AtkinsRéalis Group Inc.

Thank you for standing by. This is the conference operator. Good morning and welcome to SNC-Lavalin's fourth quarter 2021 results 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 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star I would now like to turn the conference over to Denis Jasmin, Vice President, Investor Relations. Please go ahead.

Thank you, Ariel. Good morning, everyone. Thank you for joining the call. Our Q4 earnings announcement was released this morning, and we have posted a cost-funding slide presentation on the investor 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 Yin 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 are welcome to return to the queue for any follow-up questions. I would like to draw your attention to slide two. 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 measures and ratios. These measures and ratios are defined, calculated, and reconciled with comparable RF-RF measure in RMDNA, which can be found on CDAR and our website. Management believes that these non-RF-RF measures provide additional insight into the company's financial results, and certain investors 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?

Thank you, Denis, and good morning, everyone. Let's start on slide four, 2021 was a milestone year for SNC-Lavalin as we executed on our strategy and delivered on our plan and targets with a strong underlying performance from our core SNCL engineering services business. Through dedicated focus and strong execution, our global team delivered on all financial metric targets in our outlook and exceeded on our cash flow generation. We announced and clearly articulated our pivoting to growth strategy. at our investor day in 2021, a roadmap for delivering long-term shareholder value creation. We continued to take a series of strategic actions towards focusing on the strengths of our core business going forward, including its unique end-to-end services, decarbonization and sustainable solutions, long-term relationships, and strong public sector focus. Our actions have included the continuation of winding down and disposing of non-core businesses and exiting underperforming geographies while focusing on accelerating our growth in the professional services and project management space. This wind down included the successful closure on the sale of the oil and gas business, an important strategic milestone for the company in our effort to de-risk the business. We also made progress toward the completion of our LSTK projects, including reaching a claim settlement on the LSTK Eglinton project. While we made progress towards completion of the LSTK projects during the fourth quarter, unfortunately, we incurred a $231 million loss, which I will cover in detail later in my remarks. On the sustainability front, we announced Our net zero carbon by 2030 roadmap identified primary ESG objectives, notably in diversity, equality, and inclusion. And we joined the UN Framework Convention on Climate Change's Race to Zero global campaign. All in all, it was a year of significant momentum and achievement. Turning to slide five, we highlighted our pivoting to growth strategy at our investor day in September. outlining the three key pillars to growth, geographic footprint, executing our capabilities, and accretive capital allocation to drive value creation. We have a leading presence in our core markets of Canada, U.S., and the U.K., and are focused on seven specific customer and markets. Core to our strategy is the strong growth and backlog for EDPMs. which grew 15% between the end of June 2019 and the year end 2020 to $3.1 billion. We are focused on deploying our global capabilities locally to our clients, leveraging our end-to-end services and engineering net zero expertise. We are consistently capturing market share and growing relationships with our robust client base. Part of our core strategy is de-risking the portfolio through the winding down of our LSDK projects. We've made significant progress as we ended 2021 with a $1.2 billion backlog, a 65% reduction versus the end of June 2019. With the forecast completion of the majority of the remaining LSDK projects in the next year, we have greater visibility into the remaining future additional potential financial risks. And I will discuss these in much greater detail in a few minutes. Turning to slide six, I'll now walk you through the Q4 highlights and the 2022 outlook for engineering services and SNCL projects. Engineering services continued to deliver solid results in the fourth quarter 21. leveraging the depth and breadth of our services, the capabilities of our teams, and the long-standing relationships with our client base. Revenues were up 9.7% over Q4 last year to $1.7 billion. Excluding the impacts of foreign currency, we achieved robust organic growth of 11.9%. Segment-adjusted EBIT of $237 million was was 55% higher year over year and represented 14.2% margin. But no fat growth in this quarter was aided by a favorable outcome of $93 million from a confirmed arbitration decision related to unpaid additional services performed on a completed contract in EDPM. The engineering services backlog remained strong at $10.9 billion. Our ALSTK backlog decreased by $671 million year over year to just over a billion