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

Thank you, Geneviève. Erik, have we any questions on the shareholder advisory vote on our approach to executive compensation?

No, we have not received any questions on the approach to executive compensation.

Since we have no questions, we will now proceed to the vote. [Voting]

The seventh item on the agenda are related to the 4 shareholder proposals received from MEDAC. Following the discussions, it was mutually agreed with MEDAC not to hold a vote on Proposal #1 and Proposal #3 at today's meeting. The text of these proposals, along with the Board of Directors' responses can be found in Schedule A of our Management Proxy Circular. I will now ask Mr. Willie Gagnon, representative of MEDAC, who is joining us over the phone to present MEDAC's shareholder Proposal #2 and Proposal #4, which are submitted to the vote. Mr. Gagnon, the floor is yours.

Yes, I'd like to know if the Chair can hear me?

Yes, we can hear you, Mr. Gagnon.

I will present the 4, knowing that some will not be moved to vote. I will be brief. For Proposal 1, incentive compensation for employees with regards to ESG that the company establishes in the incentive compensation for employees, some different elements related to ESG. There are 3,700 employees that are impacted by a policy regarding ESG which went from 10% to 12.5%. And Proposal #2 is submitted to the shareholders' meeting. We wanted that the Annual Shareholders Meetings in person resume, if it's possible to hold virtual meeting since the pandemic, but now that the pandemic is over, there are real benefits of meeting in person in your response. You say that new profit from -- you like to use the benefits of technology. However, it's not possible for you to see me while I speak, and it's impossible to see who are the other shareholders taking part in the meeting. It is impossible to know who's waiting in the question queue. And I'm speaking here live on the phone, but I realize that there's a delay when there are proposals. It's about a 10 to 15 seconds delay. I had made a motion on the change of the corporate name. My question was submitted, but it was not received on time. Since we're following online, you only hear our responses with a 12 to 15-second delay. All the questions will arrive late. These are technical issues that happen with virtual meetings that don't happen when we have a meeting in person. This motion was submitted to about 20 corporations. We won different votes, Metro, Transat, IBC, Bank of [Montreal] and in many other corporations. And some corporations came to the meeting in person, such as Power Corporation for Proposal #3 on the disclosure of languages mastered by directors at SNC-Lavalin. There was a motion similar aiming to disclose languages that are mastered by directors. This year, we'd like a disclosure of language proficiency for directors and the corporation decided to accept this. This is on Page 100 of the circular in the French version at the -- as of the date of this circular, 11 members of the Board speak fluently English, 4 speak fluently French and 1 speaks fluently Spanish. This is not only languages understood, but the proficiency in these languages. So we expect not to proceed to vote on this. We think that this disclosure is desirable. So Proposal #4, consultation vote on environmental policies. We like that the corporation implements the consultation votes on its environmental policy each year during the Annual Meeting of Shareholders, similarly to what is done for compensation and remuneration and your response. Given the situation, there are sufficient governance measures in place, but you could add one more even if you find that your current practices are sound. You say that -- you don't think that the vote on climate policies will help us improve our actions with stakeholders. We're not looking for something to replace what you do already. It's an additional tool in the toolbox for our shareholders. We understand that the corporation cannot speak to all its shareholders every day. We, therefore, provide an opportunity for shareholders to which the corporation doesn't speak, which would be a large number of small shareholders to express their opinions on the environmental policies. There are other companies that have similar votes, and we will be pleased that SNC-Lavalin will do this given the industry in which it operates. We invite all shareholders to support Proposal 2 and Proposal 4. Thank you very much for providing this time and we would be glad to contribute to the wellness and success of this corporation.

Thank you, Mr. Gagnon. Erik, have other questions on MEDAC's proposals?

No, we have not received questions on MEDAC's proposals.

Thank you. Since there are no questions, we'll now proceed to the vote. [Voting]

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. While the scrutineers are preparing their report on the votes cast today, I invite you to listen to Bill say a few words about the Board's work over the last year.

