Q2 2020 WSP Global Inc Earnings Call
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Bush evidencing miscues, good day, ladies and gentlemen, yeah that coffeehouse any funny. So they hit the top female feet. They didn't peanuts didn't excesses didn't insane deeply deeply the XP.
Welcome to double U.S. piece second quarter Twentytwenty results conference call.
I would like to turn the meeting over to Quentin Weber Investor Relations I believe that balance. Please go ahead mr. weather.
Good morning, we hope that drove six from doing well. Thank you for taking the time to joined the call today during which we will be discussing our Q2 2020 performance followed by your Tunis session.
What does today, our unlike some dilute our president and Chief Executive Officer, and then let me show, our Chief Financial Officer.
Please note that this call is also accessible on our website via the webcast.
During the call we may be making some forward looking statements and actual results could be different from those expressed or implied.
We undertake no obligation to update or revise any of these statements.
I live in factors that could cause actual results to differ materially from dose forward looking statements are listed in our most recent management discussion and enough [noise].
Also during the call we may refer to search and not yet for US measures. These misery measures are defined in our management discussion and analysis for the second quarter off 2020, as well as our management discussion and analysis for the year ended December 31st 2019, both of which can be found on c., though and on or what.
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Oh Im DNA also includes reconciliations of non I enforce measures to the most directly comparable I first matters management believes that these none of your parents measures provide useful information to investors regarding the corporations financial condition and results of operation as they provide additional key metrics of its performance. These none of your first measure.
Yes, or no recognize underway interest do not have any standardized meaning for scrap underwear terrorists and may differ from similarly in the measures as reported by other issuers and accordingly may not be comparable.
These measures should not be viewed as a substitute for the related financial information prepared in accordance with interest with that I will now turn to call over to what extent.
Thank you Clinton and good morning, everyone a scope in 19 reach endemic status I reaffirm our commitment during our call last quarter to being operationally resilient continue meetings the need to continue meeting sorry, the needs of our clients in communities.
Dream Ddos unprecedented times.
As this pandemic ascend shock waves across every industry into global economy, we have approached it but the plan for the worse strive for the best mentality.
Proactively taking actions to ensure the safety of all our people in addition to safe guarding our business and the long term.
A line to governments death, all measures are robust business continue with T. plans continue to allow our people to access the technology tools.
And then trust structure in necessary to work without disruption.
With approximately 90% of our workforce that continues to work remotely our people and sure that's our commitments to our clients and our communities are fulfilled revealing in parallel to the extent of our agility.
I wish to take this opportunity to once again, thank our employees across the world for their engagement and perseverance than the face of professional and personal adversity.
The result of this pandemic.
Additionally, I would like to specific he's saying those who are reporting to our sites each day to maintain critical project delivery. Despite these challenges.
Drawing on the strength of our empowered operating model our leaders have adapted they'll printing approaches to overseeing construction activities. We've also enhance our efforts to identify process and communicate important information to clients through various digital channels the rich.
Salt.
Our client relationships I've only been strengthened by the pandemic because our clients have seen our commitment to keep their projects and portfolio moving.
As we shift from response to recovery, our leaders and experts across the globe have been called upon to participate in industry round tables.
Especial interest groups and workshops to provide their insight on the which changes will snap back to how they were before and which trends will linger and shape a different future for our built environment.
Additionally, some of our experts have been working with theaters responsible for drafting stimulus legislation.
Through our future ready land are experts I've also create a top leadership on the wide range of topics from rethinking urban planning to looking at the future of public transport the impact of Coven 19 of the global supply chains and the post pandemic workplace.
In sum.
I'm extremely proud of what our teams have been able to accomplish whether in providing our expertise as part of the coven 19 response or setting up our communities for long term success.
Before turning this discussion to our Q2 performance I would also.
Like to congratulate our teams across the organization following the release of Engineering News record then we'll rankings.
WSP has once again ranked number two and a list of top 225 international design firms, while maintaining the number one spot for work and the transportation sector.
In addition, we are pleased to have been proven the rankings from the following a sectors.
Number three in building and the number four last year number trend power from number five last year and number seven and as our just ways from number eight last year.
We're also in the top 10 regional rankings jumping ones, but to number two and number three respectively for work in Europe, and Asia, Australia, one maintaining the number two spots for work in the United States.
Additionally, WSP has been reveal as one of the world's largest and fastest growing consultancy and the NRC top 200 environmental firms ranking.
WSP now has the sixth largest environmental consulting business underworld up from 16 place in 2019, and 38 place in 2018 and building on 10 years of consistent growth.
This improved 2020 ranking is based mainly on strong 2019 organic growth of 8% and revenue contribution made from the acquisition of Elton consulting in Australia, or because in Denmark and live events in the Netherlands, the full annualized benefits of these acquisitions along with recent act.
Positions of LT, and Ian will be even more appetite.
And our financial year end 2020.
Prior to getting into the details of our performance per region I would first like to make your shoe remarks on Q2.
After we withdrew our outlook a few months ago. We stated during our Q1 results call that given the lack of visibility the from would be focusing on two very important ambitions for Q2.
The first ambitions was to preserve cash and the position of strength that double your speed and term 2020 in.
This was accomplished as follows.
First we delivered in excess of 400 million a free cash flow by focusing our regional teams effort on converting our earnings into cash.
Historically, we have seen this kind of performance in Q4.
This is another example of the agility and the strength of our empowered model.
Second we raise approximately 570 million to further strengthen our position and protect a long term future of the firm.
As a result of these actions were now to leverage position 0.4 times and has further strengthened our already solid balance sheet.
Our second ambition was to maintain our EBITDA margins for the quarter at the level at a level similar to the same period and 19 before taking any coven 19 measures.
As previously mentioned since a large portion of our costs are variable, we were able to react quickly and swiftly to these changing environments.
