May 5, 2016 / 12:17 PM / 3 years ago

SNC-Lavalin's profit beats estimates as cost cuts boost margins

(Reuters) - Canadian engineering and construction company SNC-Lavalin Group Inc reported a better-than-expected profit for the first quarter as cost cuts helped margins amid lower spending by customers in its core energy business.

Neil Bruce, president and CEO of SNC-Lavalin, poses in their head offices in Montreal, November 10, 2015. REUTERS/Christinne Muschi

SNC-Lavalin is undertaking a sweeping cost-cutting program expected to help lower 2016 expenses by about C$100 million and boost margins in its core energy and construction business as clients cut spending due to low commodity prices.

“We will not waver from our strategy,” Chief Executive Neil Bruce said at the company’s annual general meeting in Montreal on Thursday.

Bruce told the meeting he thought SNC previously had a “challenging relationship” with the province’s power company, but he was “looking to restore and expand relationships with Hydro Quebec.” La Presse newspaper has previously reported that relations between SNC and Hydro were strained after the engineering company won a hydroelectric contract in Newfoundland in 2010.

However, during a press conference after the meeting, Bruce told reporters his remarks referred to a “business development opportunity” with Hydro Quebec. He said SNC did not have a “fractious relationship” with the utility which intends to double its revenues over the next 15 years, largely through acquisitions and exports.

A Hydro spokeswoman declined to “comment on the past,” calling SNC “a long term business partner.”

SNC’s energy and construction business accounted for nearly 26 percent of its first-quarter profit and the company reiterated that the oil & gas and power segments should be the main contributors to net income.

SNC-Lavalin’s revenue backlog’s rose to a record-high of C$13.4 billion ($10.4 billion) at the end of March, from C$12 billion at the end of December, helped by a new contract at a Saudi Aramco-operated natural gas field in the Middle East.

During a conference call with analysts, Bruce said SNC would save on taxes from its increased business in the Middle East and reduced exposure in the U.S.

RBC Capital Markets estimated SNC-Lavalin’s adjusted EBITDA margin in the engineering and construction business rose to 5.2 percent in the first quarter from 4.6 percent a year earlier.

The company continues to target an annualized EBITDA margin of 7 percent in 2017.

Net income attributable to SNC-Lavalin rose nearly 17 percent to C$122.1 million, or 81 Canadian cents per share, helped by a gain from the March sale of its indirect stake in the operator of the Malta International Airport for C$53.6 million.

Reporting by Manish Parashar in Bengaluru and Allison Lampert in Montreal; Editing by Savio D'Souza and David Gregorio

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