WSP Global Inc.

Bonjour mesdames et messieurs, good morning ladies and gentlemen. Bienvenue à la conférence téléphonique sur les résultats financiers du troisième trimestre de l'exercice 2022 de WSP. Welcome to WSP's third quarter 2022 results conference call. I would now like to turn the meeting over to Quentin Webber, Investor Relations. À vous la parole. Please go ahead, Mr. Webber.

Good morning, bonjour. We hope that you are all doing well and thank you for joining our call today. We will be discussing our Q3 2022 performance, followed by a Q&A session. Joining us today are Alexandre Lerue, our President and CEO, and Alain Michaud, our CFO. Please note that this call is also accessible on our website via webcast. During the call, we will be making some forward-looking statements. Actual results could differ from those expressed or implied. We undertake no obligation to update or revise any of these statements. Relevant factors that could cause actual results to differ materially from those forward-looking statements are listed in our MD&A for the year ended December 31st, 2021. Also during the call, we may refer to certain non-IFRS measures. These measures are defined in our MD&A for the quarter that ended October 1, 2022, which can be found on CDAR and on our website. Our MD&A also includes reconciliations of non-IFRS measures to the most directly comparable IFRS measures. Management believes that these non-IFRS measures provide useful information to investors regarding the corporation's financial condition and results of operation as they provide additional key metrics of its performance. These non-IFRS measures are not recognized under IFRS, do not have any standardized meaning prescribed under IFRS, and may differ from similarly named measures as reported by other issuers, and accordingly may not be comparable. These measures should not be viewed as a substitute for the related financial information prepared in accordance with IFRS. I will now turn the call over to Alexandre.

