SNC-Lavalin Cuts Outlook as Africa Projects Spur Loss
SNC-Lavalin Group Inc. (SNC), Canada’s largest engineering company, cut its annual profit forecast as it posted a surprise quarterly loss, hurt by fixed-price projects in North Africa. The shares fell the most since March.
Net income for 2013 will be C$220 million ($212 million) to C$235 million, the Montreal-based company said today in a statement. Earlier this year, SNC projected earnings would rise 10 percent to 15 percent from 2012’s C$309.1 million, implying profit of C$340 million to C$355 million.
SNC cited losses in the second quarter in its oil and gas division and its infrastructure and environment unit. Chief Executive Officer Robert Card, who is working to reshape the company after a corruption scandal involving his predecessor, said in the statement that 2013 is “proving to be a very challenging year.”
SNC fell 6.1 percent to C$40.38 at the close in Toronto, its biggest one-day slide since March 8. The shares are little changed this year, compared with the 1.4 percent gain of Canada’s benchmark Standard & Poor’s/TSX Composite Index. (SPTSX)
The second-quarter loss of C$37.7 million, or 25 cents a share, compared with net income of C$31.7 million, or 21 cents, a year earlier, SNC said today.
Card, who told shareholders in May that SNC would consider paring some it its infrastructure concession investments, may need to start selling assets soon, said Maxim Sytchev, an analyst at Dundee Securities in Toronto.
“The worse engineering and construction results are, the greater pressure there is to get transactional on company’s concessions portfolio,” Sytchev, who has a buy rating on SNC, said today in a note to clients.
SNC booked a loss of C$70.1 million in the oil and gas unit relating to a claim received alleging late penalties under a fixed-price project in Algeria.
SNC said in the statement that it “continues its discussions with the client and it intends to deploy all necessary actions to resolve these penalties, including taking further actions to recover the additional costs incurred.”
The company blamed the loss in its infrastructure and environment unit on a C$47 million “risk provision” it booked after an unexpected attempt to draw this amount under letters of credit, covering advance payment and performance. The letter of credit had been previously issued in favor of a client on a Libyan project that has been halted since 2011.
SNC “is not currently aware of any claim relating to the advance payment or performance” and the company “is seeking to clarify the situation surrounding this attempt to draw on the letters of credit and will use all legal and other means available to prevent any draws.”
Leslie Quinton, a spokeswoman for SNC, declined in an e-mail message to identify the project in question.
SNC’s Libyan projects at the time of the rebellion against dictator Muammar Qaddafi included an airport, a prison and a water line network known as the Great Man-Made River, according to the company’s 2010 annual report. The report described the prison, the Guryan Judicial City, as “the country’s first detention center to comply with international human rights standards.”
Cash and cash equivalents in thee quarter dropped to C$800 million as at June 30 from C$1.2 billion at the end of 2012. The decrease is “mainly due to the timing of working capital requirements to complete some Canadian projects,” the company said.
SNC said it “expects that a number of current projects will continue to temporarily require significant working capital and that additional liquidity may be required to support the implementation of its strategic plan.”
As a result, the company said it’s “considering various possibilities to access additional sources of liquidity and intends to manage its working capital more efficiently.” It didn’t elaborate.
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