August 17, 2012
Profits down at SNC-Lavalin amid corruption investigations
SNC-Lavalin Group Inc. released its financial results recently for the period ending June 30, reporting a 14.2 per cent increase year-over-year in quarterly revenue and a 69 per cent drop year-over-year in net income for the quarter.
The Montreal engineering firm reported revenues for the three months ending June 30 were $1.906 billion, up from $1.669 billion during the same period in 2011. Net income for the quarter was $104.846 million in 2011 and $32.694 million this year.
In a press release, the firm said it was revising its outlook for the full year. Previously the firm expected net income in 2012 to be “in line with” 2011.
“Principally as a result of the unfavourable cost reforecasts of approximately $50 million identified as part of ongoing project reviews and recorded in the second quarter of 2012 on two major fixed-price projects, one in the power segment and one in the hydrocarbons and chemicals segment, the 2012 net income is currently expected to be in a range of $325 million to $340 million.”
In March, SNC-Lavalin reported that for the full year in 2011, net income attributable to SNC-Lavalin shareholders was $378.8 million, down from $431.0 million (excluding the net gains of $45.7 million from the disposals of certain assets and investments) the previous year.
The same day, it reported what it called a retirement of then CEO Pierre Duhaime and that the firm identified “material weaknesses” in financial controls relating “management override, non-compliance with and ineffective controls over compliance with the Company’s policy on commercial agents and its code of ethics.”
An independent review found that Duhaime, acting at the request of the former executive vice-president of construction, Riadh Ben Aissa, “overrode controls with respect to the authorization of payments to commercial agents which did not comply with the Agents Policy and was a breach of the Code of Ethics.”
On Feb. 9 the firm issued a press release stating Aissa and vice-president finance Stephane Roy were no longer with the firm and that SNC-Lavalin reiterated its policy that all employees must comply with its Code of Ethics and Business Conduct. Aissa has since been arrested in Switzerland on fraud and corruption charges.
The 2011 financial results were announced weeks after the firm announced that the audit committee of its board of directors was investigating $35 million in payments documented for construction projects to which they did not related. That number rose to $56 million and the firm reported its findings to the police. The following month, the RCMP executed a search warrant on SNC-Lavalin’s Montreal headquarters.
Since then, two class action lawsuits were filed on behalf of investors, two former Toronto-area employees were charged in Canada under the Corruption of Foreign Public Officials Act in relation to a bridge project in Bangladesh.
In its management discussion and analysis for the first six months of 2011 and 2012, SNC-Lavalin noted that the RCMP investigation “is understood to be ongoing and to be focused primarily on an unsuccessful bid by a subsidiary to act for the Bangladeshi government in supervising a project contractor.”
It also noted that the World Bank is also investigating the project in Bangladesh, and that in March, the World Bank temporarily suspended the SNC-Lavalin subsidiary in Bangladesh from the right to bid on new World Bank projects pending the conclusion of its investigation and a final decision.
“Other than the temporary suspension referred to above, no charges have been brought or sanctions imposed against the Company in connection with these matters,” the firm explained in its press release.
“It is not currently possible to predict the outcomes of these investigations or whether any penalties or other sanctions may be imposed against the Company in connection therewith at this time, including whether charges and/or sanctions could be brought against it in connection with possible violations of law or contracts. Other investigations of the Company by these or other authorities may be initiated or the scope of existing investigations may broaden.”
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