Good morning, and welcome to SNC Lavalin's Fourth Quarter twenty nineteen Earnings Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Denis Jasmeen, Vice President, Investor Relations. Please go ahead.
Thank you. Good morning, and thank you for joining us. Our earnings announcement was released this morning, and we have posted a corresponding slide presentation on the Investors section of our website. A recording of today's call webcast will also be available on our website within twenty four hours. With me today are Iain Edwards, President and Chief Executive Officer Sylvain Girard, Executive Vice President and Chief Financial Officer and Nigel White, Executive Vice President, Project Oversight.
Before we begin, I would like to ask everyone to limit themselves to two or three questions to ensure that all NIS have an opportunity to participate. You are welcome to return to the queue for any follow-up questions. I would like to draw your attention to Slide two. Comments made on today's call may contain forward looking information. This information, by its nature, is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today.
For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR. These documents are also available on our website. And now I'll turn the call over to Yunavoy. Yun?
Thanks, Vinay. Good morning, and thank you for joining us. Please turn to Slide four. We had a very strong fourth quarter operationally. Our results underscore that the new strategic direction that we implemented in July to derisk the business and generate consistent earnings and cash flow is delivering.
Among our key highlights for the fourth quarter, we generated more than $300,000,000 in operating cash flow, our highest quarterly cash from operations since the fourth quarter twenty seventeen. Our adjusted net income from E and C was approximately $8,000,000 a significant reversal from the adjusted net loss from E and C in Q4 twenty eighteen. We grew our cash position by over 87% year over year to $1,200,000,000 and significantly reduced our recourse and limited recourse debt. Our reduced net recourse debt to EBITDA ratio as calculated by our creditors was 2.1 at the end of Q4 twenty nineteen, substantially lower than 3.4 at the end of Q3 twenty nineteen. We had consistent growth in SNCL Engineering Services, growing year over year revenue backlog and delivering strong segment EBIT and a double digit segment EBIT ratio.
We continued to reduce our LSTK project backlog. This strong performance reaffirms that our strategic direction is delivering and positions us well for 2020. In respect of the coronavirus, we continue to monitor the situation and follow the guidelines issued by the World Health Organization as well as local government policies. Our robust business resilience program was activated promptly in China and now ensures that information and actions are coordinated across affected countries. Some of the examples of actions already taken to mitigate any risks, while continuing normal course of business are company wide travel ban to Mainland China, specific measures for employees using technology to work remotely for an extended period, use of technology to reduce international travel and essential trips, a focus on hygiene, recognizing the symptoms with support to employees who are concerned or are seeking further information.
Let me now walk you through a more detailed update on our business lines. Starting with Slide five, SNCL's engineering services, which represents a high value part of the business, delivered a strong quarter across all segments with some notable EBIT and revenue increases. Quarter over quarter, EDPM increased revenue and had strong EBIT margins of over 9%. Nuclear revenue was in line with last year and it delivered a strong EBIT margin of over 18%, up from approximately 15% in Q4 twenty eighteen. The most significant revenue growth came from Infrastructure Services with an increase of over 20% compared with last year due to the contribution from Linxon.
Overall, revenue from capital was lower due to the lower dividend from Highway four zero seven ETR after the sale of a portion of our stake in the Highway four zero seven. SNCL Engineering Services continued to secure new contracts and high quality work, increasing the backlog by approximately $900,000,000 year over year. This brings me to Slide six and our growth opportunities, starting with EDPM. As a market leader in The U. K.
And Canada, we also see significant opportunity to expand our presence in The U. S. With a particular focus on harnessing the potential of data and technology across our services. In The U. K, for example, we are working on High Speed two, the new high speed rail network and one of the most transformational projects ever undertaken in the country.
As engineering delivery partner for Phase one, we have a major role with over 1,500 employees having worked on this project since 2016. In The United States, particularly in the Northeast and the Northwest, we see opportunity to grow our footprint in transportation, infrastructure and program and project management. Globally, we see further growth potential with considerable investment in infrastructure spending over the next ten years in our key geographies, with a high proportion of that on roads and rail infrastructure. Turning now to our Nuclear business on Slide seven. There is significant new investment expected in the nuclear sector over the coming decades as older facilities are refurbished or decommissioned and new projects come online in a number of jurisdictions across the world.
We are ideally positioned to capitalize on this opportunity. Given our global leadership in this sector, we are particularly focused on deepening our footprint in our core Canada, UK and U. S. Markets. We see significant potential with our end to end service across the full life cycle of nuclear assets to leverage our portfolio of hundreds of patents to develop new value added solutions for our customers.
A major highlight from our nuclear business was a contract awarded to Atkins Nuclear Secured Holdings as part of an AECOM led JV in the U. S. Department of Energy. This nuclear services contract is valued at $10,000,000,000 over ten years and is for the Central Plateau cleanup at the Hampton site near Richland in Washington. Momentum in nuclear continued in Q1 twenty twenty with the company winning several new contracts around the world.
Moving to Infrastructure Services on Slide 8. We are concentrating our efforts on leveraging our strong track record of managing complex projects and offering these services to clients. We see numerous opportunities in Canada and The U. S. For lower risk projects in construction management and operations and maintenance services mandates.
