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SNC-Lavalin FY18 impacted by O&G geopolitics

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Canadian construction, engineering and environmental services group SNC-Lavalin has announced results for 2018 which show an 8% rise in revenue to C$10.1bn, representing the first full year contribution from Atkins acquired in mid-2017 (EA 04-Jul-17).

The results were overshadowed by a net loss of C$1.3bn, mainly linked to an impairment charge of C$1.2bn relating to the firm’s oil & gas segment, reversing a net income of C$382m in 2017. Volatility in the oil & gas sector in the Middle East – and the likelihood that it would impact its business - had been underlined by the firm last August, in particular in relation to a trading dispute between Canada and Saudi Arabia which had resulted in the suspension of new trade with Canada.

Also weighing heavily on the results was the underperformance of a major EPC mining project in South America, with a forecast loss of C$346m attributed to unexpected site conditions, greater than expected environmental and safety measures, and underperformance from sub-contractors, which SNC-Lavalin had already warned would impact its full year results (EA 05-Feb-19).

Revenue from engineering and construction services (E&C) stood at C$9.8bn up from C$9.1bn in 2017, whilst its investment, financing and asset management arm - ‘capital’ - took the remainder. EBITDA reported by the Montreal-based firm stood at C$405m, down 50.6% year-on-year.

The E&C services are segmented: mining & metallurgy (5% of total 2018 revenues); oil & gas (25%); nuclear (9%); clean power (4%); thermal power (1%); infrastructure (23%); EDPM (engineering design and project management) (legacy Atkins) (32%). Highlighted were the strong performances of the infrastructure, EDPM and nuclear segments which enjoyed year-on-year revenue increases of 22%, 13% and 90% respectively.

By geography 2018 revenues were split: Americas 49% (of which Canada is 29%, US 17% and Latin America 3%), Middle East & Africa (24%), Asia Pacific (7%), and Europe (20%).

The revenue backlog totalled C$14.9bn at the end of December 2018, representing a 43% increase from C$10.4bn at the end of the previous year.

SNC-Lavalin president and CEO Neil Bruce admitted that the impact of unforeseen geopolitical events on the firm’s oil & gas business and operational setbacks in its mining business were "disappointing", but he stressed that the negatives should not overshadow the many positives elsewhere in the company.

Bruce said: "Now it is time to look ahead. Our infrastructure, EDPM and nuclear businesses had a strong quarter and we expect these to continue to do well going forward. The company has billions of dollars’ worth of assets, a strong backlog and very talented employees who are proud to design and engineer the world around us."

For 2019, SNC-Lavalin intends to focus on earnings and cash flow generations and deliver on its strategy, including (amongst others) continuation of the company’s progress in operational excellence; debt repayment whilst maximising cash flow efficiency; and delivery of an expanded integrated and focused innovation and technology agenda, including a digital roadmap.

Employee numbers were stable year-on-year at 52,400.

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