Q4 2022 WSP Global Inc Earnings Call
Speaker 1: You.
Speaker 1: your hand during Q&A. You can dial star 11.
Speaker 2: Oh
Speaker 3: Bonjour mesdames et messieurs. Good morning ladies and gentlemen. Bienvenue à la Conférente Telefonique sur les résultats financier du quatre-aimdre maestre de l'exercice 2012 de WSP. Welcome to WSP's fourth quarter and fiscal 2022 results conference call.
Speaker 3: I would now like to turn the meeting over to Quinton Webber, Investor Relations. Abourah Parol, please go ahead Mr. Webber.
Speaker 4: Thank you and good morning everyone. We hope you are all doing well and thank you for joining our call today. We will be discussing our Q4 and fiscal 2022 performance followed by a Q&A session.
Speaker 4: Joining us today are Alexandre Leveu, our President and CEO , and Alain Michaud, our CFO . Please note that this call is also accessible on our website, JWebcast.
Speaker 4: During the call, we will be making some forward-looking statements. Actual results could differ from those expressed or implied.
Speaker 4: We undertake no obligation to update or revise any of these statements.
Speaker 4: Relevant factors that could cause actual results to differ materially from those forward-looking statements are listed in our NDNA for the year end of December 31, 2022, which can be found on CEDAR and on our website.
Speaker 4: In addition, during this call, we may refer to certain non-IFRS measures. These measures are also defined in our MDNA for the year ended December 31, 2022. Our MDNA includes reconciliations of non-IFRS measures to the most directly comparable IFRS measure.
Speaker 4: Management believes that these non-IFRS measures provide useful information to investors regarding the corporation's financial conditions and results of reparation as they provide additional key metrics of its performance.
Speaker 4: These non-IFRS measures are not recognized under IFRS, do not have any standardized meaning prescribed under IFRS, and may differ from similarly named measures as reported by other KatPROVs.
Speaker 4: and accordingly may not be comfortable.
Speaker 4: These measures should not be viewed as a substitute for the related financial information prepared in accordance with IFRS.
Speaker 4: I will now turn over the call to Alexei.
Speaker 4: Thank you, Kante, and good morning, everyone. Early last year, we launched our 2022-2024 Global Strategic Action Plan, guiding the next phase of our journey to becoming the undisputed leader of our industry.
Speaker 4: Today I am very pleased to share our fourth quarter and near-end results and the progress we have made in the first year of our strategic cycle.
Speaker 4: Before reviewing the full year, let me say a few words on our fourth quarter results.
Speaker 4: We recorded a very solid Q4 performance. Organically, our net revenues grew by approximately 10%.
Speaker 4: adjusted EBITDA margin increased by 70 basis points, and we have continued to experiment good market conditions.
Speaker 4: Reflecting on 2022, I'm very proud of our team.
Speaker 4: We maintain strong momentum throughout the year, continue to strengthen our platform with strategic acquisitions in key geographies, reinforce our ESG and sustainability commitments, onboarded an impressive number of professionals, all of this while elevating our game and executing on our strategic ambitions.
Speaker 4: We delivered strong 2022 results ahead of expectations, including the highest organic growth in net revenues for the last decade, and an increase in adjusted EBITDA margin in line with our strategic ambitions.
Speaker 4: We ended 2022 in a position of strength, and our healthy backlog is indicative of the high demand for our services and the trust our clients have.
Speaker 4: of strength and our healthy backlog is indicative of the high demand for our services and the trust our clients have in us.
Speaker 4: As we enter 2023, we have the right level of workforce and skill sets.
Speaker 4: to deliver on our clients' projects around the globe, and our balance sheet remains strong.
Speaker 4: In summary, we cannot have hoped for a better start of 2022-2024 strategic cycle. Let's now review our recent acquisitions.
Speaker 4: First off, let me say that I'm particularly pleased with the progress we have made in 2022 in becoming the undisputed leader of our industry.
Speaker 4: We have continued to be active and disciplined on the acquisition front and completed six transactions, adding key expertise in high-growth sectors such as environment and water, while expanding our offering to clients in the government space, amongst others.
Speaker 4: We welcome approximately 7,400 new employees throughout these acquisitions.
Speaker 4: In January 2023, we completed the previously announced acquisition of BG Consulting Engineering and then Struck. As one of Switzerland's leading engineering consulting firms, BG offers consulting, engineering, and project management services in the infrastructure, building, water, environment, and energy sector.
Speaker 4: This transaction reinforces our foothold in Europe by adding 700 professionals based primarily in Switzerland and France.
Speaker 4: I am pleased that Pierre Hépard, former CEO of BG, will be assuming the newly created role of CEO of WSP's Western European Region effective April 1st, and I am confident this region will do well under his leadership.
Speaker 4: Our second acquisition of 2023 and Struck is a 75 employee structural engineering firm known for designing and delivering quality building projects.
Speaker 4: This transaction strengthens our structural business in Sydney. It also provides relevant structural engineering capabilities that strategically tie in with our Australian properties and building strategic practices.
Speaker 4: transaction strengthens our structural business in Sydney. It also provides relevant structural engineering capabilities that strategically tie in, I'm sorry, with our Australian properties and building strategic submissions.
Speaker 4: The integration of recent acquisitions is progressing according to plan, including the integration of E&I for the environment and infrastructure business of John Wood Group and PLC, our largest transaction in 2020.
Speaker 4: to. Of interest, we are already benefiting from revenue synergies and global collaboration as we successfully combine our major client teams upon closing.
Speaker 4: All in all, 2022 was a very active year on the MNA front.
Speaker 4: Next, I would like to share some recent highlights. First, we are thrilled to have been recognized for our leadership in corporate transparency and performance on climate change by global environmental non-profit CDP securing a place is available for Great Lakes. Welcome back to our creator series. Thank you so much. Thank you.
Speaker 4: with the highest rating possible along two other Canadian companies.
Speaker 4: This recognition reaffirms our commitment to embedding climate-related considerations into our operations.
Speaker 4: We strive to lead the world's lead.
Speaker 4: the world's green transition through proven scientific approaches, innovation, and smart engineering to future-prove our cities and our environment.
Speaker 4: Transparency is critical to achieving our goals. Just prior to our participation in COP 15 in December , we unveiled our biodiversity statement, which is a new set of guiding principles aimed at enabling us to engage with our clients to protect, restore, and enhance ecosystems.
Speaker 4: helping us to make a positive impact on nature.
Speaker 4: During the same period, we also confirm our $700,000 donation to the Nature Conservancy of Canada.
Speaker 4: to support initiatives aimed at protecting biodiversity, which is a natural extension of our commitment to mitigating climate change.
Speaker 4: Transitioning over to the reason we exist, I would like to showcase some recent projects.
Speaker 4: Thanks to our future-ready approach, we continue to win work focused on long-term resilience and adaptability, delivering exciting projects with lasting positive impacts.
Speaker 4: In the energy space, momentum to decarbonize the electricity grid in Australia is stimulating the offshore wind energy market, providing us with long-term multi-discipline opportunities.
Speaker 4: One example is the Star of the South, currently positioned to be Australia's first offshore wind farm, where we have provided Owners Engineer Services since 2020.
Speaker 4: In December 2022, the Australian government cemented its commitment by declaring the first offshore wind zone in Victoria.
Speaker 4: This has inspired significant additional activity and WSP is now providing a range of services to major global clients to support their early development. These projects provide an attractive long-term pipeline of work.
Speaker 4: We were also awarded the opportunity to reimagine the iconic move on the Klazett and Ken. Our successful design for the promenade integrates future mobility, resources, climate, biodiversity, society, and digital opportunities. Design for today's hotter summer.
Speaker 4: Summers, locals, and visitors will enjoy the shading furniture and vegetation selected to reinforce biodiversity.
Speaker 4: The redesigned boulevard will increase green mobility for cyclists and pedestrians, with secure crossing and create a universally accessible area, which fosters social interaction and enhances well-being.
Speaker 4: Moving on to the US, we have designed one of the world's first all-electric hospital at the University of California.
Speaker 4: This hospital is being delivered with the contribution of the recently acquired TK1-SC.
Speaker 4: Our mandate was to reduce natural gas usage as much as possible, and our solution eliminated the use of fossil fuels entirely, breaking new ground with an all-electric approach.
Speaker 4: We also overcame other complexities related to patient safety in this earthquake zone, as well as California's undersized electrical grid.
Speaker 4: Through our innovative design, we have helped create a world-class hospital that is leading the way in the future.
Speaker 4: its commitment to a decarbonized future.
Speaker 4: With approximately 150,000 active projects in a variety of sectors, it is our responsibility to deliver work that will promote a sustainable and resilient society.
Speaker 4: We are proud to play a leadership role in contributing to a low carbon world and accelerating the green transition.
Speaker 4: I will now turn the call over to Elaine to review our financial results in detail in addition to covering a 2023 outline.
Speaker 4: Thank you Alex. So I'm also very pleased this morning to report on our strong results for both the fourth quarter and the full year. So let's start with our top line.
Speaker 4: For the fourth quarter revenues and net revenues reach 3.6 billion dollars and 2.6 billion dollar up 23 percent and 18 percent respectively when compared to Q4 2021. Net revenues organic growth of 4.8 percent in the quarter.