We also see significant opportunities in alliance type contracts to be an integrator on major programs that leverage our end to end capability. Now turning to Slide nine, our SNCL projects business. Performance continued to improve in Q4 twenty nineteen and was better than the last four quarters. Our Infrastructure EPC Project segment, which comprises the vast majority of our LSTK construction backlog, was profitable in Q4, generating segment EBIT of $23,000,000 compared to $10,000,000 in Q4 twenty eighteen. However, the business line registered a loss in the quarter due to the Resources segment, and the loss was due to a combination of factors: unfavorable reforecast on certain resource LSTK construction projects a midstream oil and gas facility, which is in the process of being shut down overhead costs that are in the process of being rightsized to align with the lower level of activity in our Resources business.
We are addressing all three of these factors as part of the restructuring of the Resources segment and focusing on running off our LSTK backlog. In Q4, we reduced our Resources backlog by 20% to $400,000,000 the vast majority of which will be wound down in 2020. The remaining LSTK project backlog is in Infrastructure Canadian light rail contracts, where we have historically performed well. We anticipate running off the majority of this backlog by the 2021. At the end of the year, we also made the difficult but necessary decision to close Solaris, which resulted in a $72,000,000 restructuring charge, of which $54,000,000 was noncash, primarily driven by the inventory write down and the impairment of property and equipment.
Going forward, we continue to actively pursue all options for the remaining Resources business, including potential divestitures and the transition to a services based business. We will provide an update as decisions are made. Lastly, turning to Slide 10. To conclude, I am proud of the resilience that our team has shown in 2019. 2019 was a challenging year, but we took several direct actions to reduce uncertainty in the business and set the company up for success in the future.
These actions included settling of the federal charges resulting from the company's legacy activities in Libya significantly reducing our leverage ratio Embarking on a new strategic direction, which involves derisking the company by exiting volatile LSTK construction business and ceasing bidding on new LSTK construction contracts. With these challenges now addressed, we are entering 2020 as a stronger company, and we are really excited about our future. We will be providing a 2020 outlook for S and CL Engineering Services later on this call, which Saul Bain will walk you through. Equipped with a new strategic direction, a strong balance sheet and solid momentum, we are moving into a new phase for S and C Lavalry, one in which we are securing the permanent transformation of the company into a leading provider of professional engineering services and project management solutions. In order to achieve this transformation, we are ensuring that we have the skills and expertise at the senior leadership level to realize this objective.
You may have noted we have created several new roles, including a Chief Transformation Officer and appointed Jeff Bell as Chief Financial Officer. Jeff's experience working for a global energy and services firm is ideally suited to the transformation objectives. He will be working closely with Sylvain to ensure we have a smooth transition before assuming his new role as CFO in April. I'd like to also take a moment to thank our current CFO, Sylvain, for his leadership and extraordinary commitment to S and C Loveland as CFO over the past four years. Not only did Sylvain help the company navigate a difficult period, it has also helped me tremendously in implementing the new strategic direction.
Sylvain, thank you again, and I wish you all the success for the future. With that, I'll now turn the call over to Nigel White, our EVP for project oversight, to provide a status update on LS2K backlog. Nigel? Thank you, Ian. Turning to Slide 12.
Over the past two quarters, I've continued to review the SNCL projects business with a focus on running off the LSTK backlog rapidly and effectively. We continue to conduct a sensitivity analysis of each of the
in the backlog in order to get
a realistic view of the best and worst case scenarios for each. Based on these analyses, we remain confident that the risks in our LSTK backlog are manageable. With this evidence based understanding of the LSTK backlog, I'm continuing to work with sector presidents and delivery teams to introduce a number of measures to enhance our risk management and optimize outcomes. We have established our project oversight team, which includes two senior executives wholly focused on resources and infrastructure projects, respectively. Strengthening our project oversight teams has allowed me to get a clear review of the project's business by getting out to the sites, taking a closer look at the projects and collaborating directly with teams and sector presidents to find solutions and to proactively address potential issues and manage risk.
We have also strengthened our commercial teams at each of the large Canadian infrastructure projects to ensure fair compensation on our contractual entitlements. We continue to enforce a number of enhanced controls and strategies, two examples of which are weekly project review meetings with senior leadership made in transparent reporting to ensure issues are flagged and actioned as quickly as possible and are working to improve our cost management protocols to better align with our supply chain to ensure greater project certainty. Slides thirteen, fourteen and fifteen provide more detail on the current status of our LSTK backlog. Looking at Slide 13, the vast majority of the remaining $3,000,000,000 of LSTK contracts are in infrastructure worth approximately $2,600,000,000 or 86%. The remainder of the LSDK backlog, an estimated $400,000,000 is in resources.
These projects are primarily in oil and gas, and the majority are expected to be run off by the 2020. I think it is important to bear in mind, however, that these are highly complex projects and challenges will invariably arise. But I believe we are implementing the correct measures to ensure these risks are properly managed. I, together with the sector presidents and their teams, remain relatively focused on winding down the remaining backlog as rapidly and effectively as possible. Thank you.
I will now hand the call over to Jose.
Thank you,
Nigel, and good morning, everyone. Starting on Slide 17. We reported an IFRS loss in Q4 of $293,000,000 which includes the net present value of the federal charges settlement of $257,000,000 and restructuring costs of $100,000,000 mainly related to the closure of Aleris. Adjusted net income from the entity in Q4 twenty nineteen was $79,000,000 or $0.45 per diluted share compared to a net loss of $284,000,000 or $1.52 per diluted share for Q4 twenty eighteen. The improvement was mainly attributable to a significant decrease in losses from the Resources segment as Q4 twenty eighteen included a significant loss in that segment due to a negative cost reforecast from a major mining LSTK project in Chile.