Looking back 2023 and to sum up that incredible year for AtkinsRéalis. Those are pride and optimism. Pride in the outstanding performance and key financial indicators and pride in the repositioning [Technical Difficulty] organization. AtkinsRéalis is following a strong path forward. And as the world rallies around the objective of Net Zero carbon emissions by 2050, I am filled with optimism. This purpose-driven organization could not be better placed to help solve the world's most pressing problems. From a financial point of view, the company has made significant strides in 2023. AtkinsRéalis delivered significant organic revenue growth exceeding the full year outlook. It generated a return to positive operating cash flows in the second half of the year and has lowered the leverage ratio in our target range, and this was done earlier than anticipated. This is the result of sustained progress in the strategy and it sets the stage for continued success this year and beyond. The company [Technical Difficulty] on its core activities with the highest value creation potential. Strong and continued progress was made to unwind the exposure to LSTK projects. Efforts now focus on claims recovered from the increased costs that the company experienced on these projects. Last year also marked a shift towards portfolio optimization. A strategic review of activities and noncore assets led AtkinsRéalis to divest Scandinavian business. With a healthy balance sheet and positive operating cash flows, opportunities open up to deploy capital and create further value for shareholders. The company has a significant pipeline of opportunities to invest organically or inorganically to drive future growth, particularly in the United States and in the nuclear sector. Concerning AtkinsRéalis is particularly well positioned to tap into the nuclear renaissance, as the impact of climate change is building up, governments around the world are planning massive investments to adapt their infrastructures to build resilience and to transition to noncarbon emitting sources of energy. These investments support the continued demand for our services. The Board has been very engaged in evaluating the role our nuclear business can play to solve the energy trilemma, both locally and internationally by offering a clean, secure and accessible source of baseload power. At COP28, 22 countries committed to triple global nuclear energy capacity by 2050. This was a real turning point signaling a renewed global appetite for nuclear energy. AtkinsRéalis is a steward of the Canadian CANDU Technology. The company has decades of experience and recently unveiled a 1,000-megawatt reactor design, the CANDU MONARK. We're ready to help solve the energy trilemma. On the broader environmental, social and governance agenda, the Board is pleased with some key achievements of the last year. We reviewed the implementation of an ESG control framework that will help strengthen the overall ESG program and deliver on the company's commitments. We also continue to supervise the implementation of the company's enterprise risk management framework and devoted more attention to emerging risks falling under the ESG umbrella. At the heart of these successes, essential to the future growth of AtkinsRéalis are people. The Board commends the management team for building such a strong and inclusive culture. This is key to attract and retain the brightest talent in the industry, and it is showing results. For instance, a net total of 4,200 new employees joined the company last year. VOX Employee Engagement Survey scores demonstrate increasing employee engagement. Our global score reached a new height of 87%, which is well ahead of our sector benchmarks. The company continued to progress towards its 2025 gender diversity targets, most notably, in the managers and senior professionals category. In addition, AtkinsRéalis joined the World Economic Forum's Global Party Alliance to advance gender equality, and also launched its ReconciliACTION Plan in Canada to foster meaningful engagement with indigenous people. We would like to thank Director, Steven Newman, for his invaluable contribution since 2015. He has decided not to stand for reelection. Finally, I cannot admit the turning point of 2023, the rebranding of a century-old organization to AtkinsRéalis. It was a carefully thought-out decision of which the Board was fully supportive. It came as the conclusion of a profound transformation journey over many years. A transformation of the business, the purpose and the culture of the company. AtkinsRéalis brings together all of the legacy brands under the same umbrella with one global team ready to help solve humanity's toughest challenges. In closing, I want to thank our talented global workforce and our committed management team. Their tremendous work and leadership made the transformation of this company possible. Last but not least, I would like to extend my appreciation to shareholders for their ongoing support and confidence in AtkinsRéalis. With this new brand, we are also entering a new era for the company with a bright future ahead. Thank you.

Thank you, Bill. With that, I understand that the scrutineers have now completed their work.

Yes. Thank you, Erik. In respect to the items on the agenda of the shareholders' meeting, I am pleased to report that all 9 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 special resolution approving the amendment to the articles of incorporation of the company to change its corporate name to AtkinsRéalis Group Inc. was adopted. The resolution approving the company's U.S. Employee Stock Purchase Plan was adopted. The advisory resolution on the approach to executive compensation was adopted. The MEDAC shareholder Proposal #4 was rejected and MEDAC shareholder Proposal #2 received the majority of the votes cast. In light of this result, we will engage in a set of constructive discussions with our shareholders to determine the format of future Annual Meetings of Shareholders. 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.

