INVESTOR DAY 2015 GREG KELLY, PRESIDENT AND CEO, U.S. CENTRAL AND SOUTH AMERICA

Transcription

1 INVESTOR DAY 2015 GREG KELLY, PRESIDENT AND CEO, U.S. CENTRAL AND SOUTH AMERICA JUNE 10, 2015

2 2 INVESTOR DAY 2015 JUNE 10, 2015 GREG KELLY, PRESIDENT AND CEO, U.S., CENTRAL AND SOUTH AMERICA Greg Kelly: Good morning. You know, it's not often you get to stand up the morning after a very great evening. I think - I would have the pleasure of being in Los Angeles yesterday at the invite of our client, the California High-Speed Rail Authority. And some of you may have read over the wire that last night, at about 6:30 California time, the board of the authority approved unanimously a contract to be awarded to Parsons or WSP/Parsons Brinckerhoff for a term of seven years and not to exceed $700 million. So, we're absolutely thrilled at the -- at that opportunity and continue to work on that program and to serve that client and to deliver well for our investors. As Pierre mentioned, we're going to go over the U.S. operations today and I think it's probably a very safe statement on my part to know that you that the graph you see in front of you in terms of our location is drastically different in what you would have seen two years ago as Pierre was alluding to in 2012 or three years ago and even just last year. This is a good representation of the size and depth of

3 3 our organization here in the U.S. We have over 100 locations and roughly 6,400 employees. And you'll note the size of the circles represent the size of different offices, the largest circles where we have locations in excess of 100 people. And we're really focused in the main urban centers. If you could see the concentration in north east, certainly in Chicago, Texas, and in California. And these are the major centers, the major drivers around the types of work we do. Buildings, infrastructure, environmental, and our underground storage and power business. I call this the diversified platform but I also see this as an opportunity. And again, this - this representation is dramatically different in what you would have seen just a year ago where the largest piece of our business in the U.S. today is infrastructure. And again, as you'll hear throughout, our presentation this morning is right for investment and growth, but also we've got a top tier buildings business which have been briefed on the past. We've got a - a niche industrial and energy business focused around underground storage and we see lots of opportunities in the environmental sector. Our management team is here today. You're going to hear from each of them. Cliff Eby, who runs our infrastructure business. David Cooper, who's leading our buildings business. You may have heard from David in the past. Roger Blair, our industrial and energy and Jim Nevada, who heads up our

4 4 environmental. And they're sitting right here in the front row. So what do we do? Imagine a project at its earliest point in time. When an owner is thinking about an asset, it could be an existing asset, it could be thinking about creating a new asset. That's when WSP/Parsons Brinckerhoff gets married up with that client. It could be in the face of looking at the feasibility of creating that asset, the economics of creating that asset, that environmental aspects of taking a site and building some sort of doing a building or an infrastructure improvement all the way through design and implementation and often on the back end in terms of asset management around that facility. It's the full life cycle. If you - if you look at, just reference the California High-Speed Rail, in that program management space, our role, on behalf of that client is to act as the staff extension. We'll, be supporting net client with an integrated team to help them deliver a large, very complex program that's worth tens of billions of dollars over multiple years. Working closely with clients, helping them delivery on those assets is part of what we do. So, it's the full life cycle, professional services on behalf of clients. A bit about the project mix. It's a combination of both public and private and we're heavily weighted towards public and this is reflective of the graphic that was up here just a few minutes ago showing the heavy weight towards infrastructure which, in this

5 5 country, is at this moment in time predominantly public sector. So, our client mix is going to be around the public sector today. In terms of the contract types, we've got a combination of fixed fee. We're working for a defined lump sum amount for a - for a client or a cost plus reimbursable where the client will hire us, they'll scope the work out, we'll give an estimate on what those services are and then we'll reimburse the cost plus a multiplier on top of that for our services as opposed to a fixed fee where it's a fine number that doesn t go up or down unless there's a variation to the scope of work. These are our combined revenues. They're in Canadian dollars. So, what we did, we looked at the past two to three years and we took the revenues from WSP and Parsons Brinckerhoff and combined them to give you a look on the growth pattern in net revenues across the business and it's certainly moving in the right direction. A word about EBITDA, and you can see where we began in We had a spike in '13. There were some - in both businesses. In both the buildings and in the infrastructure business and in the industrial energy business where we had some projects that came through and extraordinary success fees in them that created a spike in each of those businesses and it was things like R&D credits in our building sector that helped drive that number up.