Speaker 4: despite four less billable days compared to Q4 2021, is attributable to all reportable segments.
Speaker 5: led by Canada, the UK, and Australia. Adjusted for the number of billable days, our actual organic growth stood at approximately 9.5%.
Speaker 5: For the full year, revenues in that revenue reach up, $11.9 billion and $9 billion, up 16.1% and 13.8% respectively compared to 2021.
Speaker 5: The increase in net revenues is mainly due to acquisition growth of 8.2% and organic growth of 7.3%, our best performance of the last decade. Organic growth was achieved across all reportable segments and most notable in the UK, Canada, the US and Australia. Net revenues
Speaker 5: exceeded the high end of management's outlook range for the year of $8.9 billion.
Speaker 5: Backlog, as of December 31, 2022, stood at $13 billion, representing 11.8 months of revenue, up 24.8% in the year. On a constant currency basis, backlog grew organically by 7.6% in the year. Moving on to profitability.
Speaker 5: Adjusted a bid on the quarter reach 446 million compared to 361 million in Q4 2021.
Speaker 5: one. Adjust it a bit. The median for the quarter increased to 17.5%.
Speaker 5: compared to 16.8% in Q4 2021, a 70 basis point increase.
Speaker 5: For the full year, adjusted EBITDA reached 1.53 billion, up 15.7% compared to the 1.32 billion in 2021, reaching the high end of management outlook range for the year. We also posted a 30 basis point increase in margin.
Speaker 5: which is in line with our 2022-2024 strategic financial ambition.
Speaker 5: For the quarter, adjusted net rating stood at 209 million.
Speaker 5: or $1.68 per share of $38 million.
Speaker 5: and 22 cents respectively compared to Q4 2021. For the full year adjusted net earnings stood at 693 million or $5.75 per share, up $100 million or 16.8% compared to 2021.
Speaker 5: The increases in these metrics for both the quarter and the year are mainly attributable to higher adjusted evidence.
Speaker 5: I will now review a few cash flow metrics. So as expected, free cash flow for the fourth quarter came in strong at $443 million, the highest number we've ever posted for a quarter. Our DSO stood at 73 days as of December 31, 2022, compared to 66 days as of October 31, 2022.
Speaker 5: December 31st, 2021, in line with our outlook target range of 70 to 75 days.
Speaker 5: Net debt to adjusted EBITDA ratio stood at 1.5 times compared to 0.6 times as of December 31, 2021 when incorporating a full 12-month contribution of adjusted EBITDA of all acquired businesses.
Speaker 5: The increase is due to the assurance of long-term use of finance for 2022 acquisition. During the quarter W.S.P. declared dividends of $37.5 per share for shareholders of record as of December 31, 2022, his dividend was paid on January 16, 2023.
Speaker 5: With a 31.1% drip participation, the net cash outlay was $47 million.
Speaker 5: Lastly, I will comment on our 2023 financial and operational outlook.
Speaker 5: Before I start, I'd like to remind everybody that the outlook for our anticipated 2023 performance is aimed at assisting analysts and shareholders in refining their perspective on our performance.
Speaker 5: It has been prepared based on foreign exchanges rates effective March 8, 2023.
Speaker 5: Also, note that we have not considered any acquisitions, disposals, or any other transaction that may occur after today.
Speaker 5: For 2023, we anticipate net revenues to be in the 10 to 10.6 billion dollar range and adjusted a bit to be between 1.76 and 1.84 billion dollars.
Speaker 5: This reflects our current assessment of market conditions and our continued ambition to increase our margins in line with our 2022 to 2024 strategic financial ambitions.
Speaker 5: Other items of our 2023 outlook, including the expected quarterly distribution of our business, tax rates, and others are described in our Q4 press release.
Speaker 5: As it relates to debt, we will continue to manage our capital structure to maintain a net debt to adjusted EBITDA ratio between 1 and 2.
Speaker 5: Finally, we are continuing our progress with the implementation of our new global ERP system. I'm happy to report that we are now live in Canada and our team has already started to prepare for the future deployment in the United States and the United Kingdom.
Speaker 5: In conclusion, we're very proud of our accomplishment in 2022, delivering strong results ahead of our expectations.
Speaker 5: including the highest organic growth in net revenue of the last decade and an increase in adjusted margin. We feel ready to tackle opportunities that lies ahead.
Speaker 5: growth in net revenue of the last decade and an increase in adjusted a bit of margin. We feel ready to tackle opportunities that lies ahead in 2023 and beyond.
Speaker 5: On that, Alex back to you.
Speaker 4: Thank you, Alain. We are certainly pleased with our performance. Our success is largely attributed to a solid strategy and an engaged workforce, bolstered by our strong leadership team and our board's valuable guidance. Speaking of our board, I'm proud to announce that Maki Tal will be joining our board of directors, subject to his...
Speaker 4: Thank you, Alain. We are certainly pleased with our performance. Our success is largely attributed to a solid strategy and an engaged workforce bolstered by our strong leadership team and our board's valuable guidance. Speaking of our board, I'm proud to announce that Maki Tal will be joining our board of directors subject to another shoulders meeting.
Speaker 4: Mr. Talle is a partner and chair of Carlyle's Global Infrastructure Group and previously held several leadership positions at César des Portes, Blaise-Manche, Quebec. His expertise in finance, capital markets, infrastructure and deep knowledge of WSP's key sectors.
Speaker 4: will bring significant value to our board.
Speaker 4: In terms of new additions to the Global Leadership Team, I would like to highlight the appointment of Sandeep Asiadis, who joined WSP in February as our Chief Communications Officer.
Speaker 4: Ms. Esiades is a seasoned communication executive and I'm excited that she's joined WSB.
Speaker 4: To conclude, I am proud of our collective achievement in 2022 as we enforced a solid foundation of our diversified and resilient platform.
Speaker 4: And while we remain disciplined, we can be optimistic about our future as we focus on profitable and
Speaker 4: we remain disciplined, we can be optimistic about our future as we focus on profitable and sustainable growth.
Speaker 4: I sincerely thank our employees, the members of our boards of directors, as well as our clients and shareholders for their continued support. I would now like to open the line for questions.
Speaker 3: Thank you. We will now begin the question and answer session.
Speaker 3: As a reminder, to ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be emailed. To withdraw your question, please press star 1 and 1 again. If you have a question, please press star 1 and 1 again.
Speaker 3: You can use your phone or phone on your phone and turn on your phone. To answer your question, you must use your phone or phone.
Speaker 3: We will now take our first question.
Speaker 3: Chris Murray from ATB Capital Markets, your line is open, please go ahead.
Speaker 4: Yeah, thanks folks. Good morning. I guess just my first question is just thinking about about the margin profile a little bit as we go into next year. Arguably, you know, very, very strong so far. But I guess my question is, you know, what's left in your mind anyway to be able to do
Speaker 4: many levers that we feel are underutilized at the moment. And I think you heard me saying that before.
Speaker 4: running a professional services firm.
Speaker 4: across a number of different jurisdictions, the levers in each and different geographies may differ. But on the aggregate, we do feel that there are many other levers at the moment that we can use, starting with digital...
Speaker 4: pricing, project mix, client selections.
Speaker 4: pricing, project mix, client selections, better utilize our workforce.
Speaker 4: better, better optimized.
Speaker 4: the Justin time delivery over projects.
Speaker 4: the just-in-time delivery of our projects. So all of these in my mind are all.
Speaker 4: examples of levers and there are many others that will allow us to continue to grow our margin profile. We unveil our strategy early last year and I said back then, clearly not in this plan, but I now see a path for us to get to 20% EBITDA margin.
Speaker 4: A year into our strategy, I certainly haven't changed my mind. If any, I think my beliefs have been reaffirmed. Next year, we are planning for margin improvement. And we will continue to work hard to.
Speaker 4: into our strategy, I certainly haven't changed my mind. If any, I think my beliefs have been reaffirmed. So next year we are planning for margin improvement and we will continue to work hard to move in that direction.
Speaker 5: Okay. And then sorry was was going to add something to that? Yeah, no, on the ERP, Chris, it's obviously an additional lever that we have it's
Speaker 5: It's a full suite of services that's going to be provided by the system, so it's going to change significantly the way we manage our business in the back office, but also front office and the sales pipeline, for example. So we expect this to bring synergies and our teams are already driven on capturing those opportunities as we speak. So part of the implementation program is to…
Speaker 5: track those opportunity and capture them. So absolutely you're right. It's one additional lever we have now. Okay, and is it fair to think that we might start to see now that the Canadian operation is fully implemented that that might be a good.
Speaker 4: a good pacing or a good example to use for the rest of the organization as we move through 23? Absolutely. Okay. Thanks folks.
Speaker 4: good pacing or a good example to use for the rest of the organization as we move through 23? Absolutely. Okay. Thanks, folks. Thank you. Thank you.
Speaker 3: Thank you. We will now take our next question. Please stand by. And our next question comes from the line of Urie Link from Canaccord General. Please go ahead. Your line is open. Hey, good morning. Good morning, Urie.
Speaker 6: Good morning, guys. I wanted to talk a little bit about your strategic advisory business as it continues to become a bigger portion of the WSP story. Just broad strokes, is that a higher return?
Speaker 6: Business then engineering consultant and.
