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SNC-Lavalin still bothered by its turnkey contracts



The improvement in results at SNC-Lavalin is further hampered by cost overruns and losses related to the completion of its lump sum turnkey contracts.

In its third quarter results released on Friday, SNC-Lavalin posted net income from continuing operations of $46.6 million, twice as much as the amount recorded a year earlier.

Total turnover amounted to 1.89 billion, up 4.4% over one year.

SNC-Lavalin’s main business, the SNCL Services division, increased its quarterly revenue by 8.2% to 1.6 billion. This is a sixth consecutive quarter of growth for SNCL Services.

As for this division’s order book, it stood at 11.6 billion as of September 30, up 2% from its level on the same date last year.

“Given the strength of the order backlog and the strong year-to-date performance of the Engineering Services segment, management is raising its revenue growth outlook for SNCL Services. for fiscal 2022 compared to fiscal 2021, or 5% to 7%, compared to 4% to 6% previously,” SNC-Lavalin said in a statement.

On the other hand, the pressure of the additional costs related to the completion of the turnkey lump-sum contracts (CMPF) on cash flow prompted SNC-Lavalin’s management to slightly lower its operating profit margin target (adjusted EBITDA). for the end of fiscal year 2022.

According to analysts Benoit Poirier of Desjardins Capital Markets and Maxim Sytchev of National Bank Financial, the results for the third quarter were slightly below expectations and the downward revision of the profitability objective at the end of the year still constitute a “negative” context for investors.

On the stock market, moreover, these investors showed their disappointment by letting the price of SNC-Lavalin shares slide by nearly 4% during the session.

They ended down 1.4% at $23.44, bringing them closer to their lowest value of $21 per share in a year.

Persistent losses

Despite the reassuring words of SNC-Lavalin executives, losses related to the completion of CMPF contracts still threaten to exceed the budget of 300 million planned for this purpose for the 2022 financial year.

In its most recent quarter, SNC-Lavalin recorded another $44 million loss on its CMPF contracts, $11 million more than the corresponding quarter in 2021.

Three projects in particular continue to erode the company’s profitability: the Réseau express métropolitain (REM) in the Montreal region, the Trillium light rail line in Ottawa, and the Eglinton line in Toronto.

According to SNC-Lavalin, the REM “continues to make good progress” and the “large part of the physical work” for the two Ontario projects will be completed by the end of the year.

Meanwhile, SNC-Lavalin attributes the losses to supply chain disruptions, cost inflation and the scarcity of labor on these sites.

“These macro-economic factors, in our view, are mostly recoverable under the contracts we have signed,” said Ian Edwards, president and CEO of SNC-Lavalin, during a conference call with financial analysts.

Still, he admitted, “these are not small amounts and it is a complex and frustrating situation for us. Before reaching an agreement [avec nos clients], we must complete the work at our expense. We are not only talking about the losses of 2022, but also those of the previous years”.

The process of leaving the market for CMPF contracts has been underway since 2019 at SNC-Lavalin. It has therefore been three years since the company tendered for projects of this kind, which often lead to cost overruns. SNC-Lavalin must, however, honor the contracts already signed.

With The Canadian Press

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