Q2 2023 SNC-Lavalin Group Inc Earnings Call
Thank you for standing by this is the conference operator.
And welcome to S. N C. Lovelan second quarter 2023 results conference call. As a reminder, all participants are and listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need us.
During the conference call you may signal, operator by pressing star sincere L. I would now like to turn the conference over to Denise Jasmine Vice President Investor Relations. Please go ahead.
Let's see what was up.
Good morning, everyone and thank you for joining us today.
We invite you to view the slide presentation that we have posted in the investors section of our website, which will will refer to doing just called to this call is also webcast.
With me today are you in those words, President and Chief Executive Officer, and Jeff Bill Executive Vice President and Chief Financial Officer.
Before we begin I would like to ask you if you want to limit themselves to one or two questions to ensure that all in the last seven <unk> State you are welcome to return into the queue for any follow up questions.
I would like to draw your attention to slide to comments made on today's called me contains forward looking information. This information by its nature is subject is assumptions.
And uncertainties.
Such actual results may differ materially from the views expressed today.
For further information on these assumptions risks and uncertainties. Please consult the companies really been filing sounds SEDAR plus.
These documents are also available on our website.
Also during the call we may refer to <unk> financial measures.
Of these amounts the corresponding R. As far as financial measures are reflected in our earnings release, an M. D N a which can be found answer dark plus in our website and I'll I'll pass like all over it again, that's what it is yeah. Thank you today, the moaning it wrong and thanks for joining us today.
We are very pleased with our performance during the post office.
The results with strong across all of our businesses.
Seem to grow strategy, which is being a guide as we grow into a premier professional services and project management company, He's really taking shape.
Four months this past quarter reinforces the benefits of this strategy positions as well, but longterm value creation.
S N C. L services continue to grow expanding revenue by 22% year on year significantly outperforming a full year outlook range.
5% to 7%.
Segment of just that ebay grew 15% or $21 million as we continue to manage our costs to deliver targeted margin percentage, we achieved another record backlog this quarter totaling $12.4 billion as at June 30th.
For our services remains very strong and a cold and and markets and geography.
Given a strong good today performance robust backlog.
Lineup prospects, we are raising our S. N C. L services organic revenue growth outlook for the full year, so between 12 and 15%.
We also continue to successfully high quality talent and the quota increasing our headcount by approximately 2400 employees since the beginning of the.
Subsequent to call to close we made progress against our strategic review through the sale of the Scandinavian Engineering services business to sister group of friends based engineering and consulting group specialized in public transport and mobility solutions.
We expect the transaction to close before the end of the.
Success this past quarter on the <unk> further emphasize is the strength and resilience of our business and is driven by the global focus on sustainable infrastructure.
Energy sources for the built environment.
We continue to have great confidence and I'll forward looking trajectory and we are well on track to achieve a newly elevated outlook for 23.
On slide four we highlight a backlog growth across S. N C O services uhm, 9% growth in the second quarter of 2023 versus the second quarter of last year was mainly driven by wins across our engineering services and nuclear businesses.
C T witness across many of the markets in which we operate include in transportation work in the U S building infrastructure development, and Saudi Arabia, and asset management Ah nuclear life extension woke at home here in Canada.
The wind is highlighted on this slide demonstrate our ability to deliver growth now and in the future.
Turning to slide five or engineering services business continues to drive robust organic growth for S. N Seattle, and so significant year over year revenue growth of 25 per cent during the second quarter.
A record revenue generation for the sports it was driven by continued growth in the U S. One of the pillars about pivoting to grow strategy, along with strong performance in the U K, Canada in the Middle East.
We also so sustained performance in Australia, and Asia further demonstrating the resilience of our business in the region.
Increased volume unplug productivity across the U K and Europe contributed to the profitability improvement in the quarter.
[laughter] segment of just that EBIT margin and segment adjusted EBITDA open up revenue matching what 8.5 per cent and approximately 14% respectively. During the quarter.
We continue to achieve record backlog results, which now stands at approximately $5.1 billion, representing 22% growth versus a backlog as at June 30th 2022.
On slide six we provide further insight into each of our co geographies of the UK the U S and Canada.
In addition to organic revenue growth. We also learn several key windows across these markets that took all of the engineering services that SMC Laughlin provides.
In the UK and Europe , So continued revenue growth, which speaks to opposition as strategic partners to governments I stay focused on transportation defense and water.
Performance each quarter and the small kids was driven by increased volume productivity and profitability.
And the U S. We continue to reap the benefits of increased foothold in the market and the government's commitment to infrastructure spending.
This past quarter, we secure key wins and transportation building in places and defense.
Looking at these opportunities in the U S are plentiful.
By the U S commitment to spend more than $100 billion over the next five years.
We have strong confidence Vanessa and long term opportunities in Canada.
The government plans to spend close to $15 billion until 2029, and reliable fast affordable and clean public transport.
We were also at the forefront of supporting projects related to the development of easy batteries as proven by a key when this quarter.
