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

U.S. couple ‘devastated’ truck and boat stolen in Williams Lake overnight

Family from Oregon appealing for assistance to help find stolen items

Police name second suspect, lay kidnapping and attempted murder charges in connection with Rudy Johnson Bridge incidents

Drynock is considered dangerous, do not approach him and call the local RCMP detachment immediately

Skeena-Bulkley Valley candidates react to finding Trudeau broke ethics law

The election campaign is heating up before the writ has even dropped

Links probable between homicide, missing persons investigation in Williams Lake

Rich ‘Savage’ Duncan the victim of Aug. 6 homicide

Heiltsuk challenges feds decision to award $67M contract to east coast towing company

Heiltsuk Horizon challenges decision to award emergency ship towing contract to Irving company

VIDEO: Title of 25th Bond movie is ‘No Time to Die’

The film is set to be released in April 2020

Police watchdog investigating two officers after Langley teen’s suspected overdose

According to IIO, two officers were deployed to help Carson Crimeni but did not locate him before he died

Huawei executive’s defence team alleges Canadians were ‘agents’ of the FBI

eng’s arrest at Vancouver’s airport has sparked a diplomatic crisis between Canada and China

Trans Mountain gives contractors 30 days to get workers, supplies ready for pipeline

Crown corporation believes the expansion project could be in service by mid-2022

On vaccines, abortion, Goop, doctor Jen Gunter says: ‘I have a duty to speak up’

She speaks out on menstruation, the wellness industry and vaccines

New study suggests autism overdiagnosed: Canadian expert

Laurent Mottron: ‘Autistic people we test now are less and less different than typical people’

Rosemount cooked diced chicken linked to listeria case in B.C.

The symptoms of listeria include vomiting, nausea, fever, muscle aches

B.C. seniors allowed more choice to stay in assisted living

Province doesn’t need to wait for a complaint to investigate care, Adrian Dix says

Retired B.C. fisherman wins record $60M Lotto Max jackpot

Joseph Katalinic won the biggest Lotto Max prize ever awarded

Most Read