SNC-Lavalin mulls retreat from Saudi Arabia amid deepening diplomatic row

 

The head office of SNC Lavalin is seen Thursday, February 19, 2015 in Montreal. SNC-Lavalin Group Inc. is warning that its full year 2018 results will be lower than expected. THE CANADIAN PRESS/Ryan Remiorz

MONTREAL — The head of SNC-Lavalin Group Inc. says ongoing diplomatic tensions between Canada and Saudi Arabia are hurting the company’s bottom line and forcing it to consider a possible retreat from the oil-rich state as SNC share prices plunged to a three-year low.

Amid an international row that has only escalated since last summer, Bruce cited Ottawa’s recent granting of asylum to a Saudi teenager as the latest likely blow to business, spurring him to order a review of where the engineering and construction giant conducts operations, with an eye to “predictability.”

Bruce’s announcement Monday that the spat, as well problems with a mining project and an arbitration loss in Australia, would sink its financial results for 2018 sent shares plummeting 28 per cent to $34.74 in midday trading on the Toronto Stock Exchange.

“We’re deeply disappointed about the position we are in,” Bruce said Monday morning.

“I don’t really want to comment on the ins and outs and the rights and wrongs of the relationship between the two countries. But the relationship, and certainly KSA [Kingdom of Saudi Arabia] with regards to Canada, has not been helped by the recent position with regards to the asylum seeker,” he told analysts on a conference call.

“That, from a Saudi perspective, has not gone down very well at all.”

Bruce said the tensions would likely hinder SNC’s ability to secure new contracts in the Middle Eastern country, lowering revenue in the fourth quarter and in 2019.

The company’s oil and gas segment took in the lion’s share of SNC’s revenues in 2017, raking in 37 per cent of its $9.1 billion.

Asked whether SNC will consider selling its oil and gas business in Saudi Arabia, where about 9,000 of the Montreal-based company’s 50,000 employees now work, Bruce said that “we will be having a look at that.”

“We will also be having a look at clients and countries that we’re operating in to make sure that we have far more predictable outcomes,” Bruce said.

Overseeing that review will be new chief operating officer Ian Edwards, appointed Monday.

Edwards, who will report to Bruce, has led SNC-Lavalin’s infrastructure business since 2014.

Analyst Benoit Poirier of Desjardins Capital Markets said he was “disappointed” with Monday’s announcement, “in addition to being surprised by the change in tone in connection with business relations with Saudi Arabia.”

The new forecast, which erased more than $1.8 billion in market value, came as a 180-degree turn from last November, when Bruce assured investors that all was well.

“Despite the political issues we’ve had to contend with, our business is solid,” he told analysts on a conference call Nov. 1.

“We continue to monitor the situation closely and we’re engaged with our clients,” Bruce said then, but insisted the thousands of employees and robust revenues in the country — $992 million in 2017 — remained unaffected by the rift.

Last August, a tweet regarding human rights from Foreign Affairs Minister Chrystia Freeland set off a trade embargo by the monarchy.

The relationship deteriorated further after news of Saudi journalist Jamal Khashoggi’s killing in the Saudi consulate in Istanbul broke in October. Earlier this month, Canada granted asylum to Rahaf Mohammed, a Saudi teenager who fled her family.

The company said it plans to take a non-cash, after-tax goodwill impairment charge of approximately $1.24 billion or $7.06 per diluted share related to its oil and gas business.

It expects adjusted diluted earnings per share from its engineering and construction operations for 2018 to be in the range of $1.15 to $1.30.

Adjusted consolidated diluted earnings per share are expected to be in the range of $2.15 to $2.30.

In November, the company had forecast adjusted diluted earnings per share from engineering and construction to be in a range of $2.60 to $2.85.

Adjusted consolidated diluted earnings per share were expected in a range of $3.60 to $3.85.

Christopher Reynolds, The Canadian Press


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