Fluor Corporation Announces Strategic Review Results
Fluor Corporation (NYSE: FLR) announced today the results of its strategic review and operational review.
As a result of the strategic review, the company concluded that the divestitures of select businesses will simultaneously improve the financial stability of the company and allow the remaining businesses to refocus on engineering, construction and maintenance services in core markets. The company is initiating plans to sell its construction equipment rental company (AMECO) and its government business, and to monetize surplus real estate and non-core investments. Fluor anticipates these actions to generate in excess of $1 billion in aggregate proceeds.
In addition, the company plans to reduce its quarterly dividend to $0.10 per share beginning with the next quarterly dividend declaration.
The strategic review evaluated the entire portfolio of businesses including Stork, COOEC-Fluor Heavy Industries and NuScale. The company has taken deliberate and constructive action on these investments:
- Stork continues to implement its restructuring plan and is expected to emerge as a stronger and more profitable business in early 2020.
- The company is in discussions with its COOEC-Fluor Heavy Industries partner to improve the financial performance of the fabrication yard.
- NuScale has the only small modular reactor (SMR) technology being reviewed by the Nuclear Regulatory Commission and it expects final approval of its SMR by the end of 2020. Commitments from new investors Doosan Heavy Industries & Construction and Sargent & Lundy, subject to regulatory approval, are expected to allow the funding of NuScale activities for the remainder of this year. Recent milestones achieved by NuScale have generated additional investor interest that is expected to offset 2020 funding requirements.
"Together with our Board of Directors and outside advisors, we took an extensive and comprehensive look at our broader business to determine the best strategic path to return the company to consistent profitable growth," said Carlos Hernandez, chief executive officer, Fluor Corporation. "The strategic direction we are pursuing as a result of this process builds upon Fluor's premier competitive position in our core markets in which we expect to deliver sustainable growth, strong cash flow and attractive returns to investors. With this review behind us, we are focusing more than ever before on long-term value creation and operational excellence, and we remain dedicated to moving Fluor forward for the benefit of all of our stakeholders."
Fluor anticipates these actions will generate long-term value to shareholders through its best-in-class expertise in all aspects of project execution while using a disciplined project and portfolio risk management approach. This renewed focus should result in a strengthening of the balance sheet, improving the company's credit rating and ensuring adequate liquidity for ongoing operations.
Operational Update
The results of the operational review led to key leadership changes, the development of improved pursuit criteria and a new organizational structure. The company will shift to a model in which business groups have direct control over the functions that support operations. These actions are expected to improve the speed of decision making and drive greater accountability within the businesses. As a result of these and other changes, the company anticipates overhead reductions of $100 million.
Fluor continues to reinforce recently revised project pursuit criteria for all businesses:
- The Energy & Chemicals segment will pursue lump sum work only when there is a limited bid slate and there is a quantifiable advantage over other bidders or where it is a sole-source negotiated agreement. Fluor will only bid on lump sum projects where it executed the front-end engineering and design package or has the opportunity to perform sufficient diligence.
- The Mining, Metals and Industrial segment will continue to pursue predominantly reimbursable work applying the revised project pursuit criteria.
- The Infrastructure segment will focus efforts in North America and continue to extend its presence in states where there is an established track record and strong department of transportation relationships including Texas, Arizona, California, Virginia and North Carolina.
- The Government segment will no longer pursue fixed price projects.
- In all cases, risk projects will be subject to an initial bid/no-bid approval followed by final approval by the Fluor executive team. This increased focus on selectivity will change the prospect pipeline profile and drive the company to a backlog and execution platform that can deliver consistent results.
Board Update
Consistent with the board's commitment to strong governance with focused oversight of risk, the board recently elected Thomas Leppert and David Constable as new board members. Leppert and Constable both bring significant capital project experience to the board.
The board also formed a Commercial Strategies & Operational Risk committee that will be chaired by David Constable. The purpose of the committee is to provide guidance to management with respect to the company's commercial strategies and provide oversight of the company's project-related risk governance framework and risk appetite.