In addition, the company incurred lower financial expenses in Q4 twenty nineteen compared to Q4 twenty eighteen. Adjusted net income from capital in Q4 twenty nineteen was $19,000,000 or $0.11 per diluted share compared to $54,000,000 or $0.31 per diluted share for Q4 twenty eighteen, mainly due to the decrease in our stake in the Highway four zero seven ETR dividends, following the partial sale of our interest in the Highway four zero seven ETR in August 2019. Total revenues for Q4 twenty nineteen amounted to $2,400,000,000 Ascentia Engineering Services revenues totaled $1,600,000,000 an increase of 1.9% compared to Q4 twenty eighteen, mainly due to the revenue to a revenue increase of 21% in infrastructure services, reflecting the increased level of activity in Incon. SMPL projects revenue for Q4 twenty nineteen decreased by 16% to $826,000,000 mainly due to the continuing backlog runoff of our LSTK construction projects in the Resources and Infrastructure EPC Projects segment as well as no new bidding in that market. The SNCL Engineering Services business line had another strong quarter.
They recorded a positive segment EBIT of $191,000,000 representing a 12 EBIT to revenue ratio or 10% if we exclude capital. In contrast, the SNCL projects business line recorded negative EBIT totaling $28,000,000 in Q4 twenty nineteen, but represented a $17,000,000 improvement versus Q3 twenty nineteen. Total corporate SG and A for Q4 twenty nineteen totaled $28,000,000 $21,000,000 for E and C only, in line with our expectations compared to $55,000,000 in Q4 twenty eighteen. Note that the corporate SG and A for Q4 twenty eighteen included a guaranteed minimum pension equalization expense or past service cost of $25,000,000 Corporate SG and A expenses for E and C only is expected to be between $80,000,000 and $90,000,000 in 2020, while these expenses for capital are expected to be between $25,000,000 and $35,000,000 The company's balance sheet is strong. As of December 3139, the company had $1,200,000,000 of cash, dollars 1,200,000,000.0 of recourse debt and $400,000,000 of limited recourse debt.
We also had $2,400,000,000 in unused capacity under the company's $2,600,000,000 committed revolving credit facility. Turning to Slide 18. Cash flows from operating activities have significantly improved at $312,000,000 in the 2019. If we look at the cash flows generated by the SNCL Engineering Services business line only, which will be the core of our business going forward. Year to date operating cash flows, excluding capital, generated $733,000,000 representing a strong segment EBIT conversion ratio above 100%, mainly driven by strong working capital performance at U.
S. And advanced payments in Yun Zhong. The Capital segment generated $197,000,000 You can also see on this slide that cash flows from SMCR projects are the main cause of our negative $355,000,000 operating cash flows for the year. We expect the full year of our operating cash flows to be consistent with our prior periods, resulting in better operating cash flows in the second half of the year versus the first half. Slide 19 details the company's cash and debt position as of December 3139.
The outstanding recourse debt that the company has are three debentures for a total of $635,000,000 and a $500,000,000 term loan. The company also has a limited recourse loan to DBPQ with an outstanding balance of $400,000,000 The net recourse debt to EBITDA ratio, calculated in accordance with the terms of the company's credit agreement, and paid considerably, moving from 3.4x at the December to 2.1x at the December. Slide 20 summarizes the results by segment. The Resources segment recorded a loss of $51,000,000 due to three drivers previously mentioned, while the Infrastructure EPC Project segment recorded an EBIT of $23,000,000 as we continue to progress on our major LRT projects. All segments under SMCR Engineering Services performed well in the quarter and in line with the full year segment EBIT margin, except for Nuclear, which had a particularly strong quarter.
Moving to Slide 21. Now we have restored some consistency and predictability to the operations, we feel it is appropriate to give a bit more detail on our SNCL Engineering Services outlook for 2020, as this represents the growth and future of SNCL revenue. We expect for 2020 the gross revenue from SNCL Engineering Services, excluding capital, to grow by a low single digit percentage. This expected revenue increase is based on the following growth assumptions: low single digit revenue growth in EDPM mid single digit growth in Nuclear and high single digit growth in Infrastructure Services. We're also expecting to see segment EBITDA as a percentage of gross revenue from SNCF Engineering Services, excluding capital, to be between 1012%.
The effective tax rate for adjusted E and C is expected to be in the low to mid-20s. Also note that we now expect the cash tax payable on the Highway 47 ETR gain to be less than $25,000,000 Lastly, I want to remind you that you can find in the appendix of this presentation the twenty nineteen segment EBITDA by quarter as we believe this information will be useful. We look forward to evaluate the company. This concludes my last quarterly presentation for SNC Lavalin, as Jeff Bell will be replacing me on the next earnings call. I would like to thank you all.
It was a great pleasure interacting with many of you over the past four years. We can now open the lines for questions. Thank you.
Thank you. We will now begin the question and answer session. Our first question comes from Yuri Lynk of Canaccord Genuity.
