and
distribution, renewables, energy storage, and intelligent networks
and cybersecurity.
LSTK stands for lump-sum turnkey.
LSTK construction contracts: Under LSTK construction
Return on Average Shareholders’ Equity (“ROASE”)
corresponds to the trailing 12-month net income attributable to
SNC-Lavalin shareholders, divided by a trailing 13-month average
equity attributable to SNC-Lavalin shareholders, excluding “other
components of equity”.
contracts, the Company completes the work required for the
Revenue backlog is defined as a forward-looking indicator of
project at a lump-sum price. Before entering into such contracts,
anticipated revenues to be recognized by the Company,
the Company estimates the total cost of the project, plus a profit
determined based on contract awards that are firm and
margin. The Company’s actual profit margin may vary based on
amounting to the transaction price allocated to remaining
its ability to achieve the project requirements at above or below
performance obligations. Management could be required to make
the initial estimated costs.
estimates regarding the revenue to be generated for certain
Net recourse debt (or Cash net of recourse debt) corresponds
contracts.
to cash and cash equivalents, less cash and cash equivalents
Segment EBIT consists of revenues less i) direct cost of
from Capital investments accounted for by the consolidation
activities, ii) directly related selling, general and administrative
method and the Company’s recourse debt.
expenses, and iii) corporate selling, general and administrative
Nuclear supports clients across the entire nuclear life cycle with
the full spectrum of services from consultancy, EPCM services,
field services, technology services, spare parts, reactor support &
decommissioning and waste management. As stewards of the
CANDU technology, it also provides new build and full
refurbishment services of CANDU reactors.
expenses that are allocated to segments. Expenses that are not
allocated to the Company’s segments include: certain corporate
selling, general and administrative expenses that are not directly
related to projects or segments, impairment loss arising from
expected credit losses, gain (loss) arising on financial assets
(liabilities) at fair value through profit or loss, restructuring costs,
impairment of goodwill, impairment of intangible assets related
Reimbursable and engineering service contracts: Under
to business combinations, acquisition-related costs and
reimbursable contracts, the Company charges the customer for
integration costs, amortization of intangible assets related to
the actual cost incurred plus a mark-up that could take various
business combinations, the net expense for the 2012 class action
forms such as a fixed-fee per unit, a percentage of costs incurred
lawsuits settlement and related legal costs, the federal charges
or an incentive fee based on achieving certain targets,
settlement (PPSC) expense, and the GMP equalization expense,
performance factors or contractual milestones. Reimbursable
as well as gains (losses) on disposals of E&C businesses and
contracts also include unit-rate contracts for which a fixed
Capital investments.
amount per quantity is charged to the customer, and
reimbursable contracts with a cap. Engineering service contracts
include i) time and material agreements based on hourly rates
and fixed-price lump-sum contracts with limited procurement or
construction risks, and ii) O&M contracts.
Resources provides a full suite of delivery services to the oil &
gas and mining & metallurgy sectors, covering the project
lifecycle from project development through project delivery and
support services. Resources have ceased bidding for new EPC
projects under the LSTK construction contracting model.
Resources is now focused on providing engineering, EPCM,
Standardized EPC contracts: Under standardized EPC
contracts, the Company provides its repetitive EPC offerings that
are lower-risk, standardized solutions for: i) district cooling
plants; and ii) power substations executed through its Linxon
subsidiary.
Working capital corresponds to the amount of the Company’s
total current assets minus its total current liabilities and the
Current ratio corresponds to the Company’s total current assets
divided by its total current liabilities.
