SNC-Lavalin to exit 15 countries; main unit posts surprise loss

(Reuters) – SNC-Lavalin Group Inc is exiting operations in 15 countries, the Canadian company said on Thursday, after posting a surprise quarterly loss in its engineering and construction unit that pushed its shares to a decade low.

The company, which is already under pressure from trade challenges in Saudi Arabia and corruption charges at home, said the decision will help it focus on its core markets such as Canada, the United States, the UK, the Middle East, Hong Kong and Australia.

SNC also said a previously announced deal to sell a 10.01 percent stake in 407 International Inc for C$3.25 billion may fall through as one of the shareholders of the Ontario toll operator has indicated it may oppose.

If the deal is blocked, the company will have to pay a breakup fee of 2.5 percent of the deal value, and at least one analyst cautioned that this could push up the company’s costs for the year.

SNC-Lavalin, which reported negative cash flow for the first quarter, also said it was targeting cost-cuts of over C$100 million ($74 million) for the rest of 2019 and C$250 million annually amid a restructuring of its operations.

The company’s total revenue fell almost 3 percent to C$2.36 billion in the reported quarter.

“We believe that there’s at least C$5 to C$6 billion worth of contracts to date that we are privy to that we lost out on because of our competitors using (corruption charges) as a negative,” Chief Executive Officer Neil Bruce said at a generally quiet meeting of shareholders.

SNC is facing fraud and corruption charges related to allegations that former executives paid bribes to win contracts in Libya under Muammar Gaddafi’s regime.

Still, SNC maintained its target of full-year 2019 profit and said it expects to return to positive cash flow by the second half of the year.

“We remain confident that we can deliver our 2019 outlook, despite being disappointed with our first-quarter performance,” Bruce said.

Analysts were, however, skeptical.

In a note titled “Yikes!”, Raymond James analysts said the reaffirmation implied a big second-half turnaround that seemed “unrealistic”.

For the first quarter, the company reported an adjusted loss of 8 Canadian cents per share in its engineering and construction unit, compared to analysts’ average estimates of a profit of 33 Canadian cents, according to IBES data from Refinitiv.

Adjusted net income attributable to shareholders fell to C$36.9 million in the three months to March 31, from C$136 million a year earlier.

The company’s shares, which closed down 13 percent at C$28.97, were among the biggest drags on the Toronto Stock Exchange 300 composite index on Thursday.

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