Morning. Just a question on your guidance for 2020. Certainly helpful to get it for the engineering business. Relative to some of your peers, I would say that the range is a bit large in terms of the margin guidance you're giving. So anything is that just being conservative?
Or are there some variables that are still up in the air at this point that could swing twenty twenty one way or the other? Just any color on that would be helpful.
So it's Ian. Thank you for the question. I think probably two things in respect of that. The first, as you pointed out, is we do want to be conservative in replacing the guidance that we've put on the table. And secondly, we historically and expect to continue to see quarter on quarter variance within each of the business lines.
So the guidance, it's really in respect of the annual with variance from quarter to quarter.
Okay. Is any of it related to the fact that you're reporting gross revenues versus net, and there might be some variability in the conversion of gross to net revenue?
There's some impact from that because the flow through volume, as we call it, that comes in, tend to vary from quarter to quarter. So if you look our quarterly split for 2019, I mean, you'll see the margin range across the Engineering Services segment. You'll see some variation there from quarter to quarter, and a lot of that is coming from pull through and another seasonality.
Okay. Last one for me. What should we be expecting for operating cash flow in 2020, specifically around your expectations for the lump sum turnkey project performance this year?
I'll let Sylvain go to the detail on the numbers on that. But clearly, in the lump sum turnkey part of the business, we're continuing to be focused on improved performance and continue to work our way through the resources sectors backlog in 2020 and the Infrastructure backlog in 2020 and 2021, in the main level that we're through the remaining backlog. I mean, obviously, key is to work through that and produce as much consistency as possible. But in the infrastructure sector, there are milestones and receivables from closed jobs or past jobs that we need to deliver on. So that adds some volatility into the year on year.
But Sylvain, maybe you can just talk to what we consider to be the endpoint of it.
Yes. So maybe I'll
give some color on just the operating cash flow in total and add a couple specifics. So we're not providing a specific guidance on operating cash flow on the basis that the volatility of cash inflows and outflows on our SDKs can move these numbers. But overall, for the year, we're expecting OCF to be positive. We as it relates to the Long Song Train Q project, we do look at these projects over the whole run up life. So at this moment, we see the entire runoff to be a positive cash event, but it's unlikely to be positive in 2020 for the lump sum turnkey basically because of timing of milestones as
well
as clean settlements. For Engineered Services, we should continue to have a strong EBIT to cash conversion. And I think you could see in the prior quarter and
this
quarter, there's probably estimate a range for that. And then lastly, as I pointed out in my remarks, the quarterly profile will be similar to 2019 with a stronger finish, stronger second half versus first half. Our
next question comes from Benoit Poirier of Desjardins Capital Markets.
Yes. Good morning. Just related to the cash flow with the LSTK contract, as you're burning off €1,400,000,000 roughly of LSTK contract in 2020. So could you repeat the moving parts and whether you expect overall positive free cash flow related to that? Or there are some variances that depending on the milestones that could put some negative towards that, Suneet?
Yes. So what I said is that the our first the overall runoff, which is a multiyear runoff, as you can see in the chart, that we expect that to be a positive cash flow event. But in 2020, because of the timing of milestones, the cash advance received so far and the outstanding claims that we have on a few projects, as we spoke about before, the timing of those will put pressure on the cash flow for 2020. And right now, we see it's unlikely that the LSTK cash flows will be positive in 2020.
Okay. Can you talk without being precise, Yves, could you talk about the magnitude of the what you could get in 2020?
Yes. No, we're not going to be that precise because these can move around. I mean, they just can settlements can easily get accelerated or can be pushed out. So unfortunately, the only thing I can tell you is, as I said, the overall picture, we see the overall picture to be something that's positive.
Okay. Perfect. And when we look at your net recourse debt to EBITDA, big improvement on a sequential basis to 2.1. Could you walk us through your kind of your target going forward? And also how we should expect the number to finish towards the 2020?
Well, I think the
priority continues to improve that ratio. We spoke in the past about a gross debt to EBITDA type ratio of one to 1.5. So we're not there yet. So I think this is going to be continuing towards 2020, but we see the ratio continue to improve as we replace poor EBITDA quarter with better ones in 2020. And that's basically the priority right now.
Okay. Perfect. And Jan, could you give us an update on the LRT project with respect to Eglinton, REM and Trillium?
Yes. So let's take Eglinton first because there's been some media about Edmonton. I mean, clearly, is a project that is more than halfway through. So we're well advanced in the project. There there have been issues in in in in the past three years with respect to working in, you know, in urban environment and tight communities, with permitting and and community interface and and all of those kind of third party, issues that are not unusual.
And they they have had an impact on on the project, and we are working very close with the client to optimize the best completion date for that project, expected now in 2022, early twenty twenty two. And and clearly, these are all issues that are out with the original contemplation of the contract. And we're also working closely with the client to resolve those from a commercial perspective. So we're actually really pleased with where the project is heading and how we're dealing with the challenges together with the client. On REM, as you saw, we had various challenges together with the client, some of which was attributable to the existing tunnel here and some other issues.
So we needed again to face together, with the client. You know, our business is about providing solutions to to challenges, and our our business is about overcoming those challenges with the client such that it's a win win outcome. And we achieved that at the end of the year with the client on rev and put a commercial arrangement in place so that we could really focus on driving the performance of the project and completing that project on time. So very satisfied with the outcome there. On the Trillium project, again, you know, a lot a lot of media noise around the bid.
