SNC-Lavalin Targets Return to Investment-Grade Amid Growth Pivot

(Bloomberg) -- The Canadian engineering giant SNC-Lavalin Group Inc. is targeting a return to an investment-grade credit rating as it seeks to reduce risk in its business after years of controversies in Canada and around the world.

The company, classified at the highest level of junk by S&P Global Ratings, said Tuesday that it will reorganize its operational structure over the next three years to focus on its most profitable businesses. The builder will also prioritize boosting free cash flow to reduce leverage and will seek annual organic revenue growth of at least 4% for its SNCL Services line of business. 

SNC-Lavalin posted net losses in two of the past three years and lost its investment-grade rating from S&P in 2019, the same year Canada’s former attorney general alleged Prime Minister Justin Trudeau and his aides had pressured her to help SNC settle corruption charges related to Libya, which Trudeau denied. Last week, police charged the firm and two former executives with fraud and conspiracy in a separate case related to the refurbishment of a Montreal bridge more than 15 years ago.

The ratings company upgraded its outlook on the credit to stable from negative in June, saying it expected “steady operating results” from the engineering services unit and that earnings and cash flow should improve as the engineering firm winds down its oil and gas business and moves away from turn-key projects that came with greater financial risk.

SNC will consolidate its engineering, mining and infrastructure services into one division by Jan. 1, co-led by two senior executives. The company will focus on three core regions -- the U.K., Canada and the U.S. -- while maintaining more targeted operations elsewhere in Europe, Asia and Latin America. Key to the new strategy, the company said, will be expanding engineering services and nuclear decommissioning in the U.S.

Share buybacks and dividend growth are also possible, depending on future cash resources, the company said Tuesday.

SNC shares fell about 2% at 10:26 a.m. in Toronto.

“Two years ago, I set a goal of simplifying and de-risking our business to unlock SNC-Lavalin’s potential,” Chief Executive Officer Ian Edwards said in a statement. “I am confident SNC-Lavalin should be positioned to deliver sustained organic growth through 2024.”

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