SNC-Lavalin to quit problematic turnkey contracting

Major Canadian engineering group SNC-Lavalin (SNCL) will quit lump-sum turnkey contracting and reorganise its resources (oil, gas, mining and metallurgy) and infrastructure construction segments into a separate business following their continued bad financial performance.

It said it expects "significantly lower" results in 2019 than previously forecast, thanks largely to cost hikes on turnkey projects, and will take a non-cash charge of around C$1.9bn relating to its oil and gas business, Kentz. 

Hit by a diplomatic standoff between Canada and Saudi Arabia, SNCL said it might sell off its resources business, and was considering "all options".

"Lump-sum, turnkey projects have been the root cause of the company’s performance issues," said Ian L. Edwards, interim president and chief executive, on 22 July.

"By exiting such contracting and splitting it off from what is otherwise a healthy and robust business, we are tackling the problem at the source, and as a result we expect to see a material improvement in the predictability and clarity of our results."

SNCL wants to focus on higher growth areas, including engineering, design and project management (EDPM), which will be reported under SNCL Engineering Services.

The company will finish its current turnkey projects, including the Réseau express métropolitain, a light rail scheme in Montreal, under the business line SNCL Projects, on which it will report separately to the market.

Higher costs in turnkey projects will hit earnings in the second quarter of this year, with results to be released on 1 August.

The company said it would be "aggressively pursuing its project claims".

All of SNCL’s previous financial guidance for 2019 has been withdrawn.

The company said its EDPM and nuclear segments were strong.

Image: Through its company Atkins, SNC-Lavalin was appointed lead designer on the Riyadh Metro (Courtesy of SNC-Lavalin)

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