Thank you, Quentin, and good morning, everyone. During the third quarter of 2022, we continued to build on the momentum we experienced in the first half of the year, in addition to closing significant transactions. As a result, we welcome over 7,300 new employees from recent acquisitions, strengthening our presence in key markets and geographies. Organically, we also increased our end count by 3,200 in 2022, demonstrating the strength of our brand as we recruit new talent organically. In total, we have grown our workforce by 10,500 people in 2022, all while successfully delivering on our projects and being focused on our markets and our performance. I'm going to kick off this call by touching on three key highlights. First, our third quarter results are slightly ahead of our expectations. We achieved solid organic net revenue growth across all our segments, and improvements in adjusted EBITDA and adjusted net earnings, in addition to maintaining a very healthy backlog. Second, and as just mentioned, since June of this year, we closed six acquisitions, including the E&I business of John Wood Group, our largest transaction this year. The integration of these businesses are underway and progressing as planned. We successfully completed in August an equity offering of $920 million Canadian dollars, providing us with a solid balance sheet going into 2023. To set some structure for this call, I'm going to expand on some of our recent achievements and Alain will cover our financial performance. Beginning with recent acquisitions, Woody and I is now officially closed and the integration is progressing as planned. We are already benefiting from the collaboration between businesses and seizing opportunities across various markets. For example, our team is working together on an offshore wind project in the state of New York. Combining a strong brand in offshore wind with the depth, skill set, and solid client relationship, this has translated into a very robust client offering. We're also making key nomination from our recent acquisitions including the appointment of Joe Serco as president of our earth and environment business in the USA, representing more than 6,000 employees. Joe was previously the CEO of the global consulting business unit of the John Wood Group, which was mainly composed of the E&I business we just acquired. In September, we also closed a previously announced acquisition of Capita, REI, and GL Hearn. The two businesses are now being integrated into our UK platform, adding depth and expertise to our advisory engineering business across the country. Emerging success stories include stepping into support with one another current projects, aligning our opportunities and combining forces to a new work. In a bid for an academic project, REI is now supporting WSB's consortium, enhancing the strength of our bid. Our recent acquisition includes GreenCap in Australia, MadridBase, BOD, and OD Engineering in the US. These acquisitions support our regional and global ambitions by reinforcing our service offerings in key sectors and strengthening our presence in key geographies. Our M&A activity demonstrates our opportunistic and disciplined approach to acquisition, and we do not foresee the future to be any different. We will continue to allocate our capital in accordance with our strategic plan with a view to maximize shareholder value. Now moving to our recent industry awards and recognitions. Starting with the E&R rankings, WSP took the number one position in E&R Magazine's 2022 list of the top 225 international design firms for the second consecutive year. We also achieved leading position in transportation, buildings, power, water, hazardous waste, and manufacturing. We're also thrilled to have won the two Environmental Analysts Sustainability Consulting Awards. These awards recognize our leadership role in sustainability and resilience. Additionally, the acquisition of ENI has enabled us to strengthen our market position and take the lead in environment analyst top 100 environmental and sustainability consultancy firms for 2022. In our quest to become the undisputed leader in our industry, these recognitions demonstrate WSB's continued focus on achieving its strategic ambitions. On the topic of ESG, we continue to reinforce our leadership and commitments. In 2021, WSP committed to reaching net zero by 2040 across its value chain, supported by greenhouse gas emissions reductions targets approved by the science-based target initiative. Just at the end of last month, we received official approval for a net zero target under the SBTI and use net zero standard. We are proud to be among the leading companies to receive this recognition. To support our climate commitments, we recently launched our climate transition plan, a crucial element of our journey to reduce GHG emissions as it set out concrete action. Having a solid action plan to decarbonize our own activities to drive growth, with our clients, including helping them on their own decarbonization journeys. At this moment, WSB experts have joined world leaders and industry professionals to accelerate climate action and find solutions to the world's environmental and social challenges at the 27th Annual International Climate Change Conference, known as COP27. In December, WSP will actively contribute to the COP15 conference in Montreal. COP15 will look at the implementation of protocols of the Convention on Biodiversity. We are honoured to share the influence WSP has on the ways to reduce negative impacts on our planet, and more announcements are to come in that regard. Transitioning over to our recent wins, I would like to highlight two notable projects. First, WSP and its partners were recently awarded the opportunity to completely redesign New York's Penn Station. The project involves providing a preliminary design for the long-awaited transformation of the station, creating a world-class transportation facility that will relive overcrowding, or relief, I'm so sorry, overcrowding, improve safety, and deliver a rider-focused transit experience. This project will reshape Penn Station into a single level facility centered around a grand train hall with a 450 foot long sky lit atrium between Madison Square Garden and 2 Penn Plaza. It will benefit from deep collaboration across our transportation buildings and advisory business lines. And the second project is for Boeing. WSP was selected to provide environmental health and safety services as well as sustainability-related due diligence activities for various Boeing sites across the world. This project is a great example of an opportunity to leverage our global platform and allow us to expand from national to international contracts, increasing our portfolio enormously. WSP was able to emphasize its long-standing relationship with Boeing and its subsequent familiarity with company systems, providing significant time and cost benefits for Boeing. In the U.S., we continue to be well-positioned to work through the ongoing stimulus plan as federal funding for highway, transit, energy, and water projects, among others, are being deployed. The benefit for WSP will play out over several years and may not peak until 2025. We could expect a positive impact in early 2023 due to the timing of awards for the programs continuing through the year, but the situation remains fluid. Before I pass it to Alain to review our financial results in greater detail, Let me state that I am very proud of our performance. We had another good quarter with great achievements on many fronts, including a recent reduction in turnover and continuous success at increasing our headcount to support our growth journey despite a tight labor market. On that note, Alain, over to you.

