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spk34: Good morning, everyone. Welcome to WSP's fourth quarter and Fiscal 2023 results conference call. I would now like to turn the meeting over to Quentin Weber, Investor Relations. Please go ahead, Mr. Weber.
spk09: Thank you for attending the call today. We will be discussing our Q4 and Fiscal 2023 performance, followed by a Q&A session. Joining us this morning are Alexandre Le Rue, our President and CEO, and Alain Michaud, our CEO. Please note that this call is also accessible on our website via webcast. During the call, we will be making some forward-looking statements, and 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 MDNA for the year that ended December 31, 2023, which can be found on CDAR and on our website. In addition, during the call, we may refer to certain non-IFS measures. These measures are also defined in our MDNA for the year that ended December 31, 2023. Our MDNA includes reconciliations of non-IFS measures for the most directly comparable IFS measures. Management believes that these non-IFS measures provide useful information to investors regarding the corporation's financial condition and results of operations, as they provide additional key metrics of its performance. These non-IFS 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.
spk22: Thank you, Quentin, and good day, everyone. I am pleased to present our fourth quarter and strong annual results. I will also use the opportunity to provide an update on key milestones we achieve in the second year of our 2022-2024 Global Strategic Plan. Starting with our fourth quarter performance, our core operations continue to deliver solid net revenue growth, and our margin profile improved by a very robust 150 basis point to reach 19% compared to the fourth quarter of 2022. We have also seen a good level of cash flows, and our business continued to capture many strategic wins, which I will cover later. Turning to fiscal 2023, the consistency and rigor we apply in our operations have translated into strong financial performance. First, net revenues are up 22% or nearly $2 billion resulting from strategic acquisitions and healthy organic growth of 7.3%. This was achieved with the contribution of all of our reportable segments. Also, a record high-order intake of $15.1 billion continues to reflect positive market conditions. Second, adjusted EBITDA is up 26% or nearly $400 million. Adjusted EBITDA margin stands at .6% up 55 basis point, surpassing our yearly margin expansion ambition of 30 to 50 basis points. We delivered beyond expectations and remain laser focused on profitability as we pursue our ambitious target of reaching a 20% adjusted EBITDA margin. Third, adjusted net earnings are up 24% or $1.15 per share, stemming from accretive acquisitions and continued significant productivity gains. We are proud of these results as they demonstrate our strong execution in a year of significant consolidation and transformation activities. Overall, we delivered robust results at the high end of our financial outlook range, which as you will remember, was revised upwards significantly in August 2023. Let me now make a few remarks on each of our four strategic pillars, namely people, expertise, clients, and operational excellence. On people, we are now one of the largest engineering and professional services firms with close to 67,000 deeply talented employees who are positioned globally to solve the world's most complex challenges. We persist in advancing on several initiatives to become an even more unified WSP and deliver an even better employee experience. We are transforming our organization with a new ERP that has been deployed in some of our key segments and is now being leveraged by approximately 30,000 employees in Canada and in the US, and we are planning its implementation in other regions. On expertise, we strengthened our presence in key markets. Our proven experience identifying and integrating industry-leading brands led to the creation of a nearly 20,000 people strong earth and environment franchise, most of it in the last two years, as we welcome new colleagues from Woody and I and Golder, amongst others. Our global platform is positioned favorably to address clients' future needs as water, energy transition, net zero commitments, smart infrastructure, and climate change remain critical area of focus. On clients, we increase our volume of business by over 20% through a combination of organic and strategic acquisitions. This growth is attributable to a discipline and focus to the execution of business plans across all our sectors and the substantial focus we put on our global client care program. Lastly, on operational excellence, we drove stellar performance and efficiency through our multiple margin expansion initiatives. We own in our productivity metrics while entering our organization remains agile, leverages our excellence centers, and efficiently delivers on our projects. On top of strengthening our platform, we are future-proving WSP to support our growth ambitions. WSP is uniquely diversified with top-tier sectors built through our history. The first transportation infrastructure delivered double-digit organic activity levels in the US, UK, Canada, the Middle East, Australia, and New Zealand. This is a testament to our leading expertise in bridges, mass transit, highways, and rail. WSP continues to be exceptionally well positioned to benefit from the various stimulus programs being deployed globally. On that, we continue to see positive momentum stemming from the bipartisan infrastructure bill in the US. The biggest opportunities for this bill and other stimulus programs globally are in roads, bridges, and major transportation projects. This is fully aligned with WSP's leading transportation and infrastructure sector. Moving on to our property and building sector, our focus in the recent past has been on diversification, and we see high demand for our services in Canada, the US, UK, and Australia. More so in hyper-growth sectors such as healthcare, hospitality, entertainment, data centers, mission critical, and manufacturing. Lastly, and as I mentioned earlier, we have efficiently benefited our strategic earth and environment sector, which is benefiting from robust momentum across all our geographies. We have the privilege of providing expertise and advice to clients on most ESG-related matters, including water scarcity, biodiversity, earth sciences, biomass, environmental permitting, and social acceptability, just to name a few. Our future is not short of growth opportunities as global trends point to higher demand in all these fields of expertise, a good example of that being the energy transition and the drive toward carbon neutrality for power generators and consumers. Across our portfolio, we are awarded projects to support wind and solar generation, as well as planning, designing, and managing programs for the build-out and upgrade of transmission and distribution lines. For example, in the US, we want a project known as Propel New York Energy, a collaboration between the New York Power Authority and New York Transco. The project entails building out the transmission grid in New York, contributing to the achievement of the city's clean energy transition goal of having a zero emission electric grid by 2040. WSP's scope of work includes environmental planning and permitting, stakeholder engagement, civil and electrical design, and overall project management. This adds to the work WSP is delivering for Champlain, Hudson, Power Express, and Pleat Path, New York. Combined, these represent nearly $20 billion of new electric grid infrastructure investment in New York in less than two years, with WSP playing a pivotal role in the delivery of all three projects. In the UK, WSP has been appointed by National Gas to develop best practice guidelines on the design and build of a new hydrogen network. In Sweden, we are supporting clients to develop hybrid energy solutions combining wind, solar, and hydrogen for a more reliable and carbon-free energy system. We are also helping with the expansion of offshore wind development in Taiwan to reach a target of 5 gigawatt of renewable generation. The energy transition provides a broad range of opportunities. Just recently, we were awarded the entire multidisciplinary design for Volkswagen, the largest facility worldwide and their only plant in North America. This is one of the largest battery facilities globally and we are leveraging our global expertise from active electric battery projects in Sweden, Italy, and Southeast Asia to deliver. I would now like to share a few of our recent accolades. WSP has been included in Corporate Night's prestigious global 100th most sustainable corporation in the world for 2024 and ranked the 12th most sustainable corporation. This acknowledgement is a testament of WSP commitment to sustainable business practices as well as gender diversity. We earned placement on the Dow Jones Sustainability North America Index for the first time. This industry standard recognizes the top 20 sustainability performers amongst the 600 largest companies in the US and Canada based on long-term economic, environmental, and social criteria. WSP's inclusion is an additional tribute to our dedication to build a more sustainable world. WSP was also recognized as the world's leading environmental and sustainability consulting firm and environment analyst annual state of the industry report. We are proud of our ongoing progress on the sustainability journey and I congratulate all of our teams for these achievements. On that note, let me turn it over to Alain who will go over our results in more detail.