We are very satisfied with our bid. We have now been working on the project for for over a year. We have the we got past the first construction season last year. I was actually on the project last week. We're setting ourselves up for for a busy construction season.
We're ready for that. It's it's gone well so far, but it's early days. We're less than 20% complete on that project. But all things look positive from that perspective so far.
Okay, perfect. And last one for me, Iain. Could you talk about the strategic review, the timing around the ramp down of Valaris and also resources services? If you could give us the big numbers from a revenue and EBITDA contribution standpoint and also the timing around the review.
So I mean, we've said, clearly, part of the new strategic direction, the resources business is under review. And the objective of the review is to get the business into profitability, to get the business performing and to get the business to produce cash. Now in in addition to that, which we've also been fairly open about, we are exploring, the potential for divestitures within the business or or as the business as a whole to really understand where the best price for this is in the long term. Is it with ourselves or is it with somebody else? So as part of the journey, if you like, to improve the business, we're highly focused on working through the LSPK backlog, which we spoke about.
We had a loss making midstream facility within Valaris, which we either were looking to sell or close down. And we decided ultimately that from a timing perspective, the most efficient for ourselves is to close that facility down, which we've done, which forms the basis of some of the reporting that we put out this time. And then the whole business of transforming this business into a services based business from an LSTK business needs the rightsizing of the overhead, which we're actively in the process of both last year and we will be this year also. Specifically on the numbers, I don't know if you want to reiterate those. Sylvain, if you will.
Yes. Just to just and maybe I'll need to ask if could take the end of your question. But on the
Valaris
closure, the timing for that is in Q1, we'll be pretty much done with the completion of the outstanding backlog. So we're well advanced into that, so that will be done. And then throughout Q2, we'll be finalizing the liquidation of the remaining inventory essentially. But all the charges were taken in the Q4 results. And then if you don't mind, Benoit, just what was the tail end of your question?
I just want to know the size of the resources services from a revenue and EBITDA standpoint right now, Suzanne, roughly.
Well, I think we're it depends on where we end up with the review, to be honest. I mean the service piece of the business is above $1,000,000,000 at the moment. But depending on the completion of the review, we'll modify that number. I mean, at current status in terms of backlog, can deduct from the S and CL projects and the LSTK portion of that being $3,000,000,000
Our next question comes from Mark Neville of Scotiabank.
Maybe just to follow-up on the cash flow conversation for 2020. Again, understand you're not trying to sort of pin down exact numbers for the projects business for cash flow for this year. But so then you made a comment about the business on a consolidated basis being sort of cash flow positive. Engineering Services in 2019 did, call it, dollars $730,000,000 of operating cash flow. So I'm just, I guess, just trying to understand the comment about positive cash flow for the business and if it's we're thinking sort of hundreds of millions of dollar sort of magnitude sort of negative from projects pressure this year or, again, something of that size?
Yes.
Well, I think I've said most of what we wish to say at this point, unfortunately. So yes, so I think
hard for
me to add much more to that. I think you all see we all saw the volatility that LSTKs concerning. I think we had a good project forecast around that, but things can move around. On engineering services, we provided data point on at the end of Q3. You can see the performance in Q4.
And obviously, the full year performance is quite high, so I would not assume a conversion ratio of EBIT in line with the full year of 2019 for that segment. It has to be something below 100%. So you probably can this segment will behave more like a typical service business, so I think you can probably figure that out. So that's what I'd say. Now we're saying as an overall company, it will be positive.
So if we can Sure.
Maybe just on the EBIT segment ranges. Again,
I guess, the eight to 10% EPM, the 8%
feels a bit conservative. But is that, I guess, sort of just trying to capture sort of the quarter to quarter volatility. But for the year, I think an 8% number feels a bit like it would be a bit light. Is that sort of the right way to think about it?
Yes. Yes, that's the right way to think about it. Yes, it is.
Yes. Maybe just following on the resources as well. A couple of questions. Maybe just first, excuse me, this of the loss that you reported in Q4, how much was sort of tied to reforecasts?
Ian broke it down among the two pieces. So it's not that dissimilar to last quarter. It was a little bit more on reforecast as a percentage than in Q3. So somewhere between 3050% was reforecast, and then the rest was split between Valerus and Hilton Head.
Sir, what was that number, the percentage, sorry? Missed it.
Around three fifty. Between four Okay.
Maybe just one last one, too. Just on the Service business within the resource, and correct me if I'm wrong, think you said a $3,000,000,000 backlog tied to that business. Is that right?
No. What said was that the l s if you look at SNCL projects, 3,000,000,000 of the backlog that we reported in SNCL projects is LFTK. Right. So the remaining is the backlog in resources services. Yeah.
Yeah. Okay. Okay. I guess, sort of, again, as you're sort of working through, I guess, sort of alternatives for the business, I guess the question my question would be, I mean, there any again, presumably, it could be a good business once it's if it was all serviced and rightsized. But is there sort of any synergies for this with the rest of the business?
Or any sort of reason beyond sort of it being a good business to own it again? Or maybe why someone might not be better than someone else's hands?
So I think a couple of things I would say. For sure, I mean, we have businesses in the same geography as our resources business, whether that's The Middle East, North America or Europe. But that's part and parcel of the review that we're doing to see how profitable can this business be And how important is the RFP component for this business going forward? So all of these things are kind of under review. The most important thing that we're trying to get to is it has to be approaching the same profitability as the rest of our S and P, our engineering services business.
