SNC-Lavalin raises earnings guidance, foresees normalcy returning in 2015
MONTREAL - SNC-Lavalin raised its earnings guidance for the year Thursday as the engineering and construction firm anticipates an end to a three-year corporate cleansing and a return to normal competitive returns in 2015.
"We're back," CEO Robert Card told shareholders on Thursday, 18 months after he took over the Montreal-based company whose international reputation was in tatters from corporate ethics issues that surfaced in 2012 and resulted in fraud charges against several top executives, including a former chief executive.
"We've made major progress in the fundamental rebuilding of the company and we are stronger and more competitive in the global marketplace than at any time in the last few years."
Card said 2015 will mark the beginning of SNC-Lavalin (TSX:SNC) returning to normalcy after years of reviewing corporate ethics, housecleaning and rebuilding.
"We fully believe we have touched bottom in the turnaround of this company. We're now firmly focusing on an exciting future of solid risk management and growth."
SNC-Lavalin has taken more than $500 million in writeoffs in the last two years and is whittling down some $700 million of business that earns no profit.
The company is evaluating what to do with $2.9 billion of net proceeds it expects later this year from the $3.2-billion sale of AltaLink, Alberta's largest regulated electricity transmission company, to a subsidiary of the holding company run by U.S. financier Warren Buffett.
Card said the board will consider all options, including a special dividend, but the priority is to build a strong engineering and construction firm and take advantage of the industry's consolidation, which he likened to the accounting business 20 years ago and the legal business today.
SNC-Lavalin hopes to double its size in five to seven years.
Board chairman Ian Bourne said building a successful and sustainable company is in shareholders' long-term interests.
"While there may be some attractive or semi-attractive short-term solutions, unless you go for the right long-term solution ultimately you're not doing the shareholders a favour," he later told reporters.
Instead of selling to a large rival, Card said SNC-Lavalin has decided to grow its operations, particularly in oil and gas, mining and metallurgy and concession investments, which will protect the company's position as an major player in Quebec.
Acquisition targets could be large and small. Targeted regions include the Middle East or the United States, where it will partner with MidAmerican Transmission, a subsidiary of Berkshire Hathaway Energy, to develop engineering, procurement and construction opportunities.
"We're not just out there looking to do a transaction. We're specifically filling out the company to create this competitor that we talked about that no one else really wants to take on in the marketplace."
Meanwhile, Card said he hopes a resolution will be reached with authorities this year concerning fines to be paid for the company's past actions.
"We intend to be accountable for our actions and we'll be supportive of a fair arrangement that may come out of it," he said, declining to put an estimate on a possible payout.
The engineering and construction company said it now expects earnings per share for the year to be in the range of $2.80 to $3.05, up from earlier guidance of $2.25 to $2.50 per share.
The increased guidance is due to an accounting requirement related to AltaLink and did not take into account the eventual gain on the sale.
It also came as SNC reported a first-quarter profit of $94.7 million or 62 cents per diluted share for the quarter ended March 31, up from a profit of $53.6 million or 35 cents per share a year ago. Adjusted EPS was 45 cents per share, in line with analyst forecasts.
Its core engineering and construction business earned $30.8 million or 20 cents per share, up from $18.6 million a year ago and above the 15 cents per share forecast by analysts. Excluding a net $35.3-million reversal of writedowns in Libya, the segment lost four cents per share. A $47 million reversal was partially offset by a risk provision covering SNC's cash held in Libya.
Card said SNC-Lavalin has no activities in Libya because it's difficult to find people to negotiate with and it has no guarantees that this cash could remain at its disposal.
"It's a country that needs our help but they're really not organized to receive it at this point," he later told analysts, noting that the company's have withdrawn from the Mideast country for security reasons.
He said reversals of writedowns are possible for other projects, including in Algeria.
Revenues for quarter totalled $1.7 billion, down 9.5 per cent from $1.9 billion in the first quarter of 2013. Administrative costs were cut 9.8 per cent to their lowest level in about two years.
Meanwhile, the company's infrastructure concession investments business earned $63.8 million, up from $35 million a year ago, boosted by a larger dividend from its investment in Ontario's Highway 407 and increased profits from AltaLink.
While it assesses whether to do anything with Highway 407, Card said SNC-Lavalin will continue to look at new investment opportunities that can deliver strong long-term returns and work for its engineering business.
Leon Aghazarian of National Bank Financial said the core engineering and construction results were disappointing despite the strength of the concessions business.
But Maxim Sytchev of Dundee Securities said the results demonstrated that SNC-Lavalin was "progressing in the right direction."
However, the analyst said a "shareholder friendly return of capital is necessary" from the AltaLink sale.
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