Analysis of SNC-Lavalin GROUP
SNC-Lavalin Group is a professional services and project Management Company and a leader in ownership and management of infrastructure. Their teams provide extensive end-to-end project solutions such as, consulting, design, engineering, construction management, sustaining capital and operations & maintenance for sectors such as, mining and metallurgy, oil and gas, nuclear power, infrastructure, Atkins, and Capital. The SNC Lavalin competitors are: KBR, WSP, Stantec, AMEC Foster Wheeler, etc.
This report will justify regarding SNC-Lavalin being a successful company with the Key performance indicator such as, Financial Metrics, Customer Metrics, Process Metrics and People Metrics.
One of the key characteristic to measure a company’s success is by its financial stability, which is one of the Vision 2020 for SNC-Lavalin, i.e. ‘Become one of the top global, fully integrated, professional services and project management company in profitability and profit growth.’
In the figure 1 below, there is a dip in operating profit and net income in 2012-13 as SNC-Lavalin group faced major crisis. There were allegations, investigations, lawsuits and turning documents to authority which hampered a lot of their customer base and overall revenue during that time. From 2013 there is a substantial increase in revenue and profit with acquisition of Kentz in 2014 and Atkins in 2017 by SNC-Lavalin Group.
Figure 1: Finance graph for SNC-Lavalin Group from 2012 to 2020.
This company has been previously embattled by a series of scandals and lawsuits involving former executives. In 2015, SNC was charged by the RCM pay with a legal dealing with public officials in Alevia from 2001 to 2011. Since then the company has been seeking negotiation with federal prosecutors to give away fines and have cooperation to set aside the unproven charges or fraud cases. In October 2018, the company declared that the federal prosecutors were not ready to negotiate the matter which lead to a lowest level in the past 2 years. But in the last quarter, revenue were up by 32% which shows that it has the potential growth.
To further increase their financial strength they plan to increase their share in nuclear as this sector provides maximum output (nuclear power generation being the most efficient form of generation), capitalizing on infrastructure investment in countries with maximum opportunities such as Canada, UK & US , With the addition of skilled Atkins employees to the SNC team they are now planning to maximize Atkins/SNC-Lavalin revenues synergies and by Mining & Metallurgy recovery which was lagging compared to the other sectors. 1
Customer Satisfaction, relation, number, Loyalty are the different ways to define customer metrics. SNC-Lavalin depicts its value for customer by its tag line – ‘One company, a world of experience’; we care, which could be evidenced by its offices over 50 countries and working in over 160 countries. This show how diversified the company is and still standing strong. The company has a vision to be known for its client focused solutions or work.1 There is increase in dividends per share every year from past 17 years and their goal is to keep this growth continuous and strengthen dividend payout at around 30% of enhanced and adjusted net income. (Investors Report 2018). SNC Lavalin and its competitors bid for contracts, thus those companies that offer quality & value services and are ethical in business win the contracts.
The confidence of clients in the ability of SNC not only to do the best job, but also ethically can be seen by the way the company won major projects in Canada, including government contracts.
Even after being part of many scandals SNC has a graph going upwards this could be due to its strong and performance driven culture which makes the old clients return back to them. Their uninterrupted target to provide operational excellence makes them unique in comparison to their competitiors.1 They plan to do this by finding new opportunities throughout the world and executing it with improved project plans.
Recently the new Brazilian Clean Company Act recognized the ethics and compliance program by SNC and registered it as a clean company.6 This has helped gain back some trust from the previous allegations and has definitely opened new opportunities for the company.
Satisfaction of not just customers but also stakeholders, clients, employees is an important part for a company’s progress. The strategy or guiding principle used by SNC-Lavalin is growing their business & delivering better shareholder returns which is exactly what the customers are also looking for. SNC is positioned as a company that cares about its clients like no other. The company also takes efforts to ensure that all their stakeholders and employees receive clear and consistent messages of their ongoing overall scenarios. The step of staying in touch with the clients or customers creates a special bond and trust which would benefit the company in some way.6
Through the performance indicators we found the key factors that can define weather SNC Lavalin can satisfy the criteria for successful business or not. These factors are observed and need an evidence to prove it and thus we use SWOT and PESTLE analysis to justify the statements.
SWOT analysis is a process where we identify the internal (Strength and weakness) and external (Opportunities and Threats) factors that will affect the company’s future performance. We could find the internal factors through the resource audit (Appendix 1) and external factors from PESTLE analysis (Appendix 2). This will help us understand the financial and operational goal and the strategies to attain them.