Longterm there was a focus on reducing G. H G emissions by 90% by 2050, which will lead to further contracts opportunities for SSA last night.
Global demand for it and to and services remain robust driven by generational investments in infrastructure and climate resiliency and reassuring manufacturing on the energy transition.
We are successfully attracting and retaining top talent to support <unk> gross pipeline.
[laughter] future opportunities and I'm focused on operational excellence sets us up the top line and bottom line gross and our engineering services business across each about a drug reference.
I'd like to now move to five seven and the results of a nuclear.
We demonstrated strong rose in the quarter with an organic revenue increase of 11% compared to the second quarter of 2022.
Ah nuclear backlog has also grown to $1.1 billion, which represents a 38% rose bushes a backlog at June 30th 2022.
Operating margins.
13% due to changes in the business of nuclear segment. This quota.
Nuclear represents a significant opportunity for SSE Loveland.
And our position in the marketplace a robust revenue in backlog grows.
The confirms that we are well positioned to capture longterm benefits as leaders in this thriving nuclear energy space.
On Friday, we highlight achievements in each of the nuclear services that we provide.
Nuclear new build represents a near term and long term revenue generating opportunity pregnancy Loveland.
The recent announcements by the Ontario government, which they plan to build three small modular reactors.
P G Darlington site.
That proposal to expand the Bruce power nuclear stations are just two examples of how governments acting on that commitment.
Zero.
We remain active and react to support and life extension projects as indicated by a work across many of the cold Geography's in Ontario would continue to be actively supporting can do like the essentials is Bruce.
Bruce parasite, where we recently signed a 10 year commitment.
The life extend the remainder of the reactors.
Can do technology improve and success in life extension.
I was to capture new opportunities such as the recent announcement by Ontario Provincial government.
Proving the extension of Pickering nuclear for a further two years.
On waste management and decommissioning, we're seeing continued progress on our projects in the U K and in the USA and have a strong pipeline of prospects in the U S.
We are increasingly excited about a longterm growth potential about nuclear business, given our expertise and a recognition as a trusted engineering and delivery partner.
We have consistently harnessing oh capabilities across the globe to continue to set SSE leveling up.
The nuclear contract wins.
Now moving to slide nine and I rode him and linked some businesses.
Oh, Rowan and segment generated $99 million in revenue during the second quarter.
7% organic revenue decrease mainly due to the completion contracts that upset revenue generated from new projects.
Segment, adjusted EBITDA margin was 8% above a longterm target five to seven per cent.
We continue to see opportunity for growth and expansion in Canada, and the U K through wastewater facilities and building and road infrastructure improvements. We're also utilizing strategic partnerships with key industry players and leverage in a capital group to maximize opportunities.
Future gross and co markets.
[laughter] strategic review regarding links on remains ongoing.
We will provide an update when applicable.
Backlog increased by 16% to approximately a billion dollars at the end of the quarter.
And the quality of the backlog should lead to an increase in revenue over the back half of the year on a segment adjusted EBIT margin percentage closer to the low end of our outlook range. Thank you for.
Okay actually remains very strong with good opportunities, particularly in the middle East in the U S.
Moving to slide 10, and R. L S T K projects and capital business.
We recognized $13 million in losses, and a quarter in line with our expectations.
As we finalize the L. S D K projects for our clients, we continue to pursue recoveries that are owed to us.
A significant portion of additional costs related to the pandemic supply chain disruption inflation's latest strike action should be with a Coca Cola owns the contracts, we have with our customers and discussions remain ongoing as we vigorously pursue recovery of these losses.
Testing information on how to Ontario project is proceeding as scheduled.
Last project <unk> continues to progress well was it sounds real portion having successfully opened on July so as you want.
Turned into a capital business second quarter revenues and segment adjusted EBITDA, both grew significantly versus the second quarter of 2022, as we receive $10 million in dividends from a holding interests and the highway 407 compared to no payment received this quarter of last year.
In July we received another $10 million in dividends.
Traffic volumes continue to accelerate smallwood cause returned to the office.
Volume group by 18% compared to the second quarter of 2022.
So with that I'll now turn of it's just to discuss the financial islands.
Thank you and good morning, everyone.
Turning to slide 12, total revenue for the quarter increased 14% to $2.1 billion compared to Q2 2022.
Essentially all services revenue totaled $2 billion, 21.8% higher than 2022 or 17.7% on an organic revenue growth basis.
Total segment adjusted EBIT for the quarter was $178 million 48 per cent increase compared to Q2 2022 and was comprised of $167 million <unk> services $24 million for capital.
Negative $13 million for L. S D K projects.
Essentially all services adjusted EBIT margin was 8.5 per cent in line with our target range of 8% to 10%.
Corporate SG&A expenses from P. As in P M for the quarter over $29 million, while restructuring and transformation costs were $7 million.
Net financial expenses for the corner over $43 million.
Higher than Q2 2022.