dollars. And we have clear visibility to the conclusion of these projects over the next several quarters. During the fourth quarter, we incurred additional losses on these projects, primarily due to unfavorable costary forecasts driven by COVID-19 impacts supply chain disruptions, and inflation. In 2022, we anticipate continued progress on our journey to align the company on key growth trends such as climate change and net zero, government-funded infrastructure programs, and digital innovation. Our value proposition in this arena remains compelling, and we anticipate SNCL Services' organic revenue growth between 4% and 6% to be well within our reach, with adjusted EBIT to segment revenue ratio of 8% to 10% and deliver positive net cash generated from operating activities. Next, I'd like to move to our business lines, starting with slide seven and the results for EDPM. EDPM revenues surpassed $1 billion this past quarter, the first such instance in our history, and was up 15.2% compared to the fourth quarter in 2020, based on organic revenue growth. The increase was primarily driven by continued strong growth in the UK transportation, in water defense markets, and includes the $93 million favorable outcome arbitration decision referenced earlier. Segment adjusted EBIT of $179 million increased more than 100%, resulting in a 16.9% EBIT margin. Excluding the $93 million, the EBIT was consistent with a strong quarter in 2021, while full-year EBIT grew 12%. Our backlog grew a robust 10% to $3.1 billion, representing a full-year book-to-bill ratio of 1.07%. this supporting our growth expectations. Growth was driven by major wins across all core geographies in Canada, the UK and the US, such as our five-year contract to perform engineering and technical services to FEMA's National Flood Insurance Programme, our five-year agreement with Network Rail in the UK and Ireland's motorway and dual carriage network. We also continued to utilise our development in the digital landscape, which is core differentiator in our suite of offerings. We focused on providing our engineering expertise through digital and program management capabilities that we anticipate will continue to expand throughout 22 and beyond. Our pipeline of opportunities in 22 remains robust and our strong backlog provides good visibility in supporting our favorable outlook for the year. as well as for our longer-term financial targets. You can see on slide 8 some of our recent wins that demonstrate our journey to delivering engineering net zero. We've recently won two projects in the built environment, in the green area of hydrogen, and in the transmission and distribution consultancy services. While our expertise in carbon is sustainably broad and deep, We continue further development across the organization with a target to provide training to everyone. 1,000 employees have been trained in the last quarter. We've also refreshed our approach to the whole life carbon management, a global community of practitioners and specialists, which has been brought together to support the most strategic programs and projects. We have committed our future to delivering engineering net zero, and these projects and our continuous investment in people and capabilities demonstrate that SNC-Lavalin is at the forefront of carbon neutral design and delivery. Turning to slide nine, our nuclear segment Q4 revenues decreased by 9% based on organic revenue growth. and we're down approximately 1% for the full year. Segment adjusted EBIT of $35 million was driven by a higher profit contribution from our Canadian projects. Despite the lower revenue base, we successfully drove EBIT margin to 15.8%, representing approximately 100 basis points of improvement. Backlog sequentially increased in Q4, with contract extensions from Bruce Power and Cernobona, as well as additional field services with the US Department of Energy. A flourishing global agenda focused on carbon net zero provides us with a promising pipeline, leaving us well-positioned to capture additional potential work should it emerge. Driving our performance and confidence for continued success in this arena is our proprietary suite of software and licensing rights for the nuclear reactor designs and operational support licenses. Moving to slide 10, an infrastructure services, the segment has another solid quarter with revenues of $387 million, representing growth of 18.1% compared to the fourth quarter 2020. Again, based on organic revenue growth. Segment adjusted EBIT of $23 million was slightly lower resulting in reduced EBIT margin of 6%. This segment ended the year with a backlog approximating to $7 billion, in line with the backlog as of the year end of 2020. We continue to see opportunities with a record number of bids submitted in the fourth quarter by LinksOn. Decarbonization trends to support our work in renewables, such as wind, solar, and hydro, for which we see numerous infrastructure services opportunities over the next several years. Turn into slide 11 and capital, fourth quarter revenues grew by more than 188% to $65 million, including $41 million of dividends received from Highway 407. The traffic pattern trends on Highway 407 are rebounding and recent statistics are encouraging. We continue to execute on our strategy of releasing value in the portfolio