Bridging the Digital Growth Gap at SNC-Lavalin" (80 characters)

SNC-Lavalin Bridging the digital growth gap Bayeta Mulato Hugo Oliveira Julio Tendeiro Vasco Amoroso Presentation to SNC Lavalin s Board January 2019 Dragon Consulting 1

0. Agenda Executive Summary 1. Challenge 2. Overview of the situation 3. Alternatives 4. Recommendation 5. Implementation 1. Implementation Plan 2. Financials 3. Risks 6. Summary Dragon Consulting 2

How can SNC-Lavalin achieve growth amid digital transformation? Dragon Consulting 3

1. Challenge How can SNC-Lavalin achieve growth amid digital transformation? Key issues Decreasing no. of billable hours 1 Decreasing need for services 2 Low R&D investments in the sector 3 Dragon Consulting 4

Analysis Dragon Consulting 5

2. Analysis Building what matters Global Company / Proudly Canadian Founded 1911 with +55.000 staff Main markets NAM, EUR and MEA Revenue $10BN Dragon Consulting 6

2. Analysis Building what matters Global Company / Proudly Canadian Founded 1911 with +55.000 staff Main markets NAM, EUR and MEA Revenue $10BN Fully integrated professional services and PM company Acquisition of Atkins (HQ UK) / Core EDPM Dragon Consulting 7

2. Analysis Building what matters Global Company / Proudly Canadian Founded 1911 with +55.000 staff Main markets NAM, EUR and MEA Revenue $10BN Fully integrated professional services and PM company Acquisition of Atkins (HQ UK) / Core EDPM 1 2 3 5 6 7 Clean Power 13% EBIT $ 500M Infrastructure 7% EBIT $ 2 BN Mining & M 4% EBIT $ 500M Nuclear 18% EBIT $ 1 BN Oil & Gas 7% EBIT $ 2.5 BN EDPM 11% EBIT $ 3.2 BN Dragon Consulting 8

2. Analysis Building what matters Clear Vision and Mission towards 2020 Top Global Fully Integrated Client Centric Strong performance driven culture Operational Excellence Global Company / Proudly Canadian Founded 1911 with +55.000 staff Main markets NAM, EUR and MEA Revenue $10BN Fully integrated professional services and PM company Acquisition of Atkins (HQ UK) / Core EDPM 1 2 3 5 6 7 Clean Power 13% EBIT $ 500M Infrastructure 7% EBIT $ 2 BN Mining & M 4% EBIT $ 500M Nuclear 18% EBIT $ 1 BN Oil & Gas 7% EBIT $ 2.5 BN EDPM 11% EBIT $ 3.2 BN Dragon Consulting 9

2. Analysis Building what matters Clear Vision and Mission towards 2020 Top Global Fully Integrated Client Centric Strong performance driven culture Operational Excellence Global Company / Proudly Canadian Founded 1911 with +55.000 staff Main markets NAM, EUR and MEA Revenue $10BN Fully integrated professional services and PM company Acquisition of Atkins (HQ UK) / Core EDPM 1 2 3 5 6 7 Clean Power 13% EBIT $ 500M Infrastructure 7% EBIT $ 2 BN Mining & M 4% EBIT $ 500M Nuclear 18% EBIT $ 1 BN Oil & Gas 7% EBIT $ 2.5 BN EDPM 11% EBIT $ 3.2 BN Dragon Consulting 10

2. Analysis Covering all spectrums in this industry SNC Lavalin End End Capital / Consultancy / Design / Construction operations / Sustainable Dragon Consulting 11

2. Analysis SNC-Lavalin sees customers as key partners SNC Lavalin 50% 50% Public Private Governments (CA, USA, EUR and OCE) Value Privacy Large Corporation (CA, USA and EUR) Value Efficiency Reduce Risk Dragon Consulting 12

2. Analysis SNC-Lavalin sees customers as key partners SNC Lavalin 50% 50% Public Private Governments (CA, USA, EUR and OCE) Value Privacy Large Corporation (CA, USA and EUR) Value Efficiency Reduce Risk Clearly demarked segments with exponential growth with new technology support Dragon Consulting 13

2. Analysis Where does it come from Dragon Consulting 14

2. Analysis Revenue how does it work SNC Lavalin 75% 25% Reimbursable & Engineering Service contracts EPC Fixed Price Contracts (Lumpsum) Dragon Consulting 15

2. Analysis Revenue how does it work SNC Lavalin 75% 25% EDPM 32% of $7.5BN Reimbursable & Engineering Service contracts EPC Fixed Price Contracts (Lumpsum) You need to increase your EPC price contracts to optimize value capture Dragon Consulting 16

2. Analysis The world is changing World Population Growth by +4 BN in the next 30 years Poor productivity in Construction Industry continues to be a growing pain Dragon Consulting 17