• 50,000+ number of people are employed with the company.
• It has a good record of increased dividends
• Talented and dedicated team with high caliber international leadership
• Largest construction company in Canada
• With ability to provide Comprehensive end to end project solutions it has diversified business models.
• Focuses on delivering on time, budget, high ethical & safety standards, etc. • Reputation hampered because of various allegations, investigation, lawsuits, etc.
• Due to resignation of high executives it has left a void
• Affected by fluctuations in the US market
• Multicultural network that spans every continent- Offices and operations in over 50 and 160 countries respectively.
• Issues of past are being systematically resolved
• More focus is been given to compliances and ethics.
• Kentz and Atkins acquisition opened new opportunities
• Expanding of oil and gas capabilities
• SNC and Atkins joint venture gained new opportunities such as BP global wells organization, etc. • Company operates in various countries and thus is prone to different government policies and their economic crisis that can affect the overall operations.
• In case if there is rise in price of raw material it will affect the budget for the project and thus net income.
• Increasing competition with increasing opportunities in Canada for the infrastructure sector.
From the latest news, even though SNC- Lavalin is been rising the ladder with the different project opportunities in different sectors it has been facing a lot of allegations since few years. After the recent 10 year ban on bidding for contracts related to Public works department has given a shock to the long term ethics and standards set by the company. The company has tried to change leaders and programs to create awareness and remove the negativity of corruption, fraud, etc. But the company now while resolving the old issues is trying to set and achieve some long term goals which makes it a tactical company.
The above SWOT analysis clearly shows that SNC- Lavalin has been working exceptionally well throughout the years and providing the best projects but due to some employees is losing the clients trust, projects, opportunities that could have made it more successful. In 2014 it had to cut down 9% of its total workforce which created a dip in the company in terms of reputation and economy as it depicted instability in the management system. The company needs to focus on its strength and redesign their entire management system to have a strong ethical team. It should also make efforts to eliminate all the weaknesses and threats that are hampering their overall growth.
The company has recently taken initiative to promote itself with new ideas to attract customers or clients. It has launched a smart investment planning approach for the benefits of the customer to gain good output with small but right investment. It is also selling out a few assets projects which is not being of a great help to them in overall revenue generation. The technique used here is the Pareto (80-20) rule which explains as they are elimination the big projects which do not generate great output and focusing on the small (20%) projects that helps them grow.7
This overall concludes that SNC-Lavalin is still up the race even after all the negative news about the company. The bad publicity is not affecting the company’s contracts as they are still able to achieve the bids and make a strong position in the market.
Market Mix- 4P’s
• SNC- Lavalin has offices at over 50 countries and works at over 160 countries, which opens number of opportunities for it to work in.
• It gives an advantage of meeting the clients one to one and discussing the different ideas.
• Different countries have different labor cost and thus it could work as a plus point instead of transferring employees from time to time for different clients and projects.
• Different countries have scope of revenue in different sectors, e.g. Dubai has a huge scope for mining and metallurgy sector and thus with different countries different sectors can be targeted. In case of new clients the business model can be shifted from sector to sector in the same country.
SNC Lavalin wins different projects by submitting budgets or tenders to get the project. In this case, the company has to not only bid to be lowest and reasonable but has to also acquire back a good profit. SNC has been working in this industries since years which has helped it gain trust from different customers and thus acts as a plus point compared to the other bidders.
For different projects in different sectors the solutions differ i.e. the product differs as well. The need of clients can vary from projects but the common requirement of the clients is to have an efficient project. They need to use the intellects, knowledge, and innovation within the organization to actually provide clients with solutions that further lower the cost of the capital and still allow them to maintain their margins and allow them to invest in their business to grow. In case of oil and gas sector which is been yielding maximum revenue , Capital efficiency is about engineers, contracts, scientists and consultants, to take creative ideas and actually producing hydrocarbons products at lower cost barrel or lower cost BTU.
SNC- Lavalin being one among the oldest company in these sectors give them a plus point of experience and knowledge in the field which acts as way to attract new customers while satisfying the old once throughout the years with the same efficient work. Health, safety, security and environment are the key values during every project carried out by SNC and is thus a unique way to promote themselves.
Resource audit is used to know the different resources available to understand the overall scenario and for better decision making. This will help to maximize the opportunities or strength and minimize the weakness or threats. It could be a balancing act which every company should play and be at priority in the list.
• SNC-Lavalin has offices throughout the world which makes it easy for them to approach clients globally and expand their business to a maximum extent.
