SNC warns of overruns

Photo: The Canadian Press

SNC-Lavalin Group Inc. warns its 2019 results could be significantly lower than anticipated, largely due to cost overruns at some construction projects and says it will undergo a reorganization to exit or section off its poorer performing segments.

The Montreal-based engineering giant is withdrawing all previous financial guidance for 2019, due largely to project cost adjustments in its resources and infrastructure segments.

It will also book an additional $1.9 billion in impairment charges related to its oil and gas division.

The company also says it will undergo a reorganization of those financially troubled parts of the business, as part of the company's broader efforts to de-risk and generate more consistent earnings.

The Montreal-based engineering giant announced that it is exiting lump-sum turnkey contracting and will reorganize the company's resources segments and infrastructure construction segments into a separate business line following "continued poor performance."

SNC-Lavalin added that it is "exploring all options" for its resources segment, particularly its oil and gas business, including a sale or conversion to a services-based business.

It now expects second-quarter adjusted earnings before interest, tax, depreciation and amortization from its engineering and construction unit to be in the range of negative $150 million to negative $175 million.

Monday's announcement comes ahead of the company's release of its second-quarter results on Aug. 1.

The company's interim chief executive officer Ian L. Edwards said that lump-sum turnkey projects have been the "root cause" of SNC-Lavalin's performance issues, and it is "tackling it at the source."

SNC-Lavalin added 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 métropolitain.

This reorganization comes after the beleaguered company announced 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. SNC-Lavalin has been caught in 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.