To a higher level of gross debt and higher interest rates on variable rate that we.
We expect this level of quarterly expense to continue for the next two quarters.
The I N for net income from continuing operations this quarter was $64 million compared to $2 million in Q2 2022.
This is composed of a net income is $50 million from P. As in P. M.
$14 million from capital.
Adjusted net income from P. As in P. M for the quarter increased by 34% to $72 million, representing 41 cents per diluted share compared to 31 cents in Q2 2022.
Backlog at the end of the quarter totaled $12.8 billion, an increase of 5% compared to June 30th 2022.
1 billion dollar increase in essential services backlog was partially offset by a 400 million dollar decrease.
L. S D K projects backlog as we continue to progress on our L. S T K exit strategy.
Essentially all services backlog increased by nine per cent and included a 22 per cent increase in the engineering services segment and a 38 per cent increase in the nuclear segment.
Engineering services of nuclear were awarded $1.7 billion and $376 million of work and a quarter, representing a book to bill ratio of 1.17 and 1.53, respectively.
If we now turn to slide 13.
At the end of June 2023.
Companies net limited recourse in recourse desk with $1.7 billion in the net limited recourse and <unk> to adjusted EBITDA ratio was 3.1 times.
This ratio is above the company's target range of 1.5 to two times at the end of 2024, but we remain confident that we will be meeting the target at that time.
Note that under our credit agreements the net debt to EBITDA ratio is calculated differently at the end of June 2023 was approximately 3.0 times.
<unk> continuing efforts on cash collection.
Sales outstanding for Engineering services continues to be strong instead of 61 days at the end of the quarter.
Suddenly in line with the passwords.
If we now move on to slide 14, and free cash flow.
As expected net cash generated from operating activities was negative in the second quarter, mainly due to the cash flows from the L. S. T K projects.
As previously disclosed we expect a positive net cash from operating activities in the second half of the year with the expectation that it will be more weighted towards the fourth quarter at the L. S. T. K projects supply chain continues to be paid.
Testing and commissioning activities continue in Q3.
We are also actively pursuing claims associated with the increased cost we've experienced some yellows T K projects.
Essentially all services generated cash flows of $70 million in it.
After class taxes interest corporate items and capital you can see there'll be used $46 million of operating cash flow and a quarter.
Including L. S T K projects.
$156 million.
With that I will now hand, the presentation back to Ian Yeah. Thank you Jeff.
We concluded the first half of the year on a positive note from <unk>.
Revenue and operating profit generation as we continue to execute.
<unk> to grow strategy.
With strongly positioned with a lead in presence across Arco markets of Canada, The U S and the U K.
And we continue to see multiple opportunities for <unk>.
Longterm value creation for SSA level and across all of these cold you out buffets and our end markets.
And we are winning.
For a unique competitive differentiate us and our ability to fully service the entire lifecycle of an asset from consulting to design all the way through to over then and decommissioning.
We are a proven trusted partner with our clients, which bodes well for our future opportunities to capture key contract wins across a cold businesses.
Well positions itself to lower his carbon footprint through sustainable infrastructure and clean energy solutions.
And lastly, we <unk> successfully increased our head count by approximately 2400 employees since the beginning of the.
And we have a strong dedicated and growing workforce that helps us achieve these goals.
Thankful every day for their loyalty and their diligence.
So with that let's open up for questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
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Our first question comes from Jacob of CIBC. Please go ahead.
Good morning.
Funny.
So strong organic growth in a quarter and get some first half and you know it appears you're you're performing your your peers <unk>, what do you think keeps driving so performances.
<unk> are you seeing hard when rates are and what would you attribute that to.
Yeah, Yeah. Thanks, Thanks for the question.
Clearly <unk>, we're pleased with the results that will get it.
I mean, it's a.
All about a strategy and it's all about the pivoting to growth strategy that we've put in place and communicated.
21.
When we have the Investor day with position this company.
Deliberately in markets, where we believe that.
Governments are gonna invest and the replacement of aging infrastructure and the investment in new clean infrastructure.
In addition to.
Assets that are needed for the energy transitions in at zero 2050.
And.
And when you think about those geographies that would particularly focused on I 80 per cent U S, Canada or the UK.
The the the the budgets from those countries and the the commitment to spend on those issues.
Is is really increased since we actually put the pivoting to grow strategy in place.
I think there's a couple of other key elements here.
And that we are weighted towards government will deliberately.
Because we see that as a resilient strategy and we see that is less cyclical, particularly with the need to meet that zero.
But also.
The nuclear.
Resurgence of nuclear.
Power.
That is.
Coming back.
The truth alternatives to clean.
It's really boosting nuclear business. So all in all I think the the deliberate possession of the company and I'll put some grilled strategy is working.
And and we're pleased.
With the results that we got it.
Okay.
But I guess on the the nuclear site, though I mean.
It doesn't appear that the.
Revenue groceries is keeping up keeping pace with the sequential increases in backlog.
And it looks like <unk>.