In the quarter, we were able to generate 15.8% of adjusted EBITDA margin compared to 15%.
When you 19.
On organic growth for the quarter to mid single digit contraction in net revenue resulted mainly from challenges in Canada and UK.
For Canada performance was adversely affected but a combination of the depressed oil and gas industry impacting our market sectors out west and the shutdown of construction sites you to depend damage.
In the UK depend emmick just proved to be much for an economy that had already entered 2020 into weaken position.
Due to the uncertain political and business environment brought forward by Brexit, leading to particularly hard hit private sector.
The downturn in these two countries explain most of the topline contraction and this quarter.
I would now like to turn to our regional performance starting with our Canadian operation.
In Q2, or Canada report, a reportable segment posted a decrease in net revenues of 10.9%.
Delivered adjusted EBITDA by segment and that adjusted EBITDA margin by segment, a 43.4 million and 17.8% respectively.
Our results were negatively affected by the combination of two factors I've mentioned before first the lower performance in Western Canada and second.
Lower volumes and proper 10 building on the shutdown or reduce access to construction sites through to the covenant team pandemic also impacted our performance.
The impact of the depressed oil and gas industry represented approximately half of the contraction in net revenues in the quarter.
Our Americas reportable segment posted organic contraction in net revenue of three and half percent.
Net revenues into us were impacted by lower volumes in the proper Tim building market sector and lower demand for emergency response services, partially offset by higher volume and the transportation infrastructure market sector.
For the adjusted EBITDA margin by segment the impact of lower revenues was offset by cost containment measures and cost savings stemming from office locked down and travel restrictions during depend damage.
For the second quarter of 2020 are any our reportable segment posted organic contraction in net revenues of 8.9%.
You can the middle East felt the largest negative impacts on net revenues in the quarter.
The UK experience lower volume and 10 nine market sector, largely due to suffering delays on some public sector projects.
Also softness in the private sector affected our planning and advisory services and the proper 10 building market sector.
In the Middle East the transportation infrastructure and proper 10 building market sectors were impacted by both the coven 19, pandemic and deep depressed oil and gas industry.
Net revenues in the Nordic operations are low single digit organic growth and the second quarter and this is very positive.
The next operation posted adjusted EBITDA by segment and adjusted EBITDA margin by segment of 83 million and 14.2%, respectively, an increase when compared to the same period in 19.
This increase was due to a good performance in Nordics in Continental Europe.
Government subsidies cost containment measures and cost savings stemming from office luck.
And travel restrictions to depend damage.
Lastly, our APAC reportable segments delivered organic growth in net revenues of 5%.
Organic growth was led by solid results in most markets sectors in Australia, and New Zealand, partially offset by slight contraction in Asia due to timing of certain contracts and the impact of the covert pandemic effecting mostly southeast Asia.
The region delivered adjusted EBITDA by segment and adjusted EBITDA margin by saying, then the 49.2 million and 16.6% up 26.5% and 270 basis points, respectively compared to the same period last year.
Adjusted EBITDA margin by segment increased mainly due to strong performance in Australia New Zealand.
Cost savings stemming from office like Downs and travel restriction.
During the Kobin 19 pandemic. In addition to the receipt of government subsidies and Asia related.
Through the same pandemic.
I would now like to highlight a few of the major wins during Q2, showcasing a simple of our expertise across.
From across the globe.
First close to our headquarters following a yearlong pursuit WSP is proud to be a key member of the design build and finance team for one to Montreal highest profile projects revamping and we pull it lafont than panel of 1.4 kilometer tunnel requires significant upgrading.
To meet modern standards. The projects also includes the winding up 11 July matters of highway 20, and upgrades of highway a 25.
In the U.S. WSP has been selected to provide design and construction up eight miles of the U.S. route 50 in Sacramento, including construction of sound walls pavement rehabilitation and increasing vertical clearance at seven over trough.
Thanks.
Together with flat Darrin constructors and is GTC engineering, our team demonstrated extensive design build experience and commitment to collaborative project delivery.
Across the Ocean WSP has been appointed to packet, though proficient professional services framework and National framework that provides 160 public sector clients in the UK.
With the simple procurement process speeding up the delivery of projects.
Our appointment cover 15 of 19 lots different packages of work and their geographical area across England, Scotland wells in Northern Ireland.
Yes, Pointman runs from April 2022 April 2024, with the potential of bring in millions.
Each year as a preselected supplier.
We have recently been awarded a contract from Iowa highways, England that which.
Hi highlight as it is very much aligned to our future ready and net zero carbon agenda.
The UK set out a legal framework to be fossil free economy by 2015.
For the transport sector. It is a huge challenge and an opportunity since surface transport is the largest emission sector of the UK economy.
Responding to this challenge highways, England propose to deliver over and beyond the 2050 government zero carbon targets.
There are ambition is to be seen as a leader in the UK carbon agenda in the eyes of their customer.
To deliver a truly world class plan, the highways, England executives afflicted WSP to produce a leading zero carbon plan that will review operational corporate carbon asset based carbon supply chain and road user carbon.
I will now review our financial results in more detail following the updated outlook I line.
Thanks, Alex, let's first discuss revenues and backlog.
Revenues in net revenues for the quarter reached $2.2 billion at $1.7 billion down, 4.5% and 1.2% respectively compared to Q2 2019 organically net revenue contracted 5.3% for the quarter good organic growth in the eight back reportable segment was.
Offset by organic contraction and the other segment second quarter of 2020 had the same number of billable days as the second quarter of 2019.
Backlog remained strong at $8.6 billion. Another record high of 11.5 months of revenues up 479 million or 5.9% from 8.1 billion as of December 31st on the 19 end up 658 million or 8.3.
