SNC-Lavalin cuts its dividend for first time in 27 years

The SNC-Lavalin headquarters is seen in Montreal.Paul Chiasson/The Canadian Press

SNC-Lavalin Group Inc., the embattled Canadian builder at the heart of a political scandal that has reached into the prime minister’s office, is cutting its dividend for the first time in almost 27 years while reaffirming confidence in its top executives.

The quarterly payout will tumble by about two-thirds to 10 cents a share from 28.7 cents with immediate effect, the company said in a statement Friday.

The move will save SNC about $131 million a year in cash, which will be used to repay debt and provide “additional flexibility.”

The first dividend reduction since 1992 caps a turbulent month for SNC, which has made headlines almost daily in Canada after reports that Prime Minister Justin Trudeau’s office pressured the country’s former attorney general to intervene on the company’s behalf.

Since Jan. 28, SNC has issued two profit warnings, written down the value of its Middle East energy business and had its credit rating downgraded by S&P Global Ratings.

“Given the potential cash requirements in the first half of 2019, we view the dividend reduction as a prudent move,” Derek Spronck, an analyst at RBC Capital Markets, said in a note to clients.

“There remains lots of challenges ahead for SNC, but none of which we would view as insurmountable and more than reflected in the current share price.”

The shares fell 2.9 per cent to $34.76 at 9:45 a.m. in Toronto. Through Thursday, SNC had plunged 26 per cent since Jan. 25, the last trading day before the company it disclosed a “serious problem” with a mining contract in Latin America and took a $1.24 billion charge on its energy business because of a diplomatic spat between Canada and Saudi Arabia.

The stock drop during that period was the largest by far on a Standard & Poor’s index of Canadian industrial companies, which advanced 3.1 per cent.

Highway Transaction

The SNC board “reiterates its confidence in the executive leadership team to move forward into 2019,” Chairman Kevin Lynch said in the statement.

SNC said it was progressing with the potential sale of part of its interest in Highway 407, a toll road near Toronto. The possible deal “could be in the form of a direct sale or another type of transaction,” SNC said.

The Montreal-based company swung to a fourth-quarter adjusted loss of $1.62 a share from engineering and construction.

Analysts had expected a shortfall of $1.61, according to the average of estimates compiled by Bloomberg.

The profit measure will be $2 to $2.20 a share this year, SNC said. That compared with expectations of $2.08.

SNC had about $634 million of cash and cash equivalents and about $2.3 billion of recourse debt as of Dec. 31. It also had $2.1 billion in unused borrowing capacity under a $2.6 billion revolving-credit facility.

Bloomberg.com

Leave a Reply

Your email address will not be published. Required fields are marked *