Speaker 6: I would think it would be a little stickier and maybe less cyclical, but can you just talk about that business and how that might play into the path to continuously improve deeper-dwell margins? I think the way I would be thinking about this, Yuri, is really because...
Speaker 4: The reason we diversified into strategic advisory over time is really because we wanted to first be in a position to offer the full suite of services to our clients. Number one, but two, also to bring WSP closer to
Speaker 4: first to fight into strategic advisory over time is really because we wanted to first be in a position to offer the full suite of services to our clients. Okay number one but two also to bring WSP closer to its clients.
Speaker 4: early on in the project phase.
Speaker 4: I think that was by far the main reason why we wanted to continue to grow.
Speaker 4: our engineering capabilities, but also to significantly grow our strategic advisory piece.
Speaker 4: but for the reasons that I just described. I think it's it.
Speaker 4: It's not so much a question of cyclicality or the notion that
Speaker 4: In some instances, the margin profile can be higher. It's really for us to be in a position to offer the full suite of services to our clients early on. And our beliefs are, if we are...
Speaker 4: position well early on in the project phase.
Speaker 4: the whole design suite can then follow. So I think that was the logic behind strategic advisory.
Speaker 6: Okay. I mean, as you are already one of the largest engineering firms in the world.
Speaker 6: I know there's still a lot of room to grow there, but would you envision a time where you focus more on, you know, instead of competing with the AE comms and the Stantecs of the world, you're more competing increasingly with the Deloits and McKinseys and that could open up a whole other.
Speaker 6: addressable market for you guys? Like, is that something that we could see in the next three to five years or is that further down the road?
Speaker 6: market for you guys? Is that something that we could see in the next three to five years or is that further down the road? Absolutely. I think for me...
Speaker 4: For me, and I repeat it to our employees, in my mind, we're not competing against the fears in our industries. We're competing against all the management consulting firms, all of the engineering firms, all the IT firms. So to me, I don't like to put WSP into a box and we are already competing with the
Speaker 4: and are in a position to offer better services.
Speaker 4: And I think it's translating in our win rate in that regard. So yes, indeed, we are gonna continue to evolve as a firm, but at the same time, it's important to recognize that what made us successful is our design work. And I'm a big believer that design will continue to evolve and we want to remain and continue.
Speaker 4: to grow our design capabilities.
Speaker 4: significantly over the years. I think the runway in that regard is so big. And the bar you to entry are becoming more and more difficult. The projects are so large and so complex.
Speaker 4: So certainly we're going to continue to grow engineering capabilities over the coming years as well. Thanks for the thoughts, Alex. I'll turn it over.
Speaker 4: So certainly we're going to continue to grow engineering capabilities over the coming years as well. Thanks for the thoughts Alex, I'll turn it over. Thank you.
Speaker 4: we're going to continue to grow engineering capabilities over the coming years as well. Okay, thanks. Thanks for the thoughts, Alex. I'll turn it over. Thank you.
Speaker 3: Thank you. We'll take our next question. Please stand by.
Speaker 3: The next question comes from the line of Benoit Poirier from Desjardins Capital Markets. Please go ahead, your line is open.
Speaker 7: Good morning Alex, good morning Alain. Bonjour, Emmanuel. Some of your competitors are already seeing early signs of work and guiding for pretty strong years with double digit organic growth on the back of the big three interest stimulus bills in the US.
Speaker 7: Are you seeing and expecting the same and if you could maybe provide a breakdown of organic growth outlook by region that would be great.
Speaker 4: with what we know today and the market that we're in at this point in time. I think the proposal activity level is very strong, it's robust.
Speaker 4: our backlog continued to grow. And I should add as well that in the backlog figures that you have, the hard backlogs figures that you have at the moment.
Speaker 4: you do not have included in there significant wins that we expect to
Speaker 4: obviously to add to our hard backlog in the next quarter or so in Canada, Australia, New Zealand. And that's fairly significant. So I think all the metrics right now are green Benoit and we're feeling good and not only in North America, you know that North America
Speaker 4: It's still a very robust and resilient market at this point.
Speaker 4: in time. So you look at Australia and New Zealand that produced double-digit organic growth this year combined with the strong position that we have in North America.
Speaker 4: and our strong position in the UK and we feel very good about 2020.
Speaker 4: position in the UK and we feel very good about 2023 at the moment.
Speaker 7: Okay, that's great. And on the M&A, you were able to complete the sixth acquisition in 2022. It seems that there was a discrepancy between valuation multiple between publicly traded companies and private. So could you talk a little bit about the M&A environment and whether.
Speaker 4: this could accelerate or slow down in 2023, especially that you have a favorable leverage situation. Indeed, we have a very strong balance sheet position at the moment. We're pleased about it because I think I mentioned it many times in the past that whether you're in a
Speaker 4: in a recession or you're in an up market, there are always opportunities for us to action, essentially. And this time around is not any different. We're going to look to be opportunistic and find good transactions that can...
Speaker 4: generate shareholder values for our investors. And obviously you talked about the discrepancies between public and private. Indeed, what I found in the last 12 months is that we have seen some sort of a correction early on last year in the public sector and then with publicly listed companies.
Speaker 4: but they never caught up with the private sector. So private sector stays fairly high last year. We've seen a bit of a change in the fall and it's going to be interesting to see what happens in 2023. But obviously I think it's fair to say that there are fewer and fewer...
Speaker 4: publicly listed firms in our space.
Speaker 4: We have three or four very large publicly listed companies. So I suspect in the years to come, most of the growth requisitions will come most likely from private, but also maybe between large consultancies coming together.
Speaker 4: but that's a very different topic. I think I've said it in the past, what we've seen in the accounting industry I believe we're going to see in our industry at some point in time.
Speaker 7: Okay, that's great. And lastly, just in terms of interest rate, could you maybe, Alain, just remind us about your exposure to variable debt and how we should expect interest expense to evolve in 2023? Yeah, so largely, we're probably around 50-50 fixed variable on our...
Speaker 5: think is a good spot.
Speaker 7: Perfect, okay, thank you for the time gentlemen. Thanks, thank you. Happy.
Speaker 3: Thank you.
Speaker 3: Thank you. We will now take our next question. Please stand by.
Speaker 3: Our next question comes from the line of Jonathan Lamaze from LB Securities. Please go ahead. Your line is open.
Speaker 8: Good morning. Hey, Jonathan.
Speaker 6: So I noticed there was a lease charge taken in Q4 excluded from the adjusted earnings.
Speaker 5: How much was the charge and by how much do you expect lease payments to decline following that? Well those are, as we go through our real estate strategy Jonathan to, you know, as we unveil our STRACT plan we mentioned our intention to reduce our footprint by about 20%. When you combine that with recent acquisition we are faced with opportunity.
Speaker 5: or the current acquisition that we have.
Speaker 5: As for the net impact, I would say it's the minimus on the overall spend, but it's certainly a reduction. Those synergies, of course.
Speaker 7: Okay, thanks.
Speaker 5: As you work toward your 2024 strategic targets, how far along are you now in terms of your real estate optimization strategy? We're on track with the reduction.
Speaker 5: 2022 we've overachieved a 20%, so roughly around 25 to 30%. We reassess this objective all the time, Jonathan, because, as I mentioned, the acquisition bring a load of new opportunities. And we're certainly working on it, but going very well.
Speaker 5: very well at this point. We're tracking positively on this metric.
Speaker 5: point ahead of – we're tracking positively on this metric. Okay, thanks for your comments.
Speaker 3: Thank you. Thank you, Jonathan. Thank you, and I'll take our next question. Please stand up. Our next question comes from the line of Jacob
Speaker 9: Good morning. Hello. Good morning. So you're saying that you're seeing a robust and resilient market, but maybe just comment on if you're seeing where you might be seeing areas of weakness.
Speaker 9: You know, you seeing any changes in your client behavior at all, either given, you know, inflationary pressure, whatnot.
Speaker 9: And maybe just specifically like I'm thinking private sector buildings perhaps, but maybe just a few comments there.
Speaker 4: I wish I could.
Speaker 4: provide a bit of, I could give you some some area of weaknesses at the moment Jacob, but unfortunately I think and I know it's it's I think I've said that in the last quarter it's a bit of a schizophrenic environment you watch the news you look at the data
Speaker 4: you review the data out there and you wonder how on the ground it's being felt in our industry, I must admit that at this point in time,
Speaker 4: the data out there and you wonder how on the ground it's being felt in our industry, but I must admit that at this point in time we are not seeing any
area of weakness for the time being. I think I'd say that our property and building sector is doing extremely well at the moment.
Same with our environmental sector, so is transportation, power and energy, I think, the energy transition that is taking place, and I gave a few examples of that on projects today.
I have to tell you, I think that the proposal activity level remains quite robust at the moment. And that's true in North America. Again, as a sake of repeating myself, which is a...
quite pleased with the way all of our regions are performing in the moment. It's not like we have a certain part of the world that is performing well and others that are not. At the moment everybody is...
is performing at a very good level.
Good to hear. Maybe a second question is just a small thing, but just your subconsultant fees as a percentage of gross revenue.
appears a little higher this quarter and just wondering the reasoning behind that is that something we should be thinking about going forward?
No.
