Is this really what’s ailing SNC-Lavalin?
A teenage refugee is not the engineering giant’s real problem
In a controversial conference call with stock-market analysts on Monday, Neil Bruce, CEO of Montreal-based engineering and construction giant SNCLavalin Group Inc., appeared to deflect blame for his company’s woes to Canada’s recent decision to grant asylum to an 18-year-old Saudi woman.
What Bruce, 58, said Jan. 28 was that the relationship of Saudi Arabia “with regards to Canada has not been helped by the recent position with regards to the asylum seeker. That, from a Saudi perspective, has not gone down very well at all.”
Translation: Rescuing this teenager is bad for my business in Saudi Arabia.
It’s not often that the CEO of a $9.2billion enterprise (2017 revenues) believes his firm is somehow jeopardized by a teenager. Or is witless enough to say so. In that same conference call, Bruce disclosed that SNC-Lavalin was taking a $1.24-billion writedown on assets, and that its 2018 profits would be signif- icantly lower than Bruce’s most recent forecast to investors. SNC-Lavalin’s stock promptly tanked, erasing about $1.8 billion in shareholder value.
For the record, Bruce, a Scottish expat with about 30 years’ experience in engineering and construction, is a superb manager. He has used smart takeovers and an internal culture of collegiality to turn SNC into a focused enterprise and a global powerhouse. When he became CEO in 2015, Bruce took charge of a firm emerging from a thorough self-rehabilitation after a long period of alleged improper conduct, including bribery and illegal political payments in Canada and abroad.
But despite SNC-Lavalin’s admirable transformation into a “clean” company, the firm continues to cope with a legacy of reputational damage.
A Quebec court decision on whether the firm should endure a criminal trial related to alleged illegal payments in Libya in the 2000s is expected no sooner than this spring.
And a Canadian federal prosecution agency has denied SNC-Lavalin the chance to resolve outstanding Canadian charges against the company with an out-of-court settlement. That is an expeditious practice that Canada has adopted and is widely used in G-7 countries.
But that resolution process has been, without explanation, denied SNCLavalin. There’s no reason to doubt Bruce’s assertion that a full-blown prosecution of SNC-Lavalin that is hanging over it has cost it billions of dollars in Canadian contracts.
If SNC-Lavalin is still paying for the alleged sins of its past, all the more reason for Bruce to be sensitive to injustice inflicted on an asylum seeker who, like his employer, has suffered unfairly from forces beyond her control.
The teenager in question, Rahaf Mohammed, says she was repeatedly beaten by her mother for renouncing the Islamic faith. She says she feared still worse from male siblings.
Though she is now in Canada, Mohammed is still in danger, as my Star colleague Rosie DiManno reports. The last thing Mohammed needs is to be spotlighted as she was by SNC-Lavalin.
It is currently a given in the global financial media that Canada is paying a
price for calling out a thuggish Saudi regime last year, imploring it to release two imprisoned human-rights activists, and for its recent rescue of Mohammed.
The wording of those media reports is similar. Here’s an example from Bloomberg News this week:
“Canada remains at odds with the kingdom, a dispute that’s having an economic impact: Shares in Montreal-based SNC-Lavalin Group Inc. suffered a record plunge Monday in part because of the spat.”
At least for now, SNC-Lavalin is the only example given of collateral damage from the Ottawa-Riyadh tensions.
So, let’s have a closer look at this company:
SNC-Lavalin stock is has frequently tanked. SNCLavalin is among the most volatile large-cap stocks in North America. In the past decade alone, the firm’s stock has plunged five times, by an average of 28 per cent. The stock is “dead money,” in Bay Street parlance. It trades today in the same $35 range as it did in 2009, a period in which shares of Edmonton-based rival Stantec Inc. have almost tripled in value.
Saudi Arabia is just one of SNC-Lavalin’s issues. On Monday, SNC-Lavalin said its financial performance was undermined by a payment dispute with an unnamed mining company (thought by analysts to be Chilean miner Codelco); an arbitration loss in Australia; and a volatile global energy sector in which projects have been scrapped and postponed worldwide.
How difficult are Saudi conditions, actually? Bruce has reported that SNC-Lavalin has kept its existing Saudi contracts, and has slightly increased its Saudi workforce. Among those employees are more than 1,400 Saudi nationals. They are gaining worldclass expertise in high-skill jobs that are hard to come by in Saudi Arabia and the region.
Saudi Crown Prince Mohammed bin Salman is also reliant on firms like SNCLavalin, which has done business in the kingdom for some 50 years, to achieve his hyperambitious goal of reinventing the Saudi economy around world-class infrastructure.
In many quarters, SNCLavalin is still a pariah. The firm emerged from rehab only a few years ago. Its alleged misconduct sprawls across more than a decade, when it is alleged to have bribed officials abroad and even in its hometown of Montreal.
SNC-Lavalin has been effec- tively banned from World Bank-funded projects for a 10-year period ending in 2023, arising from the Bank’s disgust with SNC-Lavalin’s alleged misconduct in Bank-financed projects in Bangladesh and Cambodia.
SNC-Lavalin also acknowledged that it violated Canadian election-finance law in funneling illicit money to political parties and candidates.
While those scandals all pre-date Bruce’s tenure, he has to cope with the continued bad odour around his firm, which inhibits its ability to bulk up its portfolio of projects. And SNCLavalin must secure a lot of new contracts, to cover the higher fixed costs that came with its Bruce-era expansion.
Does SNC-Lavalin have a sufficient grasp on its business? On Monday, SNC-Lavalin blindsided the markets in forecasting a 2018 profit per share 79 per cent lower than Bruce’s most recent guidance.
Bruce also mused that day about selling his firm’s Saudi operations, which investors had been told by SNC-Lavalin were a growth engine for the company.
And on Nov. 1 — less than three months before announcing a $1.24-billion writedown — Bruce had assured investors that “despite the political issues we’ve had to contend with, our business is solid.”
Bruce has more than a teenage asylum seeker to worry about. His fateful Nov. 1 assurance to shareholders is the grist of investor class-action lawsuits launched almost daily in North America.
And if Ottawa’s foreign policy is misguided, SNC-Lavalin’s experience in Saudi Arabia doesn’t stand up as evidence of that.