VANCOUVER/TORONTO - The head of SNC-Lavalin, one of the world’s biggest engineering and construction companies, has stepped down after an internal investigation found he had acted unethically by authorizing tens of millions of dollars in mysterious payments.
SNC announced chief executive Pierre Duhaime’s resignation as it reported a steeper-than-expected 52% drop in quarterly profit and forecast little change in earnings for all of 2012.
The company had delayed releasing its quarterly and full-year results pending the findings of the independent probe, carried out by Canadian law firm Stikeman Elliot.
The century-old Canadian company disclosed the payments, worth around $35 million, on Feb. 28, just weeks after it suspended two executives, who Canadian newspapers said had ties with the family of former Libyan dictator Moammar Gadhafi.
On Monday, the company said that based on the findings of the investigation, it does not believe the payments were related to Libya, where SNC had several projects, including building a prison for the now-deposed Gadhafi regime.
SNC, with operations in more than 100 countries and revenues of $6.3 billion in 2010, said the payments were related to construction projects but that there was no evidence about their use or purpose. The company declined to say where the projects in question were located.
“We have not been able to get to the bottom of where the money went to,” SNC chairman Gwyn Morgan said on a conference call.
SNC’s share price, which started the session down more than 4.5%, rebounded after a company conference call. By early afternoon it was up 4.5% at $41.04. But the stock is still down more than 20% since the start of the year.
The company is in the process of handing over its findings to Canadian police but Morgan said it has no knowledge if law enforcement authorities, or any regulatory agencies, will launch investigations.
Morgan is the former CEO of Encana Corp, Canada’s largest natural gas producer. He sits on SNC’s board with several well-known Canadian business figures, including Claude Mongeau, the CEO of No.1 railroad Canadian National Railway .
This is not the first time that SNC’s business practices have come under the spotlight. Canadian police last September launched an investigation of SNC employees for possible corruption involving a US$1.2 billion World Bank bridge project in Bangladesh.
HUNT FOR NEW CEO
Ian Bourne, a director since 2009, will take over as the interim CEO. A search for a new CEO is set to begin immediately and will consider both internal and external candidates.
SNC’s audit committee, which probed the payments matter, said the dealings highlight weaknesses in its internal control over financial reporting.
Its code of ethics requires that no transaction or other financial information is concealed from management or from internal and external auditors. The review found that the payments authorized by the CEO and the former head of its construction, Riadh Ben Aissa, who was one of the two executives who left SNC in February, were not properly disclosed.
Canadian newspapers have unveiled close ties between Ben Aissa and Gadhafi’s son, Saadi Gadhafi.
SNC said it had no plans to back away from business in Libya or North Africa and was in fact looking for new opportunities there.
SNC’s net income attributable to shareholders fell to $76.0 million, or 50 cents per share, from $158.7 million, or $1.04 per share, a year earlier, lower than analysts were expecting.
The sharp decline in profits mainly reflected an operating loss at its infrastructure and environment arm, along with a loss from its hydrocarbons and chemicals units.
The company, which raised its fourth-quarter cash dividend by 4.8%, expects 2012 profit to be little changed.