I think obviously from one quarter to the other.
obviously from one quarter to the other it can vary and sometimes
Maybe we'll have a greater portion of sub-consultant costs when we are prime on certain projects, but there hasn't been any change in the profile of the business at this point in time.
we'll have a greater portion of sub-consultant costs when we are prime on certain projects. But there hasn't been any change in the profile of the business at this point in time. Thank you.
Thank you. We will now take our next question. Please stand by. Next question comes from the line of Frederick Bastien from Raymond James. Please go ahead, your line is open.
Bonne Matin, Ms. Heuer. Bonne Matin, today. Bonne Matin.
Guys, I know it's early days, but I was hoping you could provide some comments on your recent acquisition of PG Consulting. Perhaps if there were any surprises that you have come across so far and any learnings that you may have drawn that you can take and apply to your application.
your goals to continue growing through acquisitions in continental Europe ?
in growing through acquisitions in continental Europe ? Well, of course I recognize that the...
The world at the moment is a hot place given what's taking place in Ukraine. But at the same time, continental Europe is a name.
is a hot place given what's taking place in Ukraine. But at the same time, continental Europe is an incredible place.
opportunity for firms like WSP and others in our industry.
The demand for infrastructure is great and big and obviously to be in a position to acquire a brand like BG in Switzerland, Frederick was incredible for us to have.
They have incredible tunneling expertise given where they are located and they've been doing it for a long time and already
Our Swiss team is working with our UK team in the UK on certain projects and bids. So already we are seeing a collaboration taking place.
And also BG is a great brand and is known in France and with the expertise that we have in France.
currently, combined with the transportation expertise that BG is bringing to the table, I think we are going to be in a position to grow our presence.
in this market. And this market, don't be mistaken, I mean the French market from an infrastructure point of view is...
is a very very robust market. There's a lot happening, obviously with the Olympics coming as well.
having more infrastructure capabilities at the moment, I think the timing could not be better.
Thanks, I appreciate the color. Now if we can maybe turn to the US, you obviously have a big presence.
disease gain, organic age through consolidation as well. Are there any pockets within the US you believe you still subscale and you'd like to get more scale?
whether it's by regions and also by end markets. Thanks.
bit of a boring answer, but I feel we're essentially, I think it could be fair to say that we're subscale almost everywhere. So meaning that there's a lot of runway for us in the US, but to be a bit more precise, I think in central we could.
grow our presence were very subscale. Texas were very subscale. Out west we could continue to grow Southeast.
Florida is the fastest growing state with Texas at the moment.
we could double, triple our position there and still we wouldn't see any duplication. So I think we have plans and we continue to have plans for the future.
for the years ahead to continue to grow the US business. And I perhaps should take the opportunity to say also Frederick that Canada, we haven't talked about this in a long time.
our last significant acquisitions if I exclude gold.
more recently was Marshall Mac MMM in 2015. I think that country too, I mean we are still to this day, I feel we are sub-scaling and can continue to grow Canada.
that the market is so big and the demand and infrastructure keeps growing and governments keep committing to infrastructure. So I think globally and holistically when you think of the North American market, I see in the years to come opportunities for us to continue to grow in both Canada and the U.S.
That's great to hear. Thanks. Thanks a lot Alex. No too bad. Thank you. We will now take our next question.
That's great to hear. Thanks a lot Alex. No, it's too fun. Thank you. We will now take our next question. Please stand by.
Your next question comes from the line of Maxine Sitcheff from NBC. Please go ahead. Your line is open.
Hi, good morning, John . Good morning. Hey, Max. Alex, I was wondering if you don't mind me talking about the wages dynamic in the industry and whether we're seeing a bit of moderating dynamic and what should we expect on a going forward basis. Yes, I still am.
Yeah, wages comes with also turnover. I don't know if you also wanted to discuss turnover, we have been.
a fairly important drop in our turnover in Q4. So it's almost like after the pandemic, the great resignation, there was a high level of turnover in the industry.
But again, our industry, the turnover was lower than in the other big four firms. But nevertheless was by all standards quite high max and that's expensive. This is really, really costly to manage turnover. So to have seen a drop and a reduction in turnover starting in 2-3 and continue to see that in 2-4 was quite encouraging for us.
We're not at the pre-pandemic level yet, but we're getting there. And that's quite encouraging for us. Number one and number two on the wages, I do feel that we've done and have been quite proactive last year in making sure that we were managing increases without getting ahead of ourselves, managing increases.
to a point where we feel we are in a very good place right now with our cost structure and also have been able to work in collaboration with our clients.
on time and material projects but also on Alliance projects and also oftentimes in fixed price projects, be in a position to collaborate with our clients to find the right strike the right balance to maintain and increase our margin
but at the same time making sure we take care of our employees. Okay, that's super helpful. Thank you so much. And then just one other question on sort of commercial real estate, and maybe it's too granular. I mean, you know reading right now more about the potential to you know brownfield redevelop some of the city centers.
building sector which represents 20% of our top line.
which represents 20% of our top line today.
Today rehabilitate buildings, it's something that we're seeing more and more converting commercial real estate buildings into data center, into housing, into I mean the density of cities in North America and frankly around the world.
increasing, but the nature and the look of the large mega cities is also evolving and changing.
and we are here at WSP to tackle the change. And so we are seeing a lot of rehabilitation and refurbishing of existing buildings happening at the moment. And I think you'll see more of that in the years to come.
That's it for me.
Thank you. We will now take our next question. Please stand by.
Your next question comes from the line of Ian Dilly's from Stifel. Please go ahead.
Good morning everyone. Good morning Ian. I wanted to go back to the digitization of your business. As you think about monetizing that, do you think about it from...
actually being able to charge for new technologies or is it a function of getting better utilization on your existing employees plus spending more time billing etc. or is it some mixture of the both? Yeah it's it's and I'll turn to Alain in a second but it's clearly a mixture of both. I think you need to think of this.
To me, it's two dimension or two prongs answer. The first one is what are the additional digital services and advisory services that we could provide to our clients? And we do and we are providing a number of these.
in the environmental sector, in the transportation sector, in the property and building sectors, in the decarbonization movement that is taking place. We do provide digital services to our clients. That's one aspect of it. The other one is to using technology.
for us to be more efficient in our design, to optimize our design, to provide a better design to our client. I think that's perhaps the opportunity also for WSP is really by using digital tools, not just an ERP, but using digital tools.
for us to be more to optimize the work that we do and do it at a better cost.
but to do it also with more precision and providing a better service to our clients. So to me, that's the opportunity. I mean, it's one is what are the adjacent.
digital services that we can provide to our clients, number one. And two, what are the tools that we can use.
digital services that we can provide to our clients number one and two, what are the tools that we can use to continue to do more with less.
I think that's the real opportunity also for W.
that's the real opportunity also for WSP.
outward focus facing our clients and the other one is more inward focus. How can we leverage the existing platform with technology to do more with less?
No, that's helpful and makes a lot of sense. And the other thing I wanted to follow on was some of the commentary around the strategic advisory business and growing that part. When you look at that business, is there anything
with respect to those contracts that may be more attractive than the traditional engineering business, i.e. are they more recurring in nature? Do you see those customers coming back on a more frequent basis? I'm just curious how you perceive the cash flow quality of those versus the existing business.
I'm always concerned when we talk about strategic advisory versus engineering, talking like engineering is not the same level or the same quality level than strategic advisory. And I think just so that we're crystal clear here, our margins are...
than they were a decade ago and the complexity around the projects are greater as well. So I think where we can make a huge difference as a global firm and with the expertise that we have in house is really to tackle those mission critical projects.
those complex projects. That's where we can really increase our margin profile and continue to do well on the engineering front. On the advisory front, as I said, it's just allowing us to get closer to our clients and obviously there's a fair number of...
I think you talked about recurrent revenue streams, obviously. There's a lot of that into it. I mean, that's very attractive. And obviously we will continue to grow this, but I don't think that we are doing this because of our better or more favorable contractual arrangements.
I think we're doing it because strategically it makes sense for us to do it. No, I appreciate that context. I think that's all very, very fair.
doing it because strategically it makes sense for us to do it. I appreciate that context. I think that's all very, very fair. I'll turn the call back over here.
Thank you. We will now take our next question. Please stand by. Your next question comes from the line of Michael from TD Securities. Please go ahead. Your line is open.
Thank you. Good morning. Good morning, Michael.
Alex, in response to one of the earlier questions, you talked about still seeing WSP as a subscale in the US and also as still having room to grow in Canada.
I guess more broadly when we think about potential future acquisition activity, given the company's current footprint, I guess beyond the US and Canada, if we look elsewhere globally, can you provide an update on any key regions or key target end markets that you're most focused on in terms of potential expansion and acquisition growth from here?
I guess more broadly when we think about potential future acquisition activity, given the company's current footprint, I guess beyond the US and Canada, if we look elsewhere globally, can you provide an update on any key regions or key target end markets that you're most focused on in terms of potential expansion and acquisition growth from here? Yep. Look, we're...
A minute ago I talked about North America, then five minutes ago I talked about continental Europe , and maybe now it's time to talk about Australia and New Zealand. I mean, the opportunities there too are good and are great. It's a very, very sound and good market for us, and it has been good over time.
So certainly there is an opportunity for us to continue to grow our presence in that region, in that neck of the wood obviously. So we are going to continue to look for opportunities in the Asia Pacific in the not so distant future.