Percent when compared to June 2019 backlog organic growth reached 4.3% compared to December 31st 2019, and 5.2 per cent compared to June 29, 29 team.
Let's move onto profitability for the second quarter, adjusted EBITDA amounted to 276 million up 10.7 million or 4% compared to 265 million in Q2 2019.
Adjusted EBITDA margin for the quarter reached 15.8% compared to 15% in Q2, 2019 improved margins and the APAC and EMEA reportable segment were partially offset by lower margin in Canada.
Earnings before net financing expense and income taxes in the quarter reached 121.9 million down 18.6 million or 13.2% compared to Q2 2019 due to higher amortization and cobot 19 severance cost of 13.7 million which are included.
In the acquisition integration and restructuring cost.
Net financing expense for the second quarter ended June 27, 2020 was 20.2 million lower than the second quarter 2019, mainly attributable to non cash increases in value of investment related to a us employees deferred compensation plan and foreign exchange forward contract.
Used to edge future cash transaction as well as lower interest expense on long term debt.
Net earnings attributable to shareholders for this for the quarter of 88.6 million or 83 cents a share stable when compared to Q2 2019.
Higher amortization, and depreciation and acquisition integration and restructuring costs was offset by lower that financing expense.
Adjusted net earnings for the quarter amounted to 92.1 million or 86 cents per share down 1.9 million or four cents per share respectively compared to Q2 19.
The increase is mainly due to higher marches nation. The decrease sorry is mainly due to higher amortization and depreciation I.
I will now review a few cash flow metrics, our dsos as of June 27, 2020 stood at 72 days, an all time record low compared to 80 days as at June 29, 29 team also archery trailing 12 month free cash flow for the quarter came in at.
Eight.
800 million and fives or 340% of net earning beyond our cash flow conversion target of 100% of net earning free cash flow for the second quarter stood at 410 million compared to 14.4 million for the corresponding period in 2019 higher free cash.
Cash flow was mainly attributable.
Two accelerated collection of trade receivable during the quarter and the deferral of income tax and other emit dense in some jurisdiction of approximately 100 million.
The net debt to adjusted EBITDA ratio stood at <unk> 0.4 time, the ratio significantly lower than one to one time. The 1.1 time as at December 31st 2019, due mainly to the repayment of a portion.
Of our debt on their credit facilities following strong free cash flow in the issuance of share capital and the second quarter 2020. Finally, we also declared dividend of 37.5 cents per share for shareholders on record as of June Thirtyth 2020, which was paid on July 15, 2020 with a 53.
0.7% drip participation the net cash outlay for the quarter was 19.6 million.
I will now comment on the updated 2020 outlook that we have issued as part of our Q2 2020 results press release, we've decided to update our outlook for 2020 now that the initial shock of the pandemic is behind us and our regions and markets are redefining their strategy in view of the lingering uncertainty.
We remain cautiously optimistic as we continue to monitor developments across our region that said as we seek to three evolve if we feel we could provide you with more with further insight we will.
I would also like to remind you that the updated outlook for our 2020 performances aim at the assisting analysts and shareholders and refining their perspective on our performance. It has been prepared based on foreign exchange rates effective August 15, 2020 also please do bear in mind that weve not considered and.
The acquisition disposal or any other transaction that may occur. After today's date, we anticipate net revenue to be in the 6.7 to 7 billion range and to post contraction in net revenue in the range of 1% to 5%.
Adjusted EBITDA is expected to range between 1 billion and 1 billion 50.
Turning to tax we expect our effective tax rate for fiscal 2020 to be in the 26% to 30% range and we anticipate net capital expenditures to range between 101 hundred $10 million.
Turning to that the current the corporation continues to manage its capital structure to achieve a net debt to adjusted EBITDA ratio between one and two time. However, it's anticipated that the corporation will achieve a net debt to adjusted EBITDA ratio between <unk> 0.25, 0.75 by the end of December.
Lastly, we anticipate between 90 and 100 million in acquisition integration and restructuring costs decreased from the previous outlook is driven by coal that pandemic related costs, which are anticipated to be between 45 and 55 million.
And our FIS corporate costs in 2020 will range between 85 million and 90 million. This concludes my remarks Salix back to you.
Thank you all <unk> as the pandemic starts to abate them to lock down arrangements lift.
We are starting to see more clearly the extent of the impact to the global economy, and the adverse consequences and opportunities.
And this challenging environment, we must resist the impulse to adopt a defensive stance.
In addition to the to the measures taking across most of the organization in the second quarter to safeguard our business. We continued and are continuing to explore opportunities to set ourselves up for success. However, it goes without saying that as a result of this pandemic the momentum.
We have entered into 2020.
And I have come to a halt and search and area.
Causing us to fall behind on our 2019 2021 global strategy.
However that doesn't mean that we will relent or give up we will continue to forge ahead to ensure that we come out of this pandemic in an equally if not stronger position and asked previously mentioned, even though the landscape is change the underlying principles of our global strategy remain very realm.
Events.
With our clients of the center of everything we do we will continue to maintain our focus on project delivery meeting client needs and developing these relationships that only protect our position, but also help identify additional opportunities to leverage our expertise.
No most of our work is remote.
We continue to promote the culture that this founded on integrity and then specifically.
With the gradual reopening of business and most of our respective countries. We have shifted part of our collective focus to plan for re occupancy.
This is a complex issue that requires great diligence to ensure we can carefully meet the needs of our people partners and clients in accordance with government and helps regulation as well as taking into account our people safety needs and concerns.
Complete return will take more time.
Theres not a one size fits all approach, but rather an office by office assessment to determine how we will return.
Our HR real estate and operational teams I've been working together to they find a future model that will provide us with the flexibility. Our people are looking for while meeting the needs of the business for long term success and competitiveness.
Looking back at the quarter.