6 6 But you can see, and in '14, it began to normalize again and it's in line with what we've - what we've talked - Pierre has talked to you previously about in terms of our EBITDA target goals. This is vitally important to us in terms of backlog and we're really pleased with the trend that's happening here and this - this comes about through very strong client relationships throughout all of our sectors which is one of the pillars of our strategic plan and seeing this growth curve underway in a backlog just gives us great comfort where we've got good opportunity to grow the business and deliver on those EBITDA margins we were just talking about. Word on the competitive landscape. If you can see where we're positioned there to the right, you might say well, you look like you're pretty far down in competitive landscape. But the companies that are in the dark blue there are involved in EPC or construction. And as all of you have heard before for Pierre, our model was pure-play professional services. So, if you look slowly at those, that provide professional services like WSP/Parsons Brinckerhoff, we're ranked number four. We see that as a bit of a challenge. We see the opportunity to grow there. Word about integration, we came together late October and we began right away in beating to

7 7 integrate our operations here in the U.S. But firstly, just a word about, you know, the deal about why we came together and I was chatting to some of you during the coffee hour prior to this that we really came together with complementary values and operating complementary spaces and also, we set it on being that pure play professional services. So, we've organized ourselves across the globe in geographic P&Ls. The U.S., being one of the four geographic P&Ls along with Canada, EMEA, and the APAC region. I'm really pleased to report that phase one of the integration has gone extraordinarily well. We've put a combined management team in place for leaders of our business, our businesses are here today. We've combined our HR organizations. We've combined our legal organizations. We've got a combined finance team and combined communications team. All the types of support functions for the business are all in place and combined and we've got a team working together in one location here in New York City. And so, that is going extraordinarily well and we're very pleased with that. We also had a small transportation business that was part of WSP before we came together. On May 1st, we cut them over on to our ERP system and that has gone very smoothly without any kind of disruption. And so, that is giving us a test case to look at further integration the ERP system.

8 8 So, we're very pleased with how that's gone. And in fact, that transportation business just been a very, very nice tuck-in to an existing transportation business where we're jointly marketing, we're taking skills that existed in different parts of the organization and marrying them up and it's very clear and I'm confident, I can say, that but for these two organizations coming together, those transportation opportunities wouldn't be there to serve those clients. So, it's a really good outcome there. We're also beginning to integrate our offices and I think we've got 16 locations that are underway right now. So, as leases are terminating, we're moving across the map and saying let's collocate and we think that just fosters the underpinnings for the revenue synergies we're going to talk about here shortly. So, we identified the number of cost synergies when Pierre announced the deal last fall and we're well on target to meet those. I think we had about $3 million in cost synergies over the two-year period and we're on schedule to meet those cost synergy targets. I talked about the administrative functions coming together. We've combined, we had folks that were part of Parsons Brinckerhoff's corporate team that we blended in to some of the corporate team in Montreal and some of those other folks fell into regional teams but then there were some other

9 9 additional synergies beyond that. I talked about the lease costs and another thing we're doing right now in terms of integration is we're looking at processes across the combined organization and really trying to simplify them and focus on what's required to deliver well and deliver efficiently on our margins. So, we are on track from a cost synergy perspective. The more interesting piece of this coming together are the revenue synergies. I'm going to leave with one that hit on all four of the sectors that you're going to hear from today and that's LaGuardia Airport. You may have heard about two weeks ago, that was a long awaited announcement for preferred bidder to be designated to develop the central terminal building at LaGuardia Airport. This is a public/private partnership and I can give you a little bit of history. Because of our strong position here in this region, we knew about this opportunity early on. And we, in the professional services space, become the convenor of bringing that team together. When I talked about convening, I see that as real - the real leadership role. So, we reached out through the staff organization that we've done a lot of work with and we then reached out the advantage with the North American airport operator based out at Vancouver. We interviewed an architectural firm and we - we were in the middle of building this team

10 10 to pursue this P3 opportunity. It was the long, very competitive process over - over two years that took place and we're thrilled to have this team designated to deliver this program. But even more importantly, it came in such a good time that it just reaffirmed how we came together - why we came together as WSP and Parsons Brinckerhoff because we're going to be servicing this project from both our - from our environmental, from our buildings, from infrastructure, and we're even designing the power plan that's going to be part of the central terminal building. This is the case study for why we've come together as an organization. But it goes beyond, currently today, one of the hottest boroughs in New York is Brooklyn, just across the East River. And one of the areas that s taken off over there is Atlantic terminal. Anybody - anybody's been to the Barclay Center has seen what has happened to that neighborhood. I've lived there close to years ago and it's dramatically different right now. But what's happening there today is this organization, this combined organization is working to realign the infrastructure to allow the platforms over the rail yards to be decked over and for development in residential properties over there. This organization, while doing the infrastructure, is also doing the vertical space above. The same is happening out in Sunnyside Yards

