SNC Lavalin: A Comprehensive Business Analysis Report

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SNC Lavalin
University Canada West
Professor:
BUSI 601 Business Environment Ethics & Strategy
09 February 2019

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Contents
Introduction......................................................................................................................................3
Background..................................................................................................................................3
Financial Performance.................................................................................................................4
Markets........................................................................................................................................6
Competition.................................................................................................................................7
Market Analysis...........................................................................................................................9
Non-Market Analysis.....................................................................................................................11
PEST..........................................................................................................................................12
Sustainability.............................................................................................................................13
Legislation.................................................................................................................................14
Corporate social responsibility/Ethics.......................................................................................14
SWOT Analysis.............................................................................................................................15
Critical Factor Analysis.................................................................................................................16
Conclusions....................................................................................................................................21
Infogram........................................................................................................................................23
References......................................................................................................................................24

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Introduction
Background
SNC Lavalin was established by a Swiss-born Arthur Surveyor in 1911 and in the early
1920s, his hard work, and dedication in delivering the services resulted in recognition among
other engineering services in Montreal. Later on, along with engineering services, they expanded
their work area internationally into infrastructure, oil & gas & mining and metallurgy sectors. A
year later, in 1937, the 10-year partnership between Emin Nenniger and Georges Chênevert
forms Surveyor's partners. In succession to it, another 10-year partnership was signed in 1947
and names the company as SNC (Surveyor, Nenniger & Chênevert). The company was
recognized as a limited company in 1966 (SNC-Lavalin Group Inc., n.d.). The progressive
increase from the 1970s resulted in generating the revenue of $180 million in 1981. In 1986, the
company was listed in the Toronto stock exchange.
Parallelly, the Lavalin Company was founded by Jean-Paul Lalonde and Romeo Valois in
1936 and became Lavalin Inc. in 1970. Their work area was focussed on civil engineering. After
several acquisitions, they had a turnover of $500 million in 1983 which was the largest by an
engineering firm. However, these over acquisitions and expansions with loss-making companies
were heading towards the overall losses and bankruptcy. As a consequence, the SNC took over
Lavalin and formed SNC Lavalin Group in the third quarter of 1991. Since then, the company
took over many other companies to collaborate and expand their work area.
Currently, the company operates in six sectors namely, nuclear, clean power, EDPM
(Engineering, Design and Project Management), Oil & gas, infrastructure, and mining and
metallurgy.
Despite successes and growth, the company had gone through two major controversies. One was
the Kerala Hydro-electric dam scandal where the company was accused of bribery and

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fraudulent. Another is the ongoing scandal where the company is facing the fraud and corruption
case, at the preliminary stage. The company is accused of releasing $48 million to the Libyan
government between 2001 and 2011. The consequence of charges will result in barring from
bidding contracts of the federal government for 10 years (CBC-News, 2019).
Financial Performance
SNC Lavalin is Canada’s largest firm in engineering and construction management. As
per the financial reports of 2017 the company has made $9150 million revenue and the company
announces a strong Q3 2018 results with the net income of $121 million which as made an
increase of 17% compared to Q3 of 2017. (SNC Press Release News, 2018).
Revenue
The financial report provides the information obtained from the ratio analysis regarding
the financial stability, profitability, and liquidity of the company.
The current financial status of SNC-Lavalin Company, as per the recent financial statement of
2017, it generated a revenue of $ 9,150 million in 2017 with 10.40% sales growth compared to
2016. The incremental revenue contributed from the Atkins, acquired on 3 July 2017, and
partially from the infrastructure from the sale of the real estate facilities management business
which is operating in Canada. (Jones, D. 2019, February 8).
The increase in revenue has led to:
● The stable operating cost of the company.
● Low-interest rates.
● Increasing dividends to the shareholders.