Organic wrote this is lagging the overall company you know are you expecting celebration here I'll go for basis.
For sure.
And I think.
You you've got a I think there's a few contextual points here.
For the for the services business the businesses.
Table, and and has been stable and growing.
As you would expect our services business to grow.
But on the new nucleoside.
<unk>.
We go through this process of Prefeasibility engineering feasibility engineering design, and then into projects themselves and good examples of that would be the life extension project Bruce.
In Darlington.
Terrio, Canada.
That.
The <unk> needs to go through those engineering processes.
So what is the backlog obviously.
Improves as you win those contracts the Ram folks Wilson is a bit slower what what you will say, particularly from the life extension projects.
Is is a ramp up of revenues 24 25 from from the work that we can already see both one work and what we believe we're going to win.
And just one last quick one <unk>.
<unk>, maybe just talk through the organic revenue you saw in the UK persons can you ask.
Yeah.
UK business very strong.
The the specific sectors of shifting a little bit we're seeing more defense work with seem more water work.
Historically, our business has always been strongly in transport.
It's still strong, but I think the groceries really coming out of small defense and more water work recently and business. Obviously you know.
Business, that's been around for over 100 years.
And is is proven still grow and and in the market.
Having a U K.
Thank you.
Our next question comes from Uri link of Canaccord Genuity. Please go ahead.
Good morning, guys on congrats on a on a nice corner.
Uhm.
Yeah. So.
Growth are surprised to the upside, particularly in engineering services, but maybe.
Maybe just.
A little bit on the margin there I was surprised.
The the.
The EBITDA margin on net revenue.
Was down about 130 beeps, despite the strong revenue growth. So so what's what's offsetting the I can see.
Assume there'd be some natural operating leverage in that business, but it doesn't seem to be pulling through.
Yeah, Okay, that's the Jeff and I both to answer this question, maybe I'll take it from the strategic.
Point of view.
When when we.
Analyze David Dot net revenue marches across the whole business, which obviously has been part of the strategic review.
Mmm major parts of our business operate at Peter level margins.
And we.
We have areas of the business such as Scandinavia that we announced we're gonna do best.
Operating below those mountains.
So the strategic review for Rose is all about ensuring that all of our business and a portfolio is operating at <unk>.
Or or both.
So we we are <unk>, we are acutely aware that.
And parts of the business, we we we envelope, but we see no reason why we won't get to the same place.
I don't know if you'd add anything to that yeah. I think the only other thing I'd add is [noise], we continue to drive the business on EBIT margin, which we think is the best representation of our business from an operating perspective, you know those are very consistent year over year, we did see a bit of change in mix just.
In terms of the amount of flow through revenue between gross revenue net revenue and that really drove the difference on ebay dot net revenue.
But we are largely you know looking at EBIT margin uhm and continuing to drive.
Those margins overtime, we see opportunity to continue to improve those you know as we work through some of our cost transformation activities and continued to you know to optimize the portfolio in terms of our our businesses. So but we were pleased with where we sell our operating margins. It give me a second.
Alright, those those for engineering services, if I recall those would've been flat yep.
Yep Yep 8.5 to 8.5.
Mm okay.
You still calling for positive operating cash flow and H two positive.
That's that's a wide range is that the is that dependent on in any way on on these settlements.
And can you quantify it at all because the you know the leverage is.
Pretty pretty high so wondering how to model that leverage ratio on the back half of the year is really what I'm trying to get out.
Yeah, I mean, as we talked about before you know very much. The first half was in line with our expectations. We did expect to be negative because of that L. S. T. K projects cashflow drag as that winds down in the second half of the year. As we said you expect to be positive operating cash flow in the second half of the year that's not depend.
<unk> on the settlements Uri, we will very much expect and will deliver positive operating cash flow will be weighted towards the fourth quarter. As we said you know there was a natural transition to that drag from L. S. T. K Uhm true Q3, and Q4 I don't think we provide any more specific.
Right and it's around that at at this stage, but very much by the end of the year. We will have that you know a business on a go forward basis that we think will generate strong cash flows from a balance sheet perspective. Therefore, you know we do see that says you know the the the high water Mark in terms of our our level.
Ridge ratios.
And therefore, as we drive operating cash flow positive over the second half of the year. We expect you know the leverage ratios to fall and as I said it'd be very much on a trajectory to you know to hit our targets in 2024 very.
Very comfortable with our liquidity and where we are from a balance sheet perspective, So I have no concerns that way.
Okay. Thanks for the color guys.
Thanks.
Our next question comes from Chris Murray of ATB capital markets. Please go ahead.
Yeah. Good morning, maybe following on the on the Castle Depression, a little bit you know party part of what we talked about it the rest of your day was.
Once we are past the I guess, the the more challenged lck projects.
Gotcha look at maybe M&A and deployment of some of that available casual India. I mean, I guess the question is how are you feeling about your ability to start executing on that and do you have the structure of the people in place now or that's probably you know feasible as we move into 2024.
