2013 ANNUAL REPORT - Engineering Transformation

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SNC-Lavalin We are fortunate to be one of few companies in the world with the resources and capabilities to invest in, design, build, and then operate and maintain infrastructure and power facilities that improve lives.
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  • 1. 2013 A N N U A L R E P O R T ENGINEERING TRANSFORMATION
  • 2. Financial Highlights 2 President’s Message 4 Chairman’s Message 7 Leadership Team 8 At a Glance 10 Resources, Environment  Water 12 Mining  Metallurgy 14 Oil  Gas 16 Environment  Water 18 Infrastructure20 Infrastructure Concession Investments 22 Infrastructure Engineering 24 Transportation and General Construction 26 Operations  Maintenance 28 Power30 How We Live Our Values 34 Board of Directors 39 Summary Consolidated Financial Statements 40 Forward-Looking Statements 45 Ten-Year Statistical Summary 46 Information for Shareholders 48
  • 3. We deliver projects that transform the world by bringing opportunities and sustainable solutions to communities. We are also transforming ourselves as we find new ways to offer innovative solutions for our customers and deliver greater value to our stakeholders.
  • 4. 2 S N C - L AVA L I N    2 0 1 3 A N N U A L R E P O R T FINANCIAL HIGHLIGHTS 2013 REVENUES BY INDUSTRY SEGMENT BY GEOGRAPHIC AREA 24% INFRASTRUCTURE  ENVIRONMENT 4% OTHER INDUSTRIES 7% OIL GAS 10% INFRASTRUCTURE CONCESSION INVESTMENTS 20% POWER 17% OPERATIONS  MAINTENANCE 18% MINING METALLURGY 2% ASIA PACIFIC 4% MIDDLE EAST 66% CANADA 10% LATIN AMERICA 5% UNITED STATES 5% AFRICA 8% EUROPE
  • 5. 35.8 305.9 377.4 475.5 359.4 8.3 10.110.1 9.7 8.3 2.0 2.1 1.9 1.8 1.4 0.93 0.89 0.85 0.72 0.62 3S N C - L AVA L I N    2 0 1 3 A N N U A L R E P O R T NET INCOME ATTRIBUTABLE TO SNC‑LAVALIN SHAREHOLDERS (1) (IN MILLIONS CA$) EQUITY ATTRIBUTABLE TO SNC-LAVALIN SHAREHOLDERS (IN BILLIONS CA$) REVENUE BACKLOG (IN BILLIONS CA$) DIVIDENDS (IN CA$) 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 CND GAAP CND GAAP IFRS IFRS ACTIVE IN SOME 100 COUNTRIES $8 BILLION OF REVENUES 30,000 EMPLOYEES (1) Certain figures from 2010 to 2012 have been restated, reflecting the adoption of amendments to IAS 19 in 2013 on a retrospective basis.
  • 6. 4 PRESIDENT’S MESSAGE We are fortunate to be one of few companies in the world with the resources and capabilities to invest in, design, build, and then operate and maintain infrastructure and power facilities that improve lives.
  • 7. 5S N C - L AVA L I N    2 0 1 3 A N N U A L R E P O R T hen I was named President and CEO of SNC‑Lavalin in late 2012, my goal was to mar‑ shal the full scope of talent and resources at our disposal and rapidly reposition the Company for future growth. Our efforts have already helped make SNC‑Lavalin a more efficient, integrated and client-focused company, while also enhancing our ability to deliver the highest ethics and compliance performance. Much work remains, but this has clearly been a year of transformation and achievements for SNC‑Lavalin. So what exactly have we done? A brightening financial picture While 2013 was a challenging year for us financially, our project backlog stood at $8.3 billion with several major wins. We also finished the year with a solid $7.9 billion in revenues, and a net income of $92.6 million in the fourth quarter. Our lower overall net income in 2013 was due to several factors, not the least of which was a handful of challenging legacy projects. We worked hard to get these projects back on track, and have imple‑ mented enhanced procedures to assess the level of project risk at an early stage. Our net income for the year was also affected by the reorganization we undertook of our European operations, an initiative which is designed to increase our efficiency and competitiveness in that region. A third factor was our level of selling, administrative and general expenses (SGA). We have now capped our SGA to 2012 levels thanks to a cross-company effort, and we are redistributing more of our SGA to areas that best support future growth, including integrated HR and finance systems. Only clean business is SNC‑Lavalin’s business We have stated consistently that our objective is to become the bench‑ mark for ethics and compliance in our sector, and we made good progress toward that goal in 2013. We created and launched a com‑ prehensive ethics and compliance framework that touches all levels and activities of our Company. This has already led to several positive outcomes, including the authorization of the Autorité des marchés financiers to contract with public authorities in Quebec in early 2014. We are grateful to our outgoing Chief Compliance Officer (CCO), Andreas Pohlmann, for having led the implementation of this initiative over the past year. We are very pleased that he will stay on in a con‑ sulting capacity to focus on ongoing World Bank compliance initiatives. David G. Wilkins, who becomes the Company’s new CCO in June of 2014, will continue the excellent