And that's what we're trying to determine before we make further decisions. And it's not these decisions are not necessarily kind of binary on the whole business. I mean, there may be business lines within the business that we need to either make further decisions around or move. Did that answer the question? Excuse me, sorry.
Sure.
Our next question comes from Jacob Bout of CIBC.
Yes. I wanted to go back to the revenue guidance that you've given. So I guess you're guiding to low single digit gross revenue growth. And I compare that to your book to bill of 1.2x. And the guidance feels conservative to me.
Can you just kind of walk us through some of the puts and takes? And maybe also how you're thinking about this coronavirus? Very difficult.
Maybe I'll say a few things, and then Ian can jump in on that. Sure. Thing to consider is the EDPM, where you have the lower range of revenue growth, had a pretty strong finish in 2019. So I think that has a bit of a bearing into the number we see for 2020. And then in terms of your book to bill, that's correct, it was strong growth, and that's why we still continue to see strong growth in the infrastructure services, which was a key driver of that book to bill.
I mean, as an overview comment, what I would say is clearly, we're working through a new plan. And the new plan has several components, and one of it is growth in SNCL Engineering Services. Our focus on those business lines in EDPM, Nuclear and Infrastructure Services, they all have different growth potential and they all have different growth plans. And I think with the guidance that we've given, again, we want to be prudent at this time because we're working our way into this plan, we're six months into it. Clearly, our expectation in the longer term exceed that.
On the virus just a question on the virus. I mean, obviously, we're concerned, just the same as all other companies, countries and people. We have a process in place that we've implemented globally, which collects local data, local impact, and we collect that together and make decisions around how we need to protect our people and how we need to protect our business. Clearly, the most mature, if you like, region where the virus is present is in China. And we have taken measures in
our
China business and our Hong Kong business to implement working from home and travel restrictions. The impact is kind of not very, very significant from those businesses right now. I mean, 2019, Hong Kong represented about 1.2% of our revenues and China about 0.4% of our revenues. But to say what the impact globally on our business is going to be, wouldn't be able to speculate at this time. We're putting plans in place to deal with it just as we did in China and Hong Kong.
But I couldn't really give you anything beyond that to speculate on the impact.
Okay. That's helpful. Maybe a question here just on the EBIT margins. The nuclear is saying 13% to 15%. When we look at the decommissioning work versus the can do work, how should we
be thinking about that from
a margin perspective? Is it similar? Or is it more heavily weighted into one type of work versus the other?
There's two parts to that, think. One is in how it's reported and the other is in the absolute profitability of the business. I don't think that it's similar in terms of the profitability within those two lines of business. But how it's reported, I mean, Sylvain can just answer that. So a of the decommissioning work that will take place will be in The U.
S. And the work done in The U. Will be done through our joint venture with TDI, and you'll see that coming through as an equity pickup. So it is part of the outlook number we provided in terms of the range we provided includes that equity pickup from those projects.
Okay. I'll leave it there. Thank you.
Thank you.
Our next question comes from Chris Murray of AltaCorp Capital.
Thank you. Good morning, folks. Just following up on Jacob's question, actually, had a couple of questions about the nuclear business. So I guess, first thing, you sort of got it to mid single digit revenue growth. Again, back to maybe it's a presentation thing.
But can you just walk us through you won a lot of awards. You certainly have some of the decommissioning work coming in. So I'm a little surprised that the growth rate is, frankly, as low as it is going into the year. So just can you walk through some of the moving parts of where you're thinking? I think the other thing, if you can, when you touch on it, how do you think about this business over the next couple of years?
Do you think there's some additional opportunities for other decommissioning work or are there other projects that you think that are out there?
Yes. Yes. Thanks, Nikolay. So currently, if we think about the kind of main components of the business, we've got life extensions happening in life projects in Canada. We've got waste remediation business,
which
is primarily located in The U. S. And we've got the decommissioning business, which is currently located in The U. S. We've got new build, which is supporting the Hinkley construction in The UK.
And then we've got technologies, which are kind of global, which we're selling and promoting globally to the nuclear industry. So there's clearly growth potential in the three core geographies there of The UK, The U. S. And Canada to do more of those business lines in the three countries. There's absolutely growth potential as power plants come offline and waste needs remediation.
The long term contracts. So if you look at the new contract we won on waste, that's a ten year contract. And the decommissioning contracts have got a relatively slow start before they ramp up. There's a lot of pre engineering and a lot of preparation work. So for sure, this is a really exciting business for us.
And probably, what you're seeing right now is what I would call the start of the growth phase. Maybe if I can add to Ian's answer. It's kind of related to Jacob's question earlier, which is the revenue that will come through the JVs of CDI, for instance, you won't see those hit the revenue line, right? So the percentage we gave you there was basically what you will see appear in the revenue line. So there is going to be growth that will just show up through the bottom line as equity picks up.
Maybe to that point then, like so because I mean, it makes it the lack of transparency is going be a little challenging for us. So if we think about growth year over year, let's assume and maybe this is fair, I mean, you'd made the comment about 15% to 15% margin similar to the rest of the business. Is it fair to think that as we see that equity pickup, that kind of reverse engineering, that kind of gives us a better feel for what the actual kind of revenue or activity level is in terms of what you're doing?