Yeah, I mean does that thanks, thanks for the question.
Clearly M&A, it's got to be part of our growth strategy and the the medium to long term I mean.
That's clear I mean, we have.
Sorry clear respirations.
Of moving from a top 20 player in the U S.
Top 10 player in the U S. That's key so I'll pivoting to growth strategy.
We obviously doing well on organic growth.
The time will come when we enter into an M&A program.
We obviously have always said about capital allocation is would strengthen the balance shape.
And then consider M&A or returning.
To to shareholders.
When we reached the point, which we would expect during the course of the next year.
We can look at M&A and actually carry out transactions will take a very methodical.
Approach to this and stop talking.
Took in acquisitions.
So build a capability and show that we are able to exploit sandwiches and integrate those businesses, both financially and culturally into all into our business and then we will continue and the cadence of our peers and M&A moving beyond 24, so yep very much.
And the plan, but we don't quite that yet.
Okay Fair enough maybe my other question is around the strategic review, so we've kind of touched on.
On a couple of different pieces of this.
Call today Uhm.
<unk> I guess.
And margin expansion.
<unk> business, maybe or areas that you don't want to be in.
No. What's left can do in terms of your evaluation at this point and do you think you could have it wrapped by year end is I think he was kind of a <unk>.
Yeah, Yeah, Yeah <unk> yeah. That's that's that's a good question and <unk>.
We are we are on track and is progressing really well I mean, if we think about yeah. What's the what was the intention and the intention is to look at old parts of the portfolio businesses in business to make sure that we are on a path to be at.
Peter <unk>.
And you know as you've seen in the Scandinavian specimen. We've we felt that that was a drag and we felt that we have that business for some time on an improvement plan and the right decision for US is the best at.
Now if we take a look at all the other engineering services businesses. We we we are finished that review.
So you would not expect to see further divestments from the engineering side through this particular review.
On the links on side, we are still evaluate your options. We expect to have to follow up to conclusions those options and to conclude the actions that are necessary to deal with like some <unk>.
At the end of the year.
So <unk> so that would close out this particular strategic review by the end of this year.
Okay. That's helpful. Thanks folks.
Thank you.
Our next question comes from <unk> of RBC.
Capital markets. Please go ahead.
Alright, great. Thanks, and good morning, Uhm can you made a comment about just kind of a nuclear opportunity out there and then you also talked about.
Having added a decent amount of staff I'm, just thinking, particularly in that market, which is very specialized how are you thinking about staffing up I have this opportunity again.
Give me some of the timeline for these projects are very long when do you start looking in hiring and bringing those people on board.
Could you just repeat the last question I'm, sorry, we have a bit of an I T problem, we'd be tuned out for a second I I got the nuclear question.
Yeah. So just in terms of the timeline just given how long dated some of these projects could be you know when do you start to lock and hire an onboard these people and just giving those specialising, maybe potentially hard to find that could be yeah.
Yeah, Okay. Okay, great question now.
We we gave it fairly short answer on the nuclear sides. Previously let me give you a longer answer kind of apologize blood <unk>, but I think it's a it's a good question and it is good to try to understand what the growth is gonna look like here I mean, the world has changed in terms of attitude to new nuclear power generation and it.
Needs to because if we are going to reach net zero, we need nuclear power as a base load so that clean energy future.
And I see how business in three parts certainly three pilots in terms of how the growth will flow through the business then the three parts of our services business, a new nuclear business no can do.
Nuclear business can do where we owned a sole rights to the Canadian technology.
Service is business has been the backbone of our business for years.
And it's been stable and it's good matches and it is now starting to incrementally grow as we do decommissioning waste management and support kind of nuclear clients and facilities and a code geographies.
The new nuclear no can do.
The project slightly X amount of dollars.
And for O P G.
What we're doing with the Rolls Royce in the UK don't eczema.
The vast amount of <unk> in the UK to support area and that that will move to Sizewell, a size will get underway and bill and.
And this this is growing now with same backlog come in here now and we will see engineering studies and a flow through work.
Actually within the short term.
And then on the can do side.
There's two parts to this one is extending the life of existing can do react as around the world, which we've been doing a Bruce and O P. G and you'll see further announcements for even further reactor life extension projects and Bruce and Pickering, We would hope to win that work.
We would expect that that will bring in significant revenues 24 25 26.
And then the ZIP absolute Newbuild can do that we're in discussions with numerous clients domestically and internationally.
You will see actually execution, probably of those contracts towards the end of the decade, but pre engineering pre studies feasibility we will see in the in the short to medium term. So all in all this is a pretty exceptional time.
The nuclear business and what Primely position with the Solarize. So they can do technology and capability now clearly we have to grow the number of people and we have to train regular engineers, it's b a nuclear engineers and we're in.
That process, we have upskilled many people to take home the backlog that we already have and the nuclear business and with a value proposition of talent value proposition, where we're able to increase the number of.