where opportunity arises. with recent transactions on John Hart and the McGill University Hospital being good examples of this. Moving to slide 12, I'd like to provide more color as to how the external environment continues to impact our remaining LFTK contracts and how we are responding to this. There are three substantial headwinds that are impacting our cost to complete estimates on these projects. the COVID-19 pandemic, supply chain disruptions, and inflation. Productivity impacts due to COVID-19 increased significantly with the Omicron variant, resulting in absenteeism levels as high as 50% at times. This impacted the productivity on the LSDK projects, resulting in additional costs and project completion delays. Furthermore, Supply chain disruptions have created equipment and material delivery delays, while inflation in materials, equipment, and trade costs led to increases as much as 10 to 20%. These factors have had a significant impact on the estimated cost to complete the projects. You may recall in the fourth quarter of 2020, we recorded losses on these projects of approximately $90 million. And these were based on assumptions that included COVID-19 impact with that subsiding in Q2 2021. And with vaccine rollout, the supply chain would remain relatively stable and inflation would continue in the range of low single digits. Subsequent estimate revisions resulted in additional losses through the three quarters of 21. Now, given our experience to date, along with our revised expectations for the timing of a return to normal operations, in Q4, we developed new estimates for the cost to complete the remaining LSTK projects. This has resulted in the recording of additional losses in the fourth quarter totaling $231 million. These losses reflect our current estimates of the future expected cost necessary to fully complete the last remaining LSTK projects. And with a significant majority of these costs being related to post 2021 to project completion. These estimates reflect our current assessment of the environment as well as management and project site experiences from the last two years of the pandemic. We also continue to have discussions with our customers regarding certain recoveries, which we believe we are entitled to receive. Moving to slide 13, we illustrate some of the unprecedented factors that we've been managing as we work to complete these projects. As you can see from the chart on the left, as an example, how many workers were absent from work on one of our project sites during the last pandemic wave compared to the previous wave, leading to absenteeism of almost 50% at times on certain projects. You can also see from the chart on the right that we've gone from low single-digit inflation in the building and construction indices across Canada to 11.2%, with the composite index up to 17.2% in the Ottawa and Gatineau market. These events cause significant productivity losses, delay, and cost increases. Now onto slide 14. I want to be perfectly clear that the LSDK charges we booked in Q4 reflect our best estimate of the cost to complete for these projects. I think it's important to point out that the issues that caused us to record these additional losses are mainly the result of macro factors that will lead to higher costs to conclude the remaining projects. Our execution remains strong, and we are effectively managing the variables within our control. We expect two of the three remaining Canadian LRT projects to be concluded over the next year. And physical work is expected to be complete by the end of 22. And this provides us with greater clarity for our forecast to complete. In fact, engineering and design is essentially complete, which provides more certainty on material quantities. And the trains are running on a test basis. on all three LRT infrastructure projects. On this slide, we've detailed the assumptions used to develop our estimate informed by what we know today. We firmly believe our estimates to be accurate as of today. However, we've performed a downside risk analysis in the event that the assumptions that we've made change and potentially impact our cost to complete these projects. With the forecasted completion of the majority of the remaining LSDK projects in the next year and the greater visibility that provides, we believe that the remaining potential for future additional financial risk, if any, to complete these projects should not exceed $300 million. Again, we believe our current estimates to be accurate and present this analysis to help size any future risk. Meanwhile, we continue our strong execution winding down these legacy projects and anticipate their conclusion as we focus on our core engineering business and our pivoting to growth strategy. As I mentioned earlier, we continue to aggressively pursue all potential recoveries which will take some time to work through the process. Turning to slide 16 on the resources segment, our fourth quarter revenue was negatively impacted by commissioning challenges, COVID-19, supply chain headwinds, and inflationary pressures on our last remaining resources LSDK project. However, our mining services business continued to show growth in Q4, and is winning new work successfully and building backlog. With that, I'll turn over to Jeff to discuss the financial highlights.