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(SNC Revenue Fig 1)
(SNC-Lavalin: Annual Report, 2018)
Budget and Operating Expenses
The net cash of the company which is used for operating activities increased by $341.5
million in 2017 as compared to 2016. The increase in this cash flow was due to the variations in
the investing and finance activities of the Atkins acquisition. As per the budget, the cash and
cash equivalents decreased by $349 million due to the repayment of the debt.
(SNC Operating Expense Fig 2)
(SNC-Lavalin: Annual Report, 2018)

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Capital and Dividends
In 2017, the net income attributable to the company's shareholders was $382 million,
there was a 50% increase in 2017 as compared to 2016. The President relates this increase with
the major project of rail and transit division which achieved a turnaround performance in their
infrastructure sector (Report, 2018).
Adjusted net income attribute to SNC-Lavalin shareholders from the E&C increased by
$0.64 per diluted share due to the partial offset by higher net financial expense and a significant
contribution from the oil and gas and infrastructure sectors. Hence increased the return to
shareholders in the form of divided as 1.09 with the yield divided of 2.03%. (Fig 3)
(SNC Capital Return Fig 3)
(SNC-Lavalin: Annual Report, 2018).
Markets
SNC Lavalin is an international incorporated professional services and projects
management company undertaking extensive projects on the latest technology and instruments in

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major markets around the world. SNC Lavalin group is leading among other companies that
invest in infrastructure, construction and project management practices such as industrial
buildings, highways, bridges, a transportation system that includes rail, airports and besides
environmentally friendly infrastructure projects (SNC-Lavalin: Investor Presentation, 2018).
Moreover, SNC Lavalin companies have extended their mining and metallurgy projects
globally in different countries such as Latin American, Asian, African, and European countries.
The company also holds valuable experiences in the oil and gas market for more than one
century in extracting, refining and marketing. SNC Lavalin is well-renowned for its
performances and good relationship with customers and organizations. SNC Lavalin group is a
full-service provider in its nuclear sector. This company designs constructs and uses the new
technology in building nuclear reactors. Generating heat and electricity are green products
through the nuclear sector that contribute to the reduction of greenhouse gas emissions. Clean
power is renewable energy that is produced from renewable resources. SNC Lavalin is one of the
major companies that operate in designing, investing and delivering hydroelectricity, wind and
solar energies in the clean power sector. SNC Lavalin Company has a concentration on sales
promotion and enhancing efficiency to capture more global market share.
Competition
Recently, Canadian businesses have faced strict competition and are continually
threatening by powerful companies in other countries. Some critical factors affect the
competitive position of companies considerably. Human capital, financial resources, the power
of marketing, bargaining power of the supplier and purchasers, and exist or new rivals. In order
to survive, the companies have to follow high standards for quality of the productions, ethics and
sustainability, and being a commitment to national and international rules. SNC Lavalin through

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having high multicultural networks and lowering the risk of its productions and services in
essential sectors has succeeded to provide complete satisfaction for its customers around the
world. Despite having strong rivals inside Canada, national borders have not supported this
company from foreign competitive pressures. (Chiasson CP, P. 2019, February 08).
SNC Lavalin Company is challenging and competing with some great competitors such
as Jacobs, KBR, WSP, and Stance that provide professional, technical and diversified
construction services.
Jacobs Engineering was formed in the year 1947 and has made a revenue of $15 billion
as per the financial report of 2018 and is more than the SNC Lavalin’s revenue this states that
there is high competition between them. Another competitor is the KBR which is making a good
net income of $434 million this states that the KBR is managing the funds and has a better
budget as compared to SNC Lavalin this may lead to a challenging condition.
(Fig 4 SNC Lavalin competitors 2018)

