As it seeks to put a bribery scandal behind it, SNC-Lavalin Group Inc. is setting a new plan to concentrate on the resources sector and to sell or reduce its stakes in infrastructure concessions.
But the past is still catching up with the Montreal-based engineering firm, which reported a first-quarter profit of $53.6-million, down 19 per cent from a year ago. Cost provisions totalling $49-million on two projects depressed SNC’s results.
One $32-million charge relates to a “major infrastructure project,” likely the McGill University Health Center’s new super-hospital, a $1.3-billion contract for which former president Pierre Duhaime stands accused of fraud, conspiracy and forgery, alongside five alleged accomplices. Asked if this was the culprit for the charge, SNC’s new president and chief executive officer, Robert Card, said that “you can certainly conclude it must be a major project in Montreal.”
SNC intends to “take steps” to recover some of these additional costs, “which were not contemplated by the relevant project agreement,” although Mr. Card stopped short of detailing how.
The second charge of $17-million follows the cancellation of a “major mining contract.” This charge may relate to Cobre Panama, a vast copper mining project that was driven by Inmet Mining Corp. until it was bought by First Quantum in a hostile takeover. When First Quantum secured control of Inmet, it severed Cobre Panama’s contract with SNC to slash costs with the use of in-house expertise.
The cancellation illustrates just how difficult it will be for SNC to build a bigger business in resources, in mining as well as in oil and gas. Both sectors are facing a pullback as falling commodity prices have led companies to defer and even cancel projects.
SNC hopes to land more resources contracts in North and South America. The engineering firm has never been a big player in the United States, where it derived only 4 per cent of its 2012 revenue. Mr. Card has made no secret that he hopes SNC will land more contracts south of the border.
This could mitigate the potential fallout for SNC over the collusion and the corruption in the Quebec construction industry. SNC’s new chairman, Ian Bourne, said the Quebec Securities Commission is currently reviewing whether SNC will be licensed to bid on public work contracts in the province after one of its vice-presidents admitted to illegal political donations in front of the Charbonneau inquiry.
Another aspect of SNC’s five-year strategic plan, which the company elaborated with outside consultants since Mr. Card’s arrival last October, is the exit strategy for the firm’s infrastructure concession investments – ICI in the company lingo. Moving forward, SNC doesn’t plan to hold on forever to its mature concessions.
“While we are committed to ICI in the long term, this does not require that we keep all assets,” Mr. Card said. SNC intends to shed some its smaller infrastructure concessions that “are no longer key.”
The company does not plan to outright sell its 16.8-per-cent position in the 407 toll road in Ontario or the Alberta electricity transmission company Altalink that it owns entirely. Mr. Card views both as core assets. However, SNC will consider reducing its stakes to unlock value through partnerships or other means “over the medium term.”
SNC’s new strategic plan and its first-quarter results failed to impress Bay Street, even if the company maintained a healthy backlog of work $10.2-billion at the end of March.