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$,
UNLESS OTHERWISE INDICATED)
Revenues:
From E&C
From Capital
Restructuring costs and Impairment of
goodwill and of intangible assets
related to business combinations
Acquisition-related costs and
integration costs
EBIT(1)
Net income (loss) attributable to:
SNC-Lavalin shareholders
Non-controlling interests
Net income (loss)
Acquisition of property and equipment:
From E&C
From Capital
Depreciation and amortization(1):
From E&C
From Capital
Net financial expenses(1):
From E&C
From Capital
EBITDA(1):
From E&C
From Capital
Return on average
shareholders’ equity(2)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
9,252.9
9,819.3
9,096.7
8,223.1
9,363.5
7,334.7
7,149.3
7,525.9
6,708.5
5,521.6
262.7
264.7
238.0
247.7
223.4
904.1
763.8
565.1
501.4
442.7
9,515.6
10,084.0
9,334.7
8,470.8
9,587.0
8,238.8
7,913.2
8,091.0
7,209.9
5,964.3
2,056.6
1,309.0
26.4
115.4
116.4
109.9
123.5
8.3
54.9
741.4
(1,160.4)
328.2
(1,316.9)
2.4
0.6
330.6
(1,316.3)
124.3
603.4
382.0
1.1
383.2
4.4
312.1
255.5
1.0
256.6
19.6
521.6
404.3
33.2
437.5
1,333.3
1.2
1,334.6
35.8
0.6
36.4
62.5
–
1,877.4
228.8
499.5
595.6
717.8
–
–
–
–
–
–
122.4
152.9
124.8
151.4
116.0
70.2
55.5
–
–
–
–
–
1,522.4
1,545.9
122.4
152.9
124.8
151.4
116.0
1,592.5
1,601.5
402.0
0.2
402.2
194.2
17.8
212.1
(166.0)
3,183.5
3,017.5
324.6
215.6
–
–
324.6
215.6
156.0
11.5
167.5
140.5
264.1
404.6
107.8
10.0
117.8
589.4
229.6
818.9
140.6
2.5
143.1
27.9
14.2
42.1
219.1
236.1
455.2
162.4
–
162.4
( 7.7)
8.0
0.3
113.7
53.5
167.2
38.9
180.9
219.8
67.9
133.1
201.0
19.5
131.2
150.7
333.7
350.3
684.0
(160.0)
(131.6)
2,233.1
2,073.1
617.8
486.2
305.9
0.4
306.3
96.2
849.2
945.4
61.6
99.2
377.4
8.5
385.9
67.2
545.8
613.0
45.4
93.1
475.5
10.7
486.3
46.0
402.0
448.0
39.6
86.9
160.8
138.5
126.5
13.7
112.5
126.2
273.1
387.2
660.3
15.5
99.7
26.0
85.1
115.2
111.1
389.9
344.1
734.0
513.7
330.6
844.3
9.9%
(28.2)%
9.5%
7.1%
12.0%
58.7%
1.6%
14.6%
19.1%
28.2%
Certain totals, subtotals and percentages may not be reconciled due to rounding.
Certain indicators used by the Company to analyze and evaluate its results, which are listed in the ten-year statistical summary table, are non-IFRS financial measures or
additional IFRS measures. Consequently, they do not have a standardized meaning as prescribed by IFRS, and therefore may not be comparable to similar measures
presented by other issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS, these non-IFRS financial measures provide
additional insight into the Company’s financial results and certain investors may use this information to evaluate the Company’s performance from period to period. However,
these non-IFRS financial measures have limitations and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with
IFRS. Definitions of all non-IFRS financial measures and additional IFRS measures are provided in Section 14 of the Company’s 2019 Management’s Discussion and Analysis
(“MD&A”) to give the reader a better understanding of the indicators used by management. In addition, when applicable, the Company provides a clear quantitative
reconciliation from the non-IFRS financial measures to the most directly comparable measure calculated in accordance with IFRS in its 2019 MD&A.
(1) Effective January 1, 2019, the Company adopted IFRS 16, Leases, using the modified retrospective approach. Under IFRS 16, depreciation of right-of-use asset and interest
expense on the lease liability replace the operating lease expenses which were recognized under the previous standard. As permitted under the modified retrospective
approach, the prior periods were not restated. Please refer to Section 13 “Accounting Policies and Changes” in the Company’s 2019 Management’s Discussion and Analysis
(“MD&A”) and to Note 2 to the Company’s 2019 audited annual consolidated financial statements for more information.