Thanks, Alex, and hello, everyone. I'm very pleased this morning to report on our results for the third quarter. So let me start with top line. So for the third quarter, revenues and net revenues reached $2.9 billion and $2.2 billion, respectively, up 9% and 8% compared to Q3 2021. The quarter's solid net revenue organic growth of 8% was powered by all our regions, led by Canada, the US, Australia, and the UK. Backlog as of the end of Q3 stood at $13.3 billion, which is equivalent to 12.3 months of revenues. In the nine month and 12 month period that ended October 1st, our backlog grew organically across all regions by 11% and 15% respectively. We are monitoring our backlog closely and our client continues to be committed to their project and our pipeline of opportunities remain healthy. Moving on to profitability, adjusted EBITDA reached $407 million, up 8% compared to the same period in 2021. Adjusted EBITDA margin for the quarter reached 18.6%, stable versus Q3 2021. Adjusted net earnings for the quarter stood at $193 million, or $1.59 per share, up approximately $14 million and 6 cents per share, respectively, compared to Q3 2021. The respective increases in these metrics are mainly attributable to higher adjusted EBITDA. Let me now take a few moments to highlight key points on our free cash flow. For Q3 2022, free cash flow stood at $37 million, The main contributor to the variation versus Q3 2021 is an additional period of payroll in 2022 versus 2021, representing an outflow of approximately $125 million. This situation will reverse in the fourth quarter of 2022. Year-to-date, in addition to the payroll impact, our free cash flow was also influenced by increased tax payments due to a recent change in tax regulation in the U.S., which delays the deductibility of R&D expenses. This represents approximately $100 million of additional cash tax in 2022. In addition, and as expected, we are observing a continued normalization of our DSO to pre-pandemic level. Since the beginning of the year, our DSO has increased from 66 days to 75 days in line with our 2022 annual target range. From a modeling perspective, each day of DSO represent approximately $30 million of free cash flow. And as a reminder, Q4 is typically our strongest quarter of cash collection. Finally, when excluding the impact of changes in tax regulation in the U.S., we are still targeting to convert approximately 100% of our net earning into free cash flow. As of October 1st, 2022, the net debt to adjusted EBITDA ratio stood at 1.8, incorporating a full 12 months of estimated adjusted EBITDA of all recently acquired businesses. We expect this ratio to range between 1.4 and 1.5 as of December 31st, 2022. During the quarter, WSB declared a dividend of 37.5 cents per share, for shareholders on record as of September 30, 2022. This dividend was paid on October 17, and with a 49.1% drip participation, the net cash outlay reached $23.7 million. On financial outlook for 2022, issued in Q4 2021 press release, is adjusted with increased net revenues now expected to range between $8.8 and $8.9 billion, and an increased adjusted EBITDA now expected to range between $1.51 and $1.53 billion. Also, acquisition, integration, and reorganization costs are now expected to range between $80 and $90 million due to our recent M&A activities. Lastly, we would like to remind you that Q4 2022 will have fewer billable days than in Q4 2021, which will offset the additional billable days we had in Q1 2022 versus Q1 2021. On that, back to you, Alex.

Thank you Alain. I will conclude by stating that I am very proud of our performance in the third quarter, which reflects continued momentum across our business and strong execution by our team. Considering this momentum and our solid balance sheet, providing both agility and resiliency, we are increasing our financial outlook and we are moving into the year's final stretch with confidence and a continued focus on executing on our plan with discipline. We look forward to updating you on our 2023 operating plan in Q4. With that, we will now proceed to the Q&A session. Thank you.

Thank you. As a reminder, to ask a question, you will need to slowly press star 1 and then 1 on your telephone and wait for your name to be announced. Once again, it's star 1 and then 1 on your telephone and wait for your name to be announced. We are now going to take our first question. The questions come from the land of Jacob from CIBC. Please answer the question.

Good morning.

Hello, Jacob. Hey, Jacob.

Maybe just start off just talking about if you provide a bit of commentary on lessons learned from this RPS experience. Does this set a new precedent going forward, especially as you think about future M&A and say earth and environment or water targets?