spk03: Thank you Alex. I'm very pleased to report on our strong results for both the fourth quarter and the full year. Starting with our top line, for the fourth quarter revenues and net revenues reached $3.7 billion and $2.8 billion up 5 and 8% respectively compared to Q4 2022. Net revenue organic growth of .1% in the quarter is attributable to all reportable segments. Globally, net revenue organic growth would be approximately .5% when excluding the significantly lower demand for emergency response services as the hurricane season generated a notable decrease in inspection activity. For the Americas, excluding the same item, our operation delivered strong organic growth of 8.6%. For the full year, revenue and net revenue reached $14.4 billion and $10.9 billion up 21 and 22% respectively compared to 2022, reaching the high end of our latest net revenue outlook range for the year of $10.7 to $11 billion. The increase was due to sizable acquisition growth of .3% and healthy organic growth of .3% which was pulled from all reportable segments. Organic order intake reached a record high level of $15.1 billion for the year, resulting in a backlog as of December 31, 2023 of $14.1 billion or 11.8 months of revenue up .2% in the year. Moving on to profitability. Adjusted EBITDA in the quarter grew to $525 million compared to $446 million in the fourth quarter of 2022, an increase of 18%. Adjusted EBITDA margin for the quarter increased by a robust $150 basis point to 19% compared to .5% in the fourth quarter of 2022. The increase is mainly attributable to strong project performance and significant productivity initiatives. For the full year, Adjusted EBITDA grew to $1.92 billion up 26% compared to $1.53 billion in 2022, reaching the high end of management's latest outlook range of $1.9 to $1.93 billion. In 2023, the Adjusted EBITDA margin increased by 55 basis point to .6% against the previous year beyond the higher end of the Corporation 2022 to 2024 strategic ambition to increase the Adjusted EBITDA margin by 30 to 50 bips annually. For the quarter, Adjusted Net Earning reached $248 million up 39 million or 18% compared to the fourth quarter of 2022. And for the year, Adjusted Net Earning increased by 24% to $860 million or $6.90 per share. The increase is mainly due to higher Adjusted EBITDA, which is partially offset by the impairment of long-lived assets resulting from our ongoing optimizations as part of our real estate strategy. On this front, we're very pleased with the progress and are well on track to exceed our 2024 goal of reducing by 20% our real estate costs and footprint. I'll now review a few cash flow metrics. Free cash flow for the quarter was $610 million, a record cash flow generation in a quarter. Free cash flow for the year and the December 31, 2023 was up 40% to $433 million compared to $309 million in 2022. Free cash flow represents 110% of net earning attributable to shareholders when excluding higher income tax pay due to tax regulation in the U.S., which delayed the deductibility of R&D expenses. Of interest, the situation on this specific U.S. regulation remains fluid, and should a change occur, it could positively impact our free cash flow. DSO, as of the end of the year, stood at 76 days compared to 73 days as of December 31, 2022. We have stabilized the DSO situation in Canada following the implementation of our new ERP and our devoting effort to normalizing DSO in the first half of 2024. Net debt to adjust the EBITDA ratio stands at 1.5 within management target range of 1 to 2. Lastly, I will comment on our 2024 financial and operational outlook. Before I start, I'd like to remind you that the outlook for our anticipated 2024 performance is aimed at assisting analysts and shareholders in refining their perspectives on our performance. It has been prepared based on foreign exchange rates effective February 28, 2024, and also note that we have not considered any acquisition, disposal, or any other transaction that may occur after today. For 2024, we anticipate net revenue to be in the $11.2 to $11.7 billion range and adjust at EBITDA between $205 and $213 billion range, representing at midpoint a target EBITDA margin of .3% or approximately 65 basis points higher than 2023. We expect the consolidated net revenue organic growth on a constant currency basis to range between 5 and 8%. We continue to see positive market fundamental across our operation and anticipate mid to high single-digit organic growth for Canada and the Americas and mid single-digit for AMIA and the APAC regions. This reflects our current assessment of market condition and our continued ambition to increase our margin in line with our 2022 strategic financial ambition. First quarter of 2024 will have two less billable days than the first quarter of 2023, while the fourth quarter of 2024 will have two additional billable days than the fourth quarter of 2023. The impact on the quarterly organic growth is expected to be approximately negative 3% in Q1 2024 and approximately 3% positive in Q4 2024. As of note, we aim for 100% conversion of free cash flow to net earning in 2024 and we manage our capital structure to maintain a net debt to adjust at EBITDA ratio between one and two terms. Other items of our 2024 outlook, including quarterly distribution, seasonality, tax rate and others, are described in our press release. In conclusion, we're very proud of our accomplishment in 2023 in a year of significant consolidation and transformation, delivering strong results ahead of our expectations. We feel ready to seize opportunities in 2024 and beyond. Now back to you, Alex.
spk22: Thank you, Alain. I'm very satisfied with our performance in 2023 as we concluded a year of significant growth, consolidation and transformation. We have substantially completed the integration of our recent strategic acquisitions. We have a strong balance sheet to support our ambitions and I am confident in our ability to deliver on our 2024 financial goal. Young 2024, we stand firm on our strategic aspiration to deliver a 20% EBITDA margin. We added 85 points to adjust to EBITDA margin since the launch of our strategic plan and our 20% ambition is clearly within reach. Based on the midpoint of our financial outlook, we aspire to deliver 150 basis points improvement in the 2022-2024 strategic cycle and we continue to foresee margin improvement opportunities. There are many ways for us to grow and push even further. As the markets remain fragmented, the pipeline is healthy and we intend to continue to scale and expand the franchise by consistently adapting to client needs. To have the platform, the discipline, the people, and we have the desire to grow, the future is bright for WSP. I would like to conclude by thanking our employees around the world, their talent, work ethic and dedication to what really matters for our clients, for our communities and for us strongly contributed to 2023's success. On that note, we will now begin the Q&A session. Thank you.
spk34: Thank you. If you would like to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, you can press star 1 and 1 again. Please stand by while we compile the Q&A roster. Thank you. We'll now take our first question. The first question is from the line of Yuri Link from Canaccord Genuity. Please go ahead.
spk24: Good morning guys.
spk37: Hello Yuri. Good morning.
spk24: Good
spk25: morning. Just a question on your end markets. Certainly transportation and infrastructure is a very strong market for WSP last year. But just curious how your newly formed earth and environmental services platform performed and any perspectives on wood has been fully integrated now.
spk22: This is a great question Yuri. Indeed, as you just mentioned, transportation continues to perform extremely well for us. This is perhaps one of our most mature sector. When you look back on history, we have been driving this sector for a fairly long time. When you look at the bar-partisan bill in the US, this is by far, and often times it's probably tenfold the size of the water funding. So clearly I think we're extremely pleased to be performing in transportation. Equally in the building sector, this was a strong performance for us. I'm extremely proud of how we were able to diversify that sector. Sometimes you need a bit of luck and also some vision. Between 2015 and 2020, just before COVID, we really ventured and completed acquisition in other sub-sectors than the high-rise commercial sector and commercial market. Today it's clearly paying off, especially in the healthcare sector and the mission critical work that we do. We're obviously feeling good also about the building sector and we intend to continue to grow that sector going forward. Lastly, this is perhaps our youngest sector or the newcomer in the family. When you look back at where we were in 2018, the Earth environment was representing less than 10% of our revenue. If my memory is not failing me, it was 6%, 7%, 8%, something along those lines. You look just at the start of COVID in early 2020, just in North America alone we had approximately something like 2000 people between Canada and the US. When we completed the Gold acquisition, completed the ecology environment and also completed the Woody and I business, this account grew to 12,000 people just in North America alone. I don't spend much time talking about it, but we are extremely proud of the integration work and the consolidation work that has been going on in the background. If you look at the work that we've done in 2023, we have now our North American platform on a new ERP. We have a very strong Earth environment practice with at the moment the best operating margin in our group. All that to say that I'm very proud of the consolidation and the work that we've done over the last 12 to 18 months.
spk25: That's helpful. Maybe I'll just push a little more on that point. Because you've made such a big strategic shift into Earth and environment with the acquisitions, could you provide us with the organic backlog growth in that sector and just your expectations for 2024?
spk22: Yes, very strong organic growth that we are expecting in 2024 in range with transportation and property and building.
spk25: That's great. I'll turn it over there. Thanks guys. Thank you.
spk34: Thank you. We'll now take our next question. This is from the line of Jacob. Bo from CIPC. Please go ahead.