I'm proud of what our people have been able to accomplish.
I'm very pleased with our results that exceeded the ambitions, we set last quarter.
And although uncertainty remains we aim to strike the right balance with our financial outlook.
I would now like to open the lines the line for questions. Thank you very much.
Thank you if you like asked the question Press Star one on your telephone to which I have question Presidente. Please wait while the compile the question.
Your first question comes from the line of chat box with CDC. Please go ahead.
Good morning.
Good morning, Good morning first.
First question is on margins. So we saw some pretty solid cost containment in the quarter.
How should we be thinking about the sustainability of these margins.
Really just trying to understand if the savings from the office Lockdowns are permanent tore.
Warm more temporary in nature.
Look.
It was part of our strategy when we unveiled at at the beginning of of 19 to increase our margin profile. So yes, the pandemic clearly.
Allowed us to rethink the way we operate our business some of the cost savings are temporary obviously.
We had some some furloughs and some part of the world and at some point in time when things pickup.
Early we should see those cost for your appearing in the PML, having said all that.
We have the plan.
Q2.
Two to two Phil to make some some significant headways.
On the operational Excellence fund so yes, the pandemic, having an impact but at the same time, we had an operating plan to improve margin and a lot of the initiatives that we're under way before pandemic, yet we're still very relevant dream depends amex. So.
I'd say that some of it of course, there are some some sums that are temporary but I'd say that the.
A good portion of them are permanent and at the same time you know.
Like to draw your attention to our margin profile.
If you look back over the last four five years and you look at our margin profile year over year for five years and are we have increased our margin profile and percentages.
I should take 2015 were at 9.8.
And you look at now the midpoint.
Of our forecast between 20.
We're north of 11.5%. So we've seen an increase of almost 19% over the last few years, 11.5% over the last two or three years. So.
I wouldn't want you to think that the pandemic is the result of our good performance from a margin profile I'd say that over the last few years, we've been extremely aggressive and raising the bar increasing our margin profile and we have no intention to stop drinking.
Would you be willing to estimate what the improvement a temporary versus permanent was up your 50 57 your mind there.
No I wouldn't want to to make a call like this I mean, it's.
We have clearly a lot more visibility today than we had back in March but there is an element of.
That that we can predict right now so so I wouldn't want to venture and going insane like half and half for certainly if you look at the profile of our business from 15 to 2020 or even 16 17 18, you've seen constant improvement in our margin profile. So so all I can tell you is.
There's a lot of our initiatives that are permanent than we'll continue to forge ahead on that front.
My last question here is just on M&A in and how you're thinking about right now and your ability to conduct due diligence right now.
Look.
And my closing addressed I said that Uh huh.
Working from the positive position or playing defense has never been in our DNA.
And I continue to believe that the today, it's not in our DNA.
We have a plan, we unveiled that plan and that I touch based on a number of those points. This morning.
Arjun profile as a primary example of that plan, we wanted to improve our margin profile in and despite runs by depend them make we're working towards that goal to finish where we want to finish and end up by 2021.
I talked about capitalizing on our strength and expanding our ryzen alone.
On a number of other end services and we've made amazing.
Strides and growing our environmental presents a crossing around the world I mean, there we jump at 18 places or battle. So the goal is to become the dominant player and thats in that field and again.
Our strategy in those circumstances in my belief are extremely and very relevant in the underlying principles of the strategy. So so when you talk about M&A.
Clearly 2020 has been we had to take a step back.
And I told you in Q1 that our goal was to focus on the business.
Delivering shareholder value, while focusing on our existing platform, but I also said back into one that when there is more visibility in yarn and better position to assess the landscape.
I am confident that opportunities will come our way.
And then of course I don't have a crystal ball I don't know what the fall will look like I have yet to.
Formalize a view of what 2021 and in more granular details will be looking like having said all that I think we have a plan and at this point in time I have every intention to deliver it.
Okay, well leave it there thank you.
Thanks.
And your next question comes from line of theory liquid Canaccord. Please go ahead.
Hi, good morning, guys failure.
Just back to the margin question I mean, clearly some of your Ah somebody region did benefit from office, Lockdowns and travel restrictions and whatnot through to pull that.
Are you beginning to view any of those.
Over the induced a cost savings.
As potentially permanent due to a structural change in the way you're going to new business going forward.
Yeah, the way the way I went into this year is you never want to waste a good crisis and I mentioned that again in my closing address I mean I want.
I want us to come out of this and then equally if not stronger position and that means we need to challengers the status quo.
And that's one of our guiding principle and I mean, we.
You never want to start a new year, comparing yourself to the previous year, you want to challenge everything.
And as part of this crisis and pandemic. If you recall I meant I mentioned that you know we're starting to see.
The consequences and the impact of this pandemic on the company, but I also see some opportunities and I tend to see that glass half empty half full I'm, sorry, not half empty and I think there's a number of opportunities that we can pursue.
To be a better business.
So yes to answer your question.
More directly I see absolutely. Some some some there are some cost and I believe.
Were incurred in the past that we need to rethink and if there are enough but.
Better ways to.
To run and operate our business, but certainly if we are going to make some savings.
For instance in travel costs. The flip side of this is I think this pandemic only reaffirmed my belief that we need to accelerate.
Something we're doing already but accelerates our investment in our digital strategy. So so technology is really important.
I am.
Please and proud to see that you know our investment have paid off during this pandemic.
But it's only also reaffirming my desire to spend more money and more capital towards technologies. So.
So to answer your question, yes, absolutely there are some cost that will disappear when I come back.
Okay.
Good to hear.
Just following up on on the M&A discussion I mean, it sounded last quarter like you very much had your your head down and dealing with getting through that [noise].
Which was understandable where would you characterize your thought process now I mean, how much of your attention is.