I'm not sure it's a precedent because it's happening time and time again around and across, around the world, Jacob. And it's the second time that we've experienced something like that at WSP. You will remember in 2016, there was a counter bid on the suite group, an acquisition for which I had made an offer and WSP had decided not to pursue the opportunity. The reality, Jacob, is that when it comes down to acquisition and to our strat plan, we're very disciplined and we're not going to move away from our set goals and our set plans. If we had made this offer in the first place, it's because we believe this company was valued properly at that time. and we were not prepared to change our view in that regard.

Okay. And then my second question here is, you know, around revenue growth going into 2023. You know, given the strong organic growth you're seeing, this record backlog, is there any reason that this type of revenue growth shouldn't, organic revenue growth shouldn't continue to 2023? And then maybe just comment on Are you seeing any change in client behavior at all, either given your inflationary pressures or risk of recession?

Well, let me answer the first part of your question. First and foremost, we're going into 2023 and we're still very much committed to the financial ambitions that we have unveiled in February, our three-year plan, which means that I can tell you, I'm not sure I'm going to announce anything special here, but that we're clearly forecasting organic growth next year. So I think we're going into 2023 feeling good given the year that we've had in 2022. But I think at the same time, we need to be in touch with our local markets. We need to be focused on the local markets and And things could change fairly rapidly. Are we seeing the proposal activity level going down at the moment? No. Are we winning more than our share of work at the moment? Yes. Are we feeling good about the backlog that we have? Absolutely. We're very pleased about that. But obviously, when you're faced with a potential recession, you've got to be cautious about it, and you have to be in touch, as I said before, with your local market. So we are going to monitor that in 2023. But for now, I can tell you that we're performing very well, and there's a lot of activity going on at the moment. Great. Thank you. Thank you so much, Jacob. Thanks, Jacob.

Once again, if you wish to ask a question, please press star one and then one on your telephone and wait for your name to be announced. Once again, it's star one and then one on your telephone. We are now going to go proceed with the next question. The questions come from the line of Jonathan Lemes from LB Securities. Please answer your question.

Good morning. Good morning, Jonathan. If I could ask the organic growth question a different way, Year-to-date, the organic growth has been well above the initial guidance that was provided in March. Could you comment on where it has been stronger versus your forecast? If you could comment on inflation volume, that would be helpful.

Yeah, I could take that one, Jonathan. So the first comment I would make, just be careful when you look at year-to-date results on growth. need to remind ourselves that our Q1, if you remember, we had additional billable days. So when you normalize that, your growth of 8% that we see year to date is coming down by about two full percentage points, so about 6%, which is on the higher end of our range that we have announced in March. So for us, the performance that you see thus far is reflective of you know, higher end of the range performance we were planning at the beginning of the year.

And I think Alain indicated this in his address. I think in Q4 we'll have fewer billable days. So when you look at our outlook on an annual basis, it's going to fall within the disclosed outlook. And we're confident it's going to fall into the disclosed outlook or revised outlook that we provided you with today. But at the same time, there's a recognition that it's going to be in the higher end of the range of the outlook. So, in some fashions, we are obviously very pleased with the way the year has been going on for us.

Okay, thanks for your comments.

Thank you, Jonathan.

Once again, ladies and gentlemen, if you do have any questions or comments, Please press star 1 and then 1 on your telephone and wait for your name to be announced.

Once again, it's star 1 and then 1 on your telephone. We are now going to proceed with our next question.

The next question comes from from . Please ask a question.

Morning, everyone. Good morning. Good morning. This is a bit of an out-of-the-box question. Staffing has obviously been a challenge and acquiring talent and adding talent has obviously been a key focus for some time. When I look across the landscape of these tech companies and engineering companies doing layoffs, do you see any opportunity to add any of those people into the fold for the work that you do or I guess the core competency is just too different and Does it create any sort of opportunity for automation within your business or things of that nature?