We have approximately 4,000 people in Australia, we're probably more than double the size in Canada. And I just mentioned that in Canada, I see some opportunities for future growth. So, for the hack though, obviously Australia, we do see some opportunities to continue to grow. We need to find those.
as I said in the past, but many times over, that's very difficult to time acquisitions. It takes two to tango, but I'm confident that in due course, through our larger size acquisition, or through a niche acquisition, we are going to be able to grow our presence.
and Asia Pacific as well. Okay, so still very much broad-based opportunities in many regions.
Okay, so still very much broad based opportunities in many regions. Yes.
Okay, and then the 2nd question is just a question regarding the 2023 organic growth outlook of 3 to 6%. Just just for as we think about the year and how it unfolds. Is there anything we should be mindful of in terms of the quarterly cadence of the organic growth as you move through the year? Just curious on that front.
No, we don't have in particular, we don't have the same situation we had in 2022 on the number of billable days. So 2023 will be a standard comparable days between quarters. So we've provided in our outlook.
might call the distribution per quarter, but nothing specific, I would tell you on 2023. Okay, that's helpful. And then I guess just beyond sort of the billable days issue.
I was just also curious if there's any sort of situation here where growth is accelerating as you move through the year as perhaps infrastructure spending continues to ramp up in certain regions or anything along those lines was the other part of the thinking there.
No, nothing like that Michael. Okay, thanks very much. Thank you. Thank you. Once again, if you'd like to ask a question, please press star one and one on your telephone and wait for your name to be announced.
We will now take our next question. Please stand by. Dimitri Kamelnitsky from Veritas, your line is open, please go ahead.
Hello and thanks for taking my question. So the first question I'd like to ask is about organic revenue growth in 2023. You are guiding for midpoint of 4.5%. That's lower than 7.3 in 2022 and 9.5% in Q4.
It's a
It's a fair assumption. Okay awesome. And then in terms of capital allocation priorities you know between debt repayment and material acquisitions how do you think about this given the higher rate environment and so on.
Well, it's all about cost of capital. So if I feel that we can find opportunities that will generate a higher return than our cost of capital, we're obviously going to pull the trigger and look into it, obviously.
If, conversely, we believe that those acquisitions will destroy value, we're not going to look at them. Okay, so it's really, you know, depending on the acquisition, very business specific. Well, each and every acquisition is obviously different and each and every acquisition is...
I was just wondering whether the current income tax expense is a decent proxy of normalized cash tax.
Yeah, it is as we've discussed last night Dimitri, it is. Yeah, awesome. Okay, thank you so much. Thank you so much.
Bye bye, have a great day. Thank you. Yeah, you too. Thank you. Thank you. There are no further questions. Speakers, please continue.
Okay, well, thank you so much for attending our Q4 earnings release and I look forward to updating you as we progress towards 2023. So again, thank you. Thank you for continued support and look forward to engaging with you in the next quarter. Thank you. This concludes today's conference call. Thank you for participating.
You may now disconnect. Speakers please stand by. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1.
Welcome to WSP's fourth quarter and fiscal 2022 results conference call.
I would now like to turn the meeting over to Quinton Webber, Investor Relations. Abourah Parol, please go ahead Mr Webber.
Thank you and good morning everyone. We hope you are all doing well and thank you for joining our call today. We will be discussing our Q4 and fiscal 2022 performance followed by a Q&A session.
Joining us today are Alexandre Le Roy, our President and CEO , and let me show our CFO . Please note that this call is also accessible on our website via webcast.
During the call, we will be making some forward-looking statements. Actual results could differ from those expressed or implied. We undertake no obligation to update or revise any of these statements.
Relevant factors that could cause actual results to differ materially from those forward-looking statements are listed in our MDNA for the year ended December 31, 2022, which can be found on CEDAR and on our website. In addition, during this call, we may refer to certain non-IFRS measures. These measures are also defined in our MDNA for the year ended December 31, 2022.
Our MDNA includes reconciliations of non-IFRS measures to the most directly comparable IFRS measures. Management believes that these non-IFRS measures provide useful information to investors regarding the corporation's financial conditions and results of reparation as they provide additional key metrics of its performance. These non-IFRS measures are not recognized under IFRS, do not have any standardized meaning prescribed under IFRS, and may differ from similarly named 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 IFRS. I will now turn over the call to Alex Sal. Thank you, Kante, and good morning everyone. Early last year, we launched our 2022-2024 Global Strategic Action Plan, guiding the next phase of our journey to becoming the undisputed leader of our industry.
Today I am very pleased to share our fourth quarter and year-end results and the progress we have made in the first year of our strategic cycle.
Before reviewing the full year, let me say a few words on our fourth quarter results.
We recorded a very solid 2-4 performance. Organically, our net revenues grew by approximately 10%, adjusted EBITDA margin increased by 70 basis points, and we have continued to experiment good market conditions. Reflecting on 2022, I'm very proud of our team.
We maintain strong momentum throughout the year, continue to strengthen our platform with strategic acquisitions in key geographies, reinforce our ESG and sustainability commitments, onboarded an impressive number of professionals, all of this while elevating our game and executing on our strategic ambitions.
We delivered strong 2022 results ahead of expectations, including the highest organic growth in net revenues for the last decade, and an increase in adjusted EBITDA margin in line with our strategic ambitions. We ended 2022 in a position of strength, and our healthy backlog is indicative of the impact of the pandemic.
We delivered strong 2022 results ahead of expectations, including the highest organic growth in net revenues for the last decade and an increase in adjusted EBITDA margin in line with our strategic ambitions. We ended 2022 in the position of strength, and our healthy backlog is indicative of the high demand for our services and the trust our...
clients have in us. As we enter 2023, we have the right level of workforce and skill sets to deliver on our clients' projects around the globe and our balance sheet remains strong.
In summary, we cannot have hoped for a better start of 2022-2024 strategic cycle. Let's now review our recent acquisitions.
First off, let me say that I'm particularly pleased with the progress we have made in 2022 in becoming the undisputed leader of our industry.
We have continued to be active and disciplined on the acquisition front and completed six transactions, adding key expertise in high-growth sectors such as environment and water, while expanding our offering to clients in the government space, amongst others.
We welcome approximately 7,400 new employees throughout these acquisitions. In January 2023, we completed the previously announced acquisition of BG Consulting Engineering and then struck. As one of Switzerland's leading engineering consulting firms, BG offers consulting and
engineering and project management services in the infrastructure, building, water, environment and energy sectors. This transaction reinforces our foothold in Europe by adding 700 professionals based primarily in Switzerland and France. I'm pleased that Pierre Rippard, former CEO of BG will be assuming that newly created
projects.
This transaction strengthens our structural business in Sydney. It also provides relevant structural engineering capabilities that strategically tie in with our Australian properties and building strategic submissions. The integration of recent acquisitions is progressing according to the
as we successfully combine our major client teams upon closing.
All in all, 2022 was a very active year on the MNA front.
Next, I would like to share some recent highlights. First, we are thrilled to have been recognized for a leadership in corporate transparency and performance and climate change by global environmental nonprofit CDP securing a place with the highest rating possible along two other Canadian companies.
This recognition reaffirms our commitment to embedding climate-related considerations into our operations. We strive to lead the world's lead...
the world's green transition through proven scientific approaches, innovation, and smart engineering to future-prove our cities and our environment. Transparency is critical to achieving our goals.
Just prior to our participation in Cup 15 in December , we unveil our biodiversity statement, which is a new set of guiding principles aimed at enabling us to engage with our clients to protect, restore, and enhance ecosystems, helping us to make a positive impact on nature. During the same period, we also confirm our 700,000 donations to the Nature Conservancyodeushing agendavette.org.
resilience and adaptability, delivering exciting projects with lasting positive impacts.
In the energy space, momentum to decarbonize the electricity grid in Australia is stimulating the offshore wind energy market, providing us with long-term multidiscipline opportunities. One example is the Star of the South, currently positioned to be Australia's first offshore wind farm.
and WSP is now providing a range of services to major global clients to support their early development.
These projects provide an attractive long-term pipeline of work. We were also awarded the opportunity to reimagine the iconic Boulevard La Closet in Cannes. Our successful design for the promenade integrates future mobility, resources, climate, and the environment.
biodiversity, society, and digital opportunities. Designed for today's hotter summers, locals and visitors will enjoy the shading furniture and the vegetation selected to reinforce biodiversity. The redesigned boulevard will increase green mobility for cyclists and pedestrians.
with secured crossing and create a universally accessible area which fosters social interaction and enhances well-being. Moving on to the US, we have designed one of the world's first all-electric hospitals at the University of California. This hospital is being delivered with the contribution of recent...
other complexities related to patient safety in this earthquake zone as well as California's undersized electrical grid.
Through our innovative design, we have helped create a world-class hospital that is leading the way in its commitment to a decarbonized future.
With approximately 150,000 active projects in a variety of sectors, it is our responsibility to deliver work that will promote a sustainable and resilient society.
We are proud to play a leadership role in contributing to a low carbon world and accelerating the green transition. I will now turn the call over to Alain to review our financial results in detail in addition to covering our 2023 outlook. Alain?