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Market Analysis
SNC-Lavalin is a leading company in engineering and construction along with other
sectors. Headquarters based at Montreal, the company have an employee strength of 52,448; as
per 2017 annual report, 62% of employees of SNC Lavalin are employed in Oil and gas followed
by Infrastructure (17%), power (10%) and others (SNC-Lavalin: Annual Report, 2018).
As per the 2017 statistics, the company had a net income of $383.2 million and faces a
high competition from KBR (Net income: $434 million) followed by WSP (Net income: $213.3
million), Jacobs (Net income: $173.1 million) and Stantec (Net income: $97 million). The
company's vision for 2020 focusses on achieving the recognition as a client-centric, continues the
effort on operational excellence. From Figure 5, we can see the company upholds the expected
trend of adjusted diluted EPS ($2.60 to $2.85) in E&C as per the 2018 report for Q3.
Figure 5 Vision 2020: Delivering adjusted diluted EPS from
(SNC-Lavalin: Annual Report, 2018)
The company is expected to benefit in the future from the Atkins synergies after SNC-
Lavalin took over the Atkins in 2017 and the same is reflected in Figure 6 in the year 2018.

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Concerning the decarbonize and stringent environmental laws, the company focusses on
harnessing data and digital technology as reflected in the EDPM in Figure 6 where EPDM
revenues increased from 18 % in 2017 to 32 % in Q3 2018 report. Similarly, individual expertise
in CANDU (Canada Deuterium Uranium) nuclear reactor and Canada's two most significant
projects with Bruce Power and OPG companies will keep the nuclear business upstream.
Figure 6 SNC-Lavalin diversified business model from (SNC-Lavalin: Annual
Report, 2018)
The MD&A (Management's Discussion and Analysis) predicted the increase of
total EBIT in 2018 as compared to 2017, the definition of which was changed in 2017
where now it does not consider gains in the disposal of the head office of the building
(SNC-Lavalin, 2018).
Figure 7 shows the trend of EBITDA and revenue for the past five years which
can be useful in predicting the company's cash flow and its financial performance.
Moreover, as predicted in Figure 5, the company anticipates the Compound Annual
Growth Rate (CAGR) to be $5 by 2020 which is approximately 31.4 % increase
compared to 2013 ($0.74). Comparing the SNC Lavalin's quarterly report (Q3) with
Annual report 2017, the net income from E&C (Engineering and Construction) is $176.0

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which contributes to the net income of $383.2 in 2017 as compared to 2016's $46.3. This
increment is observed due to the contribution of Atkins, an increase in Oil & Gas and
infrastructure.
Figure 7 Total EBITDA revenue (in Million$) from (SNC-Lavalin:
Annual Report, 2018)
Non-Market Analysis
Usually, the market environment established between organizations or other business-
related parties take place through market relationship or private agreements like contracts. On the
other hand, the non-market environment comprise social, legal, political, and technological
aspects along private contracts and markets. These non-market factors affecting the business of
SNC Lavalin’s business and growth are environmental protection, legislative politics, CSR,
technology, and sustainability. The main objective of the non-market environment is to address
the issues associated with these factors and improve the performance of the company. In this
section, a few non-market factors have been analyzed.

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PEST
It helps in understanding the impact of political, economic, social, and technological
factors on the functioning of SNC Lavalin. Each Factor has been explained below:-
Political
Being a well-established company of Canada that deals in the engineering and
construction field, the political environment can affect the ease of getting permits and licenses
required to carry out the construction work (Staub-Bisang, 2012). Due to political stability in
Canada, the turbulence on the construction and engineering field is a bit moderate. However,
new tax duty and government policies regarding the real estate industry might affect SNC
Lavalin.
Economic
The investment-friendly reforms in the taxation system can act as a major driver for the
economic performance of the company. In addition to this, ease of investments and availability
of project investors aid the growth of the company. Canada is a financially stable country and
US-Canada Free Trade Agreement and FDI might impact the revenue of the company in a
positive way (Gibler & Lindholm, 2012). In addition to this, Canada has trade agreements with
North America and Asian countries. Other factors, such as global recession, per capita income,
rising interest rates on home loans, and much more can have many repercussions for the SNC
Lavalin (Barwick & Pathak, 2015).
Social
Comparing the total income of Canadian families between 2005 and 2015, it grew from
$63457 to $70336. This is higher than 10%. Demographic factor like an increase in the
population increased the demand for homes and infrastructure in the country. On the other hand,
traditions, customer preference, etc., have lowered the growth rate. However, education and