SNC-Lavalin foresees difficult year for core engineering business

MONTREAL - Embattled engineering and construction firm SNC-Lavalin, which faces criminal fraud and corruption charges, warned Thursday of another difficult year for its core operations.

The firm said it is targeting adjusted earnings per share from its core business to be between $1.30 and $1.60 per share — well below the $2.22 per share forecast by analysts. On Thursday, the company's shares fell to a two-year low on the Toronto Stock Exchange.

“While market conditions remain challenging in 2015, the company remains optimistic about its long-term performance," CEO Robert Card said during a conference call.

Despite the challenges, he said revenues helped by new oil and gas contracts in the Middle East could increase by 22 per cent to surpass $10 billion this year. Card said he also hopes to sell the company's investment in Toronto's Highway 407 toll road this year.

SNC-Lavalin, which was charged by the RCMP last month for its dealings in Libya, said it wished criminal charges against the company could have been avoided, adding that they should've been levelled against former employees rather than the company.

The company said suspension or debarment from bidding on government contracts in Canada or elsewhere that could accompany a conviction would have "a material adverse effect on the company’s business, financial condition and liquidity and the market prices of the company’s publicly traded securities."

The earnings outlook was viewed by analysts as negative, but Maxim Sytchev of Dundee Capital Markets cautioned that the market is ascribing very little value to the company's core engineering and construction business, a position he described as exaggerated.

"Expectations are low for this name, with the market concerned about debarment," he wrote in a report. "(But) when $12.3 billion of (order) backlog is being given $1.1 billion in equity valuation, we believe there is a disconnect."

About 40 per cent of the backlog is tied to the oil and gas sector. More than 40 per cent of prospective revenues come from contracts within Canada, compared to 60 per cent that was realized in 2014.

The projected earnings, though below expectations, are forecast to come mainly from oil and gas specialist Kentz, acquired last August, and from SNC-Lavalin's power division. The projection excludes restructuring charges and acquisition-related costs.

On the Toronto Stock Exchange, the company's shares sank to $36.60 before recovering slightly to close at $36.97, down 6.57 per cent. That was still the lowest price since October 2012.

SNC-Lavalin reported fourth-quarter results that included a large gain from the sale of AltaLink to a subsidiary of Warren Buffett's Berkshire Hathaway group.

Its net profit surged to $1.15 billion in the fourth quarter even though losses from its core engineering and construction operations grew to $255.6 million from $31 million a year ago.

The fourth-quarter results were boosted $1.32 billion from the sale of AltaLink as well as $16.6 million on the sale of other infrastructure investments.

The firm increased its quarterly dividend by a penny to 25 cents per share.

Revenue for the quarter totalled $2.82 billion, up from $2.12 billion.

For the full year, it earned $1.33 billion or $8.74 per diluted share, compared with $35.77 million or 24 cents per share in 2013. Adjusted profits increased to $373.7 million from $111.7 million while revenues grew four per cent to $8.2 billion.