SNC Lavalin profit sinks, cuts outlook on higher costs

TORONTO (Reuters) - SNC Lavalin Group Inc , a Canadian construction and engineering company caught up in allegations of improper payments and bribery, posted a sharp drop in quarterly profit on Friday and cut its earnings forecast, blaming project cost overruns.

Shares of the company, whose CEO resigned in the fall-out from its corporate misconduct scandal, fell 5 percent after the results. That extends a slide of more than 60 percent since SNC first announced improper payments in February.

Investors have been nervously watching the company's financial results and forecasts for signs that its business has been hurt by revelations that it made $56 million in payments to unknown agents on construction projects that did not exist.

"The miss in the quarter pertains to weaker than expected execution and not the issues that plagued the company since the departure of (CEO) Pierre Duhaime," said AltaCorp Capital analyst Maxim Sytchev. "2012, as a result, will be a 'transitional' year for the company."

The Montreal-based company said net income tumbled to C$32.5 million ($32.4 million), or 21 Canadian cents a share, in the second quarter from C$102 million, or 67 Canadian cents, a year earlier.

Revenue rose to C$1.9 billion from C$1.7 billion.

RBC Capital Markets analyst Sara O'Brien described the result as "very weak," with earnings of 21 Canadian cents a share well below her expectation of 68 Canadian cents a share.

"These results also serve to remind the fixed-bid business can be volatile and risky, particularly in a heightened competitive backdrop," she said in a note.

SNC also reduced its 2012 net income forecast to between C$325 million and C$340 million. That is down from its previous expectation that earnings would be in line with 2011, when it had a C$379 million profit.

The company blamed C$50 million in "unfavorable cost reforecasts" from two major fixed-price projects. One project is in its power business, and the other is in its hydrocarbons and chemicals operation.

"The second quarter was difficult in terms of project execution, but we are encouraged by our strong financial position and backlog," said interim Chief Executive Officer Ian Bourne.

SNC had cash of C$1.2 billion at quarter-end, and its order backlog rose to C$10.7 billion from C$10.1 billion at the end of December.

The company, whose CEO resigned in March after revelations that he authorized the mystery payments, expects to name a new chief executive by late September.

SNC has handed over information from its internal probe to the police, but shed little light on the scandal, an issue now the focus of a Swiss investigation probe.

It has said its former head of construction, Riadh Ben Aissa, who left the company in February, may have directly knowledge of the transactions. Swiss authorities have arrested Ben Aissa on charges of corruption, fraud and money-laundering.

Canadian newspapers have linked Ben Aissa in a negative light to the family of deposed Libyan dictator Muammar Gaddafi.

The company has said it does not know who received the money or what it was used for but stressed it was the work of "a relative few." Still, company chairman Gwyn Morgan admitted in May that SNC was uncertain if police would uncover further rogue payments.

In a separate matter, two former SNC executives, accused of bribing officials in Bangladesh for a bridge project, have a preliminary Canadian court hearing set for next year.

The World Bank canceled its $1.2 billion loan for the project last month, saying it had credible evidence of a high-level corruption conspiracy among Bangladeshi government officials.

SNC shares fell C$2.10 to C$38.15 on the Toronto Stock Exchange on Friday morning.

(Editing by Frank McGurty)

Source: http://news.yahoo.com/snc-lavalin-profit-slumps-project-costs-climb-125330720--sector.html

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