Well, I think we provided true enough to probably roll up with the numbers. Now if you try to break out what is equity pickup versus not, yes, you're right, you'll struggle to do that. That's one area that we'll be looking at from a reporting standpoint is how do
we provide some
color on the activities done through JVs. So that's something, I guess, Jeff will be looking at and see what's appropriate to do at that point.
All right. Fair enough. Just my other question. Ian, don't know how you want to address this one. You did announce in your press release the fact that you completed the work of the Board Committee in terms of the special activities.
But at the same time, I guess the other question that, that posed was, does that sort of impact what you're thinking about doing with the Resources business? I just wonder if you can kind of square there maybe the disconnect there because if you're going to look to do maybe larger transactions or
something like that, would have thought
you would have kept the committee in place.
I mean, first of all, the committee was very useful to me in the first half of last year in getting to the point where we defined the new strategic direction and then continued to be helpful as we made some decisions and look towards further decisions. But I think we got to a point where now we've defined what the future of the company is in terms of it being a professional services and project management company, that it's really about execution now, and it's about building on on that strategic plan to to take the company forward successfully around those sort of macro parameters, macro strategic goals. So that that will be just a normal board sort of support, normal board oversight, normal normal board function. And and I and I think that's that's really why we got to a point where we thought the special committee could be disbanded.
Okay. So we shouldn't read anything to your thoughts around what you're going to do with the Resources business with that committee going away, so that you're still going to continue to look at perhaps divestitures, if necessary?
Absolutely. All options, absolutely. And we'll make those decisions with Board oversight and Board approval as we need to and communicate them, obviously. All right. Thank you.
Our next question comes from Devin Dodge of BMO Capital Markets.
All right. Good morning, guys.
Hey, Devin.
Just want to take maybe one more stab at the cash flow question. Sylvain, do you expect the overall business to be free cash flow positive in 2020?
I think
we gave you all we wanted to give you, to be honest, on this one. So
and don't think my answer is meaning no or yes. It's just I think you got to
run through your model. And then I think we provide enough for you to get to a decent OCF, and then we provided guidance on CapEx as well. So I think you'll see what that comes out to.
Okay. Okay. So maybe look, when if you guys continue on your continued profitability trend from the last couple of quarters, we have leverage getting down kind of maybe to the lower end of your targeted range by the 2020. Do you think you'd be able to maybe reengage on at least small scale M and A or maybe even share buybacks in the back half of the year?
So thanks for the question. So I think, first of all, we don't want to get ahead of ourselves. I mean the main drive of the the company and and what we're trying to achieve right now is improve performance, work our way through the LICK backlog, you know, support our SNC, our engineering services business. And all of that is is to get to that point, of course. We we intend, you know, through with with Jeff on board now, Jeff's gonna look at the capital allocation strategy such that we can communicate that at a point in time.
But certainly, right now, the main focus is on continued performance and continued kind of generation of cash and continued improvement.
Okay. Makes sense. Maybe one last one. Just on the concession portfolio, are there any candidates to be monetized over the next twelve months, either to that partnership with BBGI or another party?
I'm sorry. Can you repeat the Yes, not right now. Not in the pond right now.
Fair enough. I'll leave it there. Ian, hope you're feeling better soon. Until then, just best of luck on your next steps.
Our
next question comes from Nazim Sytchev of National Bank Financial.
Just a quick question. When we look on infrastructure services, do you mind just giving a bit more color on the standardized EPC contracts, the $892,000,000 And maybe if you can discuss the risk profile around those things, if possible.
Yes. So two things. One is the projects we undertake with ABB under Linxon. And we call those standardized projects rather than real ECT because the business is, first of all, about supply of ABB products. A major portion of it is installation of those components, and a very small element of it is in construction that supports that.
They're very repetitive, standardized products. And we think we can take those to different customers with ABB and grow a successful kind of lower risk business from that. The other component is our district cooling business. In The Middle East, we are a leader of district cooling facilities. We've been doing this for well over a decade.
We're we're we're doing more district cooling facilities in The Middle East than than our peers. And it's been a successful business for a long time. And again, it's very, very similar. These things are repeat pretty good type of projects that we build and install. So we don't see it as high risk business.
Okay. Fair enough. And then a question, I presume maybe for Sylvain. On the working capital, positive swing in Q4, Was there anything from Champlain? Or was it all just all the other projects contributing to the Q4?
No, there was nothing from Champlain. A little like that, but no. Everything the contribution on the working capital reduction was pretty much spread across almost all segments.
Okay. And then in terms of when we try to visualize, like I understand, again, timing on milestones. Right now, it's a bit hard to pinpoint exactly how those things are going to play out. But when
we talk about sort of
the life duration of these projects to be OCF positive, so should we be then expecting a significant reversal in, I don't know, 2021, 2022 in terms of working capital recovery? I mean, just in terms of how will it play out from a cash flow perspective, if it's possible?
Yes. So based on what I said, right, so overall life positive, 2020 unlikely to be positive. You start on a number of these projects. You start with a set of advanced payments or milestone payments that you're just going to burn off. And certainly, you'll you'll burn that off through the but then you also, have some margin recognition through the life as well.