Good day, and thank you for joining us. Today marks the fifth time I am speaking at our AGM as CEO. And each year, we have made progress on our transformation journey. AtkinsRéalis is a very different company today. We've undergone a deep transformation of every aspect of our business, defining our purpose, the services we offer our clients creating a culture that we are proud of, and also having a new name, which represents this very transformation I'm referring to our dynamic company. But by deliberate action. We've worked really hard to position this company in the right markets with the right capabilities and with talented people. We also embrace new ways of working with partners and clients to deliver better outcomes. Over the years, we did what we said we were going to do and we consistently delivered on our commitments. And in this process, we've successfully transformed ourselves into a premier global professional services and project management company, one that is growing profitably and working on some of the most impactful and forward-looking projects of our time. Today, we are well positioned in fast-growing sustainable markets fueled by the energy transition and the need to reach net 0 in addition to significant global infrastructure investment. Times have changed and so as AtkinsRéalis. We're at the beginning of a new era for this company, where the next chapter aligns to our purpose to engineer a better future for the planet and its people. And while the global challenges are significant, we are optimistic about the future and our ability to make a meaningful impact. Now I want to talk about what we achieved in 2023. That brought us to where we are today. In 2023, I'm pleased to say we met and, in many cases, exceeded the targets set out in our pivoting to growth strategy. And that's thanks to the hard work of our talented people around the world. AtkinsRéalis services business generated a record high of $8 billion in revenue representing an exceptional year-over-year organic revenue growth of 18%, which resulted in a 23% increase in its segment adjusted EBIT. The company's net income significantly increased and compared to last year to almost $300 million. The company's backlog also increased to over $14 billion with our services business reaching a new record high. This strong growth and business results allowed us to generate net positive operating cash flow this year and reduce our debt ratio. We ended the year with a 1.8x net debt to adjusted EBITDA ratio, hitting our target range a year earlier than we forecasted. These results reflect the demand for our end-to-end services, which are at the nexus of a generational drive to achieve carbon net 0 and to transition to clean energy. Nuclear energy is a case in point here. 2023 was a milestone year for our nuclear business with organic revenue growing 14% and our backlog increasing 98% to $1.9 billion. We secured significant new life extension and refurbishment contracts in Ontario as well as in Romania and continue to have a central role in the U.K.'s plan to quadruple its nuclear capacity by 2050. Last December, the COP28 pledge to triple global nuclear capacity by 2050 confirmed that there is no path to Net Zero without nuclear. And that ambition is now turning into actions. And AtkinsRéalis, through CANDU technology is really well positioned to support this nuclear renaissance. And this is why we introduced the CANDU MONARK last November at the World Nuclear Exhibition. The 1,000-megawatt reactor will be sought as a clean technology to produce reliable, flexible and stable baseload power to decarbonize power grids and increase energy security. That's also why we launched the Canadians for CANDU, a campaign to promote deployment of CANDU, nuclear technology at home and abroad in support of Canadian and global efforts to reach Net Zero emissions. So turning to Engineering Services. This segment generated very strong revenue and backlog growth, winning and delivering on an array of significant projects around the world. In Canada, we opened the southern branch of the REM here in Montreal. And we were chosen as a delivery partner for the City of Calgary's $5.1 billion Green Line light rail project. In the U.S., we continue to expand our footprint with key wins with the Florida and Texas Departments of Transportation, as well as Hurricane Assistance Programs. And in Saudi Arabia, we won contracts to plan the world's largest modern downtown in Riyad as well as health -- plan and deliver the creation of a new green city that will eventually house 9 million people in the northwest corner of the country. Underpinning all of our success over the past year has been our people. Our teams they are simply the best of what they do, and that's why we continue to win world-class contracts. In 2023, 4,200 net new employees joined AtkinsRéalis, bringing our total global force to over 37,000. Employee survey, we received an 87% positive engagement score. This puts us not only at the top of our sector, but as a leader across all industries. 90% of our employee surveys said they are proud to work for the company, and 91% said they would recommend AtkinsRéalis as an employer. We've also made tangible commitments to increasing diversity within our workforce, tying employee compensation and our sustainability linked loan to hard targets for female representation in leadership across the company. In 2023, we met those targets, and I'm proud to say, we were also awarded the Ethisphere Compliance Leader Verification for the third consecutive time. This is a recognition given only to companies with the best ethical business and compliance programs. In short, 2023 was a pivotal year, driven by our purpose to engineer a better future for the planet and its people. We are transforming the world's infrastructure and energy systems. And we enter 2024 in a new place at the beginning of a new era. We started the year with a strong backlog, a new simplified operational structure that will enhance our ability to bring the whole of our global capabilities to our clients locally. We have a robust financial outlook with engineering services and nuclear organic revenue growth targeted at between 8% and 10% and 15% and 20%, respectively. And we expect to generate positive net cash flow from operating activities in excess of $400 million for the year. Our focus going forward is to continue to optimize the business, accelerate it and explore new opportunities where appropriate. We are here today because of the hard work, talent and commitment of our employees around the world. Thank you. I would like to thank our Board of Directors for their outgoing support. And I would also like to thank our partners, our customers and our shareholders for their confidence. This is our time, our moment, and I firmly believe that the best is yet to come. Thank you. Let's now move to the question period.

