SNC-Lavalin Group Inc. is eyeing an asset selloff as the company continues to pivot away from cash-draining fixed-price construction contracts and sharpen its game as a pure-play engineering firm.
SNC will undertake a 鈥渟trategic review to optimize our portfolio of businesses,鈥� CEO Ian Edwards told analysts on an earnings call Friday.
He highlighted Linxon, a joint venture with Hitachi Energy that focuses on electrical substations.
鈥淭he first thing we need to do with the Linxon business is get it back to profitability, which we believe we can. And the second is to review all options. I mean, nothing鈥檚 off the table,鈥� Edwards said.
He pointed to the company鈥檚 capital segment, whose holdings include a seven per cent stake in the 407 toll road near Toronto.
As it disposes of its fixed-price contracts and improves free cash flow, 鈥減erhaps the importance of the 407 becomes less,鈥� Edwards said.
鈥淚 wouldn鈥檛 say it鈥檚 in the review immediately, but there will be a time when it鈥檚 in the review.鈥�
The engineering firm reported a $54.4-million loss from continuing operations for the quarter ended Dec. 31, compared with a loss of $15.3 million in the last three months of 2021.
Edwards said the company鈥檚 challenges with so-called lump-sum turnkey (LSTK) projects were largely behind it.
Under his stewardship since June 2019, SNC-Lavalin has shifted its focus to engineering and consulting services and away lump-sum projects 鈥� fixed-price contracts under which companies must pay for any cost overruns themselves. It also sold off its flagging oil and gas businesses by August 2021.
However, the company faced tough questions during the call with financial analysts whether that cash drain was truly in the rear-view mirror, with one pointing to the interminable Eglinton light rail line in Toronto that has been under construction since 2011.
鈥淵ou鈥檝e been 90, 95 per cent complete 鈥� for three or four quarters now and suffered writedowns along the way. So what鈥檚 changed such that we鈥檙e going to see that backlog actually go to zero and this thing finally be put to bed?鈥� Canaccord Genuity analyst Yuri Lynk asked.
Edwards said that with construction work virtually done, the associated problems 鈥� supply chain disruption, cost overruns due to inflation, labour disruption 鈥� are also in the past. Remaining work falls under 鈥減rofessional services鈥� 鈥� systems testing, driver training, safety permits, regulatory approvals 鈥� and should involve fewer snarls, he said.
The Eglinton Crosstown LRT, Ottawa鈥檚 Trillium Line and the greater Montreal area鈥檚 REM light-rail network extension 鈥� work on the latter is three-quarters鈥� complete, SNC said 鈥� are the three major fixed-price contracts that bore the bulk of the company鈥檚 $150.2-million loss in adjusted earnings before interest and taxes in its LSTK segment last quarter.
The company also faces fresh accusations from the union representing its engineers, scientists and technicians, which says the firm was surveilling employee emails.
The Society of Professional Engineers and Associates says emails between union members at SNC subsidiary Candu Energy Inc. and union staff prompted an automatic 鈥渙ut of office鈥� reply from an SNC manager who had not been included in the correspondence.
鈥淚n other words, it appears that private emails between union members and SPEA staff were being automatically forwarded to (SNC) Labour Relations. This was only discovered because of the 鈥榦ut of office鈥� feature,鈥� the union stated in a filing to the Canada Industrial Relations Board.
The accusation comes as part of a pair of unfair labour practice complaints to the board, which are ongoing.
SNC-Lavalin told The Canadian Press it monitored worker emails between 2019 and early 2022 as part of an internal audit 鈥渇ocusing on the transfer of confidential company information and the removal of security identifiers relating to emails sent externally,鈥� spokesman Harold Fortin said in an emailed statement.
鈥淚t uncovered a number of non-conformances including the unauthorized disclosure of confidential and proprietary information,鈥� resulting in two Candu employees鈥� being placed on paid administrative leave in January, pending further auditing, he said.
Meanwhile, SNC鈥檚 engineering segment churned out sturdy numbers, boosting its backlog 24 per cent year from the year before to a quarterly record of $4.66 billion. The segment accounted for 65 per cent of the company鈥檚 $1.90-billion revenue. The total marked a drop from $1.94 billion in the same three months the year before.
Edwards said he sees potential in the massive funding injection from the U.S. government via the Infrastructure Investment and Jobs Act and the Inflation Reduction Act.
鈥淲e see a lot of it flowing through the transport side. We鈥檙e seeing some of it now flow through the energy transition side. And we鈥檙e also seeing quite a bit of it flow into what I would call water and environmental programs 鈥� not just water quality but flood defense, remediation, drainage.鈥�
He said SNC needs to expand its presence from 鈥渙nly a handful of states鈥� to establish beachheads across many more.
Edwards also noted renewed enthusiasm for nuclear energy in the wake of Russia鈥檚 invasion of Ukraine, which triggered a full-blown energy crisis last year.
鈥淭he resurgence of nuclear new-build power as a genuine green power and an alternative to other forms of green power is becoming a real realization to governments,鈥� he said, calling the shift 鈥渄ramatic.鈥�
He highlighted fresh possibilities for SNC, citing a design-build deal signed in January for a small modular reactor at Ontario鈥檚 Darlington nuclear plant.
鈥淐learly the industry is about to take off and launch into a pretty fabulous opportunity, particularly for SNC-Lavalin.鈥�
On an adjusted basis, SNC鈥檚 professional services and project management operations posted a loss of 19 cents per diluted share in its fourth quarter compared with a loss of 15 cents per diluted share in the fourth quarter of 2021.
The figure was 187 per cent below analyst expectations of 22 cents per diluted share in adjusted earnings, according to financial markets firm Refinitiv.
Christopher Reynolds, The Canadian Press
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