Lead director Peter Fluor has stepped down as chair of the organization and compensation committee and has informed the company that he will not stand for re-election next year. He has served the company as a director since 1984. A separate press release is available on fluor.com.
Collectively, these actions build on historical successes and position the company to repair Fluor's balance sheet and restore investor confidence.
Advisors
Lazard is serving as an advisor to Fluor Corporation.
About Fluor Corporation
Founded in 1912, Fluor Corporation (NYSE: FLR) is a global engineering, procurement, fabrication, construction and maintenance company that transforms the world by building prosperity and empowering progress. Fluor serves its clients by designing, building and maintaining safe, well executed, capital-efficient projects around the world. With headquarters in Irving, Texas, Fluor ranks 164 on the Fortune 500 list with revenue of $19.2 billion in 2018 and has more than 53,000 employees worldwide. For more information, please visit www.fluor.com or follow Fluor on Facebook, Twitter, LinkedIn and YouTube.
Forward-Looking Statements: This release contains forward-looking statements concerning the expected financial and operational performance of Fluor Corporation and its subsidiaries ("we," "our" or the "Company") and the Company's strategic and operational plans, including statements about our business prospects, strategic and operational initiatives, project management, and projected earnings, revenue, proceeds, margins, expenses, expense reductions, market outlook, new awards, and backlog levels. Words such as "believes," "expects," "anticipates," "assumes," "intends," "plans," "will," "may," "should," "positions," "looking ahead," "views," "think," "target," "trend," "can," "appears," "estimates," "prospects," "outlook," "guidance" or other similar expressions identify forward-looking statements. Such statements are based on current management expectations and involve risks and uncertainties, known and unknown, which can cause actual results to differ materially from the Company's expectations and projections. Factors that could cause actual results to differ materially include, among other things, the cyclical nature of many of the markets the Company serves, including the Company's Energy & Chemicals segment; the Company's failure to receive new contract awards; cost overruns, project delays or other problems arising from project execution activities, including the failure to meet cost and schedule estimates; intense competition in the industries in which we operate; failure to obtain favorable results in existing or future litigation, dispute resolution proceedings or claims, including claims for additional costs; failure of our joint venture or other partners, suppliers or subcontractors to perform their obligations; cyber-security breaches; foreign economic and political uncertainties; client cancellations of, or scope adjustments to, existing contracts; failure to maintain safe worksites and international security risks; risks or uncertainties associated with events outside of our control, including weather conditions; client delays or defaults in making payments; the Company's failure, or the failure of our agents or partners, to comply with laws; the use of estimates and assumptions in preparing our financial statements; the potential impact of certain tax matters; possible information technology interruptions or inability to protect intellectual property; new or changing legal requirements, including those relating to environmental, health and safety matters; the availability of credit and restrictions imposed by credit facilities, both for the Company and our clients, suppliers, subcontractors or other partners; the Company's ability to secure appropriate insurance; liabilities associated with the performance of nuclear services; foreign currency risks; the inability to hire and retain qualified personnel; the loss of one or a few clients that account for a significant portion of the Company's revenues; possible limitations on bonding or letter of credit capacity; risks or uncertainties associated with planned dispositions, including factors affecting the ability to realize anticipated proceeds or dispose of associated liabilities, as well as with any acquisitions or investments; asset impairments; unanticipated expenses arising from restructuring activities; and risks arising from the inability to successfully integrate acquired businesses. Caution must be exercised in relying on these and other forward-looking statements. In addition, reported results should not be considered as an indication of future performance. Investors are cautioned not to place undue reliance on the forward-looking statements included in this presentation, which speak only as of the date hereof. The company disclaims any intent or obligation, other than as required by law, to update this information in light of new information or future events. Additional information about potential risk factors that could affect the
Company's business and financial results is included in our Form 10-K filed on February 21, 2019 and our reports on Form 10-Q filed on May 2, 2019 and August 1, 2019.
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