SNC Lavalin’s challenging year

Canadian contractor SNC Lavalin saw net income for 2012 drop to CA$ 310 million (US$ 301 million) from CA$ 378.8 million (US$ 368 million) in 2011, while revenues were up +12% year-on-year to CA$ 8.1 billion (US$ 7.9 billion).

Revenue backlog remained steady at CA$ 10 billion (US$ 9.8 billion) at the end of December 2012.

However, corruption allegations have dogged SNC Lavalin’s year. Canadian and Swiss authorities are currently investigating the company over a string of suspect payments signed off by its former CEO Pierre Duhaime, who is due to stand trial this year on fraud allegations, while the Royal Canadian Mounted Police (RCMP) and the World Bank are also investigating the company’s involvement in projects in Bangladesh and Africa.

In its annual report statement, SNC Lavalin confirmed that the RCMP investigation had also led to charges being laid against two former SNC Lavalin employees under Canada’s Corruption of Foreign Public Officials Act in regard to the Bangladesh project.

The contractor said its senior management and board of directors had been required to devote significant time and resources to these investigations.

It said the corruption investigations had “distracted and may continue to distract from the conduct of the company’s daily business, and significant expenses have been and may continue to be incurred in connection with these investigations including substantial fees of lawyers and other advisors”. It said it continued to co-operate with all authorities involved.

Lawsuits

In addition to the various corruption investigations it currently faces, SNC Lavalin is also the subject of several class action lawsuits seeking damages based on the decline in market value of its stock.

Two separate shareholder lawsuits have been consolidated into a single class action – known as the Ontario Action – while another standalone shareholder class action, the Quebec Motion, is pending approval.

All the lawsuits represent investors in the company who acquired shares during different periods, overlapping with the corruption allegations.

They claim that documents filed by SNC-Lavalin contained misrepresentations concerning, among other things, SNC-Lavalin’s corporate governance practices, adequacy of controls and procedures, reported net income for the year ended December 31, 2010, and adherence to SNC-Lavalin’s code of ethics.

SNC Lavalin said it was not possible to predict the final outcome of these lawsuits or determine the amount of any potential losses – if any – it could face as a result.

Outlook

SNC Lavalin president and CEO Robert Card said 2012 had been a challenging year for the company and its employees.

“The last months have been dedicated to putting the house in order and reinforcing our commitment to excellence, quality, safety and ethics,” Mr Card said.

“We continue actively to review and develop the strategic business plan of the company, and we expect to announce the main elements of the plan at the time of our first quarter financial results and Annual General Meeting. We are committed to focusing on project delivery, core competencies and organisational improvements in order to enhance our performance and to establish a basis for growth and success in the future.”

SNC Lavalin forecast growth in 2013 net income of between +10% and +20%, primarily based on its power backlog.