work Andreas began as we move into the second phase of this important company-wide initiative. David comes to SNC‑Lavalin from Dow Chemical where he led the ethics and compliance function. David's experience with Dow makes him a great match for an organization of SNC-Lavalin's size and ambitions. Progress on our growth strategy We were pleased with the progress we made in the implementation of our new growth strategy in 2013. SNC-Lavalin has some of the most impressive capabilities I have ever seen in my 35-year career, but we know we can deliver greater value to our clients in the resources, infra‑ structure and power sectors by better integrating our global-caliber expertise around these three key growth markets. This restructuring is now very advanced, and we have brought in some of the most experienced and insightful executives in the industry to deliver on our commitment to generating outstanding perfor‑ mance in these areas in the coming years. With Neil Bruce leading our Resources, Environment Water Group; Hisham Mahmoud leading our Infrastructure Group; and Alexander (Sandy) Taylor leading our Power Group, we are confident that we can build powerful cross-company synergies to allow us to focus the full scope of our capabilities on delivering great projects for our clients and their end-users. Another key element of our strategy involves reinforcing our Infrastructure Concession Investment (ICI) business, a historical source of project work and contributor to our net income. We are fortunate to be one of few companies in the world with the resources and capabilities to invest in, design, build, and then operate and maintain infrastructure and power facilities that improve lives. We have now complemented this powerful end-to-end project capability with a more disciplined and balanced approach to managing our infrastruc‑ ture concessions. This includes better analysis of our investments to determine when they have reached market maturity and can be turned over to generate further value for our stakeholders. That is exactly what we did with the recent sale of the majority of our interest in the Astoria II power plant in New York City — a success story from development to divestment. We have now capped our SGA to 2012 levels thanks to a cross-company effort. We created and launched a comprehensive ethics and compliance framework that touches all levels and activities of our Company. This has already led to several positive outcomes, including the authorization of the Autorité des marchés financiers to contract with public authorities in Quebec in early 2014. We know we can deliver greater value to our clients in the resources, infrastructure and power sectors by better integrating our global‑caliber expertise around these three key growth markets. W
  • 8. 6 S N C - L AVA L I N    2 0 1 3 A N N U A L R E P O R T Our new strategy also includes an important geographical element. In 2013, we began implementing a Global Operations model to better integrate our business development and project delivery efforts world‑ wide. Regional hubs in North America, Latin America, Europe, the Middle East and Africa, and Asia Pacific will provide shared services, as well as the business platform, market connectivity and understanding to assist in the regional integration of our operations. Our hubs will also facilitate the local decision making required to increase market responsiveness and seize opportunities. The opening of our regional office for the Middle East and Africa in Abu Dhabi in early 2014 was an important milestone for this new global model. Our project team’s strong performance on the world-class EMAL aluminium smelter complex, and our ongoing GES+ contract with Saudi Aramco, have put considerable wind in our sails in the region. With the help of our Abu Dhabi office, we will continue to make important contributions to the Middle East and Africa by building on our great customer relationships and creating new ones. Making a difference around the world As I said in my inaugural President’s Message, this is a company that makes a real difference. The services of our 30,000 employees around the world are directly improving quality of life in communities, supporting national economies with revenue generating projects, and delivering the innovative, sustainable solutions the world is calling for. This is an incredible position to be in as an organization, and what most excites me about our ongoing transformation is how it is positioning us to make even greater contributions. As I think about all we have accomplished in a short period of time, I am more convinced than ever that SNC‑Lavalin’s best years lie ahead. With the continuing support of our clients, shareholders and partners, and the commitment of our talented employees, I am confident that SNC‑Lavalin will become the world’s leading global provider of safe, sustainable, ethical and compliant integrated project services. Sincerely, The opening of our regional office for the Middle East and Africa in Abu Dhabi in early 2014 was an important milestone for this new global model. I am confident that SNC-Lavalin will become the world’s leading global provider of safe, sustainable, ethical and compliant integrated project services. Robert G. Card President and Chief Executive Officer