Thank you, Alex. So I'm also very pleased this morning to report on our strong results for both the fourth quarter and the full year. So let's start with our top line. For the fourth quarter revenues and net revenues reach 3.6 billion dollars and 2.6 billion dollar up 23% and 18%
respectively when compared to Q4 2021. Net revenues organic growth of 4.8% in the quarter despite four less billable days compared to Q4 2021 is attributable to all reportable segments.
led by Canada, the UK, and Australia. Adjusted for the number of billable days, our actual organic growth stood at approximately 9.5%. For the full year, revenues and net revenue reach 11.9 billion and 9 billion, up 16.1% and 13.8%, respectively, compared to 2021.
The increase in net revenues is mainly due to acquisition growth of 8.2%, and organic growth of 7.3%, our best performance of the last decade.
Organic growth was achieved across all reportable segments and most notable in the UK, Canada, the US, and Australia. Net revenues exceeded the high end of management's outlook range for the year of $8.9 billion. Log as of December 31, 2022.
stood at $13 billion representing 11.8 months of revenue, up 24.8% in the year. On a constant currency basis, backlub grew organically by 7.6% in the year.
Moving on to profitability. Adjusted a bid down the quarter reached $446 million compared to $361 million in Q4 2021.
Adjusted EBITDA margin for the quarter increased to 17.5% compared to 16.8% in Q4 2021, a 70 basis point increase.
For the full year, adjusted EBITDA reached $1.53 billion, up 15.7% compared to the $1.32 billion in 2021, reaching the high end of management outlook range for the year. We also posted a 30 basis point increase in margin, which is in line with our 2022-2024 strategic financial ambition.
For the quarter, adjusted net earnings stood at $209 million, or $1.68 per share, up $38 million and $0.22 respectively compared to Q4 2021.
For the full year, adjusted net earnings stood at $693 million, or $5.75 per share, up $100 million, or 16.8% compared to 2020.
The increases in these metrics for both the quarter and the year are mainly attributable to higher adjusted EBITDA. I will now review a few cash flow metrics. So as expected, free cash flow for the fourth quarter came in strong at $443 million.
the highest number we've ever posted for a quarter. Our DSO stood at 73 days as of December 31, 2022 compared to 66 days as of December 31, 2021 in line with our outlook target range of 70 to 75 days. Net depth to adjusted EBITDA ratios stood at 1.5 times.
compared to 0.6 times as of December 31, 2021, when incorporating a full 12-month contribution of adjusted EBITDA of all acquired businesses. The increase is due to the issuance of long-term debt used to finance our 2022 acquisition. During the quarter, WSP declared dividend
of 37.5 cents per share for shareholders of record as of December 31st, 2022. This dividend was paid on January 16, 2023. With a 31.1% drip participation, the net cash outlay was $47 million. Lastly, I will comment on our 2023 financial and operational outlook.
$0.27.5 per share for shareholders of record as of December 31, 2022. This dividend was paid on January 16, 2023. With a 31.1% drip participation, the net cash outlay was $47 million. Lastly, I will comment on our 2023 financial and operational outlook. Before I start, I'd like to remind everyone to check out our website.
Everybody that the outlook for our anticipated 2023 performance is aimed at assisting analysts and shareholders in refining their perspective on our performance.
It has been prepared based on foreign exchanges rates, effective March 8, 2023. Also, note that we have not considered any acquisitions, disposals, or any other transaction that may occur after today. For 2023, we anticipate net revenues to be in the $10 to $10.6 billion dollar range.
Other items of our 2023 outlook, including the expected quarterly distribution of our business, tax rates, and others are described in our Q4 press release. As it relates to debt, we will continue to manage our capital structure to maintain a net debt to adjusted ratio between 1 and 2.
Finally, we are continuing our progress with the implementation of our new global ERP system. I'm happy to report that we are now live in Canada and our team has already started to prepare for the future deployment in the United States and the United Kingdom. In conclusion, we're very proud of our accomplishment in 2022, delivering strong results ahead of our expectations.
including the highest organic growth in net revenue of the last decade and an increase in adjusted margin. We feel ready to tackle opportunities that lie ahead in 2023 and beyond. So on that, Alex, back to you.
Thank you, Alain. We are certainly pleased with our performance. Our success is largely attributed to a solid strategy and an engaged workforce, bolstered by our strong leadership team and our board's valuable guidance. Speaking of our board, I'm proud to announce that Maki Tal will be joining our board of directors, subject to his...
and other stakeholders meeting. Mr. Tal is a partner and chair of Carlyle's Global Infrastructure Group and previously held several leadership positions at Qu'est-ce qu'est-ce de porte plus Mont-Québec. His expertise in finance, capital markets, infrastructure and deep knowledge of WSP's key sectors.
will bring significant value to our board. In terms of new additions to the global leadership team, I would like to highlight the appointment of Sandeep Vasiejes, who joined WSP in February as our chief communications officer.
Ms. Esiades is a seasoned communication executive and I'm excited that she's joined WSP. To conclude, I am proud of our collective achievement in 2022 as we enforced a solid foundation of our diversified and resilient platform.
And while we remain disciplined, we can be optimistic about our future as we focus on profitable and sustainable growth. I sincerely thank our employees, the members of our boards of directors, as well as our clients and shareholders for their continued support. I would now like to open the line for questions.
discipline, we can be optimistic about our future as we focus on profitable and sustainable growth. I sincerely thank our employees, the members of our boards of directors, as well as our clients and shoulders for their continued support. I would now like to open the line for questions. Thank you.
We will now begin the question and answer session. Nous allons maintenant commencer la cécion qu'est-ce qu'on réponse? As a reminder, to ask a question you will need to press star, one and one on your telephone and wait for your name to be entered. To withdraw your question, please press star, one and one again. C'est vous fait tes posse une question, vous êz à poué sur et toi, tous vous vous dechir fran un et un sur votre telephone et à tandre la noche de votre non.
For your first question, you will receive a new one every year. We will now take our first question. Chris Murray from ATB Capital Markets, your line is open, please go ahead.
Yeah, thanks folks. Good morning. I guess my first question is just thinking about about the margin profile a little bit as we go into next year. Arguably, you know, very, very strong so far. But I guess my question is, you know, what's left in your mind anyway to be able to do? Is there?
Is there something tied to maybe the ERP program or is there, are there other opportunities that you see in terms of pricing to be able to drive that margin much higher as we go into 23? Yeah Chris, I'll turn to Alain in a second but there are many levers that we feel are...
underutilized at the moment. And I think you heard me saying that before, running a professional services firm across a number of different jurisdictions, the levers in each and different geographies may differ. But on the aggregate, we do feel that,
There are many other levers at the moment that we can use, starting with digital pricing, project mix. There are many other levers at the moment that we can use, starting with digital pricing,
many other levers at the moment that we can use starting with digital pricing, project mix, client selections.
better utilize our workforce, better optimize the just-in-time delivery of our projects. So all of these in my mind are all.
examples of levers and there are many others that will allow us to continue to grow our margin profile. We unveil our strategy early last year, and I said back then, clearly not in this plan, but I now see a path for us.
to get to 20% EBITDA margin. And a year into our strategy, I certainly haven't changed my mind. If any, I think my beliefs have been reaffirmed. So next year we are planning for margin improvement and we will continue to work hard to move in that direction.
Okay, and then sorry was was going to add something to that. Yeah, no, on the ERP, Chris, it's obviously an additional lever that we have it. It's a full suite of services that's going to be provided by the-
system, so it's going to change significantly the way we manage our business in the back office, but also front office and the sales pipeline, for example. So we expect this to bring synergies, and our teams are already driven on capturing those opportunities as we speak. So it's part of the implementation program is to track those opportunities and capture them. So absolutely, you're right, it's one additional lever we have now. Okay, and is it fair to think that we might start?
of Urie Link from Canaccord Genresby. Please go ahead, your line is open. Hey, good morning. Good morning, Urie. Good morning, guys. I wanted to talk a little bit about your strategic advisory business as it continues to become a bigger portion of the WSP story.
Just broad strokes, like is that a higher return business than engineering consulting? I would think it would be a little stickier and maybe less cyclical, but can you just talk about that business and how that might play into the path to continuously improve deeper-dome margins?
I think the way I would be thinking about this, Yuri, is really because
The reason we diversified into strategic advisory over time is really because we wanted to first be in a position to offer the full suite of services to our clients. Number one, but two, also to bring WSP closer to
to its clients early on in the project phase. I think that was by far the main reason why we wanted to continue to grow.
our engineering capabilities, but also to significantly grow our strategic advisory piece.
for the reasons that I just described. I think it's not so much a question of cyclicality or the notion that in some instances the margin profile can be higher. It's really for us to be in a position to offer the full suite of services to our clients.
I mean, as you are already one of the largest engineering firms in the world.
I know there's still a lot of room to grow there, but would you envision a time where you focus more on, you know, instead of competing with the AECOMs and the Stantecs of the world, you're more competing increasingly with the Deloitte's and McKinsey's and that could open up a whole other...
In my mind, we're not competing against peers in our industries. We're competing against all the management consulting firms, all of the engineering firms, all the IT firms. So to me, I don't like to put WSP into a box. And we are already competing with the big four firms in many instances.
on the advisory side, just take a ESG and climate change advisory work. We bump into them all the time, but we are, you know, I like to think that we have deep expertise in that sector.
and are in a position to offer better services. And I think it's translating in our win rate in that regard. So yes, indeed, we are going to continue to evolve as a firm, but at the same time, it's important to recognize that what made us successful is our design work. And I'm a big believer that design will continue to evolve.
and we want to remain and continue to grow our design capabilities significantly over the years. I think the runway in that regard is so big and the bar you to entry are becoming more and more difficult.
