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Dec 3, 2012 (4 years and 7 months ago)

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SNC
-
Lavalin Group Inc.

Investment Recommendation

for


Prepared For:

Rod Macpherson

Business Certificate Head, SIAST Kelsey Campus





Prepared By:

Jame
s Entaalo
, Beerpal Gurm, and Danielle Hoppe

Business Certificate Students





March 9
, 2012

S N C
-
L a v a l i n G r o u p I n c.

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2




309 Avenue U North

Saskatoon, SK S7L 3B5



March 9, 2012



Rod Macpherson, instructor

Business Studies, SIAST

Box 1520

S
askatoon
,
SK

S7K 3R5



Dear M
r
. M
acpherson


This letter is to inform you that investment recommendation for

SN
C
-

Lavalin Group Inc
. (TAX:
SNC)
is e
nclosed. It recommends SNC
-
Lavalin

as a good investment for an

average investor
,
including yourself. We estimate that shares in SNC will earn an average

return for the next five
years.


As you know, economic conditions change quickly, so we advise

you to keep a close eye on the
activities of
SNC
-

Lavalin Inc.

and use our analysis to choose when to buy or sell your shares.


Thank

you

for
giving us this

opp
ortunity to investigate

this

company. If you have questions
about our report,
feel free to contact me at hoppe6054@siast.sk.ca.



Sincerely





Danielle Hoppe

for the EH report group

S N C
-
L a v a l i n G r o u p I n c.

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3




S N C
-
L a v a l i n G r o u p I n c.

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4


Table of Contents

Executive summary

................................
................................
................................
................................
.......

5

Introduction

................................
................................
................................
................................
..................

5

Background

................................
................................
................................
................................
...................

1

History

................................
................................
................................
................................
...........................

2

SNC Group

................................
................................
................................
................................
.................

2

Lavalin

Inc.
................................
................................
................................
................................
.................

3

SNC
-
Lavalin Group Inc.

................................
................................
................................
..............................

3

S.W.O.T. Analysis

................................
................................
................................
................................
..........

3

Strengths

................................
................................
................................
................................
...................

4

Opportunities

................................
................................
................................
................................
............

5

Weaknesses and Threats

................................
................................
................................
..........................

6

Financial

Statistics

................................
................................
................................
................................
.........

7

Financial Highs by
Country

................................
................................
................................
........................

8

Financial
Downfalls

................................
................................
................................
................................
...

8

Financials by Industry Segments

................................
................................
................................
...............

9

Conclusion

................................
................................
................................
................................
...................

10

Appendices

................................
................................
................................
................................
..................

11

A) Overview of Activities

................................
................................
................................
.........................

11

Works Cited

................................
................................
................................
................................
.................

13




S N C
-
L a v a l i n G r o u p I n c.

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5


Executive summary

With a century
-
old experience, Group SNC
-
Lavalin Inc. has a large portion of the engineering
stock market. This report investigates whether investing in Group SNC


Lava
lin Inc. is a liable
decision.
We

will investig
ate SNC’s corporate background,
financial history
,

the

accomplishments made by this company

due to its strengths and opportunities
and downfalls
caused by
weakne
sses and threats
.

Exploring all aspects of

the business will help to understand
the value of the company in the financial market and its future prospects.

The recommendation
provided is based on SNC’s internal financial reports, internal
employees

and external advisor’s
opinions, and external articles of information. The conclusions made in this report are based
upon the 2011
-
2012 economic conditions.

S N C
-
L a v a l i n G r o u p I n c.

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1


Introduction

With its

rapid growth in the past few decades
, SNC
-
Lavalin Inc. has become the leader in the
world of engineering
and innovation, both locally and globally
. Thi
s company has beyond
24,000

empl
oyees, around 10,000 successfully completed projects and various on
-
goi
ng projects
in more
than 100 countries.

It

is one of the largest Engine
ering and Construction firms

in the
world, with

annual revenues of more than Canadian
$7 billion.