Going back to what you would normally be looking out of CEO, rather than focusing on just getting through the next couple of months of the pandemic.
[laughter].
At the end of today I have four very simple and listening criteria to assess M&A.
The first one is you know with where the target fits our culture.
And died during a pandemic you can assess I believe.
Is there a strategic imperative to an acquisition and that I believe you can assess during a pandemic.
As the costs and the price of the target.
Fitting our our investment thesis and that I believe.
Although sometimes due diligence can be a bit more challenging I believe you can you can assess.
And the remaining point is can you integrated.
And that back in Q1, I just didn't feel that given the uncertainty given where we were that we could meet that that for criteria.
On the M&A.
No.
I mean this strategy.
Of course, you today, we're providing you with the an outlook.
That that this telling you and we said in Q1 that the assuming that we could gain a bit more visibility in an understanding of the consequences of the spend there make that we would update our investors and.
And analyst on what we think we can achieve I think that this telling you that we have.
More visibility.
Having said all that there's still some uncertainty at this point in time, but do I feel better or let's put it this way.
More in control today than we were back in March yes. The answer is I think we have more visibility.
I'm I'm extremely pleased with the way our our leaders have.
Behave and took too hard to two ambition that we had set for Q2.
And we'll see.
What the fall will look like but certainly in that I think now we have more visibility on the remainder of the year and we're going to be launching our budgetary process and the setting up of operating plan for 2021, right After labor day weekend.
And this will be an interesting time.
Ticket pick a region with.
Do you think it around do you feel in this environment, it's still feasible to integrate or what do we need to see a further opening of the economy before you'd be comfortable moving ahead.
[laughter] look of course.
Not being able to travel is certainly a in some ways a roadblock, having said all of that had you told me. It back in January that 45000 of our people would be working from home.
And we would be in a position to operate the way we've been operating in last quarter.
I would assume I would have told you that.
No I don't believe that [laughter] and the organization prove me wrong. So so the point here is that we need to challenge the status quo and we need to rethink that we will conduct business and.
And we need to be creative so so we'll see we'll see but yes. Clearly this is having an impact and has had an impact.
But.
The good news is that where we headed into right direction in Q2, and we need to forge ahead in Q3, and it's one quarter at a time.
And see a necessity.
When a nasty opportunities will come our way.
Okay. Thanks for the color.
Thanks.
Your next question comes from a line of spend on par with this outage. Please go ahead.
Yes, thank you very much and congratulations for the good quarter.
Alec looking at your booking and backlog it was very strong during the quarter. Despite the pending make could you talk a bit about the mix between the public and private sectors and whether the strong infrastructure programs.
By different levels of government will increase the that makes the word the public sector going forward.
Yes, well today, 60% of a topline this generated.
And the public sector.
I believe it's a good thing the Noah.
And if we were in a position we were in back in 2012 13 in the UK for instance, we would be in a much different much more difficult spot.
We completely.
At change the mix in the UK over the last four or five years through acquisitions, but also both or and also organically.
With more than 60% of our work now under you can being public.
And we've done a lot of that work as well in the middle East and elsewhere around the world. So.
Clearly, it's good news that can only be good news that Canada, you look at the province of Quebec yesterday Federal government.
Announced 2.3 billion.
Additional investment bring forward some investment that that that were meant to be done in future years.
UK government there earlier this year announce a massive investment bring forward some projects that were meant to be procured in future.
Of course in the U.S., we hope, but yes.
Ali.
Depending on the election, but frankly.
Whether that the Republican Democrats are being lifted I think there is a nine need for for reinvestment in the country. So I think all of this this is positioning WSP in a unique position and I think we'll be able to benefit from that in the future.
And that's why I keep talking about but just yet first impact of this pandemic, but also perhaps the potential opportunities for WSP too.
It is positioned to affirm in there and the team.
And then position of strength and be a unique player in the field to take advantage of what may happen. So so of course, we like our project mix, we like our backlog.
We feel good about the remainder of this year from the backlog perspective.
Obviously, it's a bit too soon to comment on 2021, well go through our process in the fall.
And that fingers crossed essentially.
Okay, that's great color and looking at it comes reduction or like you are down about 1200 employees versus the end of 2019, So where should we expect the town to go in light of the upcoming restructuring and could you maybe talk a little bit about the ability to retire.
Our employees and the initiatives in place to remain agile ones the market recovers.
Yeah.
You heard me, saying that in the past been nor the beauty of our model is knights of variable cost model.
And that assuming that you have a leadership team that this quick to react.
Our able to adjust your cost structure as.
The market environment is fluctuating and that's something that we're able to achieve in Q2.
It's a very strong focus and as you reset with your had down than we are head down I mean, just to make sure that we're delivering the results and so so clearly.
We were able to just very quickly.
Count to me is important.
What's most important is are we in a position to do more with less and thats not the goal of this from issuance to increase our margin profile, perhaps we need to continue to invest technology, we need to challenge the way we're conducting business.
How can we be more productive how can we leveraged to power the platform and collaborate better with them one business line and the other but also from one country to the other and I think that's our focus right now so yes of course, the head count by monitor but more importantly.
Why where I'm, putting all of my attention is on delivery in on performance and if we are in a position to do more with less I think this is good news for our shareholders.
Okay, and maybe last one for me looking at 2021, Alex could you provide maybe some color on whether we could see a resumption and organic growth at the higher than usual rate and do you have some visibility at this time on 2021 or maybe too early to assess yet.
Look I.
We ranked number two on the top 225 international firms.
And that's a statement of our diversification been less so.
This is clearly.
Because we have a very diversified model unlike.
Other firms in our space that we're competing with that may be.
More more more one country centric, we truly have a diversify model and our.
Are you as business is a big part of our business or Canadian business is a big contributor to the overall business. So as the you care suite in Australia and I think this is a good thing.
