SNC-Lavalin Group Inc. saw fixed-price construction contracts drag down its results in its latest quarter, even as the company continues to pivot away from the loss-prone sector and undertakes a strategic review with an eye to optimizing its various businesses.
The engineering firm reported a $54.4-million loss from continuing operations attributable to shareholders for the quarter ended Dec. 31, compared with a loss of $15.3 million in the last three months of 2021.
Chief executive Ian Edwards said Friday the company's challenges with so-called lump-sum turnkey (LSTK) projects were largely behind it.
"As such, we are conducting a strategic review to further optimize our portfolio of businesses in order to focus on the successful growth we achieved in 2022," Edwards said in a statement.
Under his stewardship since June 2019, SNC-Lavalin has shifted its focus to engineering services and away from so-called lump-sum turnkey (LSTK) projects -- fixed-price contracts under which companies must pay for any cost overruns themselves.
However, the company faced tough questions during a conference call with financial analysts over whether that cash drain was truly in the rear-view mirror, with one pointing to the interminable Eglinton light rail line in Toronto that has been under construction since 2011.
"You've been 90, 95 per cent complete ... for three or four quarters now and suffered writedowns along the way. So what's changed such that we're going to see that backlog actually go to zero and this thing finally be put to bed?" Canaccord Genuity analyst Yuri Lynk asked.
Edwards said that with construction work virtually done, the associated problems -- supply chain disruption, cost overruns due to inflation, labour disruption -- are also in the past. Remaining work falls under "professional services" -- systems testing, driver training, safety permits, regulatory approvals -- and should involve fewer snarls, he said.
The Eglinton Crosstown LRT and Ottawa's Trillium Line rail extension are the two major fixed-price contracts that bore the bulk of the company's $150.2-million loss in adjusted earnings before interest and taxes in its LSTK segment in the fourth quarter.
However, its engineering segment churned out sturdy numbers, accounting for 65 per cent of its $1.90-billion revenue. The total marked a drop from $1.94 billion in the same three months a year earlier.
SNC's engineering segment boosted its backlog to a third consecutive quarterly record of $4.66 billion, versus $3.77 billion in the same period in 2021.
On an adjusted basis, SNC's professional services and project management operations posted a loss of 19 cents per diluted share in its fourth quarter compared with a loss of 15 cents per diluted share in the fourth quarter of 2021.
Advertisement