SNC-Lavalin CEO steps aside as board eyes new direction for ailing firm
Published Tuesday, June 11, 2019 5:58PM EDT
The SNC-Lavalin headquarters is seen in Montreal on February 12, 2019. (THE CANADIAN PRESS / Paul Chiasson)
Neil Bruce's tenure as CEO of SNC-Lavalin Group Inc. came to an end Tuesday, capping off a near four-year stint marked by a 42 per cent plunge in share price and a political controversy tied to an ongoing corruption case.
Bruce, 58, will be succeeded on an interim basis by chief operating officer Ian Edwards, effective immediately. The board of directors has asked Edwards to review "the strategic direction of the company on an expedited basis" and develop a new plan "for sustainable success," the company said in a release.
Analysts say the change at the top may portend selloffs at the Montreal-based company's costly construction unit as SNC-Lavalin mulls a return to its roots in engineering and design.
After hitting successive 10-year lows since late January, the company's stock jumped seven per cent to close at $25.35 on Tuesday.
SNC-Lavalin said Bruce is retiring and returning to his family in the United Kingdom. He is expected to remain an adviser to the board until the end of the year.
"Neil Bruce was supposed to be the saviour...but now there's no credibility. It's time to move on," said David Taylor of Toronto-based Taylor Asset Management, an SNC shareholder. "It's not that they're liars. Neil Bruce just couldn't predict what his own business was capable of doing.
Bruce, who took the helm in October 2015 and steered SNC through its purchase of engineering powerhouse WS Atkins in 2017, has struggled to move beyond a difficult period in the company's history, despite bolstering its backlog by more than $15 billion. Its reputation has taken a beating over fraud and corruption charges related to its work in Libya that preceded Bruce's tenure, and the company has found itself ensnared in political controversies both at home and abroad.
The firm became the casualty of a diplomatic feud between Canada and Saudi Arabia -- a key source of oil and gas revenue -- last August, when Foreign Affairs Minister Chrystia Freeland tweeted her support for jailed dissidents, prompting the Saudi regime to suspend new trade and investment ties with Canada. SNC subsequently slashed its 2018 guidance twice in three weeks, more than halving its profit forecast and halting all bidding on future mining projects.
"This is a guy who told us after Freeland pissed off Saudi Arabia that it was business as usual," Taylor told The Canadian Press. "Every meeting he went into was extremely contentious. Shareholders were upset, and they'd point the finger at him."
The company announced in May plans to wind down its operations in 15 countries and reported a $17-million loss in its latest quarter. It also recently announced the sale of a bigger-than-expected chunk of 407 International Inc., a move opposed by some prominent shareholders who sought to retain the lucrative Ontario toll road.
Canaccord Genuity analyst Yuri Lynk said in a note to investors that a fresh face in the corner office "could spur a much-needed strategic shift."
"In terms of this move, the writing was on the wall in...January 2019 when Mr. Edwards was appointed as COO," Lynk said. The appointment came the same day the company announced about $350 million in unexpected cost overruns on its project with Codelco, Chile's state-owned copper mining company, which has since cancelled the contract.
Analysts said the path to profit lies in SNC's lower-risk engineering services -- which generate about 75 per cent of revenue -- and scaling down or divesting construction activities, plagued by cost overruns on fixed-price contracts.
"We see this increasing the likelihood that SNC will explore divestitures around its infrastructure construction assets and resource-based segments in an effort to unlock value and reposition itself as a pure-play design firm," said Derek Spronck of RBC Dominion Securities in a client note.
Analyst Maxim Sytchev of National Bank of Canada cited a "glimmer of hope" in the strategic review. "Focusing on consulting/nuclear makes sense. If the company itself cannot get there, a privatization should also be strongly considered," he said in a note. " 1/8The 3/8 level of apathy is palpable. Why stay public?"
The firm has been mired in a political controversy following accusations by former attorney general Jody Wilson-Raybould that top government officials pressured her to overrule federal prosecutors in the Libya case and negotiate a deferred prosecution agreement with the company.
Prime Minister Justin Trudeau and his aides have argued that a criminal trial could trigger the company's exit from Canada and the loss of thousands of jobs -- a sentiment that was later contradicted by Bruce, who told the Canadian Press that he never cited the protection of up to 9,000 Canadian jobs as a reason it should be granted a remediation agreement.
That claim was later contradicted by an internal SNC-Lavalin document obtained by The Canadian Press. It outlined a "Plan B" that the company presented to federal prosecutors last fall in which, absent a remediation agreement, it would split the company in two, move its offices south of the border and chop its Canadian workforce to 3,500 from 8,700 before eventually shuttering its domestic operations.
Bruce's efforts to secure a deal were unsuccessful, and a Quebec judge ruled last month there was enough evidence to send SNC-Lavalin to trial over charges of fraud and corruption. The company has pleaded not guilty.
Edwards, who was named chief operating officer in January, has more than 30 years of experience with infrastructure and construction projects across Europe and Asia, the company said.
He joined SNC-Lavalin in 2014 following six years in senior roles with the Leighton Group, a civil engineering firm with 20,000 employees across 14 countries.