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

Yes, we have a phone question from Willie Gagnon from MEDAC. He is on the line.

Yes, can you hear me?

Yes, we can hear you, Mr. Gagnon. Please go ahead.

So I won't have to introduce myself. Yesterday, we read in the [indiscernible] Newspaper an article entitled AtkinsRéalis orders in the nuclear sector have a strong increase. The President and CEO of AtkinsRéalis of SNC-Lavalin called government and industry to temper their expectations towards nuclear energy because of the cost and time overruns that are commonplace and the construction of nuclear reactors. He continued by pointing out the strong growth in the nuclear sector. Mr. Edwards confided to the financial times that the demand will exceed AtkinsRéalis' capacity to meet the demand. We've heard your comments about the nuclear sector. You mentioned that we need to triple our nuclear capacity by 2050. You also spoke about the energy trilemma. Canada is committed in the Canadian plan for small modular nuclear reactors. A relatively recent article from the Stanford University and from UBC seem to indicate that these small modular reactors produce 2 to 30x more nuclear waste than the large nuclear reactors. For instance, as the CANDU reactors that you have been promoting. I would like to know SNC-Lavalin's position on this question, small reactors compared to large reactors? You haven't covered this. You spoke about the CANDU reactors. However, Canada seems to be heading in a different direction? Your comments in yesterday's article, do they concern this? When you say that the demand will exceed AtkinsRéalis' capacity to meet this demand? Are you telling the Canadian government that its ambitions for small nuclear power plants are too high and that it would be better to focus on CANDU reactors?

Thank you very much, Mr. Gagnon. Just to give you some background, let me summarize the question in English. As a summary, the question was about nuclear, referring to an article in [indiscernible] yesterday following the analyst call relative to the challenges in the backlog of having -- not in our backlog, but in the industry of having sufficient capacity to fill the need for more nuclear and more in particular relative to SMRs. There was another article referred to as well from Stanford University as well as from BC that talked about the increase nuclear waste from SMRs. And you referred to the fact that in our address, we spoke more about large CANDUs than SMR. However, the article referred to the fact that Canada seem to have more ambitions for SMRs. So Ian, would you like to comment?

I would. So first of all, thank you for the question. And quite a few aspects to the question. I'll try and cover them all and a few references even to my own media interviews that have carried out over the last 12 months. So there is a lot happening in the nuclear electrical power generation industry across the world. And I think the defining moment recently was at COP28 when 22 countries signed up to a commitment to triple the amount of electrical generation in their countries by nuclear power. Here in Canada, the government has a commitment to nuclear power being part of the solution to reach a Net Zero energy grid by 2050. And at Atkins reality, we also strongly believe that there is no route to Net Zero 2050 electrical power generation without a component of nuclear power. And I think the question you asked in its -- and the heart of the question was really about what is the benefit of SMR to our own technology here in Canada, which is CANDU technology, which is a large nuclear reactor, for which AtkinsRéalis owns the IP to that technology and is the steward of that technology, both here in Canada, but also globally. And I think it's an interesting question because there is a place for both technologies. The SMR technology is clearly smaller with a generation capacity of 300 to 400, and could be agile for remote populations. It could be agile for industrial units, and it could also be deployed for city power generation. But the large nuclear reactors of which we've launched a new product called the MONARK, which is a 1,000 gigawatt that you heard both myself and Bill referenced in our speeches, also has a really big part to play because this baseload power that's necessary to give that consistent power generation, while other power -- renewable power, such as wind and solar have a fluctuating contribution to the grid, the big nuclear has a big part to play. I think you also referenced the article from the Financial Times from an interview that I did. And my point in the article was planning is everything in the construction of anything, particularly in nuclear. The more we spend in the planning phase to get this right, the better the outcomes at the end in terms of getting those built on time and on budget. And we have worked very closely with the Ontario power generators in rebuilding their reactors. And you will see that those customers in Bruce and OPG have also announced that those are on time and on budget. Hence, the comments I made around planning. I think just to sum up, and obviously, we're very passionate about our nuclear sector here at AtkinsRéalis, we do believe in the benefits of having secure, affordable and clean and more importantly, safe energy. And you made one of the comment, I think, about waste. And clearly, we understand the concerns around waste, and we understand the necessity to have long-term deep waste storage solutions, of which the Canadian government has a plan around. So thank you for the question.

Have we received any other questions, Erik?

No, there are no more questions, Bill.

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 his senior management team for their ongoing commitment to the success of now officially AtkinsRéalis. 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 very much, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]