spk04: Good morning. Hello, Jacob.
spk08: My question is just on your M&A pipeline. You had a very busy first half in 2023, but it seems like the pace of M&A has slowed. Maybe just talk through that. I know it's bumpy, but is there a lack of appropriate targets out there? Factor evaluation? Just maybe some thoughts there.
spk22: No, absolutely not. I think it's not about the weak pipeline or the weak backlog of potential acquisitions. As I just described, I think in the course of the last 18 months, 24 months, we completed two very significant acquisitions. One being in a partnership with 3000 Shoulders. Another one a carve out from a publicly listed company in the London Stock Exchange. That, Jacob, requires a lot of work. We're very pleased with the performance of that sector. As I stated, our highest gross margin in our group, so we're feeling extremely good about it. But, you know, suffice to say that we needed the attention and care and we needed to deliver the good. It's one thing to write a check, but it's another to integrate 12,000 people into a group. So I feel we've worked very hard and in parallel completed last year's calibre, which allowed us to enter a new market in Australia. And equally, we were able to complete a significant acquisition in Switzerland, which is now allowing us to be a top tier player in the country. So I feel in parallel we were busy, but I just didn't want us to be distracted and not deliver the good on the acquisition that we had completed. As I stated, I feel now that we are at a point where our integrations have been successful. I'm pleased with the results. I'm very pleased with the leadership that we have in place. So we have a strong balance sheet. So now, again, it's probably the time for us to start thinking about what the future may look like for us.
spk08: Maybe just a follow on here. And I guess a follow on the discussion with Yuri there. Just on MEX, obviously there was a big push in our environment. Do you feel like you're properly right-sized or where do you think you're locking in this current environment?
spk22: We're going to continue to diversify our pillars. I think if, put simply, in 2012 when Gennevar and WSP came together, we created one of the leading franchise in the property and building sector. When WSP completed the acquisition of Parsons Brinkhoff, instantly we created a leading franchise in the transportation infrastructure sector. And equally now, I think with Wood and Golder, we created a strong brand in the earth environment sector. So as you can see, we took a very deliberate and disciplined approach of building our sectors and building our company. And we're going to continue to grow those sectors and adjacent sectors to create a more diversified platform over time.
spk18: Thank you. Thank you.
spk34: Thank you. We'll now take our next question. And this is from the line of Michael Dumé from Scotiabank. Please go ahead.
spk13: Hey, good morning. Good morning, Michael.
spk30: Fantastic work on the margins. And I know you guys have discussed this in your prepared remarks, but I wanted to know, or maybe just wondering if you guys can help us break down some of the major drivers in the margin expansion in Q4 and how you view the anticipated margin expansion in 2024. And I guess just as a follow-up, given the outsized anticipated margin expansion into 2024, do you have a better sense of the timing of when you can reach that target of 20%?
spk22: Well, put it simply, I think when we conceded a 2022-2024 strategic plan, we mentioned that our long-term vision was to reach 20%. If you fast forward to two, three years now, I feel it's no longer a long-term vision. It's a short-term to mid-term vision.
spk28: Perfect.
spk30: Maybe sticking on margins here, if I do look back and compare maybe the 23 margins versus those of 2021, solid margin progression in Canada and EMEA, margins are down in APAC. I would assume that's China. So I guess the first question is, is the headwind there abating? And then if I look to the Americas, the margins there have been relatively flat. So just curious of what explains that and if you think you're turning the corner.
spk22: Look, I think I'm extremely pleased of our performance on the absolute, but I am even more pleased of our performance on a relative basis. And let me explain to you what I mean by that. Of course, when you look at the absolute number, I'm proud of where we stand and the work that was accomplished. But what I'm extremely proud of is the trajectory of the company. When you look at 2022, our margin and expansion reached 3D basis point. In 2023, our margin expansion reached 55 basis points. And if you look at the mid-range of our outlook for 2024, we're hoping for something along those lines of 65 basis points. So in total, this would be an increase of .5% in our EBITDA margin over the course of our strat lab.
spk31: But
spk22: it's just that we're growing stronger and I'm extremely proud of that and I'm extremely pleased of that. We're seeing a consistent improvement in the way we operate the company and that's something that we should be pleased of.
spk28: All right, I'll leave it there. Thank you. Thanks, Michael.
spk34: Thank you. We'll now take our next question. This is from the line of Jonathan Lameth from Laurentian Bank. Please go ahead.
spk30: Good morning and thank you for taking my question. Just picking up on that discussion on the margin. So thank you, Alex, for sharing that the 20% target is now short to medium term and discussing the consistent improvement in the way that WSP has operated. My question is, could you provide a little bit more detail on what's providing you confidence in this level of margin expansion for 2024 specifically? And over the coming years, Elaine mentioned the productivity improvements and the ERP implementation.
spk22: Well, I'm feeling confident because of the work that is taking place in the last two years of our strategic cycle. Last year, I mentioned it was a year of consolidation and a year of transformation. Today, we have our North American business, which represents roughly 60 to 65% of the EBITDA of the company on the new platform. We intend to migrate other large segments and countries of our operation onto the platform this year. In parallel of that, we integrated two of the largest acquisitions we ever completed as a company. And yet, we delivered .3% of organic growth combined with a strong margin improvement. So there's not a whole lot not to like about the performance in 2023. And all I can assure you of is that we're going to continue to drive the business to raise the bar as a company and to raise the bar as an industry. So that's how we feel about the company right now.
spk30: Okay, thank you. And a question on the ERP system implementation. Is that now live in the US? And when do you expect
spk22: to go live in the UK? It's live in the US and we intend to be live in the second half of this year for the UK.
spk30: Just switching topics, stimulus funding for transportation in particular appears to be an exciting opportunity for 2024. We saw good growth in the backlog in the Americas in 2024. Are you expecting positive impact to your backlog over 2024 based on the customer discussion to what you can see? Well,
spk22: look, I mean, there's continued momentum in the US and elsewhere. So clearly, we're feeling good about it. And I think I talked about this earlier on on the call. People tend to focus a lot of their time and energy on the water sector, which in total represent 35 billion of the total funding. And in transportation, we're talking about 350 billion dollars, which is tenfold the amount that will be allocated to water. And WSP is the leading franchise worldwide in transportation. So I feel we are uniquely positioned to take advantage of what's going on around the world right now.
spk29: Okay, thanks for your comments. Thank you, Jonathan.
spk34: Thank you. And I'll take our next question. This is from the line of Devin Dodge from BMO Capital Markets. Please go ahead.
spk15: Thanks. Good morning, guys. Hello, Devin.
spk16: In 2023, we saw that headcount was roughly flat year over year, if you include acquisitions and divestitures. I suggest that the 7% organic revenue growth was largely from some sort of pricing productivity and mixed shift to higher value services. Just wondering, do you expect these dynamics to carry over into 2024 or could we see a bit more headcount additions this year?
spk22: Directionally, I think this is a fair assumption. I think what I am trying to say here is that we want to extract the value of the incredible platform that we have now. So where possible, if you can do more with less, this is fantastic news. And 2022 was an example of that. We increased productivity. We significantly invested in the platform and technology. So we're going to continue to drive the business to achieve those results.
spk16: Okay, okay. Makes sense. Second question on the ERP rollout. I believe WSP spent about $130 million on this implementation to date. And I think you're planning another $60 million to $80 million in 2024. So just a two part question. One is, is there much left to do after 2024? And the second part is that when you guys were evaluating, undertaking this project, what sort of payback were you expecting to generate from this investment?