2. Analysis The world is changing World Population Growth by +4 BN in the next 30 years Poor productivity in Construction Industry continues to be a growing pain In your industry, the very low adoption of technology remains an issue and so IT spending/investment ICT Media Finance Services .. Construction Dragon Consulting 18

2. Analysis The world is changing World Population Growth by +4 BN in the next 30 years Digital Twins Poor productivity in Construction Industry continues to be a growing pain In your industry, the very low adoption of technology remains an issue and so IT spending/investment 3D Printing, Modularization AI and Analytics ICT Media Finance Services .. Construction Supply Chain Optimization Dragon Consulting 19

2. Analysis The world is changing World Population Growth by +4 BN in the next 30 years Digital Twins Poor productivity in Construction continues to be a growing pain In your industry, the very low adoption of technology remains an issue and so IT spending/investment 3D Printing, Modularization AI and Analytics ICT Media Finance Services .. Construction Supply Chain Optimization $18 BN / Mainly America Dragon Consulting 20

2. Analysis In Summary Strong Global Brand Solid Financials Core Values Successful M&A s Strength Weakness Opportunity Threat Dragon Consulting 21

2. Analysis In Summary Strong Global Brand Solid Financials Core Values Successful M&A s Pricing Model Investors reluctance in Digital Investment Skill Centre disperse location Strength Weakness Opportunity Threat Dragon Consulting 22

2. Analysis In Summary Strong Global Brand Solid Financials Core Values Successful M&A s Pricing Model Investors reluctance in Digital Investment Skill Centre disperse location Strength Weakness Leader in Digital transformation Clean Energy growth potential Emergent Business opportunities Opportunity Threat Dragon Consulting 23

2. Analysis In Summary Strong Global Brand Solid Financials Core Values Successful M&A s Pricing Model Investors reluctance in Digital Investment Skill Centre disperse location Strength Weakness Leader in Digital transformation Clean Energy growth potential Emergent Business opportunities DT from competition Customers reusing data Data Privacy Opportunity Threat Dragon Consulting 24

2. Analysis In Summary Strong Global Brand Solid Financials Core Values Successful M&A s Pricing Model Investors reluctance in Digital Investment Skill Centre disperse location Strength Weakness Leader in Digital transformation Productivity Awareness Clean Energy growth potential DT from competition Customers reusing data Data Privacy Opportunity Threat With the new business digital trends untapped business markets will become available Dragon Consulting 25

Alternatives Dragon Consulting 26

3. Alternatives How can SNC-Lavalin achieve growth amid digital transformation? Decreasing no. of billable hours 1 Decreasing need for services 2 Low R&D investments in the sector 3 Dragon Consulting 27

3. Alternatives This changing landscape creates two strategic questions for SNC Where to do business? How to do business Dragon Consulting 28

3. Alternatives This changing landscape creates two strategic questions for SNC Where to do business? How to do business Outside the scope of this presentation Maintain current business units strategy Focus on Design Engineering growth options Dragon Consulting 29

3. Alternatives This changing landscape creates two strategic questions for SNC Where to do business? How to do business Outside the scope of this presentation Scope of this presentation Maintain current business units strategy How to adapt the Design Engineering Business Focus on Design Engineering growth options How to fund these growth options Dragon Consulting 30

Recommendation and implementation Dragon Consulting 31

4. Recommendation SNC s digital growth road is founded on three pillars How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector New customer segments in the same markets New pricing model New products and services Dragon Consulting 32

4. Recommendation SNC s digital growth road is founded on three pillars How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector New customer segments in the same markets New pricing model New products and services Dragon Consulting 33

4. Recommendation A new pricing model addresses the decreasing billable hours trend How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector Currently EDPM business operates under a Cost-Plus reimbursement model We recommend moving to a value-based pricing system under a fixed price model What How How When When Dragon Consulting 34

4. Recommendation A new pricing model addresses the decreasing billable hours trend How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector Currently EDPM business operates under a Cost-Plus reimbursement model We recommend moving to a value-based pricing system under a fixed price model What Many lawyers, consultants, and accountants charge per hour But others charge based on the value they generate to the client regardless of hours How Bain Consulting is the benchmark, as they price based on value and clients happily pay EDPM services should be priced according to value generating KPIs How much value does the service generate to the client based on earnings and savings When Dragon Consulting 35

4. Recommendation A new pricing model addresses the decreasing billable hours trend How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector Currently EDPM business operates under a Cost-Plus reimbursement model We recommend moving to a value-based pricing system under a fixed price model What Many lawyers, consultants, and accountants charge per hour But others charge based on the value they generate to the client regardless of hours How Bain Consulting is the benchmark, as they price based on value and clients happily pay EDPM services should be priced according to value generating KPIs How much value does the service generate to the client based on earnings and savings 2019 Develop KPIs and test new model in PM services where it s easier to assess value 2020 to 2022 Gradually change SNC s total pricing mix from 75% / 25% to 50% / 50% When Dragon Consulting 36

