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

Clinic helps retired Parksville educator return to running

ORCA Learn to Run program to start Feb. 5

U.K. press wonders if Nanaimo bars lured Prince Harry and Meghan Markle to Canada

‘Prince Harry’s favourite snack revealed,’ trumpets tabloid

Naked Naturals has tentative deal for $2.5M purchase of town-owned in Qualicum Beach

Business plan includes a new grocery store, 32 units of rental housing and parking

Robbie Burns to be celebrated across Parksville Qualicum Beach

Legions host suppers and celebrations in trio of communities

‘Like an ATM’: World’s first biometric opioid-dispensing machine launches in B.C.

First-of-its-kind dispensing machine unveiled in the Downtown Eastside with hopes of curbing overdose deaths

Canucks extend home win streak to 8 with 4-1 triumph over Sharks

Victory lifts Vancouver into top spot in NHL’s Pacific Division

BC Green Party leader visits northern B.C. pipeline protest site

Adam Olsen calls for better relationship between Canada, British Columbia and First Nations

B.C. society calls out conservation officer after dropping off bear cub covered in ice

Ice can be seen in video matted into emaciated bear cub’s fur

Horgan cancels event in northern B.C. due to security concerns, says Fraser Lake mayor

The premier will still be visiting the city, but the location and day will not be made public

B.C. landlord sentenced to two years in jail for torching his own rental property

Wei Li was convicted of intentionally lighting his rental property on fire in October 2017

Blue Monday is a myth but seasonal affective disorder and the winter blues are real

Canadian Mental Health Association says weather can affect mood

PHOTOS: Eastern Newfoundland reeling, search underway for missing man after blizzard

More than 70 centimetres of new snow fell overnight, creating whiteout conditions

Prince Harry, Meghan to give up ‘royal highness’ titles

‘Harry, Meghan and Archie will always be much loved members of my family,’ says Queen Elizabeth II

Most Read