• In June 2011, SNC-Lavalin experienced a rise in its overall market as it purchased the commercial reactor division of Atomic Energy of Canada Limited (AECL) they together designed and supplied CANDU reactors to the market.
• In June 2014, SNC-Lavalin declared that it would acquire Kentz which would open new opportunities in the field of engineering and construction business serving clients primarily in the oil and gas, petrochemical and mining and metals sectors. SNC already being a part of the infrastructure, oil and gas and mining sector it would add up to the overall revenue generated. This acquisition expanded oil and gas capabilities which grew revenues from $500M (2013) to $4B (2015) which thus positioned it in top 10 Oil and gas players.
• In 2017-18, SNC- Lavalin bided and then acquired Atkins, Atkins brought in a team of talented and experienced employee. This acquisition opened new opportunities for the company such as the 5-year framework contract by BP global wells organization.
• SNC- Lavalin’s finance has allowed it to invest in and acquire companies.
• In 2015, Admistrative agreement was signed with PWGSC and also the company took steps to stabilize the cost structure to resources market dip which overall helped in the financial stability. (Investors Report 2018)
• The company has different sources for funds such as operating cash flows from E&C projects, dividends from the initial capital investment, concessions, matured capital investments, assets, etc.
• The key objectives of their framework is in driving different ways for E&C growth, reform balance sheet while trying to maintain the initial investment and returning the shareholders their capital. (Investors Report 2018)
• To manage $7 billion worth of goods and services annually for clients across all sectors they have international network over 50 countries.
• There was a change in senior leadership & culture during 2013 to overcome the crisis or loses that were faced in 2012. They developed new plans which would focus to utilize the resources available to them to open new growth opportunities. There was even an agreement made by the executives in 2018 to settle class actions that were brought in 2012. (Investors Report 2018)
PESTLE Analysis is referred to as considering the entire external environment problems in which a particular business operates. These are often those factors of a business that cannot be controlled or influenced; but still need to be aware of when developing a product or business strategy. This analysis will help us understand the threats and opportunities related to SNC-Lavalin Group.
The issues prior to 2012 that lead to federal charges made the company loose stakeholders, employees, pensioners, clients and Canadians trust. These series of events even lead to not involving the company to negotiate a remediation agreement. To overcome this SNC- Lavalin changed the leadership team and now wants to negotiate and move on to support Canadian operations which has been halved over these years compared to international operations which has grown tremendously. If the company continues to lose the support of the political parties or government of Canada it would be difficult for it to operate in Canada.
SNC-Lavalin has been growing since it has acquired Atkins. The Q3 results of 2018 has been better than expected and is predicted to be growing. Even though the group is seen growing it has recently lost a Canadian government contract of up to $22.8 billion dollars because of the bad reputation caused due to different corruption, bribery and other legal allegations. This has caused a huge sum for the company domestically and internationally. As Canada has abundance of oil supplies, it is believed that oil price will increase the Canadian dollars. But recently the oil price have increased without an increase in dollar rate. SNC Lavalin is a part of many sectors, thus in case if one of the sector is not performing according to the expectations, the losses could be recovered by the other sectors that are not affected.
SNC- Lavalin is trying to engage with the community to have a good neighborhood. It is open for questions and solutions from different stakeholders. It is promoting to its clients to choose for greener solutions. It provides training for young women to make them aware with the latest technology and advances which would make them more interested to work for the group in future. It has been donating a huge amount of money for social causes. The above social factors will make SNC stand out and attract different partnership offers due to their inclination towards green energy, suitability, etc.
Innovation of efficient equipment’s or methods would lead to better outcome which would yield a better revenue. With improvement in any sector to produce environment friendly process would attract government subsidy or rewards which will help in overall betterment of the company.
SNC- Lavalin is a part of many corruption scandals around various countries in the world which has hammered the overall reputation of the company and economic growth. In 2016 it was in news for leaking the Panama papers , in September 2013 a former senior executive had been charged criminally under Canada’s foreign bribery law for construction of bridge in Bangladesh. Due to the involvement in different scandals, SNC- Lavalin and its affiliates are not allowed to bid on World Bank and are even blacklisted for 10 years which caused a huge damage to their reputation.
There is environmental impact from all the sectors such as Infrastructure, mining & metallurgy, Nuclear, and oil & gas. Thus considering different ways to reduce this is important as there are different rules and regulations for different environmental impact for different countries. With the recent Paris agreement it has created more barriers for countries in terms of low carbon emission and decrease in temperature rise. These rules could affect the nuclear or mining & metallurgy sector as it involves exploitation of natural resources.