SNC-Lavalin seeks change as Neil Bruce replaces Robert Card as CEO

Share

SNC-Lavalin Group Inc. is parting ways with its chief executive officer as the Canadian engineering giant puts faith in a new leader whom it says can better drive earnings after several unsteady quarters.

In a move the company described as a "smooth transition," Robert Card has agreed to step down as CEO after a three-year tenure. He'll be replaced by current chief operating officer Neil Bruce as of Oct. 5 but remains an adviser on key issues such as the company's attempted settlement with the federal government on criminal corruption charges.

"Shareholders and the board of directors are not satisfied with the financial performance," SNC-Lavalin chairman Lawrence Stevenson said in an interview Monday.

"What we need to do, if you think of the next several years, is make sure we're delivering on the projects, both operationally and financially. And we felt that Neil Bruce was the right guy" for that.

A former executive director and COO of British engineering firm Amec, Mr. Bruce has been given increasingly greater responsibility since being recruited to SNC in January, 2013.

He led the transformation of SNC's oil and gas business with the acquisition of Kentz Corp., now the company's most profitable unit, and was widely seen as the heir apparent as SNC's CEO.SNC shares fell 4 per cent to close at $37.63 in trading on the Toronto Stock Exchange.

As an outsider with both private sector and government experience, Mr. Card, 62, was brought in as CEO in October, 2012, to help defuse a corruption crisis that engulfed SNC and shredded its market value. After the shocking arrest of his predecessor, Pierre Duhaime, on fraud charges, and the discovery of improper payments worth millions, Mr. Card moved quickly to reshape the company by revamping management, overhauling the ethics and compliance system, and selling assets.

But despite a solid balance sheet, SNC continues to deliver spotty earnings marked by problem contracts. Directors now say they want a CEO to capitalize on the company's $12-billion backlog and focus on project profitability and completion as it seeks to join the ranks of the world's largest engineering firms.

Mr. Stevenson said investors should expect no change in strategy with the new CEO and no change in the timing of infrastructure sales, such as the planned disposal of the company's minority stake in Toronto-area toll road 407 International Inc. SNC has said it won't sell 407 until its core engineering and construction business delivers stable and predictable returns.

"When Card came in, it was a very challenging situation and I think he's done an admirable job stabilizing the company," said Dundee Capital Markets analyst Maxim Sytchev. "Right now, it's nice to have backlog, but they have to convert it into revenue and profitability. So the focus has shifted somewhat."

"This announcement comes at a critical period for SNC," said Canaccord Genuity analyst Yuri Lynk, noting that the company is in the early phases of two of the largest infrastructure projects it's ever won, namely Montreal's Champlain Bridge replacement project and Toronto's Eglinton LRT project. "A laser focus on execution will be needed."

Legal challenges also continue to loom over the company.

The RCMP in February laid rare corruption and fraud charges against Montreal-based SNC related to its business dealings in Libya. The company acknowledges there was wrongdoing by executives who've since left its employment but says they were rogues who acted independently. The executives, notably former vice-president Riadh Ben Aissa, claim they acted with the knowledge of senior management.

Mr. Card has made some effort over the past several months to try to win a settlement with the federal government on the charges in order to avoid a court battle that could stretch out years. Unlike the United States and other countries, Canada does not have so-called "deferred prosecution" or "non-prosecution" agreements that allow states to fine companies facing bribery allegations while sparing them a trial or a guilty plea.

Talks are now stalled as the company waits to see which party forms the next government, Mr. Stevenson said. There is no timeline to reach a resolution, he said.

SNC directors started talking to Mr. Card about a CEO transition about nine months ago, the chairman said. Subsequently, the company conducted a formal competition for the CEO job and Mr. Bruce, 55, was chosen. He moved to Montreal from London last month with his family.