AtkinsRéalis Group Inc. (ATRL) Earnings Call Transcript & Summary

[Interpreted] I move on an advisory basis and not to diminish your role and responsibilities of the Board of Directors, that the shareholders accept the approach to executive compensation disclosed in this year's management proxy circular delivered in advance of the Annual Meeting of Shareholders.

[Interpreted] Thank you, Javier. Erik, do we have any questions on the shareholder advisory vote on our approach to executive compensation?

[Interpreted] No, Andree-Claude, we have not received any questions relating to the shareholder advisory vote on our approach to executive compensation.

[Interpreted] Thank you. Since we have no additional questions, we will now proceed to the vote. I hereby declare that the polls have now closed with respect to all items of business mentioned in the notice of this meeting. Thank you, Bill.

[Interpreted] While the scrutineers are preparing their report on the votes cast today and prepare the report, I would like to invite you to say a few words about the Board's work over the last year.

Thank you very much, Erik. 2022 was a challenging year in which SNC-Lavalin was able to stay the course in a demanding geopolitical and economic environment. Our results allow us to look to the future with great optimism. 2022 was the first year into the implementation of the company's pivoting to growth strategy. The executive leadership team was steadfast in its rollout and results started to unfold. [unveils in late 2021.] This growth strategy positions SNC-Lavalin for the future. It is well aligned with our purpose of engineering a better future for our planet and its people. The company reached a milestone in its transition away from LSTK projects. Indeed, the physical work on the two Ontario projects is largely complete. This wind down of LSTK projects should lead to positive operating cash flow in the second half of 2023. A stronger balance sheet means more options for capital allocation to stimulate growth and to reward shareholders. Going forward, with the transformation into a fully integrated professional services and project management company, SNC-Lavalin is positioned to deliver sustainable growth. The Engineering Services business had a solid performance again this year. It continues to generate strong revenue and backlog growth. In addition, the world is engaged in the path to net zero, which creates a renewed interest in nuclear energy. This is bolstering a sector where the company has a global competitive advantage. As always, our engaged Board is committed to providing guidance to fulfill the company's vision and oversight to uphold the highest standards of governance. Ultimately, we want to ensure the longevity of SNC-Lavalin as a purpose-driven company. To broaden our perspective, the Board welcomed two new directors in 2022. Baroness Ruby McGregor Smith; and Ms. [indiscernible] Pate. Their combined experience and skills in corporate governance and leadership benefited the deployment of SNC-Lavalin's growth strategy during the past year. I feel privileged to lead a group of directors with such deep expertise. On behalf of the Board of Directors and SNC-Lavalin's management, I would also like to thank Mrs. Isabelle Courville who will not stand for reelection this year. Her long-standing contribution to the Board was deeply valued. She was a support of voice during turbulent times when the company faced multiple challenges and later also helped progress the strategy. The Board is pleased with the continued progress accomplished on the company's ESG agenda in 2022. SNC-Lavalin has made strides internally on its integrity journey and move towards its carbon reduction targets, and it's equality, diversity and inclusion targets. Externally, this is done alongside clients through the engineering net zero work. Over the last year, there was progress towards our 2025 gender diversity targets in all categories with the most significant impact at the executive leadership level. Our targets are to have at least 33% representation by women across the company and at least 25% among managers and senior professionals. The Board will continue to closely monitor progress. Executive compensation is already tied to the following ESG performance metrics: integrity, health, safety, the environment sustainability and D&I. To further advance the ESG agenda, the Board supported another layer of incentive, which is the extension of SNC-Lavalin's corporate credit facilities. This reduces borrowing costs as long as we can achieve certain targets linked to reducing greenhouse gas emissions and to increasing gender diversity. Regarding governance, the Board received the fourth and last report from the independent monitor and journey. It highlights SNC-Lavalin tremendous progress in its integrity journey. The monitor notes the considerable efforts expended by the company to remediate its anti-bribery and corruption compliance program and to transform its culture of ethics and compliance. The monitor also confirms that the company's integrity program contains an adequate continuous review and improvement system to ensure that it remains robust and effective over time. The Board commends SNC-Lavalin's leadership for the relentless work accomplished since 2012. We remain committed to overseeing the evolution of the company's best-in-class integrity program. Last year, the Board adopted a broader mandate to reinforce governance around risk management. In 2022, the Audit and Risk Committee oversaw the comprehensive rollout of a renewed enterprise risk management framework, strategy, policy and governance. Strategic risks were identified in the ERM framework and are monitored by executive sponsors who report on progress to the appropriate Board committees. Key risk indicators were also developed to track and report on the evolution of those strategic risks. The Board conducted the first annual review of the new ERM framework. In 2023, the company will continue to operationalize the framework and to integrate it at all levels in projects and corporate functions. In closing, I want to thank our talented global workforce. Their dedication and commitment to SNC-Lavalin is fundamental for building a future-facing company. I would also like to extend my appreciation to shareholders for their ongoing support and confidence in SNC-Lavalin's future as a world-leading professional services and project management firm.