The projects are so large and so complex. So certainly we're going to continue to grow engineering capabilities over the coming years as well. Thanks. Thanks for the thoughts, Alex. I'll turn it over.
large and so complex. So certainly we're going to continue to grow engineering capabilities over the coming years as well. Thanks for the thoughts Alex. I'll turn it over. Thank you.
So certainly we're going to continue to grow engineering capabilities over the coming years as well. Thanks for the thoughts Alex. I'll turn it over. Thank you.
Thank you. We'll take our next question. Please stand by. The next question comes from the line of Benoit Poirier from Desjardins Capital Markets. Please go ahead, your line is open. Good morning, Alex. Good morning, Alain. Bonjour, Benoit. Some of your competitors are already seeing early signs of work and guiding for pretty strong years with kind of double-digit organic growth on the back of the big tree in trust in the list bills in the US. Are you seeing and expecting the same trend in the US?
If you could maybe provide a breakdown of organic growth outlook by regions, that would be great. We are expecting, first and foremost, strong growth, organic growth for next year. With what we know today and the market that we're in at this point in time, I think the proposal activity level is very strong, it's robust.
our backlog continued to grow and I should add as well that in the backlog figures that you have, the hard backlogs figures that you have at the moment, you do not have included in there significant wins that we expect to, obviously, to add to our hard backlog in the next quarter or so in Canada, Australia, New Zealand. So that's fairly significant.
So I think all the metrics right now are green Benoit and we're feeling good. And not only in North America, you know that North America represents essentially more than 60% of our business. And you know that the North American market is very robust. But equally, you know, you look at the UK that represents maybe 10% of our business today.
it's still a very robust and resilient market at this point in time. So you look at Australia and New Zealand that produced double-digit organic growth this year, combined with the strong position that we have in North America and our strong position in the UK and we feel very good about 2023 at the moment. Okay, that's great. And on the M&A you were able to complete the sixth acquisition in 2022.
strong balance sheet position at the moment. We're pleased about it because I think I mentioned it many times in the past, whether you're in a recession or you're in an up market, there are always opportunities for us to action essentially. And this time around is not any different, you know, we're going to look to be opportunistic.
with publicly listed companies, but they never caught up with the private sector. So private sector stayed fairly high last year. We've seen a bit of a change in the fall and it's going to be interesting to see what happens in 2023.
But obviously, I think it's fair to say that there are fewer and fewer publicly listed firms in our space. We have, you know, three or four very large, four or five I should say, large publicly listed companies. So I suspect in the years to come, most of the growth requisitions will come most likely from private, local and social media networks.
between large consultancies coming together. But that's a very different topic. But I think I've said it in the past, I think what we've seen in the accounting industry, I believe we're gonna see in our industry at some point in time. Okay, that's great. And lastly, just in terms of interest rate, could you maybe, Alain, just remind us about your exposure to variable debt and how we should expect interest expense to evolve in 2023? Yeah, so largely, we're probably around 50-
We will now take our next question. Please stand by.
Our next question comes from the line of Jonathan Lamaze from LB Securities. Please go ahead, your line is open. Jonathan Lamaze
Good morning. Hey Jonathan. So I noticed there was a. Lease charge taken in Q4. Excluded from the adjustment earnings. How much was the charge and by how much do you expect lease payments to decline following that?
Well, those are as we go through our real estate strategy, Jonathan, to, you know, as we unveiled our STRAT plan, we mentioned our intention to reduce our footprint by about 20%. When you combine that with recent acquisition, we are faced with opportunities to optimize further.
And the write-off that we took this year is actually leases that we've shut down to capture synergies faster for recent acquisitions. So that's what happened. Don't expect any significant situation like that in 2023 for the current acquisition that we have.
As for the net impact, I would say it's de minimis on the overall spend, but it's certainly a reduction. There's synergies, of course. Okay, thanks. So more broadly, as you work toward your 2024 strategic targets, how far along are you now in terms of your real estate optimization strategy?
The acquisition bring a load of new opportunities and we're certainly working on it but going very well at this point ahead of we're tracking positively on this metric.
Okay, thanks for your comments. Thank you. Thank you, Jonathan. Thank you, we'll now take our next question. Please stand by.
And next question comes from the line of Jacob out from CIBC. Please go ahead. Good morning. Hello, good morning. So you're saying that you're seeing a robust and resilient market, but maybe just comment on if you're seeing where you might be seeing areas of weakness. Alright.
You know, you seeing any changes in your client behavior at all, either given, you know, inflationary pressure, whatnot. And maybe just specifically like I'm thinking private sector buildings perhaps, but maybe just a few comments there.
I wish I could provide a bit of a...
I could give you some some area of weaknesses at the moment Jacob, but unfortunately I think and I know it's it's I Think I've said that in the last quarter. It's a bit of a schizophrenic environment. You watch the news you look at the data You review the data out there and you like you you when you wonder
you know, how on the ground it's being felt in our industry, but I must admit that at this point in time, we are not seeing any area of weakness for the time being. I think I'd say that our property and building sector is doing extremely well at the moment.
Same with our environmental sector, so is transportation, power and energy, I think, with the energy transition that is taking place and I gave a few examples of that on projects today.
I have to tell you, I think that the proposal activity level remains quite robust at the moment. And that's true in North America.
again, as a sake of repeating myself, which is almost two-thirds of our business, but also in the UK, the Nordics and Australia and New Zealand. So, at the moment, I'd say that we're...
We're quite pleased with the way all of our regions are performing in the moment. It's not like we have a certain part of the world that is performing well and others that are not. At the moment everybody is performing at a very good level.
with the way all of our regions are performing in the moment. It's not like we have a certain part of the world that is performing well and others that are not. At the moment everybody is performing at a very good level.
Good to hear. Maybe a second question is just a small thing, but just your subconsultant fees as a percentage of gross revenue.
appears a little higher this quarter and just wondering the reasoning behind that and is that something we should be thinking about going forward? No, I think obviously from one quarter to the other.
It can vary and sometimes you know, maybe we'll have a greater portion of sub-consultant costs when we are prime on certain projects.
But there hasn't been any change in the profile of the business at this point in time. Thank you. Thanks, Jacob. Thank you. We'll now take our next question. Please stand by. Next question comes from the line of Frederick Bastien from Raymond James. Please go ahead. Your line is open.
I know it's early days but I was hoping you could provide some comments on your recent acquisition of PG Consulting. I'm wondering if there were any surprises you have come across so far.
and any learnings that you may have drawn that you can take and apply to your goals to continue growing through acquisitions in continental Europe .
learnings that you may have drawn that you can take and apply to your goals to continue growing through acquisitions in continental Europe .
Of course, I recognize that the world at the moment is a place, given what's taking place in Ukraine. But at the same time, continental Europe is an incredible opportunity for firms like WSP and others in our industry. The demand for infrastructure is great and big and obviously to be in a position to acquire
a brand like BG in Switzerland, Frederick, was incredible for us. They have incredible tunneling expertise given where they are located and they've been doing it for a long time. Our Swiss team is working with our UK team in the UK on certain projects and bids. Already we are seeing the collaboration taking place.
And also BG is a great brand and is known in France and with the expertise that we have in France currently combined with the transportation expertise that BG is bringing to the table, I think we are going to be in the position to grow presence in this market. And this market, don't be mistaken, I mean the French market from an infrastructure point of view.
is a very very robust market. There's a lot happening, obviously with the Olympics coming as well, so we feel that having more infrastructure capabilities at the moment in France, I think is a time you could not be better.
Thanks, I appreciate the color. Now if we can maybe turn to the US, you obviously have a big presence. You've gained organics through consolidation as well. Are there any pockets within the US you believe you still subscale and you'd like to get sanitary beverages on the ground? I can't feel that.
get more scale, whether it's by regions and also by end markets. Thanks. Yeah, Frederic. A bit of a boring answer but I feel we're essentially, I think it could be fair to say that we're sub-scale almost everywhere. So meaning that there's a lot of runway for us in the US but to be a bit more precise I think in central we could definitely grow our presence. We're very sub-scale.
Texas was very subscale. Out west we could continue to grow southeast. Florida is the fastest growing state with Texas at the moment. We could double, triple our position there and still we wouldn't see any duplication. So I think we have plans and we continue to have plans for the years ahead to continue to grow the U.S. business.
I perhaps should take the opportunity to say also that Canada, we haven't talked about this in a long time, our last significant acquisition if I exclude Golder more recently was Marshall Mac MMM in 2015. I think that country too, we are still to this day, I feel we are on a lower subscale and we can continue to grow.
No, it's too bad. Thank you. We will now take our next question.
Your next question comes from the line of Maxim Sitcheff from NBC. Please go ahead, your line is open. Hi, good morning, Charlie. Good morning. Hey, Max. Look at the angered human!
Alex, I was wondering if you could talk about the wages dynamic in the industry and what we're seeing, a bit of a moderating dynamic and what should we expect on a going forward basis. Wages also comes with turnover, I don't know if you also want it.
discuss turnover, but we have seen a fairly important drop in our turnover in 2-4. So it's almost like after the pandemic, the great resignation, there was a high level of turnover in the industry.