With a strong
beginning by the

founders, several successes
stories
and a strong
financial background
, SNC has become a major
contributor to the engineering development in the world. The completion of various big projects
around the world has made SNC, a multi
-
billion company and an innovator of engineering
technology.
The
main
purpose

of this report
is to investigate

whether investin
g in SNC


Lavalin
Group Inc. will be

a wise decision

for obtaining long and short
-
term profits or not
? We will be
providing every detail about the company in our report which would help investors in looki
ng at
all factors that are involved in making better investment decisions.

Background

SNC
-
Lavalin Group Inc. provide
s

engineering, procurement, construction, project management
and project financing services to a variety of industry sectors, including agrifood,
pharmaceuticals and biotechnology, chemicals and petroleum, environment, heavy construction,
mass transit, mini
ng and metallurgy, power and water management.
The services offered by SNC

also

include engineering, construction, project management, and financing.
SNC has
recently
become the primary supplier of nuclear reactor technology in Canada after the acquisition

of
Atomic Energy of Canada Limited. SNC is committed to providing a safer workplace for all of
its employees by setting up safety committees at their all locations and ensuring that every
employee is aware about the safety procedures at their workplaces.
SNC has been rated as one of
the safest workplaces in Canada with really low fatality and injury claims.

SNC
-
Lavalin
maintains exceptionally high standards for quality, health and safety, environmental protection,
and is committed to delivering projects on

budget and on schedule to the complete satisfaction of
its clients. SNC
-
Lavalin's business strategy rests on

its

four strong pillars:

S N C
-
L a v a l i n G r o u p I n c.

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2




It has built on its well
-
known

expertise in its core sectors and
has also
develop
ed

expertise in technical fields with
f
uture growth prospects



It u
se
s

its f
inancing capabilities to increase

its competitiveness in
engineering and
construction sectors.



It u
se
s its technical resources and financial strength

to develop better

infrastructure
and
efficiently complete all major
projects.



It continues to control

the international network it has built up over nearly 40 years.



SNC
-
Lavalin has been active internationally for nearly 40 years,

and in Canada for over 100
years establishing

a multicultural network that spans every continent. The SNC
-
Lavalin
companies hav
e

30

offices across Canada and in 10
0 other countries around the world.
They
have been a very successful company since their first office was opened in Canada in 1911.


Histo
ry

SNC Group

SNC
-
Lavalin Group Inc. was originated
in 1911
when Dr. Arthur Surveyer opened
his first
engineering office in Montreal
, Quebec, Canada
. Surveyer was specialized in civil engineering
and later diversified into industrial plant
design. In

1937, Emil Nenniger and Georges Chênevert
became Surveyer's partners. The partnership was renamed Surveyer, Nenniger & Chênevert
(SNC) in 1947.

SNC was incorporated as a limited company in 1966.

SNC worked on a number of noteworthy projects in the early
1960s, including Manic 5 Dam in
northern Quebec. According to company literature, its first international job was building the
Idukki power station in Kerala, India, in 1963
. SNC Group grew aggressively through several

acquisition
s

in the 1970s and their
r
evenues

had reached an all
-
time high of C$180 million by

1981. SNC b
ecame a public company in 1986 triggering h
alf of SNC's revenues
to come

from
abroad. To cope with the early 1980s slowdown in engineering services, SNC Group pursue
d
S N C
-
L a v a l i n G r o u p I n c.

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3


growth in the defense

market, now making them a major player in the engineering services
market.

Lavalin

Inc.

Meanwhile there was another competitor in the market, the Lavalin civil engineering firm of
Montreal formed by
Jean
-
Paul Lalonde and Romeo Valois. The firm
was
started

by Lalonde and
Valois
and
became
well known

as Lavalin Inc. by the early 1970s. Major projects for Lavalin
during the decade included the James Bay hydroelectric plant (in collaboration with Bechtel of
the United States) and the roof of Montreal's Olympic Stadium. However, as the international
busi
ness became more competitive, Lavalin looked to build petrochemical and manufacturing
segments. At the dawn of the 1990s, Lavalin was a C$1.2 billion conglomerate of more than 70
companies, but it was on the verge of collapse due to its overly ambitious ex
pansion into loss
-
making side ventures.