Thank you, Bill. With that, I understand that the scrutineers have now completed their work. [indiscernible] Of the votes cast in respect of the items on the agenda of this shareholders' meeting, I am pleased to report that all 10 director nominees named in the management proxy circular have been elected, Deloitte was reappointed as the company's auditor and the Board of Directors was authorized to fix its remuneration. The amended and restated shareholder rights plan agreement was reconfirmed and approved and the advisory resolution on the approach to executive compensation was adopted. Please note that the final detailed results will be posted on the company's website and on SEDAR. I declare the official part of the meeting closed. I now turn the meeting over to Ian, our President and Chief Executive Officer.

Thank you, Bill. Hello, everyone, and thank you for joining us today. I would like to mention two key points looking back over the last year. One, a very clear focus on our strategic objectives; and two, a continued commitment to delivering on what we say we are going to do. Our objectives are to generate consistent and profitable growth and realize our purpose as a company which is to engineer a better future for the planet and its people. And to that end, over the course of 2022, we began executing on our 3-year pivoting to growth strategy. Some key elements of the strategy include positioning our services business to focus on our three core high-growth markets in Canada, the U.S. and the U.K. leaning into our industry-leading capabilities, including transportation, water, nuclear and buildings and places and deploying global capabilities locally to our clients and delivering this unique end-to-end services across the whole life cycle of an asset, creating long-term value, including through investments in our digital innovation. We also align everything that we do both internally and for our clients with our purpose and expertise in providing climate change and net zero solutions. And I'm proud to say that in 2022, we delivered on our commitments. We achieved or exceeded the outlook targets that we set for the year with SNCL services, generating 7% organic revenue growth. And this was at the high end of our revised outlook and reflected 7 consecutive quarters of year-on-year growth for the business. Segment adjusted EBIT to segment revenue ratio also came in on target at 8.7%. And the SNCL services backlog grew by 5% to almost $12 billion, bolstered by a record Engineering Services segment backlog for the year. This included all-time record high backlogs in the U.S. and the U.K. and as we continue to expand our market share in our core geographies. We also achieved a major milestone with regards to our LSTK projects backlog with the physical work on the two Ontario projects now largely complete. In the fourth quarter, we've recorded what we expect to be the last material cost forecast. And focus will now be on handing over the projects to the clients and pursuing all moneys hold due to the increased costs on the project. In 2022, we also continued delivering on our purpose and integrating an ESG-centric approach across the business. That's part of our corporate efforts to reach our diversity targets and achieve net zero by 2030, we took a number of measures in 2022, including linking our ESG targets to employee compensation, incorporating a sustainability-linked loan into our credit facilities, with Success Factors tied to meeting diversity targets and reducing carbon emissions and committing to the United Nations science-based targets initiative that sets emission reduction targets in line with the Paris agreement. And I am pleased to report that approximately half of SNC-Lavalin's total revenues for 2022 were derived from projects contributing to a sustainable future in a carbon-free economy. The result of that commitment is a really exciting one as we move into 2023. With the LSTK challenge now largely behind us, we now turn our attention to the next phase of our transformation into a leading professional services and project management company. In 2022, we added 3,000 new employees to our workforce. We have built a strong and resilient culture. Our employees are proud to work for SNC-Lavalin. SNC-Lavalin ranks as one of the world's top global engineering design firms. And we have earned multiple awards and high ratings for our governance, our ethics and commitment to our social purpose and sustainability. And we expect to generate positive operating cash flow in the second half of the year. This is in keeping with the financial targets that we set out as part of our growth strategy and will provide us with the flexible financial needed to drive growth and reward our shareholders. But last and not least, through our focus and ability to leverage our end-to-end capabilities in key geographies and end markets, we have positioned SNC-Lavalin at the intersection of some of the most important transformational shifts of our town including the imperative to reach global net zero and the use of digital innovation for building sustainable infrastructure. Our services directly address the global need for mitigation and adaptation to climate change. They range from the decarbonization and upgrading of existing infrastructure to the transition to cleaner, greener energy use. In the U.K., where our engineering services backlog is at a record high, we are working with the government to develop a road map to reduce carbon emissions at the energy-intensive industrial sites across the country as well as decarbonize its publicly owned office space as part of the efforts to meet net zero targets. Our world-class nuclear capabilities are also ideally positioned for a nuclear energy revolution as demand and interest grows for refurbishments and life extensions of existing plants, as well as new builds, all key components to reaching net zero. In Canada, for example, we were recently awarded a contract with GE Hitachi to build the first small modular reactor in North America for Ontario Power Generation, which has the potential to be a game changer in the industry. We're also seeing a significant nuclear opportunities in the U.K. and Romania and in the U.S., following double-digit growth in segment bookings last year. And in the U.S., the Biden administration and is investing close to $2 trillion into clean energy as well as new roads, bridges and rail. And this is fueled by programs such as the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. With several new project wins in Florida, Texas, Colorado, among other states and strong public sector partners in the U.S., SNC-Lavalin is focused on continuing to build on our successful land-and-expand strategy as we move into the Northeast and the Pacific Coast. In short, we are in the right markets at the right time and with the right people and expertise. We are uniquely well positioned to grow. And our sites are firmly fixed on meeting our strategic objectives and creating long-term value for our employees, our customers, our shareholders and the communities in which we operate. So I want to close by thanking our customers, for their partnerships and our shareholders for their continued support, pivoting a large global company, especially during what has been an unprecedented time through the pandemic has had its challenges, but I appreciate your belief in this company and the management team. I also want to thank the Board for their ongoing guidance and support, and I look forward to the continued collaboration. Most importantly, I want to thank our employees around the world. It is through their hard work and dedication that we have achieved all that we have. And I am personally very excited about our future and what we can accomplish together. Thank you.

