Political leaders and financial analysts are expressing concern that SNC-Lavalin Group Inc. will see an employee exodus in the months ahead that will weaken its operational capability at a critical time.
“The key to me is really talent retention,” Quebec Economy Minister Pierre Fitzgibbon told reporters Wednesday when asked for the government’s view on SNC’s predicament. “The company needs to retain its talent.”
Shares in Montreal-based SNC-Lavalin lost ground Wednesday for a third consecutive trading session, closing down 1.26 per cent at $21.24, after the company said Monday that it now expects financial results this year to be “significantly lower” than previously expected. The company said it would also take a further impairment charge of $1.9-billion on its oil and gas business and stop bidding on all lump-sum turnkey contracts as it moves to do more consulting services work.
Credit ratings agency DBRS Ltd. on Wednesday downgraded SNC-Lavalin’s issuer rating and senior debentures rating to triple-B (low) from triple-B and changed the trend to “negative” from “stable.” It cited considerably weaker-than-expected results for the second quarter, which it estimates will reduce annual earnings and slow down “the recovery of the company’s key financial metrics.”
SNC-Lavalin’s announcement Monday adds to its continuing legal problems, which could persist in the coming months as it faces a trial on charges of bribery and fraud related to past business dealings in Libya.
The announcement also prompted a rare public rebuke by SNC-Lavalin investor Caisse de dépôt et placement du Québec, which on Monday called out “the current unacceptable trend of the business” and urged “decisive and timely” action from the SNC-Lavalin board. The Caisse is SNC-Lavalin’s biggest investor with a roughly 20-per-cent stake.
Mr. Fitzgibbon said he phoned newly installed interim chief executive Ian Edwards on Monday to get a briefing on the situation and inquired specifically about whether the firm is losing workers in significant numbers. He said the CEO told him the company is doing “everything they can to keep people” and that the situation “has been manageable so far.”
Equity analysts have warned for weeks that SNC-Lavalin risks losing workers as its challenges pile up. That view has not changed and in fact, the risk has possibly increased as the new CEO makes deeper changes to the way the company does business.
“We believe it will be difficult to attract new engineers to the firm, let alone retain key talent amid this record-tight labour market,” analyst Frederic Bastien of Raymond James said in a recent note to clients. “The longer the legal uncertainty, the more problematic the situation for SNC. To wit, we’re hearing anecdotal evidence of clients delaying existing contracts, construction partners no longer pursuing joint ventures with SNC, and more employees packing it in.”
When SNC-Lavalin was dealing with the legal and reputational fallout of a then-ballooning ethics scandal in 2012, it paid out about $15-million in retention bonuses to keep its key employees.
It is unclear whether similar bonuses are being paid now but it is not unusual for companies in turmoil to offer short-term compensatory measures in order to boost stability, particularly in an engineering company that counts people as its main asset. SNC-Lavalin spokeswoman Daniela Pizzuto declined to comment on specific measures being taken to keep staff.
“We run a project-based business and we hire talent based on the resource needs of our ongoing projects,” Ms. Pizzuto said in response to questions Wednesday. “And we adjust once completed.”
SNC-Lavalin currently employs about 50,000 people worldwide, according to information on its website. Its main careers webpage showed 1,378 job openings as of Wednesday afternoon.
Premier François Legault’s Coalition Avenir Quebec government has vowed to try to protect SNC-Lavalin as a strategic asset to the province in the event of a hostile takeover, a possibility that increases as its stock price continues to drop and the company is more exposed. It has signalled it would work in concert with the Caisse in that effort.
That pledge holds but the government doesn’t need to provide any financial help to the company at this stage because SNC doesn’t need it, Mr. Fitzgibbon said Wednesday. He noted SNC-Lavalin is set to receive the proceeds from the sale of a stake in Ontario’s Highway 407 toll road, expected to bring in after-tax proceeds of about $2.6-billion.
“If there were an action required to save the company from a hostile offer, we could intervene. But right now, we’re more an observer,” the minister said. “I’m optimistic. But it is a difficult period for them to go through."