Look, I'm not sure, Ian, that this is well known by our investment community or by the investment community, but WSB is not just, and there's nothing wrong with that, by the way, but it's no longer just an engineering firm. And that's why we're talking about being a consulting firm. I think today our workforce, it's one of the most diverse workforce that you could find in a management consulting business. We have economists. We have financial analysts. We have biologists. We have scientists. We have tech experts. We have IT engineers. we are taking advantage of what's going on in the workforce and in the labor market. And more importantly, we are taking advantage of our brand to attract the smartest and brightest individuals in our industry, but also outside of our industry. And that's what we've been applying ourselves to do for a long time. And I think it's paying off. I think we've attracted high caliber individuals to the organization. And you're right that we are now in a position to expand the scope of services that we are offering to our clients from digital offering all the way down to detailed design work that we've done and we're known for.

Okay, that's helpful. The other concept I wanted to touch on was on the earth and environment side and whether there's any updated views on, I guess, how much of a project is taken up by permitting earth and environment type work today versus five years ago, just as a rule of thumb? Because it's obviously increasing of importance.

Social acceptability, Ian, is now, it's no longer an option. It's a prerequisite. It's a requirement. So there's nothing that is being built unless there's been some impact studies being conducted, then there's been the proper permitting being secured So life has changed and it's never going to come back to what we used to know like 2010, a decade ago, even 20 years ago. And the whole thesis behind growing a leading platform in the earth environment is because we wanted to be there at the beginning of a project where we could advise and support our clients and then bring the scope of services that we can offer to our clients so that we can deliver, you know, a future ready project. So meaning that, you know, we design today, but with the future in mind and being there early on in the process is for us very, very important. And that's why in 2017, 18, we chose to take an aggressive stance on this and grow a platform accordingly. Okay.

And then if I could sneak in one more with respect to the UK. In the MD&A, I believe you noted double-digit organic growth for the last number of quarters. There's obviously been a change in leadership there. There seems to be a lot going on in that market. When do you think you start to get a sense of where the spending cuts are going to come and the impacts on your business?

I think it's going to happen fairly soon. I think there's a mini budget that will be announced. I don't know. I think if my memory is not failing me, I think it's November 17 or something like that. So I think we'll know more at this time. Look, obviously we are extremely pleased with the way our UK business has been performing and frankly our central European business has been performing. For me, this goes into the column of very pleased and in some ways above my expectations. But we have an incredible business in the UK. We have, in my personal opinion, the leading platform over there. And we have probably one, if not the most diverse platform in the UK. So we are in a position to win in all of the segments. So if the private sector and should the planning advisory sector is cooling off and in a recession, you would need to expect that. Well, I believe that in our public sector exposure, we will be able to compensate in some ways you know, the cool down or the cooling off of perhaps, you know, the private sector and the planning sector, for instance. So to be seen, and I promise you to update you on the quality of business as I see it. But for now, I mean, we're extremely pleased with the way our cluster EMEA has been performing in 2022. Okay.

Thank you very much. I'll turn the call back over. Thank you. Thanks, Ian.

We are now going to proceed with our next question. And it's from the line of Mike from TD Securities. Please ask your question.

Thank you. Good morning. Good morning, Mike. Hello, Michael. Good morning. First question, just another question regarding the organic growth outlook as we look ahead to next year. I know you're still in your 2023 budgeting process, and obviously there's a degree of heightened uncertainty around the broader economic outlook at the moment, so that kind of clouds things presumably. But I'm wondering if you can talk about what end markets and or what regions you're most upbeat about in terms of organic growth as you look ahead to next year.

