SNC Lavalin doubles 2015 reorganization cost estimate for 2015 to $110 million

MONTREAL – SNC-Lavalin says it’s taking measures to adapt to a “softer economic environment” that will nearly double the previously announced cost of revamping the Canadian engineering and construction giant’s organizational structure.

The Montreal-based firm (TSX:SNC) now estimates the cost of the reorganization this year at $110 million, including $50 million in the fourth quarter.

SNC also says it will continue to take additional measures throughout 2016 as needed in order to meet its earnings goal for its engineering and construction business unit.

“The persisting softer economic environment requires us to extend our restructuring efforts to further improve our operational efficiency and reduce our cost base by the end of 2015,” the company said.

It says adjusted earnings from that unit in 2015 will be at the lower end of a previously announced range between $1.30 and $1.60 per share.

However, SNC says its overall profit this year is expected to be higher than previous estimates as a result of gains from sales of some of its non-core holdings and contributions from its Oil & Gas and its Power segments.

The revised estimate for net profit under international accounting standards is between $2.40 to $2.70 per share for the year, up 30 cents at both end of the range.

The company says its third-quarter profit included a $145.7 million gain, or 96 cents cents per SNC share, from the sale of its portion of the Ambatovy nickel mining complex in Madagascar — which SNC helped to build.

Net income attributable to SNC shareholders for the three months ended Sept. 30 rose to $224.2 million or $1.49 per share, from $60.0 million or 39 cents per share. The engineering and construction business accounted for 22 cents per share of the net income, compared with a loss of 19 cents per share in last year’s third quarter.

The Ambatovy investment was one of several “concessions” that SNC held as a secondary source of earnings. However, the company has been strategically selling off portions of the concession portfolio to simplify its structure.

SNC’s share of the Highway 407 near Toronto — Ontario’s only toll highway and the most valuable of SNC’s remaining concession investments — provided $31.5 million of net income in the third quarter.

“We are pleased with our consolidated third quarter performance, particularly with E&C, which has allowed us to maintain our full year guidance,” said Neil Bruce, SNC’s new president and chief executive officer.

“While we continue to believe there is tremendous value in the Highway 407 asset, our principal focus right now is on maximizing profitability of the E&C platform. We will update the market in due course on our plans to crystallise value from this important asset.”

Some analysts interpreted Bruce’s comment, and lack of details about a sale of Highway 407, as a signal that the company has put the effort on pause while it concentrates efforts on the main business.

“Please note that in the past management suggested that the process will commence in (the fourth quarter) but there are no timelines in the press release; we will be looking for additional colour on the conference call,” Dundee Capital Markets said in a research note ahead of SNC’s afternoon briefing for analysts.

Note to readers: This is a corrected story. An earlier version said the gain from sale of Ambotovy asset was $147.7 million instead of $145.7 million.