(2) Excluding other components of equity.
186
SNC-Lavalin 2019 Financial Report
SNC-Lavalin 2019 Financial Report
187
187
SNC-Lavalin 2019 Financial Report Ten-year statistical summary (continued)
YEARS ENDED DECEMBER 31
(IN MILLIONS CA$,
UNLESS OTHERWISE INDICATED)
Supplementary information:
Net income (loss) attributable
to SNC-Lavalin shareholders
from E&C
Net income attributable
to SNC-Lavalin shareholders
from Capital investments:
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
(2,444.6)
(1,563.0)
176.0
46.3
95.8
(300.5)
(245.8)
149.0
246.2
340.6
From Highway 407 ETR
From AltaLink
146.1
–
From other Capital investments
2,626.7
154.3
–
91.8
141.7
–
64.3
132.5
–
76.7
125.8
–
122.5
175.6
182.7
1,335.9
114.1
91.8
75.7
100.6
54.5
1.8
77.2
33.8
20.2
50.3
22.9
61.7
Net income (loss) attributable
to SNC-Lavalin shareholders
Earnings (loss) per share ($):
Basic
Diluted
Weighted average number of
outstanding shares (in thousands):
328.2
(1,316.9)
382.0
255.5
404.3
1,333.3
35.8
305.9
377.4
475.5
1.87
1.87
(7.50)
(7.50)
2.35
2.34
1.70
1.70
2.68
2.68
8.76
8.74
0.24
0.24
2.03
2.02
2.50
2.48
3.15
3.12
Basic
Diluted
175,554
175,541
162,910
150,077
150,918
152,218
151,497
151,058
150,897
151,020
175,554
175,541
163,029
150,279
150,988
152,605
151,814
151,304
151,940
152,277
Annual dividends declared per share ($)
0.160
0.961
1.106
1.053
1.01
0.97
0.93
0.89
0.85
0.72
AT DECEMBER 31
(IN MILLIONS CA$,
UNLESS OTHERWISE INDICATED)
Number of employees
Revenue backlog(3)
Cash and cash equivalents
Working capital
Property and equipment:
From E&C
From Capital
Recourse long-term debt
Limited recourse long-term debt
Non-recourse long-term debt
Equity attributable to
SNC-Lavalin shareholders
Book value per share ($)
Number of outstanding common shares
(in thousands)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
46,490
52,435
52,448
34,952
36,754
42,003
29,714
33,909
28,100
23,923
15,262.5
14,885.0
10,406.4
10,677.4
11,991.9
12,325.5
8,287.8
10,133.4
10,088.0
9,715.9
1,188.6
634.1
622.2
(950.1)
706.5
111.9
1,055.5
1,581.8
1,702.2
1,108.7
1,174.9
1,231.0
1,235.1
227.9
108.1
(365.4)
(527.0)
(267.9)
32.0
679.9
470.6
482.6
414.1
298.3
265.1
246.1
180.4
193.1
159.9
115.2
–
470.6
873.1
400.0
391.5
–
–
482.6
414.1
1,171.4
1,026.8
1,475.2
980.3
339.5
–
298.3
349.4
–
–
265.1
349.1
–
–
5,132.0
3,470.0
2,637.7
2,072.8
246.1
348.9
–
5,312.4
3,663.1
2,797.6
2,188.0
348.7
348.5
348.4
348.2
–
–
–
–
297.4
472.6
525.8
530.7
3,536.9
2,000.7
1,561.4
1,529.0
3,715.0
3,650.9
5,225.1
3,873.2
3,868.2
3,313.8
2,036.7
2,075.4
1,883.1
1,816.8
21.16
20.80
29.77
25.76
25.83
21.73
13.42
13.74
12.47
12.03
175,554
175,554
175,488
150,357
149,772
152,465
151,807
151,069
151,034
151,034
Closing market price per share ($)
29.95
45.92
57.05
57.79
41.12
44.31
47.79
40.32
51.08
59.77
Market capitalization
5,257.8
8,061.5
10,011.6
8,689.1
6,158.6
6,755.7
7,254.8
6,091.1
7,714.8
9,027.3
Certain totals, subtotals and percentages may not be reconciled due to rounding.
