Genivar appeals for employees to have faith despite improper contributions

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The offices of Genivar Inc., are seen Tuesday, November 6, 2012 in Laval. THE CANADIAN PRESS/Ryan Remiorz

MONTREAL - Genivar appealed for its employees to continue to have faith in the engineering and consulting firm after acknowledging Wednesday that $525,000 in improper political contributions were made to secure municipal contracts.

"I want each and every one of you to be proud to be working for Genivar. We are a mature and strong business and together we will go through these difficult times and come out stronger," CEO Pierre Shoiry said during a conference call to discuss its fourth-quarter and full-year results.

Former vice-president Francois Perreault testified at the Charbonneau commission investigating corruption in Quebec on Wednesday that up to 17 payments were made between 2005 and 2009.

"He has taken full responsibility for his acts and has resigned his position last week after withdrawing from operations in February," Shoiry told analysts.

He said Genivar's internal investigation confirmed the information. After meeting with its auditors, the company determined that no restatement of its results is required.

"We intend to continue to be proactive and as transparent as we can, providing all of our stakeholders with appropriate information," he said, adding that the company is "committed to ethical business conduct in all that we do."

Genivar beat expectations as a major acquisition caused its net revenues to more than triple in the fourth quarter, the Montreal-based engineering and consulting firm said Wednesday.

It was the first full quarter of contributions from WSP Group PLC, a U.K. company that Genivar acquired last August for $442 million in cash.

Genivar (TSX:GNV) earned $23 million or 45 cents per share in the quarter ended Dec. 31, while adjusted earnings were $26.5 million or 52 cents per share.

The adjusted earnings were up from $10 million or 37 cents per share a year earlier and 13 cents per share ahead of the consensus estimate.

Net revenues were $411.9 million, excluding $104.6 million in subconsultants and direct costs. A year earlier, net revenues were $132.7 million or $172 million including the pass-through subconsultants revenues.

Despite the increases, Genivar said its quarterly dividend would remain at 37.5 cents per share at the next payment on April 15.

WSP's organic revenues grew 8.1 per cent while Genivar's Canadian operations contracted by 1.2 per cent.

Full-year net revenues nearly doubled to just above $1 billion in 2012 from $529 million in 2011. Total revenues were $1.26 billion including $237.4 million of subconsultants, while net income fell to $46.3 million or $1.15 per share from last year's $50.1 million or $1.91 in 2011.

"We are quite pleased with our overall accomplishments in 2012," Shoiry said.

In 2010, the company set a strategy to become one of Canada's top three engineering and consulting firms, reach $1 billion in revenues by 2015 and get half of its activity from international markets.

"I'm pleased to say today that we delivered. Not only did we meet the objectives that we set in 2010 but with the merger with WSP we accelerated the achievement of our plan and set the foundations for the next stage of our strategy."

He said the company ended the year in a strong financial position, was included in the TSX S&P Composite Index and received continued support from its two main shareholders, the Caisse de depot and the Canada Pension Plan Investment Board.

These are "all the right elements which will be the foundation of our continued growth," he added.

However, Shoiry said he's not pleased with Genivar's performance this year in Canada, which accounted for 57 per cent of overall revenues in light of flat organic growth and downward pressure on margins.

The number of Genivar shares outstanding also increased dramatically, rising to 40.3 million at the end of December from 26.2 million a year earlier.

Genivar financed the WSP acquisition by raising $225 million on the public markets and $197 million in private placements with two of Canada's largest public pension funds, which were already shareholders.

Analysts welcomed Genivar's strong results but raised concerns about its "conservative" guidance for 2013.

The company expects revenues will range between $1.5 billion and $1.7 billion, below the consensus analyst forecast of $1.75 billion. It says the EBITDA margin should be 10.5 per cent, yielding pre-tax operating profits of $160 million to $180 million, about $20 million below forecasts.

"From a trading perspective, although the company’s guidance will likely lead to some pressure on earnings forecasts, we expect the shares to react positively to the results given the WSP acquisition is, thus far, delivering on its promise — providing added comfort to investors that the dividend payout is sustainable," Pierre Lacroix of Desjardins Capital Markets wrote in a report.

Ben Vendittelli of Laurentian Bank Securities said that while the outlook is generally positive, he is "somewhat concerned" that the company's 2013 EBITDA margin forecast is well below the 12.3 per cent recorded in 2012 and his forecast for 2013.

On the Toronto Stock Exchange, Genivar's shares closed up 73 cents, or 3.26 per cent, at $23.12 in Wednesday trading.