Question deserved it.
No that was good color and then I guess, maybe just along those lines. You know there was a question earlier on the margin profile I guess as you're bringing all these folks just into the organization is there some element of maybe under utilization or inefficiencies that you expect should sort itself out over the next 12 18 months.
As those new hires become more productive or is margin improvement more of kind of them mixed up that you talked about a little bit earlier on.
And just what's your outlook on that farm.
Yeah, <unk> <unk> why don't I take that it's not really utilization factor within their the utilization within within the nuclear sector.
Okay, and just if I could squeeze in one just on the organic growth like the number of the last two quarters have obviously been north of 20 per cent very good at this was this cadence of backlog burns sort of expected based on timelines or just.
How should we think about as we go into kind of 24 and onwards, because the numbers are very strong, but just wondering if there was some acceleration of work new sort of book and burnt type of business are just what kind of drove these numbers are relative to kind of reach of course.
Well I'd probably refer it back to the you know the question on.
<unk> position in the company.
And how.
The demand for our services within the positioning of the company both from a geographical.
Ah service line, and and then <unk> of energy transition transfer.
Defense Rosa what they contribute to all that now clearly when when we set out into the year. We had a we had a growth guidance it was much lower than the <unk>.
We've landed in the first half.
Today at 40 per cent growth would you put the two.
Called Us together.
Really pleased we felt it was necessary to extend that through to the rest of the year, because we see a fairly consistent kind of pipeline for the second half of this year that we've seen in the first half and that's quite easy to predict.
I mean, obviously, we are focused on growth and we would hope to see growth 24 beyond but whether they're at this level. I mean, this is pretty exceptional I would probably temper down a little bit.
Until we get further towards the end of the year, we can see the pipeline I'm gonna see this specific opportunities and obviously, we will guide at that point at the end of the year.
Thanks, very much for all the color.
Thank you.
Our next question comes from <unk> of Deja Dang capital markets. Please go ahead.
Thank you.
Just to come back on your Garden Grove question, obviously strong performance in the first half 16%. Your Dalgyte eight 412 to 15 does it signal some softness or return to more normal lives level in the second half or are you be conserve it is right now.
Well, what we're looking at here today for the H, one which is 40% I mean, we had a great call with you too I mean, there's no doubt I mean, I'm really pleased you know the word winning machine and the the position that we've talked about is is really played for us, but we've taken a H one view 14%.
We see that that's.
In the pipeline, we see the visibility.
<unk> that sort of range of growth between 12 and 15, So I'd only gets conservative I think it's it's it's accurate. It's it's it's it's obviously a dumb from analysis of.
The way we see ahead.
So that's why we we fixed on that range.
Okay and just in terms of operating margin you you were able to achieve at 8.5% in the second quarter comparable to last your despite the strong organic growth.
For all of your work at a grilled side.
Yeah, Okay. So.
Let me answer this question and Jeff couldn't can go to the the amount in the amount of your question.
Well I'll I'll goal. This year was to kind of have a cadence of head count improvement.
Round the thousand person mob quota that's an improvement on 22 22, if you remember we had a 3000 over the year.
I think you said it was pretty exceptional at 1400, there are some some seasonal.
Affects the recruitment.
Because obviously, we are big graduate programs as well and we have big into an programs. So there is some effects. We we expect that we'll we'll we'll get to where we set up around the the 4000 increase in people during the course of the year. So we wouldn't see the soda cadence of 1400 for the next two hours I think that'd be a little bit.
Too ambitious.
Yeah, and maybe to chat a bit further but the operating margin you know profile.
We've seen in previous years, the second half tends to be a bit stronger than the first half you know as we work through our backlog and we tend to have a slightly better.
And stronger utilization in the second half, but I would also say overall you know we can we continue to kind of see that as we <unk>.
Deliver on our cost transformation activities, we've talked previously about the common sense of tools and systems and standardized processes that were driving to the organization. We continue to improve and rationalize our real estate footprint and will continue to look to drive those sorts of cost opportunities as well so.
You know, we I think we expect to continue to see as we have in previous years Uhm, a stronger second half an operating margin 7%.
Okay and would it be fair to say that all those efforts will likely pay off beyond 2023 and 20.
2024, it will take a few quarters before we see that all the margin side right.
Improvements and operating margins for those factors I've talked about and you know as we continue to grow the business and manage our utilization and you know there. There's no question is Ian said, you know with a wish list with such a strong revenue growth in the in the second quarter, there's a bit more new business development expenses and we've continued to.
Drive that higher backlog, but we would expect that to continue to normalize itself out and for us to be in a stronger position in the in the medium to long term from that combination of course transformation activities and the strategic review, where we look to exit lower margin businesses overall.
When we look at our business, we see it either currently at a level or in the in the short to medium term and ability to reach you know pier comparable operating margins.
Okay. Okay, that's a great color and on the 407, obviously a dual if we look at the <unk>. It's been recovering very nicely uhm, but you also have to reset the refinancing at four point, 86%. So I was just wondering how.