4. Recommendation SNC s digital growth road is founded on three pillars How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector New customer segments in the same markets New pricing model New products and services Dragon Consulting 37

4. Recommendation New products and services address the decreasing demand How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector Leverage Atkins acquisition to optimise organic growth through current offering Tap into the new Construction Tech Landscape to build new EDP Products and Services What How How When When Dragon Consulting 38

4. Recommendation New products and services address the decreasing demand How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector Leverage Atkins acquisition to optimise organic growth through current offering Tap into the new Construction Tech Landscape to build new EDP Products and Services What Organic Atkins acquisition can leverage automation of the business and increase productivity To ensure this, company-wide training needs to be done. Partnership with CodeAcademy and quarterly hackhathons focused on productivity Inorganic Invest in the emerging companies in the ecosystem through a Corporate VC business unit Follow Xiaomi s benchmark Invest instead of acquire and leverage scale to sell new offering How When Dragon Consulting 39

4. Recommendation New products and services address the decreasing demand How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector Leverage Atkins acquisition to optimise organic growth through current offering Tap into the new Construction Tech Landscape to build new EDP Products and Services What Organic Atkins acquisition can leverage automation of the business and increase productivity To ensure this, company-wide training needs to be done. Partnership with CodeAcademy and quarterly hackhathons focused on productivity Inorganic Invest in the emerging companies in the ecosystem through a Corporate VC business unit Follow Xiaomi s benchmark Invest instead of acquire and leverage scale to sell new offering How 2019 Initiate CA partnership and hackhatons. Map ecosystem and hire new CVC arm 2020 to 2022 Start selling new Automation and AI services. Gradually invest CVC s $100M budget When Dragon Consulting 40

4. Recommendation SNC s digital growth road is founded on three pillars How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector New customer segments in the same markets New pricing model New products and services Dragon Consulting 41

4. Recommendation Sharing our R&D to new customers addresses the sector s low investment How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector Due to technology, smaller players in the construction space are getting more sophisticated But they lack SNC s scale and R&D achievements. These can be sold into this new customers What How When Dragon Consulting 42

4. Recommendation Sharing our R&D to new customers addresses the sector s low investment How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector Due to technology, smaller players in the construction space are getting more sophisticated But they lack SNC s scale and R&D achievements. These can be sold into this new customers What Focus on standardized software services Project Management can be turned into a science Salesforce benchmark Focus on data analytics solutions optimized to assist this new customer segment Help these businesses be more productive No risk of them competing against SNC due to different scale and final customers How When When Dragon Consulting 43

4. Recommendation Sharing our R&D to new customers addresses the sector s low investment How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector Due to technology, smaller players in the construction space are getting more sophisticated But they lack SNC s scale and R&D achievements. These can be sold into this new customers What Focus on standardized software services Project Management can be turned into a science Salesforce benchmark Focus on data analytics solutions optimized to assist this new customer segment Help these businesses be more productive No risk of them competing against SNC due to different scale and final customers How 2019 Prototype these new offerings 2020 to 2022 Start selling them with new sales team When Dragon Consulting 44

4. Recommendation SNC s digital growth road is founded on three pillars How can SNC-Lavalin achieve growth amid digital transformation? Decreasing Billable Hours Decreasing need for services Low R&D investment in the sector New customer segments in the same markets New pricing model New products and services Dragon Consulting 45

Financials Dragon Consulting 46

5. Financials Assumptions for the transformations 2018 Base Year Targets Earning per Share Net Result Working Capital EBIT to Net Result WACC (100% Equity) 5 USD 0.8B USD Based on the EPS 0 56% based on 2017 Statements 8% Dragon Consulting 47

5. Financials Assumptions 2018 Base Year Targets Earning per Share Net Result Working Capital EBIT to Net Result WACC (100% Equity) 5 USD 0.8B USD Based on the EPS 0 56% based on 2017 Statements 8% Dragon Consulting 48

5. Financials Assumptions for Sales Growth and EBIT Margin Yearly Sales Growth EDPM Oil Gas Infrastucture Others EBIT margins EDPM Oil Gas Infrastucture Others 15% 7.5% 7.5% 7.5% 20% Growing from 11% based on tech and pricing 7% 7% 10% Dragon Consulting 49

5. Financials OPEX and Capex will be slightly above 100M USD 2018 2019 2020 2021 OPEX (M USD) Hackathons Code Academy Leverage Atkins Expertize Service Solutions Dev 4 11 8 1 5 2 8 1 5 2 1 5 5 3 1 CAPEX (M USD) VC Investment in Startups 2019 100 Dragon Consulting 50