AtkinsRéalis Group Inc.

Thank you for standing by. This is the conference operator. Good morning and welcome to SMC Labalin's third quarter 2020 earnings conference call. As a reminder, all participants are in 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 assistance during the conference call, You may signal an operator by pressing star and zero. I would now like to turn the conference over to Denis Jasmine, Vice President, Investor Relations. Please go ahead.

Thank you, Ariel. Good morning, everyone, and thank you for joining the call. I hope you and your families are safe and well. We appreciate you taking the time to listen in today. A Q3 earnings announcement was released this morning, and we have posted a corresponding slide presentation on the investors section of our website. The recording of today's call and its transcript will also be available on our website within 24 hours. With me today are Ian Edwards, President and Chief Executive Officer, and Jeff Bell, Executive Vice President and Chief Financial Officer. Before we begin, I would like to ask everyone to limit themselves to one or two questions to ensure that all analysts have an opportunity to participate. You're welcome to return to the queue for any follow-up questions. I would like to draw your attention to slide two and three. Comments made on today's call may contain forward-looking information. This information, by its nature, is subject to risk and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on CDAR. These documents are also available on our website. Also, during the call, we may refer to certain non-RFRS non-measures. These measures are defined and we consult with comparable RFRS measures in RMDNA, which can be found on CDAR and on the website. Management believes that these non-RFRS measures provide additional insight into the company's financial results and such an investor may use this information to evaluate the company's performance from period to period. And now I'll pass the call over to Ian Edwards. Ian?

