November 5, 2018 by Christopher Reynolds, The Canadian Press
MONTREAL—The head of SNC-Lavalin Group Inc. tried to assuage concerns over criminal charges at home and diplomatic tensions with the government of Saudi Arabia, saying the challenges will not hurt its business.
“Despite the political issues we’ve had to contend with, our business is solid,” chief executive Neil Bruce told analysts during a conference call late last week.
On Oct. 10, the Montreal-based company’s stock plunged to its lowest level since early 2016 after federal prosecutors announced they would not invite SNC to negotiate a remediation agreement over fraud and corruption charges that stemmed from alleged dealings with the Libyan regime under Moammar Gadhafi between 2001 and 2011—“a completely distant era,” Bruce said.
“It’s when I did my MBA at Newcastle University, to put it in perspective.” While the perceived spurn “makes no sense…it hasn’t had any impact whatsoever in our ability to bid and win work,” he said.
“However, it has generated a whole bunch of conversations where we need to go and talk to clients about stuff that, frankly, we’d rather not talk about.”
In February 2015, the RCMP charged SNC and two subsidiaries with paying nearly $48 million to Libyan public officials to influence government decisions. The RCMP also hit the company, its construction division and a subsidiary with one charge each of fraud and corruption for allegedly defrauding various Libyan organizations of about $130 million.
It’s relevant to the company’s operations in Canada because a conviction could bar SNC from working with the federal government for up to 10 years.
A preliminary inquiry kicked off last week in Montreal. SNC’s recent appeal of the Public Prosecution Service of Canada’s decision to forgo an invitation to settlement negotiations is ongoing.
Bruce confirmed he was in Saudi Arabia last week, but said he steered clear of the government’s Future Investment Initiative event in the wake of the alleged murder of journalist Jamal Khashoggi.
Bruce also pointed to an “unfortunate diplomatic incident” between Canada and Saudi Arabia when a tweet regarding human rights from Foreign Affairs Minister Chrystia Freeland set off a trade embargo by the monarchy last August.
“We continue to monitor the situation closely and we’re engaged with our clients,” Bruce said, but insisted the 9,000-plus staff and robust revenues—$992 million last year—in the country remain unaffected by the row.
Laurentian Bank Securities analyst Mona Nazir said SNC has a “low probability” of entering into negotiations with prosecutors, “particularly given that their decision is counterintuitive to Canada’s newly adopted legislation.”
Client conversations have sprouted talks about privatization and the sell-off of a chunk of SNC’s massive engineering and construction unit, Nazir said in a note to investors.
The company is eyeing the potential sale of part of Ontario’s Highway 407 to showcase the real value of the toll road.
“I don’t think we’ve actually said, `Breaking the company apart’…We’ve already started on looking at all the options, but we’re not going to be drawn into talking about what they are and making all that public,” said Bruce, who came aboard three years ago to turn around the scandal-plagued firm.
“We will be looking to hopefully maximize on the full extent of the (407) transaction—or not, if it’s not going to give us what we expect.”
Last Thursday, SNC reported a third-quarter profit of $120.7 million, up from $103.6 million a year ago. Revenue totalled $2.56 billion, down from $2.63 billion in the third quarter of last year.