Fluor Announces Results of Strategic Review

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.