SNC-Lavlin could sell entire stake in AltaLink, eventually all concessions: CEO

MONTREAL – The head of SNC-Lavalin says the engineering giant is open to selling its AltaLink infrastructure concession in its entirety — if the price is right.

Due to strong interest from potential buyers, including Quebec’s pension fund manager, the Montreal-based company said Friday it will consider selling both its 100 per cent stake or a minority interest in AltaLink. It is also open to an initial public offering or a private sale.

“We will determine which of these alternatives to pursue, as both processes evolve based on the outcome that will generate the maximum value for the company and our shareholders,” president and CEO Robert Card said during a conference call.

SNC-Lavalin, which has been battling ethical issues for nearly two years, has already announced plans to sell several non-strategic concessions including a minority interest in the Astoria II power plant in New York and the Alberta transmission line operations.

Card said the company will continue to evaluate its other concessions and expects to eventually sell all its non-strategic holdings at the appropriate time.

“So probably all of our assets are going to become non strategic at one point in time… it’s just a question of time and right now, we don’t think it’s the right time.”

AtlaLink was among the first on the list because of the $600 million to $1 billion in capital expenditures that industry observers believe will be required over the next three years. A deal, which requires regulatory approval in Alberta, is expected to close in about a year.

SNC-Lavalin (TSX:SNC) swung to a $72.7-million loss in the third-quarter, just weeks after warning that its results would be punished by money-losing legacy contracts, weak mining markets and a European restructuring charge.

The Montreal-based engineering giant lost 48 cents per share for the period ended Sept. 30, a penny worse than analyst forecasts. It earned $114.1 million or 75 cents per share a year ago.

Card said the difficult decisions made during the quarter that will result in $75 million in charges this year will reduce future earnings volatility and restore selling, general and administrative expenses to historical levels.

“Since I joined SNC-Lavalin, I’ve personally been frustrated by the surprises we’ve been hit with each quarter by our legacy projects,” he told analysts. “Not only have these adjustments impacted our earnings and credibility they’ve also masked the significant progress we’ve made to strengthen our platform and position the company for future growth.”

Excluding higher profits from its concessions assets, SNC’s core operations lost $128.4 million, compared to an $83.1 million profit in the prior year. Proceeds from its investments in Highway 407, AltaLink and other concessions investments nearly doubled to $55.7 million, from $30.9 million in the 2012 quarter on a 40-per-cent revenue boost.

Total revenues in the quarter were down about $300 million to $1.94 billion, while its order backlog was $9 billion, compared to $10.1 billion at the end of December 2012.

The company said the weaker quarterly results reflected an operating loss in its infrastructure and environment segment, mainly due to cost reforecasts, particularly in the hospital and road sectors, plus a lower contribution from its power operations due to projects, including one in North Africa. It recorded a $68.2 million restructuring charge and goodwill impairment in the quarter related to its European reorganization.

Card said most of the cost overruns incurred in the infrastructure division are related to Canadian projects, which he didn’t identify by name. Speculation centres primarily on a superhospital being built in Montreal.

SNC-Lavalin expects its 2013 net income will range between $10 million and $50 million, well below its previous guidance of $220 million to $235 million.

Although Card said he’s concerned about economic headwinds, the company sees a number of good prospects in the infrastructure sector. It has bid on projects having $10 billion in capital costs and has identified several billion dollars of additional near-term opportunities.

Analyst Maxim Sytchev of Dundee Capital Markets described Friday’s results as a “non event” given the company’s revised guidance just two weeks ago that prompted a downgrade from DBRS.

On the Toronto Stock Exchange, SNC’s shares closed up 71 cents at $44.52 in Friday trading.