  • 9. 7 CHAIRMAN’S MESSAGE NC‑Lavalin made significant progress in 2013. As a Board, we have been active in overseeing and approv‑ ing the appointment of a new senior management team, approving the strategy set forth by that team, and continuing a significant Board renewal process. Our Board renewal process is comprised of a vari‑ ety of activities. In 2013, we increased the length and frequency of our meetings, and rebalanced them to allocate more attention to strategy. We rewrote our committee mandates to balance workload and clarify responsibilities, and began using targeted Board working groups for specific issues that require more in-depth analysis prior to full Board approval. We instituted the concept of “dual reporting” for the Chief Compliance Officer (as is the case with the Executive Vice- President and CFO and Vice-President, Internal Audit), whereby the role is directly accountable to the Board, as well as the management hierarchy. We also increased the frequency and scope of project site visits by directors. Two of the most significant changes with regard to the reevaluation of committee mandates were in relation to the Governance Committee and the Project Review Committee. The former has now become the Governance and Ethics Committee to better reflect its role of over‑ seeing ethics programs and its direct reporting relationship with the Company’s Chief Compliance Officer. The Project Review Committee has been renamed the Project Risk Review Committee to reflect its enhanced role in overseeing how project risk is understood and managed throughout the Company. As we have seen in the last year, when projects perform poorly it is generally because the associated risks have not been fully anticipated. With the aid of external resources, we are also reviewing our Director Profile and Skills Matrix. We are considering both the aggregate Board competencies that we feel are necessary for the next few years, as well as what we are describing as “table stakes” for individual directors. Because that work is underway but not yet complete, we decided to wait to replace Lorna Marsden, whose retirement from the Board coincides with the 2014 Annual Meeting of Shareholders. As we work our way beyond the crisis, we are returning to a more traditional level of Board involvement in the Company's affairs. We are pleased with the progress of senior management and have confidence in their ability to lead SNC‑Lavalin to new heights. Our Board renewal process reflects our commitment to provide the most appropriate sup‑ port to SNC‑Lavalin as the Company and market conditions continue to evolve. These changes also reflect my strong view that a successful corporation requires integration of the complementary but different roles of directors and executive management. As I hope I have demonstrated, your Board is committed to playing our role of providing insight, oversight and foresight to contribute to a successful SNC‑Lavalin. As we reflect on the past, assess the current market situation and look forward, we want the Board to function at the highest possible level. That is the standard against which we measure management, so why would we not hold ourselves to account in the same way? In closing, I want to say thank you to our shareholders, and the many external stakeholders who have supported the Company. We also extend our thanks to Lorna Marsden for her valuable contributions to the Board, including her insights which have helped us through some tough conversations. I look forward to seeing you at the 2014 Annual Meeting of Shareholders and reporting on our progress in the future. Yours truly, I am pleased to report to you on behalf of my colleagues on the Board of Directors. It was an honour to be selected as Chairman of the Board in May 2013. Ian A. Bourne Chairman of the Board S
  • 10. 8 S N C - L AVA L I N    2 0 1 3 A N N U A L R E P O R T ROBERT G. CARD President and Chief Executive Officer LEADERSHIP TEAM ANDREAS POHLMANN Chief Compliance Officer (From March 1, 2013 to May 31, 2014) ZIAD AWAD Head of Middle-East  Africa Region CHRISTIAN JACQUI Executive Vice-President, Global Operations DARLEEN CARON Executive Vice-President, Global Human Resources RÉJEAN GOULET Executive Vice-President and General Counsel JEAN BEAUDOIN Executive Vice-President, Integrated Management Systems DAVID G. WILKINS Ethics Compliance (Hired March 1, 2014; will succeed current Chief Compliance Officer June 1, 2014) ERIK J. RYAN Executive Vice-President, Marketing, Strategy and External Relations ALAIN-PIERRE RAYNAUD Executive Vice-President and Chief Financial Officer