SNC
-
Lavalin Group Inc.

In 1991, Lavalin's bankers put it under pressure to be a
cquired by its chief rival, SNC.
The

same year

SNC Group
had
acquired its main rival, Lavalin Inc., which had collapsed after an
overamb
itious diversification plan.
SNC
Group Inc. bought Lavalin Inc.’s engineering business
worth C$348 million for C$400 million
. SNC
-
Lavalin was
now
the fifth
-
larges
t engineering firm
in the world and

i
t had more than 7,000 employees after the merger
.
The com
bined company has
continued to grow ever since. It has focused its growth
-
by
-
acquisition strategy on international
companies since the mid
-
1990s. More than half of

the

rev
enues come from International
operations.


S.W.O.T.
Analysis

SNC
-
Lavalin had been gro
wing and expanding rapidly all
over the world since it was founded
almost 100 years ago. There is a

high demand for
better quality engineering
products an
d
services globally
and the company is capable

of meeting these demands with their innovative
ideas and engineering techniques. The company has maintained a strong financial history ever
S N C
-
L a v a l i n G r o u p I n c.

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since it has been created and has been able to attract investors and provide them with better
returns on their inve
stments. There are various opportunities being created in the modern
industrial world for SNC

with

the allocation of more natural resources towards
the development
of third world countries and ageing infrastructure in developed countries which demands repa
irs
and better engineering solutions. The demand for food also has increased with the rising
population around the globe, droughts and other natural disasters. This provides SNC with an
opportunity to perform research
and come out with better solutions to
help the global population
to meet their demands.

The increasing demand for engineering, construction and care for the
environment by the governments of various global countries has become the primary source of
income for this company. The

opportunities pr
esented to SNC
with today’s increasing demand
for engineering and construction,
when back
ed up by its strengths has mad
e the company
financially stronger to be able to contribute towards the development of the world economy.
SNC
-
Lavalin has also become a m
ajor player in the engineering sector of the world and well
-
known for providing better environmental solutions.

Strengths



A
bility to work in different economic, political and cultural environments and
understanding the needs of people to come out with bett
er scientific and engineered
solutions.




Its
reputation for
performing the projects with high quality service and
finishing the
work according to the given deadlines and procedures.




SNC’s

operation and management strategic p
rocurement te
am is one of the
reasons for
the company's long
-
term success and continuous growth.



SNC
-
Lavalin

Group’s

(SNC.TO) Financial
Strength

Analysis based on its Balance Sheet
and history of Retained Earnings.



The other strength for SNC is its talented, hardworking and highly ski
lled workforce
which serves as an important asset for the corporation.




SNC has been stable in the world economy for a millennium due to the efficient use of
resources and expansion into sectors other than engineering and construction.

S N C
-
L a v a l i n G r o u p I n c.

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5


Opportunities



The
high rate of

growth and development in the third world countries

which are in need
of latest engineering technology.



Aging infrastructure in the

dev
eloped countries is in need of serious repairs and better
engineering solution.



Proper allocation

of
the
nat
ural resources

based upon the needs and demands of people
and taking effective steps towards the conservation of our natural environment.



Increase in the demand for food and other resources due to various natural catastrophes
around the world and increasin
g population. This demand can only be met with proper
research and innovation and best allocation of resources which can be provided by SNC.


However, the
re are also some controversies that have surrounded SNC
-
Lavalin in the past few
months that includes
the unfolding the activities of SNC that were done behind the curtains in the
dictatorship regime of Muammar Gaddafi in Libya
. The

investigations have revealed that the

company’s top executives had very close tie
s with Muammar Gaddafi
. During the civil war

in
Libya, the top executives protected the dictator’s family even to the extent of smuggling them to
Mexico. This allegation of corruption in Libya is affecting the company negatively worldwide.
During the revolution in Libya last year, the company had t
o take their employees to
a
safer
region, work has never been done during this period of time and employees still h
ad to be paid.
T
he company announced a loss

of 23 million dollars
in late February 2012
and
told investors that
35 million dol
lars
more were
still
needed for

covering

“other costs”.