Well, we are going to update you in more details at the end of Q4, Michael. But obviously, I think you look at the backlog that we have in North America, I have to admit that I'm extremely, I'm feeling good about our North American market. It's been a very strong market in 2022. And given like the announcement that have been made by respective federal governments In the US and in Canada, obviously, it's difficult not to feel good about the prospect. But I'm not prepared just yet to say that, you know, our European countries are going to go through a very, very, very difficult time next year. I think, you know, with what we know today, we're also going in, still feeling good about the emia. And similarly, I think Asia Pacific has had a good organic growth year by all standards. And we hope that this will continue next year. So all in all, as I said during my address at the beginning, I think, you know, you look at the financial ambitions that we have set for the company in February for the next three years. In my personal opinion at this point in time there absolutely no reason why we should change course I'm feeling good about the business and I'm feeling good about the team that we have the leaders that we have and and I'm confident that we're going to find a way to Deliver on on the ambitions that we have set for the company at this time. I'm actually feeling very good about it

That's helpful. Thanks, Alex. And then I guess the second question, in your prepared remarks, you mentioned that the integration of the company's recently acquired businesses is going well. Just wondering if you can provide any more detail on that process, and particularly as it relates to the larger E&I acquisition.

Yeah, I think the first thing that we apply ourselves to do is really to create to look into the leadership of our earth environment business globally. We need to remember that we have now over 20,000 people expert in the sector. This is a very large segment of WSP is now representing more than, it's like 32, 33% of our company. So this is not the minimus and this is a sector that is having a great impact on our company. And we need to remember that just Not three, four years ago, we had about 300 people in environment in the U.S. Now we have more than 6,000 leaders and professionals working in earth environment in the U.S. alone. So we needed a strong leader to take the lead for this business. And I thought that Joe Serco, the previous CEO of the Woody and I business, was the best leader to... to take our 6,000 professionals on the journey of success. So we've applied ourselves to make sure that we're ready to action, we're ready to win work, and making sure that people are aligned. And today I can tell you that our Canadian business is very well positioned to win in the marketplace. And equally now, I feel we have the structure in the U.S., to make an impact. So I'm looking very, I'm feeling very good about the acquisition at this time.

All right, that's helpful.

Thank you, Alex.

Thank you.

We are now going to proceed with our next question. And the questions come from . From MBS, please ask a question.

Hi, good morning, gentlemen, and . Alex, I was wondering if you can comment maybe on sort of the M&A pipeline and maybe sort of expectations from sellers by seeing a little bit less PE interest. Yeah, maybe just in any color or perhaps maybe it differs by market. Thanks.

Yeah. Well, Max, first and foremost, I mean, given the six acquisitions that we've completed already this year, I feel we're probably ahead on our plan. If you look at the strategic ambitions that we had set. So I think it's been a very successful year so far. And obviously, I think the pipeline is still very healthy. Obviously, I'm sure you've heard me saying that many times before. It's very difficult to time acquisitions. Sometimes they're coming as a bunch and some other times it takes a while for transactions to materialize. I feel we have a very good pipeline. I'm still having very informal and sometimes more formal discussions with some companies. I'm confident that given the strong balance sheet that we have with our recent fundraise going into 2023, with the integration of ENI going very well, that we are going to be able to be opportunistic in a market like this. And you said it yourself, I think, given the interest rate, given the market, I think that the strategics have and will have at some point in time an advantage. And WSP just want to be ready and positioned to take advantage of that. So we just need to be patient and and not get excited or really excited and wait for the right opportunity to come along. And if we are patient and stay focused and disciplined on our strategy, I'm confident that that will happen.

Okay, excellent. And then just a couple of other small ones. I think in past quarters, You mentioned data centers being sort of a growth driver for buildings. Wondering right now if, I guess, how big of a market that is and given the tax spending sort of curtailments, if we should expect any sort of deceleration to actually show up in the numbers or are there sort of other verticals picking up the slack?

Thanks. I don't expect a slowdown anytime soon. And this is a practice that we started initially in North America. And we continue to expand in North America very rapidly. But what's been amazing with the few acquisitions that we completed in recent years is now we have been able to bring or to export this expertise on the European continent and also in Asia. So we are doing a lot of work for the Facebook and the Google of the world in Europe and Germany and elsewhere, but also in Singapore. and in Asia, so in Asia Pacific. So I think this has been a very good example of two, three small acquisitions that turned out to be a great diving board for us to export this expertise as a center of excellence from one location to many other locations in our network. So I expect this to continue.

