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SNC-Lavalin sees profit dip, warns of lower year-end results

SNC Lavalin's AGM in Toronto on May 3 2012.

Fred Lum/Fred Lum/The Globe and Mail

SNC-Lavalin Group Inc., stung by a bribery scandal that cost its CEO his job, reported sharply lower second-quarter profits and warned investors it expects lower year-end results, blaming increasing costs at major projects in Russia and Tunisia.

The Montreal-based engineering and construction giant said Friday it now expects profits for 2012 to fall short of 2011, citing two major projects it now believes will run it an extra $50-million.

One, a power project in Tunisia, hit cost overruns after SNC-Lavalin changed its project manager and other staff to oversee the work, said Gilles Laramée, the company's executive vice-president and chief financial officer, in a conference call with analysts.

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Many of the allegations swirling around the company have centred on former vice-president Riadh Ben Aissa, who was in charge of SNC's construction division and based in Tunisia.

Mr. Ben Aissa was arrested in April in Switzerland, in what authorities said was an investigation into allegations of corruption, fraud and money laundering. He has denied any wrongdoing.

The other troubled project is in Russia, in SNC's hydrocarbons and chemical division. The company blamed increasing costs on a move to shift work it had planned to do in Russia to London, England, because of concerns about quality.

SNC-Lavalin is not alone in citing increasing costs as a problem. With global growth slowing, several major resource companies have recently signalled plans to contain rising costs.

"We're currently observing that the overall economic slowdown worldwide is creating a gradual reduction on bidding activity in certain segments of our company," said Ian Bourne, SNC's vice-chairman. He was appointed interim chief executive officer to replace Pierre Duhaime, who departed amid the scandals plaguing the company.

SNC said it made $32.5-million in the second quarter, down from $102.2-million in the same period last year.

It expects total profit for 2012 to be between $325-million and $340-million, down from $378.8-million in 2011.

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But it also said its second-quarter revenues were up 14.9 per cent to $1.9-billion, and noted that it has $1.2-billion in cash and cash equivalents.

Mr. Bourne, who is helping SNC-Lavalin to find a new CEO by the end of September, said the search is progressing despite the investigations into the company's activities.

He said that candidates are briefed with confidential information about the allegations: "To the extent that we can share some of that, we've been sharing it, and it has not been show stopper."

Mr. Bourne said the company has made reforms, including a "reinforced" code of ethics. But he cautioned that it could yet face charges or sanctions as investigations continue.

"We continue to maintain that justice must be served and if there are those that are found guilty of wrongdoing, they should be dealt with accordingly," he added.

Earlier this year, SNC-Lavalin said an internal investigation had uncovered a missing $56-million in payments to unknown agents by its construction division.

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The company said it is co-operating with a continuing police investigation.

In addition to the arrest of Mr. Ben Aissa, two other former Toronto-area SNC-Lavalin executives were charged earlier this year with corruption in connection with bidding on a contract in Bangladesh.

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Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. From 2010 to 2016, he was the law reporter in Report on Business, covering Bay Street law firms and white-collar crime. He won an honourable mention at the National Magazine Awards for investigative journalism in 2010. More

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