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WSP Global CEO says coronavirus a minor concern as M&A remains top of mind

MONTREAL — The head of WSP Global Inc. says the engineering company expects lower productivity from its Chinese operations after asking employees in the region to work from home as a result of the novel coronavirus outbreak.
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MONTREAL — The head of WSP Global Inc. says the engineering company expects lower productivity from its Chinese operations after asking employees in the region to work from home as a result of the novel coronavirus outbreak.

However, chief executive Alexandre L'Heureux said he doesn't expect the virus to alter its profit forecast for the year, with less than five per cent of net revenues stemming from Asia.

"Clearly the fact that we have people at home — I don’t think it would be reasonable to assume that things are exactly the same as if everybody were working full steam in the office...but this is clearly mitigated by the fact that this is a very, very small piece of our business," L'Heureux said on a conference call with analysts Thursday.

"We’re not changing our outlook as a result of it."

The virus known as COVID-19, which has now spread from the Chinese manufacturing city of Wuhan to about 40 countries, has shut down large swathes of China amid mass quarantines and infected more than 82,000 people worldwide, causing at least 2,800 deaths.

WSP has been on a buying spree recently, acquiring eight engineering and consulting firms in 2019 for $214.7 million and a ninth in January as part of its goal of rapid expansion over the next couple years, with offices from Sweden to Singapore.

The purchases in the second half of last year tilt green, and include Danish Orbicon A/S — a 500-employee environmental consulting firm — and U.S.-based Ecology and Environment Inc., a 775-employee environmental consulting firm.

"We are really looking to grow, and frankly not just in the environmental sector," said L'Heureux, who has his sights on advisory services that range "from project program management to water science."

L’Heureux declined to specify whether WSP was leaning toward several smaller acquisitions or "one larger transformational transaction," in the words of an analyst. But he suggested the company was increasingly open to cranking up leverage for bigger buyouts as it bulks up.

"As we build a more resilient platform and a more diversified platform, the management team has been more willing to take a bit more leverage,” L’Heureux said.

Even a highly appealing acquisition would incur a debt no bigger than 3.5 times above adjusted earnings, he added.

Full-year revenue in 2019 increased nearly 15 per cent to $6.89 billion. Nearly half came from the U.S., where it completed its $400-million purchase of New-Jersey-based Louis Berger engineering and design firm in December 2018 before, integrating its 5,000 employees to overhauled office spaces that aim to shed costs.

Despite the acquisitions, WSP sports a "rock-solid balance sheet," said Raymond James Ltd. analyst Frederic Bastien. Because of them, it enjoys a more "globally diversified footprint" that can balance dips in any one market.

Once a boutique firm called Genivar, the 61-year-old company has swelled to about 50,000 employees from 31,700 at the end of 2014. It aims to eclipse rival SNC-Lavalin Group Inc.'s roughly 50,000 employees with 65,000 workers by 2021, a goal for which WSP remains on track, L'Heureux said.

On Thursday WSP forecasted net revenue of $7.1 billion to 7.4 billion for 2020, and adjusted earnings of $1.07 billion to $1.12 billion.

WSP missed expectations as it capped 2019 with a weaker fourth quarter than in the previous year.

The engineering consultant said its net income attributable to shareholders was $40.5 million for the period ended Dec. 31, down from $43.3 million a year earlier.

Excluding one-time items, adjusted profits fell 4.2 per cent to $56.6 million or 53 cents per diluted share, compared with $59.1 million or 57 cents per share in the prior year.

Net revenues grew 14.3 per cent to $1.76 billion.

WSP was expected to earn 86 cents per share in adjusted profits on $1.77 billion of revenues, according to financial markets data firm Refinitiv.

Its full-year net income increased to $286.5 million from $248.1 million in 2019. Adjusted profits rose 10.7 per cent to $326.7 million or $3.10 per share, up from $295.2 million or $2.83 per share in 2018.

Analysts had expected adjusted earnings of $3.44 per share on $6.9 billion of revenues.

This report by The Canadian Press was first published Feb. 27, 2020.

Companies in this story: (TSX:WSP, TSX:SNC)

Christopher Reynolds, The Canadian Press




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