SNC-Lavalin Group Inc. reported an unexpected first-quarter loss amid persistent legal and political pressure, sending its shares tumbling to their lowest level since 2009.
The Montreal company’s engineering and construction unit lost $14.9-million on an adjusted basis, or 8 cents a share. Analysts had expected the division to earn more than 30 cents per share. The company announced further measures to cut costs, pay off debt and step away from ventures with low potential. It said it would exit 15 countries and focus more on core markets such as the United States, Canada and Australia. The stock fell 13.1 per cent on the TSX Thursday.
The shadow of ongoing legal trouble, which chief executive officer Neil Bruce says has cost the company $5-billion to $6-billion in potential contracts, cast a pall over the company’s annual meeting.
In his speech to shareholders, Mr. Bruce said the company “has turned the page” on attempts to gain a deferred prosecution agreement (DPA) from the federal Public Prosecution Service that would settle fraud and bribery charges related to its dealings with the regime of Libyan dictator Moammar Gadhafi from 2001 to 2011. Instead, he said, the company will focus on winning at trial.
But in subsequent discussions with shareholders, reporters and investment analysts, Mr. Bruce maintained that a DPA, which would resolve the charges in return for fines and other penalties, is still the best method to get justice and allow the company to move on from the scandal that has cost it dearly.
“Historically, we believe there’s five-to-six-billion-dollars worth of contracts to date that we are pretty sure we lost because our competitors are using that as a negative,” Mr. Bruce said. “Just the length of time this is taking is part of the reason we wanted a remediation agreement. To fairly and responsibly be accountable and move on.”
Mr. Bruce said the prosecution, which is at the preliminary hearing stage, could take two or three more years. “The court process is pretty slow,” he said.
The decision of federal prosecutors to decline to negotiate a settlement with SNC precipitated a political crisis in Ottawa that saw two cabinet ministers, a top aide and a top bureaucrat resign.
The company’s first-quarter results unveiled hours before the annual shareholder meeting continued a downward trend from 2018. SNC suffered a net loss of $17.3-million on revenue of $2.36-billion. That compared with first-quarter profit a year ago of $78.1-million on $2.43-billion in revenue.
The company announced it will cut costs by $250-million annually in part by scaling down projects in 15 countries with pessimistic growth outlooks.
The company will also reduce risk by taking on safer mining projects that don’t impose lump-sum payments for work. The company lost $346-million on a mining project in Chile in 2018. Concern over that project dominated the annual meeting as much as the criminal prosecution did.
Mr. Bruce said the diplomatic row between Canada and Saudi Arabia is also hitting the company’s bottom line. “We have seen a number of opportunities we would expect to have a reasonable chance of success fall away,” Mr. Bruce said.
The CEO faced questions about company morale and his own future amid reports in Quebec that employees are leaving the company and that he might follow.
Mr. Bruce said he doesn’t have a plan to leave. As for other workers, he said “it’s been incredibly hard on employees and ultimately from a management executive perspective, we’ll deal with that. I think the past few months from an employee perspective have been incredibly unfair.”
During SNC-Lavalin’s sombre meeting at Montreal’s convention centre, one shareholder stepped to the microphone to point out a glimmer of good news. On his first visit to the company’s meeting in 2013, the riot police were outside amid protests over Quebec’s growing corruption scandal. SNC-Lavalin and dozens of other Quebec companies were accused of making illegal contributions and paying kickbacks to public officials. “I got booed for coming in here” in 2013, the shareholder said. “I didn’t get booed today. So you’ve made progress on that front.”
Later, Mr. Bruce said he saw that year in a different way: “Since 2013, the company had made a commitment and is still fully committed to being open and transparent to address every single issue of the past,” he said.
A judge will decide May 29 if SNC-Lavalin should proceed to trial on the corporate fraud and bribery charges.