(3) Effective January 1, 2018, the Company’s definition of backlog (“backlog”) has been changed and now corresponds to the concept of remaining performance obligations,
which is based on IFRS 15, Revenue from Contracts with Customers, without restatement of the prior periods.
188
188
SNC-Lavalin 2019 Financial Report
Table of contents
2019 Management’s Discussion and Analysis
Management’s Responsibility for Financial Reporting 85
Independent Auditor’s Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Glossary
Ten-year statistical summary
Information for shareholders
1
86
88
93
185
187
189
Information for shareholders
Common Share Information
Code of Conduct
LISTED: Toronto Stock Exchange
SYMBOL: SNC
SHARES OUTSTANDING: 175.6 million (December 31, 2019)
MARKET CAPITALIZATION: $5,258 million (December 31, 2019)
Our Code of Conduct seeks to promote integrity and transparency
in the conduct of our business and in our relations with our
colleagues, directors, shareholders and business partners, including
customers, associates and suppliers. To learn more on our
Code of Conduct, go to www.snclavalin.com/en/about/integrity.
Registrar and Transfer Agent
If you would like to modify your address, eliminate multiple
mailings, transfer SNC-Lavalin shares, or for other information
on your shareholder account such as dividends and registration,
please contact:
Computershare Investor Services Inc.
100 University Ave., 8th Floor, North Tower, Toronto ON, M5J 2Y1
Telephone: 1-800-564-6253
Website: www.investorcentre.com
Investor Relations
Denis Jasmin, Vice-President, Investor Relations
denis.jasmin@snclavalin.com
514-393-1000
Proxy Circular
The proxy circular contains information about our directors,
Board committee reports and further details of our corporate
governance practices. This document is available online at
www.snclavalin.com.
Have Your Say
If you would like to ask a question at our annual meeting of
shareholders, you can submit it in person. You can also send
your question in by writing to the Vice-President and Corporate
Secretary at:
Vice-President and Corporate Secretary
455 René-Lévesque Blvd. West, Montreal QC, H2Z 1Z3, Canada
Annual Meeting
Head Office
The Annual Shareholders’ Meeting will be held on Thursday,
May 7, 2020. To learn more, go to www.snclavalin.com/en/
investors/shareholder-information/general-information.
SNC-Lavalin Group Inc.
455 René-Lévesque Blvd West, Montreal QC, H2Z 1Z3, Canada
Corporate Governance
Our website provides information on our corporate governance
practices, including our Code of Conduct, and the mandates for
the Board of Directors and the Board committees as well as various
position descriptions. To learn more, go to www.snclavalin.com
and click on About Us.
www.snclavalin.com
We invite you to visit our website at www.snclavalin.com to learn
more about SNC-Lavalin, our governance practices, our continuous
disclosure materials and to obtain electronic copies of this and
other reports.
Exemplaires en français
Pour télécharger la version française de ce rapport ou
en demander un exemplaire, veuillez consulter la section
Investisseurs au www.snclavalin.com.
SNC-Lavalin 2019 Financial Report
189
At SNC-Lavalin,
we recognize
the importance
of helping protect
the environment.
Our financial report is available online.
We invite you to visit our website at
www.snclavalin.com for a list of our offices
and to learn more about SNC-Lavalin.
Head Office
455 René-Lévesque Blvd. West
Montreal, QC, H2Z 1Z3, Canada
Tel.: 514-393-1000 Fax: 514-866-0795