And now of course.
Do you keep busy the UK economy enter 2020 in a tough place.
What do I believe in the in the UK and our operational UBS there absolutely I think the long term prospect of this country are good from an infrastructure infrastructure point of view now they're going true.
It was this a.
A bit more difficult, but this is not self inflicted our leadership in our people are doing extremely well in the UK just happened that theres been a lot of turbulence.
The country for the last few years and I think that pandemic was the last drop but do I believe in the future prospects of are you chip business absolutely.
Similarly in Canada.
Yeah.
Our.
The province of came back I mean, we've been growing at double digit so we've been doing extremely well and the eastern Eastern Canada, we've been doing extremely well, but construction site where shots and this combine.
Again with the turbulence in the oil and gas industry has impacted western Canada other end markets, but do I believe in the Canadian market App absolutely.
I think the long term long term prospects are good and you look at the are you as business.
It's a very solid business, an amazing transportation franchise.
Very good proper 10 building business.
Environment I talked about this this morning I mean, we're now number six in the world.
We're no longer just.
His line from were truly an advisory firm and that we are now expanding or a rise in an advisory services and we'll continue to do that in the years to come. So so I think the prospects longer term are good.
We just need to weather the storm and continue to forge ahead.
Thank you very much for different.
Thank you.
And your next question comes on line of sub perhaps can with RBC capital markets. Please go ahead.
Thanks, and good morning.
Maybe a follow up there on the commentary around the restructuring and outlook I think you called in your outlook about $90 million to $100 million of acquisition integration costs.
And I think it took some restructuring cost this quarter can you maybe break out the remaining amount for age to in terms of how much of that could be integration versus restructuring and Roger comments earlier is there any specific area that you've already identified where there could be some opportunity for cost reduction or is that a TBD.
So.
Let me answer like in one of the granular on the granularity to granularity of the questions, but certainly I mean, we havent changed the previous should this close outs look at the beginning of the year on on the reorder costs and integration cost from past acquisitions.
All that we've done is added some covert related restructuring costs, which I like and can talk about.
Yes, so to your question.
But there is probably around.
30, 35 million remaining for Q3 in Q4 and corporate related costs.
Okay, and then them in your commentary on EMEA, you called out some delays and the transportation infrastructure side from the public sector was then maybe a project related or was it just because of corporate related maybe procedural delays can you may provide some color on that market on the comment.
Yes, some construction side just from a safety point of view were shut down.
Even though some of our most of our services are considered essential around the world.
Even in some countries.
Where our services were considered essential.
No just from the safety point of view some sites where were shut down there were some delays.
There was like for instance, like you're going to their example, the.
HM two that are the phase to be project in the UK west postpone by quarter was actually delayed.
Bye bye quarter, so we need it to demobilize.
A few hundred people from the site for an entire quarter and then reassigned that when when the things started again so.
We're used to that we've been putting that in the past and that's something that we need to live with.
But but we haven't seen.
Major project cancellation, thus far and that's probably where to can use our.
Okay, and then just maybe a quick last one on the broader outlook and some of the commentary around kind of against the industry from your peers indicate that there's been some push out, particularly in the building segment from private sector projects being delayed I guess apart from any temporary delays due to coded have you seen or any major.
Or directional changes in the type of infrastructure for projects that companies or clients are looking out or is it too early to determine that I think it's too early.
You know typically I think when you think about the planning phase of those large assignments, even in the private sector public sector.
You know.
From the time, where.
Real estate developers a great idea to the detailed design under construction event.
This time, so we only to remember and I mentioned that last quarter in there.
We all feel as we've been into this for few years now, but the reality, it's only been two quarters.
So so we need to do.
Given a bit of trying to assess what you know, but essentially the for us but looks like we're too close to the tree right now and we really need to take a step back end and reassess what the landscape will look it looks like in the future.
Now, it's too early and premature rapidly.
Great. Thank you.
And your next question comes on line of Mona Muddier wet Laurentian Bank. Please go ahead.
Good morning, Thank you for taking my questions.
I don't want to.
Hi, so from your comments at the global infrastructure Summit I understand that you're relying more on technology to make headway with ongoing project using video capture a site inspection and I'm not something tech will I'm. Just wondering have these come organically and just related to that I. Appreciate your comments on focusing more.
I'd.
What are your comments related to a more organic approach or M&A.
I couldn't be boat.
You know.
Weve, our organic strategy has always been closely linked to our M&A strategy.
I just look at.
In our recent acquisition environmental sector into work that we were able to win.
In countries.
Where are you know the past acquisitions are not operating in I mean, we're able to leverage the expertise on those two.
To win more work elsewhere. So so certainly I think at a lot of the solutions around our digital strategy will come from within.
D. it the expertise that we have within just from its just mind blowing and of course, having traveling awhile, but every time I travel and visit operation No matter, where I traveled to I'm always amazed by.
The.
The creativity that are.
Our people are able to demonstrate and the way they resolve complex problem with creative solutions. So a lot of our digital services and a lot of the work that we do and and the solutions will come from within.
From from from the brain power that we'd have within this firm.
But you know I wouldn't want to rule out.
The possibility one day to improve our digital.
Strategy and to continue to to forge ahead on that front with with some acquisitions.
A lot of firms are also doing a lot of in house things that we could import within WSP. So so I wouldn't want to rule it out, but I'd say that so far.
The solution I believe will come from what then.
We are we have a lot of amazing talented individuals and and I count on them to propel us in a different spot essentially.
Perfect. That's helpful. And then just secondly, going back to M&A I'm, just wondering if that area. We're currently seeing the greatest opportunity hasn't changed we are now from coal bed or is there no real deviation.
Now.
No real deviation of the moment, the you know I like to repeat that the underlying principles of our strategy are still very much relevant.