Thanks, Denis, and thank you all for joining us. Please turn to slide five. We continue to move forward on our strategic path, including building out our pipeline and delivering consistent performance, and remain focused on exiting LSTK as effectively as possible. Firstly, we have continued to deliver solid results in SNCL engineering services in line with our expectations. We continue to benefit from a diverse business mix, public sector work, and long-term contracts and relationships. Secondly, the transformation of the resources service business is on track, and we have moved quickly to restructure and reduce overhead while winning new services contracts. In SNCL projects, infrastructure LSTKs continue to be affected by productivity losses due to COVID-19 and summary forecasts. Current resources LSTK projects perform well with a minimal loss. However, projects overall loss was disappointingly driven by an unfavorable arbitration ruling on a completed LSTK legacy resources project. Finally, our financial position remains strong. We have $1.1 billion in cash and successfully issued a $300 million bond in the quarter. Turn into slide six and highlights from SMCL engineering services. This was another quarter of solid results for engineering services, underscoring the strength and resilience of the business, which delivered an adjusted EBIT margin of nearly 10% and $186 million in cash flow. Segment adjusted EBIT was slightly up compared to Q2, and EDPM nuclear and infrastructure services performance has remained consistent over the past six months. This demonstrates the essential and long-term nature of the services contracts within our engineering services business. Please turn to slide seven. EDPM continues to perform well in our core areas of UK, Canada, and the US. Revenues from the UK and Europe transportation and defense markets were particularly strong, and we continue to win new business. We were recently chosen to be the commercial delivery partner for the UK's High Speed Rail 2 project. This is a state-of-the-art high-speed line critical for the UK's low-carbon transport future. Winning work continues in the US, where we've recently won several advisory and design service contracts for State Department of Transport's. In the Middle East, where the market is currently slower, we're winning new work also, and recently have been awarded the master planning work for the new leisure park with six flags. Overall, Q3 backlog was solid $2.8 billion, slightly higher than Q2, in line with Q3 2019. Our prospects pipeline remains robust at $27 billion. Please turn to slide 8. Nuclear continues to perform well, with results for Q3 ahead of Q2. The segment benefited from a good mix of long-term contracts, field services, ongoing engineering, which have helped deliver enhanced EBIT. The U.S. has been a strong growth market for nuclear, with two contracts moving forward with the Department of Energy, both relating to decommissioning and waste management work at the Hanford site in Washington State. Our proprietary nuclear technology has also been well recognized with a number of contract and industry awards. Moving to slide nine. Infrastructure services also saw higher performance in Q3 compared to Q2, with revenues and margin on target. Our operation and maintenance contract were at full service levels as deemed essential, and we were active with both healthcare and power service contracts. Revenues from links on our substation JV with ABV increased for the UK and Europe. We saw a number of awards for infra services in Q3, including scopes relating to the ongoing pandemic and master service agreements in the hydro space. Turn into slide 10 in the capital highlights. In Q3, the phased reopening of the Ontario province and the greater Toronto area meant that the 407 ETR reported an improvement in traffic compared to Q2. SNC-Lavalin received a dividend of $16.9 million from Highway 407 on September 3rd. Other concessions are performing very well with contracts based on an availability model. Moving to slide 11 on SNCL projects. We generated a loss of $25 million in SEGVA-adjusted EBIT for infrastructure EPC projects, reflecting the continued impact on productivity as a result of COVID-19 and certain reforecasts. Negotiations continue to recoup these losses from our clients. We continue to expect that these Canadian light rail projects will be cash flow positive over their life. With two quarters already completed under COVID restrictions, And as we move through October, we have greater clarity on the impacts to productivity. We're now seeing industry productivity impacts of between 10 and 25% depending on the project and the activities involved. The highest impacts tend to be on projects with extensive activities, including manual handling of materials or working at height or in confined spaces. where the necessary safeguards to social distance during the pandemic have had impact on productivity. On all sites, additional hygiene breaks and the constraints on travel to site have also affected productivity. Despite the lower productivity, we continue to run down the LSDK backlog, which stood at $1.9 billion at the end of September. Turning to slide 12 and the resources projects, The combined loss for resources LSTK and services was $75 million for the quarter, primarily due to an unfavorable arbitration ruling on a completed legacy LSTK project. Obviously, I am disappointed with this ruling, which was outside our internal and external experts' assessment. While we believe our current litigation risk assessment processes are appropriate, we're undertaking a further review of the remaining legacy LSTK litigation matters to provide additional assurance. On a positive note, the services side of the business performed better than expected, and the loss on active LSTK projects was down to approximately $3 million. The enhanced performance of the services was as a result of our ongoing efforts to right-size the business through divestment and overhead reductions, combined with work winning and better execution. As previously stated, we remain on track to largely complete the backlog of resources LSTK by the end of the year. Moving to slide 13, we can see a significant reduction in LST backlog since our strategic direction in June 2019 to stop bidding on this form of contract. You can also see that the resources services backlog that is currently contained within this sector has remained stable at around a billion dollars. This provides further confidence that our resources services transformation. Our goal, as you know, is to exit LSTK and we continue to focus on that. Moving to slide 14 and the transformation of a resources business announced in Q2. As stated, we have made significant progress in Q3 as we move towards profitability in the second half of 2021. In Q3, we announced the sale of the South African resources business, divested our European fertilizer business, reduced the overhead and headcount to approximately 10,000, strengthened the order backlog with renewed key service contracts in coal countries. We remain on track to break even by the first half of 21 and turn a profit next year. With that, I'd like to move to slide 15 and conclude my remarks before Jeff takes you through more detail on the Q3 numbers. Our performance in the quarter continues to underscore the strength and resilience of the engineering services business and our continued closeout of legacy LSTK business. Currently, we are focused on four priorities to unlock value for all stakeholders. One, closing our LFTK business successfully. Two, ensuring continued consistent performance across our core markets and geographies in engineering services. Three, positioning the company for a sustainable future, driving organic growth by sharing capabilities across our core markets. including looking at those capabilities that can help us enable clients to deliver sustainable infrastructure and clean energy, and leveraging technology and collaborative working to apply our major project expertise in new contract models that benefit our clients and the outcomes of projects. And lastly, four, we are building a connective, collaborative organization to efficiently deliver our overall strategic direction. I firmly believe that we have the business focused on the right markets and the right geographies, and we're taking the right road to achieve our future. With that, I'll thank you, and I'll pass on the call to Jeff.