SNC-Lavalin Group Inc. said it would slash its dividend by 80 per cent to save cash as the Montreal-based builder reported a quarterly loss amid cost overruns on various projects.
SNC’s quarterly dividend will shrink to 2 cents a share from 10 cents to “deleverage and strengthen the balance sheet,” according to a statement issued Thursday. SNC reported a net loss attributable to shareholders of $2.12 billion, or $12.07 a share, in the second quarter — largely due to a $1.8-billion writedown the company had flagged last week.
The move follows SNC’s July 22 announcement it would reorganize into two business lines and stop bidding for so-called lump-sum turnkey contracts in a bid to reduce risk and generate more consistent earnings and cash flow. The company also withdrew its 2019 profit forecast at the time, citing higher-than-forecast expenses in its new projects division.
Under turnkey contracts, construction firms are required to perform specific work for a fixed price — without passing on any cost overruns to the customer. In the last four years, SNC has incurred what it calls “negative cost reforecasts” on a range of jobs that includes mining, metallurgy, oil and gas and thermal power projects.
One of SNC’s main turnkey contracts is the Réseau express métropolitain, the automated light-rail system the company is helping to build in and around Montreal. In announcing its decision last week, SNC pledged “full commitment” to the REM.
Under interim chief executive officer Ian Edwards, who took over June 11, SNC has created a new “project oversight” function that oversees the company’s performance on all projects in a centralized fashion to “identify, monitor and mitigate” risks. It will also oversee the collection of receivables.
SNC’s core engineering and construction unit posted an adjusted loss of $299.8 million, or $1.71 a share, in the second quarter. This compares with adjusted net income of $113.5 million, or 65 cents a share, for the same period in 2018.
SNC said Thursday it remains on target to realize more than $100 million in cost savings by Dec. 31. Next year’s target is $250 million.
As of June 30, SNC had $580.6 million of cash and cash equivalents, $4 billion of recourse and limited recourse debt and $1.1 billion in unused borrowing capacity. SNC plans to use the $3 billion proceeds from the planned sale of a stake in Ontario’s Highway 407 ETR to repay outstanding debts.
Copyright Postmedia Network Inc., 2019
