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SNC-L first half bolstered by Atkins, but debt soars

Logo - SNC Lavalin

Canadian construction, engineering and environmental services group SNC-Lavalin has reported significant growth in revenue during the first six months of 2018 thanks largely to the C$3.5bn (US$2.6bn) purchase of the UK-based Atkins business last year (EA 04-Jul-17). Revenue at the 50,000 strong firm grew by 31% to C$5bn.

Income from engineering and construction services (E&C) reached C$4.8bn, up from C$3.7bn in H1 2017, whilst its investment, financing and asset management arm - ‘capital’ - took the remainder. Adjusted EBITDA for the E&C division almost doubled to C$367m providing a healthy margin of 7.6%.

President and chief executive officer of SNC-Lavalin Group, Neil Bruce, said: "We are very pleased with our first six months performance, which is in line with our expectations and reaching a milestone of over $15 billion of backlog. We are entering the third quarter of 2018 with a strong backlog, a number of recently signed master service agreements and high quality prospects list across our key sectors and geographies; poised for a strong second half of 2018.

"The integration of the Atkins business continues to progress well and we have been able to share technologies, data and knowledge that is improving and broadening our services to clients."

However, it seems the purchase of Atkins also loaded the company with "recourse debt", or debt which is backed by the collateral of the borrower, which is up fivefold at C$2.2bn. This means the firm is likely to have a debt/EBITDA ratio of between 2.75-3 in its full year result.

During the last six months SNC-Lavalin took an C$88m hit through the settlement of the 2012 class action lawsuits brought in Quebec and Ontario relating to alleged disclosure misrepresentation during 2009-11. The firm was accused of violating securities law by "misrepresenting" that it had adequate controls and procedures to ensure accurate disclosure and financial reporting - a claim brought about after a series of unaccounted payments went missing in Africa.

Because of this the World Bank continues to exclude SNC-L and its international branches from bidding for contracts.

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