SNC-Lavalin Group Inc. says it will undergo a reorganization. (Photo by THE CANADIAN PRESS)

SNC-Lavalin slashes profit forecast amid shift away from oil and construction

SNC shares fell nearly seven per cent to $23.75 in midday trading on the Toronto Stock Exchange

SNC-Lavalin Group Inc. has announced a sharp change in course and slashed its profit forecast for the third time this year as the company’s new CEO veers away from the construction- and oil-focused vision of his predecessor to concentrate on engineering.

The beleaguered firm said Monday it is quitting the competitive field of fixed-price contracts, which leave companies vulnerable to the cost overruns that large construction projects often generate. It will also combine its resources and infrastructure construction divisions into a separate business line “following continued poor performance,” SNC-Lavalin said in a release.

The company added that it is “exploring all options” for its resources segment — including selling off its flagging oil and gas business, which is taking on an additional $1.9 billion in impairment charges, SNC said.

SNC shares fell nearly seven per cent to $23.75 in midday trading on the Toronto Stock Exchange.

Interim chief executive Ian Edwards, who replaced Neil Bruce last month, acknowledged what analysts have noted for months. “Lump-sum, turnkey projects have been the root cause of the company’s performance issues,” Edwards said in a statement.

SNC-Lavalin’s revised financial guidance for its second-quarter was “due in large part” to cost issues on so-called lump-sum, turnkey contracts, where one company takes on responsibility for the entire project, from engineering through procurement and construction, the company said.

“By exiting such contracting and splitting it off from what is otherwise a healthy and robust business, we are tackling the problem at the source,” Edwards said.

The Montreal-based firm now expects to lose between $150 million and $175 million before interest, taxes, depreciation and amortization in the latest quarter, with results slated for release Aug. 1.

Quebec’s Caisse de depot, SNC’s largest investor at nearly 20 per cent, expressed worry over the company’s direction and said it “requires decisive and timely action” by the board.

“The deterioration of SNC-Lavalin’s performance, as indicated in the company’s statement issued today, is a cause of growing concern for la Caisse,” it said Monday.

ALSO READ: Trudeau’s former right-hand adviser playing role in Liberal election campaign

The company slashed its guidance for 2018 twice in three weeks earlier this year, more than halving its profit forecast and halting all bidding on future mining projects amidst a diplomatic feud between Canada and Saudi Arabia — a key source of oil and gas revenue — and delays on its Codelco mining project in Chile, which the state-owned copper company later cancelled at a cost of $350 million to SNC-Lavalin.

Neil Bruce, whose nearly four-year stint at the helm was marked by a 42 per cent plunge in share price and a political controversy tied to an ongoing corruption case, also bolstered the company backlog by more than $15 billion.

He steered the company through its purchase of engineering powerhouse WS Atkins in 2017, and increased its presence in the global oil and gas industry in 2014 with the $2.1-billion acquisition of U.K-based Kentz Corp. Ltd.

The company’s oil and gas segment took in the second-highest revenues of any division in 2018, raking in one-quarter of SNC’s $10.08 billion. But it gleaned just 3.8 per cent earnings before interest and taxes, the lowest percentage of its biggest four divisions.

Mining and gas, meanwhile, lost $345.6 million last year.

SNC’s directional shift puts it closer to Quebec-based rival WSP Global Inc., a pure-play engineering design firm where nearly 90 per cent of revenues come from countries in Europe and North America. SNC-Lavalin, on the other hand, derived nearly one-quarter of its 2018 revenue from operations in the Middle East and Africa.

SNC-Lavalin said that the reorganization will allow it to focus on its high-performing and growth areas of the business, which will be reported under SNCL Engineering Services.

It will fulfil the contractual obligations of its current lump-sum turnkey projects, which will be reorganized as SNCL Projects, including Montreal’s Reseau express metropolitain.

This reorganization comes after the company announced a strategic review and further streamlining last month, in an effort to keep a lid on costs.

The company appointed a senior executive to oversee big-ticket contracts and also said it would fold its hydro, transmission and renewables operations into its infrastructure unit, while its technology ventures would be integrated into various units.

SNC-Lavalin also faces a trial over accusations of fraud and corruption in relation to its business dealings in Libya. The company was at the centre of a political controversy for months after failing to secure a deferred prosecution agreement, a kind of plea deal that would have seen the firm agree to pay a fine rather than face prosecution.

READ MORE: SNC-Lavalin execs ponder company break-up at private shareholder meeting

The Canadian Press


Like us on Facebook and follow us on Twitter.

Just Posted

Stellar Haze offers up ‘organic rock’ at Memorial Park

Trio hitting the stage for their first live performance this Friday

RCMP, ERT attending incident at Cheam First Nation

Few details are available about the incident, which saw more than a dozen police cars attend

Chiefs kick off exhibition pre-season stint at Hope Arena

Catch the Chilliwack Chiefs on the ice as they prepare for fresh season

Annual Peters family ball tournament draws a dozen teams to Hope ball diamonds

Recently upgraded field at the Schkam reserve the backdrop for this year’s event

Kent quarry opposition receives federal support

Green Party leader Elizabeth May wrote to the provincial government to oppose the quarry application

New police force in Surrey must avoid VPD, RCMP errors made in Pickton case: Oppal

Boots are scheduled to be on the ground by spring 2021

Conan turns to the Property Brothers for tips on buying Greenland

Jonathan Scott suggests removing glaciers and mountains to bring in ‘more natural light’

Forests minister visits B.C. town hit by multiple mill shutdowns

A third of Mackenzie turns out for rally, not much to cheer about

B.C. sockeye returns drop as official calls 2019 ‘extremely challenging’

Federal government says officials are seeing the same thing off Alaska and Washington state

North Van music teacher accused of sexual misconduct involving girls

Police believe other victims could be out there after the arrest of Lamar Victor Alviar

B.C. family stranded in Croatia desperate to come home

Funds being raised to bring back mom and two children

B.C. man on trial for daughters’ murders an intruder broke in

Andrew Berry takes stand in his defense for December 2017 deaths of young daughters

‘Plenty of time for a deal’: Teachers’ union expects kids back in school on Sept. 3

BCTF says class size, composition at the heart of the issue

Most Read