How it impacts the cost of death, and whether the traffic wrote it's kind of upsetting the <unk> higher refinancing costs and how it impacts the the valuation that you might consider a potential divestiture longer term.
Yeah, I think from a valuation perspective <unk> you know that business is continuing to operate strongly as you've said, we continue to see improvements in the traffic growth.
You know I think in line with our expectations as it as traffic and improves.
Improves in the greater Toronto area is more workers are coming back to the office and more organizations are asking your employees to come back. So we certainly continue to see them and believe that the demographics of the greater Toronto area, you know and the working arrangements in that area very much support you know getting to the <unk>.
Traffic levels that you know that we would expect in terms of the valuation I think the second piece would be you know from a from a cost of capital perspective any of that.
<unk> you know further that that's been renewed very much in line with what we see is the long you know the longterm assumptions around you know cost of data and the weighted average cost of capital for that business. You know, so we frankly and you'll see it from a valuation perspective to continue to be a very valuable asset.
And not dissimilar in terms of its valuation to what we've seen in the past.
The backlog in the longer term.
What <unk> what part is is that announcement.
<unk> of the <unk> program with G E Tashi uhm on those.
Those are.
20th will beyond.
Bruce obviously, we want to be part of the development of new nuclear we believe the Canadian technology that we have the sole rights to should be the right technology to compliment all of the existing reactors that is Bruce.
If that is the case ultimately that will be a very very significant opportunity for us to see loveland.
Okay. That's great caller. Thank you very much for that apartment congrats again.
Thank you.
Our next question comes from Michael <unk>, a T D Securities. Please go ahead.
Oh. Thank you good morning, he put in place in N C. I B earlier this year, considering your expectations for positive cash from operations in the second half of the year.
And considering the stock still depressed valuation versus peers can you just talk about how you think about the N C I be in your appetite for making use of that going forward.
Yeah sure. It's <unk> why don't I take the right I think Michael you've heard this earlier.
In line with our capital allocation strategy as we said back in queue for we wanted to make sure that we had you know all elements of that capital allocation strategy available to us uhm going forward notwithstanding that.
Clearly our priority remains the balance sheet and that would be the first call on on surplus cash flow, but we didn't want to have the opportunity you know in terms of returns to shareholders and that's why the N C. I b as in place I think we would you know very much agree with you. We continue to see the value of the company is undervalued versus what we think.
It is fundamental value is you know.
When we get to that point, where you know, we see positive cash flow uhm or the expectation of it and then we think there's an opportunity to take advantage of that we're just not there yet.
And and so yeah I understanding that the you know the expectation is for cash operations to to be more weighted toward Q4, and Q3 is to understand that's where we're not yet in queue for it but.
Do you need to see leveraged come down to a certain level before you would consider using the N C. I V or is there something you could do just where he can currently once you're in a positive cash generating position.
I think it's really about I think we can continue to do that can currently you know and as we get closer to that point later in the year, you know see where our cash flow is turning out. Then then we look to make those decisions at that time I just think at this point, we're we're probably a bit too early for that.
Okay I appreciate that.
Earlier, you were asked to talk about sort of what you're seeing in the UK versus Canada, and the U S and I think he provided some [noise].
The the market.
Road and bridge.
And all of that outside the nuclear opportunity all within the engineering services options, you're presenting great great kind of markets froze.
<unk> you know to repeat a strategy I mean very very strong.
T. One.
In some southern states opens new offices, California, Washington State and the the Washington D C. New York, Colorado, where we see significant investment in new infrastructure and those officers are now, bringing working and and obviously revenues. So.
The the plans work in the market Strunk and we will keep.
Pushing and obviously add to that within organic when the time is right.
And in Canada.
Pretty strong story too with the provinces committed to new.
Uhm transport clean energy transport solutions.
And metro's and replacement of aging infrastructure also in the road sector.
We are seeing a good strong pipelines of work business. Obviously, you know, it's it's where our home is and and we offer ambitions too so to grow in Canada roles are in line with all of our other businesses.
So from what we see going forward in the commitments that'd be made even you know outside if any party changes.
Uhm political changes, we see that the replacement in the energy transition will feel them.
Our next question comes from Frederick Bastion of Raymond James. Please go ahead.
Good morning, and congrats on a solid results.
Thank you.
Thanks, I was wondering if you could drill down on the successes you've had recruiting I'm just wondering if the new hires awaited.
Towards graduate students or whether you've had also successes recruiting more seasoned professionals and likewise, you're seeing growth in specific specific segments or is it was that properties.
Yeah.
That's a good question I mean.
The way I think about it as soon as that service I.
<unk>.
Obviously, the engineering sector.
I'm busy sector, when we're not alone.
But we've.
We've really been hard at work.
For quite a long time now looking at our employee value proposition that the purpose of the company to engineer a better future for the planet and its people. The culture, we have the development and flexibility we put in place and all of those things are working for us. So.
