Senior executives with SNC-Lavalin Group Inc. saw their pay drop 18 per cent in 2018 as the company tries to move past a tumultuous year that plunged it further into legal turmoil and continues to damage its business.
Montreal-based SNC-Lavalin paid its top five executives about $14.6-million collectively last year, down from the $17.8-million the year before, filings released Tuesday show. Three of the five executives relinquished their bonuses as the engineering and construction company tallied a $1.3-billion net loss for the year, the filings show, including chief executive Neil Bruce.
“There were unexpected operational setbacks in 2018 that were disappointing,” SNC-Lavalin Chairman Kevin Lynch wrote in a letter to investors contained in the circular ahead of the May 2 shareholders’ meeting. “SNC-Lavalin’s annual results for 2018 were well below guidance as well as what we are capable of as a company. Both the board of directors and management are committed to do better in 2019, and to prove the potential and value of SNC-Lavalin to all stakeholders.”
SNC-Lavalin shares dropped the most in at least six years on Oct. 10 last year after the company said it wouldn’t be invited by federal prosecutors to negotiate a settlement on charges of bribery and fraud. The precise reasons why prosecutors declined to offer SNC such a settlement, called a deferred prosecution agreement (DPA), remain unknown to the public.
The decision has put SNC-Lavalin at the centre of a political controversy in Ottawa after The Globe and Mail reported on Feb. 7 that the Prime Minister’s Office put pressure on Jody Wilson-Raybould, the then-justice minister and attorney-general, to order a settlement for the company. On Monday, a Norton Rose Fulbright lawyer acting for SNC in a preliminary hearing on the criminal charges took the unusual step of warning the judge to ignore the intense commotion surrounding the case.
Mr. Bruce has said the continuing legal turmoil has already torn away an estimated $5-billion in lost business as clients shy away from the company. He has said no other country would leave a home-grown multinational such as SNC “under this cloud” for seven years. SNC first disclosed the existence of unexplained payments in 2012.
Mr. Bruce earned $5.4-million in 2018, the filings show. That compares with total remuneration in 2017 of $6.3-million.
In addition to its legal trouble, SNC is also dealing with the fallout from Canada’s bruised relationship with Saudi Arabia. The company has said the cooling of diplomatic relations between the two countries means its future business in the kingdom is now uncertain. That contributed to a $1.24-billion write-down of its oil and gas business in January.
Investor confidence was also rattled by problems, first disclosed in January this year, related to a mining contract with Chilean miner Codelco. The government-owned copper producer last week terminated the US$260-million contract with SNC, citing a “serious breach of contractual milestones” by the Canadian company.
SNC acknowledged in filings Tuesday that the company “did not maintain effective controls” in reporting the costs and revenues related to the Codelco work. “Project management did not appropriately consider the terms and conditions of the project contract and their impact on the overall project forecast,” SNC said, adding the process deficiencies weren’t detected on a timely basis.
SNC has decamped from the Codelco site and begun analyzing its options for recovering what it can financially from the project. It has warned it could lose as much as $346-million on the contract, awarded in 2016.
Mr. Bruce and his management team have tried to counter the cocktail of recent problems in various ways, including by reassessing capital allocation and slashing the dividend. The goal is to protect the company’s investment grade rating, which is currently under pressure, Mr. Bruce told The Globe in an interview March 20.
SNC-Lavalin had debt of about $3.7-billion at the end of 2018.