spk03: Yes, so we devoted a lot of effort in 2023, as you know, preparing, doing the rollout in Canada and preparing our two next larger region to go live in 2024, which was the US and the UK, as Alex pointed out, which will happen in a short period of time. So that's what we've done. The effort right now is focused on delivering the rest of the platform, which will happen in the first half of 2025. So I would say that the bulk of our investment, if I include 2024, will have been done. We'll have some left in 2025 for sure, but you should start seeing a decrease in the spending, as you've seen in 2024. So that's the expectation. We're in line with the investment that we had announced in our strat plan in early 2022. So we continue to be on time on budget. So we're very pleased about it. Very proud of our team going through the transformation. And in terms of payback, I mean, you need to do those investments to ensure the resiliency of your platform and gain insight and run a stronger business. So we see great value on that front. We see great value in the quality of the insight we'll earn with the platform and how it's going to help us to drive further the business forward. And obviously, as you look into the way we're organized, if we could make the various back end of the firm a bit more efficient and more focused on bringing value, that's the intention. So we think that this will bring significant benefit for the long term of the company.
spk17: Okay, makes sense. Thanks for that. I'll turn it over. Thank you.
spk34: Thank you. We'll now take our next question. This is from the line of Benoit Poirier from Desjardins. Please go ahead.
spk07: Yeah, good morning, Alain. Good morning, Alex, and congrats for the strong results. Just to come back on the EBITDA margin, obviously, you were able to achieve a 55-bips improvement in 2023. You're looking for almost a 65-bips improvement in 2024. You were clear that this was transformational year with M&A, also with ERP implementation. So I'm just curious that now that the ERP implementation will be almost a way toward the end of 2024,
spk01: what
spk07: could we expect in terms of EBITDA improvement post 2024? Could we be thinking at the north of 65-bips? And I'm just wondering about the definition of short to medium term.
spk22: Well, Benoit, I mean, we need to keep some good news for later. So obviously, we are in the last year of our strat plan. And kidding aside, this is a year for us where we need to reflect on where we want to take the company forward. So come February next year, when we roll out our next three-year plan, we will be in a position to provide you with more details related to what we intend to do, what are our financial aspirations and as I said, where we want to take the business forward. But suffice to say that I think it's fair to say internally, if I speak to Alain or I'm thinking about the company myself, all of the significant investment that we've made in the company in recent years, making sure that we run a very tight ship as an organization, very selective in the projects that we undertake, reduce the margin erosions on certain jobs. I think the future is bright for the company. And I clearly have now my sight on reaching that goal of reaching 20% margin. So if a
spk20: few years
spk22: ago, this was a vision, today is a mission.
spk07: Okay. And looking at productivity 2023, you were able to deliver strong performance despite the flattish end count. It looks like that there's more potential towards improving productivity going forward. Could you maybe share some example of what could be done in terms of further improving productivity?
spk22: Well, I think professional and staff mobility is a very simple example of that. I think we are becoming more and more effective in the way that we mobilize and demobilize our team. So there's a lot less downtime. And I feel that we have eliminated silos around and across the organization. So now we are in a position to pull resources, for instance, from Bogota Metro in Colombia and demobilize that workforce on other large assignments globally. And so these are examples where we are able to save lost time and we are able to become more efficient. Number one. Number two, this year we reduced our turnover by 200 basis points. That's not the minimum, Benoit. Hiring and training new individuals is extremely expensive because you're losing time. So by reducing our turnover, we were able to be more efficient in the way that we deliver work. And that too is having a great impact on our productivity. So I think there's a number of different initiatives that we can tackle, but we are laser focused on making sure that we're creating a great people environment within the company to continue
spk07: to perform. Okay. And with respect to your soft backlog, could you maybe provide some color about how it materialized in Q3? I think last quarter you said that it increased 30% since the beginning of 2023 and about 50% increase in Q3. So I'm just curious to get an update on the soft backlog.
spk21: Directionally the
spk07: same. Okay, perfect. Last one for me. DSOs, you were able to finish the year at 76. It looks like that you expect stabilized DSO for 72, 79 days. So could you provide some color longer term, whether you could come down back to low 70? And maybe Elaine, if you could talk a little bit about free cash flow conversion, we should be expecting in 2024 given the legal tax implication.
spk22: Yeah, most of the improvement
spk36: will
spk22: come from North America. For self-explanatory reasons, we converted the North American platform to a new ERP. And we intend to, this is a timing issue, and we clearly intend to revert back to normal levels fairly quickly.
spk03: And on free cash flow, the target is 100% of free cash flow conversion. And on the tax side, the Edwin that we faced in 2023 was about $150 million. We anticipate a little lower in 2024 to around about $100 million. So that's our intention for 2024.
spk07: Okay, thank you very much for the time. Thank you Benoît.
spk34: Thank you. We'll now take our next question. This is from the line of Frédéric Bastien from Raymond James. Please go ahead.
spk26: Bonjour, Monsieur. Bonjour Frédéric. Salut Fréd. Guys, I was super pleased with the strong performance of your EMI region, which you attribute to the performance in the UK and Central Europe. Would you mind giving us a bit more color on how well these regions did?
spk22: Yeah, we certainly do not mind because this is good news. I mean, the UK continues to surprise us. And you know what? When you have strong leadership, they have strong performance. And we have a very strong team in our UK business. So we continue to commend them for their outstanding work. And in Central Europe, I think this is no secret, Frédéric, that this is a region of interest for us. We continue to scatter the region to find the right acquisitions. BG was the start of that last year. And we continue to look for good firms in the region. But the performance of that business has improved significantly over time. Again, because of strong leadership from our team members, but also because we are able to grow our business and attract good talent. So this is clearly an area of focus for us. And we will continue to grow that region over time.
spk26: Thanks. That actually leads to my next question about your successes in hiring and retaining talent. Can you speak? You spent a bit of time explaining how well you performed in 2023 and what your aspirations are for this year.
spk22: I think creating the best people brand is our number one objective as a company, Frédéric. It starts with our people. This is our number one guiding principles. Our greatest assets are people and our reputation. So we're clearly not negotiable around this team. So we
spk11: continue to
spk22: invest significantly in our people. I think we've talked in length on this call around the investment that we're making in technology. We talked about the ERP today, but we are investing in many other areas of the company. We're trying to create a new working environment that is more reflective of the current market condition. Life has changed and we need to adjust as a company. We just cannot stay static. So we have made significant investment, for instance, in real estate. Next month we will be opening our revamp largest European office space in London. So we are making investment in our people to make sure that we create the best working environment. And that's not going to stop. We feel that that's money well spent and it will continue in 2024.
spk27: Thank you very much.
spk34: Thank you. We'll now take our next question. This is from the line of Maxim Sitchev from NBS. Please go ahead.
spk06: Hi, good morning gentlemen. Hey Max. Just one quick follow up if I may. In terms of the UK market, we've seen some of the competitors in the space showing pretty poor performance. What are you guys doing differently in the market specifically?
spk22: I think we have a very strong matured organization. We have a very strong bench and a very strong leadership team. And we definitely like the sector in which we operate right now. We are by far, in my personal opinion, in the leading franchise in property building. Same in the rail sector. WSP is the reference in the rail sector. So in Europe and elsewhere. And we know how relevant this sector can be in the broader, in the old continent essentially. And lastly we have scale. And over time if you look at our performance in India, if you go back to the acquisition of WSP in 2012, when the margin were about 7%, we continue to diversify the business. We continue to invest in the company. We continue to increase performance. And today you look at our UK performance, I mean that the margin has more than doubled over the course of the decades. So I think it's a great testament of the work that we were able to achieve.
spk05: Agreed and thank you so much.
spk34: Thank you.
spk05: Thanks Matt.
spk34: Thank you. There are no further questions at this time so I will hand back to the speakers for any closing remarks. Thank you.
spk22: Well thank you very much. Again we're extremely pleased with the performance of our quarter and the full year 2023. And we look forward to updating you going forward at our next quarterly release. On that note I would like to wish you a good day and thank you for your invaluable support in 2023. Bye bye.
spk34: Thank you. This does conclude today's conference. Thank you for participating and you may now disconnect.
spk00: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank
spk34: you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you very much. Thank you. Good morning everyone. Welcome to WSP's fourth quarter and fiscal 2023 results conference call. I would now like to turn the meeting over to Quentin Weber, Investor Relations. Please go ahead, Mr. Weber.