According to Bruce
Haggard, a financial advisor at BMO Nesbitt Burns Inc. in Saskatoon, the 23 million dollars
went to employees’ salaries but he had no clue to why the 35 million dollars is needed for so call
“othe
r costs.” However, he concluded that, due to the involvement of the company in corruption
allegations in Libya, the firm i
s losing a huge amount

of money. “The 35 million dollars is going
to the allegation tha
t involved the smuggling of Gadd
afi’s family in
to Mexico.” said Bruce and
this
has
worried shareholders

and made them think about the future of SNC
. The company’s
target price dropped from 60 to 40 dollars on February 28 of
this year due to the involvement of
th
e company

in
Gaddafi’s
Libya

and various
other allegations. The financial conditions and stock
prices are

very weak at the moment

for SNC and financial advisors at BMO think that

it will stay
S N C
-
L a v a l i n G r o u p I n c.

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like this for a while
. However, according to Erica, another

financial advisor at RBC Royal bank
in Saskat
oon, a drop in target prices are always a good sign for new investors to enter a
corporation but not when it
has been
involved
in
corruption allegations where the future vision of
the company is not clear.

So SNC needs to come out clear from the investigat
ions and focus on
the current big projects in Canada and Romania to convince the current and future investors to
invest in its stocks.

The SNC has recently won a contract of $48 million to install venting
equipment at Romania’s Cernavoda nuclear power plan
t which is a part of safety upgrade due to
the disaster at

Fukushima power plant in Japan

(Praet)
.

This could be a

opportunity for SNC after
the recent corruption allegations to prove itself and retain the interest of its investors.


Weaknesses and Threats


The recent recession in the world economy has had adverse effects on the profits and growth of
SNC
-
Lavalin. SNC
is a global company and has its roots/subdivisions in almost every country.
The recession in the North American and Asian countries has not affected the operations of SNC
to a larger extent. Europe has been most hit by the economic recession due to the hig
her
government spending and over
-
dependence on the capital from foreign banks. SNC has
successfully completed several projects in the European countries and is also currently involved
in getting more contracts. But due to severe recession there are less ch
ances of advancement for
SNC in European countries because the governments of European Union are cutting their
spending on public
infrastructure and engineering, so
SNC has to closely watch its current and
future operations in the European recession
-
hit co
untries. Currently, there are more chances of
losing money, if SNC decides to invest in the countries which have been hardly hit by the
economic recession, such as Greece, Italy and Spain. SNC has recently lost a lot of capital in
Libya due to the crisis i
n Libya. SNC
-
Lavalin has operated for decades in Libya constructing
billions of dollars’ worth of airport, road and other infrast
ructure contracts under the Gaddafi
regime. The Gadd
afi regime was overthrown after NATO attacks; this has cost SNC billions of

dollars in losses because of the several unfinished projects in Libya.

T
he entire company is under investigation at the moment and the future will be based on the
results. If it is proven that the company is indeed involved in the corruption allegation,
it will
S N C
-
L a v a l i n G r o u p I n c.

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7


lose investors as well as no new investors would want to go and invest

in the company any more.
The major concern here is

that governments are the major sources of income of SNC and the
products and services provided by the company are required by
g
overnments. Canadian
government

and NATO forces were invol
ved in the war against the Gadda
fi’s dictatorship
regime in Libya and the government of Canada did not know that it was not only fighting the
dict
atorship regime but also its locally owned and oper
ated

corporation. According to Bruce, The
Company will need at
least 5 to 10 years to convince the

investors that SNC
-
Lavalin is a safe and
good company to invest in again regardless of the results of the investigation. This is the second
time a Canadian c
orporation is involved in international corruption allegation. Talisman Energy,
a Canadian corporation was operating in Sudan 10 years ago, only four years of operation in the
African country, the company was linked to massive violations of human rights th
at have
occurred during Sudan’
s brutal civil war. A worldwide

campaign was carried out to persuade
i
nstitutional investors to invest in

the company’s stock. The company went out of business due to
this campaign and it was sold out. This is the pat
h SNC
-
Lav
alin could be leading towards the
future and
if the allegations continue to happen, this could also lead SNC to a merge of
bankruptcy.