We bad you know amazing transportation infrastructure franchise in our network.
A great proper 10 building also refranchising or network.
And I said, when we unveil a strategy that we wanted to continue to expand our rise and then and.
I sound like there are broken record, but we've made amazing leach steps.
Since the beginning of the strategic cycle to continue to expand our arising in advisory services and to really at a very fast pace through organic organic strategy, but also through M&A too.
Two diversified continue to diversify the business and that and to become an increase the brand awareness and under end markets and that we're working extremely hard to achieve that.
And now I don't believe that this spend than mic has changed any of that frankly, it's on the reaffirming am I believe that our strategy is sound and it's good.
And we'll continue to forge ahead.
Okay, Perfect and then there would you contemplate any potential divestitures.
We are all the time refining our platform that's something that we've always done and we'll continue to do.
So so of course part of our part of our job in parts of our mission is to continue to build the best platform possible and that means that oftentimes we knew we need to close down some operations up we don't believe our core or to increase our investment in some other.
End markets that we believe are very much the center of what we want to do so.
Do I have plans to sell out.
Made major hubs owner or are our big businesses. The answer is no we like our mix.
We like.
We we like.
Where we operate that we need to remember that 99 nine north of in excess of 90% of our work is completed in OE CD countries and it's not because now.
We're facing a bit of headwinds that then we should change our strategy. We believe in it and we'll continue to do that.
Thank you so much I appreciate your comment.
Okay. Thank you.
And your next question comes on line of Michael Top home with TD Securities. Please go ahead.
Thanks, Good morning.
I don't like.
Hi, good morning, Alex.
You had strong margin improvement a year over year in the second quarter. The target you. It today to achieve was was totally sort of maintain margins. So you did much better than that with about 80 basis point year over year improvement in EBITDA margins.
Just wondering if there were any key factors you'd call out that allowed you to to deliver that outperformance versus your targeted level.
Well.
In Q1, we said look we're removing or outlook, because we don't have enough visibility, but I promise you that the event, we would gain more visibility yet provides you and we would provide you with.
With.
Essentially what we know at because I know that this will assist you in this will assist our shoulders and formalizing if you on our performance. So that's what we achieve and try to do and this quarter.
Err on the conservative side of course, we.
I would.
Given that we don't have full visibility that we.
We took a prudent approach to our outlook and if we do better or worse without bad or two three we'll update you.
We're all into this together.
But it wasn't my intention and it was our intention to try to assist to the best we could.
And the circumstances.
And that's why we provided the absolute debt that you see now, but if things change and we feel that there's a need to update this outlook, we will probably in Q3.
Okay, that's helpful and.
And I think you you addressed this to an extent in one of the earlier questions, but just as far as the 2019 2021 plan in the.
Your ambitions around some of the strategic shifts in mix in areas that you would like to grow in.
Over the course that plan.
It sounded like there has not really been much change in terms of priorities, but I'm just wondering if there are any.
End markets or geographies that because of the pandemic.
Perhaps you were keen on but but now you are rethinking in or any less keen on expanding in are growing in.
Not really at this point and again, it's still early days.
Well need to we've only been into this first for six months now two quarters. So it's.
180 days. So so so at the end of the data I think where we were subscale six months ago up given that we haven't done much we're still subscale in those places. So I don't think things have changed here I mean, I still believe that we could grow our presence in the U.S. I still believe that.
We're subscale in central Europe, and that hasn't changed.
Yes, I still believe we continue to grow our our Australian business. So so I don't think none of this is change.
We were well on our way.
On their strategic.
On the execution of our strategy in 19 with with our acquisition.
On.
Mostly in the advisory front.
We've seen now the results of that.
And.
Under under recently in our ranking we're quite pleased about that.
No I don't remember.
Hopefully my memory is not failing me, but I think the last time, we had almost to a debt free net debt free balance sheet was probably pre.
Pre WSP acquisition, the gym var times so.
In Q1, our ambitions was really to continue to strengthen their balance sheet.
I think we've we've exceeded that I'm very pleased with the way that things have worked out.
And you know as part of our strategy. We said we need to continue to improve our margin profile and that hasn't changed so until such time, though the opportunities are coming our way or we are actually finding them or are in a position to execute on them.
But I still believe that the strategy is good and that's why I think it would be premature to start thinking about changing it.
What was relevant back in six months ago still very much rather than I believe.
Okay. Thank you for that.
Hey, Your next question comes on line of symmetry with Barrington. Please go ahead.
Yes, hi, it takes a look for taking my question. So my first question is about net income to free cash flow per version.
Where do you see that that trending in the future.
[laughter].
Look I will turn to Atlanta.
On this one but.
If you look in recent years.
And I'm happy to go all the way back to 567 years I think one of our goal has always been.
Two.
To generate very strong cash flow profile.
For those of you know us.
Our management team our board.
You know.
Converting earnings and cash is this is our top priority, it's one thing to generate growth.
Organic growth acquisition growth, but if that growth is not quality growth and it's not converting in cash what's the point.
So.
We are extremely proud of our cash flow profile and the way we were able to achieve that in recent years and.
And I don't remember a year, where we did worse than than our net earnings.
So.
So and that's something that we're very proud of and the reason is quite simple that's where our focus my attention. If we're going to win the job I want to be absolutely certain that we will be able to convert that went into cash otherwise, but the point.
Yeah, and do you think that that'd be a you had amazing work to get pulled management that into your to do.
Do you think this is sustainable going forward in other words.
The cash conversion, what 300% or more accidents, we cost at 50%, which is a historical records and it's absolutely amazing.
Just looking forward.
What the sustainable level of conversion.
Look I think 200% is extraordinary so I wouldn't want you to expect another quarter first of all this is not sustainable at the end of the day.