spk09: Thank you for attending the call today. We will be discussing our Q4 and fiscal 2023 performance followed by a Q&A session. Joining us this morning are Alexandre Leroy, our President and CEO, and Anisho Arstieko. Please note that this call is also accessible on our website via webcast. During the call, we will be making some forward-looking statements and 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 are listed in RMDNA for the year that ended December 31, 2023, which can be found on CDAR and on our website. In addition, during the call, we may refer to certain non-IFRS measures. These measures are also defined in RMDNA for the year that ended December 31, 2023. RMDNA includes reconciliations of non-IFRS measures for 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 operations as they provide additional key metrics of its performance.
spk14: These non
spk09: -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 Arekhtam.
spk22: Thank you, Quentin, and good day everyone. I am pleased to present our fourth quarter and strong annual results. I will also use the opportunity to provide an update on key milestones we achieve in the second year of our 2022-2024 Global Strategic Plan. Starting with our fourth quarter performance, our corporations continue deliver solid net revenue growth and our margin profile improved by a very robust 150 basis point to reach 19% compared to the fourth quarter of 2022. We have also seen a good level of cash flows and our business continues to capture many strategic wins, which I will cover later. Turning to fiscal 2023, the consistency and rigor we apply in our operations have translated into strong financial performance. First, net revenues are up 22% or nearly $2 billion resulting from strategic acquisitions and healthy organic growth of 7.3%. This was achieved with the contribution of all of our reportable segments. Also, a record high order intake of $15.1 billion continues to positive market conditions. Second, adjusted EBITDA is up 26% or nearly $400 million. Adjusted EBITDA margin stands at .6% up 55 basis point, surpassing our yearly margin expansion ambition of 30 to 50 basis points. We delivered beyond expectations and remain laser focused on profitability as we pursue our ambitious target of reaching a 20% adjusted EBITDA margin. Third, adjusted net earnings are up 24% or $1.15 per share, stemming from accretive acquisitions and continued significant productivity gains. We are proud of these results as they demonstrate our execution in a year of significant consolidation and transformation activities. Overall, we delivered robust results at the high end of our financial outlook range, which as you will remember, was revised upwards significantly in August 2023. Let me now make a few remarks on each of our four strategic pillars, namely people, expertise, clients, and operational excellence. On people, we are now one of the largest engineering and professional services firms with close to 67,000 deeply talented employees who are positioned globally to solve the world's complex challenges. We persist in advancing on several initiatives to become an even more unified WSP and deliver an even better employee experience. We are transforming our organization with a new ERP that has been deployed in some of our key segments and is now being leveraged by approximately 30,000 employees in Canada and in the U.S., and we are planning its implementation in other regions. On expertise, we strengthened our presence in key markets. Our proven experience identifying and integrating industry-leading brands led to the creation of a nearly 20,000 people strong earth and environment franchise, most of it in the last two years, as we welcome new colleagues from Woody and I and Golder, amongst others. Our global platform is positioned favorably to address clients' future needs as water, energy transition, net zero commitments, smart infrastructure, and climate change remain critical area of focus. On clients, we increase our volume of business by over 20% through a combination of organic and strategic acquisitions. This growth is attributable to a discipline and focus execution of business plans across all our sectors and the substantial focus we put on our global client care program. Lastly, on operational excellence, we drove stellar performance and efficiency through our multiple margin expansion initiatives. We own in our productivity metrics while entering our organization remains agile, leverages our excellence centers, and efficiently delivers on our projects. On top of strengthening our platform, we are future-proving WSP to support our growth ambitions. WSP is uniquely diversified with top three tier, top tier sectors built through our history. The first transportation infrastructure delivered double-digit organic activity levels in the U.S., UK, Canada, the Middle East, Australia, and New Zealand. This is a testament to our leading expertise in bridges, mass transit, highways, and rail. WSP continues to be exceptionally well positioned to benefit from the various stimulus programs being deployed globally. On that, we continue to see positive momentum stemming from the bipartisan infrastructure bill in the U.S. The biggest opportunities for built and other stimulus programs globally are in roads, bridges, and major transportation projects. This is fully aligned with WSP's leading transportation and infrastructure sector. Moving on to our property and building sector, our focus in the recent past has been on diversification, and we see high demand for our services in Canada, the U.S., UK, and Australia. More so in hyper-growth sectors such as healthcare, hospitality, entertainment, data centers, mission critical, and manufacturing. Lastly, and as I mentioned earlier, we have efficiently created our strategic earth environment sector, which is benefiting from robust momentum across all our geographies. We have the privilege of providing expertise and advice to clients on OCHG-related matters, including water scarcity, biodiversity, earth sciences, biomass, environmental permitting, and social acceptability, just to name a few. Our future is not short of growth opportunities as global trends point to a higher demand in all these fields of expertise, a good example of that being the energy transition and the drive toward carbon neutrality for power generators and consumers. Across our portfolio, we are awarded projects, projects, sorry, to support wind and solar generation, as well as planning, designing, and managing programs for the build-out and upgrade of transmission and distribution lines. For example, in the U.S., we want a project known as Propel New York Energy, a collaboration between the New York Power Authority and New York Transco. The project entails building out the transmission grid in New York, contributing to the achievement of the city's clean energy transition goal of having a zero emission electric grid by 2040. WSP's scope of work includes environmental planning and permitting, stakeholder engagement, civil and electrical design, and overall project management. This adds to the work WSP is delivering for Champlain, Hudson, Power Express, and Cleat Path, New York. Combined, these represent nearly 20 billion dollars of new electric grid infrastructure investment in New York in less than two years, with WSP playing a pivotal role in the delivery of all three projects. In the U.K., WSP has been appointed by National Gas to develop best practice guidelines on the design and build of a new hydrogen network. In Sweden, we are supporting clients to develop hybrid energy solutions combining wind, solar, and hydrogen for a more reliable and carbon-free energy system. We are also helping with the expansion of offshore wind development in Taiwan to reach a target of five gigawatt of renewable generation. The energy transition provides a broad range of opportunities. Just recently, we were awarded the entire multidisciplinary design for Volkswagen, largest facility worldwide and their only plant in North America. This is one of the largest battery facilities globally, and we are leveraging our global expertise from active electric battery projects in Sweden, Italy, and Southeast Asia to deliver. I would now like to share a few of our recent accolades. WSP has been included in Corporate Night's prestigious global 100th most sustainable corporation in the world for 2024 and ranked the 12th most sustainable corporation. This acknowledgement is a testament of WSP commitment to sustainable business practices as well as gender diversity. We earned placement on the Dow Jones Sustainability North America Index for the first time. This industry standard recognizes the top 20 sustainability performers amongst the 600 largest companies in the U.S. and Canada based on long-term economic, environmental, and social criteria. WSP's inclusion is an additional tribute to our dedication to build a more sustainable world. WSP was also recognized as the world's leading environmental and sustainability consulting firm and environment analyst annual state of the industry report. We are proud of our ongoing progress on the sustainability journey, and I congratulate all of our teams for these achievements. On that note, let me turn it over to Alain, who will go over our results and
