SNC-Lavalin Group Inc. is forecasting a small uptick in sales for the coming year as it tries to recast its future as a more resilient engineering company since striking a plea deal with federal prosecutors in December.
The Montreal-based company said on Friday it expects gross revenue from its main engineering services businesses not including capital assets to grow by a low single-digit percentage in 2020. Earnings before interest taxes, depreciation and amortization as a percentage of gross revenue should be between 10 per cent and 12 per cent for those businesses, SNC said.
SNC shares surged 10.95 per cent on the Toronto Stock Exchange, closing at $31.20.
“We’ve got to a point where now we’ve defined what the future of [SNC] is,” chief executive Ian Edwards said in a conference call on Friday, adding that a new strategic direction is in place and legal matters resolved. “It’s really about execution now.”
Under the deal with prosecutors unveiled in December, SNC’s construction division pleaded guilty to a single charge of fraud related to past activities in Libya. It will pay a $280-million fine and was ordered to hire an independent consulting firm to monitor and report on its compliance and ethics programs for three years. A more potentially damaging charge of bribery under the Corruption of Foreign Public Officials Act was dropped.
On Friday, SNC reported a fourth-quarter loss of $293-million, or $1.67 a share, on revenue of $2.4-billion as the company made an accounting provision for the criminal penalty. During the same quarter last year, SNC tallied a loss of $1.6-billion, or $9.11 a share.
With the legal issues resolved and a new operational strategy adopted, SNC has dissolved a special board committee set up in December, 2018, that examined the company’s options in the face of adversity. Now, it is up to Mr. Edwards and his team to carry out a plan to reshape SNC after setbacks that hit its finances and shredded its market capitalization last year.
The biggest change is that SNC will get out of fixed-price construction work, or what it calls lump-sum turnkey contracts, to focus on more fee-for-service consulting and nuclear work, which have less risk and higher profit margins. The company is completing its lump-sum infrastructure and resource projects now worth $3-billion, and said it will not bid on such ventures in the future, including light rail lines in Toronto and Montreal.
SNC-Lavalin is also weighing the alternatives for its resources business, which could include selling all or parts of it. The company is shutting down its Valerus oil and gas production and processing facilities in Houston and took a $72-million charge for that in its latest quarter.
“The most important thing we’re trying to get to is [that the resource business] has to be approaching the same level of profitability as the rest of our [continuing] engineering services business,” said Sylvain Girard, SNC’s outgoing chief financial officer.
Achieving consistent profitability is key for SNC as it tries to build momentum. By several measures, its financial situation is improving.
Operating cash flow came in at $312-million for the three months ended Dec. 31, the highest quarterly sum since the fourth quarter of 2017. The company managed to reduce its leverage, and now has a debt-to-earnings ratio of 2.1 times. Adjusted earnings a share of $0.45 on SNC’s core business was also higher than the $0.42 analysts had expected.
“[The company’s situation] is becoming a little bit more predictable, and that’s good,” AltaCorp Capital Inc. analyst Chris Murray said in an interview. “Most of the major issues where you would question the long-term viability of the company, I think they’re past those."
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