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.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

No exodus of teachers during COVID year

Retirements are actually down for Langley’s school-based staff

Driver maces pedestrian after hit and run in Langley City

Police were on the scene at Michaud Crescent Wednesday morning

Langley church donates $10,000 for Madison Place families left homeless after condo fire

‘When this one happened it was almost like deja vu,’ says pastor Paul Olson of SouthRidge church

VIDEO: One reportedly injured in fire that destroyed Langley shop

Blaze in 5300 block of 244 Street drew massive response

Antique tractor pull draws a crowd near Fort Langley

Everyone remained in their cars and watched while socially distancing

B.C. records new COVID-19 death, 85 more cases; Horgan calls on celebrity help

This brings the total number of active confirmed cases to 531 across the province

Teachers to get 2 extra days to prepare for students’ return, now set for Sept. 10

Students will first start with orientation and learn rules of COVID-19 classroom policies

High-volume littering at Cape Scott draws ire from hiking groups

Popular Vancouver Island hiking spot not closing, but frustration about crowding grows

SFU to drop ‘Clan’ varsity team name

The ‘Clan’ name is shortened from ‘Clansmen,’ and was introduced roughly 55 years ago

BCSPCA partners with Crime Stoppers

Many call in to the SPCA, but want to remain anonymous: Eccles

New Tory leader must build a strong team in Commons and for the campaign: Scheer

Scheer marked his final day in the House of Commons today as leader of the Opposition

B.C. to hire 500 more COVID-19 contact tracers ahead of fall

Contract tracers add an ‘extra layer’ in the fight against the novel coronavirus

Feds commit $305M in additional funds for Indigenous communities during COVID-19

Money can be used to battle food insecurity and support children and mental health

We were a bit tone deaf: Hobo Cannabis renamed Dutch Love after backlash

Hobo Cannabis has various locations in Vancouver, Kelowna and Ottawa

Most Read