spk03: more details. Thank you, Alex. I'm very pleased to report on our strong results for both the fourth quarter and the full year. Starting with our top line, for the fourth quarter revenues and net revenues reached 3.7 billion and 2.8 billion dollar up 5 and 8 percent respectively compared to Q4 2022. Net revenue organic growth of 5.1 percent in the quarter is attributable to all reportable segments. Globally, net revenue organic growth would be approximately 6.5 percent when excluding the significantly lower demand for emergency response services as the hurricane season generated a notable decrease in inspection activity. For the Americas, excluding the same item, our operations delivered strong organic growth of 8.6 percent. For the full year, revenue and net revenue reached 14.4 billion dollar and 10.9 billion dollar up 21 and 22 percent respectively compared to 2022, reaching the high end of our latest net revenue outlook range for the year of 10.7 to 11 billion dollar. The increase was due to a sizable acquisition growth of 12.3 percent and healthy organic growth of 7.3 percent, which was pulled from all reportable segments. Organic order intake reached a record high level of 15.1 billion for the year, resulting in a backlog as of December 31, 2023 of 14.1 billion or 11.8 months of revenue up 8.2 percent in the year. Moving on to profitability, adjusted EBITDA in the quarter grew to 525 million compared to 446 million in the fourth quarter of 2022, an increase of 18 percent. Adjusted EBITDA margin for the quarter increased by a robust 150 basis point to 19 percent compared to 17.5 percent in the fourth quarter of 2022. The increase is mainly attributable to strong project performance and significant productivity initiatives. For the full year, adjusted EBITDA grew to 1.92 billion dollar up 26 percent compared to 1.53 billion dollar in 2022, reaching the high end of management's latest outlook range of 1.9 to 1.93 billion dollars. In 2023, the adjusted EBITDA margin increased by 55 basis point to 17.6 percent against the previous year beyond the higher end of the corporation 2022 to 2024 strategic ambition to increase the adjusted EBITDA margin by 30 to 50 bips annually. For the quarter, adjusted net earning reached 248 million up 39 million or 18 percent compared to the fourth quarter of 2022, and for the year, adjusted net earning increased by 24 percent to 860 million or $6.90 per share. The increase is mainly due to higher adjusted EBITDA, which is partially offset by the impermanent of long-lived asset resulting from our ongoing optimizations as part of our real estate strategy. On this front, we're very pleased with the progress and are well on track to exceed our 2024 goal of reducing by 20 percent our real estate costs and footprint. I'll now review a few cash flow metrics. Free cash flow for the quarter was $610 million, a record cash flow generation in a quarter. Free cash flow for the year and the December 31, 2023 was up 40 percent to $433 million, sorry, compared to $309 million in 2022. Free cash flow represent 110 percent of net earning attributable to shareholders when excluding higher income tax paid due to tax regulation in the U.S., which delayed the deductibility of R&D expenses. Of interest, the situation on this specific U.S. regulation remains fluid, and should a change occur, it could positively impact our free cash flow. DSO, as of the end of the year, stood at 76 days compared to 73 days as of December 31, 2022. We have stabilized the DSO situation in Canada following the implementation of our new ERP and our devoting effort to normalizing DSO in the first half of 2024. Net debt to adjust the EBITDA ratio stands at 1.5 within management target range of 1 to 2. Lastly, I will comment on our 2024 financial and outlook. Before I start, I would like to remind you that the outlook for our anticipated 24 performance is aimed at assisting analysts and shareholders in refining their perspective on our performance. It has been prepared based on foreign exchange rates effective February 28, 2024, and also know that we have not considered any acquisition, disposal, or any other transaction that may occur after today. For 2024, we anticipate net revenue to be in the $11.2 to $11.7 billion dollar range and adjusted EBITDA between $205 and $213 billion dollar range, representing at midpoint a target EBITDA margin of .3% or approximately 65 basis point higher than 2023. We expect the consolidated net revenue organic growth on a constant currency basis to range between 5 and 8%. We continue to see positive market fundamental across our operation and anticipate mid to high single digit organic growth for Canada and the Americas and mid single digit for AMIA and the APAC regions. This reflects our current assessment of market condition and our continued ambition to increase our margin in line with our 22 strategic financial ambition. First quarter of 2024 will have two less billable days than the first quarter of 2023, while the fourth quarter of 2024 will have two additional billable days than the fourth quarter of 2023. The impact on the quarterly organic growth is expected to be approximately negative 3% in Q1 2024 and approximately 3% in Q4 2024. As of note, we aim for 100% conversion of free cash flow to net earning in 2024 and we manage our capital structure to maintain a net debt to adjusted EBITDA ratio between one and two terms. Other items of our 24 outlook, including quarterly distribution, seasonality, tax rate, and others are described in our press release. In conclusion, we're very proud of our accomplishments in 2023 in the year of significant consolidation and transformation, delivering strong results ahead of our expectations. We feel ready to seize opportunities in 2024 and beyond. Now back to you Alex.
spk22: Thank you Alain. I'm very satisfied with our performance in 2023 as we concluded a year of significant growth, consolidation, and transformation. We have substantially completed the integration of our recent strategic acquisitions. We have a strong balance sheet to support our ambitions and I am confident in our ability to deliver on our 2024 financial goal. Young 2024, we stand firm on our strategic aspiration to deliver a 20% EBITDA margin. We added 85 points to adjusted EBITDA margin since the launch of our strategic plan and our 20% ambition is clearly within reach. Based on the midpoint of our financial outlook, we aspire to deliver 150 basis points improvement in the 2022-2024 strategic cycle and we continue to foresee margin improvement opportunities. There are many ways for us to grow and push even further. As the markets remain fragmented, the pipeline is healthy and we intend to continue to scale and expand the franchise by consistently adapting to client needs. To have the platform, the discipline, the people, we have, I'm sorry, the platform, the discipline, the people, and we have the desire to grow. The future is bright for WSP. I would like to conclude by thanking our employees around the world, their talent, for ethic and dedication to what really matters for our clients, for our communities, and for us strongly contributed to 2023's success. On that note, we will now begin the Q&A session. Thank you.
spk34: Thank you. If you would like to ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, you can press star 1 and 1 again. Please stand by while we compile the Q&A roster. Thank you. We'll now take our first question. First question is from the line of Yuri Link from Canaccord Genuity. Please go ahead.
spk24: Good morning, guys.
spk37: Hello, Yuri. Good morning.
spk24: Morning.
spk25: Yeah, just a question on your end markets. I mean, certainly, transportation and infrastructure, very strong market for WSP last year. But just curious how your newly formed earth and environmental services platform performed and any perspectives on wood that's been fully integrated now?
spk35: Yeah,
spk22: this is a great question, Yuri. Indeed, as you just mentioned, transportation continues to perform extremely well for us. This is perhaps one of our most mature sector. When you look back on history, we have been driving this sector for a fairly long time. When you look at the bar parses and build in the US, this is by far, oftentimes, it's probably tenfold the size of the water funding. So clearly, I think we're extremely pleased to be performing in transportation. Equally, in the building sector, this was a strong performance for us. I'm extremely proud of how we were able to diversify that sector. Sometimes you need a bit of luck and also some vision. Between 2015 and 2020, just before COVID, we really ventured and completed acquisition in other sub-sectors than the higher-rise commercial sector and commercial market. And today, it's clearly paying off, especially in the healthcare sector and the mission critical work that we do. So we're obviously feeling good also about the building sector, and we intend to continue to grow that sector going forward. Lastly, this is perhaps our youngest sector or the newcomer in the family. When you look back at where we were in 2018, our environment was representing less than 10% of our revenue. If my memory is not failing me, it was 6%, 7%, 8%, something along those lines. And you look just at the start of COVID in early 2020, just in North America alone, we had approximately something like 2,000 people between Canada and the U.S. And when we completed the Golder acquisition, completed ecology environment, and also completed the Woody and I business, this account grew to 12,000 people just in North America alone. So I don't spend much time talking about it, but we are extremely proud of the integration work and the consolidation work that has been going on in the background. If you look at the work that we've done in 2023, we have now our North American platform on a new ERP, and we have a very strong earth and environment practice with, at the moment, the best operating margin in our group. So all that to say that I'm very proud of the consolidation and the work that we've done over the last 12 to 18 months.
spk25: That's helpful. Maybe I'll just push a little more on that point. I mean, because you've made such a big strategic shift into earth and environment with the acquisitions, could you provide us with the organic backlog growth in that sector and just your expectations for 2024?
spk22: Yeah, very strong organic growth that we are expecting.
spk25: Okay. That's great. I'll turn it over there. Thanks, guys. Thank you, Uri.