Financial

Statistics

A world experiencing persistent changes makes it vital for a business to familiarize itself with
current events and to grasp opportunities. At SNC
-
Lavalin, strategic planning is an energetic and
ongoing procedure established to make sure that the organizat
ion is quick to respond to market
openings and the desires of its consumers. This company has had substantial increases in income
in the past 102 years.
Maintaining a strong balance sheet and financial performance is important
not only for their shareholde
rs but also to provide its clients with the knowledge that it is able to
maintain stability while working on projects. The Corporation invests its cash balances,
primarily, in money market instruments and bonds of high
-
credit quality.

S N C
-
L a v a l i n G r o u p I n c.

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8



Financial
Highs by
C
ountry

Canada is the largest income
-
making
country for SNC

with projects all across
the provinces and territories
.
SNC’s net
income
from Canada
increased 15.8%
from
C$108.5 million in

2010

to
C
$125.6 million in 2011
.

SNC
-
Lavalin
has been involved in Canada’s mi
ning
sector for over 50 years. SNC has
particular expertise in aluminum, gold,
b
ase metals, iron ore, diamonds, potash,

and infrastructure projects. Mining is a main income for Canada because they are a country that
is very rich with minerals.
They have executed projects for a variety of merchandises across all
provinces including projects in the high arctic.



Following c
losely behind Canada’s large income

is Africa, making an income of C$1,242,408

in
2010.
Africa’s development has been contributed

to by SNC
-
Lavalin

for over 35 years,
completing more than 800 projects in 52 countries.

Major projects include the Mozal and A
lusaf
aluminum Projects, the Bulyanhulu Gold Project, and the ongoing Kabanga and Ambatovy
Nickel Projects.

These projects have brought great success for SNC, but not all projects are a
successful choice for this company.



Financial
Downfalls

Although

gai
ning

income has never been a problem for SNC,
recent activities have

devalued
their shares and overall brand personality.
Good examples of the downfalls in SNC are the events
that have occurr
ed recently due to the crisis in Libya
.
Revenues for the year ended December 31,
2010 include
C
$418.2 million of revenues from Libya. Due to
the
recen
t events
,

SNC

had
lower
S N C
-
L a v a l i n G r o u p I n c.

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9


revenues in 2011 fro
m this country compared to 2010
.
SNC
-
Lavalin has had several events that
have intoxicated their reputa
tion

from the

contract with Libya
.

On March 1, 2012,

Kazi Stastna
from CBC News
wrote
that SNC has C$35 million
in “undocumented payments”
which has
caused

a sharp drop in their share prices (over 2 days). The Montreal
-
based company's stock fell
nearly 21
% on the Toronto Stock Exchange to close at $38.43. That was the biggest drop since at
least January 1992, and the stock continued its downward slide.
SNC representatives

said the
C$35 million
was
tied together with the C$23 million in losses from their Li
byan projects, which
had to be abandoned when civil war broke out in the country. When the Libyan project began
again in
early 2012
, employees got tied into illegal activities causing a dismissal of some top
employees.
Many of these events caused a change
of opinion

among the investors to invest

in
SNC Stocks.

Several analysts revised their recommendations from "buy" to "neutral" although none of the 15
SNC
-
Lavalin analysts that financial news firm Bloomberg tracks felt the news was bad enough
to recommend

selling the stock.
By the close of trading on February 29, 2012, seven analysts
were recommending buys, seven were advising investors to hold the stock and one was
reviewing its recommendation.

Financials b
y
Industry Segments

Although you can only invest

in SNC
-
Lavalin Group Inc.’s stocks by location they still break
down there income by area of expertise. There are 7 main industry segments:




Infrastructure

and Environment,




Chemicals and Petroleum,



Power,



Mining and M
etallurgy,




O&M,



ICI and
,




Other Industries.

S N C
-
L a v a l i n G r o u p I n c.

