Genivar says Quebec construction inquiry won't stop integration of British firm

MONTREAL – Engineering and consulting firm Genivar Inc. said its focus on integrating a large British acquisition won’t be diverted by the potential examination of its activities by the commission looking into corruption in Quebec’s construction industry.

Police raided the Laval, Que., offices of Genivar and Aecom Technology Corp. on Tuesday as the Charbonneau commission investigates municipal contracts and alleged corruption involving the mayor of the city north of Montreal.

CEO Pierre Shoiry said Genivar has systems in place to monitor and ensure the proper governance of its 15,000 employees around the world. It has also put in place a chief ethical officer.

“It’s very difficult for me to comment on anything that I’m not aware of,” he said on a conference call to discuss third-quarter results when asked by an analyst about the commission’s impact on its activities.

The company said it was cautiously optimistic about growth prospects in the province next year after a stable performance in the quarter that should continue in the final period of 2012.

However, it added: “the Charbonneau Commission is ongoing and recent political changes could impact market conditions, especially in the mining industry where the new government is considering the implementation of new rules and policies, which could impact capital expenditure investments,” it said in a report accompanying the quarterly results.

Genivar said the performance of its Canadian operations remained resilient in the third quarter.

Activity is growing in Alberta, mainly in the oil and gas segment, following a slowdown caused by a change in the provincial government.

Meanwhile, Ontario remains intensely competitive and a challenging business environment. Government contracts are likely to be affected by the Liberal government’s decision to prorogue the legislature until a new party leader is chosen as premier.

Maxim Sytchev of Alta Corp Capital said investors are concerned about what’s happening in Quebec’s engineering and construction market.

“Thankfully, the Quebec exposure for Genivar has been shrinking,” he wrote in a report.

The province accounts for 47 per cent of its Canadian business and municipal infrastructure is 17 per cent or about $50 million. It is also only three per cent of Genivar’s revenues since its acquisition of British company WSP Group Plc.

In its results, Genivar reported improved net earnings and soaring revenue for the third quarter in the wake of the acquisition.

Results from the quarter ended Sept. 29 include those of WSP, which it acquired in a $442-million friendly takeover deal Aug. 1.

Genivar (TSX:GNV) reported net earnings of $16.2 million, or 36 cents per share, in the quarter compared with net earnings of $14.1 million, or 54 cents per share, in the comparable 2011 period when the company had fewer shares.

Revenue rose 129 per cent to $396.1 million from $173.1 million.

“Now that the transaction with WSP is closed, our main focus is on managing the integration of our global support functions and connecting our operations in order to optimize collaborative working and capitalize on the opportunities made possible by the transaction,” Shoiry added in a statement.

“While we have already begun the integration of WSP’s former environment and energy division into our regional structure, our next focus will be to fully integrate U.S. operations so that we can leverage this solid platform to pursue growth.”

Shoiry said key sectors for producing revenue synergies had been identified and were being audited.

Genivar said that excluding foreign exchange variances, net earnings would have been $18.1 million in the 2012 quarter, compared with $12.2 million in 2011.

Sytchev said the results were “pretty good” but noted it will take time for the market to “warm up to Genivar again.”

“As we said at the onset of the WSP acquisition, we think that moving away from a Canada-centric model makes sense. In the short-term, however, bringing on-board an entity larger than Genivar’s legacy operations will be challenging,” he wrote.

Shares in Genivar closed up 18 cents to $21.25 on the Toronto Stock Exchange in trading Wednesday.