spk34: Thank you. We'll now take our next question. This is from the line of Jacob Bo from CIPC. Please go ahead.
spk04: Good morning. Hello, Jacob.
spk08: My question is just on your M&A pipeline. You had a very busy first half in 2023, but it seems like the pace of M&A has slowed. Maybe just talk through that. I know it's bumpy, but is there a lack of appropriate targets out there, factor evaluation, just maybe some thought there?
spk22: No, absolutely not. I think it's not about the weak pipeline or the weak backlog of potential acquisitions. As I just described, I think in the course of the last 18 months, 24 months, we completed two very significant acquisitions, one being in a partnership with 3000 shoulders, another one a carve out from a publicly listed company on the London Stock Exchange. That, Jacob, requires a lot of work. We're very pleased with the performance of that sector. As I stated, our highest gross margin in our group, so we're feeling extremely good about it, but suffice to say that we needed the attention and care and we needed to deliver the good. It's one thing to write a check, but it's another to integrate 12,000 people into a group. I feel we've worked very hard and in parallel completed last year caliber, which allowed us to enter a new market in Australia. Equally, we were able to complete a significant acquisition in Switzerland, which is now allowing us to be a top tier player in the country. I feel in parallel, we were busy, but I just didn't want us to be distracted and not deliver the good on the that we had completed. As I stated, I feel now that we are at a point where our integrations have been successful. I'm pleased with the results. I'm very pleased with the leadership that we have in place. We have a strong balance sheet. Now, again, it's probably the time for us to start thinking about what the future may look like for us.
spk08: Maybe just to follow on here, and I guess follow on the discussion with Yuri there, but just on mix, obviously, there was a big push in the American environment, but do you feel like you're properly right-sized or where do you think you're locking in this current environment?
spk22: We're going to continue to diversify our pillars. I think if, put simply, in 2012, when Genovar and WSP came together, we created one of the leading franchise in the property and building sector. When WSP completed the acquisition of Parsons Brinkhoff, instantly we created a leading franchise in the transportation infrastructure sector. Equally now, I think with Wood and Golder, we created a strong brand in the earth environment sector. As you can see, we took a very deliberate and disciplined approach of building our sectors and building our company. We're going to continue to grow those sectors and adjacent sectors to create a more diversified platform over time.
spk18: Thank you. Thank you.
spk34: We'll now take our next question. This is from the line of Michael Dumé from Scotiabank. Please go ahead.
spk13: Hey, good morning. Good morning, Michael.
spk30: Fantastic work on the margins. I know you guys have discussed this in your prepared remarks, but I wanted to know, or maybe just wondering if you guys can help us break down some of the major drivers in the margin expansion in Q4 and how you view the anticipated margin expansion in 2024. I guess, just as a follow-up, given the outsized anticipated margin expansion into 2024, do you have a better sense of the timing of when you can reach that target of 20%?
spk22: Well, put it simply, I think when we conceded a 2022-2024 strategic plan, we mentioned that our long-term vision was to reach 20%. If you fast forward to two, three years now, I feel it's no longer a long-term vision.
spk30: It's a long-term vision. Maybe sticking on margins here, if I do look back and compare maybe the 23 margins versus those of 2021, solid margin progression in Canada and EMEA, margins are down in APAC. I would assume that's China. I guess the first question is, is the headwind there abating? Then if I look to the Americas, margins there have been relatively flat. I'm just curious what explains that and if you think you're turning the corner.
spk22: Look, I think I'm extremely pleased of our performance on the absolute, but I am even more pleased of our performance on a relative basis. Let me explain to you what I mean by that. Of course, when you look at the margins, we have a lot of margins accomplished, but what I'm extremely proud of is the trajectory of the company. When you look at 2022, our margin and expansion reached 3D basis point. In 2023, our margin and expansion reached 55 basis points. If you look at the mid-range of our outlook for 2024, we're hoping for something along those lines of 65 basis points. In total, this would be an increase of .5% in our EBITDA margin over the course of our strat lab. It's just that we're growing stronger and I'm extremely proud of that and I'm extremely pleased of that. We're seeing a consistent improvement in the way we operate the company and that's something that we should be pleased of.
spk28: All right, I'll leave it there. Thank you. Thanks, Michael.
spk34: Thank you. We'll now take our next question. This is from the line of Jonathan Lameth from Laurentian Bank. Please go ahead.
spk30: Good morning and thank you for taking my question. Just picking up on that discussion on the margin. Thank you, Alex, for sharing that the 20% target is now short to medium term and discussing the consistent improvement in the way that WSP has operated. My question is, could you provide a little bit more detail on what's providing you confidence in this level of margin expansion for 2024 specifically? Over the coming years, Elaine mentioned the activity improvements and the ERP implementation.
spk22: Well, I'm feeling confident because of the work that is taking place in the last two years of our strategic cycle. Last year, I mentioned it was a year of consolidation and a year of transformation. Today, we have our North American business, which represents roughly 60% to 65% of the EBITDA of the company on a new platform. We intend to migrate other large segments and countries of our operation onto the platform this year. In parallel of that, we integrated two of the largest acquisitions we ever completed as a company. And yet, we delivered .3% of organic growth combined with a strong margin improvement. So, there's not a whole lot not to like about the performance in 2023. And all I can assure you of is that we're going to continue to drive the business to raise the bar as a company and to raise the bar as an industry. So, that's how we feel about the company right now.
spk30: Okay, thank you. And a question on the ERP system implementation. Is that now live in the US? And when do you expect to go live in the
spk22: UK? It's live in the US and we intend to be live in the second half of this year for the UK.
spk30: If just switching topics, you know, stimulus funding for transportation in particular appears to be an exciting opportunity for 2024. You know, we saw good growth in the backlog in the Americas in 2024. Are you expecting positive impact to your backlog over 2024 based on the customer discussion and what you can see? Well,
spk22: look, I mean, there's continued momentum in the US and elsewhere. So, clearly, we're feeling good about it. And I think I talked about this earlier on the call. People tend to focus a lot of their time and energy on the water sector, which in total represent 35 billion of the total funding. And in transportation, we're talking about $350 billion. So, it's tenfold the amount that will be allocated to water. And WSP is the leading franchise worldwide in transportation. So, I feel we are uniquely positioned to take advantage of what's going on around the world right now.
spk29: Okay. Thanks for your comments. Thanks, Jonathan.
spk34: Thank you. We'll now take our next question. This is from the line of Devin Dodge from BMO Capital Markets. Please go ahead.
spk15: Thanks. Good morning, guys. Hello, Devin.
spk16: In 2023, we saw that headcount was roughly flat year over year, if you exclude acquisitions and debesitures, suggest that the 7% organic revenue growth was largely from some sort of pricing productivity and mixed shift to higher value services. Just wondering, do you expect these dynamics to carry over into 2024? Or could we see a bit more headcount additions this year?
spk22: Directionally, I think this is a fair assumption. I think what I am trying to say here is that we want to extract the value of the incredible platform that we have now. So, where possible, if you can do more with less, this is fantastic news. And 2022 was an example of that. We increased productivity. We significantly invested in the platform and technology. So, we're going to continue to drive the business to achieve those results.
spk16: Okay. Okay. Makes sense. Second question on the ERP rollout. I believe WSP spent about $130 million on this implementation to date. And I think you're planning another $60 million to $80 million in 2024. So, just a two-part question. One is, is there much left to do after 2024? And then the second part is that when you guys were evaluating, undertaking this project, what sort of payback were you expecting to generate from this investment?