[Interpreted] Let's now move to the question period. [Operator Instructions] Erik, do we have any questions from shareholders?

[Interpreted] Yes. We have a telephone question from Mr. Willie Gagnon. We are asking you to speak slowly and clearly so that everyone can understand your question. Mr. Gagnon, what is your question?

[Interpreted] Can you hear me clearly?

[Interpreted] Yes, I can. Thank you very much.

[Interpreted] Thank you. My name is Willie Gagnon, and I'm from the Movement for the Education and Defense of the Stakeholder who wanted to speak to highlight the fact that we sent a stakeholder proposal that we expected not to print in the circular. So -- but there have been -- there has been no mention and we were asking SNC-Lavalin to master -- and the master administrators to know if we had the stakeholder proposal that we sent to all the enterprises including all the big banks. All the businesses decided to do so using SNC-Lavalin by the way, they shared that information in 2021 in a ventilated way, but not in 2022. So we asked SNC-Lavalin to come back to that presentation mode to share the information given by the administrators and the business accepted to do so. The interpreter didn't get that part. I would like, by the way, to know what is the reason why the business didn't hold an in-person AGM this year? We agreed that there is a virtual meeting existing, and that's a great thing, but that possibility should be added to the in-person meeting. The virtual meeting cannot replace everything that can happen in an in-person meeting. We can -- we cannot see our neighbors. We cannot speak with other stakeholders. We cannot see what's happening in the room. So people would be happy to go back to the in-person meeting that could be added to virtual meetings. And that's, by the way, all the banks did by holding hybrid meetings. So my question is the following, why isn't there any in-person assembly this year since all the sanitary regulations by the government has been lifted? Thank you for your time, Mr. President.

[Interpreted] Thank you, Mr. Gagnon. So we decided to hold a virtual format AGM again this year, Annual General Meeting this year for 3 or 4 different reasons. First of all, we think that this enables shareholders to participate in the meeting irrespective of their location. So no matter where you are in the world, you can be a part of this meeting. And the technology is very efficient. Therefore, it has the effect of minimizing travel requirements, and we're very focused on CO2 reduction, and this would be directly related to reducing CO2 from the meeting. Third, we believe that the technology is very efficient at enabling all shareholders not only to participate in listening to the meeting, but also to asking questions whether it's verbal, over the phone as you've done or text-related questions. And it's cost efficient. So this is probably 25% of the cost of holding a hybrid meeting. And at a point in time where we're really focused on cost management, that's meaningful for us. So going forward this year, as we always do, we'll seek feedback from all shareholders to get general feedback on this format. And if we get strong support for anything other than this, we'll take action on it. Again, thank you for your question. Have we received any other questions, Erik?

[Interpreted] No, Bill, we have received no.

[Interpreted] Thank you. As there are no further questions from shareholders, that completes our meeting today. Before we close, on behalf of the Board and our shareholders, I would like to thank Ian for his leadership over the last year and a senior management team for their ongoing commitment to the success of SNC-Lavalin. I would also like to express our appreciation to our dedicated employees who play a key part in the future of this great company. Thank you, and have a great day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]