But again, our industry, the turnover was lower than in the other big four firms, but nevertheless was by all standards quite high max. And that's expensive. This is really, really costly to manage turnover. So to have seen a drop and a reduction in turnover starting in 2-3 and continue to see that in 2-4 was quite encouraging for us. We're not at the pre-pandemic level yet.
what we're getting there. And that's quite encouraging for us. Number one and number two on the wages, I do feel that we've done and have been quite proactive last year in making sure that we were managing increases without getting ahead of ourselves, managing increases.
to a point where we feel we are in a very good place right now with our cost structure. I also have been able to work in collaboration with our clients on time and material projects, but also in alliance projects and also oftentimes in fixed price projects, be in a position to collaborate with our clients to to find the right balance to maintain and increase our our
margin, but at the same time making sure we take care of our employees. Okay, that's super helpful. Thank you so much. And then just one other question on sort of commercial real estate and maybe it's too granular. I mean, you know, reading right now more about the potential to, you know, brownfield, redevelop some of the city centers and so forth. I'm just curious to see if that could be potentially significant opportunity for you guys. Yeah, maybe any color on that that we hope. Max, I'm glad you're asking this question, that question, because...
It is a tremendous opportunity for our property and building sector, which represents 20% of our top line today. Today rehabilitate buildings, it's something that we're seeing more and more converting commercial real estate buildings into data center, into housing, into – I mean, the density of cities in North America and frankly around the world is increasing. Not the nature and the look of it.
of the large megacities is also evolving and changing. And we are here at WSP to tackle the change. And so we are seeing a lot of rehabilitation and refurbishing of the large megacities.
of existing buildings happening at the moment. And I think you'll see more of that in the years to come.
Okay, that's it for help. Thank you so much, that's it for me. Thank you. We will now take our next question. Please stand by.
Your next question comes from the line of Ian Gillies from Stifel, please go ahead. Morning everyone. Morning Ian. I wanted to go back to the digitization of your business. As you think about monetizing that, do you think about it from actually being able to charge for new technologies or is it
a function of getting better utilization on your existing employees, thus spending more time billing, etc. Or is it some mixture of the both? Yeah, and I'll turn to Alain a second, but it's clearly a mixture of both. I think you need to think of this.
To me, it's two dimension or two prongs answer. The first one is what are the additional digital services and advisory services that we could provide to our clients? And we are providing a number of these in the environmental sector and the transportation sector and the property and building sectors and the decarbonization movement that is taking place. I mean, we do provide digital services to our clients.
That's one aspect of it. The other one is to use technology for us to be more efficient in our design, to optimize our design, to provide a better design to our client. I think that's perhaps the opportunity also for WSP is really by using digital tools, not just an ERP.
aspect of it. The other one is to using technology for us to be more efficient in our design, to optimize our design, to provide a better design to our client. I think that's perhaps the opportunity also for WSP is really by using digital tools, not just an ERP, but using digital tools.
for us to be more to optimize the work that we do and do it at a better cost.
but to do it also with more precision and providing a better service to our clients. So to me, that's the opportunity. I mean, it's one, what are the adjacent digital services that we can provide to our clients? Number one, and two, what are the tools that we can use?
to continue to do more with less. I think that's the real opportunity also for WSP. So one is more outward focus facing our client and the other one is more inward focus.
How can we leverage the existing platform with technology to do more with less? That's helpful and makes a lot of sense. The other thing I wanted to follow on was some of the commentary around this...
business and growing that part. When you look at that business, is there anything with respect to those contracts that may be more attractive than the traditional engineering business, i.e. are they more recurring in nature? Do you see those customers coming back on a more frequent basis? I'm just curious whether on the how the
how you perceive the cashflow quality of those versus the existing business? It's, look, because I'm always concerned when we talk about strategic advisory versus engineering, like talking like engineering is not the same level or the same quality level than strategic advisory. Engineering, just so that we're crystal clear here, our margins have gone up in the engineering and in our engineering services. So I would certainly not be suggesting that our engineering services are being commoditized to the contrary.
As I said earlier on today, the projects are becoming so large, much larger than they were a decade ago, and the complexity around the projects are greater as well. I think where we can make a huge difference as a global firm and with the expertise that we have in-house is really to tackle those mission critical projects, those complex projects. That's where we can really increase our margin profile.
and continue to do well on the engineering front. On the advisory front, as I said, it's just allowing us to get closer to our clients. And obviously there's a fair number of, I think you talked about recurrent revenue streams, obviously there's a lot of that into it. I mean, that's very attractive. And obviously we will continue to grow this, but I don't think that we are doing this because our better or more favorable contractual arrangements. I think we're doing it because strategically makes sense for us to do it.
I appreciate that context. I think that's all very, very fair. I'll turn the call back over here. Thanks, Ian. Thank you.
We will now take our next question. Please stand by. Your next question comes from the line of Michael Tufan from TD Securities. Please go ahead, your line is open. Thank you. Good morning.
Please stand by. Your next question comes from the line of Michael to phone from TD please go ahead your line is open. Thank you, good morning.
Alex, in response to one of the earlier questions, you talked about still seeing WSP as a sub-scale in the US and also as still having room to grow in Canada. I guess more broadly when we think about potential future acquisition activity, given the company's current footprint, I guess beyond the US and Canada, if we look elsewhere globally, can you provide an update on any key regions or key target end markets that you're most focused on?
and good market for us and it has been good over time.
So certainly there is an opportunity for us to continue to grow our presence in that region, in that neck of the wood obviously. So we are going to continue to look for opportunities in the Asia Pacific region.
in the not so distant future. We have approximately 4,000 people in Australia, we're probably more than double the size in Canada, and I just mentioned that in Canada I see some opportunities for future growth. So, for the hack though, obviously Australia, we do see some opportunities to continue to grow.
We need to find those and as I said in the past, but many times over, that's very difficult to time acquisitions. It takes two to tango, but I'm confident that in due course to our larger size acquisition or to a niche acquisition, we are going to be able to grow our presence in Asia Pacific as well. Okay, so still very much broad based opportunities in many regions.
Yes. Okay, and then the 2nd question is just a question regarding the 2023 organic growth outlook of 3 to 6%. Just just for as we think about the year and how it unfolds. Is there anything we should be mindful of in terms of the quarterly cadence of the organic growth as you move through the year?
Okay, and then the second question is just a question regarding the 2023 organic growth outlook of 3 to 6%. Just just for as we think about the year and how it unfolds. Is there anything we should be mindful of in terms of the quarterly cadence of the organic growth as you move through the year? Just curious on that front.
No, we don't have, in particular, we don't have the same situation we had in 2022 on the number of billable days. So, 2023 will be standard comparable days between quarters. So, we've provided in our outlook, Mike, all the distribution per quarter, but nothing specific I would tell you on 2023. Okay, that's helpful. And then I guess just beyond beyond sort of the billable days issue, Alain, I was just also curious if there's any sort of situation here where growth is accelerating as you move through the year as perhaps infrastructure spending continues to ramp up in certain regions or anything along those lines was part of the thinking there. No, nothing like that, Michael.
Okay, thanks very much. Thank you. Thank you. Once again, if you'd like to ask a question, please press star one and one on your telephone and wait for your name to be announced. We will now take our next question. Please stand by. Victoria Kamel Nitski from Veritas. Your line is open. Please go ahead.
Hello and thanks for taking my question. So the first question I'd like to ask is about organic revenue growth in 2023. You are guiding for midpoint of 4.5 percent. That's lower than 7.3 in 2022 and 9.5 percent in Q4. And I wonder, is the delta primarily driven by your conservatism as historically as the delta?
you have a track record of over delivering or are there any other factors that we need to be cognizant of? No Dimitri, it's a fair assumption.
Okay, awesome. And then, in terms of capital allocation priorities between debt repayment and material acquisitions, how do you think about this given the higher rate environment and so on? Well, it's all about cost of capital, so if I feel that we can…
find opportunities that will generate a higher return than our cost of capital, we're obviously going to pull the trigger and look into it, obviously. If, conversely, we believe that those acquisitions will destroy value, we're not going to look at them.
Okay, so it's really, you know, depending on the acquisition, very business specific. Well each and every acquisition is obviously different and each and every acquisition is we go through the investment pieces and if we feel that we're not going to create shoulder value, we're not going to do it. Understood. Okay.
Thank you. And then the last question has to do with the current taxes. So I was just wondering whether the current income tax expense is a decent proxy of normalized cash tax. Yeah, it is as we've discussed last night, Dimitri, it is. Yeah. Awesome. OK, thank you so much. Thank you so much. Bye bye. Have a great day. Thank you. And you too. Thank you.
Thank you. There are no further questions. Speakers, please continue. Okay. Well, thank you so much for attending our Q4 earnings release and I look forward to updating you as we progress towards 2023. So again, thank you. Thank you for continued support and look forward to engaging with you in the next quarter.
are no further questions, speakers please continue. Okay, well, thank you so much for attending our Q4 earnings release, and I look forward to updating you as we progress towards 2023. So again, thank you. Thank you for continued support and look forward to engaging with you in the next quarter. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect. If you have any speakers, please stand by.