Greg Kelly

INVESTOR DAY 2015
GREG KELLY, PRESIDENT AND CEO, U.S. CENTRAL AND
SOUTH AMERICA
JUNE 10, 2015
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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
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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
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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
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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 2012. 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.
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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
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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.
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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
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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
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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 25-30 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
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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.
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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.
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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
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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
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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…