  • 11. 9S N C - L AVA L I N    2 0 1 3 A N N U A L R E P O R T CHARLES CHEBL Executive Vice-President, General Construction HISHAM MAHMOUD President, Infrastructure DALE CLARKE Executive Vice-President, Mining Metallurgy ALEXANDER (SANDY) TAYLOR President, Power (Appointed March 1, 2014) PRESTON D. SWAFFORD Chief Nuclear Officer, President and CEO, Candu Energy (Appointed March 1, 2014) SCOTT THON President and CEO, AltaLink Acting Executive Vice-President, Power (January 2013 to end of February 2014) TERRANCE N. IVERS Executive Vice-President, Oil Gas NEIL BRUCE President, Resources, Environment Water CHARLES RATE Executive Vice-President, Operations Maintenance JIM BURKE Executive Vice-President, Transportation Construction GERRY GRIGOROPOULOS Acting Executive Vice‑President, Infrastructure Concession Investments
  • 12. 10 S N C - L AVA L I N    2 0 1 3 A N N U A L R E P O R T AT A GLANCE LATIN AMERICA EUROPE 103 years of experience Head Office in Montreal, Quebec Our health and safety record remains excellent after almost 50 years of sustaining capital work for ExxonMobil at their Baytown facility in Texas. Our partnership was mandated to finance, design, build and maintain Ottawa's Confederation Line LRT, a major component in the plan to improve public transit in Canada’s capital. Important bases of operations in the UK and France Our UK office is working on its ninth consecutive jacket in the offshore oil sector. At the Cernavodă nuclear station in Romania, we are installing reactor containment filtered venting systems as part of an industry-wide strategy to upgrade nuclear plant safety. NORTH AMERICA 17,910employees 4,412employees 2,570employees One of the largest foreign-owned engineering firms in Brazil Our ongoing relationship with Ecopetrol in Colombia continued with the award of a multi‑project services contract for pipeline projects. We are supporting Antofagasta Minerals' commitment to sustainable development at the Antucoya process plant in Chile's Atacama desert by using desalinated sea water for all operational requirements. 40 years of experience
  • 13. Financing Engineering Construction OperationsandMaintenanc e End-to-End Services S N C - L AVA L I N    2 0 1 3 A N N U A L R E P O R T 11 Our ability to provide one-stop-shop project solutions for our clients is a key differentiator in our sector, and a powerful vehicle for delivering outstanding value to our stakeholders. MIDDLE EAST AND AFRICA ASIA PACIFIC 975 employees in Saudi Arabia alone We worked with DUBAL and EMAL in the United Arab Emirates over the last decade to increase annual aluminium production by more than 1.65 million tonnes at their state‑of-the-art facilities in Dubai and Abu Dhabi. We have a GES+ contract with oil giant Saudi Aramco. We are providing services for over 150 projects under the contract, including engineering for the Maintain Potential Program. 50 years of experience We have a high-value sourcing office in China Our past power projects in the region include EPCM services for four CANDU nuclear power plants in South Korea and engineering work on China’s Three Gorges Dam. The Queensland Government in Australia hired us to provide operations advisory services for the new Gold Coast Rapid Transit light rail system, a key part of a wider initiative to address traffic congestion on the Gold Coast. 1,314 employees 3,508employees
  • 14. 12 RESOURCES, ENVIRONMENT  WATER
  • 15. 13S N C - L AVA L I N    2 0 1 3 A N N U A L R E P O R T OUR LONGSTANDING EXPERIENCE IN DELIVERING HIGH-QUALITY ENGINEERING AND CONSTRUCTION SERVICES ACROSS OUR MINING METALLURGY, OIL GAS AND ENVIRONMENT WATER BUSINESS UNITS HAS ALLOWED US TO DEVELOP DEEP CUSTOMER RELATIONSHIPS WITH MANY TOP‑TIER COMMODITY CLIENTS. OUR RESOURCES, ENVIRONMENT WATER GROUP IS BUILDING ON THOSE STRONG RELATIONSHIPS. We are working with clients and their Aboriginal stakeholders on training initiatives that will allow the benefits of resource projects to be felt by local communities for generations to come. e apply the full range of our expertise in the mining and oil and gas sectors to provide tailored solutions for our clients’ individual project needs. Having an experienced pool of technical and project management talent across these industries allows us to field the strongest and most specialized teams for our customers' projects. When combined with the full life-cycle sustainability solutions of our Environment Water team, we can also help our resource clients strengthen their positions as responsible corporate citizens. Our Resources, Environment Water Group has a concerted business develop‑ ment and client-focused approach. Our goal is to understand what motivations and business strategies lie at the heart of our customers’ projects so we can go beyond simply developing great facilities for them. Today, our raison d’être is to contribute in a fundamental way to the long-term success and viability of their businesses by enhancing their reputations and market shares. Our engineering, procurement and construction management mandate for the Guelb II iron ore project in Mauritania includes the provision of occupational health and safety training to local w
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