SNC-Lavalin Group Inc. declined for at least 27 years after the builder warned that it would miss the profit target for the whole year due to a "serious problem" with a mining contract. He also recorded his energy unit worth $ 1.24 billion against a backdrop of diplomatic stumbling blocks between Canada and Saudi Arabia.
The engineering and construction firm said it has received additional costs during the fourth quarter of an unidentified mining and metallurgy project and can not "reach agreement" with the customer to monetize revenue, according to a statement Monday. Worse than expected oil and gas trade in the Middle East – and in particular Saudi Arabia – also affected the results of the fourth quarter, added SNC. As a result, the company estimates the possible exit from Saudi Arabia.
The announcement puts pressure on SNC after Canadian prosecutors refused last year to reach an agreed settlement with the company for past charges of corruption. The lack of a deal with Canada has probably cost SNC more than $ 5 billion in lost revenue and continues to harm its international reputation, CEO Neil Bruce said in an interview with BNN Bloomberg in an interview last month.
"It is extremely disappointing that you see project problems happening because risk management around it is inadequate," said Chris Murray, an analyst at AltaCorp Capital, in a telephone interview from Toronto. "The immediate impact is on investor confidence. The longer-term question is whether they can stabilize the oil and gas business or whether they should deprive it of the bottom of the cycle. "
SNC fell 27 percent to $ 35.33 at 1:42. in Toronto. Earlier, shares declined by 31 percent, the biggest drop in the day since at least January 1992, according to Bloomberg. Growth wiped out about 2.4 billion dollars in market value and pushed the shares to a three-year low.
The adjusted earnings from engineering and construction will be $ 1.15 to $ 1.30 per share in 2018, SNC said on Monday. This is less than an earlier earnings forecast of $ 2.85 per share. The total profit for the year will be $ 2.15 to $ 2.30 per share, which is less than the range of 3.60 to 3.85 dollars that the company based in Montreal has provided in November.
SNC's announcement means that the company will not be able to reach its target for a revised profit of $ 5 per share by 2020, said Bruce. "In terms of company growth and growth in EPS, we feel as if we were back one year a year and a bit," he said at a conference call with analysts.
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As a result of its latest failure, SNC will consider selling assets, including a possible exit from Saudi Arabia, to focus on the business with the most predictable results.
"Maybe some of our companies do not fit into the required category, so we'll look at it," Bruce said. "We will also look at the customers and the countries and regions we are working to make sure we have far more predictable results in the future."
It is planned that the controversial mining project will be completed by the beginning of the second quarter, said Bruce on Monday. Asked by an interviewer on the invitation, if the project in question is linked to the Chilean miner-miner Codelco, the chief executive refused to comment.
"This isolated incident is unacceptable and I intend to take appropriate action to mitigate the financial consequences for the company," said Bruce. SNC did not identify the problem project, saying only that the contract was awarded in 2016. This year a contract was signed with SNC for Codelco. Representatives of Codelco declined to comment.
SNC plans to "aggressively" pursue project requests through contract protocols "up to and including engaging in dispute settlement".
The diplomatic thunder with Saudi Arabia also has an impact on SNC's operations. Saudi Arabia froze diplomatic ties and new business deals with Canada in August, following a call by Canadian Foreign Minister Christie Freeland for Saudi human rights activists to be released from prison.
The dispute prompted SNC to record the fair value of its oil and gas segment with $ 7.06 per share as a result of impairment testing. "Intergovernmental relations between Canada and Saudi Arabia, together with unpredictable commodity prices and uncertain investment plans, have worsened our short-term prospects that we can not ignore," said SNC.
Write-off represents less than 50% of the value of the oil and gas business, said Chief Financial Officer Silvan Girard, without being more specific.
More than 15% of the world's workforce is employed in Saudi Arabia, a major source of revenue growth in recent years.