11 11 where what we're commissioned to do is study over rail yard and similar situation earlier in the development process but we're there because of the combined services that we can bring to that client. And lastly, in Backbay in Boston. A similar study with the developer to look at the overbuild. What's the current theme here in these three examples? It's around nodes. In cities, there are nodes that created where transportation, residential, commercial, and businesses come together. It's very analogous to what we've done here in coming together with WSP/Parsons Brinckerhoff to have these buildings created in mobility. You bring those together, that's what we bring and that's unique in this - in this marketplace. So, just a bit about where we think we're going in the U.S. or how we think things are going in the U.S. Well, certainly, GDP continues to move in a positive direction. Unemployment, just a few short years ago was double this number that you see here. So, we see some very positive trends here in the U.S. to give us confidence going forward. The funding population around major cities are the funding - population around major cities continues and if you tie that back to where we see these revenue synergies around nodes or infrastructure and buildings come together, that continued growth in cities, again, further supports what we've done here as a combined organization.

12 12 We see a number of strong opportunities in the building sector. I was chatting with a couple of you during the refreshment hour earlier and if you travel to any major city throughout the U.S., there's cranes all over. Now, well, that may be a lagging indicator. It is an indication that the buildings business is very strong and you can hear more from David about that as we go forward. Our strategic - strategic priorities, you ve heard about this from Pierre in the past. There's four pillars. Operational excellence, people, expertise, and clients. And just a word about each. On the operational excellence side, what's great is that we have this opportunity and the management team here that we built were all aligned, that we're looking for the best processes to help us drive efficiency into the organization and I can say we're off to a very good start on the cost side. But on the revenue side, we think there's more opportunities on how we deliver projects and putting processes in place that enhance the delivery on that. We will continue to invest in people. You ve heard us before, professional services is a people business and we will continue to look for the best and brightest, those that can distinguish us from our competition but also continuing to invest in those people and create development opportunities for them to perform in an organization like ours.

13 13 We're selected because of our technical expertise whether it's the tall building you could see out to the right or the deep tunnel we're going to look at later this afternoon. They are specialty expertise that we bring to the client that makes us unique and will always strive to be the very best in each of those areas. And lastly, it's a very client-centric approach we have. I was chatting with Pierre and he said, you know, it's - it was important to go out there to California yesterday and they were approving the contract for us to focus on the client, to let them know they do matter. But in addition, with this combined offering we have right now, we can do more for those clients and we see that creating more value for all of us. A word about alternate delivery. More and more of the large infrastructure projects in this country are being delivered but what we call the delivery or perhaps the P3. Wee spoke about the LaGuardia project. There's an opportunity where there's a financing component that will come in and pay for the construction in the new central terminal but then also have revenue opportunities or revenue rights from operating that facility over the long term. More and more in this country, we're seeing owners in the public sector move towards that model and that is in part driven by a market dynamic out there which you'll hear from Cliff in just a little bit by a very flat federal funding model which is still about

14 14 40 percent of the funding for infrastructure in this country. So, with that flatness, state and local governments are looking and saying I still need to develop, I still have, as the vice president called, a third-world airport. I need to do something different to develop that infrastructure. And so, they're moving towards alternate ways of delivering it. Within our core business of infrastructure, it's north of 20 percent of the opportunities are being delivered in this passion but we've had some very good success recently in the alternative deliver model and Cliff will chat about that in a bit. But, the takeaway here is we will have new partners. We're traditionally an infrastructure. We work very close to clients and we will continue to do that whether it's an agency that's developing the World Trade Center site or here in New York developing the $15 billion in underground rail expansions. We'll still maintain those close relationships but we'll also be developing relationships with the P3 developers whether they're investors like some of you, might be looking at the infrastructure market or contractors be building them. So, that model is evolving right now. I won't call it disruption. I'll call it more evolution right now and how big projects get delivered in this country and this country is a bit behind in places like

15 15 Canada, in the U.K., and Australia where they ve got further out in building different types of contracting models. But it's developing here in this country and we're well positioned and we have some good early successes to point to. Speaking of which, you know, first up is LaGuardia building. I mentioned we were designated and we'll have to get the financer close over the coming months but we are getting started on developing the design there. Mass Eye and Ear up in Boston. Again