On the long long long period of time your earnings should equaled your free cash flow, if all else being equal so.
Don't don't expect this on the you know from one quarter to the other.
Always dangerous to draw a conclusion on one given quarter, having said all that the flip side of this is no. We had two ambitions in there and last quarter and not only is providing you with the extent of the seriousness of this business when it comes down to focus.
We want it to focus on building, a solid balance sheets and Thats, what weve done.
Are we going to generate 300% of free cash flow next quarter.
I when I wouldn't hold my breath contest, but we'll continue to work very hard to convert our top planning to cash flow. That's the purpose of that's for here, that's where we do.
So we'll continue to work hard to to achieve good results.
Yeah understood. Thank you and Bob can you, perhaps indicate a deemed booked or government subsidies.
The impact on EBITDA for the quarter.
Is it related to pay it will assist those programs or anything else.
Yes, I know payroll assistance and subsidies with it very very very small parts of our results in the quarters. So.
It fits.
10 million dollar.
And then if you look on an annual EBITDA business in and what we're aiming at and the outlook that we provided you it's minimal so.
It's more the results of the focus of our business.
To be in a position to act swiftly and quickly and making sure we're taking the appropriate measures to.
To generate the.
Injury to two to run a good business and maintain our margin profile, which was our second.
Ambition in the quarter.
So so subsidies were awfully about $10 million for the quarter.
Yep.
Got it okay excellent and then do you foresee.
Lower organic revenues for longer and I know it might be premature looking into 2021, but based on where the situation is right now in terms of call them bidding activity et cetera.
How do you think about organic revenue growth going forward.
Look I will reserve this this.
The answer this question later in the year I think it's a bit premature where we just reported June 2020.
And we will going we will be going through our operating plan process and budget process in the fall.
So I think it would be premature to start.
Taking representation on what 2021, they look like.
Certainly I think.
The solution.
To our problems.
In globally in collectively in the World I believe will come from.
We'll be able to resolve the through growth.
'cause cost containment is something that is great and that's good and you can you can certainly.
Adjust your cost structure.
To the current environment, but you can do that for so long and so on the big believer in growth.
And that in the event that we can grow we will grow.
And certainly our people are very busy in our local markets to win as much as as we can and I've read confidence that.
Yes, if there's some mark some work to be.
To be award in the in our local markets WSP will be there are two to work our shipments.
Do you see increased bidding activity has increased a request for proposal.
Proposals based on what you saw in Q2 and that early Q3.
Well I'll give you. An example in the UK I think last month, we have seen.
Good bidding or good good level of activity, but.
One month is not going to tell us what the next year will look like.
Two years. So it's I think we need to take in a prudent approach to all of this and see what.
No.
When we when we do have more and more visibility in the second after this year, what 2021 will look like.
Understood. Thank you very much again, thank you.
And your next question comes on line, that's just like that.
James Please go ahead.
Well my time as here.
No for the Nick.
The fed.
Hi, guys a lot of good questions have been asked already so I only have really what I just wanted to ask and maybe one for you and the same for ally.
Alex can you share with us.
The single single largest lessen your taken away from those pandemic.
Of course.
Of course this was when when all of this took place and that I saw I saw our Asian business on a Hong Kong business.
Moving very very quickly.
I think I think Frederic the biggest teach key takeaway for me is has been the focus.
Of our business in the focus of our people.
The biggest she takeaway from me as Ben how unified we have been not only behind the brand.
But behind you know our guiding principles in what we believe in loans and stands floors as an organization.
Hi, Bird I have heard.
Over the years and I've been with the company for more than a decade now.
That we were not integrated that we were serial acquirers.
Got to you know we were federation of companies and the biggest key takeaway into Mitch. It's extremely positive is that we are one unified business.
One.
Unified team.
Believing into culture, believing in what we wish to achieve the leaving in the mission.
That is in front of us and that the last quarter has been just there.
A great statement of that and then.
I don't mention it a lot on investor calls, but I do mention it internally quite a lot to our people, it's not something I can do alone.
Hi, good people.
And the biggest key takeaway I can take from this as we have amazing leaders in our firm.
And they've done extremely well into local markets I cannot travel elanco not travel, but they all in on their own ways delivered and and that's the statement of the quality of our leadership in the Herman.
A people business will be as good as no its leaders and that's to me the biggest leadership at the biggest the biggest key takeaway we have a lot of bench strength.
In the business.
Thanks, Alex and what about you airline same conclusion or yes, a default spectacular having been a newer to the team.
Got it very similar to Alex I would add to that the pandemic obviously.
Opened our mine even further to the transformation journey and the fact that we could do when we set our mind the something we could do things differently.
So the whole digital technology journey that Alex spoke about I think it.
<unk> Bank. Please go ahead.
Hi, guys story, just a quick follow up.
Okay, and then you cited energy softness representing half of that alongside softer than properties and buildings I'm. Just wondering do you think that Canada, having a lower public mix had a direct correlation to the region, having the strongest contraction.
In some ways its no in some ways a permanent that this is a fair statement.
This is a fair statement, having said all that a lot the product we're bidding on a lot of projects right now no.
Public side, then and we do hope.
If we win our share of that you know this will take care of itself so but it it is a fair observation and them no.
Good.
No, but not much to add to this.
Perfect. Thank you so much.
And there no further question at this time I will turn the call back over to the Percenters for closing remarks.
Well. Thank you for for attending our call today, hopefully a you know we provided you with a bit more insight on what we're seeing where we're headed.
And as previously mentioned I mean, it was important for us to provide you with an outlook and hopefully to assist you.
And for analyzing if you in that direction that we are taking as a company and we look forward to updating you actually three and in the meantime, I wish you a great day in them and talk soon thank you very much.
This concludes today's conference call given out.