Okay, excellent points. And lastly, just in terms of the mining space, obviously Golder was very strong in that. It seems to be still a pretty decent market. Just wondering if you can provide any comments there in terms of that vertical specifically. Thanks.

Yeah, look, your question is so timely. Yesterday was our board and we had Kevin Beauchamp presenting at our board on the mining sector. I'm personally, and as a company, we're still very bullish around the mining sector. And the opportunity around ESG are so tremendous, Max. And again, I think given our acquisition of Golder, ENI, and all of the recent acquisitions we did in climate change and the people we were able to recruit, it's not just about providing design work for the mining sector. It's about... supporting those C-suites, the C-suites of those companies and the transition, the green transition of this industry. And let's remember that that's an industry that is becoming more and more and more sophisticated. So that's certainly an industry that we are proud to be part of. And the growth profile for next year should be equally good as far as we are concerned. Obviously, we don't have a crystal ball, but we're feeling good about it.

Excellent. Thank you. That's it for me.

Thank you.

We are now going to proceed with our next question. And the question is from the line of Frederic Pastin from Remo James. Please answer your question.

Good morning. Good morning, Frederic. Guys, you've been flagging the Middle East as an area of strength for quite some time, but I recall this region slowing down dramatically when oil prices rolled over seven, eight years ago. How different or how resilient are your activities in the Middle East now?

I think I would say over the last, right after the 2014 downturn in the oil and gas sector, Fred, we've we've taken a very cautious approach to the region. Well, we took a very cautious approach to the region and we've been extremely selective in the way we pursue work. I also have been quite demanding in the prepayment that we have been requiring in order for you to pursue work. So if today you look at our DSO compared to where they were seven, eight years ago. I mean, there's no comparison. So today, this is a region where we're generating margins that are essentially in line with the average margin profile that we generate as a company. We have a DSO profile that is essentially close, if not at the average of what we're able to achieve globally. And we have organic growth that perhaps it's a bit lower than what we generally generate globally for the reasons that I just explained. We are very disciplined as an organization and we are very selective in the projects that we undertake. And also over time, we've transformed the business and we do a lot more project management work and owner's engineer work than perhaps the detailed design work that we used to do in 2007, 8, 9, 10, 11, 12. So over time, we have transformed the organization. So for all those reasons, I think we are doing well in the region. But we have memories of the past, and we don't forget that. So we are extremely careful in the way we are selecting projects.

That's good to hear, Alex. Thanks. Now moving on to Sweden, it's been a relatively quiet region for WSB recently, but momentum seems to be picking up there. Can you discuss what's driving that? That obviously seems to be in contradiction to what you were seeing out there.

Yeah, we promoted a new leader more than, actually almost a year ago, a bit more than a year ago, and obviously it takes time for the leader to turn the corner and get ready to execute. That leader is the next Golder executive. She is known to us. This was an internal promotion. We're working closely with Annalena and She's doing a very good job, an amazing job, and we're very, very committed to the region. We need to remember that the Nordics, WSP is one of the only international firm to have a leadership position in that part of the world. So we're very committed to the region. It's an incredible place to do business. And obviously, We all know what's happening in the world right now. And obviously we're taking, we're very focused on this and we're watching the market very closely. But at the same time, we know that we have a good business there and we're continuing to deliver. We continue to deliver, I'm sorry.

Great, thanks. Keep it going, guys. Thank you. Thanks, Fred.

We are now going to proceed with our next question. The question is from the line of Sabaz Khan from RBC. Please ask your question.