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10


Please see Appendix A
,


Overview of Activities
” for more information and descriptions of what
each segment consists of.

Conclusion



S N C
-
L a v a l i n G r o u p I n c.

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11


Appendices


A)
Overview of Activities

Although you can only invest in SNC
-
Lavalin Group Inc.’s stocks by

location they still break
down there income b
y area of expertise. SNC breaks down their income into 7
segments

(SNC
-
Lavalin)
:

1.
a.

Infrastructure
-

Their

expertise in this sector includes airports, bridges, buildings, container
ports, ferry terminals, flood control systems, health care facilities, mass transit systems, railways,
roads and water treatment/distribution infrastructure and facilities for
t
he p
ublic and private
sectors.

b.

Environment
-

SNC provides expert solutions for

environmental impact assessments and
studies; site assessment, remediation and reclamation; ecological and human health risk
assessment; waste management; water and wastewater; m
arine and coastal management; air
quality and acoustics; environmental management; climate change; institutional strengthening
and rural development.

2. Chemicals and Petroleum
-

They also provide expertise in

gas processing; heavy and
conventional oil pro
duction; onshore and offshore oil and gas; liquefied natural gas; pipelines,
terminals and pump stations; refining and upgrading; bitumen production; petrochemicals;
biofuels; chemicals and fertilizers.

3.
Power
-

SNC

design
s, builds
and operate
s

power fac
ilities on a cost
-
plus reimbursabl
e or lump
-
sum turnkey basis. The

areas of activity include hydroelectric, nuclear and thermal power
generation, transmission and distribution projects, energy

control systems and training.

4. Mining and Metallurgy
-

They

provide project management, engineering, procurement
,

and
construction services for each step in the mineral and metal recovery process, including mineral
processing, smelting, refining, mine closure and reclamation.

5. Operations and Maintenance
-

They a
lso

provide operations, maintenance and logistics
solutions for real estate, power plants, water supply and treatment systems, postal services,
broadcasting facilities, highways, light rail transit systems, military camps and ships.

6.
Infrastructure Conc
ession Investments
-

SNC has

been making equity investments since the
mid
-
1980s, and have had a division dedicated entirely to this field
since 1997. They

have the
breadth of expertise to design, build, own, operate and maintain infrastructure facilities an
d
systems, as well as the ability to structure the capital trans
action in an efficient manner.


S N C
-
L a v a l i n G r o u p I n c.

|Page
12


7. Other Industries:

a. Agrifood
-

The

services
provided
range from food processing to packaging, handling,
distrib
ution and storage facilities. They

serve companies of all sizes in their domesti
c markets
and
even
internationally.

b.
Pharmaceuticals and Biotechnology
-

F
ull service solutions
are provided
for the
pharmaceutical, biotechnology and life sciences sectors, including engineering,

constructio
n and
validation. SNC also has

international expertise in biotechnology and pharmaceutical process
engineering and regulatory compliance.

c.
Industrial
-

The

areas of activity include glass, lubricants, automobile and airplane assembly,
cosmetics, filling and packaging lines, sul
phuric acid and many others. The

services
provided by
SNC
range from process development and design, to plant commissioning and start

up, and
include complete services in instrumentation and automation.


d.
Project Financing
-

SNC
-
Lavalin Capital offers worldwide
modeling
, financing arrangements
and advisory services for our projects and for third part
y clients. Its capital

team has arr
anged
billions of dollars in financing for projects, including a number of award winning
deals.




S N C
-
L a v a l i n G r o u p I n c.

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13


Works Cited

Gerow, Colette.
Financial Advisor

Danielle Hoppe. 16 February 2012.

Haggard, Bruce.
Financial Advisor

James Entaalo. 29 February 2012.

Jones, Edward.
SNC
-
Lavalin (TSX: SNC.T)
. 17 January 2012.
https://www.edwardjones.com/cgi/getDoc.cgi?r2AroGUhXGbYe9s
wqgdq2yHkf7w6GU
XfyYki5fbYyf4%3D
.

Loignon, Genevieve.
Financial Department, SNC

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