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Ethical issues no roadblock to Gordie Howe bridge contract: SNC Lavalin

Chief executive said nothing in federal Integrity Framework to hamper SNC-Lavalin's chances to win the bridge contract


August 7, 2015
by Ross Marowits, The Canadian Press

MONTREAL—SNC-Lavalin Group doesn’t anticipate that its ethical challenges will be a roadblock to bidding on the new Gordie Howe International Bridge connecting Detroit and Windsor, Ont.

Chief executive Robert Card said that he sees nothing in the federal government’s new Integrity Framework that would hamper SNC-Lavalin’s chances to win the bridge contract named for the legendary star of the Detroit Red Wings.

The bridge, connections and customs plazas are expected to cost more than US$2 billion and open to traffic in 2020.

“We have a good relationship with Public Works and I’m confident that whatever we need to do with them we will successfully do,” he said during a conference call with analysts and investors.

SNC-Lavalin was part of groups that were recently awarded two large government contracts despite facing, along with two of its subsidiaries, one count of fraud and one of corruption over its dealings in Libya. The company has said it will plead not guilty.

Card said he’s confident that the new multibillion-dollar Champlain Bridge in Montreal and the Eglinton Crosstown LRT in Toronto will deliver traditional seven to 10 percent gross margins and create stability in spite of a challenging commodities market.

Nearly $3 billion worth of work booked in the second quarter boosted the value of its backlog to $12.4 billion.

Card said these “monster projects” can be challenging but have historically been profitable for the company.

SNC-Lavalin shares took a big hit Thursday even though the company said its expects a strong second half of the year as its infrastructure and construction division recovers from challenges at two major Canadian projects that hurt its second quarter results.

On the Toronto Stock Exchange, the company’s shares closed at $40.05, down 8.42 percent or $3.66 in Thursday trading.

The company is maintaining its outlook for the year even though its second-quarter net profit dropped 17.6 percent to $26.5 million from $32.1 million.

“While commodities headwinds continue to build, we look forward to a strong finish to the year, particularly in the fourth quarter,” Card said.

During the quarter, SNC-Lavalin’s infrastructure revenues decreased 15.7 percent as it faced challenging soil conditions on the tunnel portion of a mass transit project plus additional costs on a major highway project.

Operating profits at other businesses trimmed losses at its core engineering and construction business, which dropped to $18.5 million from $46.7 million a year earlier. Excluding one-time restructuring and other charges, that business earned $8.15 million, compared to a $27 million loss in the prior year.

Overall profits decreased as contributions from concessions fell to $45 million from $78.9 million—primarily as a result of the sale of SNC’s investment in the AltaLink electricity business in Alberta.

Net income amounted to 17 cents per share, down from 21 cents per share in the second quarter of 2014.

Adjusted profits were $53.2 million or 34 cents per share, short of the 48 cents per share anticipated by analysts polled by Thomson Reuters.

Total revenue for the three months ended June 30 rose to $2.25 billion from $1.7 billion in the same period last year.

SNC said its oil and gas segment was a major driver for the higher revenue, as a result the acquisition of the U.K.-based Kentz engineering business in a $2.1-billion friendly deal that closed last August.