BUSINESS
07/22/2019 11:19 EDT | Updated 07/22/2019 12:53 EDT

SNC-Lavalin Stock Price Tanks After Company Issues Warning

The Quebec-based engineering giant has announced a reorganization.

Dario Ayala / Reuters
A pedestrian walks past the SNC-Lavalin logo outside the company headquarters building in Montreal, May 5.

MONTREAL — SNC-Lavalin Group Inc. warns its 2019 results could be significantly lower than anticipated, largely due to cost overruns at some construction projects and says it will undergo a reorganization to exit or section off its poorer performing segments.

The Montreal-based engineering giant is withdrawing all previous financial guidance for 2019, due largely to project cost adjustments in its resources and infrastructure segments.

It will also book an additional $1.9 billion in impairment charges related to its oil and gas division.

Watch: A timeline of the SNC-Lavalin affair. Story continues below.

 

SNC shares fell seven per cent to $23.73 in morning trading on the Toronto Stock Exchange.

The company says it will undergo a reorganization of those financially troubled parts of the business, as part of the company’s broader efforts to de-risk and generate more consistent earnings.

The Montreal-based engineering giant announced that it is exiting lump-sum turnkey contracting and will reorganize the company’s resources segments and infrastructure construction segments into a separate business line following “continued poor performance.”

SNC-Lavalin added that it is “exploring all options” for its resources segment, particularly its oil and gas business, including a sale or conversion to a services-based business.

It now expects second-quarter adjusted earnings before interest, tax, depreciation and amortization from its engineering and construction unit to be in the range of negative $150 million to negative $175 million.

Monday’s announcement comes ahead of the company’s release of its second-quarter results on Aug. 1.

The company’s interim chief executive officer Ian L. Edwards said that lump-sum turnkey projects have been the “root cause” of SNC-Lavalin’s performance issues, and it is “tackling it at the source.”

SNC-Lavalin added that the reorganization will allow it to focus on its high-performing and growth areas of the business, which will be reported under SNCL Engineering Services.

It will fulfil the contractual obligations of its current lump-sum turnkey projects, which will be reorganized as SNCL Projects, including Montreal’s Reseau express métropolitain.

Soaring costs and a political scandal

This reorganization comes after the beleaguered company announced further streamlining last month, in an effort to keep a lid on costs.

The company appointed a senior executive to oversee big-ticket contracts and also said it would fold its hydro, transmission and renewables operations into its infrastructure unit, while its technology ventures would be integrated into various units.

SNC-Lavalin also faces a trial over accusations of fraud and corruption in relation to its business dealings in Libya. The company has been caught in a political controversy for months after failing to secure a deferred prosecution agreement, a kind of plea deal that would have seen the firm agree to pay a fine rather than face prosecution.