SNC-Lavalin withdraws 2019 forecast, plans to sell resources unit

(Reuters) - Struggling construction and engineering firm SNC-Lavalin Group Inc SNC.TO on Monday withdrew its forecast for 2019, citing significantly lower results as it considers options for its resources unit and exits fixed-price contracts.

FILE PHOTO: The SNC Lavalin logo is pictured outside a company building in Montreal, Quebec, Canada, May 5, 2019. REUTERS/Dario Ayala

SNC’s shares, which have fallen more than 44% in 2019, fell nearly 8% in morning trade.

Montreal-based SNC has been facing a trial in Canada over fraud and corruption charges related to allegations that former executives paid bribes to win contracts in Libya under Muammar Gaddafi’s regime, which fell in 2011. The company’s unsuccessful attempts to reach a settlement led to a political scandal engulfing Prime Minister Justin Trudeau.

A little over a month ago, SNC had announced a strategic review and appointed Chief Operating Officer Ian Edwards as its interim boss.

SNC, which in February forecast 2019 earnings of C$3 to C$3.20 per share, said it would reorganize its resources and infrastructure construction segments into a separate business following continued poor performance of the units.

The reorganization will allow the company to focus on its high-performing and growth areas, which will now be reported under SNCL Engineering Services, the company said.

SNC said it would also explore options, including a sale, for its resources segment, particularly its oil & gas business, and exit lump sum, turnkey contracts.

“Lump-sum, turnkey projects have been the root cause of the company’s performance issues,” Edwards said in a statement, adding that he expects to see a material improvement in the predictability of SNC’s results once the contacts are exited.

SNC, which said in May it would exit 15 countries, now expects to post a second-quarter adjusted core loss between C$150 million ($115 million) and C$175 million in its main engineering and construction business.

A surprise loss in the unit in the first quarter had sent its shares to a decade low.

Caisse De Depot Et Placement Du Quebec, SNC’s largest shareholder with a 19.9% stake, said on Monday the deterioration of SNC’s performance was a “cause of growing concern”, with the situation requiring “decisive and timely action” by the board.

SNC also said it would take C$1.9 billion pretax charges related to goodwill impairment and intangible assets in its oil and gas business.

Desjardins analyst Benoit Poirier said he was skeptical about the value a potential divestiture of the oil and gas unit could unlock given the division’s disappointing performance.

“Overall, we believe the negatives more than offset the positives announced this morning.”

Reporting by Debroop Roy and Arathy S Nair in Bengaluru; Editing by Maju Samuel