So as you blend the two together, it's basically how you end up with a net positive, which which is is something where we've been tracking and we'll continue to track, I guess, different points in time, what is the balance between what I've already received versus what is remaining to be received on the project and the margin associated with that. And that gives rise to essentially your net margin at the end of the project, and then you compare that to the cash flow position you had at the beginning of it, and is that a positive impact? So that's how we do it. I'm not sure if that answers your question, but
No. And I guess directionally, as the backlog in LSTK shrinks pretty aggressively over the next two years, if we're trying to think directionally, the noncash working capital there should be reversing sort of in the opposite direction, correct?
Absolutely. Absolutely. So today, if I tell you the overall duration will be a positive then and I tell you that 2020 will be negative. Well, it means that 2021 will catch up on that well, 2021, 2020 and so going forward, it
will catch
up on that situation. And it will probably be a positive event. Our
next question comes from Michael Tupholme of TD Securities.
Just want to go back to
the outlook and the low single digit percentage guidance. And I just want to clarify, in the prepared remarks, did you actually provide some more specific details around
your expectations for each segment? If you did,
I believe I missed that. If you could just go over that again.
Yes, I did. So EEPM, it's at low single digit nuclear, mid single digit and Infrastructure Services, high single digits.
Okay, great. Secondly,
just in terms of the Resources segment, you provided some information about how the loss in the quarter on an EBIT basis broke down between the overruns, Valaris and the rightsizing. Just wondering, as we look forward with the Valaris shutdown,
trying to get a
sense for when these elements
of
the losses start to go away. So Valaris could see losses contributing in the first quarter and into the second quarter. And at what point do the rightsizing issues sort of is that dealt with? We seem to see losses from that perspective.
I realize the cost of runs maybe a little
bit harder to predict. But can you just talk a little bit about, as we move through the year, like when these elements of the various loss features start fading away?
Yes. So I'll answer the Valeris piece, and then Ian will add some color on some of the open end actions. So on Valeris, as I said, we're aiming to complete the remaining backlog by the end of the first quarter. And by that time, the operating losses associated to those orders should all be taken. So we don't foresee much, if anything, of that in Q2.
Q2 will be more the finalization of the inventory liquidation. We're trying to do this in somewhat of an orderly fashion to maximize value, but the impairment itself has been taken in Q4. Yes. I mean there's a sort of overview comment. If you take the LSTK and the overhead as the other two components, I mean, moved 20% through the backlog.
And as we work through this year, every quarter, the backlog diminishes. And as it diminishes, the risk diminishes with it and our direction of risk comes to a close. So we would expect to see continued improvement as we work through that LSTK backlog. Similarly, with the overhead, as we transition the business from LSTK to services business, we are taking actions. We took significant action in the 2019 with respect to rightsizing the overhead.
And we have a plan to continue to make those changes in Q1, Q2 of this year. So without giving a precise kind of guidance for that, it's the way we see it, it's an improving situation.
Okay. And are you able to talk at all about the cadence of the runoff of the Resources backlog on the LSTK side, the $400,000,000 over the course of this year. Is that front end weighted? Is it evenly spread through the year? And just on that point, the graph you present on Slide 15 makes it seem as though most of that resources work is completed in 2020, yet the table on Slide 14 shows two projects going
to 2021. So are they finished at the very front end of 2021?
I don't think there's a huge quarterly split difference in this. Don't have the exact numbers with me, but I wouldn't assume that there is anything that's material quarter to quarter on this. There's a small component of one of the projects we post in 2021, as you rightly pointed out. And I think the only other thing we could say is that the 20% of the backlog in Q4 is brought down.
Okay. And just further on resources and more broadly, I guess, the whole LSTK backlog. As the whole team and Nigel in particular completes the work of sort of monitoring these projects and project oversight, have you identified any new risks, either in the fourth quarter or up until today, that you hadn't previously identified in Q3?
That's you mean risk in the projects?
Correct.
Well, the the projects are a dynamic situation always. I mean, the the risks of of are closed and risks are experienced. I mean, is part of the construction process. I mean, frankly speaking, it is difficult to answer that question by saying there's no new risk. But at the same time, we'll have closed a lot of risk out.
I mean, at each of these projects, we've got very detailed risk analysis schedules and and and clearly the management on the project. So the the whole whole drive is to close them out as quick as possible, but also identify what's ahead as quick as possible. I mean, Nigel, I don't know if you Yeah. But perhaps what what I would say is I I think we have well, I certainly believe now that we've got a heightened sense of investigation and interrogation as the challenges are weighted on the project. And we dynamically manage those risks as we move forward.
And the team are very focused on that. And let's say, we're doing full star protocols to make sure that we do that well. One thing we can say is obviously, as we work through the backlog, we're looking closely at producing a diminishing risk perspective.
Okay. That's helpful. And then just lastly, can you clarify or tell us when the two items, when the $4.00 7 tax payment actually gets paid, the first payment in respect of the federal charges settlement gets made?
It's the tax is Q1, and the settlement will hinge between Q1 and Q2. There's a bit of a timing issue that could move it between Q1 and Q2.
Thank you.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Dennis Jasmin for any closing remarks.
I just want to just thank everybody for bearing with me today. I've got a bit of a cough, so sorry about the croakiness. Thank you very much for your questions, Denis.
Yes. Thank you very much, everyone. If you have more questions, then you can always contact me. Thank you very much, and have a beautiful day. Thanks.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.