<unk>, we we are able.
To reduce attrition, which obviously keeping the employees that we already have as key.
I'm really pleased that the attrition right now is below pre pandemic, but we're also able to attract and and we're we're actually.
Able to attract across the board I mean, we haven't hands graduate recruitment process. We've always had a really strong process in the UK and we've established similar processes now in Canada, and the U S and we feel that that is a you know.
Asset to the company as we grow those those graduates into the company.
But also across the board really.
And multi professions and and.
Mmm Multilocation. This is one of the monthly Geography's, which obviously is needed to feel the drugs. So oh no. It's it's you know.
It's not something that we can be complacent about it in any way whatsoever, but we're we're pleased with the success that we've gotten it is helping drive on growth.
<unk> My second question about the government measures are being implemented in the U S. I'm just wondering if.
At first and see his best position to Capitalise more excited about the opportunities related to the infrastructure Bill the I R. A chips act or are you <unk> are you going to.
<unk> and you're like all these all these it seems.
No I think.
C G I N J a.
Is we're actually we're we're seeing funds flow through the states.
<unk> infrastructure work.
Ah Ah strongest capability in the U S is really transport.
Uhm, both in <unk> Road and bridge, we are developing a water capability because we see.
Quite a bit of that.
J a flowing into new water.
<unk> the the dealing with floodwater and also that the movement of drinkable potable water.
So so it was a good opportunity around that I.
The development of energy assets and.
And we support customers in that space.
But I would say that Ah that for ourselves specifically in our own capability, that's probably even less effect than the <unk>.
Alright, that's helpful. Thank you.
Our next question comes from Max's to check of National Bank Financial. Please go ahead.
One gentleman.
Alright.
Uhm.
Just just a couple of quick questions in terms of the emergency profile. So the first one is when it comes to the engineering business I think in the past you you've alluded that there's some geographical discrepancy when it comes to the profitability is.
Is the role of kind of like a L. S. D came works that health, Canada on a perspective basis. So how should we think about this.
I don't think so.
The engineering services.
Businesses as a whole has regions that or operate in very very strongly at sea level.
And you know as I said.
Geography, such as Scandinavia window, and then dragging the hold down so we we need to deal with that Uhm I'm gonna need to deal with those.
One by one basis.
I I don't think the L. S T K and the work that we would do is an engineering specifically really has a has an effect on that yes, I don't know if you would add any further cola yeah, I think I think the only thing I'd add is you know.
<unk> said you know, we do see strong margins in in in the different geographies, where we're not like Scandinavia exiting that business and that will help our margin improvement either R. As we've said there are a few other geographies our sub geographies, where we are on a margin improvement plan as part of that.
Is around cost of.
That is around realizing our full pricing capability and it does take a bit of time to roll off through the backlog. So I would I would what I would say is that you know the business. We're selling now in the margins were selling now leading to the backlog. We think are absolutely you know at pier levels, but in some business.
Units or sub Geography's. It may take some time over the next six to nine months to roll off you know some.
Yeah that makes sense and then just kind of stuck on very quickly to the nuclear margin you won't hear a compression because I mean like if you are doing more precede work on some of that.
<unk> potential new bills wouldn't that be kind of higher margin or do you mind me just providing any color in terms of worldwide emergency came down.
Thanks.
Yeah. So it.
As I said Max it it does depend a little bit. So there is a there is a range of margin within that nuclear business. You know all very strong and I think he can see on average you know it's a business that attracts premium margins you know even over the good business, we see an engineering services, but it does a bit depend on.
The mix of how much of that is services, sometimes we're doing some.
Procurement of of material for you know different you know life extension or other waste commissioning work that we're working on you know it depends on the level of equity pick up that we're getting in the <unk> in the waste management business in the U S and so that does that does that business mix fluctuates around a bit.
Quarter by quarter, but you know very confident that we remain well within our 13% to 15% EBIT margins within that business, which are real premium margins and you know it just it moves a bit quarter by quarter, Max but don't see any fundamental reason why you know we wouldn't continue.
To deliver the over the medium term the sorts of margins we delivered in the past.
Yeah for sure and it comes with the risk profile on prospective project and everything is gonna be dominant cough basis right.
For that or.
<unk> nation on multiple centers.
Showing Max which was the question around the lump sum projects.
No no no the the future of nuclear projects like on my new build stuff like it's all gonna be <unk>, Oh, yeah, Yeah, Yeah, Yeah, I mean, the the the the they're engineering contracts that the.
On the pre pre pre fate studies, the engineering studies or engineering services type and then if we get into the delivery of the assets absolutely.
We don't say the risk of the cost of some of these things.
Okay. Okay excellent. Thank you so much and yeah <unk>. Thank you. Thank.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Denise Jasmine for any closing remarks.
Thank you very much for joining us this morning as usual if you have any more questions. Please don't hesitate to contact me <unk>. Thank you very much and have a good day, everyone Bye bye.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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