Great. Thanks and good morning. I just want to get a little bit of color on what you're seeing out there on sort of the pricing discussions that you're having. Presumably, you know, for this last year, maybe into 2023, your backlog does reflect some of the inflation that you've experienced. You know, as you're having discussions about the pipeline, beyond sort of 12 months? You know, how are you seeing the pricing trends there? Are they starting to sort of come back to kind of call it normal levels? Just want to get perspective on that part of the kind of the outlook.

Look, I think our industry is not any different to what we are experienced globally. I mean, inflation at 7, 8%. I mean, to suggest or to sit here and tell you that this is not going to have It's not having an impact on pricing in an industry, I think, would just not be very honest. So obviously, inflation is, and I said that on the last call, inflation is not good news for anybody. There's no good news in times of inflation. Having said all that, WSP, we are able to engage with our client base and are able to negotiate rates that are essentially reflective of the environment in which we operate at the moment. And on top of it, we need to remember that I would say in excess of 90% of our costs are variable costs. So that too is something that we keep in mind. and we watch for. I think in order to preserve and defend the margin profile, there's many levers that we need to action from amendments with clients and negotiation with clients to increase liaisation to making sure that we're very strong in our recruitment process and are leading the way in that regard. and also are frugal in the way we manage the business. So I think there's not one single solution for us to increase our margin profile this year. It's many levers, and I think we're fairly focused on all of them at the moment.

Okay, good. And then just maybe following up on your last comment there, it sounds like from the commentary, demand is still good. you're still sort of hiring, but how are you sort of balancing the addition of new folks to make sure you have enough versus just maybe not hiring too much? I don't know if the concept of contract work exists for some of the employees given what they do, but I just want to get your idea of how you're sort of managing that.

Well, depending in which sector you're looking at, absolutely have contract work. So especially in field work, when the summer season is over, I mean, those contractual workers are going to leave the business and It's been like that for as long as I remember. So look, this is a balancing act. You don't want to get ahead of yourself, especially in time of inflation. There's a danger as an organization that you could get ahead of yourself and that you're either hiring too much or increasing your costs too much. especially in the face of a potential recession. So we're very focused on making sure that we are filling positions for project-ready work. And obviously, given our track record at recruiting people, we want to wait to get a clear green light from the clients on backlog projects and soft backlog projects before we do anything. So we are quite careful about this.

Okay, one last quick one. If we can, I know you've got an ERP implementation going on. You've got a new leader in the tech space. Maybe just an update on kind of what part of that ERP process has been completed to date.

Sure. Thank you, Seba, for that question. So it's, you know, it's a project where, first of all, we're building a global platform for all our regions. So it's not a It's not a regional specific design solution. So what we've been working on for the last little while, last year actually, was to design this global template that every region will now use going forward. And this is essentially completed. We're now focusing our effort on rolling out this platform in the first region. We're still on plan for rolling out in early 2023. So it's going well. The team is excited. We actually have our team from the Canadian rollout in Montreal this week. And there's the team also that's starting to get ready for rollout in the US and in the UK that's also collaborating that are here in Montreal as well. So it's actually a good vibe. It's a lot of hard work. Obviously, we remain cautious and disciplined on this project, but things are going well, and the dashboard currently is looking good on this project.

Sorry, if I could just squeeze in one more, I guess. Would you be bringing the wood business onto this platform, or are they already on a similar platform, the ENI business?

We're assessing this. They're on a different platform now. The plan is to roll them in on the new platform as well.

Thanks very much.

Yeah, thank you.

We are now done with the session for today, and I will pass it back to WSP for concluding remarks. Thank you.

Thank you so much for attending this call. We look forward to updating you on our 2023 operating plan in Q4 of this year. And again, if you do have any questions related to this quarter or any other questions, please feel free to reach out to Quentin or Eliane or myself offline. Thank you very much, and I wish you a great day. Bye-bye.

Ladies and gentlemen, this concludes this conference call. Thank you for participating. You may now disconnect your lines.

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