spk03: Yes. So, we devoted a lot of effort in 2023, as you know, preparing, doing the rollout in Canada and preparing our two next larger region to go live in 2024, which was the US and the UK, as Alex pointed out, which will happen in a short period of time. So, that's what we've done. The rest of the platform, which will happen in the first half of 2025. So, I would say that the bulk of our investment, if I include 2024, will have been done. We'll have some left in 2025 for sure, but you should start seeing a decrease in the spending, as you've seen in 2024. So, that's the expectation. We're in line with the investment that we had announced in our strat plan in early 2022. So, we continue to be on time on budget. So, we're very pleased about it, very proud of our team going through the transformation. And in terms of payback, I mean, you need to do those investments to ensure the resiliency of your platform and gain insight and run a stronger business. So, we see great value on that front. We see great value in the quality of the insight we'll earn with the platform and how it's going to help us to drive further the business. And obviously, as you look into the way we're organized, if we could make the various back end of the firm a bit more efficient and more focused on bringing value, that's the intention. So, we think that this will bring significant benefit for the long term of the company.
spk17: Okay, makes sense. Thanks for that. I'll turn it over. Thank you.
spk34: Thank you. We'll now take our next question. This is from the line of Benoit Poirier from Desjardins. Please go ahead.
spk07: Yeah, good morning, Alain. Good morning, Alex, and congrats for the strong results. Just to come back on the EBITDA margin, obviously, you were able to achieve a 55 BIPs improvement in 2023. You're looking for almost a 65 BIPs improvement in 2024. You were clear that this was transformational year with M&A, also with ERP implementation. So, I'm just curious that now that the ERP implementation will be almost a way toward the end of 2024,
spk01: what
spk07: could we expect in terms of EBITDA improvement post 2024? Could we be north of 65 BIPs? I'm just wondering about the definition of short to medium term.
spk22: Well, Benoit, we need to keep some good news for later. So, obviously, we are in the last year of our strat line. Getting aside, this is a year for us where we need to reflect on where we want to take the company forward. So, come February next year when we roll out our next three-year plan, we will be in a position to provide you with more details related to what we intend to do, what are our financial aspirations, and as I said, we want to take the business forward. But suffice to say that I think it's fair to say internally if I speak to Alain or I'm thinking about the company myself, all of the significant investment that we've made in the company in recent years, making sure that we run a very tight ship as an organization, very selective in the projects that we undertake, reduce the margin erosions on certain jobs, you know, I think the future is bright for the company and I clearly have now my sight on reaching that goal of reaching 20% margin. So, if a
spk20: few years
spk22: ago this was a vision, today is a mission.
spk07: Okay, and looking at productivity 2023, you were able to deliver strong performance despite the flattish end count. It looks like that there's more potential towards improving productivity going forward. Could you maybe share some example of what could be done in terms of further improving productivity?
spk22: Well, I think professional and staff mobility is a very simple example of that. I think we are becoming more and more effective in the way that we mobilize and demobilize our team. So, there's a lot less downtime and I feel that we have eliminated silos around and across the organization. So, now we are in a position to pull resources, for instance, from Bogota Metro in Colombia and remobilize that workforce on other large assignments globally. So, these are examples where we are able to save lost time and we are able to become more efficient, number one. Number two, this year we reduced our turnover by 200 basis points. That's not the minimum, Benoit. Hiring and training new individuals is extremely expensive because you're losing time. So, by reducing our turnover, we were able to be more efficient in the way that we deliver work and that too is having a great impact on our productivity. So, I think there's a number of different initiatives that we can tackle, but we are laser focused on making sure that we're creating a great people environment within the company to
spk07: continue to perform. Okay, and with respect to your soft backlog, could you maybe provide some color about how it's materialized in Q3? I think last quarter you said that it increased 30% since the beginning of 2023 and about 50% increase in Q3. So, I'm just curious to get an update on the backlog.
spk21: Directionally the
spk07: same. Okay, perfect. Last one for me, DSOs, you were able to finish the year at 76. It looks like that you expect stabilized DSO for 72-79 days. So, could you provide some color longer term, whether you could come down back to low 70 and maybe, Alain, if you could talk a little bit about free cash flow conversion we should be expecting in 2024 given the legal tax implication?
spk22: Yeah, most of the improvement
spk36: will
spk22: come from North America, Benoit. For self-explanatory reasons, we converted the North American platform to a new ERP and we intend to, this is a timing issue and we clearly intend to revert back to normal levels fairly quickly.
spk03: And on free cash flow, Benoit, the target is 100% free cash flow conversion. We, and on the tax side, the Edwin that we faced in 23 was about $150 million. We anticipate a lower in 24 to around about $100 million. So, that's our intention for 2024.
spk07: Okay, thank you very much for the time. Thank you, Benoit.
spk34: Thank you. We'll now take our next question. This is from the line of Frédéric Bastien from Raymond James. Please go ahead.
spk26: Bonjour, monsieur. Bonjour Frédéric. Salut Fred. Guys, I was super pleased with the strong performance of your EMI region which you attribute to the performance in the UK and Central Europe. Would you mind giving us a bit more color on how well these regions did?
spk22: Yeah, we certainly do not mind because this is good news. I mean, the UK continues to surprise us. And you know what? When you have strong leadership, big, big, big, big, big, big, big, big, big, big, big, big, big, big, big, big, big, big, big, big, performance and we have a very strong team in our UK business. So, we continue to commend them for their outstanding work. And in Central Europe, I think this is no secret, Frédéric, that this is a region of interest for us. We continue to scatter the region to find the right acquisitions. BG was the start of that last year and we continue to look for good firms in the region. But the performance of that business has improved significantly over time. Again, because of strong leadership from our team members, but also because we are able to grow our business and attract good talent. So, this is clearly an area of focus for us and we will continue to grow that region over time.
spk26: Thanks. That actually leads to my next question about your successes in hiring and retaining talent. Can you speak, maybe spend a bit of time explaining how well you performed in 2023 and what your aspirations are for this year?
spk22: Well, I think creating the best people brand is our number one objective as a company, Frédéric. It starts with our people. This is our number one guiding principles. Our greatest assets are people and our reputation. So, we're clearly not negotiable around this team. So, we
spk11: continue to
spk22: invest significantly in our people. I think we've talked in length on this call around the investment that we're making in technology. We talked about the ERP today, but we are investing in many other areas of the company. We're trying to create a new working environment that is more reflective of the current market condition. Life has changed and we need to adjust as a company. We just cannot stay static. So, we have made significant investment, for instance, in real estate. Next month, we will be opening our revamp largest European office space in London. So, we are making investment in our people to make sure that we create the best working environment. That's not going to stop. We feel that that's money well spent and will continue in 2024.
spk27: Thank you very much.
spk34: Thank you. We'll now take our next question. This is from the line of Maxim Sitcher from NBS. Please go ahead.
spk06: Hi, good morning, gentlemen. Just one quick follow-up, if I may. In terms of the UK market, we've seen some of the competitors in the space showing pretty poor performance. What are you guys doing differently in the market specifically?
spk22: I think we have a very strong matured organization and we have a very strong bench and a very strong leadership team. We definitely like the sector in which we operate right now. Max, I think we are by far, and my personal opinion, the leading franchise in property and building. Same in the rail sector. WSP is the reference in the rail sector. So, in Europe and elsewhere, we know how relevant this sector can be and the broader, in the old continent, essentially. Lastly, we have scale. We have scale. Over time, if you look at our performance in India, if you go back to the acquisition of WSP in 2012, when the margin was about 7%, we continue to diversify the business. We continue to invest in the company and we continue to increase performance. Today, you look at our UK performance, the margins have more than doubled over the course of the decade. I think it's a great testament of the work that we were able to achieve.
spk05: Okay. Agreed. Thank you so much.
spk34: Thank you.
spk05: Thanks, Max.
spk34: Thank you. There are no further questions at this time, so I will hand back to the speakers for any closing remarks. Thank you.
spk22: Well, thank you very much. Again, we're extremely pleased with the performance of our quarter and the full year 2023 and we look forward to updating you going forward at our next quarterly release. On that note, I would like to wish you a good day and thank you for your invaluable support in 2023. Bye-bye.
spk34: Thank you. This does conclude today's conference. Thank you for participating and you may now disconnect.
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